Social Enterprise and Innovation: lessons from the Italian Experience Giulia Galera EURICSE Bertinoro – July 22, 2011

Main issues  Part 1: conceptual aspects  Part 2: social enterprises and socio-economic development  Part 3: dynamics of development of social enterprises and legal evolution  Part 4: the Italian case study  Part 5: main lessons learned

 PART 1: Conceptual aspects

1. Introducing conceptual aspects  Multiplication of definitions with “social” suffix next to typically economic concepts:  Social Economy  Social Entrepreneurship  Corporate Social Responsibility  Social Innovation  Social Business  Social Enterprise

1. Social Economy  French in origin, sometimes used as a synonym of Third Sector  Refers to organizations aimed to benefit members or the community  Developed to bring together: coops; mutual aid societies; associations; foundations  Broadcasted by the Revue des Etudes Cooperatives Mutualistes et Associatives (RECMA)  Comprehends also organizations that play non- economic roles, including advocacy and participation  Hence, the general character of Social Economy and its country-speficity

1. Social Entrepreneurship  Covers a broad range of activities falling along a continuum  Strong emphasis on “extraordinary individuals”  Comprehends social initiatives of profit-seeking businesses; practices that yield social benefits; entrepreneurial trends in non-profit organizations up to ventures developed within the public sector (Johnson, 2000; Roper and Cheney, 2005)  Hence, the very general character of Social Entrepreneurship, which crosses across all sectors

1. Corporate Social Responsibility  Concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis (EU Commission)  Concept that can in principle be applied to all forms of enterprises, but is mainly used to refer to for-profit enterprises

1. Social Innovation (SI)  Recent construct  Meant to grasp lasting social change  Dismatles the barriers between sectors and refers to a wide set of novel solutions  Can be a product; a production process, an idea; a social movement or a combination of several elements (Phills, Deiglmeier, Miller, 2008)  Hence, the intrinsic vagueness of Social Innovation

1. Social Business  Comprehends companies that focus on providing a social benefit rather than on maximizing profit; and profit-maximizing businesses that are owned by the poor or disadvantaged (Yunus, 2008)  Reference mainly made to the second typology  Non-profit distribution: investors may not, after having had their investments paid back, take profits out of the enterprise  Hence, the strong focus of Social Business on poverty, its limited reach, and the voluntary nature of the profit distribution constraint

1. Social Enterprise  Partially overlaps with other concepts (social economy/third sector; social business; social entrepreneurship)  Narrower focus (focus on the entrepreneurial component)  This notwithstanding it is supposed to have a more consistent beneficial impact on society  WHY?

1. Social Enterprise  Core product produced by social enterprises = activities that are of interest to the entire community  Refers to a “different way” of doing business and providing general-interest services  It is a specific type of institution that is supposed to perform in addition to public and for-profit enterprises  Encompasses: entrepreneurial component of the non-profit sector innovative component of the cooperative movement

1. How to overcome conceptual confusion?  Diversity in approaches, concepts, and cultures generates confusion and calls for a clarification  Tentative classification: various concepts pictured in a dynamic way  Classification built along two axes:  Institutional dimension= incorporation of the social goal by the organization  Entrepreneurial dimension=conduction of economic activities in a stable and continuous way

1. Positioning the different concepts Institutionalized social aim Entrepreneurial nature YESNO YES 1. Not-for profit private organizations supplying general interest services 2. For profit enterprises (concerned with the social consequences of their actions) NO 3. NPOs running advocacy and/or re- distributive activities 4. Spontaneus/not instit. initiatives of individ/enter. aimed to achieve a specific, transitory social goal Social Economy Social Enterprise CSR SI Social Business Social entrepreneurship Social Business Social entrepreneurship

1. Defining social enterprise  Main features of social enterprises i.Economic dimension ii.Social dimension iii.Ownership and governance structures

1. Economic dimension  Continuous and stable production of goods and services  High degree of autonomy, hence: significant level of economic risk use of costly production factors (labour; capital; infrastructures)

1. Social dimension  An explicit social aim of serving the community or a specific group of people (social aim defined at a statutory level)  General-interest character of the goods and/or services produced

1. Ownership and governance structure  Collective nature of the enterprise  Involvement of interested stakeholders (membership and governing bodies)  A non-profit distribution constraint (total or partial), which prevents members from dividing up profits in case of sale of the enterprise

1. Approach proposed  highlights the contribution of social enterprises – as specific types of enterprises – to: the delivery of general-interest services economic development  limits confusion with CSR and other forms of social responsibility  has a “revolutionary” character: it challenges the conventional concept of enterprise and entrepreneur

1. Strength of the definition proposed  The relevance of social enterprises for economic development stems from: 1. Type of activities performed  needs of the entire community addressed  considerable emphasis on general-interest, often disregarded by other institutions

1. Strength of the approach proposed 3. Collective dimension of the enterprise  reduces the probability of opportunistic behaviours by single individuals  ensures the survival of the enterprise beyond the involvement of its founding leaders  furthers the participation of several stake-holders

1. Strength of the approach proposed 2. Sustainability  supply of general-interest services organized and managed in an entrepreneurial way  limitations concerning eligible sectors/activities (eg Italy; UK)  mobilization of a plurality of resources  asset lock ensures that welfare and development goals are observed

 PART 2: Social enterprises and socio- economic development

2. Impact of social enterprises on economic development  complement the supply of general-interest services (eg social services, elecricity, gas, safe drinking water, etc. ) that public agencies and for- profit enterprises fail to deliver Interesting experiences from some developing countries (coops guaranteeing access to infrastructure and utilities) Experiences from CIS: basic services efficiently provided through the self-organization and self- reliance of the citizens concerned

2. Impact of social enterprises on economic development  generate new jobs in their fields of activity; create new employment in the sectors in which they are engaged employ unoccupied workers (women with children)  some social enterprises are specifically aimed to integrate into work disadvantaged workers  develop new forms of work organization

2. Impact of social enterprises on economic development  contribute to a more balanced use and allocation of resources available at local level to the advantage of the community “Internalization” of economic growth to the advantage of the entire community community dimension allows to adjust to local contexts and take stock of local resources

2. Impact of social enterprises on economic development  help foster social cohesion and enhance social capital they supply goods/services that are characterized by a high social potential adopt inclusive and participatory institutional structures

2. Impact of social enterprises on economic development  support the institutionalization of informal activities belonging to the underground economy several social enterprise-like initiatives arise informally Institutionalization allows irregular workers to get out of the black market

PART 3: Dynamics of development of social enterprises and legal evolution

3. Social Enterprise in Europe  until 1970s two-poles institutional framework (State and Market) worked efficiently  crises welfare states and shortcomings of the privatization process renewed vitality of civil society through the development of voluntary initiatives  different trends in Europe

3. Socio-economic context Associations/Foundations increasingly engaged in the production of services Social Enterprise Co-operatives engaged in the production of general-interest services for non-members

3. Fields of activity  Social services  Work integration  New fields of interest for the community (e.g. local development; cultural services; social farming; general-interest services…..)

3. Dynamics of development of social enterprise  Drawing on the definition proposed, we can identify 3 stages of development of social enterprises Pioneering stage Institutionalization stage Differentiation stage

3. Dynamics of development of social enterprise  Pioneering stage Bottom-up emergence of new social enterprise- initiatives Not legally recognized Operate despite the lack of an enabling institutional and legal environments Normally, no umbrella organizations Organizational freedom High degree of innovation Strong reliance on voluntary work Phase concerns countries with weak welfare systems

3. Dynamics of development of social enterprise  Institutionalization stage Dynamic concerns countries where social enterprises  have beeen recognized  are connected to public policies Enjoy a low degree of freedom Rely also on paid, trained staff Run the maximum risk of isomorphism

3. Dynamics of development of social enterprise  Differentiation stage Social enterprises are well consolidated and organized Tend to expand in new fields of activity (if not bound to operate in given sectors) Expansion concerns sectors other than social services and work integration (e.g. environmental, cultural, services; social housing; social farming)

3. Legal evolution Institutionalization of SEs in EU-15  pre-existing legal forms association cooperative  legal frameworks designed for SEs adaptation of existing legislation (eg social coops) adoption of new laws providing for social enterprise “qualifications”

3. Adaptation of existing legislation Legal formActivitiesGovernance ItalySocial coopSocial services (a-type) Work integration (b-type) Participatory nature/multi- stakeholder structure PortugalInsertion coopSocial services and work integation Participatory governance not envisaged FranceSCICProduction of goods and services of collective interest Multi-stakeholder membership prescribed (users, workers and 1 additional category) PolandSocial cooperative Work integrationParticipatory nature/single- stakeholder structure

3. Adoption of specific legislation  enlargment of the activities run and legal forms admitted trend first appeared in Belgium – Societé à finalité sociale, 1995 Italy – Law 155/2006 and Decrees of year 2007 definition of Social Enterprise introduced in the Italian legal system Great Britain – Community Interest Company Regulations of 2005 Slovenia – Law on Social Entrepreneurship, march 2011

 PART 4: lessons from the Italian experience

4. Why presenting the Italian experience? the social enterprise concept was used in Italy earlier than elsewhere social enterprises account for a long history and significant development intense legislative activity: law on social coops (1991) and law on social enterprise ( ) good availability of data and knowledge from both official statistics and private research

4. The emergence of social enterprises in Italy first social enterprises were set up in Italy at the end of the 1970s promoted by groups of citizens, given the limited supply of and growing demand for social services. most of these organisations were set up through the cooperative form

4. Basic data  Since approval of Law 381/1991 on “ Social Cooperative ” annual growth rate from 10 to 20% in 1993: 1,479 social coops (National Cooperative Department) in 2003: 6,159 (ISTAT) in 2005: 7,363 (ISTAT) – 59% A-type; 32.8% B- type; 8.2% mixed or consortia  In 2009 (Unioncamere): 13,938 social cooperatives, with 304,645 people employed more than 30,000 disadvantaged workers integrated more than 3,500,000 users more than 6,381 million euros turnover

4. Key factors explaining the growth of SEs in Italy  Acknowledgment of social enterprises legal recognition: in 1991 Law 381 recognized social cooperatives ex-post intense research activity, important: to assess the importance/impact of the sector for lobbying purposes public contracting contributed to create new markets recognized the entrepreneurial charater of the new initiatives

4. Key factors explaining the growth of SEs in Italy  Decentralization in 1990 transfer to the regional and local administrations of: responsibility of delivering social services possibility to delegate the provision of these services to private providers

4. Key factors explaining the growth of SEs in Italy  Umbrella organizations  Cooperative consortia or federations played a crucial role in supporting new, developing and established social cooperatives enable cooperatives to gain skills which they cannot afford internally they provide coops with economies of scale

4. Key factors explaining the growth of SEs in Italy  Voluntary contributions  as work free of charge:  social enterprises developed as voluntary responses to social needs  also when supported by public resources, SEs continue to be voluntary promoted by groups of citizens

4. Key factors explaining the growth of SEs in Italy  Beneficial tax arrangements  The added value of social enterprises is recognised in Italy in both its laws and Constitution  most fiscal incentives are embedded in the law on social cooperatives  A type social coops charge nil rate or 4% VAT  disadvantaged members integrated by B type social coops are exempted from payment of national insurance contribution

4. Key factors explaining the growth of SEs in Italy  Multi-stakeholder membership  Mix of members not compulsory 69.7% of Italian SEs have a multistakeholder membership 33.8% of SEs have a multistakeholder governance  The main model consists in memberships involving volunteers and workers (37.9%) European Social Funds Now; Integra; Horizon; Youthstart; Equal; Progress …

4. Development trends in Italy  The growth experienced by social coops and other types of organisations has progressively made evident that: the social enterprise form was also suited to provide community services other than social and educational ones the cooperative form was no longer suitable to manage some of these new activities

4. Development trends in Italy  General Law on Social Enterprise approved in It: allows to establish SEs through a plurality of legal forms (association, foundation, cooperative, shareholder company) enlarges the set of activities of SEs  At the moment 601 social enterprises registered (March 31, 2010)

4. Social Cooperatives and Innovation As a completely new form of enterprise, Italian social cooperatives are a social innovation in and of themselves. Moreover, Italian SCs have:  Introduced new services to satisfy new needs  Innovated the “production process”, replacing bureaucratic and hierarchical forms with participatory ones,  Challenged the conventional conception of enterprise: from profit maximization to collective problem solving  Changed the conception of social services from activities with mainly redistributive purposes to activities based on entrepreneurial principles

 Entirely new form of enterprise, devoted to carrying out economic activities, with strict limits to the distribution of profit and a collective governance system  Different from traditional cooperatives because not strictly mutualistic  Different from traditional non-profits because they are primarily engaged in economic activities 4. Social Cooperatives ARE a Social Innovation

Product Innovation  SCs respond to rationed demand for services and specific needs of particular groups of people  With the evolution and diversification of needs, SCs have responded by continuously developing new services and experimenting with new solutions to better meet those needs  Provision of many social services was started directly by cooperatives, regardless of availability of public resources 4. Social Cooperatives Generate Social Innovation

Process Innovation  Replaced hierarchical and bureaucratic mechanisms with flexible and participatory ones  Multi-stakeholder governance  “Strawberry field” strategy and use of consortia to capture economies of scale  Unique resource mix (including donations, voluntary work, etc.) combined with cost savings (lowe wages to motivated workers) enabling “distributive” allocation pattern  Innovative management of human resources, relying on mix of intrinsic and extrinsic motivations, leads to high job satisfaction despite low wages 4. Social Cooperatives Generate Social Innovation

4. Focus: Alternative Allocation Patterns Social coops use allocation patterns that differ from conventional enterprises. As a consequence they also modify the distribution of income.  social coops also provide services to users who are:  unable to pay the full price or to pay at all  not covered by contracts stipulated with the public authorities This is explained by the resource mix that characterizes many social cooperatives.

4. Focus: Innovative HR Management Given their limited resources, SCs have managed to develop a new model of relations with their workers:  based on a pluralistic mix of incentives  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)

 PART 5: main lessons

5. Lesson 1: Having a Social Aim Matters The Italian case shows that, at least with respect to social innovation in the social services sector:  Organizations with an explicit social aim have a distinct competitive advantage in the development of social innovation  This advantage is closely connected to the collective dimension of these organizations  Involvement of a diverse set of stakeholders makes it easier both to tailor the supply of services to customers’ needs and to secure resources that would not be available to a different type of organization

5. Lesson 2: Importance of a Supportive Framework  Process of social innovation is complex and can encounter serious obstacles  Obstacles can be overcome by presence of supportive legislative framework and clear demarcation of roles and responsibilities for the supply of relevant goods and services  In Italian case, social cooperatives were bottom up innovation that had strength to overcome initial difficulties  However, approval of law on social cooperatives and transfer of responsibility in social service provision from central government to local agencies were instrumental in growth of the sector

5. Lesson 3: Being Innovative is not Enough  Innovative capacity is not the only important factor in addressing social problems  If social needs are widespread, solutions must be deployed on a large scale in order to make an impact  Strength of social cooperatives was not only innovation, but ease of replication and scalability (easy to set up, quickly became consolidated model, role of 2nd and 3rd level consortia in supporting individual enterprises, etc.)