Opinion of the Economic and Social Committee on "Private not-for-profit social services in the context of services of general interest in Europe"

(2001/C 311/08)

On 1 March 2000, the Economic and Social Committee decided, under Rule 23(3) of its Rules of Procedure, to draw up an opinion on "Private not-for-profit social services in the context of services of general interest".

The Section for Employment, Social Affairs and Citizenship, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 18 July 2001. The rapporteur was Mr Bloch-Lainé.

At its 384th plenary session of 12 and 13 September 2001 (meeting of 12 September), the Economic and Social Committee adopted the following opinion by 92 votes, with one abstention.

1. Introduction

1.1. It is no coincidence that the Committee has decided to draw up this opinion, which stems from, and must be seen in relation to, the cross-roads of developments that are gradually defining, framing and enhancing what we call the "European social model". The main features of these promising trends can be summarised as follows:

a) a willingness to make the European Union more than an economic and monetary entity with a single market, and more than an area of freedom, security and justice. There is now a wish to show that social policy is not an addendum; it is not an auxiliary, subsidiarity sphere of activity subjugated to economic policy, but a catalyst of efficiency and productivity, especially in view of its power to promote cohesion;

b) the resolve to manage the growing complexity of our modern societies as well as possible; to make the most of their many and varied assets, values, strengths, and wealth of commitments and contributions; to address their pluralism as an asset rather than as a handicap; and thus to provide the widest possible scope for "organised civil society" to assume its role and responsibilities;

c) the wish to reconcile concepts such as Union and subsidiarity, differences and common rules, competition and the general interest - treating them not as conflicting forces but as interacting requirements.

1.2. At the request of the European Council in Lisbon(1), the Commission has updated (20 September 2000) its 1996 Communication on services of general interest in Europe. This explanatory document relating to the issues listed above refers (notably in point 30) to services of general interest conducted by organisations "performing largely social functions, which are not profit-oriented and which are not meant to engage in industrial or commercial activity". This means organisations such as "trade unions, political parties, churches and religious societies, consumer associations, learned societies, charities as well as relief and aid organisations".

1.3. This opinion, as its title indicates, concerns social services, which represent just one aspect of the whole issue, but which incorporate the key features of the "European social model".

The term(2), in this instance, refers to a category of private not-for-profit organisations, having different status in different countries (associations or foundations), that are active in the health and social spheres, though where necessary conducting economic activities that are subordinate to their primary social functions. Here, the term "not-for-profit" means that any surplus is not distributed to shareholders but reinvested in the development of these organisations' social services of general interest. It also means, of course, that the primary aim of these organisations is not to produce the highest possible surplus.

1.4. The background to this opinion is both essential and complex:

a) the situations covered by the term "social services" differ widely in the countries of the European Union. They are the result of histories and cultures that cannot be reduced to one single identity, which creates a complex situation. But looking at these situations, points in common can clearly be discerned; these remain constant, in their objectives, their methods of action, their position and the services that are provided. That is why it is necessary to consider them quite differently from a marginal hotch-potch of disparate elements that simply provide support; they should be considered for what they are, namely an assembly of measures that is both strong and vulnerable, familiar and unfamiliar;

b) in this area, as in others, trying to understand these different situations is made difficult by all the woolly terms and definitions: "general interest", "social services", "social market", "economic", "charitable", "social utility", etc. None of these expressions has exactly the same meaning, de facto or de jure, in each EU country (or even within each country). But that is not a reason to avoid the issue or refrain from action; wisdom dictates that account be taken of, and the maximum allowance made for, semantic imprecision, and of course that a constant effort be made to reduce it and to focus on the real-life situation.

1.5. That is the intention behind this opinion, whose purpose is:

- firstly, to highlight the contribution of the "social services" considered (2);

- then to note the concerns they feel and that are relevant to them (3);

- lastly, to suggest one possible approach (4).

2. Contribution of social services of general interest in Europe

2.1. As stated in Declaration 23 appended to the Maastricht Treaty, the European Union recognises "charitable associations and foundations as institutions responsible for social welfare establishments and services" and the need for cooperation with associations in the social sector. The importance of such cooperation is also stressed in the White Paper on the future of European social policy. However, the contributions of these organisations is strangely relatively unknown. In the EU their role varies from country to country depending on the measures taken to guarantee citizens' political, civil, economic and social rights and the way the social protection system is conceived and structured. Their position is determined by national historical, cultural and ideological foundations and by the respective modes of action of central and local government, profit-making private operators and non-profit-making private bodies. However, regardless of the wide diversity of arrangements, certain constant factors can be observed.

a) Firstly, in many countries, welfare organisations - civil society actors - have practical responsibility for providing services and managing institutions in the sphere of health and social care: retirement homes, centres for children and adults with disabilities, youth protection agencies, educational social activities, hostels and social rehabilitation centres, day nurseries, child-minding centres, health care centres, social centres, not-for-profit private care centres and home help, nursing and medical assistance, home assistance, carer and other services.

b) In many EU countries, public authorities have for some decades made the sensible decision to use private not-for-profit social operators in the sphere of health and welfare. The current and future requirement to contain public spending (i.e. reduce its rate of increase) while needs are growing and becoming more complex, confirms the useful role and potential of these operators, which can be defined as "private not-for-profit providers of services of general interest".

c) These not-for-profit organisations contribute to the development of economic growth and national wealth. They play a major role in creating jobs and promoting local development.

2.2. The social services with which this opinion is concerned are a key component of social protection schemes in all EU Member States. Without them, the most intrinsically well-planned and substantial financial input could not attain its objectives and impact, at any rate not effectively since the tools for implementation would be lacking. For optimal effect, financial aid must be backed by the necessary different channels to ensure consultation, back-up, support, partnership, grassroots involvement and flexibility. Public authorities must also involve the social services in question as far as possible in the strategic objectives they are pursuing.

2.3. The "social services" covered by this opinion all contribute to the general interest on three major fronts in that they:

a) reflect constantly changing social requirements and seek to protect those who are most vulnerable:

- they detect and identify, by acting as watchdogs, the increasingly serious shortcomings, social needs and distress stemming from an ever-wider range of sources and assuming increasingly complex forms and expressions;

- they place pressure on the public authorities to make greater provision for recognising and guaranteeing the fundamental rights of everyone;

- they strive to move beyond the narrow concept of assistance and to inculcate a sense of responsibility in the persons they support, encouraging them to take their own lives in hand;

- they have considerable potential for finding innovative ways of addressing needs.

b) create or recreate the social fabric:

- not satisfied with simply providing a service, they highlight the idea of interaction by involving individuals and families in public action;

- they develop a networking spirit, looking beyond the confines of instant results;

- they build a system fostering the pooling of knowledge and experience among people from all social groups - volunteers, employees and users;

c) mobilise a feeling of solidarity among citizens:

- they stimulate society's capacity to take charge of itself and to dialogue with the decision-makers (public authorities, economic operators);

- they are open to all and not merely to a limited number of groups;

- they are proof that cohesion, solidarity and action to fight exclusion cannot be dependent on the goodwill of the public authorities alone, even if the latter must continue to play a key role as guarantor; and that civil society has a contribution to make on a voluntary, consensual basis;

- they rely to varying degrees on unpaid workers, on commitments which are not confined to tax contributions or cash gifts and on the voluntary sector;

- however, there is concern that certain providers of "social services" are becoming less able to combat exclusion and to innovate, because of their dependence on public financing.

3. Concerns

The "social services" covered by this opinion are currently experiencing grave anxiety(3). Is this justified? And if so, why?

In many EU Member States there are now three types of players in the sphere of health and welfare services: public authorities, profit-making bodies and private not-for-profit bodies. In view of this competitive situation (except in certain sectors that are not of interest to profit-making operators), it must be ensured that the particular requirements of the not-for-profit group are not overlooked or ignored. Care should also be taken to apply the provisions relating to public contracts with a measure of flexibility.

Their concern cannot be explained solely by the relative ignorance or underestimation of their influence and role. The problem - and it is a real problem - is the future that lies ahead from the angle of European competition law.

3.1. At first sight, their alarm could appear unwarranted.

a) The Commission Communication on "services of general interest" states (Article 30): "More generally, according to the case law of the Court of Justice, many activities conducted by organisations performing largely social functions, which are not profit-oriented and which are not meant to engage in industrial or commercial activity, will normally be excluded from the Community competition and internal market rules"(4).

b) The Communication specifies that whenever such organisations engage in economic activities, application of Community rules will respect "in particular the social and cultural environment in which the relevant activities take place".

c) The Communication indicates that competition rules in principle only apply when the activities of the organisations concerned relate, for instance, to:

- services associated with mandatory membership of a basic social security scheme;

- activities of institutions performing a social function, and largely not-for-profit, which do not seek to exercise a commercial activity;

- activities entirely restricted to a specific Member State and thus in no way impeding trade between the Member States.

In the light of the above, one could well ask: what need is there to worry? Surely any fears are imaginary.

3.2. A closer scrutiny shows that the problem is not just an illusion and that the social services concerned are not "playing scared", on the following grounds:

a) many of these services, in order to fulfil their tasks, exercise activities in economic areas where commercial firms operate; the latter consider that they are exposed to a form of unfair competition;

b) in many Member States, the central government rightly feels that it is its duty to examine carefully - especially from the tax angle - whether exemptions granted for social services from national and EU competition law rules are warranted, thereby triggering a debate which is still in full swing. The stand on principle adopted by the State in a debate of this kind can be summarised as follows: "what matters is not who you are, it is what you do";

c) the Commission communication sets out three principles for application of competition rules:

- neutrality, with regard to the public or private ownership of companies;

- freedom for Member States to define services of general interest;

- proportionality requiring that restrictions of competition do not exceed what is necessary to guarantee effective fulfilment of the general interest mission.

But this statement is not enough to explain everything.

3.3. It is therefore understandable that the "social services" concerned are so eager to be more fully informed about the "rules of the game" to apply to them in future within the Union. For them, visible legal certainty is important in a sphere where there is still unquestionably a fairly large grey area.

4. Possible approaches

After having pointed out and recommended some points of reference, the Committee's aim in this section is to propose a possible course of action.

4.1. Points of reference

a) It is important - if not really necessary - to point out that the European Union and each of its members have opted for the principle of an open market economy (Articles 4 and 98 EC Treaty) based on free competition (Article 3(1)(g) EC Treaty) which must be protected against unjustified distortions; the EU has set itself other objectives than the competition principle. Its members have also chosen to implement a social policy (Article 136 ECT), to strengthen economic and social cohesion (Article 158 ECT) and to ensure a high level of social protection (Article 2 ECT).

b) Social protection is, in principle, a Member State competence. However the Commission is the guardian of the Treaties and its duty to intervene with regard to "competition rules" and the "internal market" cannot be called into question.

c) It is incumbent upon the Commission to seek - after consulting the Member States - to promote the maximum possible clarity and legal certainty, and to take into account the role of social services of general interest for the common development and promotion of civil society. For the reasons stressed in the first part of this opinion, these services are entitled to expect clearer boundaries for competition-based economic activities, in order to raise their profile and enable them to accomplish their objectives successfully.

d) The Committee considers that social services need to be treated differently from the vast number of actors responsible for services of general interest (transport, energy, communications, etc.).

e) A difficult but fundamental question with regard to the European social model, is to know how to reserve a legitimate and useful place in the EU for social services which strikes a balance between those which are entirely public and those which are entirely profit-driven. In some sectors social services usually have to undertake economic activities. However if their potential contribution and spheres of activity are to be respected, care must be taken not to take them for granted and to indiscriminately subject them to the same treatment as profit-making companies with which they work side by side and encounter in some areas.

When social services - especially associations, foundations and charitable organisations - undertake market activities, they do not wish to restrict their role to providing segmented market services as is the case for profit-making companies (which nevertheless provide a valuable and efficient service). Instead, they also contribute to the social fabric.

f) The EU must respect its founding principles, in particular those on competition. There is no question of neglecting, bypassing or amending them. The aim is to interpret, manage and apply them as well as possible and, with this in mind, to develop their implementation procedures. It would be unfortunate on such an issue to bring the Community provisions on competition law into conflict with the concern to ensure suitable, specific and relevant treatment for services of general interest. Private not-for-profit social services are not demanding that they be given a monopoly. They do not refuse to compete with all other players with respect to quality of services. But they ask that quality criteria should not be oversimplistic. They point out - and furthermore must constantly prove - that as well as the usual requirements relating to safety and professional competence that apply to all providers in their spheres of activity, their particular capacity to deal with human beings as people should be taken into account (the word "people" does not mean exactly the same as "individual", "citizen", "beneficiary", "user", "customer", etc.).

They also ask that when they are made to compete, account should be taken of the fact that they are operating in difficult or costly areas that are of little interest to private profit-making operators. They point to the difficulty that would arise if profit-making operators - which still do their job well and are clearly very useful - only dealt with the most solvent people (while still receiving public funding), but called for strict "equality" with regard to the right to compete.

This would ultimately undermine the "European social model".

g) Such an error, if it were made, could only lead to what logicians call aporia, in other words a contradiction in logic with no solution; in simpler terms, an impasse. That would be regrettable. One condition for overcoming that aporia is to recognise, with regard to the implementation of competition law procedures, the increased importance of the Union's social objectives since the Amsterdam Treaty.

4.2. Possible courses of action

With regard to competition rules, in order to achieve a clearer delimitation of the applicable provisions, two main approaches to social services of general interest and profit-making companies are conceivable and possible.

4.2.1. The first would be to amend Treaty Article 16 by introducing a general exemption principle for categories of social services provided exclusively by private not-for-profit operators. This suggestion has its own logic and its advocates, who readily refer to the EC Court of Justice judgement of 17 June 1997 (the Sodemare affair).

- Such a move would have the advantage of being clear. It would translate the desire to write into the basic texts of the Union the concern for a balance between the principle of competition and the need to circumvent the dangerous effects of applying that principle too dogmatically: weakening social cohesion, discouraging not-for-profit operators, "creaming off" low-risk groups.

- But it could entail risks: opening up the possibility for abuse; provoking general outcries by profit-making economic operators; providing unconditional exemptions for social services, which would be dangerous first and foremost to themselves. From the perspective of their proclaimed ethical clarity, it would prove a "poisoned chalice" and therefore work against them.

4.2.2. Another approach, and a pragmatic one, which has already been adopted quite effectively in some Member States, would be to draw up more detailed criteria for competition rules and areas which deserve to be exempted from them, while exploring and discussing the issue in greater depth.

4.2.2.1. This does not have to be done in an excessively complicated and potentially paralysing way; it is a matter for dialogue which could be recommended by the Commission, which would also define its objectives, general themes and spirit. At the end of the process, a way should be found for the European bodies to agree on a clear conclusion, recognising certain specific circumstances requiring that certain competition rules, such as those mentioned in Chapters I and II of Title VI of the Treaty, be waived. When the time was right, the Commission could draw up regulations on exemptions following authorisation from the Council (Article 89, Council Regulation of 7.5.98; Article 83, Council Regulations of 19/65 and 28.21/71), and/or adopting directives (Article 86(3) EC Treaty; for example the directive on transparency).

4.2.2.2. The Committee does not under-estimate the magnitude of the work which needs to be undertaken to progress in this course of action. It does, however, feel that the deadlines should not be too lengthy. If this option is chosen, the Committee is ready to cooperate actively.

5. Conclusion

5.1. It is obvious that it is difficult to reconcile respect for competition rules with the special characteristics of economic activities carried out by social services of general interest.

5.2. Private not-for-profit social services of general interest do not belong exclusively to either the public or profit-making domain. However they are intimately linked to the public domain by their dialogue procedures and the financial resources allocated to them; equally, it is increasingly common for them to operate in the commercial sector. Nevertheless, the services they provide cannot be reduced to purely public criteria, nor are they limited to providing market services.

5.3. In many Member States their concern is not to be used instrumentally, and not to be overlooked. Such a fear is by no means unwarranted, and this is what leads them to request derogations that may in some cases be controversial.

5.4. In claiming consideration for their specific circumstances they are seeking to challenge not reason, but the imagination, which are not the same thing. Nor are the two necessarily mutually exclusive. In view of the importance of the issues at stake, such as social cohesion and the fight against various forms of exclusion, the Committee considers that it would be wrong in this instance not to try to combine the two.

Brussels, 12 September 2001.

The President

of the Economic and Social Committee

Göke Frerichs

(1) The European Council in Nice reaffirmed the role of "services of general interest", and adopting the Charter of Fundamental Rights means ensuring that those rights, which include the right to social services, can be effectively exercised.

(2) It is important to note that in certain EU Member States (Italy and Sweden in particular), social welfare work is often carried out by organisations with cooperative status.

(3) They are also afraid of being "exploited": reduced to the role of carrying out orders, delivering services and providing support, on the basis of the public funding allocated to them. But this is not the issue addressed here. It could be useful to discuss it in a later opinion.

(4) COM(2000) 580 final.