Social Enterprise and Innovation: lessons from the Italian Experience Giulia Galera EURICSE

1. Social Enterprise and Innovation: lessons from the Italian ExperienceGiulia Galera EURICSE Bertinoro – July 22, 2011

2. Main issues • Part 1: conceptual aspects • Part 2: social enterprises and socio-economic development • Part 3: dynamics of development of social enterprises and legal evolution • Part 4: the Italian case study • Part 5: main lessons learned

3. PART 1: Conceptual aspects

4. 1. Introducing conceptual aspects • Multiplication of definitions with “social” suffix next to typically economic concepts: • Social Economy • Social Entrepreneurship • Corporate Social Responsibility • Social Innovation • Social Business • Social Enterprise

5. 1. Social Economy • French in origin, sometimes used as a synonym of Third Sector • Refers to organizations aimed to benefit members or the community • Developed to bring together: coops; mutual aid societies; associations; foundations • Broadcasted by the Revue des Etudes Cooperatives Mutualistes et Associatives (RECMA) • Comprehends also organizations that play non-economic roles, including advocacy and participation • Hence, the general character of Social Economy and its country-speficity

6. 1. Social Entrepreneurship • Covers a broad range of activities falling along a continuum • Strong emphasis on “extraordinary individuals” • Comprehends social initiatives of profit-seeking businesses; practices that yield social benefits; entrepreneurial trends in non-profit organizations up to ventures developed within the public sector (Johnson, 2000; Roper and Cheney, 2005) • Hence, the very general character of Social Entrepreneurship, which crosses across all sectors

7. 1. Corporate Social Responsibility • Concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis (EU Commission) • Concept that can in principle be applied to all forms of enterprises, but is mainly used to refer to for-profit enterprises

8. 1. Social Innovation (SI) • Recent construct • Meant to grasp lasting social change • Dismatles the barriers between sectors and refers to a wide set of novel solutions • Can be a product; a production process, an idea; a social movement or a combination of several elements (Phills, Deiglmeier, Miller, 2008) • Hence, the intrinsic vagueness of Social Innovation

9. 1. Social Business • Comprehends • companies that focus on providing a social benefit rather than on maximizing profit; and • profit-maximizing businesses that are owned by the poor or disadvantaged (Yunus, 2008) • Reference mainly made to the second typology • Non-profit distribution: investors may not, after having had their investments paid back, take profits out of the enterprise • Hence, the strong focus of Social Business on poverty, its limited reach, and the voluntary nature of the profit distribution constraint

10. 1. Social Enterprise • Partially overlaps with other concepts (social economy/third sector; social business; social entrepreneurship) • Narrower focus (focus on the entrepreneurial component) • This notwithstanding it is supposed to have a more consistent beneficial impact on society • WHY?

11. 1. Social Enterprise • Core product produced by social enterprises = activities that are of interest to the entire community • Refers to a “different way” of doing business and providing general-interest services • It is a specific type of institution that is supposed to perform in addition to public and for-profit enterprises • Encompasses: • entrepreneurial component of the non-profit sector • innovative component of the cooperative movement

12. 1. How to overcome conceptual confusion? • Diversity in approaches, concepts, and cultures generates confusion and calls for a clarification • Tentative classification: various concepts pictured in a dynamic way • Classification built along two axes: • Institutional dimension= incorporation of the social goal by the organization • Entrepreneurial dimension=conduction of economic activities in a stable and continuous way

13. Social Economy Social Economy 1. Positioning the different concepts Social entrepreneurship SI SI Social Enterprise Social Business Social entrepreneurship Social Business CSR SI SI Social entrepreneurship

14. 1. Defining social enterprise • Main features of social enterprises • Economic dimension • Social dimension • Ownership and governance structures

15. 1. Economic dimension • Continuous and stable production of goods and services • High degree of autonomy, hence: • significant level of economic risk • use of costly production factors (labour; capital; infrastructures)

16. 1. Social dimension • An explicit social aim of serving the community or a specific group of people (social aim defined at a statutory level) • General-interest character of the goods and/or services produced

17. 1. Ownership and governance structure • Collective nature of the enterprise • Involvement of interested stakeholders (membership and governing bodies) • A non-profit distribution constraint (total or partial), which prevents members from dividing up profits in case of sale of the enterprise

18. 1. Approach proposed • highlights the contribution of social enterprises – as specific types of enterprises – to: • the delivery of general-interest services • economic development • limits confusion with CSR and other forms of social responsibility • has a “revolutionary” character: it challenges the conventional concept of enterprise and entrepreneur

19. 1. Strength of the definition proposed • The relevance of social enterprises for economic development stems from: 1. Type of activities performed • needs of the entire community addressed • considerable emphasis on general-interest, often disregarded by other institutions

20. 1. Strength of the approach proposed 3. Collective dimension of the enterprise • reduces the probability of opportunistic behaviours by single individuals • ensures the survival of the enterprise beyond the involvement of its founding leaders • furthers the participation of several stake-holders

21. 1. Strength of the approach proposed 2. Sustainability • supply of general-interest services organized and managed in an entrepreneurial way • limitations concerning eligible sectors/activities (eg Italy; UK) • mobilization of a plurality of resources • asset lock ensures that welfare and development goals are observed

22. PART 2: Social enterprises and socio-economic development

23. 2. Impact of social enterprises on economic development • complement the supply of general-interest services (eg social services, elecricity, gas, safe drinking water, etc. ) that public agencies and for-profit enterprises fail to deliver • Interesting experiences from some developing countries (coops guaranteeing access to infrastructure and utilities) • Experiences from CIS: basic services efficiently provided through the self-organization and self-reliance of the citizens concerned

24. 2. Impact of social enterprises on economic development • generate new jobs in their fields of activity; • create new employment in the sectors in which they are engaged • employ unoccupied workers (women with children) • some social enterprises are specifically aimed to integrate into work disadvantaged workers • develop new forms of work organization

25. 2. Impact of social enterprises on economic development • contribute to a more balanced use and allocation of resources available at local level to the advantage of the community • “Internalization” of economic growth to the advantage of the entire community • community dimension allows to adjust to local contexts and take stock of local resources

26. 2. Impact of social enterprises on economic development • help foster social cohesion and enhance social capital • they supply goods/services that are characterized by a high social potential • adopt inclusive and participatory institutional structures

27. 2. Impact of social enterprises on economic development • support the institutionalization of informal activities belonging to the underground economy • several social enterprise-like initiatives arise informally • Institutionalization allows irregular workers to get out of the black market

28. PART 3:Dynamics of development of social enterprises and legal evolution

29. 3. Social Enterprise in Europe • until 1970s two-poles institutional framework (State and Market) worked efficiently • crises welfare states and shortcomings of the privatization process renewed vitality of civil society through the development of voluntary initiatives • different trends in Europe

30. 3. Socio-economic context Associations/Foundations increasingly engaged in the production of services Social Enterprise Co-operatives engaged in the production of general-interest services for non-members

31. 3. Fields of activity • Social services • Work integration • New fields of interest for the community (e.g. local development; cultural services; social farming; general-interest services…..)

32. 3. Dynamics of development of social enterprise • Drawing on the definition proposed, we can identify 3 stages of development of social enterprises • Pioneering stage • Institutionalization stage • Differentiation stage

33. 3. Dynamics of development of social enterprise • Pioneering stage • Bottom-up emergence of new social enterprise-initiatives • Not legally recognized • Operate despite the lack of an enabling institutional and legal environments • Normally, no umbrella organizations • Organizational freedom • High degree of innovation • Strong reliance on voluntary work • Phase concerns countries with weak welfare systems

34. 3. Dynamics of development of social enterprise • Institutionalization stage • Dynamic concerns countries where social enterprises • have beeen recognized • are connected to public policies • Enjoy a low degree of freedom • Rely also on paid, trained staff • Run the maximum risk of isomorphism

35. 3. Dynamics of development of social enterprise • Differentiation stage • Social enterprises are well consolidated and organized • Tend to expand in new fields of activity (if not bound to operate in given sectors) • Expansion concerns sectors other than social services and work integration (e.g. environmental, cultural, services; social housing; social farming)

36. 3. Legal evolution Institutionalization of SEs in EU-15 • pre-existing legal forms • association • cooperative • legal frameworks designed for SEs • adaptation of existing legislation (eg social coops) • adoption of new laws providing for social enterprise “qualifications”

37. 3. Adaptation of existing legislation

38. 3. Adoption of specific legislation • enlargment of the activities run and legal forms admitted • trend first appeared in Belgium – Societé à finalité sociale, 1995 • Italy – Law 155/2006 and Decrees of year 2007 definition of Social Enterprise introduced in the Italian legal system • Great Britain – Community Interest Company Regulations of 2005 • Slovenia – Law on Social Entrepreneurship, march 2011

39. PART 4: lessons from the Italian experience

40. 4. Why presenting the Italian experience? • the social enterprise concept was used in Italy earlier than elsewhere • social enterprises account for a long history and significant development • intense legislative activity: law on social coops (1991) and law on social enterprise (2005-2007) • good availability of data and knowledge from both official statistics and private research

41. 4. The emergence of social enterprises in Italy • first social enterprises were set up in Italy at the end of the 1970s • promoted by groups of citizens, given the limited supply of and growing demand for social services. • most of these organisations were set up through the cooperative form

42. 4. Basic data • Since approval of Law 381/1991 on “Social Cooperative” annual growth rate from 10 to 20% • in 1993: 1,479 social coops (National Cooperative Department) • in 2003: 6,159 (ISTAT) • in 2005: 7,363 (ISTAT) – 59% A-type; 32.8% B-type; 8.2% mixed or consortia • In 2009 (Unioncamere): • 13,938 social cooperatives, with • 304,645 people employed • more than 30,000 disadvantaged workers integrated • more than 3,500,000 users • more than 6,381 million euros turnover

43. 4. Key factors explaining the growth of SEs in Italy • Acknowledgment of social enterprises • legal recognition: in 1991 Law 381 recognized social cooperatives ex-post • intense research activity, important: • to assess the importance/impact of the sector • for lobbying purposes • public contracting • contributed to create new markets • recognized the entrepreneurial charater of the new initiatives

44. 4. Key factors explaining the growth of SEs in Italy • Decentralization • in 1990 transfer to the regional and local administrations of: • responsibility of delivering social services • possibility to delegate the provision of these services to private providers

45. 4. Key factors explaining the growth of SEs in Italy • Umbrella organizations • Cooperative consortia or federations played a crucial role in supporting new, developing and established social cooperatives • enable cooperatives to gain skills which they cannot afford internally • they provide coops with economies of scale

46. 4. Key factors explaining the growth of SEs in Italy • Voluntary contributions • as work free of charge: • social enterprises developed as voluntary responses to social needs • also when supported by public resources, SEs continue to be voluntary promoted by groups of citizens

47. 4. Key factors explaining the growth of SEs in Italy • Beneficial tax arrangements • The added value of social enterprises is recognised in Italy in both its laws and Constitution • most fiscal incentives are embedded in the law on social cooperatives • A type social coops charge nil rate or 4% VAT • disadvantaged members integrated by B type social coops are exempted from payment of national insurance contribution

48. 4. Key factors explaining the growth of SEs in Italy • Multi-stakeholder membership • Mix of members not compulsory • 69.7% of Italian SEs have a multistakeholder membership • 33.8% of SEs have a multistakeholder governance • The main model consists in memberships involving volunteers and workers (37.9%) • European Social Funds • Now; Integra; Horizon; Youthstart; Equal; Progress…

49. 4. Development trends in Italy • The growth experienced by social coops and other types of organisations has progressively made evident that: • the social enterprise form was also suited to provide community services other than social and educational ones • the cooperative form was no longer suitable to manage some of these new activities

50. 4. Development trends in Italy • General Law on Social Enterprise approved in 2005-2007. It: • allows to establish SEs through a plurality of legal forms (association, foundation, cooperative, shareholder company) • enlarges the set of activities of SEs • At the moment 601 social enterprises registered (March 31, 2010)