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# 52000IE0242

**Opinion of the Economic and Social Committee on 'The Social Economy and the Single Market' **

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Official Journal C 117 , 26/04/2000 P. 0052 - 0058 *

Opinion of the Economic and Social Committee on "The Social Economy and the Single Market"

(2000/C 117/11)

On 25 February 1999, the Economic and Social Committee, acting under the third paragraph of Rule 23 of its Rules of Procedure, decided to draw up an Opinion on "The Social Economy and the Single Market".

The Section for the Single Market, Production and Consumption, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 15 February 2000. The rapporteur was Mr Olsson.

At its 370th plenary session on 1 and 2 March 2000 (meeting of 2 March), the Economic and Social Committee adopted the following opinion by 105 votes in favour, 3 against and 16 abstentions.

1. Introduction

1.1. The purpose of this own-initiative opinion is to focus attention on the social economy at European level, and to put forward practical proposals for the EU institutions, the Member States and the sector itself, in order to help it boost its contribution to social welfare, employment, sustainable growth and social cohesion.

1.2. The Committee has adopted several opinions on the social economy(1). As early as 1986, the Committee published a comprehensive survey of cooperatives, associations and mutual societies, which subsequently came to be regarded as a European reference work(2).

2. The social economy's role in society

2.1. In preparing the Opinion a Hearing was organised in Brussels on 12 October 1999 in which the role of the social economy in society was highlighted.

2.2. Social economy activities start as a means of satisfying the needs of members and users which have been left either ignored or inadequately fulfilled by the market or the State. The social economy gives people the opportunity to organize their production and consumption patterns through independent, democratic forms of cooperation. By targeting people's outstanding or inadequately met needs, the social economy can come up with innovative, forward-looking solutions.

2.3. The social economy is very diverse and can be found in all sectors of economic life. Social economy organisations are active in a competitive market including both private and public players. Many of them, however, provide welfare services, social protection, and labour market initiatives, often acting in conjunction with the public sector.

2.4. The welfare State is confronted with challenges. Unemployment in Europe remains high and social exclusion is on the increase. Social protection systems are being weakened by continued low growth and an ageing population. Public sector responsibility for some welfare functions is declining. In any event, the public sector is unable to keep up with growth in demand, and there is a shift towards privately organized provision and financing, while preserving the fundamental elements of social justice on which such functions were built.

2.5. The social economy is, in some countries, an important provider of services in healthcare, social housing, community care, environment, efficient use of energy resources, education and training, and it also sometimes arranges funding for these services. It is thus an element of the European welfare model and plays a role in enabling it to reach its objectives. Concrete support to develop the sector should therefore aim to guarantee high quality services to European citizens.

2.6. The social economy is present at all levels, both national and European, but its roots are local. It plays an important role in achieving social cohesion. The local social economy works alongside the public sector to provide society's infrastructure. At the same time, social economy firms often play an important role in rural and urban development. Notwithstanding its local impact, the social economy is sometimes organised in big units with national or even transnational activities. By forging partnerships with the public sector, private enterprise and trades unions, the social economy can contribute to the strengthening of local business competitiveness in a global environment. For example, appropriate partnerships between social economy organisations working in the area of occupational integration and private enterprise can offer a development model based on integration into working life by means of the economic system, to combat social exclusion and meet the outstanding needs of the workforce.

2.7. The social economy can provide a blueprint for greater competitiveness, founded on cooperation between people and enterprises, and on its ability to satisfy people's needs and develop human capital. Since it focuses on people-centred relations, the social economy will be stimulated by the shift towards a service society and new forms of work.

2.8. The social economy can tap emerging sources of employment, particularly in the sectors of social services, culture, leisure, education and environment, not only through labour intensive production but also through the use of new technology. It can thereby also make a contribution to the social integration of vulnerable groups.

3. The "social economy" concept

3.1. Even if not labelled as "social economy" in all Member States, comparable activities sharing the same features exist everywhere. They have developed over the centuries in different organizational forms and under different names according to the national economic, social and legal circumstances. These differences explain the absence of and the difficulties in finding a common definition at EU level.

3.2. The expression "social economy" is, however, gaining ground, and is used, inter alia in the Employment Guidelines(3) and in the new Regulation on the European Social Fund(4).

3.3. In order to overcome the problem of definition, the social economy is often described as being composed of "four families": cooperatives, mutual societies, associations and foundations, which in fact are organizational and/or legal forms.

3.3.1. In line with this, the European Commission established a Consultative Committee for Cooperatives, Mutual Societies, Associations and Foundations in 1998 (CMAF)(5).

3.3.2. However, not all organizations that are included within the four families wish to be considered part of the "social economy". At the same time, other players identify themselves with the social economy but do not meet the specific legal requirements of those four families that differ from one Member State to the other.

3.4. The lack of clarity surrounding the expression of "social economy" is not only due to different ways of interpretation, it is also the result of linguistic confusion. It is clear from the expression that economic activity is involved. The adjective "social" should be understood to mean both mutual self-help and "public spiritedness".

3.5. During the last few years the socio-economic environment has changed. New phenomena and new economic players are emerging to meet new needs and demands in a flexible, innovative and efficient way. Old activities have to be adapted.

3.6. Since an activity within the social economy may be linked to certain rights and advantages, the Committee believes that it is important - even if difficult - for the Commission to come up with a definition that is workable, accepted and understood by the public and the Member States.

3.7. Against this background, the Committee questions whether the legal and organizational ground for defining the social economy is not outdated notwithstanding the fact that most social economy activities will be organized in the above-mentioned forms.

3.8. The Committee suggests that a definition should be based upon the main features that distinguish the social economy from classic private enterprise and the public sector. Focus should be given to the people-centred objectives and activities.

3.8.1. This means that the aim of the social economy should be to work for its members, users and/or society in order to meet well defined needs of public interest.

3.8.2. Membership of a social economy body must be open to all who meet the criteria and accept the conditions.

3.8.3. People's needs and commitments are central, as are the organizational requirements of democratic control and independent management.

3.8.4. The social economy firms are "not-for-profit" organizations - i.e. profit is not the primary objective -, but nevertheless they must be economically efficient so that they can use financial surpluses to promote their objectives.

4. Significance of the social economy

4.1. The social economy firms and organizations have millions of members. While some of these firms and organizations are of substantial size, most of them are very small. Many of the large organizations are long-established, but the majority started up recently. Associations, small cooperatives and other new social economy organizations are growing fast.

4.2. In order to get an even better grasp of the significance of the social economy, the Committee feels that both the Member States and the Commission should provide more comprehensive and clearly defined statistics for the sector, using common, standardised criteria and models.

4.3. According to some studies, the social economy accounts for a substantial part of EU economy and employment(6).

5. The social economy - a different type of entrepreneurial initiative

5.1. The features of the social economy's entrepreneurial initiative distinguishes it from other types of economic activity. It thus contributes to the necessary diversity of economic life.

5.2. New types of organizations and companies are springing up which adopt social economy principles. These include multi-stakeholder cooperatives , enterprises with social objectives, workforce insertion agencies, intermediate labour market enterprises, local community organizations, etc.

5.2.1. At the same time, traditional social economy firms sometimes need to compete in a market situation and/or overcome some legal obstacles to their growth by converting to the legal form of a private firm where profit is the primary objective.

5.3. Within social economy firms social efficiency must go hand in hand with economic efficiency, without depriving them of their special features or undermining their special nature and objectives.

5.4. Previous Committee opinions have expressed support for the promotion of an enterprise culture and a climate which is conducive to business - including social economy businesses(7).

5.5. There are a number of obstacles to the growth of the social economy: demand for the goods and services it produces is too weak in terms of purchasing power; the skills of workers and management must be improved; and the lack of capital is plain to see in some sectors (though not all). In addition, legislation does not always take account of the specific nature of the social economy.

5.6. The social economy is a type of enterprise which often appeals to groups that traditionally would not dare to set up an enterprise. Collective enterprise enables them to pool resources and share risks. The security thus provided is more conducive to risk-taking.

5.7. The social economy combines voluntary and paid work. The voluntary work is multi-faceted. It can include the time elected representatives devote to carrying out an activity, or general work carried out by volunteers in an association.

5.7.1. The Committee believes that voluntary work provides a channel for citizens' active participation in society and is increasing in certain fields. It often exists alongside salaried work and can engender employment growth, particularly in sectors where demand is low owing to lack of resources. However, in the Committee's view it cannot replace salaried work, which must be subject to normal labour market conditions.

5.8. At the same time, the social economy needs to improve the skills of its workforce - both salaried and voluntary - so that it can provide quality services which can cope with competition.

5.8.1. Given the specific and multi-functional character of the social economy firm, there should be ample scope for management and workers to set up a "learning" organisation in order to promote adaptability through flexibility and new work organisation patterns and to find ways to make work compatible with family life.

6. Employment

6.1. The social economy as a whole rejects any attempt to turn it into a labour market policy instrument. Most social economy activities - like business activities in general - do not focus on employment, but have different primary objectives. However, new jobs are an important by-product of growth in the sector.

6.2. A large number of social economy players focus however on employment/integration for the unemployed, for people with disabilities and other groups which are - in labour market terms - vulnerable. The social economy can motivate people, giving them self-respect to run their own business, or to find a job in the traditional labour market. Many social economy players also have, for reasons of solidarity, heeded the calls made by political and social bodies to play a part in employment policy.

6.3. These organizations, which are often new to the social economy, thus play an important role in helping people step up from the secondary to the primary labour market. They differ from country to country, go under different names, and their structure and organization are diverse. Many job schemes run by the trades unions or private enterprises rely on social economy players.

6.4. Among the many examples of labour market policy measures which have boosted employment in the social economy, some may be mentioned. The French employment initiative "Contrat Emploi Solidarité" (CES) has provided 200000 jobs in the associative sector, which, moreover, has recruited around 250000 young people until now via the special programme to combat youth unemployment. In Italy today the social cooperatives employ more than 100000 persons. In Belgium, a programme to absorb unemployment helped create 40000 jobs. In Ireland, the Community Employment measure has created just over 30000 new jobs in the associative sector and in local community organizations. In Spain, the Mondragon Group and Once aim to provide jobs for 37000 people.

6.5. The social economy's positive effect on employment has been taken on board in the EU employment guidelines, which emphasize its role in creating new jobs at local level in particular, and in tapping into new employment sources(8).

6.6. The Committee notes that as a consequence of the employment guidelines, the social economy is increasingly being asked to play a part in the national action plans for employment. Countries such as Italy, Spain, France, Ireland and Belgium are good examples of this(9).

6.7. In order to achieve effective participation in national labour market policy, the Committee would stress the need to consult social economy representatives when drafting the national action plans, and calls on social economy organizations to present their governments with concrete proposals for the year 2000 action plan.

6.8. Given that in a number of countries mutual societies are a major plank in the social protection system, the Committee believes they could play an important role in promoting employment, new enterprise and employability. There are already examples of this(10). Mutual social protection societies could also be involved in organizing services for the ageing population, thus creating new job opportunities in cooperation with other sections of the social economy.

6.9. If new employment opportunities are to be created, the Committee highlights the need for support structures, inclusion in national economic and labour market policy, and support from the Structural Funds(11).

7. The Structural Funds

7.1. Regarding the implementation of the EU's new Structural Funds programme for 2000-2006, the Commission guidelines state that the social economy's potential for creating new jobs has not been sufficiently exploited. The European Social Funds Regulation states explicitly that funding may be provided for social economy activities.

7.2. The Committee assumes the Member States and the Commission will incorporate the guidelines in the actual programmes. The role played by the social economy in local development, integrating vulnerable groups and fostering entrepreneurship should be highlighted in the priorities to be implemented. At the same time, the Committee calls on the Member States to ensure representation of the social economy in the partnership which must be set up according to the Structural Funds Regulation.

8. The single market

8.1. Access to finance

8.1.1. Several new, alternative, social economy-related banks and credit institutions are springing up alongside the traditional cooperative banks in order to provide capital to new initiatives. Small loans, credit guarantees and special risk capital have proved effective in encouraging new enterprise in the social economy(12). Funding is often provided by people who want to invest in the social economy.

8.1.2. However, the Committee recognizes that access to finance still remains one of the most important hurdles for players in the social economy sector - especially for the very small enterprises.

8.1.3. The Committee is positive to initiatives that enable these new social economy financial instruments to progress and fulfil their important tasks. The Commission and the Member States should examine this matter as well as the possibility of other initiatives to provide capital for the emerging social economy.

8.2. Social protection

8.2.1. In some countries mutual societies perform an important role in social protection. Their work is based on solidarity between stronger and weaker groups, and they do not discriminate on grounds of risk.

8.2.2. The Committee believes that social protection mutual societies play an important role in national social security systems, and calls on the Commission to ensure that this general interest role is not undermined by unfair competition. Furthermore, all players must respect the clearly-defined obligations connected with service provision.

8.3. The rules of competition, public procurement and taxation

8.3.1. Due to its special features, the social economy sector needs tailor-made solutions as far as taxation, public procurement and competition rules are concerned, for example:

- Social economy organizations are not allowed to establish activities in certain branches in some Member States (e.g. petrol distribution in Spain).

- Public procurement rules are not always compatible with local employment initiatives and the social economy's provision of welfare services.

- Public procurement does not always contain requirements that affect the quality of services and is often limited to the lowest economic bid.

- Taxation benefits due to the fact that the social economy differs from traditional economic sectors.

8.3.2. For this very reason, the Committee believes that applying specific solutions makes it possible to achieve a level playing field between firms of the social economy and private enterprises.

8.3.3. The Committee suggests that the Commission should look into these matters in order to present guidelines stating criteria for supporting the social economy. The creation of firms in the social economy sector must not upset the structure of existing markets by providing unfair competition for private-sector firms, working under the same conditions and selling goods and services below market prices.

8.3.4. The Committee believes that these criteria should be clear, transparent and based upon the fundamental features of the social economy. Nor should the rules produce negative social fall-out for disadvantaged groups.

8.3.5. When elaborating the guidelines, the social economy organizations should be consulted.

8.4. European cooperation models

8.4.1. There is an increasing need to set up European networks in order to be competitive in the Internal Market. The Committee has already called for cooperatives, and mutual societies and associations to be allowed to develop cross-border European cooperatives, European mutual societies and European associations(13). The necessary European Statutes are still missing. It should also be possible for individuals and small businesses to establish such European legal forms, should they wish to be involved in cross-border cooperation in order to strengthen their competitiveness.

8.4.2. The Committee has already expressed its opinion that, in order to provide for a swift Council Decision, these legal and organizational forms should be treated separately from the European Company Statute(14). Clearly, the proposal for a Directive on worker participation must be adopted simultaneously.

8.4.3. The Committee would renew this call, whilst emphasising that the new regulations must be sufficiently flexible as to allow cooperation between organizations and companies from different sections of the social economy. Such flexibility is particularly necessary to take account of the differences in national legislation. French legislation on the "Union d'Economie Sociale" and Italian legislation on consortia could provide a blueprint here.

8.5. EU enlargement

8.5.1. In the run-up to EU enlargement, the Committee would call on the Commission to ensure that accession negotiations take account of the role of the social economy in the applicant countries, both in terms of single market legislation and other opportunities for full participation in European cooperation.

9. Commission support programmes

9.1. The Committee notes the fact that the programme for cooperatives, mutual societies, associations and foundations, proposed by the Commission in 1993, has not been implemented. A decision on this required unanimous approval by the Member States, which proved impossible to achieve. One argument against the programme was that funding was insufficient (EUR 5.6 million over three years).

9.2. The Commission is currently preparing a programme to promote enterprise. The programme framework should also include promotion of the social economy, and introduce particular funding for social economy-specific issues such as training for members, dissemination of best practice and research.

9.3. The Committee assumes the resources earmarked for social economy organizations and companies will be more substantial than those contemplated in the previous programme proposal. But, even so, eligibility criteria should be clear and transparent, and should relate to the particular features of the social economy in order to support emerging new and/or innovative initiatives.

9.4. In addition, the Committee takes a positive view of the proposal presented by Commissioner Diamantopoulou to launch pilot projects linking social economy organizations and other social players to achieve good practice of such partnerships.

9.5. As regards other EU programmes, such as the 5th RTD framework programme and EU aid programmes, special initiatives should be introduced to make it easier for the social economy to access the support available.

9.6. The Committee believes that voluntary and unpaid work should count as co-funding in social economy-run EU projects.

10. White Papers on Cooperatives and Mutual Societies

10.1. The Committee is disappointed that the Commission according to its work programme, will not adopt the two White Papers initially foreseen for this year, one on cooperatives and the other on mutual societies. The Committee would warmly support such an initiative which, however, must be given the necessary resources if it is to succeed. It will make it possible to assess the situation in these sectors and come up with some recommendations aimed at stimulating the development of cooperatives and mutual societies in the EU.

11. Commission organization

11.1. Social economy organisations and firms are in close contact with almost every Directorate-General. The Directorate-General for Enterprise which is planned to have responsibility for cooperatives, mutuals and new forms of entrepreneurship, and the Directorate-General for Employment and Social Affairs, which would have responsibility for social economy and local development, are the main focus of attention. To distinguish between organisations in this way would trigger the break-up of the unity of the social economy sector. It is important urgently to find a satisfactory, coordinated response to overall organisational matters and that social economy players receive assistance. At the same time the Committee wonders what the Commission means by "new forms of entrepreneurship".

12. What can the social economy do?

12.1. At the Hearing in October, several cases of good practice were presented. The Committee feels that the dissemination of good practice is a key element in achieving progress for the social economy.

12.2. Some examples are:

- setting up coordination agencies at national and European level;

- creating information networks;

- cooperation with business in general and with the trades unions;

- concluding partnerships with regional and local authorities;

- working out ways of assessing both economic and social effectiveness, by means, for example, of relevant social auditing methods and systems of improved governance;

- setting up strategic development centres;

- developing benchmarking systems;

- making a concerted effort to raise the profile of voluntary enterprise, by getting large social economy companies and organizations to draw up "Managing Change Reports"(15);

- providing examples of best practice in skills development, organization of work and equal opportunities;

- harnessing available EU programmes particularly those for human resource development.

13. Conclusions

13.1. The social economy is on one hand an important part of economic life and at the same time part of organised civil society. This own initiative opinion is the Committee's contribution to the debate on the social economy at European and national level, its definition and its role both in general and in relation to the Internal Market.

13.2. The Committee recommends that the Commission, the European Parliament and the Member States follow up this opinion by drawing up a strategy to fully integrate the social economy into the creation of welfare activities and the promotion of new entrepreneurial initiatives in Europe.

Brussels, 2 March 2000.

The President

of the Economic and Social Committee

Beatrice Rangoni Machiavelli

(1) Business in the "Economie Sociale" sector. OJ C 332, 31.12.1990, p. 81; Opinion on SEC(89) 2187, Multi-annual programme (1994-96) of work for cooperatives, mutual societies, associations and foundations in the Community, OJ C 388, 31.12.1994, p. 22; Opinion on COM(93) 650.

(2) The Cooperative, mutual and non-profit sector and its organisations in the European Community. Published by the ESC.

(3) Point 12 of the 1999 Employment Guidelines, Council Decision of 22.2.1999. The same point can be found in the Commission's proposal for the Employment Guidelines from the year 2000.

(4) Regulation on the European Social Fund, Article 3,1(d) OJ L 161, 26.6.1999.

(5) CMAF recently published a paper "Social Economy in the Development of the European Union" which states its view on common principles of the social economy.

(6) The social economy employs some 6 %-7 % of the total EU workforce (circa 9 million jobs) according to a recent study made by Ciriec, ("Les entreprises et organisations du troisième système: Un enjeu stratégique pour l'emploi", Liège 1999). In addition, voluntary work, particularly in the associative sector, could be estimated at the equivalent of a few million jobs.

(7) Cf. inter alia Fostering entrepreneurship in Europe: priorities for the future, Opinion on COM(1998) 222, OJ C 235, 27.7.1998, p. 69.

(8) Point 12 of the 1999 Employment Guidelines, Council Decision of 22.2.1999. This role was also underlined in the "Third system and employment" programme capitalisation committee report.

(9) Joint Employment Report 1999, part 1, p. 59, and part 2, reports on various countries. Published by the EU Commission.

(10) "The contribution of mutual and bilateral social protection to employment and employability", KOOPi Sweden 1998.

(11) COM(1999) 167, Community policies in support of employment, point 2, Regional and Local support.

(12) In "Financial Instruments of the Social Economy in Europe and their impact on job creation", published by Inaise, some of these instruments are described. Another example are the Italian mutual funds to develop new cooperatives.

(13) OJ C 233, 31.8.1993, p. 42.

(14) Information and Consultation of Workers, OJ C 212, 22.7.1996, p. 36. Opinion on COM(95) 547, 29.5.1996, point 14.

(15) ESC Opinion on "Managing Change" (Gyllenhammar Report), OJ C 258, 10.9.1999, p. 1.

APPENDIX

to the Opinion of the Economic and Social Committee

The following amendment, which obtained more than one quarter of the votes cast, was rejected during the discussions.

Point 8.4.2

Delete the last sentence.

Reason

The proposal for a directive on worker participation is not acceptable in its present form to SMEs in the commercial sector. It creates obligations that are too onerous for small firms. Also, the two things are independent.