In Search of the Third Sector

Interview with Prof Lester Salamon.

In Search of the Third Sector

Interview with Prof Lester Salamon, part of the FP7 funded SSH project Third Sector Impact on the powerful role of the Social Economy and the Third Sector for job creation and for social innovation

Photo of the Interviewee
Prof Lester Salamon
The Luxembourg Presidency held a conference in December 2015 on "Boosting Social Enterprises in Europe" which resulted in a declaration signed by 6 Member States asking the European Union to further commit for strengthening the support to the social economy. The declaration states that “the social economy is a model, which has weathered the economic crisis better than many others”.

Prof Lester Salamon, part of the FP7 funded SSH project, Third Sector Impact, presented the project's research results at the conference with a presentation on “Leverage for Good: The New Frontiers of Philanthropy and Social Investing”.

Lester M. Salamon is Senior Research Professor at the Johns Hopkins School of International Studies Bologna Center and Director of the Johns Hopkins Center for Civil Society Studies. A student of the nonprofit sector, volunteering, and philanthropy, he directed the Johns Hopkins Comparative Nonprofit Sector Project, which developed what is still the most comprehensive body of empirical data on nonprofit institutions available today, covering much of Europe as well as many other parts of the world; and he has worked with the United Nations Statistics Department, Eurostat, and statistics offices around the world to put the third sector on the economic map of the countries , for the first time in a permanent way. Dr. Salamon’s most recent publications include New Frontiers of Philanthropy (Oxford, 2014), Leverage for Good (Oxford, 2014), and Philanthropication through Privatization (il Mulino).


Lester Salamon, as a partner of the FP7 Project “Third Sector Impact,” could you tell us what the third sector is. There seem to be many definitions on what the third sector is or is not, does or does not do.

Unquestionably, the third sector is probably one of the most perplexing concepts in modern political and social discourse, encompassing as it does a tremendous diversity of institutions that only relatively recently have been perceived in public or scholarly discourse as a distinct sector, and even then only with grave misgivings. Indeed, the definition of the third sector has become a contested terrain, with different schools of thought advancing quite divergent interpretations. Some observers adopt very broad definitions that embrace not only organisations but also unstructured individual behaviour and entire societal value systems. Others focus more narrowly on organisations, but fix the boundaries on widely disparate bases, such as how the organisations are resourced, what happens to any surplus they may generate, who the organizations serve, how they are treated in tax laws, what values they embody, how they are governed, what their legal status is, how extensively they rely on volunteers, or what their objectives are. These competing conceptualisations in turn have given rise to a veritable cacophony of terminologies – non-profit sector, NGOs, civil society sector, voluntary sector, charitable sector, third sector, social economy, and many more. And in the midst of this conceptual contestation there persists a vigorous chorus of naysayers challenging the whole idea that there is enough commonality among these various social manifestations to constitute a distinct “sector” at all.

Amidst this vigorous debate, it is well to remember, however, that the third sector is not the only societal sector that has faced the challenge of dealing with diversity in finding a suitable conceptualisation of itself. Certainly what is now blithely referred to as the “business sector” has every bit as much diversity as the third sector. Yet, scholars, policy-makers, and statisticians have found reasonable ways to conceptualise this complex array of institutions and distinguish it from other societal components, and popular usage has bought into this formulation.

To determine whether a similar consensus conceptualisation could be identified for the third sector, at least within Europe, the TSI Project undertook a kind of “thought exercise.” It dispatched teams of colleagues from eight European universities and research centers to interview experts and practitioners in the major regions of Europe--north, south, middle, east, and west--to determine whether there was anything approaching agreement that the array of institutions and related behaviors lying broadly outside of for-profit businesses, the state, and the family could be considered to have enough commonality to constitute a distinct societal “sector,” and, if so, how such a sector could be characterised.

While exposing considerable disagreement, this process surfaced considerable agreement about the presence of such a distinctive “third sector” in Europe and about three defining characteristics of its various manifestations, all of which were thought to embody: (i) forms of both individual and collective action undertaken privately , (ii) primarily to serve a social or public purpose, i.e., to create something of value primarily to the broader community and not primarily to oneself or one’s family; and (iii) pursued without compulsion.

Embraced within such a conceptualisation could be both organisational and individual forms of activity. The organisational components of such a “third sector” would include some or all associations and foundations (i.e., nonprofit institutions), cooperatives, mutual associations, and social enterprises--what in some countries are collectively referred to as “the social economy.” The individual manifestations would embrace volunteer work, both through organisations and directly for others.

If definitions vary a lot, one can imagine that measurements vary a lot too. What has the Third Sector Impact Project done to try to solve this problem of comparison? Have you approached Eurostat and the national statistical offices in the EU in order to foster a coordinated work on third sector measurement.

The Third Sector Impact Project’s measurement efforts stand on the shoulders of a broader statistical revolution that has been under way now for two decades with the goal of putting the third sector, in all its manifestations, firmly and officially on the statistical map, but in a way the distinguishes it meaningfully from the other sectors with which it partly overlaps. This revolution has unfolded in a series of four steps, and the TSI Project is well on its way to achieving the fifth, and final, one.

Step 1: A Research Breakthrough. Step 1 took the form of a major, cross-national research project carried out by teams of researchers from Europe and around the world under the leadership of the Johns Hopkins Center for Civil Society Studies. Focusing on what is widely considered to be the core of the third sector concept, namely, nonprofit or voluntary organizations, the project formulated a consensus definition of the nonprofit sector that was sufficiently operationalised to be incorporated into official statistical systems. Importantly, it also challenged the traditional image of the European “welfare state” by demonstrating that Europe has in fact developed a massive “welfare partnership,” with a nonprofit sector in a number of leading European countries boasting a workforce that is second or third largest workforce of any of the eighteen industries into which economists regularly divide economies.

Step 2: Penetrating the Official Statistical Apparatus. Armed with these data on Europe and several other regions, it then became possible to convince international statistical authorities to issue a special Handbdook calling on countries to produce regular “satellite accounts” on nonprofit institutions (NPIs) since prevailing economic statistics merged data on the economically most significant NPIs with data on for-profit companies, obscuring the scale and importance of nonprofits. Issued in 2003, this Handbook has been implemented in a number, but by no means all, European countries.

Step 3: Embracing the Volunteer Workforce. The third step in this statistical revolution was to convince statistical authorities to begin measuring the amount and value of volunteer work, which the CNP Project found to represent a huge share of the NPI global workforce. This was accomplished through work with the International Labour Organization (ILO), which oversees labor force data, leading in 2011 to the issuance of the first-ever official ILO Manual on the Measurement of Volunteer Work.

Step 4: From NPIs to Third Sector/Social Economy. Thanks to the Third Sector Impact Project supported by the EU’s FP7 Research Programme, we are now ready to take the 4th major step in this journey. This step acknowledges a point that many European scholars and policymakers have emphasized: namely, that the array of private institutions and individual activity without pay that primarily serves a public purpose extends well beyond nonprofit institutions and the volunteer effort they mobilise. At a minimum, it embraces cooperatives, mutual societies, social enterprises, and direct volunteering. And these entities and activities have also, like NPIs, been invisible in regular economic statistics even though data on them is included. To bring these entities and behaviors into view in economic statistics, however, it was necessary to find a “proxy” for the concept of “public purpose” that could differentiate these added entities from for-profit companies, with which they are merged in the SNA.

For NPIs, this was relatively easy since the prohibition on the distribution of profit to owners or directors under which NPIs operate in most countries provides strong evidence that, unlike profit-making companies, they primarily serve a broader public purpose since they cannot serve the financial interest of a set of owners or investors. Cooperatives, mutuals, and social enterprises, however, do not operate under a strict prohibition on their distribution of profits to owners or other stakeholder and are consequently harder for statisticians to distinguish from plain-vanilla for-profit firms. Indeed, many of them are huge commercial and financial enterprises that operate virtually indistinguishably from for-profit enterprises in their same fields.

The consensus solution to this dilemma reached by the TSI Project partners and since generally endorsed by many stakeholders has been to relax somewhat the non-profit-distributing feature required for entities to be in-scope of the NPI satellite account, replacing it with a requirement that in-scope entities at least be “significantly limited” in their distribution of profit, while retaining the other defining features of an NPI identified above. Since the term “significantly limited” is itself rather ambiguous, we specified its meaning in more detail by noting that to be in-scope of what we are terming the Third, or Social Economy, (TSE) Sector Satellite Account a set of organisations must either be totally prohibited from distributing any surplus, or fall into a legal status or have in their governing documents: (i) a legally binding social mission; (ii) a prohibition on the distribution of more than 50 percent of any profit earned; (iii) a “capital lock” requiring the retention of any retained profit for the furtherance of the organization’s mission; and either (iv) the hiring of disadvantaged workers to fill at least 30 percent of the organisation’s workforce; or (v) a prohibition on the distribution of profits in proportion to capital invested or fees paid. In addition, the Project’s conceptualisation work clarified the characteristics of the individual behaviour considered to be in-scope of this expanded TSE sector, noting that it had to have the characteristics of work (i.e., activity done for the benefit of others not just oneself), not be for pay, undertaken without compulsion, for persons outside of one’s own household or next-of-kin.

Armed with this conceptualization, researchers in the Third Sector Project have fanned out to statistical authorities in their respective countries and at the European level to encourage implementation of this new statistical machinery for capturing NPIs, volunteer work, and, eventually, the full TSE sector in the official statistical systems of Europe. To date, 10 European countries have at least begun to implement some element of this new statistical machinery for capturing the TSE sector in official statistics. And the United Nations Statistics Division has at least tentatively agreed to incorporate the Project’s consensus conceptualisation of the full TSE sector in a revised version of the UN-issued Handbook on Nonprofit Institutions in the System of National Accounts.” This is a major impact for a EU funded project in the Social Sciences and the Humanities domain.

Although there is not yet any shared approach to measurement of the third sector in the EU, could you give examples of what the third sector represents in terms of activities and jobs for instance in a couple of representative States in the EU.

We have fairly robust data on NPIs and on volunteer work for a number of EU countries from which we can make reasonable estimates for the EU as a whole. The data on the in-scope cooperatives, mutual societies, and social enterprises that are not NPIs are less precise because we have not yet been able to test the “limited profit distribution” feature of our definition against the actual realities of the laws and practices on these additional entities in many EU countries. Based on our preliminary estimates, however, it is clear that the EU “third sector,” or what we are calling the TSE sector, as we have defined it, is an enormous economic presence in the Union, with a workforce of close to 30 million full-time-equivalent workers. This makes it the third largest workforce of any industry in the entire EU, behind only the combination of trade, transport, accommodation, and food service, almost even with manufacturing, and twice as large as construction. And this is even after taking out the large commercial cooperatives and mutual societies that likely lack the significant limitations on their distribution of profit that is central to our conceptualisation. In some countries, such as the Netherlands, the Third Sector engages more full-time equivalent workers, paid and volunteer, than any other industry, beating manufacturing by a factor of 3:1 and edging out even the sizable trade, accommodation, transportation, and food sector.

Which organisational or environmental barriers impede and which solutions enable the third sector to have an impact.

The TSI project has devoted considerable effort to understanding the major barriers to this sector’s ability to increase the impact it has on European social and economic life. While this work is far from complete, a number of themes are apparent. For one thing, many parts of the sector remain poorly paid and under stress, and this is particularly so in the new accession states. Although the sector mobilises a substantial labor force, 60 percent of these are volunteers, and many of the others are not paid well. What is more, the sector is in the midst of a generational change of leadership, and it is not clear whether young people will be as attracted to this sector as those who founded the organisations during the expansion period of the 1960s and beyond. This raises the important issue of human resource development and capacity-building for sector professionals and volunteers. Improved sector infrastructure and data are also needed to strengthen the sector’s visibility and sense of coherence. Here Eurostat could play a far more proactive role in encouraging adoption of the new statistical machinery that has been created at the international level precisely to bring third sector institutions and volunteer effort into better focus. EU funding has been important to the fledgling third sector organisations in the accession countries, but more generally EU funding is too complicated and cumbersome for many organisations, particularly smaller organisations working at local level. At a more general level, EU institutions could be much more helpful in recognising the absolutely crucial role that third sector institutions and the enormous volunteer effort they help to mobilise, contribute to the economic and social life of this community. Europe has perhaps the largest civil society sector in proportional terms than any other continent in the world, yet also does the least to recognize and celebrate its accomplishments and contributions.

As you know, there is still a dominant economic thought that economic growth should prevail and that the citizens should for this accept all sorts of changes in our employment patterns, labour conditions, and even salary conditions. Does the third sector offer an example of more solidarity in a world of enhanced competition?

The third sector as we have defined it is distinguished by the fact that its institutions primarily serve the common good. Operationally, this is evident in the fact that they are prohibited from, or significantly limited in, distributing any profits they may earn to their directors, investors, managers, or other stakeholders. What motivates them is not the maximisation of profit but the maximisation of service to the individuals and communities they serve. In this sense, solidarity is ingrained in their DNA. Alone among societal institutions, they are institutions and behaviours that combine seemingly the contradictory impulses of individual initiative and promotion of the common good. As such, they differ from private businesses, which mobilise private initiative, but for the private good; and from government, which serves the common good, but relies on collective active. Third sector institutions and individual actions thus do suggest an alternative way to help communities, nations, and regions to progress and their message is one that it would be well to celebrate and encourage, in particular at EU level.


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