Asking the right questions
The 300 people at the Everybody's Business conference, held in Örebro in central Sweden in November 2006 could compare and contrast ways of assessing the economic costs and benefits of social economy approaches. Standing out from the throng is the 'socio-economic reporting' method applied to social co-operatives in Sweden, which shows astounding positive social returns.
Sky-high returns from rehabilitationSERUS as part of the AGDOR EQUAL project. The blockbuster was the presentation by Ingvar Nilsson of the Institute for Socio-Ecological Economics (SEE AB) in Göteborg, who unveiled the study that he and his colleague Anders Wadeskog have made on the social added value that social enterprises can create. These show truly remarkable results.
They looked at two social co-operatives working with drug addicts during 2005. Basta http://www.basta.se employs 65 people, three-quarters of them men, whose preferred drug is amphetamines. Vägen ut! http://www.vagenut.coop employs 19 people, the majority women, who had been using variously amphetamines, alcohol and heroin. The researchers found that by taking into account the various savings that society makes from their work, they turn in an astonishing social profit of €110,000 per employee per year – 50 times higher than their nominal business profit. This enormous difference results principally from the fact that we have no habit of regarding social spending as an investment. As with most businesses, in the first year you turn in a loss, but then you rapidly break even and move into profit. If you want to reap the benefit, you have to exercise a little patience.
Mapping the interventions
To calculate what the costs and benefits of a given set of interventions are, the researchers mapped all the different actions that are taken in dealing with a drug addict. They ended up with a map of no less than 130 factors, grouped into five main chains concerning income, treatment, crime, housing and children. They then put a cost to every factor. "It's a whole industry," Mr Nilsson commented. "The average drug abuser in effect employs between two and three people. Dealing with drug abuse employs 60,000 people in Sweden." The 'crime' chain is one of the most interesting, and it is remarkable for its extreme inefficiency. For example fences pay only a small proportion of the value of stolen goods, so if an addict needs to find 1,000 kronor for his fix he has to steal 4,000 kroner's worth of goods. Taking property damage into account the cost rises to 16,000 kroner. The overall costs are considerable: each male heroin addict costs society €219,000 per year, while each male alcoholic costs €70,000.
Social co-operatives help addicts to stay away from drugs and crime, and thus generate sizeable savings, both for public services, particularly the judicial system, and for insurers. For Basta, the calculation is as follows, making the conservative assumption that people stay, on average, for three years. The municipality pays out €31,500 per person but reaps average gains of €78,000, which gives them a 247% return on investment. Looked at from the point of view of society as a whole, the investment of €31,500 results in revenue of €595,000 – a return of no less than 1,890%. A stay at Basta breaks even for the municipality after 15 months, but for society as a whole after only 2 months. Basta has been going for more than 10 years, and many of its members have stayed off drugs for five years or more. In their case, the return to society from Basta's action rises to 3,150% - or a massive thirty-fold return.
With this instructive calculation under its belt, SEE AB is now generalising the technique by applying it to actions in favour of other target groups, including mentally disabled people, people on long-term sick leave, young unemployed people and immigrants.
The lessons are that policy-makers should look at long-term returns, and recognise that even when there is a high failure rate, the return to the public is substantial. Rehabilitation brings the public a profit after only a couple of months, but the public returns are much greater than the returns to the municipality alone.
Investing for society's good
Peter Scholten from Amsterdam introduced the technique of social return on investment (SROI), as used by the Dutch EQUAL programme. He pointed out that the managers of public programmes tend not to think in terms of investment, because politicians only have a mandate for four or five years. But SROI does think in these terms.
The process of calculating the social return on investment starts with carefully considering what the indicators are of success. For instance if the objective is to integrate people into the workforce, then the fact that they stay in a subsidised work place is not a success – even though the agencies involved might think it is. One can then set objectives and monetise them, and make multi-year projections. From this one can use standard accounting tools to calculate a discounted cash flow, and the net present value (NPV) of the investment.
The credibility of the figure one arrives at will depend on whether you take into account factors such as attribution (was the result really due to your intervention and not another one?), deadweight (would it have happened anyway?), the sensitivity of your assumptions, the discount ratio and the time horizon.New Economics Foundation (NEF) called SROI "a story as well as a number, a management tool, not an academic exercise. It is about shifting power." Three British regions are using this tool with the aim of lengthening people's planning horizons and eventually increasing regional GDP. Of his work with Responsibility North-West in NW England, he said that their job is to correct misperceptions and to encourage a medium-term viewpoint, thus introducing 'sustainability by stealth'. They do this not by talking about corporate social responsibility, but by talking about risks and opportunities.
The right questions
For Annette Dunkelberg of Coompanion in Stockholm, the key to successful social accounting is knowing what questions to ask. It's a technique that is used by 30 or so organisations in Sweden, and she took the example of a local co-operative development agency (CDA) to ask what indicators we should try to measure. One might ask the board members whether they had spread knowledge of the CDA's work and values. One might ask the staff how accessible their work is (who they reached) and how high the quality of their work is. Overall, the process should be multi-stakeholder, comparable, regular, versatile, learning, auditable and transparent.
Moderator Toby Johnson summed up why measuring social return is a useful thing to do. "It helps social enterprises to define their identity and values in these days of shifting definitions and shifting government support," he said. "It allows them to explain themselves to the outside world – and in this sense it is the flip side of the public procurement and regional social responsibility coin. It also provides the evidence that rational policy-making requires." At present, in his view, we are at the frustrating stage where we have richness and complexity, resulting in a confusing multiplicity of measures, while what policy-makers demand is a clear and simple message. "It is an area where EQUAL, because of its connections to governments, can make a real difference," he said. He felt the way forward lay in building a broader network among economists and business advisers, and developing a European brand.
A three-cornered approach
The other major topic of the conference was regional social responsibility. This is a key principle of the AGDOR EQUAL development partnership http://www.agdor.eu, which organised the event. This approach to local employment development and inclusion is based on a three-way partnership between the public, private and third sectors. As Staffan Werner, mayor of Örebro, explained, it is this strong local partnership, and belief in social responsibility and the European model, that has enabled the town to turn itself round from its poor farming past to its modern role as 'Sweden's meeting place'.
Gaetano Giunta presented the REVES network's conception of Territorial Social Responsibility, a phrase they have trademarked. REVES http://www.revesnetwork.net, a network of 85 members in 16 countries, has been working on TSR since 2002. REVES members commit to a stable partnership between the public sector and social economy, sustainable development and broader TSR. "TSR is a participatory governance system for the balanced programming of social, cultural, economic and environmental actions," he said. REVES has developed a tool called Total Ethical Quality (QTE®) as a holistic guide to programming and evaluation for non-public actors. In contrast to Agenda 21, TSR does not take predefined principles, but works bottom-up and emphasises the broadest possible participation – 750 people attended one planning event in Messina. With TSR, communities decide their own principles and methods, so it is way of building better relations in the community.
Lars Berge-Kleber, County Commissioner of Örebro and Chairman of AGDOR, explained why his region supports social responsibility. "Across the EU, 10% of the citizens who are capable of working are inactive, and businesses are outsourcing and relocating. In Sweden, a million people are outside the labour market, yet at the same time there are unmet needs, for instance the increasing needs of elderly people. The AGDOR project aims to create a demand and supply arena for an inclusive labour market that provides opportunities for all," he explained. "It has so far sponsored local agreements in five of the county's 12 municipalities, that cover education, finance, procurement and regulation." Jens Nilsson from Östersund, vice-chair of REVES, gave a further justification: "A strong social economy is necessary for democracy – parliamentary democracy is not enough. You have to take responsibility and be part of society. Being active is being democratic."
The European Commission sees the value of such approaches. Egbert Holthuis, from the unit of the Enterprise DG that deals with corporate social responsibility, pointed out that regional partnership is mentioned in the integrated guidelines for growth and jobs  that result from merging the European Employment Strategy with the Lisbon Strategy. CSR is voluntary, he said. "Regions don't need the Commission's green light to go ahead with TSR – as the title of this conference says, it's "everybody's business". Local development is crucial. You should just go ahead without waiting for the institutions. Support is needed, that's for sure, but the initiative is local."
- Social return on investment. A guide to SROI analysis, Peter Scholten, Jeremy Nicholls, Sara Olsen and Brett Galimidi, 132 pp, FM State of the Art, Netherlands, 2006, ISBN 978-9075-45828-2. See http://www.fm-platform.nl
- From the Public Perspective. An introduction to Socioeconomic Reports, 16 pp Download: http://www.basta.se/_upload/filer/Introduction_socioeconomic_reports.pdf
- From the Public Perspective. A summary of reports on Socioeconomic Reports for Vägen Ut! kooperativen and Basta Arbetskooperativ, 48 pp. Download: http://www.basta.se/_upload/filer/Summary_socioeconomic_report_Basta.pdf
- - both by Ingvar Nilsson and Anders Wadeskog/SEEAB, NUTEK, Stockholm, 2006. See http://www.seeab.se, http://www.nutek.se . Contact: mailto://firstname.lastname@example.org or +46 8 681 9661
- Regional Social Responsibility, Gordon Hahn, SERUS, 40 pp, 2006. Contact: mailto://email@example.com