Why you should care about your local Social Economy

The local Social Economy is growing but is under significant threat from large private-sector service providers such as SERCO and from large national charities with London headquarters and little or no connection with the local community. Ahead of the forthcoming gathering of local Social Economy Organisations at 5.30 on Monday 22 July (find out more here), HOT’s Richard Hull argues that we should be doing our best to support our local Social Economy.

What is the Social Economy?

The Social Economy sits between the private and public sectors so it is not surprising it is growing with the shrinkage of publicly provided services. For the same reason it is not surprising that nationally the only growth within the private sector is the all-encompassing economic category of ‘services’ which is defined by mainstream economists as everything that is not manufacturing or raw materials such as mining and agriculture. But mercifully the private sector has not been capturing all of the previously-public out-sourced services and a considerable number have been taken up by charities and other Social Economy Organisations (SEOs).

More specifically, the Social Economy can be grouped into four types of organisation: non-profit trading; ex-public sector trading; socially responsible business; and other hybrid organisations. As can be seen from the diagram at the top of this article these four categories describe different relationships with the private and public sectors. Some readers may wish to include a fifth category, public-sector legacy business, which describes for instance British Telecom or other formerly public businesses which have some form of public-sector legacy, for instance in their formal or informal relationship to central government. At the end of this article I list examples of organisations within each of these categories.

Why is the Social Economy growing?

First and foremost of course are the massive changes in the public sector that have taken place over the last 30 years, and I do believe it is worth reminding ourselves of these, lest we forget. Social housing was steadily taken from Local Authorities, it is now provided by Housing Associations but also by other Registered Social Landlords such as the YMCA, and of course there is currently a massive increase in the demand for social housing as home ownership falls back to pre-Thatcher levels. In Education, FE Colleges were taken from local accountability 20 years ago and the same has been happening with secondary schools for some time; in addition many Adult Education services are now provided from the Social Economy, e.g. Horizons CIC in St Leonards. Universities have always been charities but by charging fees and competing with each other they became fully-fledged members of the Social Economy. Leisure centres and swimming pools were very quietly shuffled over to social enterprises some years ago and the same has happened to many theatres and other entertainment venues formerly managed by Local Authorities. Apart from a few exceptions such as The Phone Co-op and Hackney Community Transport there has been little growth in the Social Economy from the privatised industries in transport, energy, water and communications.

However, further changes are inevitable following the recent imposition of massive cuts in Local Authority budgets, with Hastings hit much harder than many. In addition, although opinion is divided on its likely effects the Social Value Act 2012 which came into force earlier this year obliges Local Authorities to request some of their contractors to demonstrate an additional social value when tendering for contracts.

It is changes in the provision of health and social care which are set to make possibly the most significant additions to the local Social Economy. Adult Social Care is in the process of moving out of County Council direct provision and towards being either commissioned or procured, and of course the same is happening with elements of the NHS such as Healthwatch which replaces Community Health Councils. In addition the government is providing considerable support firstly to groups of staff who wish to form ‘spin-out’ organisations such as worker co-ops or Community Interest Companies to provide the same service under contract; and also support to large charities to enable them to become ‘contract-ready’, able to bid for the very large health and social care contracts that will soon be put out to tender.

Changes in the Private Sector

The domination by out-of-town supermarkets is leading to (a) empty local high streets and (b) the closure of pubs and village shops. In response to empty high streets many new small traders are emerging who often seek to distinguish themselves by stressing social or environmental value – using locally sourced materials, or ethical or Fairtrade products, or being linked with community or charitable organisations. These new small traders are also often stall-holders rather than shop-based.  Where there have been constructive responses to the closure of pubs and village shops they are more than likely to be community-owned and/or co-operative shops and pubs or social enterprises using the Community Interest Company form, in order to maintain these often vital sources of community service and cohesion.

If there is one silver lining to the financial crisis it is the resultant increased interest in mutual financial services organisations such as Nationwide and Coventry, and also the growth in credit unions. Perhaps this will help mitigate some of the effects of the increasing dominance of financial capital in the global economy.

Corporate Social Responsibility has a complex and controversial record, with many accusing CSR initiatives of being merely lip service or ‘greenwashing’ and indeed there is some evidence for this from the research literature. Nevertheless, there are some firms, such as Hastings Direct, who clearly have a sincere commitment to putting something back into the community. In addition the combination of CSR’s recognition within the corporate world and the arrival of the Social Value Act provides some possibilities for improving the social responsibility of mainstream business and thus further inputs into the local Social Economy.

Finally, in some of the more enlightened discussions of the Social Economy, for instance from the International Labour Organisation and the United Nations Research Institute for Social Development, there is an additional element of environmental sustainability: a true Social Economy, they argue, has equal respect for the fate of the planet. Within these terms then the Social Economy also includes green firms, those private sector companies whose primary activity is clearly environmentally sustainable, such as producers and installers of renewable energy sources like solar panels. Of course, it is often the case that green firms are co-operatives or social enterprises or at least have significant social objectives within their mission.

Other factors

High unemployment is leading to more people wanting and even needing opportunities to volunteer, and central government is providing lots of support to the development of volunteering. Although it has to be acknowledged that this is often in fact ‘voluntolding’ where people are told to volunteer. In addition there has for some time been extensive central government support for social enterprises which initially resulted in some scepticism as to their real social value although that now seems to be abating, with renewed public interest in socially-conscious enterprise. Changes in EU competition regulation during the last two years are also significant as they have made it easier for large contracts to include social value provisions. Finally, as many have noted recently faith-based organisations are increasingly stepping into the breach left in welfare provision, for instance in Hastings and elsewhere providing food-banks, and their work also has elements contributing to the local Social Economy such as providing venues for advice and community organisations.

Threats

With all this increased activity within the Social Economy it might not seem immediately obvious that there is a need to support your local Social Economy. But the threats are significant and the need is great.

Firstly, some of the large SEOs are quickly widening the range of services they provide. For instance housing associations are providing health and welfare services whilst other welfare charities are moving into the social housing market. These organisations have learnt from the private services conglomerates such as SERCO who create synergies, economies of scale and many other competitive advantages from providing a multiple range of services. This is especially the case when providing to the same contractor as the provider gains valuable intelligence from the first contract and also cuts the costs of subsequent tenders. The problem with this development is that it is beginning to shift the balance of power away from contractors and towards providers – which of course was precisely the intention with firms like SERCO.

Secondly there is the consequent danger that large SEOs and private sector providers will take the lion’s share of commissions, procurement contracts and grants. This will especially be the case when the work required to prepare bids for those grants and contracts is beyond the capacity of most middle sized SEOs, let alone the smallest ones. In government parlance this is about ‘contract readiness’ and they have been providing considerable resources to enable SEOs to become ready to bid for large contracts – but this has mainly been made available to the largest organisations. This danger is compounded by the increasing gap between large and small SEOs. Furthermore, as large SEOs gain a greater voice with central government and other influential London-based organisations such as think-tanks we are seeing the emergence of a Social Economy elite, a small cadre of people at the very top of the largest organisations who all know each other, a trend that will be further exacerbated by the development of social impact investment with all its City of London trappings.

Most small and medium sized Local Authorities are not well equipped for this changing economic landscape or for the needs of the local Social Economy. This is because they have always focused on firstly the provision of services and secondly local economic development through the private sector; these are two very different organisational functions which have traditionally been vertically structured with very few cross-cutting channels of command and communication between them. Elsewhere there are indications of developing support for the local Social Economy in Sheffield, Manchester and Birmingham.

The forthcoming meeting organised jointly by Hastings Works, Hastings Voluntary Action and Hastings Borough Council will bring together social enterprises and other local Social Economy Organisations and will hopefully begin to address some of these issues.

Appendix – Specifying the Social Economy

Non-profit trading organisations

Community enterprises; Social firms, providing work for disadvantaged groups e.g. Hastings Furniture Service; Credit unions; Non-profit cultural organisations that trade (orchestras, museums, art galleries, film clubs, music venues); Community social clubs that trade; Non-profit sports clubs that trade, e.g. EHSAA; Charities and other voluntary organisations that trade e.g. St Michael’s Hospice, Oxfam, etc; Non-profit infrastructure organisations such as Hastings Voluntary Action, Let’s Do Business Group, Sea Change Sussex; Charitable trusts and foundations e.g. Sussex Community Foundation, Foreshore Trust.

Ex-public sector trading organisations

Leisure-centre social enterprises e.g. Freedom Leisure; Housing associations and other registered social landlords e.g. AmicusHorizon; Universities and FE colleges; Health and Social Care spin-outs – co-ops and social enterprises formed by public sector staff; Theatres and other venues transferred from Local Authority management e.g. White Rock Theatre.

Socially responsible businesses

Firms with significant Corporate Social Responsibility activities e.g. Hastings Direct; Green Sector firms trading for environmental sustainability; newly formed social enterprises e.g. Hastings Works; John Lewis Partnership (including Waitrose); Financial mutuals e.g. Nationwide; Co-operatives – member co-ops such as Co-operative Retail Society and The Co-op Bank, retail co-ops such as The Phone Co-op, and worker co-ops such as Trinity Wholefoods and Wave Design; Fairtrade companies.

Other hybrid organisations

This describes organisations which used to be fully in the public sector but now operate with significant independence (and so also a lack of accountability) but which do not directly trade other than on behalf of the government. It includes quango agencies such as Her Majesty’s Stationary Office, Homes & Communities Agency, Driver & Vehicle Licensing Authority. Also government and Lottery-funded national support  and infrastructure organisations such as Big Local. Perhaps controversially I have also included Academy Schools within this category as they are now outside Local Authority control.

Public-sector legacy business

This describes de-nationalised firms, some of whom may possibly still have elements of public sector connections. For example British Telecom; Network Rail; Other Train Operating Companies (TOCs); British Gas and all the other energy utilities; Water utilities; Bus companies.

The Social Economy meeting is at 5.30pm on Monday 22 July at Hastings Works, 18 Robertson Street, Hastings. It will be an informal event to chat with others and share ideas on how groups can better work together.

For more information, call 01424 205360.

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