EU bets on social business to boost growth

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This article is part of our special report Jobs and Growth.

Convinced that economic growth patterns of the past will not be viable in the future, the European Commission has started a crucial dialogue with stakeholders to ensure that social enterprises are given the means and the recognition to grow, as it is fully aware that policies alone are not enough.

“The new growth model we need to create will be much more sober, fairer and greener,” said Internal Market Commissioner Michel Barnier, addressing a conference on social entrepreneurship on Friday (18 November).

The EU executive unveiled the Social Business Initiative last month, trying to promote a highly competitive social market economy, which is at the heart of its 'Europe 2020' strategy for growth.

The social economy — cooperatives, foundations, associations or mutual societies — employs more than 11 million people in the EU, accounting for 6% of total employment, but there is plenty of room for expansion.

Social enterprises have been identified as a priority for funding under the EU's regional policy. About €90 million has been earmarked for a new social investment instrument to support debt and equity investments in 2014-2020.

“In order to win the competitiveness battle, every citizen and every company needs to be involved,” said Barnier, underlining that more investment is needed to win the battle.

The Commission is set to propose a European regulatory framework for social investment funds before the end of 2011 to facilitate access to financial markets for social enterprises, seen as one of the major obstacles to boost the sector.

Brussels is indeed seeking to create a framework allowing social business to get access to private money.

“The money is there, but people have to trust that they are putting their money into a good investment,” said Nadia Calviño, deputy director-general for the internal market at the European Commission, stressing the need of clear indicators to evaluate the social output of social enterprises.

Traditionally supported by public money, there is a risk that social enterprises will see their means collapse as public budgets are under strain, said Sergio Arzeni, director of the OECD Centre for Entrepreneuship, SMEs and Local Development. He insisted that easing access to finance would result in more jobs and growth in the social economy.

But access to funding also calls for a simplification of processes, Arzeni added.

Cutting red tape

Many social entrepreneurs have little or no experience in starting a business, but they know well the social needs of people on the ground and the schemes are way too bureaucratic. Cutting red tape and giving them guidance would pave the way to more business.

Danish Minister for Business and Growth Ole Sohn said his country provided a public advisory system for social business start-ups and that it is making a difference.

According to the OECD, red tape accounts for about 3.4% of GDP. “If we can halve the red tape through simplification, we can gain 1.5-2% of GDP across Europe,” he added.

Cutting red tape starts also with the modernisation of public procurement rules, which will be at the core of the Danish presidency starting 1 January 2012, said Sohn.

Social enterprises often believe they face disproportionate difficulties in accessing public contracts and the Commission has made it a point to reform rules, especially in the case of social, health and environmental services, like recycling.

In March, Brussels also reformed EU state aid rules applicable to services of general economic interest which could be relevant to social enterprises providing these services.

Throwing bridges to young workers

Social businesses could also be a tool to respond to growing youth unemployment.

“The social economy has a role in introducing young people to work,” added Arzeni, citing The Netherlands as an example.

Some 65% of Dutch youngsters starting at the age of 14-15 begin activities through the social economy, gathering skills and experience, which turns to be valuable as they finish school and enter the job market. The Netherlands has one of Europe's lowest unemployment rates.

“Young people are much more capable of changing the world,” said Muhammed Yunus, Nobel Peace Prize winner and founder of the Grameen Bank in Bangladesh, which has launched micro-credit banking.

They are the ones that should be given the chance to engage in the social economy. Schools and universities should create proper curricula in social business, say stakeholders, as there is a need for building up managerial capacity of social entrepreneurs, noted French MEP Marc Tarabella, co-chair of the European Parliament's intergroup on the social economy.

"Social enterprises are businesses that are not only seeking to include people or to share profits more fairly, but that also create jobs," said European Commission president, José Manuel Barroso.

"Action at EU level can be an accelerator for social business, by raising awareness of this sector and its huge potential. Social businesses are a growing and dynamic part of the European social economy, which represent millions of employees," he added, stressing that the EU can help to foster the sector's further development by reducing the complexities of its regulatory environment.

"The growth of the sector in recent years shows that we have maybe already reached a tipping point. It is estimated that between €290 and €720 billion could be invested in socially innovative structures worldwide by 2020, generating between €130 and €480 billion of cumulative profits," he said.

"Europe has all the right cards to become a continent of innovation, enterprise and production. Let us make a place for entrepreneurs who bring innovative solutions to the problems we face," said Internal Market Commissioner, Michel Barnier.

"I am convinced that financial performance is not the only criterion that should be used to analyse the strength and viability of a company," he added.

According to Employment and Social Affairs Commissioner Laszlo Andor, to reach our 2020 objectives on employment, innovation, education, social inclusion and climate/energy, traditional methods of public policy are not enough, Europe needs social innovation. Social entrepreneurship is a key driver of this.

"Social entrepreneurship is also a key way to reduce poverty and create more inclusive growth. There is much human potential that is under-utilised in the EU and we need to invest and empower people. Social entrepreneurship is a way to help empower people to help themselves and their communities around," he said

The social economy — cooperative, foundations, associations, mutual societies — employs over 11 million people in the EU, accounting for 6% of total employment.

The Commission uses the term 'social business' to cover an enterprise whose primary objective is to achieve social impact rather than generating profit for owners and shareholders, and which operates in the market through the production of goods and services that achieve social goals.

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