Social businesses key to Europe's recovery process

To paraphrase the theme of last year's annual meeting of the World Economic Forum, we are going through a 'Great Transformation'. A transformation that is full of challenges: technology is bringing different parts of the world closer together, oppressed people are more willing to fight for freedom and democracy, several emerging economies have actually 'emerged'.

But the challenges of the Great Transformation are significant. Democracy is a fragile process that can take time to develop; 800 million people in the world still suffer from food shortages; climate change is an increasingly burning issue; and the economic crisis, which started in the US and now has its epicentre in Europe, has become a global threat.

Faced with this situation, nothing could be worse for European citizens than to give in to temptation by focusing inwards and resorting to populism.

A clear objective

On the contrary, we need to conquer our fear and seize the opportunity to take a critical look at how we operate. That is exactly what we are doing on the European stage, with the construction of real common economic governance, the consolidation of our public finances and a wide review of our financial regulation according to the G20 commitments. At the end of the road, our objective is clear: no financial player, no financial product and no financial market shall escape effective supervision, transparency and smart regulation.

All these steps are necessary, but they are not enough. EU citizens are expecting more than governance, deleveraging and regulation. We need to show them the light at the end of the tunnel, and give them the hope of finding jobs in an economic environment of increased growth and competitiveness. Now, to achieve this goal, we cannot rely on the 'old' conception of growth. Like never before, this crisis is forcing us to re-define our thinking. We cannot get out of the crisis in the same way we got into it. Tomorrow’s competitiveness and growth call on our creativity, our capacity to innovate, and our reactions in the face of changes that occur at an unprecedented speed. New growth will have to be greener, fairer, more sustainable, and whether they like it or not, companies will have to reduce their detrimental social and ecological footprint.

To achieve these goals, Europe needs to rely on its own strengths. In the eyes of other major world players, one of Europe's main strengths is its single market with its 500 million consumers and 22 million companies – and we therefore need to use its full potential. That is the goal of the Single Market Act proposed by the European Commission in April 2011. It is a commitment to deliver on 12 levers of growth, with concrete actions such as a better access to finance for small and medium-sized enterprises through a European passport for venture-capital, the creation of a unitary European patent, more efficient rules for public procurement and measures to increase confidence in e-commerce.

Social innovation

Promoting social entrepreneurship is one of these 12 levers.

Social businesses bring solutions – often innovative ones – to a number of issues that our societies are reluctant to face, such as social exclusion, unemployment or integrating people with disabilities in society. For example, they might provide healthcare to immigrants, adapt the media to the needs of blind people, teach reading to illiterate people through innovative digital tools, or employ autistic people in the software programming industry. Social enterprises embody the smart, inclusive and sustainable growth that we are seeking.

However, while pursuing social, ethical or environmental objectives, these businesses still have to respect an economic model. They need to balance their accounts and generate sufficient earnings for reinvestment in the future.

Their task is not always easy. In particular, the lack of uniform European regulation makes it very costly for social businesses to access the markets of other member states. Access to investors based in other countries is also made very difficult by differing national regulations. Only 4% of social investment funds are active beyond their national borders.

Help at hand

We want to help these businesses by developing a better adapted environment that would put them on the same footing as other companies in the single market. That is the goal of the Social Business Initiative, presented by the European Commission on October 25, 2011, and which is structured around three main strands:

First, we need to ensure better visibility of social entrepreneurship. Social businesses make up about 10% of all European companies and they employ more than 11 million people. Nearly one newly created company out of four is a social business. Social entrepreneurship has come to represent a real strength in our social and competitive market economy, so it should be given the visibility it deserves. We intend to do that through the creation of a public database of labels and certifications applicable to social businesses, the development of a comprehensive map of social enterprises in Europe and the identification of good practices.

Second, we want to improve the legal environment of social businesses. Among other things, we will simplify public procurement rules and take greater account of criteria such as quality and working conditions when awarding contracts. We will also reconsider state aid rules for social and local services. And we will create a common European statute for foundations and improve the existing statutes for co-operatives and mutual societies.

Third, we need to help social enterprises access finance. Apart from a financial instrument worth €90m, which will create a leverage effect, we will earmark European structural funds for social and regional development for investment in social enterprises. We will also take a series of measures to encourage microfinance in Europe.

Importantly, we have recently proposed a European framework for social investment funds. These new funds will benefit from a 'European passport' allowing them to raise capital from investors located throughout Europe, on the basis of a single registration made in their country of establishment. They would have to invest 70% of their assets in social businesses and to comply with a number of rules in terms of organisation, management of conflicts of interest and transparency (vis-à-vis the authorities and investors). In particular, they would have to publish how they measure the social impact of their business.

A move to the mainstream

Better visibility, improved legal environment, easier access to finance: these three strands of our Social Business Initiative were discussed at a conference in Brussels on November 18, 2011.

The extensive and dynamic participation in this conference is an excellent indication of the increasing recognition and development of social entrepreneurship. As Mirjam Schöning, head of the Schwab Foundation for Social Entrepreneurship, put it during the conference, in the span of a decade "social entrepreneurship has moved from a niche to mainstream in Europe".

We still have to set the ground for the implementation of this Social Business Initiative, which is now being discussed by the European Parliament and the European Council. But I am convinced that both social businesses and the European economy will be stronger once the new framework has come into force.

Other parts of the world are paying close attention to what Europe is doing in this area, which is another good sign. We must live up to the expectations and pool our efforts to make social entrepreneurship a building block of the ongoing 'Great Transformation'.

Michel Barnier is the European commissioner for Internal Market and Services