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Tapping the potential of social enterprises

Report drafted by Daiva Kvedaraite

Social enterprises pursue social objectives, with profit merely a means of achieving those goals. This point was stressed by social entrepreneurship expert Ariane Rodert when visiting Lithuania, during a discussion on 24 April with social partners, specialists and NGO representatives about ideas for developing the social economy. Profits are ploughed back in order to realise social objectives, and the management of such businesses is open, democratic and informed by the principles of solidarity and a sense of responsibility, as well as being independent of public authorities. Social enterprises can have various legal forms, for instance public entities, associations, cooperatives or foundations. Ariane Rodert pointed out that the social economy is a pillar of Europe's economy, accounting for some 10% of European GDP. The social economy employs over 14 million people (6.5% of the EU's active population). Social businesses account for a quarter of annual start-ups, and in France, Finland and Belgium for fully one third. 75% of social businesses operate in the spheres of social services, employment, general and vocational education, environmental protection and community development. Social entrepreneurs want to change society, not just make profits for owners and shareholders. Thus they for example create jobs for members of disadvantaged population groups, promote the integration of such groups into society and strengthen the solidarity economy.

 

Interest in the social economy increases during times of crisis in particular, since it provides one means of managing the changes induced by economic crisis, globalisation, demographic change, climate change and the risks to society that inequality, unemployment and poverty may represent. The European Commission has indicated that the potential of social businesses and civil society must be used to help develop the model of the social market economy in Europe. The EESC is actively involved in developing social enterprise in the EU. The Committee is working on a social enterprise project and is engaged in disseminating and exchanging information and bringing together as many stakeholder organisations and individuals as possible. Ms Rodert emphasised the importance of tapping the potential of the social economy, increasing public understanding of this area, improving access to the market and to financing opportunities, and changing public procurement conditions by introducing a social impact index.

 

Together with the European Economic and Social Committee and the Lithuanian Ministry of Social Security and Labour, the Lithuanian Solidarumas trade union held a round-table discussion on 24 April 2015 on the subject of Social enterprise in Europe and Lithuania. Participants included Ariane Rodert, EESC member and vice-president of Group III; Daiva Kvedaraitė, EESC member and vice-president of Group II; Kristina Ščerbickaitė, representative of the Lithuanian Ministry of Social Security and Labour; Rima Švedienė, representative of Lithuania's National Labour Exchange; Inga Blažienė and Julija Maskvina, representatives of the Lithuanian Social Research Institute; as well as members of the youth and women's associations of Solidarumas and trade union leaders. Participants were welcomed by the trade union president, Kristina Krupavičienė, who thanked Ms Rodert for finding the time to visit Lithuania in order to share her expertise. She spoke about the role of the social partners in developing the social economy concept. The aim of the event was to share information about social businesses, the social economy and social entrepreneurship, to encourage involvement of the social partners, to promote the social economy as a way of underpinning a sense of public spirit, and to boost both employment and social integration in Lithuania.

 

Daiva Kvedaraitė began by talking about the purpose of the event. The European Economic and Social Committee had launched a social enterprise project in 2014 to elicit policy ideas and specific measures for implementation. Swedish member Ariane Rodert was the main person behind the project, which involved the EESC gathering information from social economy operators from all over Europe and meeting stakeholders from the local, regional, national and EU levels representing a wide variety of sectors. It became apparent that interest in social enterprise was growing and that its potential should be better harnessed. Lithuania was not involved in this project, and it had therefore been decided to contact the EESC and invite Ms Rodert to present the project in Lithuania. A round-table discussion was held in Vilnius on 24 April 2015 for this purpose.

 

The representative of the Ministry of Social Security and Labour, Kristina Ščerbickaitė, explained the situation of the social economy in Lithuania, where it was usually defined as social business operations. The Lithuanian law on social enterprises was adopted exactly ten years ago, on 24 April 2004. The main purpose of this law was to enable people with disabilities to remain in the labour market. The law was framed against a background of changing labour market conditions, with companies employing disabled people having to operate in the internal market. The Solidarumas union (LDS) was one player that pushed for the law. On 1 December 2011, Lithuania's parliament adopted Law No XI-1771 amending the law on social enterprises (official gazette 2011, No 155 7352), drawn up by the Ministry of Social Security and Labour, which was designed to increase in particular the employment rate of people finding it difficult to adapt to the changes in the labour market. The purpose of setting up a social business is to get people from the target groups contained in the law (those no longer able to engage in professional or other activity, those not economically active, and those who cannot compete on equal terms in the labour market) into work and so promote their return to the labour market and their social integration, and also reduce their social exclusion. In 2014 there were 133 social enterprises in Lithuania, including 63 enterprises for reintegrating people with disabilities. These enterprises employed a total of 4 762 people belonging to the above-mentioned target groups. The legal form of such enterprises in Lithuania is generally that of a closed joint-stock company (Uždaroji akcinė bendrovė, or UAB) without wider social objectives, which employs particular people and receives government support in the form of subsidies in return. However, the law does not cover issues such as ploughing back of profits, social objectives or worker co-determination.

 

Conclusions

Lithuania does not have adequate legal provisions covering social enterprise as a business model geared to social objectives. The law on social enterprise only recognises the model of social employment, i.e. companies recognised as social enterprises providing work for people from specific target groups, namely those no longer able to engage in professional or other activity, those not economically active, and those who cannot compete on equal terms in the labour market. Such companies receive government support (subsidies for wages and social security). Thus other types of social enterprise are not legally recognised and there is no opportunity to develop them, while government support is granted only for one of the possible models of social enterprise. The legal definition of social enterprise does not accord with the European Commission's criteria laid down for social enterprises. Lithuanian social enterprises continue to pursue the typical goal of the traditional business model, namely profit maximisation. Profit distribution is at the discretion of the company owner, profits are not ploughed back into the business to fulfil its social purpose, and there are no innovative social activities or economic operations aiming to create synergies. This considerably narrows the concept of social enterprise and wastes a great deal of potential for developing social entrepreneurship. The legal basis for social business operations must be aligned with the general criteria for social enterprise and social businesses laid down by the European Commission, in particular with respect to increasing the ploughing back of profits. The potential of NGOs to promote social entrepreneurship has not been fully harnessed in Lithuania.

 

Development of the social economy is a priority issue for the European Commission. Its communication on The Social Business Initiative — Creating a favourable climate for social enterprises, key stakeholders in the social economy and innovation (COM(2011) 682 final) was adopted on 25 October 2011, and the European Parliament adopted a resolution on The Social Business Initiative – Creating a favourable climate for social enterprises, key stakeholders in the social economy and innovation on 20 November 2012. The Lithuanian Ministry of Economy approved the concept of social enterprise on 3 April 2015 . This defines the social economy as a part of the national economy that creates social and economic benefits to meet those human and social needs that cannot be met by private and public operators. Social enterprise is a business model in which the profit motive is linked to social goals and priorities through the market mechanism and where social innovation is sought based on the principles of a socially responsible approach to business and of public-private partnerships. Social enterprise rests on three main pillars: the business pillar (ongoing business activity), the social pillar (pursuit of social goals) and the management pillar (limited availability of profits, transparent management).

 

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Tapping the potential of social enterprises