POSTED: June 21, 2017
Economy | Politics & Enterprise

The social economy and sustainable prosperity


The social economy has many roles to play in tackling poverty, building inclusivity and promoting sustainability. Ian Vickers summarises recent findings that show its potential is not being fully realised in the UK, despite the opportunities provided by the devolution agenda in cities and other local areas. This is the broad conclusion of a recent report for the Joseph Rowntree Foundation on Cities, the social economy and inclusive growth by a team at Middlesex University and The Open University. Exploring alternative organisational forms and approaches to governance is an important theme cutting across CUSP research.

CC.0 :: Maria Sias / Pixabay

The social economy refers to the parts of the economy that are neither publicly owned nor private profit-making businesses. It encompasses a diverse range of organisations that have a core social mission, different levels of participative and democratic control by members, and use any financial surpluses or profits primarily to achieve their social and environmental missions. This includes social and community enterprise; voluntary and community sector organisations (including charities); housing associations; co-operatives and mutuals; informal self-help initiatives; social finance and support providers; and alternative business models, such as multi-stakeholder companies with social or environmental missions.

Markets, left to themselves, do not work well and often do not deliver ‘trickle down’ benefits to all.

Markets, left to themselves, do not work well and often do not deliver ‘trickle down’ benefits to all. Since the financial crisis of 2007/8, the European Commission and European Parliament has recognised the social economy as a key enabler of continued growth, job creation, stability and recovery from recession. The OECD has also advocated the role of the social economy in relation to inclusion, particularly in helping people to access employment and entrepreneurship opportunities.

The concept of the social economy emphasises the principles of how people relate to each other – through reciprocity and solidarity – while seeking to meet their needs through co-operation. It also provides a set of models for how economies might be differently structured and governed to improve people’s quality of life through activities and forms of growth that are more inclusive and sustainable. A review of the international academic and policy literature identified three broad clusters of activity where there is evidence of the social economy, as a whole or in certain parts, contributing to ‘inclusive growth’:

1. Creating jobs, strengthening skills and employability

  • Providing employability support services and/or direct job creation, often for excluded groups
  • Creating ‘decent jobs’ within social economy organisations – e.g. co-operatives operating in traditional markets tend to treat their employees better and have higher wages than comparable businesses
  • Developing other employment related support – such as affordable childcare and housing

2. Building diversified local economies

  • Contributing to entrepreneurship and innovation
  • Brokering economic opportunities – including with private and public sector actors
  • Building social capital and contributing to community wellbeing
  • Stimulating local consumption

3. Contributing to wider economic and institutional transformation

  • Supporting the creation of a more resilient economy with increased job security e.g. co-operatives maintained jobs and output to a much greater extent than mainstream businesses during and after the 2008/9 recession
  • Influencing all businesses to adopt fair and ethical practices as part of a more inclusive economy
  • Promoting the wider uptake of ‘values-led’ innovation and influencing policy agendas at national as well as city region levels

Social economy organisations and models can help create a more responsible, equal and inclusive economy.

This demonstrates the variety of ways in which different social economy organisations and models can help create a more responsible, equal and inclusive economy, and innovate new economic approaches.

These three main areas of contribution also correspond with different conceptions of the role of the social economy relative to the mainstream economy. The first – creating jobs, strengthening skills and employability – sees the social economy as filling gaps that the market or the public sector are unable or unwilling to address. Policy changes and national support for various parts of the social economy in the UK has enabled organisations to increase their contributions to reducing poverty, delivering public services and the economic development of disadvantaged areas. For example, social finance has been promoted by successive governments. Yet there seems to have been a political tendency in the UK to see social enterprise as part of responding to ‘market failure’ within the mainstream economy.

However, there is also evidence to show how some of the more innovative and entrepreneurial organisations within the social economy contribute activities to develop and diversify local economies and catalyse wider economic and institutional transformation.

In practice, social economy organisations often face serious challenges and may be forced to compromise their ideals.

In practice, social economy organisations often face serious challenges and may be forced to compromise their ideals, particularly in highly competitive contexts and low value-added markets where they may struggle to provide secure employment, decent pay, and good promotion prospects. The difficult background of public sector financial austerity is also having a deleterious impact on many organisations within the social economy who are seeking to meet the needs of economically disadvantaged people and communities.

Case study examples of international and UK cities, and also roundtable discussions held with stakeholders and experts in Cardiff, Glasgow and Sheffield, helped identify a number of ways forward. Cities and city-regions can benefit from a perspective that frames the social economy as going beyond addressing market failures, and positioning it very much as part of a plural economy, where it ‘acts differently’ in the spheres of production, management and consumption.

Successful social economy development often arises from an enabling context, or social economy ‘ecosystem’.

Successful social economy development often arises from an enabling context, or social economy ‘ecosystem’. This involves the joining up of various elements of support provision and a high level of collaboration between actors, both within the social economy and the public and private sectors. Core elements include:

  • Framing, leadership and governance – how the social economy is understood and legitimised, is incorporated into government legislation and policy, and championed by influential actors such as mayors.
  • Networks and collaboration – includes links between SEOs and also relationships between SEOs and private and public sector organisations.
  • Innovation and knowledge sharing – to address complex problems by joining up the understanding and ideas of different actors.
  • Public procurement – from public and private sectors strengthens capacity and contributes directly to inclusive economic development.
  • Infrastructure – provides business support, finance and premises.

The ecosystem approach focuses on mutually reinforcing links between support mechanisms, policy networks, institutions and collaborations. These city ecosystems are part of national ecosystems which, depending on how well they function, can both enable and constrain city-level activity.

Analysis of current policy and practice identified areas where UK cities appear to lag behind some of the international city cases, as well as examples of good practice and future potential.

Some of the limitations identified may, in part, be due to the centralised nature of UK political decision making relative to other international city contexts, as well as fragmentation and lack of collaboration within the social economy. However, the devolution of economic and social policy to cities opens new opportunities for the social economy and for more mainstream engagement and collaboration at city level. For instance, City Deal investments and the Public Service (Social Value) Act 2012 could be used to further enable the potential for value-added delivery by social economy organisations. Public service commissioners can secure wider social and economic benefits by talking to their local providers and communities to design better services and find innovative solutions to difficult problems.

As part of ongoing research within CUSP on the nature of alternative organisational forms, we will be further exploring how the social economy agenda can be included within governance at the national, city and local scale. Further analysis and recommendations are provided in the full report which is available as a free download on the JRF website.

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Ian is a Senior Research Fellow with over 20 years’ experience of researching small and medium size enterprises and economic development policy. He is based at CEEDR Middlesex University, exploring with us alternative forms of enterprise.

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