Intesa per lo sviluppo della cooperazione sociale

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How can the social economy contribute to local development?

Tivoli, 5-6 december 2006

Report of workshop A - Squaring the triangle

How to build a fruitful co-operation among banks, social co-ops and the state

Contents

Summary

The Project deals with the problem of the growth of social cooperatives in a developed Region in the North-East of Italy. It identifies the main obstacles and sets up a strategy able to tackle all the most important obstacles at the same time. The Project invites considerations on crucial problems of the social economy and in particular on the paths to follow to make effective the potential advantages that social economy can deliver.

The problem

This project, “A pact for the development of social cooperatives” (Intesa per lo sviluppo della cooperazione sociale), is based in Veneto in the North-East of Italy, a region where general economic development driven by small firms, especially concentrated in traditional industrial sectors, has been very intense in the last two decades.

At the end of WWII, Veneto was an agricultural region with a very low income per head, a sort of depressed area in the relatively rich Northern part of Italy. According to the latest data released by Eurostat (referred to 2003), income per head in Veneto now is 21.5% higher than the EU-25 average and 12.6% higher than Italy’s average. It ranks 7th amongst Italy’s regions, coming after the richest region in the North and Lazio (the region of Rome). Unemployment rates are very low, especially in comparisons to other Italian regions, and poverty rates are also very low: only 4.5% of families live in poverty (according to the threshold set by the Italian Statistics Office for relative poverty) against a national average of more than 11%. On the other hand, the informal economy is estimated to be rather widespread and the number of pupils dropping compulsory education is relatively high, also due to the attraction of a fast running economy. The quality of most social services – especially health care - as it comes out from some recent surveys, is in general satisfactory.

Migration flows are quite substantial. The driving force is the demand of workers by the many SMEs operating in the region. According to some recent estimates around 10% of employees in Veneto are non-Eu nationals. Women are slightly less than 50% of total immigrants. Despite exceptions, the general living conditions of immigrants are quite good.

On the basis of these and other figures Veneto can be considered as an economically dynamic region, with well developed social institutions not free, however, of some problems, some of which arise out of the peculiar productive structure characterized by many small firms predominantly operating in traditional sectors, often making recourse to atypical workers. On the other hand, the very fast pace of economic growth during the ‘90s has left some problems unsolved, in particular those related to the environment. Moreover, new challenges come from economic and social development (like the increasing importance of migration flows and the ageing of population) that are also of great interest for social economy.

Consistently with this characterization Veneto is a region where social economy and social cooperatives are very well established and represent an important economic reality. According to a thorough investigation on the so called third sector by the Italian Statistics Office of a few years ago, in Veneto there were more than 21,000 units of different nature however to be considered as part of the social economy. This figure makes Veneto the second region in Italy, after Lombardia, from the point of view of the presence of social cooperative and other social economy organizations. However if we refer to the density with respect to population, Veneto comes out as the region where social economy is most developed. The figure is around 47 social firms out of 10,000 inhabitants, while the national average is slightly above 38.

It is also interesting that the great majority of such a large number of social enterprises have been established in the last 20 years.

The number of people involved in those firms is also very large: 12,000 salaried workers and no less than 325,000 volunteers, officially declared. The sectors where social enterprises are concentrated are social services (more than half of them), health care, education, culture, sport and environment. Indeed people, especially young people, in Veneto show a high propensity to take part in social life, acting as volunteers in many social and environmental associations. The social economy, in general, and the co-operative enterprises, in particular, have been recognized as an institutional subject as early as in the beginning of the ‘90s. Since then their representative are sitting at the table where the planning of social services and health activities at the local level is agreed among the concerned parties. For many years a lot of initiatives in support of the third sector have been implemented in the region. Co-operative are a living and well recognized reality in this rather rich, dynamic and socially developed region. Precisely because of this they need being supported in making a further step forward towards the creation of a stable environment for a sustained and sustainable process of growth. The high and increasing demand of social and other specialized services – that social cooperatives may enjoy a comparative advantage in producing – makes this step even more compelling.

Good practice from EQUAL

Objectives and results of the project

The “Pact for the development of social cooperation” is a multi-activity project whose most general objective was to create an environment favourable to the further development of social cooperatives in the Veneto Region, by establishing and rooting appropriate financial, legal, social and management conditions. More precisely its objectives were:

  • train, develop and consolidate the professional skills of public and private enterprises managers of the social sector
  • provide counseling and technical assistance to social enterprises
  • identify new criteria for the assignation of healthcare services to individuals
  • identify network models for new and better local services
  • create sustainability conditions for the cooperatives and enhance job quality
  • identify financial tools for the credit access of the local social cooperatives.

Results

The project successfully achieved all its main objectives, as the list of results demonstrates:

  • the production of specific and innovative legal proposals concerning the employment of disadvantaged people enrolled in social cooperatives of type b, that have been adopted in the national law and regional laws on procurement in favour of type b cooperatives
  • a package of financial services tailored on social cooperatives’ needs has been designed and implemented by Unicredit Bank thanks to the results of the research developed within the Project
  • the establishment of a dedicated support structure at local level for social cooperatives that is still operating after the end of the EQUAL project
  • the participation of non-profit organisation to the planning and development of local projects institutionalized in a special agreement subscribed by the local Councils

Partnership and strategy

The development partnership included the following 7 members:

  • Association of the Councils of Treviso province
  • Treviso Local NHS Units
  • Local Labour Unions
  • Social Cooperatives Consortium
  • Regional Business Support Structure
  • UNICREDIT Bank
  • Provincial Business Association

The strategy adopted has been articulated in the following phases:

  • Improve perception of cooperation at local and regional level 21

Tivoli Final Report

  • Foster social dialogue and establish the partnership
  • Gather necessary information and carry out targeted research on services quality and provision
  • Design financial tools appropriate to social cooperative needs
  • Provide training to managers and other human resources.

More in detail:

  • institutional platforms with the participation of public institutions have been created and regular meetings between industry, finance and institutions have been promoted; formal networks and relationships have been developed at various levels, involving local government, development and program agencies, employer’s associations, trade unions and associations of specific needs, representatives of the financial sector. Informal networks functional to lobbying activities in the cooperative and association’s sector have been set up too.
  • Information on the general economic situation and its projections have been gathered and a centre monitoring social economy and Public Administration has been established. This helped also to identify how innovation could be introduced in social economy
  • Specific research for the design of appropriate financial tools has been carried on
  • chairmen and managers of cooperatives, managers and executives in exit from the profit sector, public administration’s managers, .young people seeking first employment, disadvantaged people have been the various targets of vocational training and knowledge improvement. A special concern has been the easing of generational change.

Success factors

The discussion in the Workshop A and also some comments in the Plenary Session identified some key factors in the success of the project.

The project correctly identified the most important obstacles to the further growth of social cooperatives in particular and social economy more in general.

The first of these obstacles is finance. Like all business, cooperatives and social enterprises, need access to financing both to operate in the short run and to grow in the long run. However, due also to the imperfect functioning of credit and financial markets - that demands collateral and real guarantees - social enterprises often mention difficult access to finance as their primary barrier to growth.

The second obstacles is demand for the production of social cooperatives. Social enterprises may operate across several different sectors of the economy. Quite often they produce services where the public sector is the main customer. Therefore demand is of political origin and subject to difficult to predict evolution. The Project made it clear that it is very important for social enterprises to establish regular relationship with various level of government to achieve shared objectives.

The third obstacle is represented by the availability of human resources with appropriate skills. Social enterprises need specific skills and adequate human resources, that may be lacking, especially where social enterprises have been successful. Special problems may arise in relation to management: conventional managers usually do not possess all the abilities required by a social enterprise, in particular they may have an approach that is not fit for enterprises where labour is the most important resource, both individually and in its collective dimension. Lack of managers may restrain growth. Besides, human resources may endanger the quality of the service offered, that is so important in the social economy. The Project correctly addressed this problem too.

Finance, demand and skills are obstacles partly internal and partly external to social enterprises. They can be seen both as organizational and political problems. What the project demonstrates is that the best way to tackle each of them is to tackle all of them at one and the same time. The secret of the mainstreaming results of the project seems to lie in the spinning of a web that made it convenient for each to be part of the web given that others were also part of it. The “squaring of the triangle” consists precisely in harnessing this reciprocal advantage.

Reaching an agreement with local government for widening the potential market of social cooperative makes it easier to convince credit markets that the social economy is a financially reliable sector that deserve easy access to credit. On the other hand access to finance and a larger market help develop better skills in the provision of the required services, exploiting the advantages of a more rational internal organization justified by the growing market and by the benefits of “learning by doing”. All this will deliver benefits to society at large in the form of better and probably cheaper services. The comparative advantage that social enterprises enjoy in some activities with high labour intensity turns from potential into effective.

An important issue was the role that background conditions played in making the Project and its results possible. Comparing such conditions with those prevailing in most other countries several specific features came out concerning in particular the legislative context, the degree of development of social economy and the wide network it is part of. More in detail, it was stressed that many social enterprises in other countries may be unable to manage financial relations due to the lack of required skills. In some cases this is a more stringent constraint than the unwillingness of the credit and financial system to extend loans to social cooperatives. Of course this depends very much on how the credit market works. In this respect some participants stressed the importance for banks to apply a specific system for evaluating the risk of default when social enterprises are involved. The social content of their activity should is some way be taken into account. How this could be accomplished is a matter of policy intervention and is addressed below. It is however very important that social enterprises be endowed with the skills that have made this project a success: financial skills, negotiating skills and also lobbying skills.

A crucial feature is also the rich web of relations and networks. In particular the network among social enterprises may yield several positive effects. It can help the culture of social economy to spread, it can provide a sort of system of insurance for its members and can improve the bargaining power of each social enterprises both in the markets and in its relations with the government at various levels. All this would have been useless without the commitment and competencies of local promoters.

An other important aspect is the highlighting of a further possible advantage that social cooperatives may enjoy with respect to the profit sector and public administration. Besides the often stressed social value of its services and activities there is a comparative advantage in producing services where labour is the dominant input. Such advantage stems from their ability to make the most of labour relations and falls under the heading of “efficiency”. Here lies one more reason for supporting social economy and a further strong link between social economy and local development.

A distinguishing feature of social enterprises remains their contribution to the production of social capital. This may take place both within the enterprises themselves, through rich labour relations, and outside it, through production of high valued social services that enhance relatedness.

Policy recommendations

Several recommendations can be drawn from the Project and the discussion of it that took place in Tivoli. The addresses of such recommendations are the government – at various levels - the social economy itself.

Recommendations to the government

Evaluating social economy. The reasons for favouring and sustaining the development of the social economy should all be adequately considered. Those reasons are related both to social justice and efficiency. The former, in turn, consist in the production of social capital and of social services of high value for inclusion as well as in the employment of disadvantaged people and in the special attention paid to labour relations. Efficiency is enhanced by social cooperatives not only through the indirect effects of social capital but also thanks to the comparative advantage they may enjoy in the production of services at high intensity of labour, especially coordinated labour. Government at all levels should adhere to such principles and should endow themselves with an apt technique for evaluating the value of these contributions the social economy can make to social welfare. Making use of such evaluation is also the best guarantee that helping social enterprises is not a form of protection but the best way to buy an important social advantage.

  • Policy mesures 1: Actions should be taken that allows social economy to grow further and to become more and more a system adopting an enterprise-style of management. This should be done selectively on the basis mainly of the sector of activity but both social justice and efficiency may gain from social economy evolving in the direction mentioned above. Such legislation should in particular ease the spreading of social enterprises in new sectors and should promote their innovative activity.
  • Policy mesures 2: Specific measures could be taken as regards the financing of social enterprises. As the Project shows, for many social enterprises, finance is required on a regular basis and is to be considered a normal function of the enterprises themselves. This means that it is not a matter of occasional financing and nor do micro-credits represent the best response to this need. It is a matter of regular credit and financial markets. Actions should be introduced that helps bank to take proper account of the specific risks arising in the social economy where capital assets rarely can provide the safeguards usually sought by banks. A possibility, that deserves closer scrutiny, is that specific financial or fiscal support be given by the government to banks extending short or long term loans to social enterprises.

Recommendations to social enterprises

  • Develop skills: Social economy needs diversified and qualified skills. The more it evolve towards an enterprise-style of management the more it needs negotiating skills, financial skills, lobbying skills, networking and management skills. Special attention should be given to this problem and the government should be asked to cooperate in the provision of such skills, both facilitating mobility from the traditional sector and financing appropriate learning.
  • Invest in networks: Social enterprises need networking. Their growth will be fostered by the creation of horizontal networks that may offer some of the advantages usually provided by the economies of scale and also by the setting up of networks involving potential counterparts and other social actors. Among those actors there may be also representatives of the profit sector in order to identity positive complementarities.
  • Becoming enterprises while remaining social: Society at large can enormously gain from social economy becoming more and more, though selectively, an entrepreneurial system, managed accordingly. However such gains will be rapidly wiped out if enterprises lose their distinguishing feature: being social. This seems to be the true challenge. Social economy should make recourse to all the best safeguards to protect its most valued gift without renouncing to become a larger and more important sector in our market economies. Social enterprises could use social accounting and auditing methods to measure and report their quality and impact. Tools have been developed by some Social Enterprise Partnerships in Equal round 1.

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