Support for social firms

Handling exclusion through social firms

This policy brief arises from the work carried out in the Social Economy theme of EQUAL, which involved over 400 projects across the majority of EU Member States. It addresses the issue: how best to support work integration social enterprises (WISEs) as a tool to create employment and tackle exclusion? The allied issue of why to support work integration social enterprises is addressed in a companion brief, Value for Money from Social Firms. The issue of training is addressed in a third policy brief, Management Skills for Social Enterprises. [1]

This document has been prepared by experts and their opinions do not in any way engage the Commission.

Helping disadvantaged people to play a role

Social enterprises – businesses which trade and make a profit, in order to achieve a social objective, rather than to distribute it to financial investors – have been pioneers in integrating excluded people into the labour market. Indeed integration through work is the principal objective of the largest category of social enterprises, also known as ‘social firms’. Studies have shown that social firms are an effective and efficient way of integrating disadvantaged people into the workforce – one that can result in great savings to the public purse when compared with passive measures that maintain disadvantaged people outside the workforce (please see the policy brief Value for Money from Social Firms. Yet in many cases, the demands of holding down a conventional job may prove to be too much to handle, resulting in an excluded core of people who become unemployed in the long-term. However it is not that they are incapable of work or unwilling to work – on the contrary: work is one of the most important sources not only of material independence but of status in society. The issue is that the conditions under which vulnerable people work must match their needs. Various types of social enterprise have evolved which provide work under appropriate conditions. They thus enable previously inactive people to gain a foothold in regular work. Depending on their abilities and preferences they may either stay permanently in a sheltered job, or spend a period being prepared to leave for a job in the open market.

Break down the silos

In order to raise the labour force participation rate in the EU to 70%, as the Lisbon strategy aims to do, groups of people who face disadvantage in the labour market must be encouraged and enabled to work.(1)

It is in this context that the Integrated Guidelines for Growth and Jobs (2005-2008) [2] call for “the inclusion of disadvantaged people in the labour market, including through the expansion of social services and the social economy” (guideline 18) and “the creation and growth of start-ups in line with the SMEs Charter.” In addition, they mention that Member States should reinforce entrepreneurship education and training” (guideline 10).

Being in the workforce is a key indicator of inclusion. The issue of work integration exists at the nexus of economic and social policy, and for this reason it often makes an uneasy fit with existing public institutions and programmes. One stumbling block in the past appears to be the need for better liaison among the ministries and departments of government at all levels, to address the problem in an integrated way. This is one reason why it has been the third sector, including charities, user-led voluntary associations and co-operatives, that has taken the lead. The benefits accrue of course to the individuals involved, but also in terms of increased activity rates, lower benefit dependency and a healthier and more cohesive society. Addressing the issue requires commitment from several arms of government, which all too often have become used to working in isolation from each other, in parallel ‘silos’.

Efficient support measures to improve social firms' results

Work integration social enterprises (WISEs) – also known as ‘social firms’ – come in many shapes and sizes, and have a variety of objectives. Some act as a temporary ‘intermediate labour market’ through which trainees pass on their way to a conventional job, while others, particularly those that focus on the needs of people with disabilities or mental illness, offer long-lasting workplaces. They may be incorporated as associations, co-operatives or share companies, and in some countries they have a special legal status open to them – for instance in Italy there are some 7,000 ‘B-type social co-operatives’ which fulfil this function.

WISEs survive and prosper in a number of ways. Typically they combine income earned by trading on the market with some compensation from the public sector for the additional costs incurred in employing disadvantaged people. They may also be able to tap into revenue streams in support of specific polices such as childcare, environmental improvement or urban regeneration. Such revenue streams differ markedly from one country to another.

The brief draws on some of the best examples of support to work integration social enterprises that have featured in the EQUAL initiative, showing the results that have been achieved in terms of jobs and businesses created and supported, skills improved, poverty relieved, neighbourhoods regenerated etc.

Business support that listens

The work of EQUAL projects in assisting social firms shows that there is a need for support systems that address the objectives of employment development, social development and business development at the same time. The need is for agencies which understand the scope for job creation that lies in providing services to meeting needs that are not catered for by the public or private sectors, that also understand how market-based approaches can be used to address these needs, and thirdly that are approachable by disadvantaged people and prepared to deal on their terms. There is thus a need to create a ‘funnel’ that combines broad accessibility with appropriate expertise.

Such bottom-up social enterprise support agencies have been active in EQUAL in many countries, for instance Germany(2) and the UK,(3) but the most comprehensive example of such a dedicated support system is Coompanion [3] in Sweden, a network of 25 local co-operative development agencies, several members of which took part in EQUAL.(4) Between them they create around 300 new enterprises each year and have a revenue of €6.7m. What is interesting about their structure is that they function on a partner¬ship model which combines core funding from the state – creating stability – with local matching – creating anchorage. The loose national federal structure provides a community of practice among the agencies’ 85 workers, as well as allowing a political voice.

In contrast a good example of introducing support for social enterprises into the mainstream business support agencies is found in Italy, where the social economy is much more strongly structured. The EQUAL Quasar project (IT-IT-S-MDL-053 [4]) is the fruit of a national partnership between consortia of social co-operatives and the chambers of commerce. The latter had previously not known how to serve the needs of social enterprises, and were anxious to enter this growing market. The partners set up observatories in eight towns, from Milan to Bari, carried out check-ups on 240 companies and trained the business advisers. Fresh towns are now keenly following suit.

Helping existing employers to be more inclusive

An entirely different approach – one that has increasing potential as the labour market tightens – is to combat labour shortages by actively marketing to mainstream businesses the option of employing long-term unemployed and disabled people. This is the approach that has been successfully adopted in Tampere, Finland. By taking the red tape out of company recruitment, the EQUAL Pirkanmaan Syke (Pulse of the Tampere Region) partnership (FI-63 [5]) is helping to solve a labour shortage as well as improving the lot of disadvantaged people. Working from a town-centre business advice agency, with seven advisers distributed among its partner organisations, Syke uses professional marketing techniques to identify companies looking for motivated workers. It then has at its disposal a subsidy scheme that can reduce the wage bill by as much as 40% in the case of a long-term unemployed disabled person. The project aims to make it quick and easy for the company to find the right employees. Using this technique, the project has helped create several dozen social enterprises – in fact over half the national total.

EQUAL projects in several countries have accessed various types of subsidy schemes which aim to ‘level the playing field’ for social firms by compensating for the lower productivity of their disadvantaged workers when competing in the open market. For example in Italy, there are some 2,000 ‘type B’ social co-operatives that are granted relief from social insurance contributions in respect of their 28,000 disadvantaged employees.(5) In Germany, the 520 member enterprises of the Bundesarbeitsgemeinschaft Integrationsfirmen (BAG Integration)(6) provide 16,400 jobs, of which half are for severely handicapped (Schwerbehinderte) people. They benefit from a subsidy regime paid for from a fund that employers must pay into if they employ fewer than the legal quota of 6% handicapped people. Four types of support are given: a 30% wage subsidy by way of compensation for reduced productivity (Nachteilsausgleich); an integration supplement (Integrationszuschuß); consultancy help (Beratung) and, for those enterprises employing over 25% handicapped people, a contribution towards overheads (Regiekosten). In Greece, limited liability social co-operatives (KoiSPEs) are relieved of corporate taxes except VAT.(7) The Walloon region of Belgium gives a 60% incentive for investments by its 60 entreprises de travail adapté (ETAs), employing some 6,000 people.(8)

Smoothing the transition from benefit to entrepreneurship

EQUAL has helped(9) a very successful new style of business incubation, particularly suitable for disadvantaged clients, to spread across Europe from its birthplace in France. Business and employment co-operatives (BECs) build new bridges between benefit dependency and independent economic activity by combining peer support with incubation services. Since the first was started in 1996, a wave of some 70 has sprung up all across France. Further afield, there are eight in Belgium,(10) ten in Sweden,(11) and there are also BECs in Morocco, Poland,(12) Madagascar and Quebec. BEC clients are in all sorts of activities from cookery, industrial cleaning, furniture restoration and organic horti¬culture to violin making, jewellery, translation and web design. BECs are launch pads that provide budding business people with an easy transition from inactivity to self-employment. Intending entrepreneurs pass through three stages:

• First, they remain technically unemployed but develop their business idea under the wing of the BEC. The BEC takes care of the administrative headaches, which frees them to focus on succeeding;
• Next, if it looks like being a success, they become that oxymoron, a ‘salaried entrepreneur’ with the security of a part-time employment contract;
• Finally they become a self-sufficient business, sharing in the ownership and management of the co-operative.

BECs thus provide the small business person with the best of both worlds – control over one’s working life, but with the support of a group of people who are facing the same problems and want to pool their enthusiasm and expertise. They help to overcome one of the most discouraging features of becoming self-employed – isolation. They thus lower the bar for becoming an entrepreneur, and open up new horizons for people who have ambition but who lack the skills or confidence needed to set off entirely on their own.

Creating the critical mass for growth

A group of EQUAL projects has developed techniques that can help social enterprises to break out of low-margin markets and consolidate themselves, through systematic initial R&D followed by social franchising. The aim of social franchising models is to reduce the risk attached to opening up a new business, and hence also reduce the cost of creating new jobs for disadvantaged people. They do this by conducting research to identify suitable business niches in which social enterprises can prosper. They then codify the know-how connected with starting up a business in such a niche; this is typically made available to intending social entrepreneurs. Some operators make this know-how available free of charge, while in other cases the transfer of the intellectual property is subject to the payment of a licence fee. Some EQUAL examples are:

• Le Mat – a chain of hotels employing mentally ill people, based on the model of the Hotel Tritone, which has operated in Trieste, Italy, since 1991. It has developed an operational manual and set up a permanent international association. (IT-IT-S-MDL-203 [6])
• CAP Märkte – a group of nearly 50 medium-sized supermarkets in Germany, originating in the Stuttgart area and each employing 5–20 handicapped people. They are owned by a co-operative of sheltered workshops and collaborate commercially with a co-operative of grocery retailers. (INCUBE, DE-XB4-76051-20-20/279 [7])
• Peiran (GR-200917) – a chain of seven shops in rural Greece selling craft and traditional foodstuffs. They provide work for 17 young people and act as focal points for local development activities.
• CASA (Care & Share Associates) – a group of employee-owned companies providing home care services, on contract to local social services authorities. A distribution of shares in the company is made to employees each year. The core of this group is Sunder¬land Home Care Associates, which employs some 185 people, mostly women. It has been spread to four other towns in northern England, creating several hundred more jobs, and is still spreading. (Inspire, UKgb-123 [8])
• Vägen ut! (Way out!) – a successful method based on ‘halfway houses’ which has established seven co-operatives employing 26 recovering addicts and ex-prisoners, is being spread from Göteborg to a number of other Swedish towns. (SE-69 [9])

An industry in which social firms have been particularly successful in opening up a new market was jump-started by the EU directive on recycling electrical and electronic waste (the ‘WEEE directive’) in 1995.(13) Social firms acted proactively and, with EQUAL’s support, Europe now has 1,000 recycling centres, which employ 16,000 people, many of whom are disadvantaged. The centres provide training in new vocations as well as offering services to public and private customers. They rely on the creation of three-way partnerships: networks with public authorities create growth opportunities, manufacturers sign contracts to recycle their products, while liaison with local chambers of commerce avoids any accusations of unfair competition. A European network (RREUSE) http://www.rreuse.org carries out large-scale lobbying and a transnational trading umbrella, SerraNet EEIG [10], has been established under EQUAL to promote the social enterprise approach.

Social co-operatives integate the most socially excluded

Mentally ill people are one of the hardest groups to integrate, and EQUAL has shown how social co-operatives can accomplish this difficult task. In Greece, the EQUAL Synergia project addressed the problem of how to deinstitutionalise the monolithic mental hospital system while avoiding intense disruption to the local economies in often remote rural areas that depend on the jobs they provide. So far 14 social co-operatives have been set up out of a projected total of 50 or so covering the country. They provide several hundred jobs in activities such as horticulture, honey manufacture, catering, baking, printing, carpet-weaving, paper recycling and car washing. The co-operatives have been established using an innovative legal form brought into being in 1999: the limited liability social co-operative (KoiSPE). This has a dual status: on one hand it is an independent business benefiting from tax relief. On the other hand it is an official mental health unit, which means it can receive in-kind support, for instance by borrowing disused hospital premises or staff secondments. The law provides that at least 35% of each co-operative’s members are people suffering mental health problems, but also that mental health professionals can join and thus assure continuity of production, as well as corporate bodies, which can inject working capital by buying additional investment shares. (GR-201007 [11]) Mentally ill people are also one of the key beneficiary groups of Italy’s 2,000 ‘type B’ social co-operatives [12].

Another difficult group is drug users, who have been the target of some strikingly successful rehabilitation projects that EQUAL has supported in Sweden. Basta (SE-39, site [13], case [14] and Vägen ut! (SE-69, site [15], case [16]) are two projects that have established a string of social co-operatives to provide a supportive and empowering environment within which ex-addicts can establish themselves in self-supporting businesses. The remarkable benefit this approach brings to society is reported in the companion policy brief Value for money from social firms.

Residents in pockets of deprivation are another group that can be reactivated though social enterprise. Work as part of EQUAL in Southwest Flanders shows how the development of mutually-reinforcing neighbourhood services can improve the quality of life of severely excluded people, such as migrants who have been unemployed for over five years. The system relies on breaking down barriers by co-locating different services, and on mixed financing, including service vouchers that effectively give a 70% wage subsidy. A simple example, which sprang from a needs analysis, is that providing short-term hour-by-hour childcare enables unemployed women to attend job interviews and thus gain paid work. This combination of multiple activities with multiple sources of finance – the so-called ‘cloverleaf’ model – has enabled the creation of some 70 jobs among the long-term unemployed residents of deprived housing estates in Flanders.(14)

Policy recommendations

The cultural and institutional settings in different countries lead naturally to very different growth environments for social enterprises. Nevertheless, some common issues show through. In first place, social enterprises deliver benefits along several dimensions, so if governments wish to capture all these benefits, they should ensure that their own organs are configured in the appropriate way, so that some internal means exists of thinking in a ‘joined-up’ way about the role of social enterprise. This might mean giving the departments responsible for economic policy and for social policy a meeting point where they can work together – for instance a dedicated government unit.

Governments would also do well to realise that the very strength of social enterprises from a public policy point of view is that they are independent business which seek to survive in a competitive market – this is the very benefit they seek to bring to their members and employees. They typically organise and share expertise through member-controlled representative bodies. Government can therefore benefit from recognising the essential independence of the sector, and working with it to build dialogue and development structures. This might typically be done by encouraging the creation of an umbrella body for social enterprises, as has been done very effectively in Greece and Sweden [17] as well as the UK [18]. A policy dialogue can then be conducted which overcomes the partial ‘silo’ mentality.

Some of the major areas where policy-makers can help to increase the impact of social firms on public policy are:

• to ensure that adequate legal structures exist (this is an opportunity to compensate social enterprises for the additional costs of employing and activating disadvantaged people)
• to ensure that the business support and training systems are serving the needs of social enterprises. The ‘funnel’ towards the best appropriate business support is best achieved through what has become known as a ‘braided’ approach, combining:

1. a basic level of openness and competence across the entire business support system, which enables agencies to welcome and assess the needs of all comers, and refer cases to specialist agencies as need be. This aspect is the subject of the benchmarking work being carried out by COPIE, the Community of Practice on Inclusive Entrepreneurship of which this wiki is also part;
2. specialist agencies, federal bodies and/or advisers that such ‘one-stop shops’ can refer client to for help with more advanced issues.

• to encourage innovation in such areas as the replication of social enterprises through social franchising and the measurement of their social impacts using techniques like social return on investment (SROI), which can enable improved value for money in public procurement (see also the companion policy brief Value for money from social firms.

The EU’s Structural Funds offer good opportunities to work in this area. As operational programmes are finalised, it is apparent that some are supporting integrated strategies for the social economy. For instance in England, the social economy is mentioned under the skills priority to be implemented by the nine Regional Development Agencies. In Wales, the social economy is included as part of inclusive entrepreneurship strategies. The Scottish Lowlands and Uplands (LUPS) programme includes ‘capacity building for social enterprises’ as a priority under ERDF and ESF as well as access to finance and business pre-start-up and start-up support under ERDF. Finland’s National Development Programme has a priority for intermediate labour market projects, including a social enterprise sub-theme, within ESF. In Greece, the social economy is mentioned in priority C on reinforcing the social inclusion of disadvantaged people. Sweden’s and Flanders’ programmes also refer to social entrepreneurship.

Notes

(1) For instance in 2006, while across EU-15 64% of people aged between 15 and 64 were employed, the share was much lower for certain groups. For women it was 57% and over-50s 43% (European labour force survey 2006 [19]). Non-nationals, young people and people with disabilities and mental illness also tend to fare badly.

(2) for example FAF – Fachberatung für Arbeits- und Firmenprojekte (DE-XB4-76051-20-20/279) [20]

(3) for example SEEM – Social Enterprise East Midlands (UKgb-51) [21]

(4) for example Slup.se – Stockholms läns utvecklingspartnerskap för den social ekonomi (Development partnership for the social economy in the Stockholm region, SE-43) [22]

(5) Details of how this system works are given in the seminar report at [23]

(6) see [www.bag-integrationsfirmen.de] and the INCUBE case at [24]

(7) see the Synergia case at [25]

(8) BEfr-61 FAME (Formation, Adaptation, Maintien, Employabilité) co-ordinated by AWIPH (Agence Wallonne pour l'Intégration des Personnes Handicapées) [http://www.eweta.be/index2.htm

(90 The Créative project (FR-2001-NAT-39063) is strengthening the identity of business and employment co-operatives through branding, and establishing a territorial structure both within France and transnationally [26]. The project organised the seminar held at the European Parliament in December 2006 [27].

(10) for example De Punt (BEnl-ESF01/EQ/2.D/007) [28]

(11) Egenanställning(SE-80), referred to in the article on the seminar held at the European Parliament in December 2006 at [29]

(12) Partnerstwo Inicjatyw Nowohuckych (PL-115) [30]

(13) Examples include RepaNet (Reparaturnetzwerk Österreich) and EcoNet-Austria (AT-3-08/135) [31] and ELWARE – Social firms specialising in electrical waste recycling (FI-15) [32]

(14) Regie Buurt-en Nabijheidsdiensten (BEnl-01/EQ/2.d/005) and Werk.Waardig (BEnl-16) [33]