Pocketknife
Creating pathways to better futures

The Fourth Sector

How the ‘fourth sector’ of the economy can help us now

A discussion of the ‘fourth sector’ and how this might change the framing of our ‘business for impact’ discussions in Aotearoa New Zealand


By Hélène Malandain and Steven Moe - March 2021

Introduction

We can become captured by what we know.  We use the same terminology as those within our thought bubbles and we talk about the same concepts with them.  It is helpful to lift our eyes and see what else is emerging around the world.  One of those ideas that we have recently become aware of is the idea of an emerging ‘fourth sector’ of the economy.  In this paper, we aim to examine what that is and most importantly, its relevance for Aotearoa New Zealand. This paper is intended as a provocation and a starting point to the conversation, rather than an opinion piece.

Part I: What is the “fourth sector”?

The fourth sector refers to purpose-driven organisations in a way that helps place them within the overall economic system we operate within.  The idea is that there are traditionally three sectors, being:

  • The Public Sector: that is, the Government

  • The Private Sector: that is, Business

  • The Non-profit Sector or Third Sector: these encompass charities, NGOs and NFPs

The fourth sector is proposed as a new category to think about organisations which are within the other three sectors and taking elements of those other sectors and fusing them together in a new way.  The key distinctive that unites these organisations is a focus on positive impact and purpose. 

The terminology used to describe these new ways of operating varies around the world, but includes social enterprises, mission-led business, cooperatives, for-purpose companies and similar.  Any one of those domains has its own ecosystem with proponents in favour of what that label represents, when in fact they are all very much related and may benefit from greater alignment or coordination amongst them.  In our view, they all represent a fundamental reimagining of the economic system and point to a future where purpose and profit are systematically and sustainably integrated.

The Fourth Sector Group (4SG) is a global initiative for collective leadership and action aimed at accelerating the development of a supportive ecosystem for a fourth sector. It’s important to note that 4SG is focused on supporting the emergence of such a sector, which they argue has been growing at the intersection of the traditional private, public, and nonprofit sectors for decades; but it is in no way focused on advocating for the term ‘fourth sector’ to be consistently adopted. Various economies and ecosystems have their own terminology that suits them; the opportunity is to create a conducive environment for this sector of the economy - whatever its name or brand - to thrive, and to advance inclusive and sustainable growth.  We reached out to Heerad Sabeti who is the CEO of The Fourth Sector Group who noted:

“As for the terminology, the key for me is to have conceptual clarity that we're talking about developing a new sector (class/set) of organizations and the enabling ecosystem and infrastructure around them, rather than being focused on reforming existing structures. We're talking about a global emergent concept, and no concept has a universal name, so we shouldn't expect this one to have one either.”
Heerad Sabeti, CEO, Fourth Sector Group

It is worth visiting the Fourth Sector Group website for more information: www.fourthsector.org

Now, let’s focus on our own context, here in Aotearoa New Zealand, on the back of what has been a disruptive, challenging and thought-provoking year.  Looking at the world using this lens of a fourth sector then how is our own ‘fourth sector’ developing? In times of crisis and uncertainty, what role is it playing in lighting the path towards recovery, regeneration and new ways of thinking?  Now is the time to think about these questions because many of us have realised we don’t want to go back to the old way of doing things. It is the perfect time to be looking at new conceptions. 

Part II: The emerging fourth sector of the Aotearoa economy is leading the charge in rethinking our economic system

We think that a fourth sector already exists in Aotearoa New Zealand, with a large and growing number of social enterprises, community enterprises, Māori-led enterprises and mission-led businesses. These are different terms which describe a new way of conceiving the role of business.  We are fortunate to have many diverse impact-led entrepreneurs and innovative business people who are leading the way in considering how they operate for both purpose and profit.

Our fourth sector is diverse and still fragmented. Its diversity is reflective of the way social innovation unfolds. And its diversity is its richness. From a very fragmented and emergent area of the economy over 10 years ago, the fourth sector now enjoys much greater visibility, credibility and connectedness. This is the result of the work that a range of organisations are doing to support the conditions for the fourth sector – or parts of the fourth sector – to grow. These organisations include: the Ākina Foundation that is dedicated to growing impact through social enterprise, Inspiring Communities that supports community enterprises, Te Whare Hukahuhuka that supports Māori entrepreneurship and innovation, community funders like Foundation North and its Centre for Social Impact, regional social enterprise hubs such as Social Enterprise Southern Lakes, among many more.

Based on its ability to scale innovative and self-sustaining solutions to social, economic, cultural and environmental challenges, the emerging fourth sector is uniquely placed to lead the way towards a more resilient, inclusive and sustainable economy.

In their ‘Fourth Sector 2030’ paper, the 4SG states that: “There is a massive amount of work to be done to scale the fourth sector and its supportive ecosystem. As this transitions from an organic, self-organizing, and emergent process to an intentional one, forward-thinking interventions from policymakers, business leaders, investors, scholars, philanthropy, civil society and other actors are needed.” We couldn’t agree more.

One of the recommendations that the 4SG makes in this paper is for Governments to “recognize for-benefits as a distinct class of organization and take steps to level the playing field on which they operate.”

Creating a distinct legal space and label for purpose-led businesses in Aotearoa New Zealand could help to understand where they fit within the traditional sectors or the wider economy, and this can be an enabling mechanism, in the same way it has been historically for private and non-profit sectors. Heerad from the Fourth Sector Group drew our attention to the way that charities (or third sector) have been recognised as unique from business and so been allowed that area to grow with specific rules that apply.  He commented on this and its relevance to a fourth sector: “It's not about putting things in boxes - it's about recognising, legitimising, acknowledging and supporting certain types of economic activity”.

Some of the benefits of structurally recognising the existence of a fourth sector as a distinct class of organisations in the New Zealand economic landscape may be:

  • To allow easier discussions across the established sectors by reference to purpose and impact as the vocabulary of choice

  • Clearer boundaries around purpose-driven organisations

  • A sense of belonging - growing confidence and support in a less fragmented and more coherent ecosystem

  • New connections and partnerships - creating a ‘network of networks’ and furthering collaboration between impact-driven organisations

  • More efficient transfer of knowledge - with opportunities for peer-to-peer support, mentoring and coaching becoming more visible and more organic

  • Less duplications - building bridges between organisations that are working towards the same outcomes who may not have been aware of each other’s work in the past

  • Greater visibility amongst the public, funders, decision makers and Government, which may manifest in stronger business cases and more compelling stories

  • Alignment with terminology used overseas which could then allow further importing of concepts more easily

  • Greater legitimacy and an enhanced advocacy voice - enabled by the power of the numbers, but most importantly by the opportunity to measure the collective impact of the fourth sector, to make a compelling case for an impact-driven economy

  • Restricting and reducing the risk of greenwashing and social washing.

The emerging fourth sector of the Aotearoa New Zealand economy has contributed significantly to reconciling financial profit with the wellbeing of our people and our planet, in particular in the last decade.

A more coordinated approach to creating the conditions for this fourth sector to thrive, in all its diversity, may lead to greater potential for social and environmental impact to be delivered in a faster, smarter and more collaborative way. We are fortunate to already be world leading with a national wellbeing framework to work from and to deliver towards. A tangible opportunity for a more coordinated fourth sector could be to advance intergenerational wellbeing across the Four Capitals of the Living Standard Framework.

Why is all this more relevant than ever?

 Last year, we’ve all become very acutely aware of the urgent need to reinvent our structures and our systems.

The Covid-19 crisis is having devastating consequences on our people and our economies – but it has also highlighted issues that were always there under the surface.  It has created multiple opportunities to challenge the status quo, it has encouraged many to take bold action, and it has increased the sense of urgency around addressing the failures of our system. These system failures aren’t new, but they have suddenly become more visible.

We have the once-in-a-lifetime opportunity, and duty, to work together to build bridges to better futures, and to address the roots of the problems.

Will creating an enabling policy and market environment for the fourth sector facilitate our transition towards recovery and regeneration? Would harnessing the power of a more coordinated fourth sector accelerate the shift from an extractive economic system to a regenerative one? Would these efforts turn the tide on the unfolding social and environmental crises?

We think structural change is definitely part of the answer. And we also think that change is needed elsewhere, at a much deeper level: the level of our values system and our worldview. Aotearoa New Zealand is very uniquely placed to embrace the wisdom and practice of Te Ao Māori (the Māori worldview) to answer the wicked problems of our modern times: looking back to look forward.

The third part of this paper explores the idea of a coordinated fourth sector through the lens of Aotearoa New Zealand’s unique cultural and indigenous landscape. 

Part III – What lies underneath structural change

The way Aotearoa New Zealand effectively managed the spread of the Covid-19 pandemic has been applauded internationally and has mostly been attributed to effective leadership and fast action by central government, combined with the coordinated effort of thousands of local people around the country. The way our leaders - both Government leaders and community leaders - responded to the crisis demonstrated the effectiveness of top-down strategies combined with bottom-up, grassroots initiatives.

There is a very important lesson in this. The way communities pulled together their people, their knowledge, their strengths, and their scarce resources to face adversity tells the story of how resourceful we can be when we bring our attention back to our core values, and to what we truly believe. A lot has been written about how disruption and uncertainty have changed the way people relate to each other and to their environment - boiling things down to who we truly are as human beings and as a nation.  There is a far greater willingness to accept a more holistic view of both individuals and their place in society – which reinforces the importance of measuring impact in a holistic way too, beyond economic growth and GDP.

This brings the question of relational change. We believe system change requires both structural change and relational change. Relationships, connections, power dynamics and mental models are important factors, and necessary ingredients, to long-lasting, sustainable and systemic change. Yes, structural change is needed to create the right ecosystem and set the boundaries within which individuals and organisations operate. But if we don’t assess, shift or improve our values systems, our belief systems, and the very nature of the social fabric of our societies, we won’t make headway on our most complex global problems.

[Reference: The Water of Systems Change - https://www.fsg.org/publications/water_of_systems_change]

Aotearoa New Zealand is very uniquely placed to embrace the wisdom and practice of Te Ao Māori (the Māori worldview) to guide us towards a way of living that is holistic, regenerative and intergenerational. The Māori worldview and the wisdom of our ancestors belong at the heart of our collective vision for a thriving economy – one that restores the equilibrium between the planet and humanity. How do we connect our future to our now and to our past? What are the opportunities to bridge the Māori worldview with future economic development strategies? We are no experts on the matter, but we’d love to be part of the conversation. What we know for sure is that this work can’t be done in a “tokenistic” way – it must run deeper than that.  You may see ripples on the surface of a river but the current flows strong under the surface.  It’s those deep currents with which we are concerned.  Instead of trying to find an answer in ‘fabricating’ a new sector of the economy, at the intersection of the three sectors that define our capitalist economies, what if we learned from indigenous wisdom and practice to transform the system from within?   

Many existing grassroots initiatives do this well and with great results. For instance, food security and food resilience initiatives such as the Kai Collective, that was started by Rākau Tautoko and Aspargove in the Maungakiekie-Tāmaki area (Central-East Auckland) during lockdown. The Kai Collective, a group of five community groups, developed a community-led approach to improving community access to food, rethinking the current systems of individualised funding and resources distribution.  

We are after fundamental change which transforms our understanding of the role of all organisation types. One of the most positive signs we see that a paradigm shift of thinking is occurring is the fact that questions are being asked across all types of organisations about how they grow impact. This again points to a desire that some organisations have to transform themselves from within. This transformation will only happen if these organisations consider their value systems and their culture, alongside their business structure and business model.

So, if we consider the need for relational and cultural change - along with structural change - to achieve true system change, and if we embrace our unique tikanga practices (or Māori way of doing things), should we think of our work as a movement for change from within that cuts across all sectors, rather than an emerging fourth sector? A movement that is reinventing the way business is done, because this is the only viable, sustainable way of doing business moving forward. A movement that grounds itself in our indigenous wisdom and knowledge to transform the other sectors from the inside out.

To change the systems, we need to work with the systems. We won’t revolutionalise capitalism or shift our dominant social narratives overnight. But in Aotearoa New Zealand, we are fortunate to have other, older and wiser narratives that can guide us. So, to change our economic structures and systems, the work ahead of us may be about getting closer to the Māori worldview in the way we create, trade and share value, with the aim to restore the equilibrium between our people and our environment for generations to come.

Having considered the relational and cultural aspect that lies underneath the need for structural change, how do we see the idea of a fourth sector shaping up in Aotearoa? The work that is being done to enable the conditions for impact enterprises and other for-benefit organisations to thrive is very important and necessary work. But we also need to do deeper work. We need to invest more into relationships, cross-pollination, collaboration and collective action - to achieve real, practical and culture change, one organisation and one community at a time. We need to keep doing the work of opening eyes to these ways of conceiving the world.  And we must define and provide a mechanism to place tikanga, indigenous wisdom and indigenous practice at the very heart of our systems.

Conclusion

What we long to see is a time when all entities have progressed beyond the traditional splitting of our economies into sectors, and instead there is an adoption of the foundations of thinking behind what the fourth sector stands for. 

To achieve deep systems change and to build resilience for the future, we need to consider the interconnectedness of our world and our systems. Structural change shouldn’t happen independently to the questioning of our value systems.

As we reflect on 2020 and the challenges it threw out at us, we have endless reasons to ponder on the limitations of our modern capitalist system, and the societal structures and narratives associated with it. It is our hope that history will be made not just because of a global pandemic, but because of the radical shift that will happen as a result of the pandemic. A shift in the way we approach the concepts of economic growth and value creation, as well as a shift in the way we live our lives and the way we relate to each other and to our natural world. Let’s keep looking at the big picture as we must fight to ensure that we do not just go back to business as usual. 

Reflection, enquiry and collaboration are key steps we can take towards enabling change across our economy and society. We hope this discussion has caused you to ponder more deeply on where we are now, and where we might be headed. We welcome your thoughts on this paper and we look forward to the ongoing discussions that are to come.