How a ‘fourth-sector economic strategy’ can help us build a better future for all

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Jennifer Blanke, Non-Executive Director, African Risk Capacity Insurance Co Ltd & Michelle Muschett, Senior Strategy and Policy Advisor, Fourth Sector Group, Former Minister of Social Development, Panama & Heerad Sabeti, CEO, The Fourth Sector Group

• An emerging approach to the economy combines the best of the public sector (governments), private sector (for-profit) and social sector (non-profits).
• This evolution has led to the blurring of boundaries among these three sectors, bringing an additional fourth sector into focus.
• While fragmented and still forming, this nascent fourth sector points a way forward to address the failures of the current system.

When G20 leaders met virtually at the end of last year for the Riyadh summit under the theme ‘Realizing Opportunities of the 21st Century for All’, high on the agenda was addressing the ongoing COVID-19 crisis and its economic and social impacts. At their own recent virtual meeting, G7 leaders stated their intention to “work together to shape a recovery that promotes the health and prosperity of our people and our planet.” These discussions have taken place at a difficult and extraordinary time, which has led many to re-evaluate our very economic and social foundations. Efforts to contain waves of COVID-19 have forced governments to make zero-sum choices between saving lives and livelihoods, with unavoidable damage to both. Families around the world are mourning loved ones while facing surging unemployment, volatile markets and a global recession.

The pandemic and its consequences have also laid bare the stark inequalities and lack of sustainability inherent in our economic systems. Indeed, many of the inadequacies of our economic systems that helped facilitate the pandemic’s introduction are exacerbating its effects, and will impede a sustainable resolution.

Illegal and unregulated wildlife markets could have allowed the virus to jump to humans; air pollution may be a key contributor to the mortality rate; vulnerable communities most excluded from good quality healthcare and economic prosperity – many of whom are now deemed ‘essential workers’ – are becoming gravely ill and dying at higher rates; and life-and-death concerns, like pandemic preparedness, have been challenged by market failures and poor coordination, with trade restrictions and national preferences making it even more difficult to get medical and protective equipment to where it is most needed.

We must build a better economy

However, every crisis presents an opportunity for transformation – if we deliberately seize it. Since this crisis began, the G20 and other governments have deployed trillions of taxpayer dollars to respond to the pandemic and stabilise and resuscitate their economies. This has required unprecedented public spending to be paid for by generations to come. Decisions on how these funds are spent is shaping the future. Should they be used to provide lifelines to business models that have been exacerbating our social and environmental challenges? Or should they be targeted to unlock innovation and the creation and development of enterprises that would instead help to build forward to a more equitable and sustainable economy?

This is not a new dilemma. In 2019, 183 CEOs of the Business Roundtable issued a statement calling for firms with an exclusive focus on shareholder value to act for the benefit of all stakeholders. We have also heard from voices as diverse as Greta Thunberg and the global pro-environment youth movement to US Republican Senator Marco Rubio, who warned that the relentless pursuit of shareholder value was turning workers into line items on a ledger.

The World Economic Forum’s Davos Manifesto 2020 argued that the purpose of a company is to engage all its stakeholders: employees, customers, suppliers, local communities and society at large in shared and sustained value creation. More recently, a coalition of global corporate leaders, representing a combined annual revenue of over $100 billion, have proposed a roadmap to “build the economic system better”, rather than simply “building it back”.

An excellent basis on which to build already exists. For decades, millions of pioneering individuals and organizations have been building social and sustainable enterprises to address many of the world’s challenges. This has required reimagining and remaking aspects of finance, enterprise, measurement, policy, production, consumption and more to better serve the common good. Impact investing, social enterprise, ESG reporting, venture philanthropy, the circular economy and blended finance are only a few examples.

This mosaic of innovations, involving countless organizations and networks around the world, is spurring the emergence of a new approach to the economy and enterprise that combines the best of the public sector (governments), private sector (for-profit businesses) and social sector (non-profits). This evolution has led to the blurring of the boundaries among these three sectors, bringing an additional fourth sector into focus. Viewed in aggregate, this growing sector is estimated to represent as much as 10% of GDP in the US and Europe.

Viewed in aggregate, this growing fourth sector is estimated to represent as much as 10% of GDP in the US and Europe.—Jennifer Blanke, Michelle Muschett and Heerad Sabeti

The fourth sector comprises what are sometimes referred to as “purpose-driven” or “for-benefit”enterprises. These include cooperatives, social enterprises, public benefit corporations, community development banks and community interest companies, among many others. They deliver healthy food, affordable healthcare and housing, quality education, green transportation and energy, digital access, social services, water and sanitation, financial services, and countless other essential products and services. At the same time, they create quality jobs, pay taxes, make investments, contribute to countless causes, and innovate new products in areas often unidentified or under-prioritised by traditional markets — like low-priced medicines and medical equipment.

The fourth sector points the way

While fragmented and still forming, this emergent fourth sector points a way forward to address the shortcomings of the current system.

Governments could leverage these decades of innovation and widespread demand from citizens, consumers, CEOs, employees, investors, social entrepreneurs and youth alike, to spur sustainable and more equitable economic growth to meet the challenges that lie ahead. What is needed is to recognize, formalise and scale this new sector with the proper regulatory and financial mechanisms.

Put simply, our current system does not yet have a good fiscal and judicial home for organizations leveraging the market to deliver a social or environmental benefit. Moreover, the specialised supportive ecosystem that businesses rely on to operate successfully – including financial markets, policy and regulation, training and educational systems, measurement and reporting standards, and more – are too fragmented and nascent for these new organizational models. By carefully crafting the right incentives and policies, governments can expand the sector and its positive impacts rapidly and exponentially.

This may seem a bold agenda, but it has been decades in the making. A critical mass of fourth sector businesses and infrastructure already exists, and could be readily enlisted and scaled up to rise to the many challenges of COVID-19 response and recovery. There are millions of social entrepreneurs launching new fourth sector businesses around the world each year. Unleashing all this potential requires strategic interventions by policymakers to transition from what has been an organic, self-organizing process to an intentional one. Doing so will both help to rebuild the economy and reinvent it, with an updated structure that will facilitate sustainable growth, improve resilience and strengthen resistance to future shocks.

A leading example of how this agenda can be accelerated is the COVID Response Alliance for Social Entrepreneurs: Launched early during the pandemic, uniting in support of 90,000 social entrepreneurs and to accelerate the establishment of this new emergent sector.

What is the COVID Response Alliance for Social Entrepreneurship?

The COVID Response Alliance for Social Entrepreneurship is a coalition of 85 global leaders, hosted by the World Economic Forum. Its mission: Join hands in support of social entrepreneurs everywhere as vital first responders to the pandemic and as pioneers of a green, inclusive economic reality.

Its COVID Social Enterprise Action Agenda, outlines 25 concrete recommendations for key stakeholder groups, including funders and philanthropists, investors, government institutions, support organizations, and corporations. In January of 2021, its members launched its 2021 Roadmap through which its members will roll out an ambitious set of 21 action projects in 10 areas of work. Including corporate access and policy change in support of a social economy.

For more information see the Alliance website or its “impact story” here.

As G20 leaders map out how to provide opportunities for all citizens, and G7 leaders prepare their June Summit aimed at helping “the world fight and then build back better from coronavirus and create a greener, more prosperous future”, they have an incredible opportunity to refocus our significant collective resources on rebuilding with a worthy new purpose. If not now, when humanity is united in trauma and with the greatest emergency expenditure of resources we have ever made, then when? The economy will be rebuilt; let’s be sure it is built back better.