Policy and legal framework: The case of the Social Cooperative in Italy

1. Policy and legal framework:The case of the Social Cooperative in Italy Gianluca Salvatori, Euricse ILO Social and Solidarity Economy Academy Agadir, 10 April 2013

2. Social economy, Social enterprise, Social cooperative: A DEVELOPING SECTOR IN EUROPE

3. THE SOCIAL ECONOMY Historically, social economy organizations can be grouped into four major categories: co-operative enterprises, mutual societies, foundations and associations, whose legal form may vary considerably from one country to another. Partly within and partly alongside the universe of social economy organizations, social enterprises have emerged in recent years as a new and very significant phenomenon throughout Europe. Despite the lack of a universal definition of the term, in Europe the concept of social enterprise is increasingly used to identify a “different way” of doing business, which occurs when enterprises are created specifically to pursue social goals.

4. THE SOCIAL ENTERPRISE In the European experience a social enterprise is seen as “an operator in the social economy whose main objective is to have a social impact rather than make a profit for their owners or shareholders. It operates by providing goods and services for the market in an entrepreneurial and innovative fashion and uses its profits primarily to achieve social objectives. It is managed in an open and responsible manner and, in particular, involve employees, consumers and stakeholders affected by its commercial activities”. EC Communication on the Social Business Initiative, SEC(2011)

5. THE SOCIAL ENTERPRISE In the European experience a social enterprise is seen as “an operator in the social economy whose main objective is to have a social impact rather than make a profit for their owners or shareholders. It operates by providing goods and services for the market in an entrepreneurial and innovative fashion and uses its profits primarily to achieve social objectives. It is managed in an open and responsible manner and, in particular, involve employees, consumers and stakeholders affected by its commercial activities”. EC Communication on the Social Business Initiative, SEC(2011)

6. THE SOCIAL ENTERPRISE In the European experience a social enterprise is seen as “an operator in the social economy whose main objective is to have a social impact rather than make a profit for their owners or shareholders. It operates by providing goods and services for the market in an entrepreneurial and innovative fashion and uses its profits primarily to achieve social objectives. It is managed in an open and responsible manner and, in particular, involve employees, consumers and stakeholders affected by its commercial activities”. EC Communication on the Social Business Initiative, SEC(2011)

7. THE SOCIAL ENTERPRISE In the European experience a social enterprise is seen as “an operator in the social economy whose main objective is to have a social impact rather than make a profit for their owners or shareholders. It operates by providing goods and services for the market in an entrepreneurial and innovative fashion and uses its profits primarily to achieve social objectives. It is managed in an open and responsible manner and, in particular, involves employees, consumers and stakeholders affected by its commercial activities”. EC Communication on the Social Business Initiative, SEC(2011)

8. THE ITALIAN CASE

9. WHY THE ITALIAN EXPERIENCE? The evolution in a national context can help to better understand the nature, the role and the potential of SEs. The experience of Italian social cooperatives (SCs) offers some lessons that can enrich the debate on the nature and characteristics of SEs.

10. Italian SEs are well developed, with over 30 years of history. • Good availability of data and knowledge from both official statistics and academic research. • The social enterprise concept was used in Italy earlierthan elsewhere: in articles in the middle of the ’80s and officially in 1989 with the birth of the review “Impresa Sociale”. • Extensive legislative activity: law on social cooperative (1991) and law on social enterprise (2005).

13. SOCIAL ENTERPRISE DEVELOPMENT PATTERNS

14. THE HISTORICAL EVOLUTION OF SCs • 1970s: the first SEs were set up in Italy by citizens acting mainly as volunteers to fill the gap between the limited public supply of and growing demand for social services. • Most set up through the cooperative form since: • Coops in Italy were and are ruled as quasi-nonprofit organisations. • Other not-for-profit legal forms (association and foundation) were not allowed to manage economic activities as their primary function.

15. THE HISTORICAL EVOLUTION OF SCs • With the support of part of the cooperative movement these new coops were able to put in place an organisational structureat the national and local level. Networking was a very important tool, allowing the achievement of better outcomes. • In 1991 Law 381 recognized these new cooperatives as social cooperatives, introducing: • SCs providing social, health, educational services (type A); • SCs engaged in work integration of disadvantaged workers (type B). They can engage in any commercial activity; disadvantaged workers must represent 30% of the paid labour).

16. THE MODEL OF THE ITALIAN SCs • Private autonomous organizations, directly founded and managed by groups of citizens • With an entrepreneurial nature • Aimed at pursuing the “general interest of the community and the social inclusion of citizens” • Owned by one or more categories of stakeholders (workers, volunteers, or users) • With a partial nonprofit distribution constraint • Providing social, educational and work integration services

17. EXTRAORDINARY GROWTH AFTER LAW’S APPROVAL

18. ITALIAN SOCIAL COOPS: SOME FIGURES

19. A-TYPE SOCIAL COOPS: SERVICES SUPPLIED (2005)

20. B-TYPE SOCIAL COOPS: DISADVANTAGED PEOPLE EMPLOYED

21. SOME REASONS OF THE EXTRAORDINARY GROWTH • The bottom-up push by the civil society in order to provide social services not or insufficiently provided by public authorities, and to identify new fields of activity. • A prevailing multi-stakeholder model of governance: 69.7% involve diverse classes of stakeholders in their memberships; 34% include more classes of stakeholders on their boards. • A strong support structure created by SEs themselves (national umbrella organizations, local consortia providing shared services) • A simple and clear law. • The decentralization (1990) of many social services, through the contracting out and the creation of new markets: 67% of the revenue derives from local public authorities (A-type = 71%, B-type= 54%). • Beneficial tax arrangements (retained profits not taxed, disadvantaged workers exempted from social security contribution).

22. MULTI-STAKEHOLDER SCs WORK Compared with single-stakeholders, multi-stakeholder enterprises show: • a higher level of autonomy (declared by 64% vs. 43.3% of single-stakeholder); • a higher presence of volunteers (86.7% have volunteers vs. 27.1% in single-stakeholders); • a stronger non-distribution constraint (on average 98% of profits are accumulated as asset locks vs. 85% in single-stakeholders).

23. DURING THE CRISIS Due to the recent crisis, social co-ops increased in 2009 to 324 sole units and in 2010 to 98 units, and they registered in 2011 a decrease of 31 units. By contrast, the number of people employed in social cooperatives increased by 17.8% in the period 2006–2011, while total employment in Italy declined by 1.2% (Censis, 2012).

24. NEW TRENDS

25. The growth experienced by social coops and other types of non-profit organizations progressively evidenced that: • SEs were also suited to provide community services other than social ones; • the cooperative form was no suitable to manage some of these new activities (legal boundaries: SCs are not allowed to operate in all sectors of activity). Introduction of a more general legal framework on Social Enterprise (118/2005, 155/2006), that: • Allows the establishment of SEs through a plurality of legal forms (association, foundation, cooperative, shareholder company); • Enlarged the set of activities of SEs. Today some 500 SEs have been registered.

26. SCs activities originally focused on work integration and care and health services for disadvantaged people. • SEs have been expanded and cover a broad range of services of general interest that meet collective needs, including the provision of: • educational, cultural services • public utility services • production and distribution of healthy and affordable food • facilities and services for tourism, recreation and well-being, • reduction of emissions and waste • efficient use of natural resources • SEs may include many other types of products and services, traditionally provided by the private as well as by the public sector. And they often provide a combination of conventional service (e.g. restaurant) with social outcomes (e.g. work opportunities for marginalised groups).

28. THE ADVANTAGES OF SCs/SEs • Compared with for-profit firms, SCs/SEs have a clear social aim; are locally embedded; share their aims with stakeholders; base their activity on trust, fairness principles, relational trades, social/altruistic preferences; produce positive externalities (social capital, citizens empowerment); perform a distributive function by supplying free services to people in need, by covering the costs with voluntary work. • Compared with public agencies, SCs/SEs reduce rigidity and standardization of the supply of social services, enjoy of motivated employees and managers; rely on fiduciary relationships with their stakeholders; allow costs savings (eg. WISCs). • Compared with other nonprofit organizations, SCs/SEs are more stable, long-term oriented, and supply good-quality jobs , open-ended contracts.

29. YOUTH EMPLOYMENT

30. THE EMPLOYMENT OF YOUNG PEOPLE IN ITALIAN SCs • SCs tend to attract young people both as entrepreneurs and workers more than other entrepreneurial form. • 41.7% of employees in SCs are under 35, against 31.1% in the total Italian employees. • 79.6% are females in comparison with 39,5% on total employees in Italy. • In SCs females under 35 represent 33.4% of the total in comparison with the 12.8% of young women in the Italian workforce. • 70% of employees under 35 are also members of the SCs and actively participate to decisional bodies.

31. JOB CHARACTERISTICS • STABILITY: 81% of the young workers are employed with open-ended contracts. • FLEXIBILITY: 48,2% are employed part-time against only 14.2% of PT workers in the total labour force; the large majority are voluntary part-timers. • TRAINED: 55% of young employees participate in training activities organized by the SCs.

32. WAGES, SATISFACTION AND LOYALTY • OPPORTUNITY: before joining the SCs 34,1% of the young workers were unemployed, 19.2% were students. • EQUITY: the average wage of young people is less than 10% lower than those for the oldest workers. • SATISFACTION: the satisfaction with the job as a whole (scale 1-7) is of 5.4 for young employees against 5.5 on average. • DURABILITY: 74% of young employees are intentioned to stay in the SCs as long as possible, 20.6% to stay at least for some years.

33. SOME LESSONS

34. LESSON 1: A BOTTOM-UP PHENOMENON • SCs/SEs usually develop as grassroots initiatives and voluntary responses to social needs and can be promoted by groups of citizens (even despite a non-enabling political, cultural and legal environment). In Italy, starting from the 1970s, many of the existing private non-profits moved to an entrepreneurial dimension as market answer to a new social demands. • Even when supported by public resources, SCs/SEs need to be voluntarily promoted by groups of citizens.

35. LESSON 2: NOT SIMPLY SUBSTITUTES • SCs/SEs usually answer to social needs not satisfied by other public or private providers: they often operate in areas in which neither private organizations nor public services are present. • Reacting to an increasing demand of social services and new classes of marginalised/unsatisfied citizens, SCs/SEs often were started whether in the presence or absence of public resources allocated. As a consequence, there is no necessarily competition between public providers and SCs/SEs. The large part of SCs/SEs increase the supply of services and generate new income and new employment. • Ex: in 2007 only 15.7% of the Italian SCs interviewed were operating in areas where public units provided the same services.

36. LESSON 3: A SOURCE OF SOCIAL INNOVATION • SCs/SEs, introducing new services to satisfy new needs, innovate the production process, replacing bureaucratic and hierarchical forms with participatory ones, involving volunteers, workers, and users in governance (multi-stakeholder model). • SCs/SEs challenge the conventional conception of enterprise (from profit maximization to collective problem solving) and change the conception of social services (from activities with mainly redistributive purposes to activities based on entrepreneurial principles). • This makes the competitive advantage of SCs/SEs dependent not only from lower cost of production factors (capital and labour).

37. LESSON 4: AN INNOVATIVE MODEL OF RELATIONS • SCs/SEs have managed to develop a new model of relations with their workers: • based on a pluralistic mix of incentives, both extrinsic and intrinsic; • able to select workers that share the mission; • characterized by a high level of effort even in the absence of strict control. • This model has proved able to compensate for relatively low wages (especially in the start-up phase). Workers interviewed declared: • high satisfaction with their work (an average of 5.2 on a scale of 7); • high level of loyalty (74.2% declare that they want to stay with the coop as long as possible because they share the mission).

38. LESSON 5: SUSTAINABLE ORGANIZATIONS • The sustainability in the long run of Italian SCs/SEs is demonstrated by: • the accumulation of assets as a consequence of the non-profit distribution constraint (in 2007 Italian SCs had an average amount of assets of 340,000 €); • significantinvestments instrumental to the activity and aimed at improving the quality of the services (in the last 10 years 90% of Italian SCs have made investments).

39. LESSON 6: ENABLING PUBLIC POLICIES • The development of social enterprises depends also on a clear and consistent legal framework and a set of enabling public supporting policies. The institutionalization of SCs/SEs enforces their development and favor the start-up of new initiatives. • The fiscal crisis of the welfare state induced to a replanning of social policies (reduced government involvement and recognition of the role of SCs/SEs in the provision of welfare services). • The diffusion of SCs/SEs was more dynamic in those countries that: • have implemented decentralization policies; • where welfare systems are more oriented to redistribution than to service production; • where traditional non-profit organizations were not strongly developed and not suited to engage in the provision of services in an entrepreneurial way.

40. Thank you for your attention. gianluca.salvatori@euricse.eu 29