Social Economy

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Definitions

1. Eric Olin Wright


"The term “social economy” has been used to cover a wide range of economic forms. Sometimes it is simply identified with the “non-profit sector”; other times it includes co-operative enterprises even if they produce for markets and compete with capitalist firms. Sometimes the social economy is defined in strictly negative terms as non-state and non-market enterprises.

Some writers, like the Quebec social economy activist Nancy Neamtam, include a specific set of internal organizational properties in the definition.


A social economy enterprise, she writes, is one that:

- aims to serve its members or the community, rather than simply striving for profit; is independent of the State; establishes a democratic decision-making process in its statutes and code of conduct, requiring that users and workers participate; prioritizes people and work over capital in the distribution of revenue and surplus; bases its activities on principles of participation, empowerment, and individual and collective responsibility.

I will define the social economy quite broadly as economic activity that is directly organized and controlled through the exercise of some form of social power. Social power is power rooted in the voluntary association of people in civil society and is based on the capacity to organize people for collective action of various sorts. The social economy involves the production and distribution of goods and services – economic activity – organized through the use of such social power.

This definition does not imply that every organization or enterprise in the “non-profit sector” is fully part of the social economy. Some non-profit organizations are basically arms of capitalist corporations or the state, rather than voluntary associations formed in civil society. Others have large endowments of capital which provide them with the resources needed to engage in their productive activities and are directed in the manner of a hierarchical corporation. Their control over economic activity is therefore based more on their use of economic power derived from their endowments than in their deployment of social power (i.e. power rooted in collective association in civil society.) What this suggests is that many organizations will have a mixed or hybrid character: they are examples of social economy activities to the extent that they are rooted in the associational life of civil society; they are statist or capitalist organizations to the extent that their power to engage in the production and distribution of goods and services is based on state power or economic power." (http://www.ssc.wisc.edu/~wright/ERU_files/ERU-CHAPTER-7-final.pdf)

Source: Chapter 7. Real Utopias II: social empowerment and the economy 137 ; Cited: Nancy Neamtan, “The Social Economy: finding a way between the market and the state”, Policy Options, July/August 2005, pp 71-76.



2. Solidarity Economy related definition:

"It is a term embracing the broad range of economic and social activity including that of community-based groups, cooperatives, small companies, buying groups, credit unions, and others who are engaged in market and economic development activity with the purpose of building sustainable communities and societies not just generating a positive financial return for the owners of the enterprise." (http://swinney.blogspot.com/2005/12/congress-on-solidarity-economy-dakar.html)


Description

John Restakis (ch. 6 of Humanizing the Economy):

"Social economy, like the term “civil society” has only recently come into prominence after a long period of neglect. Originally, social economy refered to the theoretical approach first developed by the utopian socialists – especially the early founders of the co-operative tradition – Owen, Fourier, Saint Simon and Proudhon. The term was first applied to the early co-operatives that arose from their work by economists like Charles Gide and Léon Walrus and sociologists like Frédéric Le Play.

Like their co-operative antecedents, social economy organizations are those that pursue their goals, whether economic or social, on the basis that individuals’ contributions will be reciprocated and the benefits shared. Reciprocity is the economic principle that defines both the activities and the aims of these organizations - whether they are co-operatives, voluntary associations, or conventional non-profits. Their primary purpose is the promotion of collective benefit. Their social product is not just the particular goods or services that they produce, but human solidarity - the predisposition of people in a society to work together around mutual goals. Another name for this is social capital. And, as opposed to the capitalist principle of capital control over labour, reciprocity is the means by which a social interest - whether it takes the form of labour, or citizen groups, or consumers – can exercise control over capital. As a sub division of civil society, the use of reciprocity for economic purposes is what distinguishes the social economy from the private and public sectors.

With the rise of interest in civil society and the social economy, the market view of society as composed of two sectors - the private and the public – is once again being challenged. From the start, the notion of social economy was a reaction against the narrow reading of economics as a dimension divorced from society. The social economy entailed an enlargement of classical economics to include the social relations that accompany and underlie the creation and distribution of wealth and to situate economic behaviour within the wider compass of social reality. This is the larger frame in which the social economy has its original meaning. Current efforts to highlight civil society and the social economy as countervailing forces to the market view are a continuation of the historical struggle to reclaim the social dimension of economics. What this means and how it is being realized in the context of social care and the changing role of the state is where we now turn our attention."


Principles

By Eric Olin Wright, based on his case study of the Quebec Social Economy:

"The Quebec experience suggests four elements of institutional design to facilitate the expansion and deepening of these kinds of initiatives in ways that would contribute to the broader agenda of social empowerment:


1. State subsidies targeted to the social economy.

There are a number of difficult issues bound up with alternative mechanisms for providing financial resources for social economy activities and enterprises. One source of funding is private donations from individuals and private Foundations. Many NGOs receive their funding from these sources. Sometimes this works well. Wikipedia was initially bankrolled by a combination of funds from private foundations and the personal wealth of Jimmy Wales, and subsequently it has been substantially funded by contributions from participants. But for many social economy initiatives, such private funding will be inadequate for two reasons. First, for many projects, private donations and foundations are unlikely to provide adequate levels of funding. It is hard to imagine the Quebec social economy of childcare and eldercare services reaching the scale it has on the basis of private donations. Secondly, private foundations typically have their own agendas derived from the priorities of their founders and boards of directors. Sometimes these can be quite progressive, rooted in democratic egalitarian ideals, but more often wealthy foundations have close ties to elites and corporations and their priorities are firmly rooted in existing structures of power and inequality. For social economy initiatives to be dependent on such foundations for financial resources, therefore, almost inevitably constrains their radical potentials.

Of course, it is also true that dependence of the social economy on the state for financial resources imposes constraints. Capitalist states are also deeply connected elites and corporations and their priorities are also firmly rooted in existing structures of power and inequality. But at least the state is a terrain for democratic struggle and contestation, and this can open the prospect for acquiring stable funding which allow for relatively high levels of autonomy. In any case, for better or worse, private funding is unlikely to be sufficient for a vibrant, dynamic social economy and thus it is important for the state to underwrite social economy enterprises and activities through subsidies of various sorts. Furthermore, the rules of the game for such subsidies should block access to them by capitalist firms. A reasonable objection by capitalist firms is that this gives social economy cooperatives an “unfair” competitive advantage in certain markets. This objection was raised in Quebec, for example, for the targeted subsidies to nonprofit organizations and cooperatives which facilitated the rapid growth of social economy eldercare home services and childcare services. The appropriate response to this is that state subsidy is a way of recognizing the positive social externalities that come from the cooperative, nonprofit organization of production in the social economy. This is especially crucial in caregiving services in which the profit-motive is in inherent tension with the values of nurturance and care.35 The capitalist logic of meeting needs is that it is only worth doing when you can make a profit from doing so: I help you because it’s good for me. The social economy logic of meeting needs is other-directed: I help you because it is good for you.36 The widespread existence of cooperative needs-oriented production of such services contributes positively to supporting a socio-cultural context that affirms these values. If this is indeed a positive social and cultural externality of needs-oriented production, then in the absence of a subsidy less of this public good will be produced. This provides a justification even within the economic logic of a capitalist market economy for a tax-based state subsidy to the social economy form of cooperative needs-oriented production.


2. Development of social economy investment funds.

While state subsidies are crucial for the social economy, in the long term it is also important for the social economy itself to develop internal mechanisms for raising funds and directing them to innovative social economy projects. To the extent the social economy manages to have such funds, its capacity for autonomous growth would increase. In Quebec in a limited way, the Chantier has helped develop and coordinate venture capitalist funds for social economy enterprises. If the social economy is to expand to become a major source of employment and economic activity, then new financial instruments for social economy savings and investment need to be devised.


3. Governance through associational democracy.

At the dynamic center of the development of the Quebec social economy is the Chantier de l’économie sociale, the kind of encompassing association that enables the heterogeneous set of projects and organizations in the social economy to coalesce into an enhanced form of social empowerment. This is a difficult task because of the conflicting interests and identities that mark civil society. Quebec, in many ways, was a highly favorable social environment for the development of this kind of associational solution, for prior to the creation of the Chantier there were already in place various networks of social movements, cooperatives, and civic associations. The status of Quebec as a Frenchspeaking province in an English-speaking country also contributed to a strong sense of solidarity that facilitated the elaboration of thick associational solutions to coordination problems. These factors help to explain why the social economy has developed the way it has in Quebec. In places where civil society is less associationally dense and the social bases of solidarity weaker, building such encompassing associations poses a greater challenge. The key task of institutional design is to foster associations that are deeply connected to social economy activities within civil society and create a coordinating body that democratically represents key networks of these associations.


4. Participatory Democratic forms of organization.

The goal of enlarging the social economy is not simply that in and of itself this is a good thing because it contributes to improving the lives of people. The social economy is also one of the important pathways in the broader project of social empowerment in which the ultimate goal is broad social control over the economy. For this to occur, the social economy needs to be a setting within which solidarity and social cohesion is enhanced and a broad notion of the collective good is practiced. This is one of the main reasons why cooperatives are such a central form of production in social economy activities: cooperatives affirm the emancipatory values of egalitarianism. More generally, a social economy organized along participatory democratic forms of governance at both the micro- and macrolevels of organization is likely to contribute more consistently to the wider agenda of social empowerment." (http://www.ssc.wisc.edu/~wright/ERU_files/ERU-CHAPTER-7-final.pdf)


Discussion

Capitalism and the social economy

"The second general problem faced by attempts to significantly expand and deepen the social economy concerns its articulation to capitalist markets. Two issues are especially important: the problem of competition with the capitalist economy, and the dependency of the social economy on capitalism for financial resources.

According to prevailing views, competition keeps individuals and firms on their toes, putting pressure on them to innovate and improve the quality and efficiency of what they do. Why should the social economy worry about competition from capitalist firms if in fact the social economy is a better way of providing certain kinds of services? Three issues are especially salient here which make it difficult for the social economy to enter sectors which are potentially profitable to capitalist firms. First, capitalist corporations are in a position to poach talented leadership from the social economy. Leaders in social economy enterprises often face challenging organizational tasks and develop highly valuable people skills. Where capitalist corporations can identify this talent, they are able to offer vastly higher salaries and drain off at least some of the most talented labor from the social economy.40 This may not pose a serious threat to some aspects of the social economy, such as childcare services, which are generally not especially profitable for capitalist firms, but it could constrain the advance of the social economy into new arenas. Second, capitalist firms can engage in forms of competition which undermine the social economy. Capitalist firms have greater access to credit than nonprofit social economy enterprises and are therefore generally more capitalized. They can offer more lavish, if also expensive, services and thus siphon off the more affluent potential consumers of social economy services, leaving the social economy to provide services for those least able to pay. Third, capitalist firms do not have to worry about generating positive social externalities of their market activities and thus they do not need to devote any resources to this objective, whereas such positive externalities are part of the core motivation for much social economy activity. This places capitalist firms in a competitive advantage within ordinary markets over social economy enterprises. Unless there are strong rules protecting the markets for social economy enterprises by providing financial subsidies to the social economy that reflect these positive externalities, capitalist competition will tend to erode their commitment to social economy principles.

Beyond the issue of direct competition with capitalist markets, the social economy is potentially distorted by its need to acquire financial resources from capitalism. If social economy enterprises take out loans from banks, then they have to generate sufficient income to pay the interest and eventually pay back the principal. If they seek capital investment from individuals and associations, then they need to offer a reasonable “rate of return”. Both loans and investments mean that social economy enterprises would have to behave more like capitalist firms, making decisions on the basis of expected rates of profit. The alternative, of course, is to seek subsidies, rather than investments, in the form of donations from private individuals and foundations and grants from the state. Such grants potentially do offer greater autonomy for social economy firms, but they also depend upon the willingness of political authorities and (usually) wealthy individuals to make these grants and donations and this leaves the social economy vulnerable to shifts in the political balance of power and the spending priorities of elites.

What the social economy really needs, then, is some way for a significant part of its core funding to become unconditional and noncontingent. One institutional device for this is unconditional basic income." (http://www.ssc.wisc.edu/~wright/ERU_files/ERU-CHAPTER-7-final.pdf)


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