Social economy: a third sector in economies

Economies may be considered to have three sectors:

1. the business private sector, which is privately owned and profit motivated;
2. the public sector which is owned by the state;
3. the social economy, that embraces a wide range of community, voluntary and not-for-profit activities.

Sometimes there is also reference to a fourth sector, the informal sector, where informal exchanges take place between family and friends.

The third sector can be broken down into three sub-sectors; the community sector, the voluntary sector and the social enterprise sector:

• The community sector includes those organisations active on a local or community level, usually small, modestly funded and largely dependent on voluntary, rather than paid, effort. Examples include neighbourhood watch, small community associations, civic societies, small support groups, etc.

• The UK's National Council for Voluntary Organisations describes the voluntary sector as including those organizations that are: formal (they have a constitution); independent of government and self-governing; not-for-profit and operate with a meaningful degree of volunteer involvement. Examples include housing associations, large charities, large community associations, national campaign organisations, etc.

• According to the UK government's definition, the social enterprise sector includes organisations which "are businesses with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners". Examples include co-operatives, building societies, development trusts and credit unions.

The social economy spans economic activity in the community, voluntary and social enterprise sectors. The economic activity, as with any other economic sector, includes: employment; financial transactions; the occupation of property; pensions; trading; etc.

The social economy usually develops because of a need to find new and innovative solutions to issues (whether they be socially, economically or environmentally based) and to satisfy the needs of members and users which have been ignored or inadequately fulfilled by the private or public sectors.

By using solutions to achieve not-for-profit aims, it is generally believed that the social economy has a distinct and valuable role to play in helping create a strong, sustainable, prosperous and inclusive society.

Successful social economy organisations can play an important role in helping deliver many key governmental policy objectives by:

• helping to drive up productivity and competitiveness;
• contributing to socially inclusive wealth creation;
• enabling individuals and communities to work towards regenerating their local neighbourhoods;
• showing new ways to deliver public services; and
• helping to develop an inclusive society and active citizenship.