The Scottish Government

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A review of the Scottish Executive's Policies to promote the Social Economy

1. PURPOSE AND CONTEXT

Purpose of the Review

1.1 Across the Executive and the wider public sector there is a renewed emphasis on the effective delivery of public services. This urges concentration not on who delivers those services or by what means, but on whether, from a consumer's perspective, the services provided meet the requirements of the people that use them and in many cases depend on them. This approach lies at the heart of the Best Value initiative and demands that all service delivery options are examined critically and, particularly, that the potential for different approaches to service delivery is fully tested. Another key strand of Executive policy is a new emphasis on empowering local people and organisations to become involved ever more effectively in the plans and actions to regenerate deprived communities.

1.2 From sources across Scottish public life, and indeed across the UK, the view has been expressed that the social economy has up to now been an under-used resource in terms of its potential to deliver effective public services, both because it is currently under-developed in its capacity to deliver services and because its potential is not adequately appreciated by bodies responsible for organising the delivery of such services. There is a broader recognition too, of the important role which social economy organisations can play in supporting the development of communities, particularly in deprived areas. This has implications for a number of the Executive's key policy agendas including community planning, community regeneration and environmental justice. The purpose of this review, therefore, is to assess the social economy's potential to contribute to the achievement of key Scottish Executive objectives and to identify how the Executive and other public sector and independent agencies might help the sector to realise its potential.

What is the Social Economy?

1.3 There is a very long history of organisations which are independent of the State providing services to citizens - services which complement and/or meet gaps in public service provision. Such organisations can take many forms - from private sector companies, to other corporate firms, such as mutuals or social firms, to charities, to small, local community groups. Organisations have sometimes operated on their own initiative and to their own agenda without any direct engagement with the State or local government in terms of the services they provide or in the funding of those services. But there is a tradition also of public (i.e. State or local government) involvement with the delivery of such services, for example through the provision of support funding of the provider organisation or through the direct commissioning of services from that organisation.

1.4 Both the Scottish Executive and the wider public sector in Scotland engage with many different types of organisation in many different ways to achieve the delivery of policy agendas. While many of these relationships are with private sector providers, normally on a commercial basis, or with public sector organisations, there is also a significant level of interaction with a wide range of independent service-provider organisations which are constituted largely or partly with social objectives in mind. These organisations are categorised broadly as the social economy.

1.5 In the same way that there is no absolute definition of the public or private sectors (there are, increasingly, as old barriers break down, hybrid organisations or organisations which don't quite fit with any traditional view), so there is no generally agreed definition of the social economy. There is a spectrum of economic activity within the voluntary sector ranging from the small and locally focused to the activities of major not-for-profit businesses with turnovers running into millions of pounds. But in the same way as there is a broad recognition of what is meant by the public or private sectors, so on a general 'family resemblance' principle it is possible to reach a reasonable understanding of what constitutes the social economy.

1.6 But exact definition is actually not important. Indeed it could be counter-productive in attempting to impose certainty on what is a dynamic area of economic activity. This review has therefore adopted an open approach to what may or may not be included within the term 'social economy'. It assumes certain underlying key characteristics - voluntary management, established for a social purpose, non-profit distributing, community or user participation - but within that framework, its recommendations are for the most part broad. It does not, for example, draw a distinction, as some work (including the UK Government's Social Enterprise Strategy) legitimately does, between on the one hand organisations which operate or aspire to operate as self-sustaining, not-for-profit businesses (often termed social enterprises) and other parts of the voluntary sector that may be more limited in their economic activity. Some of this report's recommendations will therefore apply to all organisations that might regard themselves as falling within the social economy sector. Some will apply to only a proportion of the sector.

1.7 Experience has shown that social economy organisations have the potential to add value on three fronts:

• to services by bringing a user and needs-led focus to planning and delivery; by providing access to services to hard-to-reach groups; by innovating and developing; by attracting dedicated charitable resources, financial and human; and by reinvesting surpluses;
• through policy development by making independent contributions to public debate informed by their service experience and their user focus; and
• by developing social capital. This can be achieved sometimes simply by the location of a social economy organisation within a community, creating employment and encouraging new economic activity. But it can also be achieved through building the capacity of communities to determine and act on their own definitions of the public good, providing vehicles for independent social action, developing neglected human skills, creating networks of communication and decision taking in communities of place and interest.

1.8 It is, of course, not the case that because a particular organisation can be categorised as being a social economy organisation it will, for that reason, bring added value to the delivery of services beyond a public or private sector provider. As in the public and private sectors, some organisations in the social economy are well run and some badly run, some are open to new methods and some are not. But many social economy organisations are well equipped structurally to deliver these forms of added value.

1.9 Social economy organisations are also well equipped to add value to public spending by complementing it with unpaid volunteer input and dedicated charitable funding. The volunteer input at Board and director level is, of course, one of the defining features of the social economy. By virtue of their non-profit public benefit status, social economy organisations are also well placed to attract large numbers of volunteers to help in service delivery. While services delivered through public sector organisations are sometimes also able to attract volunteer support, 80 per cent of volunteering takes place through the voluntary sector. Overall the monetary value of this volunteer contribution, costed at the average wage/per hour, is estimated at an annual 6 billion for Scotland.

1.10 Direct charitable funding by individuals is estimated at over 370 million a year in Scotland, with charitable trusts and other sources of dedicated funding adding a further 90 million. ¹ Most of that money is not available to public or private sector organisations, though bodies associated with central or local government which have charitable status are sometimes rivals for a share of it. In the value for money criteria which it applies to its financial support for the social economy, Highlands and Islands Enterprise expects 6 of additional money to be levered in for each 1 it provides to the social economy, though that includes other public funding as well as charitable funding.

1.11 Social economy organisations have in common a sense of social purpose and functions which include economic activity. But in other respects they are as diverse as organisations in the public or private sectors. Some are fully-fledged businesses, entrepreneurially inspired and driven, and may have more in common with private sector businesses than with some other social economy organisations.

1.12 At the other end of the scale, some organisations will regard themselves as being far removed from a business model and have no aspirations in that direction. One of the propositions of this review, however, is that the encouragement and development of more commercially orientated disciplines across the social economy sector as a whole is a pre-requisite of the sector overall improving its performance and fulfilling its potential. This is predicated on two assumptions:

• that social economy organisations all have one or more 'products' which they wish to make available. (The term 'product' is used here to describe the purpose towards which the economic activity of the organisation is directed, e.g. provision of childcare, provision of advice and support for epilepsy sufferers); and
• that it will be one of their main goals to provide those products as efficiently and as effectively as possible so as to maximise benefits to the organisation's 'customers'.

1.13 This is not to argue for a strict business motivation to apply to all social economy organisations. Rather, it is to say that a failure to run social economy organisations in a business-like way (in terms of having, for example, clear objectives, a long-term business plan/strategy which guides the organisation, business processes to encourage efficiency and effectiveness, access to finance in forms most appropriate to the organisation's business and development needs, etc.), will act as a continuing inhibition to the development of individual social economy organisations and of the sector as a whole. This would be in the interests neither of those organisations nor of the people and communities they serve nor of the long-term prospects for improving public services in Scotland.

Context

1.14 There have recently been a number of initiatives and developments which have contributed to an increased public sector focus on the social economy sector, in particular:

• a new focus given to the Enterprise Networks in terms of their social justice responsibilities - most recently, the development of Scottish Enterprise's Social Justice Strategy;
• the creation of Communities Scotland with its remit specifically including responsibility for developing the social economy;
• participation by a range of organisations, including SCVO, the Enterprise Networks, Communities Scotland, and two social economy organisations in an ESF Equal Development Partnership, entitled 'Strengthening the Social Economy';
• the creation by the UK Government of a Social Enterprise Unit, located within the Department of Trade and Industry, with a remit to support the development of social enterprises;
• the recent publication by that Unit of its strategy for social enterprise ² - a document which potentially has a number of implications for social economy organisations in Scotland;
• recent reviews by the UK Government's Performance and Innovation Unit on Charities and the wider not-for-profit sector ³ and by the Treasury on Cross Cutting Review: the role of the voluntary sector in public services; ⁴
• the establishment of Social Investment Scotland as a new source of loan funding for social economy organisations and as a means of supporting and developing Community Development Finance Institutions (CDFIs) across Scotland;
• proposals by the UK Government to introduce Community Investment Tax Credits and a venture capital fund to support social enterprises;
• a study, supported by the Executive to look at the prospects for establishing a market for 'patient capital' (equity-type funding) for social economy organisations in Scotland, now published by Community Enterprise in Strathclyde under the heading 'Sharing in Success'; ⁵
• the forthcoming strategic review of public sector funding of the voluntary sector;
• the Scottish Executive's response to the recommendations of the McFadden Commission ⁶ on the reform of charitable law in Scotland which would have potentially significant (and beneficial) implications for the social economy;
• the Executive including a requirement to support the development of the social economy in the priority tasks for the national network of Councils for Voluntary Service; and
• work undertaken externally on defining and valuing the Social Economy in Scotland. ⁷

UK Government Studies

1.15 This review has been undertaken at around the same time as a number of studies covering similar or related territory which have been conducted by the UK Government. The Social Enterprise Strategy, 'Social Enterprise: A Strategy for Success', produced by the Social Enterprise Unit within the Department of Trade and Industry, sets out a three-year programme by which, working with external stakeholders, the Government will seek to promote and sustain social enterprise activity at national, regional and local levels. The strategy focuses on social enterprises, but covers some of the same ground as the social economy review. Some of the recommendations in the strategy could potentially apply to social economy organisations in Scotland and there will be lessons to be learned in Scotland from work done south of the border. The Executive will therefore be maintaining its contacts with the Social Enterprise Unit and developing opportunities for sharing experiences.

1.16 The Performance and Innovation Unit Review into the legal framework for the voluntary sector, sets out - for consultation - a package of proposals for reform, some of which could have an impact on social economy organisations in Scotland. In particular, the review proposes:

• a new legal form for social enterprise - the Public or Community Interest Company;
• modernising the law on Industrial and Provident Societies; and
• consulting on the feasibility and value of a branding scheme to increase the profile of social enterprise.

1.17 This work bears upon proposals to reform charity law in Scotland arising from the work of the McFadden Commission.

1.18 The Treasury cross-cutting review of the Voluntary Sector role in public service delivery, published in September 2002 makes a number of recommendations which would potentially impact on social enterprises, covering the areas of business support, capacity building, access to finance, research into the sector and access to local authority markets. The report also proposes a number of actions aimed at removing barriers to growth and development by social economy organisations together with an action plan to implement the report's recommendations across Whitehall. Within the Scottish context, some of the outstanding issues addressed by the Treasury review will be dealt with by the Executive's planned Strategic Funding Review for the Voluntary Sector due to report in 2003.

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