Social Economy Review
Resource Paper 3
Key Strategy Issues
© Colin Stutt Consulting, 2001
This paper was prepared by Professor Mike Campbell, Director, Policy Research Institute, Leeds Metropolitan University, Bronte Hall, Beckett Park Campus, Leeds, LS6 3QS, Tel: 0113 283 1747, Fax: 0113 283 1748, Email: , Website:
Table of Contents
Introduction
Tackling Barriers to a Successful Social Economy
Overcoming barriers: policy implications for Northern Ireland
Measuring Success
Identification of the Specific Added Value of the Social Economy
Key themes
Bibliography
Introduction
The purpose of this paper is to help shape the debate about the development of the social economy in Northern Ireland, the issues that the policy review should prioritise and some direction based on broader experience and analysis.
This Paper identifies, and briefly elaborates on, 3 sets of issues that the review might seek to address. The first issue involves the identification of the key barriers to a successful social economy (SE) and the actions that can be taken to tackle them effectively.
The second issue is that of measuring the ‘success’ of the SE– developing appropriate measures of the benefits of SE organisations as well as the necessary associated evaluation tools.
The third issue is that of identifying the specific ‘value added’ of the SE compared to ‘mainstream’ public or private provision/action.
Finally, the Resource Paper briefly outline a number of related issues which are of potential importance and which could be usefully addressed in the Review.
Tackling Barriers to a Successful Social Economy
It is necessary to have a clear understanding of the main barriers to the development of a successful social economy so that these can be identified and addressed in order to make such actions both more effective and more widespread. We can identify 4 categories of barrier that are summarised in the table below.
The political barriers arise if society, in the form of the public policy framework, defines or ‘over prioritises’, the state/public provision and/or the market/private provision as the dominant mechanisms to respond to local needs, thus providing little space for SE provision/activity. SEs may only be called upon as a ‘last resort’ or a means of filling clear gaps in provision. Environmental barriers arise when existing social policies are unable to cope with the levels of demand for services, because of insufficient (in quantity or quality) public resource deployment. Whilst this may open a ‘space’ for SE provision, public expenditure constraints, and lack of prioritisation attached to meeting local needs will constrain it. Moreover, such tight fiscal policies, and associated monetary policy, may restrict the growth of private individual demand for such services, especially by those on low incomes, whose needs may be difficult to fully express in market demand. Institutional barriers include the lack of a legal framework on the contracting out, or competition for, service provision, which provides a level playing field for the SE.
The specific barriers relate to the possible lack of history/culture of SE activity and mis-specification of its role(s) – on which see section 4 below. Institutional barriers may arise because of the lack of an appropriate legal framework for not for profit enterprises and/or the existence of bureaucratic type barriers to SE development. In addition it may be difficult to set up/establish SE and, in some cases, there may be competition on the SE fields of endeavours from people working in the un-regulated partially visible informal economy.
Barriers to the Development of the Social Economy
External / InternalGeneral / Political:
- over-estimation of the roles of “the market” and of “the state“ as institutions able to respond to economic and social needs
Environmental:
mismatch between growing demand for services and existing social policies.
- a stringent fiscal policy, which impedes the growth of private demand for services
Institutional:
- lack of appropriate legislation on contracting-out procedures;
- overlap between labour policies and social policies supporting local innovators / Managerial:
- lack of a labour supply possessing the managerial and professional skills needed to provide services;
- lack of quality control systems for the social services provided by private organisations
Co-ordination/Competition:
- lack of co-ordination and/or excessive price competition among organisations providing the same kinds of service and/or working for the same clients
Cultural:
- preference of the bureaucratic organisation of social services provision
Specific / Cultural:
- lack of a SE culture (which role for what aim) in society as a whole
- misunderstanding of the role of SE as social capital versus social services producers
Institutional:
- lack of a clear legal definition/ framework for LSIs
- bureaucratic barriers imposed by public bodies
Competition:
- unfair competition by the informal economy
- barriers to entry / Cultural:
- lack of a LSI culture (which role what aim) within the LSIs themselves
Managerial:
- client/service orientation or job creation/employability orientation?
- lack of managers for the new SE
- difficulties in accessing financial resources, especially for investments, planning and partnerships
Co-ordination/Competition
- lack of a well-developed system of second level SE organisations (for organisational, technical and financial support)
- competition between traditional, well established SE and new ones
Barriers may be external to, or operate within, the SE. External barriers refer to the political, environmental and institutional constraints on the development of demand for local services, or what we refer to here as general barriers, and on the adoption by the SE of more productive and entrepreneurial behaviour, or what we call here specific barriers.
The internal barriers concern the inability of the SE to manage their role effectively in various ways. While external barriers can be overcome only through joint action by different organisations (institutions, politicians, local authorities, competitors, stakeholders, etc.), the most important pre-requisite for eliminating internal barriers is a full understanding of the role of the SE, by themselves.
These internal barriers to development may either be general i.e. common to other (public/private) organisations which provide (or could provide) local services, or specific to the innovators. While the general internal barriers are mainly related to the activity carried out the skills available in society to effectively manage SE organisations, the competitive environment and the choices and decision rules of public contracting agencies - the latter derive from specific characteristics/disadvantages of the innovators themselves. Issues here include the extent to which SEs themselves have a organisational culture appropriate to their role and operation in the current policy/political environment in the country in question; their orientation as to social integration and/or service quality and an understanding of the tensions between the two; the availability of social entrepreneurs and managers; access to financial resources/core funding, which goes beyond project income, to finance partnership and development work; and the availability of strong intermediaries to support SE operation further overarching problem is the potential a lack of effective demand (though not of need) for the SE because of the poverty of many areas within which they operate.
Overall the key issues that emerge from this ‘matrix’ of problems are twofold. The first is that of the nature of the public policy regime – how supportive, neutral or antagonistic is the overall thrust of public policy towards the SE? Does policy recognise its contribution and seek to nurture its development, is it neutral towards it, does it not recognise its contribution or, worst of all, is it antipathetical to its development because of views about the roles of state, market and not for profit organisations in the particular, contemporary society?
The second, is that of the efficiency and effectiveness of SEs themselves. How far have they developed the tools and actions commensurate with their emerging role in employment and local development? How far have they coherently articulated the actual and potential contribution in terms that policy makers, citizens and the private and public sectors can understand and relate to?
In its current state, without systematic actions to sustain it by tackling the key barriers and issues that confront them, many SEs are perhaps too “fragile” to carry the weight of more than modest expectations with regard to significantly expanding their current contribution. The policy regimes are limited in their “friendliness” to the SE whilst the system itself is fragile almost by its very nature – labour costs are nearly always a very large proportion of total costs; operating margins and value added, in conventional profitability terms, are often low; most are modest in size and operate in emerging markets where, as many small private sector firms will testify, success rates can be relatively low; many have limited financial reserves and operating surpluses; and they have to achieve their ‘multiple’ complex objectives with a mixed cocktail of funding from the market, state and other sources. In many ways, the vitality and contribution of the SE is all the more remarkable given the current policy and operating environment in many countries.
Overcoming barriers: policy implications for Northern Ireland
This framework for analysis provides a means with which possible actions can be developed and a baseline against which policy interventions can be developed to overcome the barriers. Some of the main developments required to tackle these barriers and help the SE reach their full potential, which are worth exploring include:
The SE needs to be brought ‘out of the shadows’ and made more visible by publicising their nature, scale and significance.
It is important that the ‘case’ for the SE in terms of its contribution to the local development agenda is made effectively. It is necessary to demonstrate to policy and decision makers in the private and public sectors that the SE can and do play a significant role in local development, one which does not prejudice the interests of the private sector; which actually contributes to its interests; and which can make a considerable contribution to public policy objectives, including those of meeting unmet needs, social inclusion and local development.
It is important to identify and value the economic and social contribution of the SE through the explicit assessment of its overall social value. SEs through their internalisation of social costs and development of social capital, contribute to social well being in ways beyond a commercial calculus. Measures of project and ‘social business’ success need to reflect this reality.
The ‘outputs’ of the SE are, often, not only the actual product/service sold on the market. They often also produce ‘enhanced employability’ and other benefits: this should be recognised and paid for. For example, employability has real economic value: it reduces the subsequent training and recruitment costs of private and public employers who hire these workers; it defrays the public expenditure costs of unemployment, by reducing the probability of subsequent unemployment spells; in the course of their employment in a SE the unemployment benefit costs to the exchequer may be reduced; and some of the associated ‘social’ costs to society of unemployment are reduced as health improves, crime is reduced and pressure on social services diminished. Perhaps most important of all is the impact on social ‘solidarity’ – labour market and social exclusion are diminished, inequalities are reduced and social cohesion is enhanced.
These real returns to the individual and society could be paid for – in the form of a transparent social payment. There is no reason why the consumer of the produce/service should do so, and moreover, such a payment does not compromise the operation of effective markets or open competition. Such a payment would help to clarify the role and purposes of many SE organisations.
There are three important implications of such a development. First, it would be necessary to assess the real value of enhanced ‘employability’ in order to identify the appropriate level of the ‘social payment’. Second, it will be necessary to assess and benchmark the performance of such enterprises in terms of both their commercial viability and their success in enhancing the subsequent employability of their workers – in other words against their ‘dual’ objectives. It should also be made clear that, of course, the SE should have available to it the same range of tax concessions, allowances, services, subsidies, incentives and benefits that are commonly available to private sector enterprises at a national, regional and local level. Third, any organisation producing these additional social benefits should be eligible for such payments.
It is important that taxation polices should encourage the stimulation of demand for services through tax allowances or voucher provision to consumers which cover that part of their real cost which is related to their ‘public’ component and the needs of the beneficiaries.
Contracting out and quasi market policies should recognise the particular ‘additional’ contribution of the SE for example, in terms of the development of trust and local social capital, so that the quality of their service offer and comparative advantage is not prejudiced by contracting rules based solely on price.
There may be need to improve managerial capacity and know how, through training, qualifications and other capacity building measures. In particular measures to attract professional managers with social commitment and to stimulate the availability of civic or social ‘entrepreneurs’ will be important.
In order to support the development of the SE it may be desirable to assist the development of intermediate, or ‘umbrella’, structures, which could play a vital role in providing information, advice and training. These should have capacity to support the SE and operate as a local and/or sector ‘development’ agency, encouraging start ups, providing a range of professional, advisory and technical services, to support business development, as well as covering the traditional role of umbrella organisations as lobbying, representative and network organisations. Alternatively, ‘traditional’ SME support organisations could be encouraged and reconfigured to support the SE.
A range of financial instruments may need to be developed in accordance with the specific needs of the SE. These include the development of micro credit and other community based financial instruments to enable access to loan finance and help them move beyond ‘project’ status and dependency on grant aid to enhance their sustainability. Measures to enable them to build financial reserves and capitalise them as assets will also be valuable.
Measuring Success
SE organisations typically seek to simultaneously achieve a range of objectives which are typically threefold – the production of a good or provision of a service to meet a specified need (which may or may not be fully articulated as a ‘demand’ in the market place); the reintegration of those disadvantaged in the labour market/or from a distressed community through their employment within the SE, thus increasing their long term ‘employability’; and, often, undertaking these activities through mechanisms which seek to empower the individuals/communities involved – perhaps through different forms of work organisation or direct involvement of communities in decisions.
Thus the measurement of SE ‘success’ is complex, involving the identification and measurement of a range of variables associated with these multiple objectives. There is currently a lack of appropriate models to assess what ‘successful’ outcomes of SE activity might be. For example, in relation to the employment of disadvantaged persons, the SE is, in addition to its services to end users in the form of the consumption of a good/service, producing a ‘merit’ good – enhanced employability – which benefits the individual , increases the value of the output of the economy and reduces public expenditure on welfare payments, and, perhaps, health and social service provisions. This internalization of the social costs of labour market exclusion is a clear benefit, the ‘production’ of which requires valuation and assessment. Yet the SE rarely assessed in these terms and the calculus incorporated in their evaluation of their success, in a formal manner.
The ‘knitting together’ of many SE activities in meeting unmet needs, reintegrating the unemployed and assisting distressed communities offers the prospect of a more socially inclusive community which can have a yet wider social benefit. First, it can help build trust in communities and contribute to social cohesion and solidarity. Second, the increased civic engagement often associated with the SE (e.g. increased participation, mutual aid and networks linking local people together) can enhance local ‘social capital’.
In addition to these kinds of benefits, the ‘participatory’ organisational from of many SEs (e.g. voluntary board membership, user consultation; staff involvement) can lend a further sense of ownership by the community, developing its capacity, knowledge and sense of itself.
Thus, financial performance or sustainability does not nearly fully capture the success of an SE. A successful SE contributes in many ways to a local community and these benefits need to be captured by any evaluation methodology. As an agency of local development its full contribution needs to be identified and set against the costs of its operation Methods and tools need to be developed to systematically identify and measure the benefits of the SE so as to enable a more coherent assessment of their economic and social value. A full assessment would also need to address the issue of ‘displacement’ – the extent to which SEs replace activities in the state/private sector rather than create additional value or employment.
The Social Audit approach offers one method to record the impact of social economy interventions with greater sensitivity. This offers a method of social book keeping in which qualitative as well as financial data provide an inventory of organisational activity and performance.
Identification of the Specific Added Value of the Social Economy
In many ways the SE offers a vision of a ‘third way’ between state and market in employment and local development as they seek to articulate, activate and reconcile the effective provision of services with greater social solidarity in the local economy. They often offer a ‘unique’ combination of products. They are sensitive to many issues which private and public sectors are less focussed upon – the fight against social exclusion (in service provision and employment): challenging the form and priorities of local development; and the articulation and mobilisation of people as citizens. The SE also represents a potential source of dynamism and creativity which can compliment, enhance and help to establish/develop the services provided by the public and private sectors. It potentially offers ‘win-win’ outcomes because of its multiple objectives and its internalisation of the negative externalities created elsewhere in the economy.