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Chapter 5: Public Sector and Social Innovation Social innovation in Australia

Social innovation can be broadly defined as new answers to social problems. A more explicit definition is ‘a novel solution to a social problem that is more effective, efficient [and] sustainable than existing solutions.’259 Although there are no agreed international definitions, social innovation and social entrepreneurship explicitly aim to provide innovative solutions to unsolved social problems, putting social value creation at the heart of their mission.260

Similar to economic innovation, social innovation takes a variety of forms including conceptual, process or product change, organisational change and changes in financing, and new relationships with stakeholders and territories (see also Chart 5.9). Social innovation aims to provide solutions for individual and community problems by improving the welfare of individuals and communities through employment, consumption and/or participation.261

Social innovation is about satisfying community needs not provided by the market (even if markets intervene later)262; improving the welfare of individuals and communities both as consumers and producers263; or creating markets that can satisfy social challenges (Feature 5). It is a vital ingredient in delivering not only value and results from complementary public and community services, but also increasing productivity and participation and stimulating a vibrant, dynamic and inclusive social economy.264

Australia often ranks highly amongst the developed countries as a place to live and work (Chapter 1 – Australia ranks 2nd according to the Human Development Index) suggesting broad evidence of cumulative social innovation and positive governance. The arts and recreation services and health care, and social assistance sectors have some of the highest annual growth rates in the proportion of private business innovation at 11.8% and 11.5%, respectively265. Unlike the rest of the economy, these two sectors have steadily become more innovative during the global financial crisis.

Emphasis has traditionally been placed on the private non-profit sector as the source of social innovation, however it is now understood that social innovation can happen in all sectors, including households.266 Public sector, for-profit and non-profit organisations can develop social innovations, which can be exchanged between sectors. Current business innovation surveys are therefore largely unsuitable for measuring social innovation.267

The non-profit sector still plays an important role in fostering and implementing social innovation because it does not have profit-making as its main goal, so it can focus on long term social issues.268 Information on the non-profit sector is therefore the best current proxy for social innovation and social enterprise269,270 that currently exists.271

Investment in innovation activities directed towards social outcomes continues to grow in Australia. Expenditure on R&D by Australian organisations for ‘society272’ has grown more than six fold since 1992–93 (Chart 5.5). Annual growth rates in total private expenditures (business and private non-profit) in ‘social’ R&D are higher than annual growth in government although higher education and government comprise 77% of total expenditure in this area.

Australia ranks 5th in the OECD on spending as a proportion of GDP (0.06%) on private-non-profit R&D (Chart 5.6). Total private non-profit R&D expenditure of $744 million in 2008–09 was dominated by health R&D (92%) and shows a transition towards more applied research and experimental development. Annual growth rates since 1992–93 are 19% and 24% for applied research and experimental development, compared to 7% and 10% for basic and strategic basic research. This transition to more applied research in the private non-profit sector is confirmed from Medical Research Institute (MRI) commercialisation outcomes, a reasonable proxy given that health R&D dominates private non-profit R&D. MRI patenting and licensing of intellectual property has grown annually at 10% and 29% respectively since 2000. However, rates of entrepreneurship from MRIs have declined significantly through the global financial crisis (declining by 85% between 2007 and 2009).273

Chart 5.5: Australia’s total expenditure on research and development towards social outcomes, 1992–93 to 2008–09


Source: ABS (2010) Research and experimental development, All sector summary, Australia, 2008-09, cat. no. 8112.0

Chart 5.6: Private Non Profit research and development (PNPRD) intensity (expenditure as a percentage of gross domestic product), by country


Source: OECD, Main Science and Technology Indicators, January 2011. Note that data is not available for 12 OECD countries


Social enterprises can be broadly defined as market-based entrepreneurship where the primary business mission is to provide innovative solutions to unsolved social problems rather than gain personal wealth.274 Social entrepreneurship is therefore a major vehicle and agent (although not the only one) of social innovation. Market-based activity is increasingly being recognised as an innovative and effective model for addressing a range of social problems. The importance of social entrepreneurship in Australia was recognised through the granting of the 2011 Australian of the Year award to Simon McKeon275. This reflects new demands for innovative responses to ‘wicked’ social and environmental problems, as well as growing requirements for not-for-profit organisations to diversify their income sources.276

Around the world, social enterprises have been estimated to employ up to 6% of working populations, have revenues in the order of tens or hundreds of billions contributing significantly to GDP.277 The 300 largest cooperatives in the world have combined assets of US$30-40 trillion and an annual turnover of US$963 billion.278 As market activity led by a mission to achieve public, cultural, environmental or community benefit, social entrepreneurship is challenging presumed divisions between social and economic activity.279 Social enterprises are a large, mature sector of the economy. Most social enterprises have been established for more than ten years and according to the 2010 Finding Australia’s Social Enterprise Sector (FASES) report there are approximately 20,000 social enterprises in Australia, very close to the 21,965 market-facing non-profit institutions (NPIs)280 estimated by the Australian Bureau of Statistics as of June 2007.

These market-facing NPIs contribute two-thirds of all non-profit institution incomes (approx. 2.64% GDP) through the sale of goods and services in Australia and rely less on transfers and donations than non-market facing NPIs (Chart 5.7).

Chart 5.7: Market-facing and non market-facing non-profit institution income (NPI), by type, 2006–07


Social enterprises create social value or change that leads to better outcomes for people in a community. They cover a wide range of organisations from cooperatives to public service providers and community/voluntary associations to companies limited by guarantee and even for-profit enterprises that have a social change mission at their centre. Most social enterprises have a revenue stream, whether or not they are “for profit” or “not for profit” (Chart 5.7). Social entrepreneurship reflects emerging hybrid business models that provide a platform for experimentation and risk taking to develop innovative solutions. It has the capacity for place-based solutions to social issues and a means for community led social innovations.281 Social enterprises directly deliver social innovations by seeking and creating ‘win-win’ economic & social dividends (Figure 5.2).

Figure 5.2: Mechanisms for implementing social innovations


Source: Australian Government Department of Education, Employment and Workplace Relations.

Social innovation is the second most likely mission of social enterprises with 26.4% of those surveyed responding that their mission was to develop new solutions to social, cultural, economic or environmental problems (Chart 5.8). Unofficial data indicates that social enterprises are highly innovative with the proportions of innovating social enterprises ranging between 40 and 75% (Chart 5.9). Service and process innovations are more likely in social enterprises than goods innovation. This is not surprising given the large differences in goods and service income streams (Chart 5.7).

Chart 5.8: Main mission-based functions of Australian social enterprises


Source: FASES survey report (2010). Note that these questions are not compatible with the ABS innovation survey.

Chart 5.9: Types of innovation undertaken by Australian social enterprises


Source: FASES survey report (2010). Note that these questions are not compatible with the ABS innovation survey.

259 Phills Jr JA, Deiglmeier K & Miller DT (2008) Rediscovering Social Innovation, Stanford Social Innovation Review, Fall Issue.
260 OECD (2010) Social Entrepreneurship and Innovation, In, SMEs, Entrepreneurship and Innovation, OECD, Paris.
261 OECD LEED Forum on Social Innovations,
262 Social Innovation eXchange & Young Foundation (2010) Study on Social Innovation Social, report prepared for the Bureau of European Policy Advisors.
263 The Forum on Social Innovations (2009) OECD Local Economic and Employment Development Program
264 Social Innovation eXchange & Young Foundation (2010) Study on Social Innovation Social, report prepared for the Bureau of European Policy Advisors.
265 Australian Bureau of Statistics (2011) Summary of IT use and Innovation in Australian Business 2009–10,
266 Mulgan GS, Tucker RA & Sanders B (2007) Social innovation: What it is, why it matters and how it can be accelerated, The Young Foundation, pp1-51.
267 NESTA (2008) Social innovation: New approaches to transforming public services. Policy briefing SI 18, London, UK.
268 OECD (2010) Social Entrepreneurship and Innovation, In, SMEs, Entrepreneurship and Innovation, OECD, Paris.
269 Finding Australia’s Social Enterprise Sector report, QUT and Social Traders, July 2010.
270 Peattie K & Morley A (2005) Social Enterprises: Diversity and dynamics, contexts and contributions. Research Monograph, Social Enterprise Coalition and Economic and Social Research Council
271 The Australian Bureau of Statistics is developing an information development plan for the non-profit sector as of July 2010. For more information see
272 Data based on Australian Bureau of Statistics (2008) Australian and New Zealand Standard Research Classification, cat. no. 1297.0. Total society investments include Health, Education & Training, Law, Politics and Community Services and Cultural understanding.
273 DIISR (2011) National Survey of Research Commercialisation 2008–09, Australian Government. This data represents the small proportion of all medical research institutes across Australia that responded to all surveys across all years. Total numbers will be higher.
274 Kernot C (2009) Social Enterprise: A powerful path to social inclusion, The Centre for Social Impact; OECD (2010) Social Entrepreneurship and Innovation, In, SMEs, Entrepreneurship and Innovation, OECD, Paris.; Mair J & Ganly K (2010) Social entrepreneurs: Innovating towards sustainability, In (E. Assadourian Ed.), State of the World, Transforming Cultures: From consumerism to sustainability, WorldWatch Institute, Washington D.C; Santos F (2009) A positive theory of social entrepreneurship, Faculty and research working paper, Social Innovation Centre, INSEAD, 2009/23/EFE
276 Finding Australia’s Social Enterprise Sector report, QUT and Social Traders, July 2010.
277 OECD (2010) Social Entrepreneurship and Innovation, In, SMEs, Entrepreneurship and Innovation, OECD, Paris.
278 Ibid.
280 Market-facing non-profit institutions are those that ‘receive income from sales sufficient to cover the majority of their costs of production. Sales in this context includes income received from government provided on a volume basis, rent, leasing and hiring income, sponsorship income and membership fees.’
281 Finding Australia’s Social Enterprise Sector report, QUT and Social Traders, July 2010.