THE URBAN SOCIAL ECONOMY SECTOR

a discussion paper

email comments to  boyd@caledonia.org.uk

THE URBAN SOCIAL ECONOMY SECTOR

Graham Boyd, Feb 1994, The Caledonia Centre for Social Development

Rochdale Society of Equitable Pioneers, founded 21st December 1884.

Definition of the Social Economy

The Social Economy can be defined as that part of the economy which is neither private nor public, but consists of constituted organisations, with voluntary members and boards of directors or management committees, undertaking activities for local benefit. These organisations can employ paid staff (full and/or part time) and can trade in the market place, but the motivation is that of community benefit rather than the creation and distribution of private profit.

If we view the world as multi-layered and necessarily interdependent - ranging from the trans-national corporation through national and regional enterprise to small business, the community and the household economy - it does not follow that any part is more important than any other, especially as regards contributing to human and planetary well-being. The analytical framework of the Social Economy uses this as its base, and attempts to bring all parts of the world economy under the influence of values of people-centred development. There are different mechanisms for achieving this, including systems such as community enterprise and LETS (detailed below) which operate at an exciting interface between the household and community economies and the formal economy.

The Social Economy is growing primarily because the capitalist economic system is unable to cope with and tackle the intractable issues of poverty, environmental degradation and escalating wars.

The search is on for ways in which the capitalist economy, and the institutions which make it up, can be modified to serve people-centred development. Clearly there are changes occurring in the value base of capitalism despite the world-wide rhetoric about market forces.

There is growing evidence within businesses themselves that factors beyond private profit must be considered. As communities become more environmentally and socially aware, companies come to realise that they must win and retain a 'license to operate', by which they mean the consent of the local community.

This changing value base within capitalism is enabling the growth and acceptance of new mechanisms emerging from the Social Economy. Below are two examples which, during the last ten years, have gained increased recognition as being important community-led modes of tackling the issues of poverty alleviation, employment and the provision of services in low-income housing areas.

These parallel systems which are built from the bottom-up are of vital importance in underpinning the foundation of people's lives in many low-income urban areas. They appear to have a particular relevance, at this point in time, to UNICEF's search for ways and means of scaling-up Urban Basic Services programmes through developing a more strategic and systematic approach to neighbourhood-led community involvement and empowerment.

LOCAL EXCHANGE TRADING SYSTEMS (LETS)

Throughout this century, and throughout the world, different types of local currencies have been tried in an effort to create local wealth, stimulate local economies, and find a way to enable poorer communities to trade in the goods and services that they need.

One of the best known schemes was the Worgel Experiment which operated in Austria from 1929-1934. Within a year of its launch the experiment had converted a town with widespread unemployment to one of prosperity. A local currency was initially developed and was used by the municipality as wages for public works but it continued circulating as the means of exchange for services and commodities amongst the local people. This enabled them to trade with each other, where prior to the launch of the scheme, cash shortages had meant that there had been no means of doing so.

LETS are similar to the Worgel Experiment. They are based upon a new system of trading which encourages people to trade skills, services and goods without needing lots of money. The scheme involves exchange, based on a new standard of measure which the participants establish themselves and record through a simple information system. The idea originated in Canada in the early 1980s and there are now over 500 LETS operating in at least twenty developed and developing countries.

The rationale for creating LETS revolves around two issues: poverty alleviation and local control. Poor people have little money. This means not only that they have no "store of value" - wealth - but little "means of exchange". When they get some money, it is spent on necessary items which are unlikely to be produced in their community. The money therefore does not circulate in the community but is extracted quickly from it.

LETS schemes function by publishing a list of goods and services offered for sale by its members, priced in the schemes' own standard unit of account or exchange. Members buy goods and services from each other and the transaction is recorded by a registry. This registry may be run using an account book or a computer. Either way the function is the same - it keeps track of the transactions. All debits and credits are recorded, debits being goods and services received, credits being those provided. Members are supplied with periodic statements to keep them informed of their trading position. Successful LETS schemes have adopted three important principles:

1. De-linkage of the local unit of account from the national currency

This removes the effects which inflation can have on account-holders not immediately paying back their debts. It also removes any pressure for convertibility between different LETS currencies thereby avoiding many of the problems that existing financial markets experience with inflation and interest rates.

2. Debt limits on the total amount of debt held by any one account-holder

Experience has shown that a local system cannot carry a disproportionate debt run up by one participant, and that large debt reduces the incentive to repay, or encourages repayment by introducing other elements: the rental of capital assets, for example, rather than by one's own labour or time.

3. Distinguishing between capital assets and people's labour in the calculation of exchange units

This third point is crucial. If the LETS permit the hire of capital assets, this will perpetuate a system whereby some people will buy the services of others, perhaps for menial activities, and not contribute any of their own time in exchange. An economic hierarchy is established in which those who have assets can exploit the labour of those who don't.

The LETS system is a not-for-profit service which the participants are providing for themselves and the community. LETS are therefore a form of self-help community development process worthy of government and aid agency support. However, to ensure that control remains in the locality it is important that LETS maintain the essential condition of local residency as a requirement of account-holders. Otherwise, over time substantial LETS holdings could accrue to account-holders from outside the community.

Within a locality all kinds of organisations can become involved: individual traders, self-employed persons, small businesses, community businesses, co-operatives, credit unions, saving clubs, women's groups, local government, etc. LETS which embrace a wide range of organisations and individuals are therefore able to supply a much wider variety of goods and services and thus meet a broader range of needs.

LETS are proving themselves to be an extremely effective way in which people in an area can gain control over a currency and system which they create at the local level. The LETS system empowers people through being:

COMMUNITY ENTERPRISES

A Community Enterprise is an organisation with social as well as commercial aims and objectives. It is owned and controlled by the people who live in a defined locality or who share other forms of common interest. Its major functions are:

A Community Enterprise is a trading company which is set-up, owned and controlled by a local community. Such enterprises create jobs and provide local services.

Over twenty years of experience in many different low-income communities across the world shows that even in the worst possible circumstances, and where other approaches have failed, Community Enterprises are, quite simply, able to get things done. In poor urban areas they have provided the institutional framework around which local community activists have been able to stimulate economic and social regeneration. Their power to act lies in harnessing the commitment and abilities of local people.

Communities Enterprises grow out of a particular process of development which leads to the formation of an Enterprise. This does not happen by chance. Frameworks in which this local economic development process is able to evolve have been developed. It happens as the direct result of specialised development NGOs working together with municipal government and private sector business in the form of a local economic development partnership which is able to interact with local community activists.

In the United States the local economic development organisation is called a Community Development Corporation while in the United Kingdom and other countries they are termed Community Enterprise Development Units.

It is the combination of appropriate municipal level support and local involvement that triggers and develops the local resources which Community Enterprises are then able to harness for economic and social benefit.

The Community Enterprise Continuum

The Community Enterprise movement has developed a wide variety of organisations which fit along a continuum, and embrace the following two important aims:

This continuum has emerged from a decade of experiment and debate about how the varying aims, objectives and principles of community enterprise can be reconciled:

The debate within the social economy has more accurately located three types of trading organisations: Voluntary Enterprises, Social Enterprises and Community Businesses. The following descriptions give a brief explanation.

Voluntary Enterprise

This type of venture provides a local service and is run in a business-like fashion but uses voluntary labour, for the most part.

Examples of a Voluntary Enterprise include: food co-operatives, community credit unions, saving clubs, funeral societies and child-care services.

Social Enterprise

A Social Enterprise is a business providing social or commercial services which require some on-going special contract arrangement or subsidy, usually from the municipal council or a NGO service provider or from within the Community Enterprise Group, or in the form of some unpaid labour input.

Examples of a Social Enterprise are: community-run public utilities (bathing places, toilets, water standposts, wells, etc), land trusts, housing co-operatives and associations. In these the municipality contributes an agreed input towards the scheme.

In community centres, training trusts, community pharmacies, childcare and pre-school facilities the municipality or NGO may contribute resources on a routine basis.

Community Business

A community business has as one of its main objectives to become viable and sustainable without any on-going external assistance, beyond initial support with start-up costs and technical assistance.

Examples include workers co-operatives, multi-functional co-operatives, construction partnerships, community retail trading groups, producers associations and building material supply groups.

KEY POINTS FOR MUNICIPAL COUNCILS AND UNICEF

There are a number of key principles which a Municipal Council should consider if it wants to support community-based economic initiatives and which UNICEF can influence and contribute resources to:

Community enterprise is about development that benefits people, an idea which is not new, nor is it limited to specific or special places. It is a very practical way of using business to regenerate local neighbourhoods.

However, community enterprises are distinctive because

How do we assess impact?

The benefits of community economic development may accrue to a community over the long term, and it may be years before they can be fully recognised. It is, however, possible to identify some visible short-term benefits over a three to five year Urban Basic Services project period.

Assessing the social impact of a community economic initiative should focus on the following five primary areas. Data collection should be capable of being disaggregated to take account of gender and age sets.

Employment

Services

Infrastructure

Primary Environmental Care

Empowerment

CONCLUSIONS

There are many positive things which UNICEF and its Urban Basic Services programme partners can do to promote, support and enhance community-led economic development. The section in this paper titled Key Points for Municipal Councils and UNICEF outlines a number of important actions which can be taken.

In moving beyond State and Municipal welfarism approaches UNICEF should be a resolute advocate and supporter of community-led economic development. To do this, it will require that Urban Basic Service programmes clearly recognise the need to support communities in moving towards having an independent economic life based upon self-reliance, self-help and mutual assistance.

This requires the recognition of people's abilities to create their own organisations which capture and retain benefits locally. In this process, the civic virtues of solidarity, service to others and community benefit are the building blocks used by the social economy movement. The three families which comprise the heart of the social economy are: co-operatives, mutuals and voluntary organisations. Much can be learned from this movement.

During the last two decades the social economy, using holistic community development approaches, has pioneered an alternative to both welfarism and the free market. Thereby demonstrating that:

There is another way.

REFERENCES

Introduction:

Local Exchange Trading Systems (LETS):

Community Enterprise:

Key Points for Municipal Councils and UNICEF:

How do we Assess Impact:

Conclusions:

Acknowledgements:

The assistance of Alana Albee of the Caledonia Centre for Social Development in the preparation of this paper is acknowledged.