Doc. 83668 April 1999

Social functions of co-operatives, mutual insurance companies and associations which form the basis of Europe’s social economy


Report

Social, Health and Family Affairs CommitteeRapporteur: Mr Francisco Arnau, Spain, Socialist Group


Summary      

The term “social economy” includes co-operatives, mutual organisations, associations and foundations. It is also known as the “third sector”, which distinguishes it not only from capitalist enterprises but also from public sector bodies.

      Beyond any variety of terms, social economy is based on the principles of self-responsibility, solidarity and self-help, where the primacy of the individual dominates over profit maximisation. It can, therefore, contribute to improving social integration and social cohesion in a society which suffers from unemployment and social exclusion.

      Like all sectors, the social economy has been affected by globalisation as a whole and by the transition to a market economy in east European countries. It is in the process of redefining its mission and structures. The report proposes, against this backdrop, a series of measures in order to create a supportive environment for the development of this sector.

I. Draft resolution

1. The situation of unemployment in Europe makes essential the search for new instruments, new ways of labour organisation and new entrepreneurial ventures, as the reflections in Chapter 10 of the European Union White Paper on Growth, Competitiveness and Employment show us the need to find a new socio-economic development model for our continent.

2. Widespread poverty and the dismantling of social protection systems constitute threats to social cohesion. Organisations based on the principles of solidarity, self-help and self-responsibility can, therefore, contribute to improve social integration and social cohesion.

3. It is generally accepted that the term “social economy” includes co-operatives, mutual organisations, associations and foundations. These often refer to concepts such as social solidarity and the primacy of the individual over capital. They are, in particular, schools of democracy.

4. The term “social economy” describes a certain sector of economic life, and does not imply that capitalist economy is devoid of any social dimension.

5. However, social economy is an open concept including a wide range of organisations alongside the private and public sectors. It is also known as the “third sector”, and in some countries user-driven organisations and non-profit-making organisations are also affiliated to this sector.

6. Although social economy cannot offer the sole solution to unemployment, it can play a non-negligible role in modernising the welfare state and encouraging an innovative approach to employment policy.

7. Like all sectors of the economy, social economy was also affected by globalisation and is in the process of rethinking and redefining its mission and its specific role.

8. Since the Parliamentary Assembly adopted its Recommendation 1004 in 1985 on the future of co-operatives in Europe, another new phenomenon has occurred, namely communist regimes have collapsed in eastern Europe and so have the co-operatives which were an integral part of the economic system. A renewed reflection is therefore necessary in rebuilding and restructuring the social economy, in particular co-operatives, in those countries in a way which is adapted to the free market economy.

9. The Assembly stresses the importance of promoting and supporting social economy organisations.

10. The special character of co-operatives, according to the principles as defined by the International Co-operative Alliance (ICA) Statement on Co-operative Identity, should be generally accepted and recognised as beneficial to society.

11. The Assembly calls on the member states of the Council of Europe to recognise co-operatives as associations through which citizens effectively overcome a wide range of problems and achieve many of their goals that include economic and social objectives such as employment, overcoming poverty and encouraging social integration.

12. Full autonomy of the co-operative movement should be guaranteed. Any intervention by government must be positive to that goal.

13. The principle of “equal treatment” between social economy organisations and capital based enterprises can be reconciled with the recognition of the special nature of co-operatives and other associations. Governments should attempt to create a supportive environment in particular by:

14. This idea could be taken one step further by the creation of a European forum on the social economy as a meeting place for providing and exchanging information, experience and good practice and in order to settle the problems originating from general economic globalisation. Opening a process of harmonisation on social economy regulations would also be desirable.

15. The Assembly considers that the development of a solid and well-structured third sector in eastern Europe should be a matter of urgency, which involves the setting up of an institutional framework of relationship among the western and eastern social economy organisations.

16. The Assembly decides to transmit this resolution to the European Parliament, the Economic and Social Council, the Co-op Branch of the International Labour Office (ILO), the International Co-operative Alliance (ICA) and the Committee for the Promotion and Advancement of Co-operatives (COPAC) which is a partnership body between the co-operative movement and the United Nations and its agencies.

17. The Assembly calls on the member states of the Council of Europe to give support to guidelines, under preparation, aimed at the development of co-operatives, when it comes before the United Nations’ General Assembly in 1999.

II. Explanatory memorandum, by Mr Arnau

1.        Introduction

1.       Nowadays we are currently witnessing an amazing resurgence of the social economy in Europe; however this “ressorgimento” takes many forms, and it is sometimes very difficult to comprehend its full diversity. The theoretical approaches and conceptions about “social economy” can vary between different geographical regions or European countries, and the social, historical and political context. It is very important, in order to enable a better knowledge and understanding of social economy, to establish some clear ideas on this subject.

2.       We must emphasise that when we are speaking about the social economy, we are speaking about reality, far from theoretical or conceptual problems. The current state of the European social economy is the confirmation of thousands of initiatives which have emerged and developed, combining, all around Europe, social and economic objectives, and provide an effective answer to unsatisfied needs while at the same time creating jobs and prosperity, which is a good sign.

3.       The drastic employment situation in Europe, and the need to promote new avenues for employment growth in order to fight more effectively against the plague of unemployment in almost all European societies, makes essential the search for new instruments, new ways of labour organisation and new entrepreneurial ventures, as found in the reflections in chapter 10 of the European Union White Paper on Growth, Competitiveness and Employment, showing us the need to find a new development model for our continent.

4.       In this context, the social economy could represent an alternative to the current deadlock How? The existence of a series of unsatisfied needs to which neither the state nor the market seem to be able to respond, especially in the fields of daily life, services to improve the quality of life and cultural and leisure services and the possibility of transforming these unmet needs into new economic activities and consequently into jobs give us a clue about how to act in these difficult times.

5.       Although the social economy cannot offer the sole solution to unemployment, it can, if adequately supported, play a non-negligible role, not only in quantitative terms but also, perhaps above all, in terms of its potential contribution to modernising the welfare state and to encouraging an innovatory approach to employment policy. It could be justified as a substantial investment in order to explore, to encourage and to promote social economy organisations and activities throughout Europe.

6.       The following pages intend to justify the social economy as a sector in its own right, noting its potential to create new jobs and emphasising its role in reforming the welfare state. Investing in the social economy means to invest in the future, so we hope that the present document will help to answer the two following questions: a. why should we promote the social economy in Europe, and b. How could the social economy help the eastern Europe economies?

2.        What is the social economy?

7.       While there is not a full consensus about the concept of “social economy”, the term, which was born in France in the late1970s,1 has been successfully adopted, and generally accepted. Currently, it is promoted for the most part by the European Union institutions such as the European Commission, European Parliament, etc. However, in some European countries the term is not normally used, as in Italy, where the denomination “Terzo Sectore” is the common one, or in Germany where the term currently used is “Gemeinwirtschaft” (economy on general interest). Similarly, in the United Kingdom and in the Scandinavian countries, the terms “Voluntary Sector” or “Non-Profit Economy” are used, although these terms could be mistakenly understood. Obviously, this different terminology involves some different theoretical approaches.

8.       In spite of this variety of terms, from the beginning it is generally accepted, that the term “social economy” includes co-operatives, mutual organisations, associations and foundations, that is, a very wide range of organisations. We can thus consider the social economy, as an open concept, or one that is not clearly defined. Maybe it is more interesting to define the field of action of these organisations rather than pretend to draft a theoretical concept. Broadly speaking, most of the social economy organisations are dedicated to providing goods and services and therefore undertake economic activities. Therefore, they hold “non- profit- making aims”, or in other words, profit generation and profit maximisation are not their main aim, which sets them apart from the corporate firms or capitalist enterprises (private sector). At the same time, their private character distinguishes them from public sector bodies.

9.       It is not strange that the social economy is usually considered and perceived as a “Third sector” alongside the private profit-making sector and the public sector, or even as a “Third System”, which tends to comprise the entire range of organisations which belong to neither the public sphere nor to the world of private enterprise.

3.        An historical point of view

10.       Social economy organisations (SEO) and social economy enterprises (SEO-EN), forming a sector which in the Europe Union’s terminology is designated by the acronym CMAF (co-operatives, mutuals, associations and foundations), are not a recent phenomenon. From a historical point of view, the first co-operative and mutual organisations appeared in European countries in the mid-nineteenth century,2 answering worker’s needs in the context of the Industrial Revolution. They are deeply rooted in the social and economic history of our continent. Throughout time, “Third System” organisations spread throughout Europe and all over the world. Nowadays many of have developed a significant socio-economic role in European society.

11.       In spite of a lack of global and reliable statistical data, the figures show the increasing importance of social economy in Europe. Recent analysis, although only partial, indicate that the entire “third system” group represents 6% to 6.5% of private enterprises, with an employment rate of 4.5% to 5.3% 3in the member countries of the European Union. In the eastern European countries the percentage is higher, between 8 % to 8.5% .4 These figures are only estimates, which can vary significantly according to the sectors and countries under consideration.

12.       In the case of European Union countries, the CMAF sector’s contribution to employment in the social services sector equals 29% in France, 25% in Italy and 23% in Germany. According to their specific legal status, co-operatives, mutual organisations, associations and foundations, associations make up most of the CMAF, but the main contribution in terms of employment and financial turnover comes from co-operatives, which represent 53% of the employment in SEO-EN, and 79% of turnover.5

13.       Beyond the difficulties of statistical identification and definition, which can lead certain countries to include or exclude some fields of activity, the fact is the C.M.A.F sector in social and economic European life has increasing importance. The European Commission recognised this in Chapter 10 of the White Paper on Growth, Competitiveness and Employment (1995) as well in the documents “A European strategy for encouraging local development and employment initiatives”,6 which proved to be a very interesting work, providing a broad picture of the potential for and the obstacles to the development of the CMAF in the European Union. We can also find suggestive concepts in the document “Local development and employment initiatives survey in the European Union”.7

4.        Characteristics

14.       It is rather difficult to define the main characteristics of SEO, however, it is clear that they share similar characteristics, which are not fixed in nature and common to all initiatives, but rather tendencies which can be summarised as follows:

        these organisations aim at finding solutions to problems rather than placing themselves in a new market sector;

        they often refer to concepts such as social solidarity, democratic organisations, or the primacy of the individual over capital. These societal or ideological references create a conceptual framework for the implementation of productive initiatives with a sense of belonging to a broader movement;

        SEO are often the result of partnerships between public and/or private organisations or between individuals working together to meet a common need. These partnerships imply that the organisations involved generally have a close relationship with the surrounding community, to whose development they are contributing;8

        the market is not the sole source of income of these organisations, and a number of SEO rely on a variety of arrangements on public subsidies, donations or non commercial loans;

        particular attention is given to the problem of disabled persons or groups in danger of social exclusion, either to integrate them in the labour market or to provide them with services; indeed some organisations pursue both these objectives at the same time;

        the SEO are on a small scale, with some exceptions (number of employees and turnover).

15.       From these general characteristics we can establish the most important concepts of the social economy enterprises (SEN), or in other words, the entrepreneurial side of social economy organisations, So, generally speaking, the SEN are basically:

 small and medium-sized enterprises (SMEs);

 enterprises based on social solidarity and internal democracy (one man, one vote) rather than capital contribution (one dollar, one vote);

 local or regional SMEs;

 enterprises whose main function is providing jobs, services or goods and welfare to the community;

 insertion enterprises or social services enterprises in favour of disadvantaged people such as youth, women, retired persons, injured, unemployed older than forty-five, ethnic minorities, those on drug rehabilitation programmes, etc.

5.        Functions carried out by social economy organisations and enterprises

16.       Nowadays we can distinguish four major groups of functions carried out by SENs.

A.       Social and economic function

In general, organisations and enterprises in the social economy (sick benefits funds, co-operatives, associations and foundations), normally function as suppliers to society (the community), providing goods and services to the population at a reasonable price, usually lower than corporations, but without reducing quality. This improves purchasing availability and consumer choice, as well as varying the means of commercial distribution and increasing the global efficiency of the economic system.

They promote a more equal distribution of the national and gross national product throughout the state, due to promoting better and deeper participation by citizens in the global wealth and economic resources.

They promote a sort of economic democracy (in the context of market economy), helping, as SMEs, to reduce the increasing importance of larger capitalist companies, and the powerful influence of multinationals.

 This type of enterprise fosters open access of workers and people in general to the enterprise, to the structure of production and to the managerial structure.

 These are associations through which citizens effectively overcome a wide range of problems and achieve many of their goals that include not only economic but also social objectives such as overcoming poverty, securing productive employment and encouraging social integration.

 The role of co-operatives in the farming and agri-foods industry is the major contributor to the European model of agriculture, according to COGECA, the General Committee for Agricultural Co-operation in the European Union. This view was recognised at the 6th Social Economy Conference in Birmingham in June 1998. These farmers’ co-operatives, whose primary objective is to ensure stable revenue for their members, are to be found across rural societies in Europe, providing the élan for job creation and business development.

 Co-operatives are connected worldwide. In December 1996 the Secretary General of the United Nations was requested by the UN General Assembly in its resolution “Role of co-operatives in the Light of New Economic and Social Trends”, A/RES/51/58, to ascertain with the Committee for the Promotion and Advancement of Co-operatives (COPAC), the desirability and feasibility of elaborating United Nations’ guidelines aimed at creating a positive environment for the development of co-operatives, and to include his findings and recommendations in his report. The Secretary General’s report will be submitted to the UN General Assembly at its 54th Session in October 1999 for adoption.

 They are democratic companies, following the principle of one man-one vote and social solidarity. Participation of associates and workers is maintained in the process of taking managerial decisions.

B.       Instruments of entrepreneurial promotion

Permanent training school for entrepreneurial abilities and skills

17.       Social economy enterprises (SEN) serve as a training school for entrepreneurs, where inexperienced entrepreneurs (people without capital resources, but possessing innovative ideas and entrepreneurial initiatives) can learn about entrepreneurial and managerial skills. The SEN train them in basic managerial skills where they obtain the necessary experience and maturity in order to make their way successfully in the difficult and competitive current entrepreneurial world.

18.       In most of the cases, this learning process is very difficult, full of obstacles and setbacks, with long work hours, and few benefits. This is one possible way of creating more competitive and efficient new companies, and more importantly, a way of creating innovative managers and employers . In fact, we can say that SEN, especially co-operatives, have been used as a tool of managerial learning, a case of learning by experience.

Structures of professional insertion

19.       The training dimension of social economy enables people lacking managerial qualifications, and experience, to enter into the real business world, becoming professionals in their fields. After this training period, they can be inserted into companies, starting their career as professionals. Usually women and young professionals obtain “know how” and professional maturity in SEO-EN structures. Social economy organisations could be considered as an orientation and professional insertion structure.

C.       Instruments of local and regional development

20.       As previously mentioned, the CMAF are usually deeply rooted in their local or regional context, due to the existence of strong links between the organisations and the territory where they are located. On the one hand, the SEO-EN provides jobs, stimulates economic activity and prosperity in communities and areas where they are located. On the other hand, the existence and entrepreneurial activities of the CMAF generate a productive net in the surrounding region. These kinds of links create an entrepreneurial tissue, which is basic for the area’s development.

21.       The SEO-EN are designed to stimulate local development initiatives, in a specific area, trying to respond to local needs and demands, for instance, a lack of jobs and productive activities, or the absence of opportunities. It is not unusual that their understanding of the local and regional markets, and more specifically how to run a business therein, allows them to make profits in this type of market, an area which would be considered by the larger corporations as a residual or non-profit-making market.

22.       Therefore, social economy organisations and enterprises depend on local and regional markets. Economic growth in their area is the real base for their own entrepreneurial growth. Thus economic local development is their main opportunity of entrepreneurial development. There is a symbiosis between the SEO-EN and its territorial context. This strong link explains their commitment to local and regional development and welfare in the areas where their activities are located.

23.       The main beneficiary of economic activities developed by SEO-EN enterprises is the area where the companies of the social economy are located. This means jobs, services and goods creating a cycle of economic flow-inflow, which diffuses throughout the territory. Being companies with a wide collective base, there is an emphasis on the participation of the community and local collectives in the economic and social benefits produced and generated in the area, derived from local resources, touching the greatest possible number of families and individuals.

24.       Referring to the environment, ecology, rural tourism and sustainable development, community participation is necessary to these types of environmental resources. The collective participation of the social economy organisations will permit an intensive identification link between people, collectives and local environmental resources, which is essential to the conservation, care and sustainable development of the territory.

D.       Instruments to combat unemployment and social exclusion

25.       This is probably the most important function carried out by SENs, especially for disadvantaged people such as youth, women, retired persons, injured, and those unemployed who are older than forty-five, ethnic minorities, those on drug rehabilitation, etc. The link between the formation rate of co-ops and the level of unemployment, is very significant, especially in the case of Spain, as recent studies show that the economic crisis and the high level of unemployment in Spain constitute the principal cause for the creation of workers co-operatives (Chaves R.).9 According to other sources (Spear & Thomas, 1997)10 a high level of creation of worker co-ops occurs in countries with low social protection levels (especially unemployment compensation) and in those with regulations that favourable to co-operative companies, such as is the case of Spain or Finland.

6. Problems and alternatives to the CMAF sector, as in the context of globalisation

26.       Our time is a time of change, in the world of today as in the world of tomorrow. Barriers and frontiers will be crossed and new fields will be developed by small and medium-sized enterprises. New markets, new technologies, new ways of co-operating will be found. A new era with new opportunities and challenges is beginning for small businesses. In the context of globalisation, the entrepreneurial environment is changing rapidly. The European internal market, changes in other geographical areas and the relationship between the private and the public sector, etc., are examples of these changes.

27.       New technologies and the expanding non-industrial sector also involve changes for enterprises and organisations. SEO-EN are not an exception. This leads to new challenges for entrepreneurs and entrepreneurship. The high speed of change makes the adaptation to new circumstances for entrepreneurs, enterprises and organisations difficult, creating a risk of maladjustment which does in fact exist, especially for the CMAF sector due to its particular characteristics. In spite of the existing opportunities and advantages, the disadvantages could be very significant for the European SEO-EN, as recent analyses prove.

28.       With globalisation, the world economy is entering a process of deep integration under a management process located in supranational institutions. The delegation of power to supranational institutions implemented in the context of international trade agreements weakens the power of national states and its relationships with the economic sectors, as well as with institutions and citizens, at the state level. As a direct result of globalisation, institutional and regulatory supporting economic sectors such as co-operatives or others types of SEO-EN are being weakened.

29.       Normally co-operatives (and broadly speaking the organisations on social economy) are confronting globalisation by emphasising economic efficiency and developing alliances with external partners. Their priority is to focus on the competitiveness of a large business rather than on social aspects or community concerns. The implementation of a short term CMAF sector survival strategy in the globalisation context could constitute a loss of these organisations’ identity, whereas the SEO-EN would be more of a company or a corporation model.

30.       According to H. Munkner,11 there are four dangerous trends threatening the social identity or the community aspects of co-operatives and other organisations of the CMAF sector:

Growth, market share and competitiveness become co-operative management priorities. Traditional measures are generally replaced by new staff members in the labour market on the basis of their qualifications and experience. Economic success of the organisation becomes the main goal of the co-operative while member information, co-operative education and promotion are less significant. The board places emphasis mainly on growth and profits, arguing that without a profitable enterprise there is no future for the co-operative or its members.

Usually the preferred patterns of co-operatives entering into the globalisation business is growth by alliances, mergers and concentrations rather than maintaining local structures close to communities or members.

The identity principle of co-operatives provides, as a general rule, that the users are the co-owners, the ones that control and benefit from enterprise activities. Over time this principle is gradually abandoned by extending business activity to non-members, by privatising the organisation and selling stock shares, opening the investment of capital in co-operatives to outside investors. Some organisations incite investors to join the organisations as “investor members” and also by accepting board members from outside the membership group.

Gradually, the participation of members in the co-operative will decrease which would influence its decision making, capital formation, patronage as well as in informal, social and democratic activities. This may also be reflected in a low level of co-operative consciousness on the part of the members who have no feeling of belonging, no sense of ownership or responsibility for the future of the co-operative.

The privatisation of co-operatives, or in general SEO-EN, decreases the importance of membership as the focus is now on economic success. It is necessary to cut all cost for activities which are not directly justified in economic terms. Funding for members’ education, information, relations or involvement in public policy issues as well as organising informal contacts with members and social activities for them beyond professional advertising, market research and public relations are cut. Membership activities tend to be perceived as unproductive. In this way the CMAF enterprises lose their basic and most important asset: the membership.

31.       The aforementioned are the most important problems facing co-operatives, which we can consider as challenges. The question such: what are the potential alternatives and how could the SEO-EN face up to the risks of globalisation without compromising their social values and identity? In this case it is not easy to give a simple answer, some authors like M. Kanter, Clegg & Porras or even Munkner, have tried to explain this:

32.       According to Kanter,12 the real problem for co-operatives and third sector’ organisations as local organisations is not globalisation, but isolation and poor leadership. In this context a solution would be to set up links to other co-operatives or develop global networks of social economy enterprises and organisations. To succeed, the SEO-EN needs to increase their stocks in global assets such as concepts, competence and connections which are in direct relationship with investment in innovation, education and co-operation.

33.       According to Clegg and Porras,13 an alternative solution is networking, considered a strategic arrangement through which the CMAF create a web of close relationships which form a variable system geared to provide products or services in a co-ordinated way. It seems clear that for developing a network, trust is a key factor.

34.       In the opinion of J. Caceres,14 one of the greatest problems confronting the SEO-EN in the context of globalisation is the manner used to measure efficiency. For this author, the most common approach in a market economy is one based on financial or economic efficiency, whereas co-operatives and third sector organisations need more comprehensive parameters to take into account the orientation towards member services.

35.       Following this line, Munkner15 evaluates co-operatives or SEO, by distinguishing three levels of efficiency. Thus the first one would be institutional efficiency. This assesses the co-operative as a business on the basis of its allocation of resources and its financial situation. The second would be member-oriented efficiency assessment of the advantages of being a member of a social economy organisation or enterprise. Efficiency could be measured through member feedback, comparing benefits of co-operatives, for example, to those of private companies involved in a similar business. The third one would be development-oriented efficiency, referring to the interface between the third sector organisation and the local community. What is the impact of the co-operative on the local community regarding aspects such as job creation, services provided, etc.

36.       Moreover, the SEO-EN need to develop a proper conceptualisation about side effects of globalisation, and plan a long and medium-term strategy. The CMAF sector strategy must be based at a local level, but in accordance with the general trend of globalisation. A local-global interface seems to be the only solution for the co-operatives and the others forms of social economy in the complicated context of globalisation.

37.       It is obvious that Social economy enterprises and organisations must follow the trends which are sweeping our world. The world of today, dominated by markets and corporations, is based on the principle of one dollar-one vote, whereas the organisations based on the principle one man-one vote must adapt to current trends, without compromising their identity. It is clear that they cannot keep on being islands of co-operation in a sea of capital-based business, which will eventually result in their disappearance as an important economic sector.

7.        How the social economy could help the eastern European economies

38.       In the past “social economy” in eastern Europe consisted almost solely of co-operatives. They were an integral part of the socialist economic system. After the collapse of the communist regimes, the “bad image” of co-operatives as tools of forced collectivisation was strengthened. The new concept “market economy” was considered as a magic remedy and there was no room for traditional concepts of solidarity and collectivism. As a result the co-ops decreased in numbers and so did their share in national GNPs. Large co-ops were divided into smaller units and privatised. On the legislative side, no special status was foreseen, and no special promotion programmes such as subsidies and tax exemptions were pursued.

39.       Today, the social economy (sick benefit funds, co-operatives, foundations and associations) as a third sector alongside the private profit-making sector and the public sector, could provide an alternative answer to the economic problems of eastern Europe. Broadly speaking, these countries are nowadays making the “transition” towards an open market economy, but this is a road full of economic troubles with dramatic social consequences for the population, so it is important to find ways to overcome this situation.

40.       The problems of economic stagnation, inflation, unemployment, poverty and social exclusion are difficult to solve, as the core of these economic problems is social conflict. The social economy does not have a magical solution, but it could help significantly, if adequately supported, because it provides a connection between the micro-economic and macro-economic approaches, which embody both social and economic objectives. This blending of commercial orientation with social concerns makes the SEO-EN a very interesting alternative for the social and economic development of eastern countries and for democracy’s consolidation in the area as well.

 Social economy enterprises and organisations act as structures of entrepreneurial knowledge, meaning they are similar to schools of entrepreneurs (and entrepreneurial initiatives), where the secrets of modern organisational procedures in open market economies can be learned. More importantly they can be learned in a progressive manner. Thus, social economy organisations can facilitate the adaptation of human capital to capitalism.

 Social economy enterprises are generally local SMEs (small and medium-sized enterprises) which generate wealth and jobs in the regions where they are located. More importantly for the economy, they set up entrepreneurial links for SMEs, which is essential in the process of economic development, enabling them to contribute to modernisation and the current economic system in a “bottom up” approach.

 Then, they can contribute to the economic rebirth of eastern European countries, through the reconstruction of the economy, providing employment, goods, services and welfare to the population at a low price, due to its main aim of maintaining the level of employment more than obtaining the maximum profit. As companies, they need to produce and sell.

 With the prospect of privatisation in the area, the downsizing of government does not have to mean the elimination of public services and goods. In this context the role of SEO-EN could be very important, specially for co-operatives and sick benefits funds, which could be alternative instruments for delivering public services, cutting costs and improving public efficiency.

41.       The contribution that social economy enterprises bring to the “alternative public service delivery” can be viewed from two important perspectives. First, SEO-EN challenge governments to address the issue of performance and public accountability in ways that go beyond mere contractual agreements and improved reporting mechanisms. This applies both to internal government structures involving employee/employer relations, and the manner in which bureaucracies relate to citizens

42.       Furthermore, social economy organisations and enterprises (SEO-EN) affirm the central role of current society in the creation of public goods and services, ways to integrate citizens and communities in the restructuring of public services, and also a way through which governments can invest in the creation of social capital. Moreover, and what is more important, CMAF highlight the fact that the success of this alternative depends mainly on a strong civil society capable of playing a role which is often assumed, but rarely put into practice. (Restakis J.)16

43.       The SEO-EN model provides public services with a platform to maximise innovation and local empowerment without sacrificing the values of the community, consensus and sharing responsibility. In addition, co-operatives allow for the adoption of commercial strategies while maintaining values of the public sector which are most compatible with public expectations, whereas private corporate companies, oriented towards a maximum profit and accountability to shareholders do not understand very well the broader and more complex node of community relationships.

44.       Following this line of thought, we can consider that maybe the most important contribution made by SEO-EN to alternative public services delivery is that public goods are not exclusively the property of the state, freeing the notion of “public” from an exclusive association with government agencies.

8.        Examples of social economy in the European Union

45.       There are a series of outstanding examples of the social economy in western European countries, such as the famous Mondragón Co-operative’s Corporation, the Andalousian Farming Co-ops, the Andalousian Workers Co-operatives or the Valencia Workers Co-ops in Spain, the Portuguese “Adegas” (agriculture services co-operatives). The “LEGA” (League of Italian Co-operatives and Mutuals) or the “Consorzio Gino Matarelli” (Consortium of Social and Health Services Co-operatives) in Italy, the French Mutuals or Sick Benefits Funds Organisation, and Farming Co-ops in France. Also, we can find many examples in northern and central Europe, such as the British workers’ co-ops, the Dutch transport co-operatives, the German farming co-ops, the Scandinavian Social Economy Enterprises of Education and Training, the Swedish Mutual Organisation, the Pellervo experience, the Mutuals Pohja and Kansa or even the OKO Coppertone Bank Organisation in Finland, and so on .... These are only a few examples of the fine work that the social economy does in the EU; there are many more throughout Europe.

46.       At the same time, they represent a very interesting fount of knowledge, examples, strategies, information and records on social economy, management, methods of organisation and strategies of entrepreneurial success in a very competitive context. On the other hand, the western social economy organisations become an extraordinary database of relationships, business contacts, business opportunities, financial partners, joint ventures, even markets, in other words, a whole networking for the east European social economy. This type of link is very important for both east and west, and therefore must be promoted and developed.

47.       Promoting the transfer and exchange of information and experience between the players in the social economy of western and eastern Europe involves setting up an institutional framework of relationships, making contacts and meetings possible amongst the organisations, facilitating the development of all kinds of links.

48.       We can not forget, the strategic importance of the harmonisation of social economy legislation and rules in the European context. We should promote, at the same time, the necessity to start a process of harmonisation of this type of law, helping to update the obsolete east European regulations.

49. The development of a strong, solid and well structured third sector in eastern Europe is very important for these developing economies, especially for the welfare of the whole population, which nowadays is in a poor situation. Rapid action is urgently required.

The Labour Societies Incorporated (Spain’s experience)

50.       Some companies with serious structural problems are taken over by the workers who have the possibility to opt for workers co-operatives or the Labour Societies Incorporated. These Labour Societies Incorporated are a legal formula of the business organisation of workers which was rediscovered at the end of the 1970’s. At that time it was used as a means to acquire companies in crisis by the workers themselves. Until the Law of Labour Societies Incorporated was promulgated in April 1986, this formula was only used by certain workers’ collectives who opted to keep their jobs by buying out the traditional company that had economic difficulties. Since the Law of Labour Societies Incorporated was approved, the Labour Society functions as a form of business organisation used by unemployed workers and by those collectives who want to keep their jobs by the prior purchase of the company where they themselves work.

9.        Measures

51. In order to support in an efficient manner the social economy organisations and their activities throughout Europe, especially in eastern Europe, the following measures could be envisaged.

1.        Research and analysis action

52.        To promote social economy enterprises and organisations the field of action must first be defined, so it is essential to draw up a plan of research and analysis, whose main result is an inventory and synthesis about the current state of knowledge on the third system in eastern Europe. The first goal of the study is to explore the social and economic potential of the social economy in eastern Europe, and the employment potential of the third sector. From our point of view, the correct methodological approach is the “mixed research” which combines theoretical analysis and practical demonstration of the hypotheses formulated, in order to avoid only theoretical approaches.

53.        Secondary purposes of the research might be amongst the following: what are the potential spin-offs from the public and the third sector? What are the particular advantages and limitations in new market economies for the CMAF sector? What kind of mechanisms could be used to neutralise the negative effects to scale? What could be the role of networks of SEO-EN, structured as “development blocks” in the development process of these countries? The answer to this question is extremely important, because the networking of small firms and organisations, forming strategic alliances, may thereby mobilise the resources needed to overcome entry barriers to foreign markets. Also, the flexible use of external resources through co-operative networks appears as a general strategy for the CMAF sector.

54. Other interesting items on the study agenda are, on one hand, the relationship between new technology and social entrepreneurship, as a promoter of economic growth and competitiveness. On the other hand, fostering the culture of entrepreneurship seems an important point as a way of combining social values with entrepreneurial skills and efficiency. “Social Entrepreneurship” could be a key factor in the development process of backward regions or countries.

55. Financial instruments especially designed for the needs of social economy organisations and enterprises could be one of the most important contributions of a future study. The study should further establish the current role of the state in promoting the social economy, particularly in eastern European countries. The role of government and public policy for the promotion of SEO-EN is strategic. Policy measures including advice, financial support and information are therefore essential at local, regional, national and European levels.

2.        Creation of a European “forum” on the social economy

56. The suggested European forum will focus on the exchange of information, experience and good practice between social economy organisations and enterprises from eastern and western Europe, creating a pan-European meeting place created to encourage interaction and especially the creation of joint ventures and common commercial networks .

3.        Providing tools for improving financing

57.The creation of financial schemes designed for the specific needs of social economy enterprises (similar to SOFICATRA in the European Union, designed to meet the needs of eastern SEO-EN) could be envisaged.      

58.The establishment of a permanent credit and loan instrument for eastern European SEO-EN (similar to the community project LEAN) could be envisaged.

4.        Providing tools for improving human capital

59.       Creation and launch of a permanent training and educational programme oriented to the updating and modernisation of human resources structures from the CMAF sector in eastern countries. The programme would be financed by community instruments such as the European Social Fund (ESF) and the European Regional Development Fund (ERDF).

5.        Opening a process of harmonisation on social economy regulations and law in the eastern countries

60.       This process contributes greatly to the modernisation and internationalisation of the eastern social economy, helping the promotion of the CMAF sector in this area.




List of acronyms

SEO       Social economy organisations

SEN       Social economy enterprises

SEO-EN       Social economy organisations and social economy enterprises

CMAF sector       Co-operatives, mutuals, associations, and foundations

EU       European Union

APPENDIX

Statistical data17


European Union

1. Total figures

No. SEO/EN18

Employees

Economic size19

     

1 267 968

5 254 128

1 472 662

2.       Social economy organisations


3.       A brief statistical resumé of the co-operative sector in the European Union referring to the twelve members in 1991 and 1995

Sector of economy

No. of enterprises

No. of members

No. of employees

Economic size20

         

Banking, etc.21

12 088

28 694 982

401 610

951 764

(%)

11.7%

53.4%

23%

75.9%

         

Agriculture, etc.22

44 260

4 084 906

374 992

149 816

 

42.7%

7.6%

21.5%

12%

         

Construction, etc. 23

33 239

1 150 275

338 047

27 334

(%)

32%

2.1%

19.4%

2.2%

         

Trade, etc.24

6 760

9 309 537

409 533

87 516

(%)

6.5%

17.3%

23.5%

7%

         

Insurance etc.

251

6 000 000

19 301

2 518

(%)

0.2%

11.2%

1.1%

0.2%

         

Other25

7 140

4 492 638

199 536

34 519

(%)

6.9%

8.4%

11.5%

2.7%

         

Totals

103 738

53 732 338

1 743 019

1 235 476

 

100%

100%

100%

100%



4.       A brief statistical resumé of the mutual sector in the European Union referring to the twelve members of 1991 and 1995

Sector of economy

No. of enterprises

No. of members

No. of employees

Economic size26

Banking, etc.27

56

57 000

484

1 587

(%)

0.4%

0.1%

0.2%

2.1%

Insurance, etc.

12 247

94 205 538

225 835

72 898

(%)

88.8%

99.6%

99.8%

96.5%

Other28

1 481

350 000

-

1 071

(%)

10.7%

0.4%

%

1.4%

Total

13 784

94 612 538

226 319

75 555

 

100%

100%

100%

100%




5.       A brief statistical resumé of the non-profit sector in the European Union referring to the twelve members of 1991 and 1995

Sector of economy

No. of entities

No. of members

No. of employees

Economic size1

Banking, etc.29

932

3 143 211

16 043

8 372

(%)

0.1%

6.4%

0.5%

5.8%

Other

1 149 514

45 887 603

3 268 747

135 259

(%)

99.9%

93.6%

99.5%

94.2%

Total

1 150 446

49 030 814

3 284 790

143 631

 

100%

100%

100%

100%



6.       Economic comparative values, expressed in the national currency,

ecus/euros and US dollars30

Country

SEO/EN turnover

Currency unit

Euros (millions)

US dollars (millions)

Italy

281 384 000

LIT

144 781

131 459.2

France

3 272 202

FF

495 178

449 614.3

Germany

1 109 911

DM

563 090

511 277.6

United Kingdom

48 342

UKŁ

71 897

65 281.5

Spain

3 428 581

PTA

20 497

18 611.1

Netherlands

216 234

HFL

97 357

88 399.0

Portugal

848 531

ESC

4 208

3 820.4

Ireland

7 391.5

IRŁ

9 427

8 559.4

Greece

46 689

DR

142

129.1

Belgium

21 119 424

BFR

52 141

47 343.63

Luxembourg

16 290

LFR

401

363.89

Denmark

172 023

DKr

22 907

20 799.34




Eastern Europe31

7.       Bulgaria32

Co-operative sector

Enterprises

Employees

Members

Economic size

Consumers’ co-ops

1 000

120 000

859 000

  

Producers / workers co-ops

306

-

1 500

  

Agriculture co-ops

      

20.45%

Registered / licensed

1 205

-

329 000

750 000ha

Waiting for a license

695

-

95 000

290 000ha

Total

3 206

-

1 284 500

  



8.       Czech Republic33

Co-operative sector

Enterprises

Employees

Members

Economic size

Producers

397

  

88 000

  

Agriculture

1 202

  

380 000

  

Housing

420

  

850 000

  

Consumers

73

  

1 039 496

  

Total

2 092

  

2 357 496

  



9.       Hungary34

Co-operative sector

Enterprises

Employees

Members

Economic size

Agricultural co-ops

Farming

Specialised agrico-ops

1 334

1 268

67

153 700

316 900

60%

Agricultural associates

1 780

  

200 000

6

Fishery

16

50

1 700

-

Industrial co-ops

3 450

110 000

180 000

8%

Consumer and retail (AFESZ)

(HANGYA)

273

116

100 000

500

1 300 000

20 000

33%

5%

Savings co-ops

260

10 000

2 000 000

17%

Housing co-ops

1 421

4 500

410 000

-



10.       Poland35

Co-operative sector

Enterprises

Employees

Members

Economic size

Producers / workers

Craftsmen

Blind

Disabled

3 504

127

40

474

      

Agricultural

Peasant’s self-help

co-operatives

Peasant’s circles

co-operatives

Horticultural co-operatives

Dairy

Farming co-operatives

2 402

1 889

285

469

2 218

      

Housing

5 303

      

Consumers

511

      

Total

17 222

714 700

6 092 000

4% of GNP




11.       Slovakia36

Co-operative sector

Enterprises

Employees

Members

Total

  

200 000

1 000 000

Note on economic size in Slovakia

—       The Slovak Union of Housing Co-operatives runs 22% of the housing fund of the Slovak Republic.

—       The Consumers Co-operatives’ share of retail turnover represents approximately 13% of the total Slovak Republic turnover.

—       The Slovak Union of Producer Co-operatives produce 4% of the consumer goods and 1% of total output in the national building industry.

—       The agricultural co-operatives farm 70% of the arable land in Slovakia.


*       Please note that in the case of Eeastern Europe the data does not present a complete picture in the absence of reliable statistics. The data concerns only co-operatives and does not include Mmutuals and Aassociations, often because of a lack of registration.

1 The correct date seems to be May 1982, when the comité national du rapprochement of mutualist, co-operativist and associative activities approved the “Social Economy Charter”.

2 To be exact, in Rochdale, Manchester (United Kingdom), where the “Rochdale Pioneers”, in 1844, set up the first co-operative on associated labour in history.

3 “The co-operatives, mutual and non-profit-making organisations sector in the European Union”, Eurostat, 1996.

4 According to estimates of the International Co-operative Alliance (ICA).

5 The emerging sector: an overview, John Hopkins University, Baltimore, 1994.

6 Communication from the European Commission.

7 The working document Sec (95) 564, March 1995.

8 In fact, SEO share a lot of common characteristics with the Local Development and Employment Initiatives (LDEI), while it would be going too far to try to merge the “third system” or “social economy” into the LDEI, as the European Commission did in the past. In spite of their differences, it is nevertheless clear that a large proportion of the organisations involved share many similar characteristics. It is not suprising that the European Parliament (EP) made a specific reference to the wide field covered by the LDEI. See Resolution A4-231/96 of the EP on LDEI, based on the Schiedermeir report of 5.7.1996 - EP 216.851.

9 R. Chaves, “Two decades of improvement of Spanish Worker Co-ops”, 1998.

10 Spear R. & Thomas A., “Perspective de developpement des coopératives de travailleurs dans differentes pays européens”, 1997

11 Münkner, Hans, “The role of co-operatives in the 21st century”, Co-operatives Key Issues Conference,

“Co-peratives Managing Change into the 21st Century”, NSW Registry of Co-operatives, Co-operatives Federation of NSW Ltd., Asia-Pacific Co-operative Training Centre, Sydney, Australia, October 1995.

12 Moss Kanter, Rosabeth, “World Class: Thriving Locally in the Global Economy”, Simon & Schuster, New York, USA, 1995.

13 Clegg Stewart and Porras Salvador, “Co-operatives: Characteristics of Innovative Enterprises,” 1995, Co-operatives Key Issues Conference, “Co-operatives Managing Change into the 21st Century”, NSW Registry of Co-operatives, Co-operatives Federation of NSW Ltd., Asia-Pacific Co-operative Training Centre, Sydney, Australia, October 1995.

14 Caceres, Javier, “Globalisation and Restructuring of the Canadian Wheat Industry”, 1998. Review of International Co-operation, Vol 91, No. 1/1998, International Co-operative Alliance (ICA ), March 1998.

15 Münkner, Hans-H, op.cit., 1995.

16 Restakis, John, “Government Restructuring and Implications for Civil Society — The Co-ops Alternative”, 1998.

17 Source: Commission of the European Communities (please note that data covers the period before the enlargement of the European Union). The data on the social economy in various countries is in general not complete and it should be treated with caution.

18 Social economy organisations/enterprises.

19 Millions of ecus.

20 Millions of ecus.

21 Banking and credit sector.

22 Agriculture, forestry, fishing and food products sector.

23 Construction, craft, manufacturing, mining and production sector.

24 Wholesale and retail trade sector.

25 Other (unspecified) sector.

26 Millions of ecus.

27 Banking and credit sector enterprises are operating only in Italy and France. In the French case, the turnover for 1990 was 1 587 million ecus. There is no available data for Italy. In this country there were 57 000 members, 33 employees. In France there were 451 employees in the sector in 1990.

28 Other (unspecified) sector is only reported by France and Italy. In the French case, the enterprise’s turnover raised 1 071 million ecus. There is no available data for Italy. The relative value of the “other” sector is underestimated, because complete information about these variables was not available.

29 Banking and credit (housing finance) sector enterprises are operating only in Denmark and Ireland. Members are borrowers.

30 Because of lack of space in this report, a detailed per country statistical survey will be made available as a separate document.

31 Please note that in the case of eastern Europe the data does not present a complete picture in the absence of reliable statistics. The data concerns only co-operatives and does not include mutuals and associations, often because of a lack of registration.

32 Source: Professor Dionysos Mavrogiannis, Co-operatives in Central and Eastern Europe, November 1995.

33 Source: Ota Karen, The Czech co-op movement after its political and economic transformation, June 1994.

34 Source: Tajekoztato a magyar szovetkzeti mozgalom hyzeterol, OSZT, Budapest 1991.

35 Source: Dr Zofiq Chyra-Rolicz, Adaptation of Polish co-ops to free market requirements, April 1997.

36 Source: Silvester Adamca, Co-operatives in the Slovak Republic, June 1994.