Document 1266

Scottish Parliament: Research Briefings: SB 03-07 The Social Economy

Author(s): Scottish Parliamentary Corporate Body

Copyright holder(s): Scottish Parliamentary Corporate Body: © Scottish Parliamentary copyright material is reproduced with the permission of the Queen's Printer for Scotland on behalf of the Scottish Parliamentary Corporate Body.


03/07 SPICe Briefing
29 January 2003



This briefing has been written for the Enterprise and Lifelong Learning Committee in advance of its hearing on the Social Economy. This briefing outlines some of the unique features of the social economy, analyses its extent in Scotland and overseas and describes public policy towards the social economy particularly in terms of European funding.

• The social economy has drawn increased attention from policy makers in recent times
• It constitutes an important body of intermediate economic activity, sitting alongside the formal economy, operating in areas of service provision that it does not pay the private sector to exploit
• There is debate in the social economy literature about defining precisely what constitutes a social economy organisation
• As a result, there have been varying evaluations about what the social economy is worth to the Scottish economy as a whole – depending on the definition and methodology used
• Using a narrow definition puts the number of social economy jobs in Scotland at around 55-60,000, a broader definition puts the number of paid employees at around 107,000
• Social economy organisations range from community/voluntary groups, charities through to credit union and housing groups
• According to statistics from the Scottish Council for Voluntary Organisations, around half of the social economy organisations in Scotland are involved in social and heath care
• On Monday 27 January 2003, the Scottish Executive announced a £6 million funding package designed to support the development of the Scottish social economy sector – on the same day they also launched a Review of the Scottish Executive’s policies to promote the social economy
• Social economy organisations have been successful in attaining European funding
• The social economy has become an important element of many economies throughout the world


The social economy (1) plays an important role in the regeneration of disadvantaged communities and in tackling problems of social exclusion more generally. It constitutes an important body of intermediate economic activity, sitting alongside the formal economy, operating in areas of service provision that it does not pay the private sector to exploit. Unique features of the social economy have been identified as:

• its “not for profit” motivation – any profits are not distributed to the “owners” of the businesses but are reinvested for community benefit;
• its existence in response to a need not supported by the market;
• its strong level of volunteering input – services are provided by paid employees, but voluntary activity is also a major feature;
• its capacity to build a relationship of trust with its client groups;
• its expertise in dealing with disadvantaged groups and communities;
• the fact that excluded groups and communities are often involved in the ownership and management of its organisations;
• its high degree of autonomy from the state.

(Simon Clark Associates, 2002; McGregor, et al., 1997; Salamon et al., 1999)

The social economy is extremely diverse, making it hard to define. Indeed, a study of the literature on the subject reveals that there is no clear and standard definition of what the social economy means (see Simon Clark Associates, 2002). It does not fall into any Standard Industrial Classification (SIC), categorised by a mode of supply, but shares institutional characteristics as a mode of delivery. A social economy or “third sector” business will hold a variety of goals and does not follow conventional market force rules in the supply of its goods or services. It features a heavy involvement by its target community in its operations and governance. As one study said:

“The social economy is essentially a ‘small business’ and a service sector which directs its resources and activities very much towards disadvantaged areas and groups. Its primary beneficiaries include the unemployed and those on low incomes. The social economy makes a direct contribution to the alleviation of poverty. It represents a significant means of reaching excluded individuals, including them in meaningful activity, improving their capacities and circumstances and potentially drawing them on into the mainstream economy.” (McGregor et al, 1997)


The social economy is a broad tent, with a whole spectrum of activities being provided by diverse organisations. These organisations may be involved in areas of economic and community development, education and training, campaigning and advocacy, culture and recreation. Table 1 provides a breakdown of the 50,000 social economy organisations (2) by field of work.

Table 1: Breakdown of Number of Organisations by field of work for Voluntary Sector Charities plus Housing Associations and Credit Unions (2000/01)

[NOTE: Table here in original]

In recent years there have been a number of attempts to research the worth of the social economy to Scotland. Regardless of which study one looks to it is clear that the social economy plays on important part in Scottish society.

Research by McGregor et al, 1997, and the SCVO has attempted to evaluate the worth of the social economy. SCVO research calculates there to be around 107,000 paid employees in the Scottish social economy sector, a mark-up of the McGregor et al study (carried out by Simon Clark and Associates, 2002) would suggest around 55-60,000 paid employees in the sector.

For the purposes of this paper, we will look primarily at the most recent figures produced by the Scottish Council for Voluntary Organisations (SCVO). In terms of calculating what contributes to their figures, the SCVO use the phrase “social economy” to “describe the economic dimension [my emphasis] of voluntary sector activity.” It has been suggested (Clark and Associates 2002) that SCVO incorporates the widest definition (by comparison with the rest of the literature on the subject) of the social economy in determining what encompasses the sector.

Research by SCVO calculates that in 2001 there was a sector income of £2.8 billion, equivalent to around 3% of Scotland’s GDP and equivalent to the agricultural output of Scotland. It estimates that the sector provides employment to 107,000 employees, around 80,000 full-time equivalents.

Figure 1 below outlines the main sources of income to social economy organisations. The chart highlights the importance of public sector grants and donations, which remain the lifeline of many organisations in the sector. However, figure 1 also reveals that “self-generated income” has become a major part of the sector’s income (32%) and arises from the sector’s economic activities, such as trading, rental income and returns from investments. Correspondingly, a significant amount of income comes via service-level agreements with local authorities (8%), underlining the role of the social economy in public service delivery. In recent years there has been an increased effort by policy makers in supporting the role of the social economy. Speaking in February 2000 as Minister for Communities, Wendy Alexander stated that:

“Social economy organisations have great potential to work in partnerships, as intermediaries between the state and the individual….There are opportunities to expand the social economy’s work in the fields of poverty relief, care provision, employment and training, housing or personal finance….We want to make sure that good ideas for social enterprise are not thwarted because of lack of money or a lack of vision.” (3)

Indeed, the Executive published a Review of the Scottish Executive’s Policies to promote the social economy on Monday 27 January 2003. Launching the review, Deputy Social Justice minister, Des McNulty stated:

“Good relationships between social economy organisations and the public and private sectors are vital if we are to use their complementary strengths.” On the same day, the Executive announced a £6 million funding package to run from 2003-04 to 2005-06. Of this £6 million, Communities Scotland will contribute £3 million and the Scottish Executive £3 million. Set plans for how this money is to be allocated have yet to be announced, but at the press launch it was stated that the money could be used to:

• strengthen the asset base and capability of social economy organisations;
• improve staff training and development within social economy organisations;
• support entrepreneurial innovation by social economy organisations.

Figure 1
[NOTE: Figure here in original]

Source: Scottish Council for Voluntary Organisations


The social economy’s unique motivation, ability to build trust with their clients, expertise in dealing with “problem” groups and areas, and direct representation of their communities through their management structures, have all led the EU to value the input of social economy organisations to the management of the Structural Funds. In particular the focus of many organisations in the sector in dealing with disadvantaged or socially excluded individuals has enabled the sector to become a significant recipient of European Structural Funding.

The main fund which provides assistance to many of the social economy principal clients is Objective 3. In Scotland Objective 3 funding is provided by the Scottish ESF Objective 3 Operational Programme. The fund, which consists of five priorities,4 provides assistance to support unemployed individuals back into work and to move socially excluded individuals closer to the labour market, and is worth €498.84m (roughly £312m) between 2000-2006. The programme also provides assistance to build the capacity of organisations, such as social economy organisations, delivering services to target groups supported by the programme (Scottish ESF Objective 3, 2000).

The Scottish ESF Objective 3 Programme Management Executive also manage funding delivered in Scotland via the EQUAL Community Initiative. A Development Partnership (DP) under Theme D of the EQUAL Programme has been established to strengthen the social economy in Scotland. This programme aims to strengthen the social economy (third sector), in particular the services of interest to the community, with a focus on improving the quality of jobs.

Given the importance of European funding to the sector, SCVO has engaged heavily with European funding structures. Symptomatic of this process was the establishment of SCVO’s European Unit in 1991 to provide a range of services to support voluntary, community and social economy organisations applying for, or in receipt of, European Structural Funds.

The European Unit of SCVO continues to develop and manage projects that support the work of social economy organisations. SCVO also manages, on behalf of the Scottish ESF Objective 3 programme, the Direct or ‘Global Grants Scheme’, which is worth roughly €11m (or £6.9m) between 2000-06. This scheme provides Objective 3 funding in the form of small grants (typically around £10,000) to voluntary and community organisations within the Scottish Objective 3 programme area (principally Lowland Scotland) (Scottish ESF Objective 3, 2000b, p4). The scheme focuses on three main areas of activity:

• projects which enhance local networking such as locality studies, social audits, community learning programmes, community profiling, project-specific feasibility studies;
• projects that increase social cohesion such as food co-ops or development of infrastructure bodies such as a village hall development group;
• projects that develop community enterprise.


Recent years have seen a surge of interest throughout the world in the broad range of organisations that are institutionally separate from the state and operate outside the normal confines of the market. A study carried out for the John Hopkins Center for Civil Society Studies (1999) aimed to evaluate the impact and contribution of social economy organisations. What the study revealed was the increasing importance of social economy organisations to many economies throughout the world.

The study, which was carried out in 1995 in 22 countries, (5) calculated that the social economy is a $1.1trillion (US) industry employing 19 million full-time equivalent paid workers, equivalent to 27% of all public sector employment in the surveyed nations. Non-profit expenditures in these countries averaged 4.6% of the 22 nations’ GDP. If the nonprofit sector in these countries were a separate economy, it would be the eighth largest economy in the world, ahead of Brazil, Russia, Canada and Spain.

Figure 2 breaks down the social economy’s share of total paid employment in each of the 22 surveyed nations.

Figure 2
[NOTE: Figure here in original]

Although it is more important to some countries than others, figure 2 reveals that the social economy constitutes a sizeable component of a wide assortment of economies throughout the world.

Although the methodologies and year of the publications are different, if Scotland were placed in the John Hopkins table based on the SCVO figures (107,000 total social economy employees) and the current total employment figures in Scotland (2,415,000 total employees in Scotland (6)), Scotland would rank somewhere in the mid range at about 4.3% of total employment.

McGregor, Clark, Ferguson and Scullion, 1997. Valuing the Social Economy and Economic Inclusion in Lowland Scotland. Glasgow, Communities Enterprise in Strathclyde.

Salamon, Anheier, List, Toepler, Sokolowski and Associates, 1999. Global Civil Society: Dimensions of the Nonprofit Sector. Baltimore, MD, The John Hopkins Center for Civil Society Studies.

Scottish Council for Voluntary Organisations (SCVO) – statistics:

Scottish ESF Objective 3 (2000) Scottish ESF Objective 3 Operational Programme: 2000-2006.

Scottish ESF Objective 3 (2000b) Scottish ESF Objective 3 Operational Programme: Programme Complement.

Simon Clark Associates Limited, 2002. The Social Economy: A Literature Review. Edinburgh, Communities Scotland.

Social Economy groups in Scotland -links:

SQW Limited, 2002. Support Infrastructure for the Social Economy. Edinburgh, Communities Scotland.

1 Other terms that have been used to describe the space occupied by the social economy are the third sector, the not-for-profit sector, and the voluntary sector.
2 50,000 is the number of social economy organisations in Scotland according to Scottish Council for Voluntary Organisations (SCVO) research.
3 Scottish Executive Press Release, Business and Voluntary Sectors must work together, 4 February 2000.
4 For more information on the Scottish ESF Objective 3 Operational Programme and on the operation of the Structural Funds in Scotland more generally see, SPICe paper SM DA01-03 ‘European Structural Funds’.
5 The 22 nation-states were as follows: Austria, Belgium, Finland, France, Germany, Ireland, Netherlands, Spain, United Kingdom, Czech Republic, Hungary, Romania, Slovakia, Australia, Israel, Japan, United States, Argentina, Brazil, Colombia, Mexico and Peru.
6 From Office for National Statistics, Labour Market Statistics January 2003 Scotland.

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Scottish Parliament: Research Briefings: SB 03-07 The Social Economy


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