Europe’s financial crisis opens doors on socio-economic business model
By Filippo Addarii, The Guardian

Social Business Initiative marks Eurocrats’ engagement with social enterprise

Deng Xiaoping, leader of China after the death of Chairman Mao, established special economic zones in the 80s to experiment with market-based principles in a country than was then cut off from the global economy and riddled with poverty. The Chinese began to reform their economy by gradually testing new solutions and fostering their own interpretation of the market economy.

Those pilot schemes marked the beginning of the economic rise that has elevated China to the main table to become a geopolitical force to be reckoned with. It has arguably demonstrated the most successful case of wealth creation in modern history.

Europe is undergoing such a dramatic and deep upheaval that the only predictable outcome is substantial change. It is clear to most economic pundits that the European model is not fit for purpose in the 21st century. Europeans need a new political and economic machinery that integrates innovation, sustainability and social inclusion within a strategy for growth and employment. This is openly recognised by the European Commission in its 10-year strategy, "Europe 2020".

The financial crisis provides a once-in-a-lifetime opportunity to establish a new socio-economic paradigm in Europe that serves both the interests of capital and people. In Athens, the epicentre of the crisis, a special social economic zone could be established to test how social enterprises and social entrepreneurs could steer the recovery. The financial resource would be provided by social investing, the new emerging asset class that seeks to deliver sustainable financial returns while seeking positive social outcomes.

This is one of the ideas that emerged in Brussels at the launch of the European Social Business Initiative. On 18 November, 800 delegates including policymakers, social entrepreneurs, charities, cooperatives, mutuals and various networks from across Europe gathered in Brussels for what was "the first ever mainstream political event on the social economy and social enterprise organised by the European Commission", according to Hugues Sibille, vice-president of Credit Cooperatif and a pioneer of the social economy.

It may seem strange that the initiator of this initiative is Michel Barnier, a Commissioner appointed by the French conservatives. He is determined to reform the financial services industry and promote liberalisation reforms as part of the Single Market Act in the European Union. He is not always popular in the City but he is the first Commissioner who takes the social economy seriously – contrary to his predecessors – and puts it at the centre of the new European strategy for economic recovery.

The Social Business Initiative aims to foster an enabling environment for the social economy, acting along three axes by increasing funding and easing access to funding, strengthening the reputation on the social sector, and rationalising the legal environment and cutting red tape.

In the Commission’s 2014-20 budget, €90m of new funding has been planned for social enterprises and social enterprise on top of introducing an investment priority that will improve access for social entrepreneurs and innovators to the €375bn of structural funds. Already in 2012 new money will be available; a fund of funds facility of up to €100m is due to be launched by the European Investment Fund early next year.

Further resources could be identified by cutting red tape across the EU and reinvesting the savings in the social sector. Sergio Arzeni, director of the OECD Centre for Entrepreneurship, estimates that as much as 2-3% of European GDP could be harnessed. Social business and social enterprise are perceived as natural solutions to the dilemma of determining how much regulation is sufficient to prevent exploitation but avoid choking the recovery because ethics and values are embedded in their governance, Promoting the social economy can occur alongside regulatory streamlining.

Supporting access to public procurement (17% of European GDP) and more flexibility in anti-state aid rules for local public services could generate even more opportunities for the sector.

If this event were mainly about raising political capital for the new path, then mission accomplished. Numerous heavy-hitters convened in Brussels to back the French Commissioner. Of course an array of European political figures such as President Barroso and senior colleagues from all the major European institutions including the European Investment Fund were present to add their support.

But this was no usual Brussels event because the group included the Nobel Prize Laureate Muhammad Yunus, the Tunisian minister of finance, Sir Ronald Cohen, and three ministers of national governments including Nick Hurd MP, Britain’s Minister for Civil Society. He delivered a rousing speech and pledged the firm backing of the British government if the Social Business Initiative makes the lives of social entrepreneurs easier without letting bureaucracy get in the way.

If Barnier was able to get the support of the minister, it means there is something valuable in what he is doing.

However, this is just the beginning of a long journey in which Brussels has put itself at the service of the liveliest forces of society. This journey started last year with the launch of the European social innovation agenda and further initiatives on public service reform, CSR and social investments have been initiated in the last year. The Social Business Initiative is the next step.

Filippo Addarii is executive director of Euclid Network, the European network of third sector leaders

See full Briefing on the European Social Business Initiative here.