We need to commit ourselves to a wave of social innovation, lasting years, to create new welfare services and new organisations to deliver them. We need both new ideas and policies, as well as new institutions to deliver them. We need a new generation of welfare institutions that are voluntaristic, open and flexible yet professional, innovative and business-like. To create a new social welfare system we need a new breed of social entrepreneur. Britain has a long history of welfare innovation. At the time of its creation, the welfare state was the culmination of this great reforming tradition. Yet one of the greatest costs of the welfare state has been its crowding out of organisations capable of producing welfare reform. We need to return to this voluntaristic tradition of welfare innovation.

Social innovation holds the key to our social ills. Social entrepreneurs are the people most able to deliver that innovation.

— First, there is a growing body of innovation within the public sector, encouraged by contracting-out, local management of schools and devolution of power within the health services. This is encouraging public sector managers and workers to find new ways of delivering welfare services.

— Second, the private sector is showing a growing interest in the social setting for business, particularly the quality of education. This should promote a cross-pollination of entrepreneurial practices from the private sector into areas of welfare.

— Third, the voluntary sector is developing an innovative leading edge which is the most fertile source of social entrepreneurship. Social entrepreneurs are emerging from often small organisations deploying business skills in tackling social settings.

Social capital is the network of relationships that underpins economic partnerships and alliances. These networks depend upon a culture of co-operation, fostered by shared values and trust. The theory of social capital has been developed most effectively by the American social theorist Robert Putnam in Making democracy work: civic traditions in modern Italy and by Francis Fukuyama in Trust. Both books analyse the role that trust and shared values play in underpinning long-term relationships and co-operation, which in turn promote shared efforts at innovation.

Social capital matters in the private sector as much as in the voluntary sector. Studies of the success of the German and Japanese economies for instance have underlined the importance of long-term relationships and an ethic of co-operation, which provide the basis for their record of innovation and manufacturing prowess.

This storytelling capacity marks them out from business executives and politicians. Ask executives to explain their businesses and they will most likely talk analytically about market share and product segments. Ask politicians what they stand for and they will treat you to a mixture of abstract values, detailed policies and well-honed sound bites. Ask social entrepreneurs and they will most likely tell you a story about how a person transformed their outlook by being involved with the project.

Social entrepreneurs are great alliance builders. Their organisations are usually too poor and too frail to survive on their own resources. They can only survive by depending upon a wider network of support. Social entrepreneurs will only succeed if they are good at establishing these networks of support. Successful social entrepreneurs are all good at networking. They are all — for different reasons — socially confident. They will talk to anyone, of any political persuasion, if they think the conversation might help their project.

They are ideological chameleons: they cannot be tied down to a political position as this would cut them off from potential supporters. They do not accept a single, simplistic explanation for the problems they deal with. Social entrepreneurs, driven by the need to address real problems, have already gone beyond the traditional divisions of left and right, market and state.

Their language is caring, compassionate and moral. Yet that does not mean they identify with the liberal left: they are highly critical of the statism of the old left and sentimentalised versions of working class communities. They recognise that economic dislocation and global competition have contributed to many of the social problems they are dealing with. But that does not make them anti-business. Instead, they recognise the importance of benchmarking the standards of their own services against those of the private sector.

They would completely reject the libertarian right's radical individualism. Yet they accept much of the right's critique of the way the welfare state has created a dependency culture among many benefit recipients. This ideological flexibility and intellectual agility underpins their ability to innovate.

The private sector relies on social capital, but it all too rarely creates it. Private sector companies depend upon a relationship of trust with their employees, consumers and the communities where they operate. Yet all too often restructuring, delayering and downsizing have destroyed these bonds of social capital.