Developing Scotland's Economy: Increasing The Role Of Inclusive And Democratic Business Models

3. Vision: Increasing the Role of Inclusive and Democratic Business

3.1 This report starts from a simple and ambitious premise. If more people have a genuine stake and say in the economy, through advancing the number of IDBMs, then more wealth and prosperity for all Scotland’s people and communities can be realised. Achieving a vibrant and sustainable economy that is fairer, more inclusive, and less harmful to our planet is the central rationale for this report and the work of the Review Group.

3.2 In this, the Review Group confirms and strongly asserts the significance of IDBMs within the context of NSET. NSET outlines and details a programme of work that aims to deliver economic prosperity for all of Scotland’s people and places (Scottish Government, 2022). This in turn is key to Scotland’s ambition to have a more prosperous, innovative and dynamic economy. Indeed literature suggests that IDBMs will benefit workers by increasing autonomy in their daily work lives (Marmot 2004), increasing economic security (Arando et al. 2010), and increasing job satisfaction (Scott-Ladd et al, 2006).

3.3 This work also plays into potential Community Wealth Building^[3] ,Wellbeing and Sustainable Development legislation^[4], the new Land Reform Bill (Scottish Government, 2024), Democracy Matters consultation and the recently announced review of Community Right to Buy (Scottish Government, March 2024). This review is also informed by the work of the Business Purpose Commission Report (Scottish Council for Development and Industry, 2022), reiterated in the New Deal for Business Group report (Scottish Government, 2023). This important work encourages and supports businesses to advance ‘business purpose’ as a means of delivering a more prosperous, resilient and socially inclusive economy. The work on Business purpose and this review on IDBMs are mutually supportive of each other, creating a unified sense of purpose around building aprosperous, innovative and dynamic economy.

3.4 In advancing IDBMs, we start from solid foundations, with IDBMs already making a contribution to Scotland’s economy as detailed in the Current Landscape and Future section of this report. For example, the 2021 Social Enterprise Census conducted by Social Value Lab (CEIS, 2021) reported a contribution of £2.63 billion (Gross Value Added) to the economy. Furthermore, by increasing the scale and size of ownership stakes in the economy and increasing engagement, productivity can grow, for example, employee-owned business are reported to be 8-12% more productive, wages can be higher, and shareholder dividends are more likely to be recirculated back into the Scottish economy, as evidenced in The EO Knowledge Programme 2023: People Powered Growth report (Employee Ownership Association, 2023). In addition, according to The Purpose Dividend report (Demos, 2023) Britain’s economy could receive a £149bn boost from a change to UK business laws that would ensure companies put social, economic and environmental benefits at the heart of their decision-making.

3.5 However, Scotland must push on with greater ambition to meet the climate crisis, tackle longstanding inequality and poverty, transforming how our economy operates. In this, IDBMs are of great significance as they extend the notion of economic gain by embodying social values, sustainability, solidarity, cooperation and a deeper relationship to place and environment. IDBMs are an effective tool for economic transformation and wellbeing. They offer wealth retention and recirculation through increasing the percentage of people and communities who have a genuine stake in economic activity and assets. IDBMs embody the kind of economy we in Scotland aspire to. Over the longer-term, social enterprises, co-operatives and employee-owned businesses should become much more prevalent within the wider business base of Scotland.

3.6 In advancing IDBMs and economic democracy we must consider their status and profile within the national consciousness and policy. In this, the Review Group wishes to highlight how IDBMs are viewed in other countries. In a number of areas across the world, for example, Spain, Italy, France and Canada, economic democracy has been thriving and is seen as a growing plank of national and local economic strategy and an important contributor to local economies and wider society due to the additional benefits these business models can bring. For example, in France and Spain IDBMs contribute 10% of GDP, with over 2 million jobs. In Quebec, 4% of all businesses are IDBMs contributing 5% of all jobs.

Economic democracy and IDBMs are not peripheral, an adjunct, or in some way secondary to traditional business models. They are seen as important economic assets, creating employment opportunities and keeping wealth within communities. The Organisation for Economic Co-operation and Development (OECD) highlights an increasing recognition of economic democracy and the ‘social and solidarity economy’ as a key contributor to economic health and vitality (OECD, 2022).

3.7 In Scotland, IDBMs are appreciated within existing economic strategy and planning, however IDBMs are not fully recognised as a core lynchpin. Their status needs to grow. So, we assert that:

The growth of IDBMs, economic democracy and business purpose more broadly must be explicitly acknowledged and supported as a catalytic core at the heart of Scotland’s future economy.

3.8 In amplifying the catalytic role of IDBMs and economic democracy, increased resilience and further economic success for Scotland’s economy can be achieved. By their very nature IDBMs are generative, recirculating wealth back into the economy and ensuring assets are more readily held by communities, employees and local owners. In this, IDBMs can advance relationships between employees and employers, wed natural assets with local communities, and provide people with a greater stake in their local economy. By unlocking and investing in community infrastructures, within a wider programme of CWB we can secure IDBMs as a central and growing part of the overall economy, working effectively with the commercial and public sectors.

3.9 This report is clear in that achieving true transformation we cannot ignore the central issue of ownership. Ownership and decision making over the power and resources in the economy is key to Scotland’s future economic success and resilience. This ensures an increasing part of the economy is truly relational to place and driven by employees, local consumers and communities. Any perception that wellbeing and greater levels of fairness can be achieved without a consideration of, and growth of democratic ownership is limited and limiting.

3.10 Traditional redistribution alone, through the benefit system or other forms of social assistance, will not enable Scotland to achieve economic transformation and its wellbeing ambitions. Instead, we must also focus on democratic ownership and the role of IDBMs as a key wealth predistributive tool, along with wider business purpose approaches, to deliver on our national aims of economic transformation and create a prosperous, innovative and dynamic economy.

IDBMs and the Change We Want to See

3.11 To drive this change, the Review Group believes that there needs to be wide support from many actors to ensure there is adequate resource, clear and ambitious strategic objectives, and specific targets. Strategically the essential change required is predicated on the understanding that IDBMs play a key role in building an economy which:

• Is more productive and responsible.
• Offers greater investment / re-investment opportunities.
• Is more dynamic, innovative and flexible.
• Builds resilience in communities, supply chains and firms.
• Has fairer distribution of agency and power to business, workers and communities.
• Brings greater wealth distribution.
• Improves social and environmental impacts.

3.12 In terms of targets, we give further detail in the Overarching and Enabling Recommendations.

3.13 Our overarching aim for Scottish Government, its agencies and entrepreneurs is to unlock rapid growth in IDBMs. Roughly one in fifty businesses operate as an IDBM, which is circa 7000, we are now aiming to triple this to 21000 IDBMs by 2034^[5]. The Review Group, believe that this target is achievable and should be a national partnership and ‘Team Scotland’ aim, with key responsibilities given to the Enterprise Agencies. Furthermore IDBMs are uniquely placed to support the achievement of a prosperous, innovative and dynamic economy with net zero aims for example through the supporting Climate Change Hubs and through support offered to current businesses to transition to an IDBM through succession planning. However, the final figure would be agreed and set by the Economic Democracy Group.

The desire to grow the numbers of IDBMs in Scotland is matched by our desire to support existing businesses operating as a social enterprise, co-operative or employee-owned business to thrive and grow. IDBM research shows that these business are more resilient and creative (Co-Operatives UK, 2023). In capturing and supporting this creativity, we can increase the economic contribution in terms of GVA and sustainable employment opportunities for people, helping to recirculate the wealth created in our communities.