Social enterprise and the companies of restricted profit distribution in Sweden 31 May 2007, Helsinki Dr Karl Palmås Centre for Business in Society The School of Business, Economics & Law Göteborg University

Agenda  Social enterprise in Sweden  The civil society tradition  Continental or Anglo-American approach?  Barriers to development  The Swedish limited dividend company  The privatisation debate  Legal structure  On the (as yet) modest establishment rates

Social enterprise in Sweden

The civil society tradition  Sweden has a long-standing tradition of an active civil society, institutionalised in the “people's movement” (folkrörelse) ethos. This is signified by...  a large number of associations,  originally connected to the worker, temperence, and religious movements,  with a focus on democratic governance,  large membership base, and  active membership.

Approaches to social enterprise: Continental or Anglo-American?  Social enterprises are a new way of labelling associations or co-operatives in “the social economy” (the Continental approach)‏  Approach supported by existing civil society institutions and co-operative movement  Social enterprises are trading, social-purpose, preferably not-for-dividend, companies (the Anglo- American approach)‏  Approach has yet to find institutional support

The “Swedishification” of social enterprise?  The Swedish institutional focus on the capital-labour nexus is yielding a local re-interpretation of the concept of social enterprise:  A cooperative that re-integrates long-term unemployed into the labour market, using a certain labour market initiative (lönebidrag) for funding the paying of wages.  In other words, social enterprise increasingly reduced to being solely a specific labour market policy measure, subsumed under the existing Swedish model  A move away from the idea of a radically transformed economy, featuring a pluralism of economic forms, located in the intersection of the three established sectors, active in several fields and industries.

Barriers to development of social enterprise in Sweden  Finance  No Community Development Finance Institutions (CDFIs); low level of venture philanthropy activity  Knowledge  Little research on social enterprise; social entrepreneurship not taught in universities  Recognition  Low (but rising) level of recognition of social enterprise from mainstream business, government, as well as wider society

The Swedish limited dividend company

The context: The Swedish privatisation debate  80s: Emergence of privately-run public services in healthcare, schooling and childcare  Cityakuten, Pysslingen, Vårat Dagis  Cycles of establishment and repeal of laws intended to curb private, profit-distributing enterprises  Lex Pysslingen (-84/-92), Stopplagen (-01/-07)  Stopplagen and the limited dividend company  Right-wing-governed regions selling primary care public hospitals to private companies; social democrats prohibiting profit-distributing companies from providing publicly funded primary care  Establishment of new vehicle for delivering public services

The specs of the limited dividend company  The LDC is a normal joint stock company, but…  Owners can, at the most, claim dividends that are on the level of the overall interest rate  The company cannot be transformed into a traditional joint stock company  Can, under stopplagen, provide publicly funded healthcare  Critiques  Why complicate matters further by inventing yet other associational form?  The not-for-dividend status can be written into the statutes of a traditional joint stock company  Became available as a legal form on 1 January 2006

On the (as yet) modest establishment rate of LDCs  Number of entities established as LDCs: 6…  … of which some are municipally owned structures (ie. not the intended ”targets” for the LDC structure)  Potential reasons for the modest establishment rate  Many of the targeted public sector entrepreneurs have already set up shop, and find it cumbersome to switch associational form  The not-for-dividend criterion can be instituted in other ways  Stopplagen repealed by new government  Primary issue: No institutional or policy framework for supporting this new vehicle  The new legal form is ”naked” without due support

A comparison with the UK CIC  The UK Community Interest Company  Established in 2005, purportedly an inspiration for Swedish government  Results  Rapid establishment: 344 companies set up after one year (as compared to 1 company in Sweden)  CICs successfully delivering public services  Institutional embedding of new associational form  Futurebuilders; special regulator established  Incentives to meet the Community Interest test  High-profile support from government (cabinet office)  More advanced debate on the merits of new economic forms

Conclusions  As yet, the new legal form in Sweden is a failure. Nevertheless, this is primarily a failure of execution: There is a need for this kind of associational form.  Proper institutional and policy support – as well as clever marketing – can turn this failure into a long-term success.  In order to get to achieve this, the Swedish debate on public services has to move towards an advanced (as well as more pragmatic) discussion on the merits of new – and the obsolescence of old – economic forms.