Boosting Social Entrepreneurship and Social Enterpise Creation - Antonella Noya
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13th Annual Meeting of the OECD LEED Forum on Partnerships and Local Development INCREASING PRODUCTIVITY, JOB CREATION AND INCLUSION FROM THE BOTTOM-UP 10th-11th April 2017 | Prague, Czech Republic
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Boosting Social Entrepreneurship and Social Enterpise Creation - Antonella Noya
- 1. Boosting Social Entrepreneurship and Social Enterprise Creation Unlocking the Potential of Social Enterprises OECD/EU in-depth country reviews: • Czech Republic (2016) • Croatia (2016)
- 2. SEs operate in most economic sectors and fields and play a key role in our economies and societies by : • Creating innovative solutions to socio-economic challenges • Enhancing social cohesion • Creating new employment and job-integration opportunities • Contributing to sustainable and inclusive growth at local level E.g.: Pragulic (CZ), Czech In (CZ), Humana Nova (CRO), Groupe VITAMINE T (FR), Drones & Good (US, FR), SINGA (FR) The promise and potential of Social Enterprises
- 3. Social Enterprises in Croatia and Czech Republic - Starting points Czech Republic Croatia • Considerable development of third sector organisations. • BUT SEs have gained momentum only recently and are still underdeveloped • The employment generation capacity and potential of SEs especially relevant in the country. • Croatia already has the basic foundations upon which an effective SEs sector could be built. • SEs can be an opportunity in the context of budgetary constraints. • A National Strategy for the Development of Social Entrepreneurship has been adopted.
- 4. Czech Republic Croatia Promote the concept of social enterprise widely: • Foster shared understanding of concept and terms ( terms used interchangeably) • Tackle misconceptions on specificities and roles of SEs • Promote the SE model among the non-profit and cooperative sectors. • Develop a national strategy Improve the visibility of social enterprises : • Clarify concepts ( terms used interchangeably) • Develop awareness-raising strategies. • Create a single online portal. • Promote the creation of a body that represents the interests of the sector. Support Social Enterprises Development Recommandations (1)
- 5. Czech Republic Croatia Design a consistent legal and regulatory environment: • Identify the key bottlenecks that explain the under-utilisation of the social co-operative legal status and model (2014) • Create a regulatory framework not limited to only certain types of SEs. Improve legal and regulatory frameworks: • Establish a shared and specific definition of SEs that draws on the SBI and the National Strategy. • Revise the legislation governing SEs and consider new legislation pertaining solely to SEs. Design a coherent and advantageous fiscal framework : • SEs should be exempt from tax on reinvested profit. • A VAT regime that is more favourable and tailored to SEs’ products and services should be implemented. Support Social Enterprises Development Recommandations (2)
- 6. Czech Republic Croatia Improve access to finance : • Build skills for all relevant stakeholders in the social finance community (in particular financial intermediaries). • Encourage co- investment and risk sharing approach • Promote investment readiness • Encourage authorities to use EU funding to design an appropriate mix of financial tools and innovative financing approaches that suit the needs, development stage and business model of SEs. Improve access to markets: • Use the EU directives on public procurement as a guide for designing a clear framework that integrates SEs into the public procurement process. • Build the skills of public officials and SEs in public procurement procedures in particular by improving their understanding of the specificities of SEs. Support Social Enterprises Development Recommandations (3)
- 7. 7 For further information please visit: http://www.oecd.org/cfe/leed/social- economy.htm Or contact Antonella Noya: antonella.noya@oecd.org THANK YOU!
Editor's Notes
- Short presentation of the country reviews: These reports offer an in depth analysis of the measures that would enhance social enterprise and entrepreneurship performance in Croatia and the Czech Republic. They are the result of in-depth research by OECD analysts and associated experts into social enterprise at a local, national and international levels, drawing on policy expertise, international and national case studies, legislation and economic data. The OECD team undertook study visits and met with a number of important stakeholders to get detailed information and to discuss the most important elements of the countries’ current and desired future social enterprise environment. These respective reports are intended to be encapsulating studies, briefly outlining the countries’ social enterprise history, providing an analysis of the current social economy landscape and making policy recommendations for the future. An action plan is also included in each report which foresees actions to be taken in the short, medium and long terms. The recommendations contained in the reports are designed to be a basis for further policy experimentation and deliberation, with a view to scaling up the impact of social enterprise in the respective countries. *It has to be noted that the Croatian report was drafted when the Croatian Government was preparing its National Strategy on Social Entrepreneurship. Some of the recommendations of the Strategy were then elaborated also based on OECD advice. The policy recommendations included in this report are meant to complement the actions already included in the Strategy and to strengthen its overall impact. References: OECD/EU (2016), Boosting Social Entrepreneurship and Social Enterprise Creation. Unlocking the Potential of Social Enterprise in the Czech Republic. OECD/EU (2016), Boosting Social Entrepreneurship and Social Enterprise Creation. Unlocking the Potential of Social Enterprise in Croatia.
- Although SEs have gained momentum only recently in Central and South-eastern european countries (CEE)…Despite the considerable development of third sector organisations at the beginning of transition in eastern, central and south-eastern European countries, social enterprises have gained momentum only recently and are still underdeveloped with regards to the potential demand for services as well as the entrepreneurial behaviour adopted by many groups of citizens. However, the historical analysis of social enterprises provides evidence of the crucial role played by these institutional arrangements in supporting development and especially in promoting the interests of the weakest stakeholders in society that would otherwise have been excluded from mainstream economic life. This said, as corroborated by numerous research reports, social enterprises have proved to be able to play a key role at local level. Their beneficial impact on social and economic development can be seen from various perspectives: they supply general-interest services and goods, contribute to a more balanced use and allocation of resources, generate new employment, and play a role in enhancing the social capital that is accumulated at local level. The first beneficial impact of social enterprises on socio-economic development is generated thanks to the services they deliver. Social enterprises complement the supply of general-interest services that public agencies and for-profit enterprises fail to deliver for a number of reasons, including budget constraints, the incapacity to grasp new needs arising in society, and market failures (i.e. induced by information asymmetries or positive externalities). All these aspects are of crucial importance in countries that lack public services and facilities and face public budget constraints. Gaps in service delivery concern, for instance, public and merit goods, such as social, educational, and health services. Interesting experiences from the Czech Republic and neighbouring countries show that these services can be efficiently provided through the self-organisation and self-reliance of the citizens concerned. Social enterprises show a high innovation potential, as they have the capacity to react to external challenges and meet new needs arising at local level. Social enterprises play a crucial role in generating new jobs. In general, social enterprises develop new activities and contribute to creating new employment in the sectors in which they operate, i.e. the social and community service sectors that show a high employment potential. Moreover, in certain cases they allow for the employment of inactive workers, for instance women with children, who seek flexible jobs (part-time jobs, for example) and contribute to creating innovative models of industrial relations. More specifically, some social enterprises are aimed at training and integrating into work disadvantaged workers with minimal possibilities of finding a job in traditional enterprises. The employment generation capacity of social enterprises in the Czech Republic is especially relevant, given the high unemployment rates that affect, in particular, certain segments of the population that are especially at risk of exclusion from the traditional labour market (i.e. women with children, young people with low qualifications, minority groups, disadvantaged people, immigrants, homeless people, and former prisoners). Social enterprises contribute to a more balanced use and allocation of resources available at local level to the advantage of the community, as they have a direct influence on the management of economic and social development at the local level. Thanks to the extensive participation of local stakeholders, they succeed in promoting inclusive governance models that empower the local community in strategic decision-making (Sugden and Wilson, 2000). Through promoting the decentralisation of power, social enterprises can be successful in fulfilling the needs of various social groups, given their greater flexibility and their capacity of reaching them at local level Social enterprises help foster social cohesion and enhance social capital within society and the economy, as they supply goods and services that are endowed with a high social potential, which strengthens trust relations among the agents involved. Furthermore, the inclusive and participatory approach favoured by some social enterprises results in the active participation of citizens in social and economic issues affecting the local community. This in turn contributes to enhancing the sense of social responsibility towards the community and the accumulation of social capital that is embedded in a community. Examples: Pragulic for instance is a social enterprise that aims to reintegrate homeless people into society. The main purposes of this project are to challenge the stereotypes associated with homelessness and, at the same time, to provide a job and a regular source of income for people who are dealing with difficult life situations. The language school “Czech In” is a social enterprise active since 2011 that has been focusing on integrating immigrants by providing them with an essential tool: language. The school offers tutoring and affordable language courses (mostly Czech but also German, Russian and Spanish). Besides language courses, the Counselling Centre for Integration provides legal support and concrete help to find job and school placements. Humana Nova is a social co-operative that encourages the employment of disabled and socially excluded persons. It is a spin-off of ACTGROUPA - an umbrella body gathering together various social enterprises and NGOs. Humana Nova co-operative was set up thanks to the commitment of volunteers, with no support from either central or local governments. Currently, Humana Nova integrates around 20 disadvantaged people into work in the production of textile products of various kinds made from ecological and recycled materials. Around 80% of Humana Nova’s overall income is generated through the sale of products to the market. The wage earned by the disadvantaged workers is only slightly lower than the minimum wage. Humana Nova endeavours to reduce the problem of textile waste through the recycling of textiles. Founded in 1978, the Groupe VITAMINE T is now the leading French group for work integration through economic activity structures. It is composed of 13 enterprises operating in various sectors, including services, recycling and reselling white goods and vehicles, and food processing. The group employed 2 717 people in total in 2012. Its total annual turnover in 2012 amounted to approximately EUR 40 million. Groupe VITAMINE T’s mission is to address job precariousness and unemployment. While the group’s companies have genuine economic activity and are managed under the same fiscal and regulatory frameworks applicable to purely for profit business, they re-integrate vulnerable individuals into the labour market through their activities. Drones & Good: Today, there are about 22 million men and women who served on active duty in the U.S. Armed Forces. Drones & Good recognizes the honorable sacrifices veterans and their families made for our nation. That is why its mission is dedicated to helping veterans transition to the civilian workforce by training them to become commercial drone pilots. The program combines theoretical and practical training, giving veterans the skills they need for the jobs of tomorrow in the commercial drone industry. In 2016, Drones & Good trained 20 veterans for careers in the commercial drone industry. In 2017, we are opening 3 additional training centers, supporting 60 additional beneficiaries to start careers in the commercial drone industry. SINGA-CALM: Thousands of refugees are arriving in Europe. After being sent to welcome centres, it's necessary to begin the long journey into work or accommodation. SINGA, a French social enterprise set up in 2012 (NPO + limited liability company), has recently launched a project called CALM ('Comme à la Maison' – 'Feels like Home'), which puts potential hosts in contact with refugees. The hosts and those who are looking for somewhere to live answer a questionnaire so that we can establish their preferences: geographical area, their eating habits, their interests and so forth. With enough information an algorithm is eventually able to put people in touch automatically. eTree: Inventé par Sologic, « une entreprise franco-israëlienne sociale dont l’objectif est de promouvoir les innovations en faveur de l’environnement », l’eTree est un projet écologique qui capte l’énergie solaire grâce à ses sept panneaux photovoltaïques. Ils peuvent produire jusqu’à 1 500 watts par heure, soit 7 kW par jour. Haute de 4,5 mètres et lourde de 1,5 tonne, la structure crée ainsi assez d’énergie pour satisfaire cinq importants besoins : recharger les smartphones et tablettes, fournir un accès wifi libre et gratuit, illuminer son environnement la nuit, dispenser de l’eau fraîche et potable, ou encore connecter les utilisateurs du eTree dans le monde entier.
- Czech Republic Considerable development of third sector organisations BUT social enterprises have gained momentum only recently and are still underdeveloped with regards to the potential demand for services as well as the entrepreneurial behaviour adopted by many groups of citizens The employment generation capacity of social enterprises in the Czech Republic is especially relevant, given the high unemployment rates that affect certain segments of the population that are particularly at risk of exclusion from the traditional labour market (i.e. women with children, young people with low qualifications, minority groups, disadvantaged people, immigrants, homeless people, and former prisoners). Croatia An examination of Croatia’s socioeconomic environment reveals a country ripe for social enterprise development. Economic recession since 2008 / low labour market participation rates / welfare payments are on the rise / large informal economy sector / social inequalities increased since 2008 and there are many disadvantages individuals (including: women, single parents, youth, disabled and persons over 65) Croatia already has the basic foundations upon which an effective social enterprise sector could be built. Vibrant SMEs community backed by institutional support systems - that could be further expanded to support social enterprises development. Welfare reforms have intensified since 2000 (regime change and prospects of the EU accession): promotion of localised, decentralised welfare systems (even if the state remains the main provider of social services) – opens the way for social enterprises providing welfare services at the local level (in particular the important sector of non-profit associations) Social enterprises activity increased in particular since the 2008 financial crisis // in the meantime immense pressure on the public sector (amounts of public welfare increased significantly to support the struggling economy) Focus: When compared to the United Kingdom and Italy, social enterprises in Croatia are at an early stage, defined here as “progressive emergence”. Social enterprises have not yet been formally acknowledged and are rather invisible. However, they are mentioned by several key policy documents; enjoy a pioneering, although not yet systematic public support, and are characterised by a relatively enabling legal environment that has partially recognised social co-operatives through an amendment to the law on co-operatives (art 66, Law). Social enterprises can be particularly effective in addressing societal challenges that may not be possible for the government alone to achieve due to budgetary constraints for example (as highlighted by the European Commission and the OECD LEED Programme) A National Strategy for the Development of Social Entrepreneurship has been adopted One of the key issues impeding the successful integration of social enterprises into the Croatian economy is that there is no specific law governing social enterprise in Croatia, although recently the National Strategy for the Development of Social Entrepreneurship, adopted by the Government in April 2015, defined “social entrepreneurship” and provided a list of nine criteria designed to help identify “social entrepreneurs”. The overall objective of the strategy is the creation of an enabling environment for the development of social entrepreneurship in Croatia, in order to reduce regional disparities and ensure employment growth and more equal distribution of social wealth. For this, it indicates the following priority axes: The establishment and improvement of the legislative and institutional framework for the development of social entrepreneurship The establishment of an adequate financial framework for the support and development of social enterprises The promotion of the importance of social entrepreneurship through formal and informal education Ensuring visibility of social entrepreneurship in Croatia and informing the general public about issues related to social entrepreneurship. This strategy adopts a general definition of social entrepreneurship and lists a number of criteria that social entrepreneurs should meet. Any entity complying with these criteria, can apply for a three-year registration in the Registry of Social Entrepreneurs which is considered as the official record of social entrepreneurs in Croatia. Only registered entities can apply for specialised tenders and incentives for social entrepreneurs. The implementation of the Strategy will be managed by a competent authority. Moreover, the Strategy foresees the institution of a “Council for Social Entrepreneurship”, which will consist of representatives from all relevant stakeholders. The Council will convene at least twice a year to discuss and conduct strategic activities for social enterprise development, and it will be responsible, in particular, for monitoring the implementation of the Strategy, analysing current trends, and developing annual evaluation reports on the implementation of the Strategy. The adoption of the National Strategy for the development of Social Enterprise in Croatia has indeed been the valuable result of a painstaking and long-term approach, which included the participation of stakeholders and experts in working group meetings and public consultation. !!!! This is an important, but preliminary step towards the establishment of a legal framework, although further clarification is needed to adopt a language which reduces confusion between terms such as social entrepreneurship, social entrepreneurs and social enterprises which still tend to be used interchangeably. Indeed, some legislation does exist for specific types of de facto social enterprises, namely associations and social co-operatives. However, the laws regulating these two types of social enterprise have their own respective issues that need to be addressed in order to enable more efficient and effective social outcomes. As a result of the flaws in the relevant legislation, many non-profit organisations have been forced to establish subsidiary enterprises that operate as private limited liability companies, in order to overcome the shortcomings of legislations on associations and co-operatives.
- Policy recommendations to support social enterprises development: N.B. The following recommendations aim to offer insights into the processes required to develop policies to engage stakeholders in the co-creation of a strategy and action plan to create an enabling environment for the development of social enterprises in the Czech Republic and in Croatia. The recommendations provide guidelines to assist the Czech and Croatian Governments on how to mobilise enabling factors efficiently, and on how to minimise the negative impact of hampering factors for the development of social enterprises in the country. Promote the concept of social enterprise widely: Foster a common understanding based on the SBI approach and support a consistent use of terminology in all policy documents. Tackle misconceptions and raise awareness about the specificities of social enterprise. Promote the social enterprise among the non-profit sector and cooperative sectors. Improve the visibility of social enterprises : Develop awareness-raising strategies and campaigns to diffuse information on the features of social enterprises. Create a single online portal to facilitate the creation of networks between social enterprises and their funders. Promote the creation of a self-regulatory co-operative body that represents the interests of the sector (in addition to the Croatian Centre for Co-operative Entrepreneurship).
- Czech Republic - Design a consistent legal and regulatory environment: Analyse and identify the key bottlenecks that explain the under-utilisation of the legislation on social co-operatives. Support the adoption of a regulatory framework not limited to the recognition of only certain types of SEs. Croatia - Improve legal and regulatory frameworks: Establish a shared and specific definition of SEs that draws on the SBI definition, and on the nine criteria established by the National Strategy so as to allow for better identification of social enterprises and prevent abuses of the benefits given to social enterprises Revise the legislation governing SEs and consider the possibility of creating new legislation pertaining solely to SEs. COMMON - Design a coherent and advantageous fiscal framework : SEs should be exempt from tax on reinvested profit. A VAT regime that is more favourable and tailored to social enterprise products and services should be implemented.
- Improve access to finance: Build skills by offering capacity building workshops to all relevant stakeholders in the social finance community (including public administration, financial intermediaries and investors, SEs members) so as to improve their ability to understand the SEs model and increase their impact potential. Encourage traditional businesses to “buy social”: encourage responsible private procurement by increasing awareness on the role and scope of SEs. Encourage managing authorities to use EU funding to design an appropriate mix of financial tools (e.g. grants, loans, guarantees, revolving funds, equity and quasi-equity support) that suit the needs, development stage and business model of SEs. Improve access to markets: Use the EU directives on public procurement as a guide for designing a clear framework that integrates SEs into the public procurement process. Build the skills of public officials and SEs in public procurement procedures in particular by improving their understanding of the specificities of SEs. RISTO (recommendations to improve access to markets): a. Designing the national transposition in such a way that it actively promotes or even requires the use of social clauses. b. Building the knowledge and capacity of commissioners, so that they dear to use social clauses c. Building the capacity of social enterprises to participate in tenders (knowledge and skills, delivery capacity, consortia, networks etc.) d. Promoting business relations between mainstream companies and social enterprises, which enable social enterprises to be in the supply chain even when the overall contracts go beyond their capacity. COMPARISION between PP frameworks in CZ and CRO (LOU): Czech Republic: the Public Procurement Act that came into effect on 1 October 2016 expressly declares the preference to evaluate bids based on qualitative criteria, rather than on bid price only, which in many cases proved to be insufficient for the selection of the most advantageous bids. Among other matters, the Public Procurement Act allows for the determination of a fixed price, while the bids are evaluated only on the basis of qualitative criteria (e.g. the quality of the professional team) (Holàsek, 2016). However, it may be worth making an additional effort to prescribe enabling provisions that would focus on a dynamic field of activity for social enterprises, that of general-interest services, and more importantly on social, health and other services provided directly to individuals. So far it is still unclear whether social enterprises will be able to benefit from the EU Directive on Public Procurement. →Still unclear whether social enterprises will be able to benefit from the EU Directive on Public Procurement Building on an initiative of the Agency for Social Inclusion, which traced the difficulties in supporting social enterprise development needs in the absence of a regulatory framework, the Office of the Government, along with two Ministries (MOLSA and MIT), is working on a Draft Law on Social Entrepreneurship.The benefits for natural persons and legal entities with social enterprise status have not yet been specified, but they will most likely include preferential public procurement rules, targeted state financial support and fiscal advantages (Rosenzweigova, 2016). Suggested forms of support include grants, benefits, guarantees, loans (including micro-loans), reductions of taxes and fees and preferential treatment in public procurement. Croatia: Currently in Croatia, the Public Procurement Act does not have any special social or environmental impact clauses, as is the case in many EU member states. Although national legislation allows the State to take into account the societal good of awarding a contract rather than basing its decision purely on cost, these provisions are seldom used in practice as public procurement commissioners usually envisage practical difficulties in taking them into account and prefer to see them as optional rather than a requirement to be fulfilled. Reserved contracts remain one of the rare incentives that stimulate privileged market access for organisations dealing with the social and vocational integration of people with disabilities. Moreover, the Law on Social Care[1], prescribes that large cities and counties are obliged, according to their financial capabilities, to support non-profit associations and voluntary work in social care. As the following case study of the City of Split indicates, there are indeed some good examples currently running that could be used as a starting point in mainstreaming the participation of social enterprise in public tenders. →Public procurement: Adoption of inadequate clauses and rules can create technical obstacles and practically exclude social enterprise access to public contracts as well as pushing towards isomorphic practices to the detriment of beneficiaries To sum up: it seems that in the Czech Republic it is still unclear whether social enterprises will be able to benefit from the EU Directive on Public Procurement (although the strategy mentions it right?). On the other hand, in Croatia it seems that the Public Procurement Act does not have any special social or environmental impact clauses and that the adoption of inadequate clauses and rules can create technical obstacles and practically exclude social enterprise access to public contracts as well as pushing towards isomorphic practices to the detriment of beneficiaries Recommendations comparision: Czech Republic: Improve access to public and private markets Relations with public authorities, which are the main funders of social enterprises on the demand side for general-interest services, are strategic to support the development of social enterprises. However, to fully exploit social enterprises’ ability to fill gaps in general-interest service delivery, it is important that public procurement strategies are adjusted to the Czech welfare system. In addition to the demand of public agencies, there is a growing private demand for general-interest services other than those related to welfare and a demand for services and goods delivered by WISEs, which should be more effectively stimulated and addressed. Attention should therefore be dedicated to improving access to both public and private markets and specifically: Support and monitor the implementation of the 2014 EU public procurement Directive, as it has been transposed in the Czech legal system. Raise awareness among public authorities and the private sector about the different types of services offered by SEs (not only WISEs). Work with the responsible Ministry of Regional Development and public, regional and local authorities that have long worked on the concept, or have expressed interest in employing social clauses in their tenders. Encourage the use of smaller public contracts in order to make it easier for social enterprises to participate in public procurement processes. Monitor the implementation of and compliance with social clauses. Build the skills and competences of public officials and SEs in public procurement procedures in particular by improving their understanding of the specificities of SEs. Work to develop “how to” guides and promote them through events and training sessions directed both towards the social enterprise community and public contractors. Croatia - Improve access to markets: The public procurement process should give greater weight to the social value and/or best price quality ratio generated by social enterprises: The EU directives on new public procurement guidelines should be used as a guide for designing a clear public procurement framework that integrates social enterprises into the public procurement process. Public authorities should be encouraged to consider social enterprise value when awarding services in a tender process. Capacity building seminars, workshops and conferences should enhance the skills of public authorities in identifying valuable social enterprise contributions. This could be supported by the creation of a guide for public authorities that provides methods for assessing social enterprise impact. A permanent dialogue should be established between contracting authorities, experts in the field of social enterprise, and the social enterprise community to ensure continuity of co-operation in the future. Social enterprises should be encouraged to form consortia to up-scale their productivity, expand their competencies and therefore their ability to undertake public services and create further business efficiencies.