1.2 Defining the sector

At a glance

About 40 minutes, including a 15-minute reading. By the end of this lesson you will be able to

• explain why the sector has many names and what each one emphasizes

• describe four approaches to defining the third sector, from Pestoff, Salamon and Sokolowski, Yamauchi and Anheier

• apply these approaches to classify real organizations

Lesson 1.1 placed civil society among four overlapping spheres. The overlap creates a practical problem: would a neighborhood association, cooperative, temple group or social enterprise count as a nonprofit? We will compare four definitions by asking what each one reveals about the same organizations.

Many names for one sector

Different terms put the spotlight on different features.

• Nonprofit stresses limits on distributing profit. It is measurable but narrowly economic.

• Charitable or philanthropic stresses public benefit and voluntary giving, often placing donors or relief work in the foreground.

• Voluntary or independent stresses free participation and autonomy, although many organizations employ staff and receive public money.

• Nongovernmental organization is common in international development and distinguishes organizations from the state, though it does not by itself separate them from businesses.

• Social economy includes economic activity with a social purpose, often including cooperatives and mutuals.

• Third sector is a broad comparative term for activity outside the state and conventional for-profit market.

Three ideas run through most of these terms. Third sector organizations are private, meaning they are separate from government. They serve a public purpose and do not exist to make profit for owners. And taking part is a free choice, so nobody is compelled to join, work or give.

Four approaches to defining the sector

The names above emphasize different features, but researchers still need a boundary they can explain and apply. The four approaches below draw that boundary for different purposes.

1. Pestoff's welfare triangle

Victor Pestoff (1998, 2005) places the third sector in the middle of a triangle formed by the state, the market and the community of households. Three dividing lines cross the triangle, separating public from private, nonprofit from for-profit, and formal from informal. The third sector is the circle where these lines meet, and it overlaps with each corner. NGOs that work with government overlap with the state, social enterprises that sell goods and services overlap with the market, and volunteer and mutual aid groups overlap with the community. The model's main message is that real organizations are often hybrids.

2. Salamon and Sokolowski's five features

Lester Salamon and Wojciech Sokolowski (2016) define the sector through features you can observe, so that countries can be compared. An organization is in scope if it is

• organized, with some lasting structure, whether formal or informal

• private, meaning institutionally separate from government

• self-governing, with control over its own affairs

• voluntary, meaning nobody is required by law or birth to take part

• limited in profit distribution, meaning it distributes no profit, or only within strict limits

Under this definition, nonprofit institutions are in, and so is unpaid volunteering that benefits others. Cooperatives, mutuals and social enterprises are in only if their profit sharing is legally limited. Government agencies, for-profit businesses and household tasks are out.

3. Yamauchi's layered definition

Naoto Yamauchi (2022) argues that one definition cannot serve every purpose. He proposes four nested layers, from narrow to broad. TS0 covers nonprofit institutions serving households. TS1 adds other nonprofit institutions, such as foundations and many NGOs. TS2 adds the economic value of volunteering. TS3 adds parts of the cooperative and mutual sector, and social enterprises. Researchers choose the layer that matches their question and the data they have.

4. Anheier's institutional proximities

Helmut Anheier and colleagues (2020) start from how organizations behave in practice. Nonprofits interact with the state through laws, funding and regulation, with the market through competition and earned income, and with civil society through culture, values and trust. Foundations, nonprofit corporations and associations sit at the core. Around them are organizations close to each neighboring sphere, such as public-private partnerships near the state, social enterprises and cooperatives near the market, and social movements near civil society. This view helps explain why similar organizations behave differently from one country to another.

Which approach when?

The approaches are alternatives, not stages in a single correct definition. Choose among them by starting with the decision you need to make.

• Use Pestoff to see where an organization overlaps with the state, the market and the community.

• Use Salamon and Sokolowski to decide what is in or out when counting and comparing.

• Use Yamauchi to choose a narrower or broader boundary for a research question.

• Use Anheier to understand how context shapes what an organization does.

Read

Bassi, A. (2025). Third sector. The building of a research field. In A. Bassi, M. Aquino Alves, & C. Cordery (Eds.), The future of third sector research (pp. 35-47). Springer. https://doi.org/10.1007/978-3-031-67896-7_4

The chapter is free to read. Read pages 39 to 46, where Bassi sets out the four approaches with their original diagrams. Note one strength and one limitation of each.

Go further. Bassi, A. (2025). The terminological debate. In the same book (pp. 49-66). https://doi.org/10.1007/978-3-031-67896-7_5

Try it

Now test what changes when the question changes. For each organization below, decide where it sits in Pestoff's triangle, whether it meets Salamon and Sokolowski's five features, which of Yamauchi's layers includes it, and what Anheier's view adds. Then open the answers.

1. A local volunteer group

2. A registered charity or NGO

3. A government-funded nonprofit, such as a public hospital foundation

4. An agricultural cooperative

5. A social enterprise, such as a café that employs people experiencing homelessness

6. An international NGO, such as Save the Children

7. A faith-based nonprofit, such as Islamic Relief

Reflect

Look again at the organization you chose in Lesson 1.1. How does it describe itself? Is its legal form, such as a registered NGO, a foundation or a company, the same as the way it presents itself to the public? Why might the two differ?

Key takeaway

No boundary captures every hybrid organization equally well. A defensible classification begins by naming the purpose of the analysis, choosing the definition that serves it and stating clearly what that choice includes or leaves out.