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5 ways governments can unlock a more social economy

Social enterprise TETO NGO in Brazil: A United Nations report estimates that the social economy accounts for around 7% of global GDP

A United Nations report estimates that the social economy accounts for around 7% of global GDP. Image: Editora Mol.

Johanna Mair
Professor of Organization, Strategy and Leadership, Hertie School and Stanford University
Jonathan Wong
Chief of Innovation, Enterprise and Investment, United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP)
Precious Moloi-Motsepe
Co-Founder and Chief Executive Officer, Motsepe Foundation
Francois Bonnici
Director, Schwab Foundation for Social Entrepreneurship; Head of Foundations, World Economic Forum
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  • In the EU alone, there are 2.8 million social economy organizations, employing 13.6 million people, representing up to 9.9% employment in some countries.
  • The social economy supports disadvantaged groups, drives sustainable development and offers an alternative to our current economic model.
  • A new report, Unlocking the Social Economy, from the World Economic Forum, provides five key policy recommendations to advance the sector.

The COVID-19 pandemic has been no ordinary crisis. The worst health emergency in more than a century has been compounded by growing inequality and rapidly rising food and energy prices this year. This causes structural damage to economies and people’s lives on a scale that can hardly be addressed by means of traditional approaches of fiscal and monetary stimulus.

In many countries, job losses and other hardships have been disproportionately concentrated amongst the poor, youth, and women. As a result, Oxfam reports that the total number of people in extreme poverty could rise to 860 million this year. This emphasizes the need for inclusive models of economic development that build social cohesion and address social inequalities.

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Over decades, social enterprises, cooperatives, inclusive businesses, and innovative non-profits have prioritised social and environmental value. They made a difference where it matters: on the ground, among local communities and natural ecosystems facing damage and loss. These organizations have explicit social objectives and inclusive governance models, working with groups who face barriers because of gender, race, ability and economic class.

"Thanks to its strong local roots, the social economy can offer innovative bottom-up solutions to many of the global challenges of today, such as climate change, digitization and social exclusion. The social economy works with and for local communities and has a huge job creating potential." Nicolas Schmit, European Commissioner for Jobs and Social Rights.

Unlocking the social economy

A United Nations report estimates that the social economy accounts for around 7% of global GDP and contributes to increased employment in economies. In times of multiple and interrelated challenges, social economy organizations strengthen resilient communities and help manage major transitions. In addition, employment in the social economy grew by 12-20% during the 2008 financial crisis, in contrast to the sharp job losses in the private and public sectors.

Spectrum of Social Economy Actors. Source: The World Economic Forum.
Spectrum of Social Economy Actors. Source: The World Economic Forum.

More and more governments recognize the potential of the social economy to address global challenges. This year the European Commission launched its Social Economy Action Plan; the International Labour Organization has for the first time ever tabled a discussion on it during their conference and the Organisation for Economic Cooperation and Development is making legal recommendations in this regard to its members.

But despite its potential, social economies around the globe encounter common barriers which keep them from growing: limited visibility; lack of a supportive legal and regulatory frameworks; lack of verification and standards; inadequate supply of financial resources and restricted access to markets.

The Insight Brief, Unlocking the Social Economy, outlines five concrete policy areas that governments can develop to build more inclusive, sustainable and resilient societies.

Key policy areas to unlocking the social economy. Source: The World Economic Forum.
Key policy areas to unlocking the social economy. Source: The World Economic Forum.

1. Recognize and build new frameworks

The political recognition, development of regulatory environments and regular dialogue with social economy actors has proven vital in countries to grow the sector. In 2007, the Republic of Korea put in place the Social Enterprise Promotion Act to promote, incentivise and regulate social enterprises. The European Commission recently launched its 2021-2027 Social Economy Action Plan, investing over €2.5 billion to enhance social investment, support social economy actors to start up, scale-up, innovate, and create jobs.

2. Create incentives for funding and investment

Governments can grow the social economy by investing public funding and by encouraging investment by mainstream finance providers and social investors. Mechanisms include fiscal incentives, alleviating regulatory barriers, leveraging tax frameworks, de-risking private funding and developing hybrid mechanisms that blend public and private investment. The government of Singapore set up the Singapore Centre for Social Enterprise (raiSE) to offer grants to Singapore-based social enterprises to develop the sector and address human-centred social gaps in the country through the collaboration of public and private actors.

3. Expand education and research

Expanding and enhancing research and education on social innovation, social enterprise and the social economy in schools and universities can develop both the local knowledge and the talent pipeline. For example, Scotland launched the Social Enterprise in Education programme in 2007 to increase the understanding of the social economy and to promote awareness among youth and students. The programme focuses on development of and understanding for social enterprise business models and provides hands-on experience

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4. Make public and private procurement channels more inclusive

The public sector can buy goods and services from enterprises that deliver social and environmental value. In this way, procurement becomes a vehicle to meet other objectives, such as reintegrating long-term unemployed into labour markets and social and work integration of people from excluded or vulnerable groups. Governments can also create incentives for the private sector to procure from the social economy. In 2014, EU member states adopted the EU public procurement rules allowing for “environmental and social considerations”, as well as innovation aspects to be taken into account when awarding public contracts.

5. Collect and make visible social impact data

To increase the visibility of the sector, governments are encouraged to collect statistics on the social economy which go beyond traditional indicators. Besides the contribution of the social economy to economic growth and job creation, governments should systematically measure and present the social and environmental impact of the social economy. The Social Progress Index measures the extent to which social needs of citizens are being fulfilled through the three dimensions: basic human needs, foundations of wellbeing and opportunity, by aggregating 35 social indicators.

A second shift towards transforming the mainstream economy

Social economy actors are often pioneering in developing social and environmental innovations. They have proven to co-develop solutions that the mainstream economy has adopted. They can bring inclusive and just contributions towards green and digital transitions by putting people at the center, and can serve as a source of inspiration for the private sector in their ESG goals.

"As social entrepreneurial models continue to be successful both from an impact and profit perspective, the private sector has increasingly started to integrate impact into their operating models, whilst still remaining profitable. As this happens, the lines between purely social enterprises and traditional enterprises that also create a social benefit are increasingly blurring, which is a good thing." Sharon Thorne, Deloitte Global Board Chair.

Through the adoption of frameworks of accountability, taxonomies of social reporting, and more participatory business and governance models, the social economy can contribute to the structural transformation of our current economic model with its persisting challenges and accelerate transitions towards a more inclusive, sustainable future.

The Insight Report, Unlocking the Social Economy, has been contributed to by a Working Group convened by the World Economic Forum’s Global Alliance for Social Entrepreneurship and the Schwab Foundation for Social Entrepreneurship, in partnership with Deloitte, Euclid Network, Catalyst 2030 and the Motsepe Foundation.

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The views expressed in this article are those of the author alone and not the World Economic Forum.

Related topics:
Forum InstitutionalSocial InnovationJobs and the Future of WorkEconomic Growth
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May 21, 2024

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