Peer Review on Social entrepreneurship to tackle unmet social challenges

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1 Peer Review on Social entrepreneurship to tackle unmet social challenges Peer - Finland Finding a niche SOCIAL ENTERPRISES AND THE PUBLIC SECTOR REFORM IN FINLAND Norway, December 2017 DG Employment, Social Affairs and Inclusion Written by Harri Kostilainen December, 2017

2 EUROPEAN COMMISSION Directorate-General for Employment, Social Affairs and Inclusion, Unit C1 B-1049 Brussels Contact: Dijana Ror Boone and Bent-Ole Grooss Website: European Commission B-1049 Brussels

3 EUROPEAN COMMISSION Peer Review on Social entrepreneurship to tackle unmet social challenges Norway, December 2017 Directorate-General for Employment, Social Affairs and Inclusion Peer Review on Social entrepreneurship to tackle unmet social challenges Norway, December 2017 December, 2017

4 Peer Review on Social entrepreneurship to tackle unmet social challenges Peer Europe Direct is a service to help you find answers to your questions about the European Union. Freephone number (*): (*) The information given is free, as are most calls (though some operators, phone boxes or hotels may charge you). LEGAL NOTICE The information contained in this publication does not necessarily reflect the official position of the European Commission This document has received financial support from the European Union Programme for Employment and Social Innovation "EaSI" ( ). For further information please consult: European Union, 2017 Reproduction is authorised provided the source is acknowledged. December, 2017

5 Table of Contents 1 Introduction Situation in the peer country Assessment of the policy measure Assessment of success factors and transferability Questions List of references... 5 Annex 1 Summary table... 7 Annex 2 Example of relevant practice... 8 December, 2017

6 1 Introduction This paper has been prepared for the Peer Review on Fostering social entrepreneurship to tackle unmet social challenges. It provides a comparative assessment of the policy example of the Host Country and the situation in Finland. For information on the host country policy example, please refer to the Host Country Discussion Paper. 2 Situation in the peer country At the moment the Finnish municipalities are responsible for organising health and social services. This responsibility will be transferred to 18 new counties in connection with the health and social services reform. As a part of this reform clients freedom of choice is increased. Freedom of choice means that clients have the right to choose themselves where to get health and social services. Publicly funded health and social services would be provided by public, private and third-sector operators, such as organisations and foundations. Small enterprises have good chances of becoming service providers that deliver services against health and social services vouchers and personal budgets. The reform concerns also enterprise and employment services. Social enterprises are trying to find their niche in this marketization of welfare and employment services. In Finland, there are two institutionalized forms of social enterprise. First, there are work integration social enterprises (sosiaalinen yritys), which offer employment to the disabled and the long-term unemployed and which are regulated by a law (Act 1351/2003). The second group is formed by the enterprises holding the Finnish Social Enterprise Mark (yhteiskunnallinen yritys). The Social Enterprise Mark is intended for businesses which aim to address social or ecological problems and which promote social aims. They invest the majority of their profits to promote their social or environmental aims. The business model features openness and transparency. Due to the needs of the Finnish society and the priorities of the funding available, the focus of social enterprise development has been on work-integration and welfare services provision. Simultaneously social entrepreneurial activities are diversifying and finding new grounds. A recent study suggests a new typology of social enterprises in Finland as follows: a) social enterprises providing public welfare services as Helsinki Deaconess group providing wide-ranging social welfare and health care services ( b) emerging alternative economic initiatives as part of growing initiatives in the sharing economy labels; c) impact businesses and smart-ups which can be found for example from Slush Global Impact Accelerator program ( and d) social impact redistributors as Epiqus which manages capital to create measurable social and environmental impact alongside financial return. The company dedicates 50% of their profits to social and environmental mission goals ( 3 Assessment of the policy measure In Finland there is a rich and established sector of social economy organisations (cooperatives, mutuals, associations and foundations). It has had a legitimate role as a part of the welfare state. These organisations have had an important role in the service delivery for special needs and areas. In the recent Finnish debate new types of social enterprises are expected to combine the business skills of the private enterprises with a strong social mission. Public administration expects social innovations from the private sector that might have an important role in delivering (welfare) services and employment services, especially labour market integration. In Finland, as elsewhere, social enterprises are expected to improve the quality of public services, generate innovations, improve productivity and have a preventive effect on harmful social, environmental and health problems among the population. December,

7 Recent Finnish social enterprise developments have been influenced both by international examples, and by its strong social economy organisations tradition. Significant inputs and influences for the development of the Finnish social enterprises have come from the Italian type A and type B social co-operatives 1 and the United Kingdom public sector service reform, through enabling social enterprises. The European Social Fund has been a major player in developing different forms of social enterprises. The development and conditions for social enterprises follow similar paths in the Nordic countries. The Finnish welfare model is contested by the changing operational environment and by changing political ideologies. In Finland, the private provision of welfare services has increased rapidly and it is expected to continue. Finland moved from full employment to more flexible and insecure labour markets. These changes have created opportunities for various social enterprise initiatives. Work integration social enterprises have been innovative but, are only a marginal way to enhance the employment opportunities of the disabled and long term unemployed people. Most work integration social enterprises are embedded in local employment and business eco-systems. A study on key measures improving the potential of Finnish work integration social enterprises suggested: making recruitment clearer and quicker; harmonising the various benefits and pay; improving the availability of job coaching; and facilitating a viable operating environment for social enterprises. A viable operating environment requires business expertise; funding and investments; advisory services and publicity; increasing demand through public procurement and corporate social responsibility programmes; targeting public measures at growthoriented work integration social enterprises; and revising the content of the Act on Social Enterprises and boosting its implementation. The situation of registered work integration social enterprises (Act 1351/2003) is problematic. During the preparation and the introduction of the new legislation, politicians and civil servants were highly aware of the possible problems relating to freedom of competition and public procurement legislation. Because of these concerns, the Act does not genuinely provide any special support or incentives to establish work integration social enterprises. Incentives to register as a work integration social enterprise have not been compelling enough for many organizations. Only a few labour co-operatives and other social economy organizations active in the field of work integration have registered themselves as work integration social enterprises. The expected results have not been met. At the end of 2009, 212 work integration social enterprises employed a total of employees, of whom 380 were disabled and 385 were long-term unemployed. A follow up study found out that in 2016 there were 660 employees, of whom 168 were disabled and 299 were long-term unemployed. By November 2017, the number of registered work integration social enterprises had decreased to 38 (TEM, 2017). The Job bank experiment was closely related to work integration social enterprises and the experiment ended by concluding that there was only modest employment impacts on target groups. 1 A type A social cooperative brings together providers and beneficiaries of a social service as members. Type A co-operatives provide health, social or educational services. A type B social cooperative brings together permanent workers and previously unemployed people who wish to integrate into the labour market. Those of type B integrate disadvantaged people into the labour market. The categories of disadvantage they target may include physical and mental disability, drug and alcohol addiction, developmental disorders and problems with the law. December,

8 Social enterprises in the field of welfare service provision may be seen at least partly as a counterforce to the increasing international commercial competition in the open welfare market. Social enterprises do not yet have any special financial instruments. They are entitled to use the same instruments as all businesses. Social enterprises may be caught between too commercial for Funding Centre for Social Welfare and Health Organisations (STEA) grants and too social for actors providing business funding. Some attempts have been made to map and organize dedicated financial instruments for social enterprises. There are also various crowd funding initiatives, e.g. Pankki 2.0, mesenaatti.me and, for the moment, the Finnish Innovation Fund Sitra ( is initiating impact investment and Social Impact Bonds are piloted in Finland. The lack of dedicated financing and support structures for social enterprises may be caused by the fact that the phenomenon is still marginal, the concept of social enterprises is blurred and contested, the majority of social enterprises are fragile, and the enterprises are not well organized. The traditional social economy organization cooperatives ( and welfare associations ( have established their lobbying and other support structures. Their attitudes towards social enterprises are mixed. Social enterprises might be seen as rivals or as an important and vital business model for their member organisations. In autumn 2014, the Finnish Social Enterprise Coalition Arvo-liitto ry ( was launched. The 50 current members, all social enterprises, are owned primarily by traditional welfare associations and foundations. The aim of the Coalition is to enhance the Finnish social enterprise business model and its viability. The social enterprise business model in Finland has some promising elements but might still be in danger of dilution because of 1) competition neutrality, a view raised mainly by certain interest groups and federations of employers and businesses, and 2) the fear that there may be a qualitative deterioration in working conditions, a view raised by trade unions (e.g. Laiho et.al. 2011, a working group report on Finnish social enterprise concept business model for reinforcing and diversifying forms of entrepreneurship, renewing public service delivery, and organizing non-governmental organizations so that they may apply market-based service functions and integrate into the labour market appointed by the Ministry of Employment and the Economy). The research community FinSERN, established in 2010, brings together Finnish researchers and organizations that need to apply research knowledge and are interested in social enterprises ( FinSERN organizes conferences and annual thesis competitions and it also publishes news on topics related to social enterprise research. Despite the development of certain institutional practices and experiments in social enterprises, Finland does not have any specific policy frameworks for the role of social enterprises in the welfare society; therefore, it is challenging to develop a viable social enterprise ecosystem. The lack of a national vision and any strategic approach to social enterprises and their role in the Finnish society has led to an ineffective use of different social enterprise development measures and activities during the past decades. Furthermore, the programme approaches adopted by recent Finnish governments pose the potential risk that social enterprises with their own missions and goals will become subordinated to the tasks that the administration has thrown to them: to further employ those in weak labour market positions and to take care of the marginalised people through measures such as the provision of welfare services in remote areas. Dependency on programmebased monetary resources may result in well-functioning markets for social enterprises not developing and in certain social entrepreneurial initiatives perhaps closing down when the current programmes end. The development of social enterprises in Finland is also hindered by the currently nascent eco-system that does not support the special characteristics of the social enterprise business model. For December,

9 example, business opportunities are prioritized instead of social needs, and user participation is seldom included. 4 Assessment of success factors and transferability The common challenge in Finland and Norway seems to be to find sustainable welfare service and employment service solutions to reach the most vulnerable groups. There seems to be a common need to further explore Nordic understanding of social enterprise concept(s) role in the changing welfare states service provision. It is important to realise that there is not one but several tools for improving the welfare and employment opportunities of those in a vulnerable position. Effectiveness comes from the identification and leveraging of existing tools and from their further development. The actors are developing their identity as social enterprises but it could be that they turn to other ways of organising, such as non-profit organisations or market-based activities. Some policy recommendations arising from the host country report are as follows: Build Nordic understanding of social enterprise concept; Consider Nordic strategy on social enterprises; Exchange information and experiences on measuring social impact; Built joint understanding on how to apply public procurement (social clauses); Exchange information on social impact bonds; Build Nordic research network on social enterprises; There is urgent need for reliable data on social enterprises. There is a danger of an ahistorical reading of social entrepreneurship, in which the rich tradition and already functioning social economy organisations and enterprises are ignored. Such an unfortunate situation would mean disregarding knowledge that has accumulated over the years. 5 Questions Is there a need for social enterprise model in Nordic countries? How does the social enterprise business model fit in the current employment and economic system? Are labour market parties engaged and noticed in the development of social enterprises? What are innovations social enterprises could produce and how could these innovations be scalable? December,

10 6 List of references Grönberg, V. & Kostilainen, H. (2012) Sosiaalisten yritysten tila ja tulevaisuus (State and the future of the work integration social enterprises in Finland). Ministry of employment and the economy. Helsinki Karjalainen, J., Hyytiäinen, S. & Kostilainen, H Tavoitteena tasapainoinen kehitys: Yhteiskunnalliset yritykset ja liiketoiminnan kasvu. In Kostilainen, H. & Pättiniemi, P. (toim.) (2015) Yhteiskunnallisen yritystoiminnan monet kasvot. FinSERN:in järjestämän yhteiskunnallisten yritysten tutkimuskonferenssin julkaisu. Diakonia-ammattikorkeakoulu julkaisuja C Katsauksia ja aineistoja 42. Kostilainen, H. & Grönberg, V. (2013) Understanding startup and success of work integration social enterprises in Finland. In Kostilainen, H. & Pättiniemi, P. (toim.) (2013) Avauksia yhteiskunnallisen yritystoiminnan tutkimukseen. FinSERN:in järjestämän yhteiskunnallisten yritysten tutkimuskonferenssin julkaisu. Yhteiskunnallisen yritystoiminnan tutkimusverkosto ry FinSERN. InPrint, Riika Kostilainen, H. & Pättiniemi, P Evolution of Social Enterprise Concept in Finland. In Lundgaard Andersen Linda, Gawell Malin & Spear Roger (eds.) Social Entrepreneurship and Social Enterprises Nordic Perspectives. Routledge studies in Social Enterprise & Social Innovation. Routledge New York. Kostilainen, H., Houtbeckers, E. and Pättiniemi, P Social Enterprise in Finland, ICSEM Working Papers, No. 37. Kostilainen, H. & Pättiniemi, P Management Orientations and Mission Drifts: Case Studies on Finnish Work Integration Social Enterprises In Laporšek, S. and Gomezelj Omerzel, D. (Eds.) (2016) MIC 2016: Managing Global Changes Proceedings of the Joint International Conference Organised by University of Primorska Press. Koper, Slovenia. December Kostilainen, H. & Tykkyläinen, S The Characteristics of Finnish Social Enterprise. In Kostilainen, H. & Pättiniemi, P. (toim.) (2015) Yhteiskunnallisen yritystoiminnan monet kasvot. FinSERN:in järjestämän yhteiskunnallisten yritysten tutkimuskonferenssin julkaisu. Diakonia-ammattikorkeakoulu julkaisuja C Katsauksia ja aineistoja 42. Kuusi, A Raportti työpankkikokeilusta. (A report on work bank trial). Sosiaali-ja terveysministeriön raportteja ja muistioita 2017:35. Laiho, U-M. Grönberg, V. Hämäläinen, P. Stenman, J. & Tykkyläinen, S Yhteiskunnallisen yrityksen toimintamallin kehittäminen. Työ- ja Elinkeinoministeriön julkaisuja. TemaNord Social entrepreneurship and social innovation. Initiatives to promote social entrepreneurship and social innovation in the Nordic countries. TemaNord 2015:562. Nordic Council of Ministers. Print: Rosendahls-Schultz Grafisk, Denmark Pättiniemi, P. & Kostilainen, H Yhteiskunnallisen yritystoiminnan monet kasvot. In Kostilainen, H. & Pättiniemi, P. (toim.) (2015) Yhteiskunnallisen yritystoiminnan monet kasvot. FinSERN:in järjestämän yhteiskunnallisten yritysten tutkimuskonferenssin julkaisu. Diakonia-ammattikorkeakoulu julkaisuja C Katsauksia ja aineistoja 42. Pöyhönen, E. & Hänninen, E. & Merenmies, J. & Lilja, I. & Kostilainen, H. & Mankki, J Social enterprises pioneers in the new economy? Sosiaaliset ja yhteiskunnalliset yritykset uuden talouden edelläkävijöitä? Rove, K., Floman, E. & Malmivirta, M. (2011). Yhteiskunnallisen yrittämisen rahastomalli. December,

11 Epiqus Finnish Innovation Fund Sitra (SIB) Finnish Social Enterprise Coalition Arvo-liitto ry FinSERN Funding Centre for Social Welfare and Health Organisations (STEA) Finnish Social Enterprise Mark Helsinki Deaconess Institute Job bank experiment Register on work integration social enterprises SLUSH Global Impact Accelerator Government Representative Interview Mr. Markus Seppelin Ministry of Social Affairs and Health December,

12 Annex 1 Summary table The main points covered by the paper are summarised below. Situation in the peer country Public sector reform Marketization of welfare and employment services Social enterprises are emerging but modest impacts/ not well observed Some developments in the ecosystem Assessment of the policy measure Lack of national vision on the role of social enterprises Work integration social enterprises do not work, not expected impacts Hard to evaluate impacts, size, markets, employment and social impacts Paving the way for privatisation of welfare and employment services Assessment of success factors and transferability Sector driven development markets Value based organisations active in renewing their approach Social Impact Bond experiments (not exclusively for social enterprises) Questions More hard data information is required What is the niche for social enterprises in the markets EU regulations and competition rules, open markets Public responsibilities and marketization, pros and cons December,

13 Annex 2 Example of relevant practice Name of the practice: Year of implementatio n: Coordinating authority: Law on work integration social enterprises 2003 Ministry of Employment and Economy Objectives: Increase employment opportunities of vulnerable groups Main activities: Pay subsidy for registered work integration social enterprises (at least 30 % of employees are disabled and/ or long-term unemployed) Results so far: Modest results, impacts are not as expected, aim to end the law December,

SOCIAL INNOVATION AND SOCIAL ENTERPRISE

SOCIAL INNOVATION AND SOCIAL ENTERPRISE Session Title Social Enterprises in Changing Welfare States This panel proposal is based on papers derived from country contributions to the International Comparative