Traditionally, players in the world’s economy fall into one of three sectors: private for-profit businesses, not-for-profit organizations, and governmental entities. According to one view, a fourth sector, the players and programs of which are known by terms such as corporate social responsibility, sustainable business, microfinance, social enterprise, and venture philanthropy – to name just a few – has emerged over the last few decades.[i] This view holds that players in the traditional sectors have introduced programs that have, in effect, blurred the characteristic lines between the sectors.[ii] It additionally holds that in the last few decades new players have emerged that also blur those characteristic lines.[iii] However, a look at the defining characteristics of both the traditional and the new players reveals that a fourth sector has not emerged; that in fact, the blurring of lines and the emergence of new players is merely part of the continued development of the traditional sectors.
The Three Traditional Sectors: Players and Characteristics
Players in the traditional sectors are divided according to their defining characteristic – the purposes for which they exist.
Private for-profit businesses are traditionally considered to exist for the purpose of advancing the objectives of the owners, the primary of which is traditionally assumed to be personal financial gain[iv] – the owners invest financial resources in a for-profit business in order to obtain an increase in those resources. Job creation, availability of goods and services that would otherwise be unavailable, research and innovation, taxes to fund the government, and other benefits to society are considered incidental to profit maximization. The defining characteristic of the private for-profit sector is its purpose of advancing the owners’ objectives.
Not-for-profit organizations are traditionally organizations without owners[v] that exist for some socially beneficial purpose. Although profit generation is not a traditional objective of such organizations, they are technically not prohibited from engaging in profit generating activities.[vi] What they are traditionally prohibited from doing is distributing its profits or funds to anyone, for anything other than the advancement of its stated beneficial purpose(s).[vii] The defining characteristic of the not-for-profit sector is its social benefit purpose.
Governmental entities, which exist for public interest purposes, are also owner-less entities traditionally controlled by national, state, or local governments. Such entities are also not prohibited from engaging in profit-generating activities. The ability of entities in this sector to collect taxes, and their accountability to the public distinguishes them from organizations in the other traditional sectors. The defining characteristic of the government sector is its public interest purpose, combined with public accountability.
The defining characteristic of each of the traditional sectors is its purpose – private benefit, social benefit, or public interest. As a result, it is an economic player’s purpose that determines the sector in which it belongs.
The New Sector: Players and Characteristics
According to the view that observes the emergence of a new, fourth sector (“the fourth sector view” or “the view”), the traditional purposes and methods have been shifting for the last few decades.[viii] The private for-profit sector has been moving towards social benefit purposes by incorporating purposes such as corporate social responsibility, cause-related marketing and purchasing, environmental management, community relations, and transparency into their operations.[ix] At the same time, the not-for-profit and government sectors have been utilizing methods traditionally used in the private for-profit sector, such as market discipline, measuring impact, earned income ventures, and microfinance.[x] According to the fourth sector view, these shifts have resulted in the convergence of organizations and programs from all three sectors into a new sector that combines business methods to achieve social purposes.[xi]
The fourth sector view further holds that hybrid organizations have emerged in the last few decades that blend the characteristics of all three traditional sectors by using business methods to pursue social aims.[xii] Civic and municipal enterprises, community development financial institutions, faith-based enterprises, and sustainable enterprises are some of the hybrid organizations identified by this view.[xiii]
Some additional players that engage in overlapping activities and purposes are identified by the fourth sector view as resulting from the convergence of existing sectors and the emergence of hybrid organizations.[xiv] The view observes that together they make up a new, fourth sector in the economy.[xv]
Has a Fourth Sector Really Emerged?
A close look at the shift observed by the fourth sector view and the new players that have purportedly resulted in the emergence of a new sector reveals that there is no such sector. The purposes, which are the defining characteristics of players in the economy, are not changing for existing players. Furthermore, the purposes of the new players easily place them into one of the three existing sectors.
As the private for-profit sector is shifting toward social benefit, the defining characteristic of players in this sector is not changing – their primary purpose continues to be the advancement of the owners’ objectives, which in turn continues to be personal financial gain. However, consumers, the group that contributes to the financial gain of private for-profit organizations, are changing. They are now more socially aware, and less tolerant of careless profit-maximization. Consumers are making demands and private for-profit organizations are doing what is in their best interest – incorporating social benefit purposes into their existing operations in order to maximize profits, thereby advancing the objectives of the owners. As the defining characteristic of players in the private for-profit sector is not changing, the shift that the fourth sector view considers to be evidence of movement to a new sector[xvi] is, in fact, merely the introduction of new means to achieve the same old end – a development which should hardly exclude a player from the sector to which it belongs.
The fourth sector view additionally holds the shift in methods used by the not-for-profit and government sectors towards methods traditionally used by the private for-profit sector to be evidence of movement of those player to a new sector.[xvii] However, as explained above, so long as the defining characteristic of those players remains the same, they cannot truly be considered to be moving toward a new sector. As the social benefit and public interest purposes for which not-for-profit and government sector players exist is not shifting, and because those purposes are the defining characteristics of players in these two sectors, there is no real movement toward a new, fourth sector.
The fourth sector view further holds new hybrid organizations that use business methods to pursue social aims to be another evidence of the emergence of a new sector.[xviii] However, in an economy where the existing players are defined by their purposes, any new type of player should naturally also be defined by its purpose; and in an economy where the defining characteristic of the existing players is used to divide them into sectors, the same rule should be applied to emerging players. As observed by the fourth sector view, the new hybrid organizations exist for social purposes.[xix] Therefore, these players are really part of the existing not-for-profit or, where controlled by a government and accountable to the public, the government sectors.
Lastly, the fourth sector view identifies several additional new players.[xx] Although these players may have overlapping purposes, the defining characteristic of each of these players is also purposes that are private, social, or public. Therefore, it makes more sense to consider them part of one of the existing three sectors, rather than to create an entirely new sector.
Conclusion
There is no fourth sector in the economy. What has been termed “the fourth sector,” is really the result of the traditional sectors working together. The movements and players that are considered to be evidence of the emergence of this new sector are in fact players that fit well into one of the traditional sectors, utilizing methods that have worked well for players in the other sectors. Corporate social responsibility is in fact a private for-profit business following the lead of players in the not-for-profit and government sectors to respond to consumer demands to remedy careless profit-maximization. Microfinance is in fact a means to provide a social benefit – increase economic activity and decrease poverty – that borrows certain principles from the private for-profit sector. Sustainable businesses are in fact for-profit businesses that choose to make a specific social benefit, the environment, the main incidental benefit it provides. Environmental benefits are incidental because financial gain is still the primary purpose – only not to the extent seen in other types of businesses. The phenomenon that the economy has been experiencing over the last few decades is actually a trend of players in each traditional sector taking concepts from the other two sectors and adapting to further its purpose(s). What we really have are new means to reach ends that have always existed.
[i] Fourth Sector, The Emerging Fourth Sector available at http://www.fourthsector.net/learn/fourth-sector (last visited March 31, 2011).
[ii] Id.
[iii] Id.
[iv] William T. Allen, Our Schizophrenic Conception of the Business Corporation, 14 Cardozo L. Rev. 261, 265 (1992); Dodge v. Ford Motor Co., 170 N.W. 668, 506 (Mich. 1919).
[v] Citizen Media Law Project, Nonprofit Organization available at http://www.citmedialaw.org/legal-guide/nonprofit-organization (last visited March 31, 2011).
[vi] Id.
[vii] Id.
[viii] Fourth Sector, The Emerging Fourth Sector available at http://www.fourthsector.net/learn/fourth-sector (last visited March 31, 2011).
[ix] Id.
[x] Id.
[xi] Id.
[xii] Id.
[xiii] Id.
[xiv] Id.
[xv] Id.
[xvi] Infra, at endnote 9.
[xvii] Infra, at endnote 10.
[xviii] Infra, at endnote 12.
[xix] Id.
[xx] Infra, at endnote 14.
