A social economy is a third sector among economies between the private (business) and public sectors (government). It includes organizations such as cooperatives, nonprofit organizations and charities. Social economy theory attempts to situate these organizations into a broader political economic context. In particular it investigates the economic viability of cooperatives and the value of non-profit organizations and charities in traditional economic theory.
Social economy studies the relationship between economy and social behavior. It analyzes how consumer behavior is influenced by social morals, ethics and other humanitarian philosophies. The social economy examines activity that is related to economics amongst the community and exposes the information to the community, this includes the social enterprise and voluntary sectors.
A social economy develops because of a need for new solutions for issues (social, economic or environmental) and to satisfy needs which have been ignored (or inadequately fulfilled) by the private or public sectors. By using solutions to achieve not-for-profit aims, a social economy has a unique role in creating a strong, sustainable, prosperous and inclusive society. It is important for companies to be able to independently implement their own CSR initiatives as studies have shown that this will result be much more impactful than Government mandated CSR initiatives.
Successful social-economy organizations play a role in fulfilling governmental policy objectives by:
- Increasing productivity and competitiveness
- Contributing to socially-inclusive wealth creation
- Enabling individuals and communities to renew local neighborhoods
- Demonstrating new ways to deliver public services
- Developing an inclusive society and active citizenship
Defining the limits of a social-economy sector is difficult due to shifting politics and economics; at any time organisations may be “partly in, partly out”, moving among sub-sectors of the social economy.
Social enterprise compass
Organisations may be placed on the social enterprise compass, which measures enterprises and organisations on a continuum between the private and public sectors.
On the horizontal axis, each enterprise or organisation is categorized by its ownership. On the left side ownership is by public authorities, and on the right side it is private industry. “Private industry” encompasses all economic activity with the capital of one (or many) private owners, with a view to making a profit. The capital owners bear the risk.
“Public authorities” encompass all economic activity in which public authorities possess the capital at the European, federal, regional or local level; this includes nationalised and public industries.
On the vertical axis each enterprise or organisation is categorized by its primary objective, from “social purpose” at the top to “commercial purpose” at the bottom. Social purpose is the primary objective of the enterprise if it meets the following criteria:
- Ethical concept: Core definition
- Mission (key identification): The enterprise’s primary objective is improving the lives of disadvantaged people, social cohesion and support.
- Social economic creation of value and appropriation of earnings (qualitative key identification): Profits and resources are verifiably reinvested for the benefit of disadvantaged people.
If these criteria are met, an organisation is at the top of the vertical axis.
One criterion is a descriptive feature:
- Intermediary function: Social economical enterprises and organizations have an intermediary function (between public and private).
If none of the above criteria is met, or the primary object of the enterprise is commercial, it is located at the bottom of the vertical axis.
Between social and commercial purposes
If the above criteria are partially met, the enterprise is located along the vertical axis according to its self-definition.
The term “social economy” derives from the French économie sociale, first recorded about 1900. The sector comprises four families of organisations: co-operatives, mutuals, associations (voluntary organisations) and foundations (which, in France, must be of “public utility”). The social economy is a major sector, representing 10,3 percent of employment.
The first Law of Social Economy in Europe was approved in Spain in early 2011. By 2013, the social economy in Spain represented 12% of the Gross Domestic Product, with more than 44,500 businesses, more than 2,215,000 employees, impacting more than 16,528,000 associated people, and producing €150.978 million in gross sales. Consequently, the concept of economía social is firmly embedded in the country’s academic, political and economic institutions.
The process of national political integration of the social economy in Spain started in 1990 with the creation of the
National Institute for the Promotion of Social Economy (Instituto Nacional de Fomento de la Economía social—INFES) through Law 31/1990 by Spain’s Parliament on 27 December of that year. The INFES replaced the former Directorate General of Cooperatives and Worker-Owned Societies (Dirección General de Cooperativas y Sociedades Laborales) of the Spanish Ministry of Labour and Social Security. Among its purposes was the promotion of social economy organisations and, for that reason, it created the Institute from among its members. When the INFES ceased operating in the year 1997, its tasks were assumed by the General Directorate for the Promotion of Social Economy (Dirección General del Fomento de la Economía Social) and the European Social Fund. Law 27/1999 on Cooperatives, of 16 July 1999, incorporated the Council for the Promotion of the Social Economy as the advisory and consultative body for activities related to the social economy, and its regulations were implemented by Royal Decree 219/2001, of 2 March, to authorize the organization and operation of the Council. Thus, this Council is set up as the institution that provides visibility to the various organizations in the social economy.
Furthermore, and due to the decentralization of powers that characterizes Spain’s territorial system, there are different substantive rules regarding the various entities in the social economy whose regulation falls within the scope of the regional governments, giving rise to the existence of similar institutions within each autonomous community of industry participants. The different forms of cooperatives and, among them, the ones of associated workers, consumers, housing, agricultural, services, seafarers, credit, education, health, insurance and transport cooperatives, worker-owned societies and associations, foundations and mutual societies, insertion companies, special employment centers, agricultural processing companies and fishermen’s associations share the guiding principles of the social economy. All these organizations are covered, directly or indirectly, by the aforementioned articles of the Spanish Constitution. Their principles confer on them a distinct and specific character with regard to other types of commercial companies and organizations in Spain.
A national confederation of social economy enterprises was established in 1992, CEPES (Confederación Empresarial Española de Economía Social), to represent the interests of its membership and provide a platform for institutional dialogues with public authorities and the organization has matured through the political integration. Today, CEPES is a confederation with national scope and cross-sector membership and is recognized as an institution of the highest level in Spain’s economy. Each year, the organization collects data and publishes several reports on the state of the social economy sector in both Spain and the Mediterranean. Comparative data of the Spanish social economy relative to similar sectors in other parts of the world are also reported.
At the European level, the French concept predominates. In 1989, the Delors Commission established a Social Economy Unit to coordinate the movement at the European level; however, official texts adopted the term “Co-operatives, Mutuals, Associations and Foundations” (CMAFs). Social economy is one of the nine themes of the €3 billion EQUAL Community Initiative. In Ireland, the social economy is well-funded; an example is rural transport schemes to assist the socially disadvantaged in isolated locations.
The European Economic and Social Committee has published a study drawn up by CIRIEC (International Centre of Research and Information on the Public, Social and Cooperative Economy) on the social economy in the European Union, available in the 21 official languages of the Union.
The European Parliament established a Social Economy Intergroup (SEIG), integrating MEPs from 5 political groups and from 6 countries. Social Economy represents 2 million enterprises, including mutuals and co-operatives and employs over 14 million paid employees in the European Union.
The designation of sectors in this region is ambiguous. In the United States, it is equivalent to industry; the Organisation for Economic Co-operation and Development (OECD) defines sectors differently, depending on the statistical purpose. A sector can be a grouping of institutions, such as by government (taxing authority), business (taxable profit-making), philanthropy (untaxed nonprofit), and household (taxable personal income). In the United States, where business preeminence is emphasised, organizational form differentiates conventional and hybrid business forms (with the latter, hybrid organization having a social mission while pursuing profit). This is acknowledged in the tax codes of several states with such entities as the benefit and for-benefit corporations. Although they are similar, they are not identical. This “fourth sector” differs from the third sector by its location (in the United States) and its emphasis on business (as opposed to government) leadership in the voluntary sector. Outside the United States governments establish national plans for the third sector, which formalizes the role of governments. In the U.S. such governmental planning is discouraged; market-based mechanisms are emphasised, such as social entrepreneurship. A discussion of sectors and social economy is in Business with a Difference: Balancing the Social and the Economic by Mook, Quarter and Ryan, produced with the support of the Social Sciences and Humanities Research Council of Canada and furthering the work of the Association of Nonprofit and Social Economy Research (ANSER).
In Spanish-speaking Latin-American countries (such as Argentina, Venezuela and Cuba) the concept of economía social is accepted. The government of Hugo Chávez believed that the informal sector could be absorbed into the social economy of Venezuela by strictly controlling (or nationalising) large firms and creating new forms of private enterprise which were more accessible to the poor. Wage labour was seen as a source of exploitation, and the government hoped to reduce (or eliminate) it by promoting corporate governance, family and cooperative businesses and restricting labour contracts.[clarification needed] The government planned to provide technology, training, finance and exclusive contracts to small enterprises so that they could survive in the national marketplace.
The cooperative movement in India has made remarkable progress, working more than 600,000 cooperatives and 250 million members, making it the largest cooperative movement of the world. Cooperatives have a huge network and unparalleled reach, with 100% coverage in 500,000 villages. Cooperatives play a pivotal role in the mainstream of Indian economy, particularly in the fields of agriculture & rural credit, distribution of agricultural inputs, storage, fertilizer, marketing, labour, micro finance and housing and cooperatives are working towards inclusive growth, cooperative ideals and cooperative organization are more effective in meeting their people centered objectives. Cooperative provides third highest employment after private sector and government jobs. Social economy attempts to suitably blend economic feasibility with social reality. The cooperatives in India emphasize on equitable distribution of value amongst stakeholders.