Explainer: What is the social economy?

Interest in the social economy is growing fuelled by recent global crises and is raising questions about how to transform current economic models to address future global challenges.

The Centre for Social Impact (CSI) is responding with the launch of a national research project, ‘The Social Economy Survey’, which aims to track trends in the for-purpose sector in Australia and make sense of how it could be part of large-scale social change.

The concept of the social economy

In April 2023, the UN General Assembly took a significant first step toward shaping a more inclusive global economic structure by passing a resolution recognising the social economy as critical to inclusive and sustainable economies.

This follows on work by other international bodies, as seen in:

  • EU Social Economy Action Plan (2021)
  • OECD Recommendation of the Council on the Social and Solidarity Economy and Social Innovation (2022)
  • ILO Resolution concerning decent work and the social and solidarity economy (2022)

The social economy is made up of organisations that put social and environmental concerns at the centre of their business model.

Increasingly the term is used to refer to the for-purpose sector and embraces a vast and diverse network of not-for-profit or third-sector organisations, charities, cooperatives and mutual societies, foundations, and social enterprises. Many newer business models like fair trade, organic trade and the circular economy have evolved out of the idea of a social economy.

Global interest in the social economy has grown in parallel with recognition of the need for a more just and equitable economic system.

Globally, the social economy represents around 7 percent of gross domestic product (GDP) and roughly 12 percent of jobs in some countries.

What are the key principles of the social economy?

The social economy reflects a new relationship between society and the economy, which prioritises sustainable and inclusive development across all sectors.

There is no one-size-fits-all social economy model; national, local, and regional differences need to be considered. However, according to the EU and OECD , social economy models have the following key principles in common:

  • Prioritising people and putting positive social change above profit.
  • Reliance on collaboration and cooperation across diverse industries and sectors – both public and private
  • Reinvesting most profits and surpluses to deliver social benefit to community users or society at large.
  • Abiding by participatory governance and business models that follow inclusive and sustainable principles with a focus on social progress.

What are the benefits of the social economy?

The social economy can potentially address a range of societal challenges.

By working across sectors, the social economy offers options to tackle the risks of geo-political instability, cost of living pressures, income inequity, the erosion of social cohesion and the cost of adapting to climate change and digitalisation.

The social economy is more resilient and adaptable in the face of such risks primarily because it has strong local roots and can apply innovative solutions from the ground up. Other benefits of the social economy include:

  • Support of vulnerable and disadvantaged individuals, groups and communities who face barriers due to gender, race, ability and economic class.
  • Connects local communities and revitalises rural areas.
  • Generates quality and equitable jobs.
  • Supports a just transition towards a green economy.
  • Supplies sustainable goods and services.
  • Encourages civic engagement.
  • Proposes new business models.

*Source: OECD (2023) What is the Social and Solidarity Economy? A Review of Concepts

Who is part of the social economy?

The ILO has defined social economy organisations in the following terms:

The [sector] encompasses enterprises, organizations and other entities that are engaged in economic, social, and environmental activities to serve the collective and/or general interest, which are based on the principles of voluntary cooperation and mutual aid, democratic and/or participatory governance, autonomy and independence, and the primacy of people and social purpose over capital in the distribution and use of surpluses and/or profits as well as assets.

There is broad consensus that the social economy includes the following types of organisations:

  • Charities and not-for-profit associations
  • Social enterprises
  • Co-operatives, and
  • Philanthropic organisations.

Governments, businesses, communities, philanthropic and investor interests all contribute to a social economy where the common goal is to promote a values-led economy.

To grow the social economy governments can invest public funds and can also incentivise private sector finance providers and social impact investors.

Governments have a special role in enabling social economies to thrive by also creating the right policy and legal frameworks and increasing the visibility of the social economy by collecting standardised data in national statistics that reflect social impact and acknowledging the social economy in education and research.

Corporates keen to increase their social impact can co-invest and partner with governments, invest directly or partner with social economy organisations. In this respect, forms of capital that require a return beyond monetary profit are piquing the interests of corporates worldwide.

According to forecasts from the Global Impact Investing Network (2021), growth in the impact investment market is expected to reach $1.845 trillion in 2030.

The social economy research agenda at the Centre for Social Impact (CSI)

The Centre for Social Impact (CSI) is leading research into the social economy with a three-year annual survey of Australia’s social economy organisations. This research will align with work occurring in global institutions such as the OECD and EU.