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The Social Economy

In the real world, there are many different types of entrepreneurs with different motivations driving them forward. But standard economic theory tells us almost nothing that would help us to understand them. For example, the textbook on Economics jointly written by Gregory N. Mankiw of the Harvard University and Mark P. Taylor of the Washington University Olin Business School, is totally silent about the social economy (also termed as the solidarity economy). This economy is deemed as the third sector when it is distinguished from the private sector and the public sector. The social economy comprises a rich diversity of enterprises and organizations such as cooperatives, mutual associations, NGOs engaged in income generating activities, women’s self-help groups, community forestry and other organizations, associations of informal sector workers, fair-trade organizations and networks, foundations, social enterprises and paritarian institutions, sharing common values and features.

Consider social enterprises and co-ops in particular. Social enterprises serve the social, economic and cultural needs of the society and they can be for-profit or non-profit. They defy conventional/neoclassical economic wisdom in many ways. First, financial motivation is not the principal incentive for work and business. Secondly, their remit stretches beyond the financial to the social and/or environmental. Businesses can be successfully organized on ethical, commonly focused, and cooperative/solidarity/democratic principles. Thirdly, they are need, as well as, market driven and may juggle diverse activities instead of specializing in just one activity. And fourthly, most of them do not wish to grow beyond their current size and yet they survive and sometimes thrive in an unforgiving/hostile environment.

Cooperatives build sustainable businesses that make profit, while operating with a social cause that benefits its members. Brian Davey informs us that presently at least one billion people on the planet are members of co-ops, which employ more people than the multinationals and provide services to three billion people weekly. That is about 40 percent of people on the planet! And yet, Mankiw and Taylor and such neoclassical wizards ignore them! The Core Team’s textbook thankfully talks about cooperatives, though. We can find the reasons for this. Note that the co-ops have a history that spans over hundreds of years and this history has horror stories about them. They were brutally repressed, particularly in the 1930s and 1940s by the fascist and communist governments. This happened in Italy, Russia, Germany, Austria, Spain, and Czechoslavakia because (a) they were a threat to the fascist/communist dictators as they represented a self-organised society where people on their own took decisions and were well-organised to do so. Co-ops imply practical participation in economic decision making by ordinary people who thereby develop skills for a genuinely participative political democracy; and (b) co-ops were more successful than private economy and so violence was used to restabilise the private sector or transfer the assets to the fascists; and (c) most modern economists as theorists or policy makers are biased in favour of the private enterprises.

In contemporary times, and especially in the neoliberal times since the late 1980s, when the welfare state has progressively disappeared and the corporate sector has failed in providing decent work, and when public policies have increasingly favoured the private sector even as the Leftists continue to be obsessed with statism, how the social economy operates and encounters and overcomes obstacles is a cutting-edge research agenda indeed. For, the social economy exists in a market, institutional and cultural environment of the capitalist world that is not set up for them. This situational context is akin to freshwater fish put in a saltwater environment! In contemporary times there is evidence about the cooperatives as the best way of organizing economic activities, especially in relation to the rampant precarious, low-wage jobs of the private sector.

In the Western countries, there are remarkable success stories such as the Italian co-ops, the Mondragon Corporation in Spain, and the John Lewis Partnership in the UK. In USA too, the coop movement has demonstrated that good values can be good business. Worker-owned businesses can not only survive but thrive! In Chen’s words, they “aren’t just a fluffy hippie social experiment, they’re viable businesses with a track record of promoting civic-minded sustainable enterprises. What worker-owned cooperatives offer is simply this: a stake for each worker in the future. Based on a structure centered around shared equity and worker autonomy, the business model, which hews to a principle of ‘one-member-one-vote’ workplace governance, intrinsically guarantees that each worker profits in tandem with their labour. The key difference from the conventional corporate model is that workers share in the equity and direct how funds are reinvested, be it in pay raises and pensions, new hires, or investing in tech upgrades and staff training…The foundation of the cooperative is an idea for a business that produces material and social good together, which in turn also does good for workers’ communities. This principle, reflecting an ethical framework known as the ‘solidarity economy’, is put to practice…The equity principle of worker-owned cooperatives could be especially crucial for communities of color, as a path toward expanding community investment and closing the abysmal racial wealth gap. A community-based cooperative can be a vital economic on-ramp for women, immigrants, and people of colour historically excluded from entrepreneurship…While many co-ops are start-ups, conversion of conventional businesses to cooperatives can be a vital investment in marginalized communities, and also widen accessibility to credit, since start-up capital can be pooled collectively…cooperatives tend to stick with their democratic ethos over the long run. Many coop enterprises actively partner with civic minded financial institutions, like community credit unions. And while a single business won’t radically change the country’s dysfunctional social and economic policies, a network of cooperatives can foster progressive programs such as promoting workers’ health through providing comprehensive benefits, expanding access to affordable childcare, and cultivating more balanced schedule systems and labour-directed workplace-safety programs”. The social economy can thus treat the workers and farmers as the real wealth of a nation and restore their dignity.

In the developing country context, the social economy has been hailed as “a key mechanism through which poor or disempowered people in society gain greater control over resources and decision-making processes that affect their lives. Economists and political scientists have long espoused the benefits that can derive from co-operation or group behavior in terms of addressing market failures and making demands on more powerful entities. Sociologists have emphasized other virtues related to social cohesion, identity and job satisfaction.” In India the social economy practices exist in everyday practical support such as care and health services, popular education, microfinance, cooperatives of producers or artisans, management of common resources, etc. They are also found in varying lobbying activities with local governments, employers (when they can be identified), ministries (both at the central and state levels), traditional trade unions (most often gender blind) and sometimes international organizations. Given the predominant prevalence of informal labour in India, social protection is a major issue. SEWA (Self-Employed Women’s Association, India) is one of the best-known examples but many other initiatives exist in rural as well as urban areas, in various sectors of the economy (agriculture, producers, artisans, waste pickers, street vendors, domestic workers, etc.).

In Latin America, unlike in India, the social economy is formally recognized and institutionalized through specific public policies. Some feminist research reveals this. The feminists view the social economy as an eminent opportunity for reorganizing social reproduction, and integrating the political goals of gender equality and bringing about more equitable power relations. All the same, there is no gainsaying the fact that there are also numerous stories about failures in the social economy on account of poor decisions, deficit in motivating values and ethical systems, and hostile public policies.

By Annavajhula J.C. Bose, PhDDepartment of Economics, SRCC References Feminist Analysis of Social and Solidarity Economy Practices: Views from Latin America and India. Michelle Chen. 2019. What If Workers Owned Their Workplaces? March 8. Peter Utting. 2013. What is Social and Solidarity Economy and Why Does It Matter? April 29. The Core Team. 2017. The Economy. OUP.
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