FLOK: Public Policy for a Civil Economy

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Public Policy for a Civil Economy[1]

by John Restakis

Executive Summary

Over the last 20 years, there has arisen a global interest in the civil economy and the role it plays in the economic and social life of nations. This interest has spawned a growing literature on the nature and role of the civil economy, its size and composition, its operating rules and organizing principles, its relevance for the economic and social well being of societies, and its relation to the state on the one hand and the private sector on the other.

Movimientos sociales.jpg

Moreover, with the global economics crisis and the withdrawal of governments from public services, the civil economy is the sector that has done most to absorb the market failures of the private sector and to redress the political failures of the public sector.

Increasingly, the civil economy is being viewed as the repository of those social, cultural, and political values that are most relevant for protecting and advancing the collective good. These values include the idea of reciprocity as the driving force of civil economy organizations, the pursuit of social aims through the practice of mutuality, and the promotion of social solidarity through the advancement of social and economic equity.

For these reasons, and the upheavals brought on by free market capitalism, the civil economy is also emerging as a complement to the state for the social welfare of citizens – a role made increasingly necessary by the abrogation of this traditional duty on the part of governments. The economic crisis and the effects of neoliberal ideology have thus combined to thrust the civil economy into a historic spotlight and a central role in the reconfiguration of the body politic of nations the world over.

To a great extent, how civil society and the civil economies of nations are able to confront the shrinking role of governments and the power of capital may determine the survival of those civic values that were the social underpinnings of the welfare state. In the context of Ecuador, these civic values are also the social and political ideals that drove the Citizen Revolution and form the basis for the nation’s vision of Buen Vivir as a progressive alternative tothe free market path of the industrialized west. But in addition, civil society has a key role to play in reframing the efforts in some countries, particularly in Latin America, to reverse the diminishing role of the state by re-introducing the state as paternalistic planner and controller of social and economic affairs.

This paper examines how public policy can strengthen the civil economy to play a central role in transforming the productive matrix of the country with respect to the provision of social goods. This strategy is an indispensible element in the broader effort to transition the economy from a neoliberal model which privileges capital accumulation over social values, to one in which economics serves the enlargement of individual and social wellbeing.

In contrast to neoliberalism, in which capital undermines and displaces the state through the colonization and privatization of the public domain, this paper examines how government can strengthen the civil economy through the creation of policies that reinforce the civic principles and purposes that serve the public interest.

A central purpose of this strategy is to address the dependence of civil society institutions on government. The civil economy, despite its formal distinctions from the state, remains a dependent sector – in many ways a client sector of the state. At a time when governments in many countries have all but erased the distinctions between the private and public sectors, especially in the industrialized North, this continuing dependence is a fatal weakness that allows capital interests to continue their domination of public policy and to perpetuate an economic system that is subservient to these interests.

If the civil economy is to be liberated from its dependency on the state, and if the sector is to mature as a social and political force, then a true social market corresponding to the unique role of the civil economy as a provider of social goods must be a priority for progressive public policy. Only in this way might the overwhelming power and influence of the capitalist market be brought into balance with civic values.

An autonomous civil economy based on reciprocity and civic values makes possible also the political leverage necessary to negotiate a new social contract for a new age. Important instances of how such a model of empowered and mobilized civil economy operates in practice include the examples of Emilia Romagna in Northern Italy and Quebec.


Perhaps the most destructive consequence of the current economic crisis is the damage done by free market ideas on the role of government and the resulting corrosion of public faith in state institutions as instruments of public policy.

The mass protests against austerity economics that are shaking Europe are clear evidence of this fact and public anger has now reached levels that question the viability of the European Union. The shock doctrine that demands the sacrifice of public wealth to redeem the sins of private capital is fueling public rage the world over. In effect, the crisis has exposed the grave contradictions at the heart of the modern corporate state and its apparent incapacity to steward the public interest.

In the academy, in government, and in the public arena the search for alternatives that better serve the public good has become critical and universal. Nowhere is this more obvious than in the role of governments with respect to public services and the provision of social care for their citizens. With the continuing flow of public wealth to private coffers there has arisen a social deficit in societies that is now structural and threatens to become permanent.

With governments incapable – or unwilling – to provide public services as they once did, attention is turning to the civil economy as a source for these services. The other trend – one that has gathered much more momentum – is the privatization of public assets and the commodification of social care.

It is quite clear how the institutions of private capital might invest in – and profit from – what were once public services. What is far from clear is whether the institutions of the civil economy are equipped to respond to this new reality. This is particularly acute in those regions where civil economy institutions lack the capacity to play a leadership role in the formulation and implementation of a new economic and social model. The market failures in human services in both the private and the public economies are now arguably the central public policy issue of modern societies.

How might governments respond to this dilemma? Can they foster civic solutions that provide an alternative to the privatization of social goods? Finally, how might these solutions be fashioned to reflect, and reinforce, those social-serving values, operations, and principles that are the greatest strength of the civil economy itself?

This policy paper outlines an alternate path that recognizes the role of the state as steward of the public interest while at the same time developing the social infrastructure that complements this role with civil institutions that can provide for, and safeguard, the social goods and services that are the hallmarks of a humane and caring society. The creation of what we may call a social market for this purpose, and the development of free and open knowledge systems that serve it, are essential to this task

The Social Economy and the Social Market

Although there is a growing body of research that seeks to measure the size and economic value of the civil economy, statistics concerning its size and composition are still far from complete in most countries. This is particularly a challenge in Latin America where research in this area is still relatively new.

In Ecuador, there is no comprehensive assessment of the experiences of the civil economy as a whole. However, the available evidence indicates that activities are concentrated in three main areas: agriculture, tourism, and community credit co-operatives. The co-operative system as a whole has grown exponentially in the country and now constitutes one of the primary institutions in Ecuador’s civil economy. According to a study by the DGRV (Cruz, 2003), in 1999-2002, the credit unions as a whole experienced a growth of 384.73% compared to 49.94 % for the banks. [2]The durability of the co-operative form has also been demonstrated by the nearly twofold growth of co-operatives in the past decade, a development that predates the Citizen Revolution. [3]

Figures from the Institute for Social Security also indicate that Ecuador’s civil economy comprises 25.7 % of the nation’s GDP and 48.9 % of the employment generated in enterprises of fewer than 11 employees. The civil economy is especially important as a source of employment for women, with 64.8% working in micro-enterprises in rural areas and 56.5 % in urban. [4]

While acknowledging the value of such indicators, it also true that much of this measuring is based on principles and concepts that are derived from the capitalisteconomy – i.e. the valuing of goods and services on the basis of the exchange values that characterize commercial transactions in the private sector. But while appropriate for the measure of commercial exchange, the determination of value solely on the basis of commercial principles – of monetary value – is antithetical to the character and needs of the civil economy.

The purpose of the civil economy is not primarily about the production and exchange of goods and services in pursuit of privateends, or of monetary value – but rather the creation and use of social relations for the production of socialvalue. These are basic principles – and a market for the first is not the same as a market for the second. What then is a market for social value?

The attempt to measure value and to develop social and economic policy for the civil economy on the basis of commercial principles alone, only serves to marginalize and misrepresent what the civil economy is. In most countries, the character of civil economy organizations and their role in society is acknowledged as being different from that of private businesses and requiring a different approach. Governments provide tax supports to civil economy organizations such as co-operatives, non-profits and charities because they create social benefits that are worth supporting and are in the public interest.

Around the world, the principle of tax exemption to non-profits is well established. Traditionally, the work of these societies was conceived as relieving a burden that would otherwise be borne by the state for such things as providing relief to the poor, running hospitals, caring for the vulnerable and indigent, etc. In return for these services, the state compensated societies through an exemption on paying tax. But it was also a condition of the exemption that no profits could be retained by the society nor distributed to its governors or members. This is the constraint on the distribution of profits that today defines non-profits under legislation that governs their operation, as is the case in Ecuador.

But in an age where the sophistication and complexity of civil economy organizations extends far beyond simple charity models, and where hybrid models such as social enterprises and community benefit companies employ market mechanisms to pursue social goals, the old tax exemptions based on constraints to the distribution of profit are wholly inadequate. They fail to capture both the reality and the potential of the civil economy as a sector deserving equal treatment, on its own terms, to that granted the private and public sectors. They also perpetuate the false notion that the generation of profit is incompatible with the pursuit of social benefit.

The reason for this is that profit is still conceived strictly in capitalist terms, which is to say as a private good. But what of profit that is a social good, a collective asset, as in the case of co-operatives where it is designated as a “surplus”? The real question is not the question of profit but rather the purposes for which this profit is created and utilized. Recognition of profit as a social asset has paradigm changing implications – not only for the civil economy but also for how the public interest is defined, developed and defended.

The primary task in this age of unfettered privatization is how to reverse the colonization of the public domain by capital and instead, to foster and expand the social control of capital for the common good. This is the essential attribute of the civil economy – its social character and the embeddedness of market exchanges within a network of social relations that are driven not by the private interests of the capitalist market, but by the collective and mutualistic aims of friends, neighbours, communities and society as a whole.

A Civil Approach

What are needed are social and economic policies that recognize the social and mutual foundations of the civil economy as a distinct sphere with its own requirements and with institutions that can support a true social market corresponding to the operations of a civil economy. On what basis could such a policy, and such a market, operate? The answer lies in the economic principle that lies at the heart of civil economy organizations and of the civil economy as a whole – reciprocity.

Unlike the drive for private profit that animates the behavior of firms in the private sector, civil economy organizations are animated by the principle of reciprocity for the pursuit of mutual economic, social or environmental goals, largely through the social control of capital.

Reciprocity animates a vast range of economic activities that rest on the sharing and reinforcement of attitudes and values that are interpersonal and constitute essential bonds between the individual and the human community. At an individual level, what is exchanged in reciprocal transactions are not merely particular goods, services and favours, but more fundamentally the expression of good will and the assurance that one is prepared to help others. Reciprocity is the foundation of trust. It is also the principal means by which a society's stock of social capital is built up.

In economic terms, the production of social capital through co-operative and reciprocal systems has a central role to play in the diffusion of knowledge as a social good. This connection between social capital and knowledge diffusion, particularly in the context of a social knowledge economy, will be explored more fully in the companion papers “ICT, Open Government and the Civil Economy” and “The Partner State”. [5]

Reciprocity is a key to understanding how the institutions of society work. As an economic principle it has wholly distinct characteristics that embody social as opposed to merely commercial attributes. Civil economy organizations are those that pursue their goals, whether economic or social, on the basis that individuals’ contributions will be reciprocated and the benefits shared. Civil economy organizations also engage in market exchanges but these exchanges are conditioned, and set within, a set of social relations whose purpose is social value – not the private accumulation of capital. Their primary purpose is the promotion of collective benefit. Their product is not just the particular goods or services that they produce, but human solidarity and social capital.

With respect to public services and social goods the central question therefore, is this:

How can reciprocity and mutuality be actualized as institutional forces to provide for the human services that are not being met by government or the private sector?

Taxation, Capital Formation, and Social Benefit

Of all the challenges that impede the growth and potential of the civil economy, the difficulty in accessing and controlling capital is surely the most limiting. Solving this problem is therefore essential.

There are many ways that public policy can expand the capacity of civil economy organizations to provide social goods. Rethinking and reforming tax policy is among the most important and the most potent.

One line of approach is to provide tax benefits and exemptions to investments in civil economy organizations. In Ecuador, these tax benefits are already provided to groups that are non-profit or have acquired charitable status. But there is a strong case for extending these benefits to contributions made by supporters – whether association members or other community members – to anyorganization whose primary purpose is the provision of a social good.

It is essential that non-profits and a wide range of social enterprises be able to generate capital for their services through tax-exempt contributions sourced from within civil society itself. Not only would the dependence of civil economy organizations on the state be mitigated, but the perpetual rationing of capital due to the civil economy’s dependence on state funding could also be lessened. But for this to happen, the idea of non-profits as organizations whose goals are incompatible with the generation and utilization of capital (profit) has to be left behind. It is a relic of a false understanding of profit as a private good, and associated with an equally outmoded understanding of markets as exclusively capitalist.

All enterprises, whether commercial or social, must generate a profit (or surplus in the case of co-operatives) if they are to survive. The question is: to what purpose is this profit or surplus put? Is it private or is it social? The case of co-operatives clearly shows how profit can be a social good as well as a private one.

Co-operatives are a form of civil economy organization whose surplus is collectively owned and utilized by its members for their mutual benefit. When non-profits generate a surplus that is then reinvested in services to community this too, is profit transmuted into a common good. And just as private capital is bent on privatizing social wealth, so should the civil economy be focusing on ways to socializecapital.

A civil economy understanding of the market, and of profit, requires us to rethink society legislation so as to allow non-profits to fully explore the possibilities inherent in their organizational structures and social missions. This includes the power to issue shares to raise capital, to accumulate capital in the form of undistributed reserves for the pursuit of social goods, and to invest in other civil economy organizations and institutions that have the same purpose. The creation of the kinds of social purpose capital that are now possible in the case of co-operatives should be extended to the whole of the civil economy, with the proviso that their use be transparent, dedicated to the pursuit of social aims, and democratically accountable to contributors and service users.

This is essential. Without such accountability, there is the risk that capital accumulated by an organization for social purposes may ultimately be used to pursue private interests – as is sometimes the case with non-profits that have no structure for accountability to stakeholders. What is central in protecting the pursuit of social ends is not the conventional prohibition on the accumulation and distribution of profit, but rather the social constraint imposed by democratic accountability for the use of that profit.It is exactly the same principle that serves to protect the public interest when applied to the taxing and spending practices of the state.

Case Study

How might such a system work? An experiment in Bologna helps to illustrate how a social market might be established without compromising the obligations and prerogatives of government while at the same time mobilizing the social economics of reciprocity. Even more, it points to ways in which principles of democratic control and personal empowerment are fundamental to real reform in social care systems. Bologna



In 2002, a foundation called the Fondazione del Monte di Bologna e Ravenna started to experiment with new ways of funding social care to seniors. Previously, like most foundations, the foundation had provided grants to a variety of social service groups that then delivered care to seniors and their families across the city. The service organizations retained full control of the funds while the users of these services had little or no role in influencing the content or quality of the care they received.

Nor was it easy for consumers to seek more appropriate care elsewhere if they were unhappy. The funded groups were established organizations, secure in their funding, and had little incentive to change so long as power remained exclusively in their hands. Accountability flowed to their funders, not to the people they were meant to serve. Moreover, the model incorporated one of the worst attributes of privatized services in the pubic sector – the isolation of third party contractors from the funder on the one hand and service users on the other.

Under third-party contracts, the buyer (in this case a private foundation) does not consume the services acquired, the consumer does not pay for the services received, and the contractor stands in the highly advantageous position of dealing with a buyer who rarely sees what is purchased and a consumer who never bears the expense. This is a recipe for low accountability, which affects service quality, and for the absence of consumer influence on prices, which provides no controls over cost.

This is the classic charity model of care that has now become universal among non-profits. The problem was that in many cases, seniors and their families were unhappy with the care they received. But, having neither control rights in the organizations nor any say over the funds that paid for the services, they were powerless to do anything without jeopardizing the care they depended on. As with government delivery models these non-profits, despite their best intentions, shared the common faults of paternalism, inflexibility, and the lack of transparency that comes from the absence of accountability to users.

All this changed when the foundation decided to bypass the organizations and provide funding directly to seniors in the form of social vouchers. Instead of funding the supply side of social care, they would fund the demand side. Three hundred and seventy six seniors and their families were involved in the program.

Each voucher covered the costs for a specified package of services. There were different packages depending on the type of services that individuals needed and also on their respective ability to pay for a portion of the costs. Those that were less able to cover the full costs were subsidized by the foundation and from contributions of those that could pay more. Finally, the social vouchers could be redeemed at any of a group of pre authorized service organizations, whether co-op, or state-operated, or privately run.

Overnight, the balance of power between service provider and service user was reversed. Now, seniors or their families were able to select those service organizations that were best able to provide for their needs. The social vouchers looked identical, were the universal currency for services, and because the portion of private contribution to social subsidy was known only to the foundation there was no stigma or discrimination attached to their use. Nor was it possible to compete on the basis of cost since the vouchers covered all costs equally. Competition arose solely on the basis of quality.

In the course of three years, the quality of senior care improved, costs dropped and the organizations that flourished were those that focused on service quality, innovation, and flexibility. Social co-ops that included seniors and their families in their membership did best.

What are the lessons from this experience? First, it indicates that supply side funding for social care can have a profound effect on the quality of care received. This should come as no surprise. Competition will inevitably arise. But not in the familiar manner of government contracts where low cost (or cronyism) is often the deciding factor, but rather in a manner favourable to service users. Nor should it be surprising if the organizations that received charitable and government funding should resist such a change (as they did in this case). Ultimately however, social care isn’t about the providers – it’s about those who depend on their services.

The second lesson is that the social market that was created for senior care in this example is replicable on a much larger scale. A social market for a wide range of social goods and services can be created that involves a different set of relationships and incentives among service users, service providers, and funders – whether public, or private. The use of vouchers is just one mechanism for empowering citizens. The deeper issue concerns the distribution of economic and political leverage to those who depend on these services.

There is no reason why vouchers or other mechanisms for placing market power in the hands of citizens should be associated exclusively with the political Right – as it is. The use of market power for social care is just as amenable for socially progressive purposes if the market in question is structured around civic principles. Markets are notnecessarily commercial, or capitalist, and the sooner this is understood the sooner governments and civil society can start to resolve the contradiction between social goods on the one hand and chronically under funded and antisocial delivery systems on the other. Civil society must grapple with how economics can be made to work for civic purposes and the creation of social markets is essential to this.

Innovative tax policy is central to this task.

What we are discussing is the creation of an institutional social market through the formal valuation of social goods and the capitalization of these goods directly by citizens as well as the state.This entails two things: allowing civil economy organizations to raise capital directly through the issuance of social capital shares, and the development of a social market exchange that functions as a parallel institution to the stock market for capital, except for use by the civil economy.

To be clear: this is not to advocate for the commodification of social relations, nor is it the promotion of atomized and utilitarian relations in place of social ones as is now the case with privatization. Rather, we are proposing a form of social currency that acts as a medium of circulation for the expansion of a new kind of socialrelationship between producer and user based on the reciprocal and mutualistic character of social relations that define the civil economy itself.

Social Co-op.jpeg

CADIAI Social Co-op, Bologna

The Social Market Exchange

What would such a social market exchange look like? There are currently a number of social stock exchanges in operation, and they all share a common feature: the ability to invest in a social enterprise through the purchase of shares that yield a limited return to investors. This is one approach. But even a limited return to investors monetizes support for social benefit in a way that moves away from reciprocity and toward a capitalist conception of social investment.[6]By contrast, what we are proposing is something that values both contribution and return in terms of reciprocity. This is the reason we use the term contributoras opposed to investor.

What does this entail? First, it would mean the extension of tax exemptions and benefits to contributions that support the creation and distribution of social goods. In this way, the provision of a tax benefit to social contributors acknowledges the key notion of a public benefit compensated by the tax system on the reciprocity principle. It also embodies the fundamental principle of public responsibility for social care as a civic right. This is what taxes should do. But in addition, there needs to be a re-alignment of powers with respect to control over the design and delivery of social care itself. A number of factors seem essential.

The first requires shifting the production of some social care services from government to democratically structured civil institutions. Government would retain its role as a prime funder for these services and for the regulation and oversight that is necessary to protect the social character and public interest entailed in these services. The first part of this equation is already well underway. Governments have been unloading social services to private and non-profit providers for over two decades. It is the second aspect, the need for user control and service accountability that is lacking (as too, is the funding). Social services that receive public funding and are not under the direct control of the state should be conveyed only to those organizations that provide control rights over the design and delivery of those services to users.

This applies equally to non-profit and for-profit services. Examples include organizations that provide elder care, family services, services to people with disabilities, or childcare. Moreover, those services that remain under state control (social security, public pensions, public auto insurance, public schools, health care services, etc.) should be democratized where possible.

Second, government funding should, at least in part, flow directly to social care recipients who would then select the services they need from accredited organizations of their choice. To qualify for receipt of public funds, these organizations must have provisions for democratic user control in their operations. In addition, funds must be made available for the organization of independent consumer-run organizations to assist users and their families in the identification, evaluation, and contracting of services to their members. This is crucial, especially in the case of users that haven’t the means, or the capacity, to adequately select and contract services on their own.

Third, social care organizations must have the legal ability to raise capital from among users and from civil society more generally on the basis of social investing. Both users and community members would be able to purchase capital shares for the purpose of capitalizing the association. As a socialinvestment, these shares would yield a prescribed value in servicesto investors but unlike conventional social investment models, investor control within the association would be limited to ensure democratic control by members. As social investments these capital assets would not be taxed.

Fourth, surpluses generated by these organizations should be considered, at least in part, as social assets. All social care organizations receiving public funds – whether in the form of vouchers or direct payments from government – would establish an indivisible reserve for the expansion and development of that organization and its services.[7] A portion of operational surplus would also have to be used for the partial capitalization of a social market exchange through the purchase of shares in the exchange.

Social Market Exchange and Social Currency

Social capitalization on a significant scale requires the creation of a social market based on reciprocity. Individual contributors in such a market would purchase shares yielding a monetary value that is redeemed through the use of a social good or service provided by any one of the accredited organizations in the system, as in the example of the social vouchers used in Bologna. For example, a citizen would be able to purchase social capital shares to support the work of a childcare centre or a school in their community. They could then redeem the value of those shares at a later time when they may require the services of a home care organization.

A mechanism for mediating the issuance of social vouchers on the one hand and their redemption on the other needs to be established to balance what some organizations receive in contributions and others redeem in services. The creation of a collective capital pool to help organizations pay for redeemed shares might be one way of managing this. A social capital exchange of this type generates an independent source of credit and investment capital to civil economy organizations, in addition to what they would receive from the state. Shares would be eligible for tax credits on the basis that such contributions have a clear and direct social benefit, as would a capital pool.

In this model, the primary role of government would be to continue to provide public funds for social care services and to establish the rules of the system. In partnership with service deliverers, caregivers, and users, the state would regulate and monitor service delivery, establish service standards, license service providers, and enforce legal and regulatory provisions. As much as possible, the design and delivery of these services should take place at those levels of jurisdiction that are closest to the service user. [8]

Most importantly, the decentralization of service delivery must include the democratization of decision-making through the sharing of control rights with service users and caregivers. This is precisely the system that is in place in cites like Bologna where social co-ops and their federations deal directly with municipalities to determine the service needs of communities and to manage their delivery.

These provisions for the development of a civil economy market are obviously not exhaustive. They do however outline a direction for the development of a market structure that reflects the social and economic nature of the goods and services it is meant to facilitate. They are a key part of a suite of policies that serve to strengthen the social and solidarity economy and help it to develop as an autonomous sector of society in proper balance with the state and the private sector.

Should the Ecuadorian state embark on the creation of a civil economy market as envisioned here, it would be the first country to do so. For while policies for the support of social economies are gaining favour in many jurisdictions – primarily in Europe, North America, and Latin America – most of them are extrapolations for capital formation derived from the capitalist economy or adaptations of grants and subsidy programs deriving from government funding.

Many of these initiatives have proven successful in strengthening the capacity of civil economy organizations to contribute to social wellbeing through the production of much-needed social services and the increase in training and employment that these services provide. In particular, the use of co-operative models for the provision of social care has yielded not only an increase in the range and quality of services available to the public, but in jurisdictions like Italy and Quebec where public policy has supported their development, social co-ops have generated a high proportion of the new employment generated by the civil economy.

The economic impact of these policies, both in job creation and lowering the costs of social care, is significant. In Italy, although social co-ops compose only 2% of non-profits, they are responsible for 23% of jobs in that sector. There are now over 14,000 social co-operatives employing 280,000 people of whom 30,000 are disadvantaged workers. [9]In Bologna, 87% of the social services in that city are provided by social co-ops under contract to the municipality.

In Quebec, over 100 social enterprises – of which about half are solidarity co-ops – account for fully 40% of the home care services in that province. Quebec’s social enterprises employ 6,000 people, have over 80,000 members, and deliver 6 million hours of homecare annually. [10]

State policies in these jurisdictions have played a key role in mobilizing the latent strengths of the civil economy to produce new social goods and services. But the pre-conditions allowing for this evolution took years to mature. Both in Italy and Quebec there existed a rich mix of co-operatives, non-profits, social networks, and political alliances that pressed for the needed policy changes in government. Key institutions that comprise the social economies of these regions forged a new vision that was a pre-requisite for the emergence of a new social contract between the state and the civil economy.

The adaptation of these policies in Ecuador will thus require the deliberate establishment of those civil structures that are capable of playing the social-economic role envisaged here. This entails a long-term strategic vision, the formal engagement of civil economy stakeholders in its formulation, and the time and patience required for its implementation. Most of all, unless there is pro-active public policy that empowers civil economy organizations to undertake the roles outlined here, it is difficult to see how these kinds of organizational skills will emerge.

The creation of a social market requires the existence of organizations that have the capacity and the resources to produce the kinds of social goods and services that citizens will value. Training and development that is geared to the needs of civil economy organizations, and to the new roles they are encouraged to play, is therefore key. Equally important is training and development directed to actors within the state bureaucracy. The emergence of a new relationship between civil society and the state around the production of social value for the common good requires a new mindset, along with the resources and institutional structures that can realize it in practice.

In summary, there is no question that a concerted use of public policies by governments can have a decisive effect on the capacity of the civil economy to play a much-enhanced role in the provision of new goods and services for social benefit, and in generating new opportunities for both training and employment. But more than this, the growth of the civil economy greatly expands the diffusion of those values and practices that in turn reinforce a progressive political economy both in the state and the broader civil society.

The development of a civil economy market is at the heart of such a transition. However, there are complementary public policies that reinforce such a development. The following section summarizes a range of practices that have been applied with success in other jurisdictions. The recommendations that follow are a distillation of policies that have been shown to provide tangible economic and social results.

From expanding the quality and range of socially beneficent goods and services, to the amelioration of poverty through increased employment and the generation of new social enterprises, these policies are all within the capacity of the Ecuadorian state and serve as a practical transition toward the kind of social market economy envisaged above.

Once again, these are draft recommendations that will require the critical input of stakeholders, both inside and outside government, before being finalized. Some of them are already in place, and others will require adaptation to the unique social and economic conditions of Ecuador.

Policy Recommendations

A review of public policy trends and instruments for supporting the civil economy reveals a highly developed array of strategies developed by many countries. [11]

The following outlines a number of strategic areas where adaptation of these strategies appear to be crucial for the further advancement of the popular and solidarity economy in Ecuador and for its capacity to maximize the benefits of an open knowledge policy pertaining to civil economy organizations in the country.

The key areas in which policy reforms can be most effective are the following:

Tax Policy and Public Subsidy


  1. That civil economy organizations be exempted from the payment of income tax on the condition that
    1. Profits (or surpluses in the case of co-operatives) are reinvested in the production of goods or services whose primary aim is the provision of social goods;
    2. A minimum of fifteen per cent of retained earnings are placed in an indivisible reserve;
    3. The organization is structured as a democratic association providing control rights to a membership composed of primary stakeholders.
  2. That community service or social co-ops be exempted from the payment of employer payroll taxes if 25% of employees are drawn from designated vulnerable populations;
  3. That the state be responsible for the payment of these payroll taxes.

Financial Supports and Social Investing


  • That three per cent of the retained earnings of civil economy organizations be placed in a designated civil economy fund for the promotion of, and investment in, a social market;
  • That designated civil economy funds be exempted from the payment of income tax;
  • That civil economy funds be mandated to provide low coast loans and equity investments in civil economy organizations and to offer financial advice and technical support;
  • That financial co-operatives (credit unions) be encouraged, and provided with professional training and incentives, to provide loans to co-operatives and other civil economy organizations and that these loans be supported by government loan guarantees;
  • That social investments in the operations of a co-operative or civil economy organization be eligible for a non-refundable tax credit of 30% for civil contributors;
  • That the purchase of investment shares by the members or employees of a co-operative be eligible for a non-refundable tax credit of 30%;
  • That registered charities be entitled to invest in civil economy organizations out of both their endowment funds and their grant making activities and to earn income without affecting their charitable status;
  • That existing financial incentives and supports available to small businesses be made available also to civil economy organizations;
  • That special incentives be established for investment in strategic sectors and targeted to the support and development of priority social and human services (health, home care, housing, education/literacy, environmental protection, green energy, refugee services, indigenous communities, etc.);
  • That Ecuador’s Bono de Desarrollo Humano (BDH), be examined to determine in what ways it may be redesigned to act as a source of public funding for social vouchers;
  • That government funding programs and grants be made available preferentially to civil economy organizations that collaborate to provide services to their communities.

Education and Training

  • That a long term strategy for the provision of specialized education and training be developed for the strengthening of organizational and human capacities on the part of civil economy organizations;
  • That such a strategy include clear provisions and implementation targets for the education and training of decision makers and front line employees in public sector institutions responsible for the provision of social care;
  • That an education and training strategy be developed in full partnership with civil economy organizations and key stakeholders;
  • That the implementation of this education and training program be jointly designed and administered by the state and a consortium of civil economy organizations representing a cross section of civil economy stakeholders and institutions.

Pilot Projects

Given the complexity of some of these policy recommendations, particularly with respect to the cultivation of a social market, it is recommended that a pilot project be established to test the viability of implementing a number of these proposals in a real community.

The pilot project would

  • Test the use of social vouchers for social goods and services;
  • Test the use of the Bono de Desarrollo Humano (BDH) as a form of social currency;
  • Implement a plan for developing social co-operatives for the provision of needed social services (home care, elder care, services for people with disabilities, etc.); and
  • Design and test a social market exchange.

To maximize the prospects for success, a pilot should be implemented in a community where the conditions are favourable for such an undertaking.

An ideal community for such a pilot is one where there is strong local government support for developing the civil economy; where there already exist a substantial number of civil economy organizations and institutions prepared to participate in such a project; where there is a substantial population size; and where existing levels of social capital are relatively high.

Such a pilot would be conducted over a period of five years and form the subject of a separate research and development project. [12]

Concluding Remarks

The recent history of civic activism in Ecuador reveals the emergence of a new confidence and optimism that has laid the foundation for reframing the social and economic future of Ecuador. As evidenced in the Montecristi constitution and the National Plan for Good Living, this optimism is fueled by a profound sense that a new way of living is possible, a kind of life that acknowledges and honours the bonds that link society to the natural environment and citizens to each other.

Operating above and beyond the material pursuits of the marketplace, its is these civic values of reciprocity, mutuality, and concern for the common good that can guide society to a new vision that places social justice, sustainability, and individual well-being at the heart of political economy. The idea of social knowledge as a common good is an indispensible resource for the realization of such a vision. Ultimately however, the vision rests on the continued vitality of an engaged civil society for which this vision and these values transcend the particularities of time and governments. Governments and their policies are, by nature, transient. The realization of Buen Vivir as the embodiment of the Citizen Revolution is a national project that cannot rest with any one government.

What abides and what fuels the continuous striving toward a more just and more humane polity are the civic institutions that embody these values and are capable of holding the state accountable for their expansion and preservation. It is for this reason that truly progressive governments will recognize in civil society the one estate that can be relied upon to safeguard the values upon which a new model for Ecuador will be built. The corollary of this is that civil society, and in particular the web of community serving organizations, civil networks, and reciprocal social relations that comprise the civil economy, must continue to grow and to mature as an autonomous force pressing for systemic social and economic transformation.

Progressive public policy and the mobilization of knowledge as a common good are indispensible components of this path. So too, is the recognition that while government and civil society share a common and fundamental aim in the promotion and protection of the common good, it is the separation of these two spheres and the autonomy and maturity of civil society that makes possible the partnership between state and civil society that is essential for the fulfillment of this vision. [13]


  1. The term “civil economy” is here used synonymously with the terms “social economy”, “social/solidarity economy”, and “popular economy”.

[2]The Role and Importance of Savings and Credit Cooperatives in Microfinancing and the Worldwide Activities of the German Cooperative and Raiffeisen Confederation, 2003

[3]Promesas En Su Laberinto, Cambios y Continuades En Los Gobiernos Progresistas de Latin America, Cambios En El Modelo De Acumulación, p. 165

[5] J. Restakis, ICT, Open Government and the Civil Economy, and Public Policy for The Partner State, FLOK Society Project, IAEN, 2014

[6]In the case of schemes such as social impact bonds, which are now all the rage, there is now a distressing body of evidence to show how easily private capital can exploit social investment models to generate profits at the expense of the services they are meant to support (see Margie Mendell, 2012).

[7]Indivisible reserves have a long history in co-operatives and remain a key means by which co-ops capitalize their operations. The reserve is accumulated over time from the co-op’s surpluses and may not be distributed to members – it is a collective asset for use as a social benefit and is therefore not taxed.

[8]This idea of a new partnering relationship between the state and civil society is further developed in the concept of The Partner State in the companion paper “Public Policy and The Partner State” (Restakis, 2014)

[9]V. Zamagni, 2010

[11]Crystal Tremblay, Public Policy Trends and Instruments Supporting the Social Economy, Canadian Social Economy Research Partnerships, 2010

[12]See references to a similar pilot established in Dauphin, Manitoba in the 1970s, The Manitoba Mincome Experiment, M. L'Heureux, 2007

[13]The elaboration of what such a relationship entails is explored in the companion paper, “Public Policy for a Partner State”, Restakis, 2014