Social Enterprise Law in South Eastern Europe

 

I've recently been advising the government of a small country in South Eastern Europe on their social enterprise legislation.

Disappointingly, their first Draft Law drew heavily on the Italian 'Types A & B' Social Co-operatives model.  This made me realise just how far social enterprise had come in the last 20 years (Italy itself introduced registration of social enterprises using a much broader definition in 2005).  I thought part of my assessment of where we are now might be of interest to readers in other countries...

A few years ago, 'social enterprise' was seen as a small business 'sector', rather like 'retail' or 'textiles', or as a type of organisation. This is now seen as a misunderstanding: what we call 'social enterprise' is in fact a broad social movement - a whole new way of organising human affairs, linked with 'social innovation' and 'social investment', and influencing how many existing organisations see themselves.

The recent growth in social enterprise has been in response particularly to environmental crisis and the disruptive impact of the internet, and also to loss of faith in both 'state capitalism' or planned economy models (following the 'soviet' collapse of the 1990s), and market economy models (following the world financial crisis - ongoing from 2008).

Precisely because it is a broad social movement, rather than a definable 'sector', social enterprise eludes precise definition. It is impacting not only on the way conventional business is done, but also on NGOs – which are increasingly looking to earned income rather than grants or donations.1

Often, NGOs pursue social enterprise through an earned-income activity or department, or a trading subsidiary company, that is substantially but not wholly separate in terms of governance. It is crucial to understand that there is therefore now no clear or straightforward dividing line between non-profit organisations and social enterprise organisations.

"There may well not be a recognisable ‘social enterprise sector’ by 2020. Certainly any attempts to confine social enterprise to specific legal structures or models of governance will have ceased. But the concepts and ideals of social enterprise will be spreading rapidly into all corners of society, becoming mainstream."2

In many developed economies, the recent growth of both engagement in and awareness of social enterprise has been breathtaking. This growth has actually been fastest in the UK, which does not have a legal definition of social enterprise at all, but where the total number of social enterprises is now officially estimated at 688,000, employing more than 2 million people, and with total annual incomes of £163 billion a year;3 moreover, 1 in 3 of all businesses in development want to be social enterprises.4

The growth of social enterprise is now supported by an equally rapid growth in social investment (investment to achieve social purposes alongside financial returns).  Social Investment is an entirely new funding ecology – including, but not limited to 'crowd funding', or the use of the internet to raise investment directly from supporters, often internationally.  Social investment grew by 60% over the 3 years 2012 to 2014, to 21.4 trillion dollars globally5 - and will probably continue to attract resources – sometimes at the expense of conventional funding such as grants and donations on the one hand and commercial loans, share investment, etc on the other.

Understanding the true nature of 'social enterprise' in this way – as a broad social movement, rather than one type of small business organisation – is essential to legislators, because without this understanding they will construct support or regulatory frameworks that will actually curtail the real potential of social enterprise – for example by cutting it off from social investment, by limiting it to inappropriate legal forms or trade sectors.


1  Over half of the income of UK NGOs is earned income - over ¾ in some regions (The Economic Contribution of Voluntary Organisations, NCVO, November 2012) - 45% of UK registered charities currently identify themselves as social enterprises, and 92% want to increase earned income (SEUK state of social enterprise in the UK report 2011).

2  What will Social Enterprise look like in Europe by 2020?, The British Council, 2013.

3  Well over 200 billion Euros (May 2013 UK Cabinet Office paper Social Enterprise: Market Trends.)

Social Entrepreneurship in the UK 2008, Dr Rebecca Harding, Delta Economics; also the conclusion of research for UnLtd the same year; the Global Entrepreneurship Monitor also reported as early as 2004 that 1 in 3 entrepreneurs in the UK 'have primarily social motives'.

5  UK Public Sector: Social Investment Provides New Funding Opportunity as Austerity Bites, Moody's, London 2015.