A framework for growing social and economic impact in place

Importance of the social economy

There are certainly many arguments to be made here about how investing in social enterprise and community enterprise could contribute to local economic development in these communities.  And luckily there is now an increasing focus on growing what is termed the ‘social economy’ in order to break spirals of disadvantage. The ‘social economy’ is defined as that part of the social sector that “uses market mechanisms to pursue explicit social objectives” (see Mike Lewis’s work in Canada www.cedworks.com), including social enterprise, social business, mutuals, cooperatives and not-for-profit organisations.

However, as the ‘Place-based Impact Investment’ reports argue, it is not merely investment in the social economy or social sector organisations (such as social enterprises) that is important. In Australia (as elsewhere in the world), most new jobs are created in small to medium sized businesses, and these businesses have been shown to play a critical role in sustaining and regenerating local economies. If we want to make an impact on halting or reversing decline and disadvantage in local communities, then we also need to consider how we develop and grow such businesses.

Importance of the local economy and SMEs

In Australia we haven’t focussed much on the role that locally owned micro, small and medium sized businesses play in community development, nor their potential social impact (other than more recent explorations of the role of microenterprise in Indigenous communities). I believe that this is an oversight that needs to be rectified. Further, if we are to address place-based decline and disadvantage, we need a broader conceptual framework that helps us to see more clearly how we can interconnect social and economic goals in policy and practice. 

While I firmly believe that those organisations currently defined as comprising the social economy are a necessary part of this, we cannot forget that strong and prosperous local businesses, owned, run and anchored in a community, have clear and direct social impacts on the health and well-being of that community. They are more likely to employ local people, buy from other local businesses, invest locally, and give locally than are larger non-local businesses.



They are a critical part of a local economy, and their social impacts cannot be overlooked if we are wanting to address place-based decline and disadvantage. Indeed, I see them as playing an essential role alongside social economy organisations. 

Interestingly, one of the major critiques of the ‘Place-based Impact Investment’ reports is that they have largely ignored investment in the social economy. And this critique is correct. These reports focus on one dimension of how we can address place-based decline and disadvantage – and there is of course much else that needs to be done and explored. 

A framework linking social and local economy in place

In the framework below I have mapped some of the important dimensions that need to be developed if we really want to tackle place-based decline and disadvantage. As you will see in this framework, I believe it is essential that we develop an integrated understanding that links the local economy (particularly small to medium sized businesses) and the social economy. Impact Investment plays a part in this framework – but it does not constitute the whole response. In building pathways out of place-based decline and disadvantage the challenge for all of us is to design systemic responses that take account of both the parts and the whole. It is no longer the case that we can say one sector or one strategy provides THE answer. The conversation and the actions to address the issues need to be much more sophisticated and systemic than this. It is important that we consider different kinds of investment, but that we do not see investment as the only answer – it is equally important to understand the impact of how and what we spend in communities and how we can ensure that capital stays in and circulates in local economies; and that we understand how we can extend and grow economic as well as social capacity in place.