The Role and Future of Social Enterprises in EU

The Role and Future of Social Enterprises in the European Union

An entire segment of the economy is composed of entities that aim to increase social inclusion and reduce inequalities, while simultaneously creating economic value. It includes cooperatives, mutual societies, associations, foundations and social enterprises (independently of their legal form). While measuring them remains challenging both at national and international levels, existing evidence suggests that they are vibrant agents assisting local and national economic development, and contributing to inclusive growth and shared prosperity through job creation, re-integration of vulnerable individuals into society and the labour market, and through promoting environmental sustainability. A review of concrete data on this reveals that there are 250 000 cooperatives worldwide, providing 250 million jobs and supporting 1.2 billion people, while mutual societies are operating in 70 countries, covering 26 % of the health insurance world market.

social enterprise is an organization that is directly involved in the sale of goods and services to a market, while having specific social objectives serving as its primary purpose. Social enterprises are not volunteer organizations as they operate as an enterprise by selling in a market, and can be registered as a for-profit or non-profit. They are managed in an entrepreneurial, innovative, and transparent way, by involving workers, customers and stakeholders affected by its business activities. The primary objective of enterprises in the traditional social economy is to serve its members and not to obtain a return on investment as traditional mainstream capital companies do. These members act in accordance with the principle of solidarity and mutuality, and manage their enterprise based on the ‘one man one vote’ principle.

Profits are principally used to fund social programs and they have in place predefined procedures and rules for any circumstances in which a limited part of the profits are distributed to shareholders and owners.

To narrow down the subject to Europe, there are two million social economy enterprises in Europe, representing 10 % of Europe’s economy/GDP, and intended to make profits for people other than investors or owners. More than 11 million people, 6% of the EU’s employees, work for social economic enterprises, with an additional 82.8 million people volunteering and 232 million that are members of cooperatives, mutual societies, and similar entities. They operate in a very broad number of activities, provide a wide range of products and services across the EU’s single market and generate millions of jobs. One out of four new entrepreneurs in the EU is a social entrepreneur, and in Belgium, France, and Finland, this number climbs to one out of three entrepreneurs. Social enterprises have been proven to be more resilient in a crisis, start-ups have double the chance to survive after the first 2-5 years. Social economy enterprises, which are mostly micro entities, and small and medium-sized enterprises (SMEs), contribute to the EU’s employment rates, social cohesion, regional and rural development, environmental, consumer, and agricultural protection, third countries development, and social security policies.

In order to develop the social economy in Europe the European Commission aims to create a favourable financial, administrative, and legal environment, for these enterprises so that they can operate on an equal footing with other types of enterprises in the same sector. The Social Business Initiative launched in 2011 identified actions to make a noticeable difference and improve the situation on the ground for social enterprises. It was forwarded by the Council Conclusions on the Social Economy (2015); GECES Report and Recommendations (2016); and the Start up and Scale-up” Initiative (2016), a series of coordinate actions and initiatives to affirm the EU’s commitment for developing the social economy. A side event to the Gothenburg Social Summit, which asked for a social pillar of the European Union to be created, was dedicated to the potential of the social economy to create growth and sustainable jobs, to the role of cooperative societies, and to methods for creating favorable ecosystems for the social economy.

The European Commission is trying to implement institutional and budgetary instruments that can be summarized in five main pillars in order to solve some of the challenges heavily affecting social enterprises, such as, access to funding in general. Social enterprises are struggling to find the right funding opportunities due to the lack of understanding of their functioning and their small size. However, they can benefit from European programmes such as, COSME, or Structural Funds such as the Regional Development Fund and the European Social Fund. Furthermore, the Commission recommended EU countries to prioritize the activities of social enterprises in the national operational programmes for the period 2014 to 2020. In a 2016 report entitled “Social Enterprises and the Social Economy Going Forward” a request was made to increase resources at the EU and national levels for training programmes, incubators and intermediaries that provide tailored capacity building support to social enterprises such as networks/platforms that connect individuals with social enterprises needing capacity building.

Apart from funding, another strategical pillar would be improving the legal framework conditions. The Commission aims to do this by providing a soft legal measure to help member states design an adequate framework to support the flourishing and expansion of social enterprises, preparing legal recommendations and monitoring social enterprise policies. Cross-border operations are also stimulated for mutual societies and cooperatives to enable them to use the full potential of the internal market for expanding their activities in and raising awareness of state-aid rules and calls by launching training on how to apply for state aid and preparing guidelines for participations to calls. An increase in visibility, recognition, and identity is viewed as another pillar that should be developed, and for this reason the Commission finances projects to review legislation, share good practices, awareness raising events, and projects for the collection of statistical data concerning cooperatives, mutual societies, and social enterprises. The implementation of instruments to share knowledge, create synergies, and the co-creation of an EU-wide communication strategyon social economy and of a representation of the social enterprise community at the EU level could be useful for this purpose. All these measures are aiming to fill up the gap in entrepreneurial skills which characterize the social sector (social enterprise managers and starting entrepreneurs are eligible for the Commission’s exchange program for entrepreneurs) and to enable them to access the market, which remains, as with other type of enterprise, a key part of the social enterprise’s business process.

To conclude, a last remark is on the international and external dimensions of the social and solidarity economy. The European Commission works closely with the European External Action Service to participate in international development forums (Agenda 2030: Sustainable Development Goals, G20 Inclusive Business Platform and G7 Global Social Impact Investment Steering Group) in order to enhance the visibility of  the social and solidarity economy (SSE) and make the SSE part of the global political agenda. Further initiatives and recommendations are aiming to increase the amount of open source intelligence available globally, launch a research initiative together with other international donors, and allocate a specific budget for impact evaluation of new support programs.

By: Flavio Previtali