Empresas sociais

Social Enterprise: A new model for poverty reduction and employment generationAn examination of the concept and practice in Europe and the Commonwealth of Independent States

Social Enterprise: A

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UNDP Regional Centrefor Europe and the CISGrösslingova 35811 09 BratislavaSlovak RepublicTel: +421 2 5933 7111Fax: +421 2 5933 7450http://europeandcis.undp.org ISBN: 978-92-9504-278-0

UNDP obalka:Layout 1 19.6.2008 21:09 Page 1

SOCIAL ENTERPRISE:A NEW MODEL FOR POVERTY REDUCTION

AND EMPLOYMENT GENERATION

An Examination of the Concept and Practice in Europe

and the Commonwealth of Independent States

UNDP Study Tomi4 OK Correct:Layout 1 6/23/08 2:42 PM Page 1

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Team for the preparation of the publication

Publication Editors Carlo Borzaga, Giulia Galera, Rocío Nogales

Foreword Jacques Defourny, Ben Slay

PART I. Overview of the Emergence Carlo Borzaga, Jacques Defourny, Giulia Galera, and Evolution of Social Enterprise Ewa Leś, Rocío Nogales, Marthe Nyssens, Roger Spear

PART I. Social Enterprise Carlo Borzaga, Giulia Galera, Rocío Nogales in the Target Countries

PART II. Poland Marta Gumkowska, Jan Herbst, Kuba Wygnanski

PART II. Serbia Marija Babovic, Slobodan Cvejic, Olivera Nusic and Olivera Pavlovic

PART II. Ukraine Marina A. Cherenkova, Adeleine Gonay

PART III. Recommendations on Carlo Borzaga, Jacques Defourny, Giulia Galera, Ewa Leś,how to Support Social Enterprises Rocío Nogales, Marthe Nyssens, Geoff Prewitt, Roger Spear

Project Facilitator Geoff Prewitt

Scientific Committee Carlo Borzaga, Jacques Defourny, Ewa Leś, Marthe Nyssens, Roger Spear

Peer Group Jonathan Brooks, Parviz Fartash, Milena Isakovic, JaroslavKling, Michaela Lednova, Nick Maddock, Vladimir Mikhalev,Susanne Milcher, Ben Slay

Copy Editors Peter Serenyi , Irena Guzelova, Sophie Adam, Toby Johnson

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form orby any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission.

This publication is the result of a joint United Nations Development Programme (UNDP) and EMES European ResearchNetwork project. This is an independent publication commissioned by UNDP. The analysis and policy recommendations ofthis publication do not necessarily reflect the views of the UNDP, its Executive Board or UN Member States.

ISBN: 978-92-9504-278-0

Copyright © 2008UNDP Regional BureauFor Europe and the Commonwealth of Independent States


Foreword

Many countries of Central and Eastern Europe(CEE) and the Commonwealth of IndependentStates (CIS) are confronted with the social costs ofthe political and economic transitions of the 1990s.While some gains have been impressive – such asincreased labour productivity and reduced infla-tion – other forms of basic security have been lostor are under threat. Unemployment levels are per-sistently high, rising to over 30 percent in somecountries.

Institutions of the third sector – as distinct fromboth the private for-profit sector (market) and thepublic sector (state) – have in many OECD coun-tries emerged over the last 30 years to play a cen-tral role in addressing the problems of jobless-ness and to supplying crucial public goods.However, in most transition economies activitiesof the third sector, including foundations andcivil-society organizations (CSOs), have beenlargely limited to humanitarian assistance, partic-ularly in the post-conflict regions.

As a concept – and subsequently an organizingprinciple – the term ‘social enterprise’ was coinedin the mid-1990s to refer to an entity that seeks toreconcile both social and economic ambitions.Social enterprise does not seek to supplant exist-ing concepts for the third sector such as the socialeconomy or the non-profit sector. Rather, it isintended to bridge these two concepts, by shed-ding light on features of the third sector that arecurrently becoming more prevalent: entrepreneur-ial activities focused on social aims.

So defined, social enterprise can include cooper-atives, associations, foundations, mutual benefitand voluntary organizations and charities.Despite their diversity, social enterprises providesocial services and contribute to work integration(e.g. training and integration of unemployed per-sons) thus assisting in the development of disad-vantaged areas (especially remote rural areas).

The potential contribution of social enterprises towork integration, employment creation, and serv-ice delivery remains largely unrealized in CEE andCIS countries, particularly in relation to dis ad van -tag ed groups including the long-term unem-ployed, ex-convicts, people with disabilities, inter-nally displaced persons and ethnic minorities.

With this in mind, the Bratislava Regional Centreof the United Nations Development Programme(UNDP) and the EMES European Research Networkembarked on an ambitious collaborative effort tostrengthen awareness about the conceptual andorganizational understanding of social enterpris-es, their contributions to sectoral developmentand employment, and their legal status in CEE andCIS countries. These efforts were accompanied bypractical support and training to social enterprisesin selected countries.

Following two years of intensive effort, we arepleased to share the outcomes of our work in theform of this publication. We hope it will stimulatelocal and national debate on how social enterpris-es can improve the lives of vulnerable groups andsupport human development.

Jacques Defourny, PresidentEMES European Research Network

Ben Slay, DirectorBratislava Regional Centre, UNDP

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1 The national reports included here were considerably shortened so as to comply with publication requirements regarding length. For the full versions seewww.emes.net or www.undp.org.

2 Kate Schecter. (2001), The Social Sector: A Failure of the Transition, in Adrian Karatnycky, Alexander Motyl, Aili Piano, Nations in Transit 1999-2000, Civil Society,Democracy, and Markets in East Central Europe and the Newly Independent States, Freedom House.

3 Jan Adam (1999), Social Costs of Transformation to a Market-Economy in Post-Socialist countries, London: Macmillan Press Ltd.4 Martin Raiser, Christian Haerpfer, Thomas Nowotny, and Claire Wallace (2001), Social Capital in Transition: a first look at the evidence, European Bank for

Reconstruction and Development, Working Paper No. 61.

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Executive Summary

The present publication contains the results of atwo-year research project comprised of severalphases. These included a preliminary study tomap the situation of social enterprises in 12countries. After a multi-stakeholder seminar,three national reports were produced by threedifferent research teams. While the four pieceshave been integrated and share a similar struc-ture, each reflects a different scholarly approach,socio-cultural standpoint, and style.1

Social costs of transformation

Following a dramatic recession and decline in out-put that characterized the early transition years,the economies of Central and Eastern Europe (CEE)and the Commonwealth of Independent States(CIS) are now benefiting from growth to varyingdegrees. Nevertheless, this positive economictrend has yet to be transformed into improvedwell-being for all groups of society. Moreover,severe economic and social problems risk under-mining the legitimacy of the economic reformsthat were adopted. Rising inequality can be partial-ly accounted for by a lack of recognition of thisproblem in policy and by weak social safety nets.

Overall, in the transition to democratic politicalsystems and market-oriented economies, socialwelfare systems have been comparatively neg-lected.2 As a result, the social costs of the trans-formation have not been distributed equallyamong the population. They have been especial-ly borne by the poor.3 New pockets of marginal-ized and socially excluded groups resulted fromthe closure and transformation of state enter-prises, state farms, and other public institutionsthat previously ensured the delivery of crucialservices. In this context, substantial reforms arestill required to ensure the social inclusion ofthose segments of society that have been hit bythe economic transition. In addition, citizens in

transition countries typically show limited trustin political institutions and relatively low levels ofparticipation in democratic processes coupledwith diminished stocks of social capital.4

Main vulnerable groups in target countries

From a labour-market perspective, structuralreforms have resulted in new groups being threat-ened by social exclusion, including for instancedisabled people, people over 50 years of age,young people with low qualifications, youngmothers with children, rural workers, and margin-alized groups such as former prisoners, the men-tally ill, homeless people, immigrants, workingpoor, and national and ethnic minorities. All thesegroups have few opportunities to find employ-ment on the traditional labour market, while alsolacking adequate assistance from public agencies.

As far as the delivery of services is concerned, sever-al countries of the region, especially CIS countries,are characterized by settlements which have no elec-tricity, lack safe drinking water, and are cut off fromgas supplies. Furthermore, gaps in service deliveryaffect other public goods, such as social, education-al, and health services. Breaks in service delivery cou-pled with persistently high unemployment rates insome countries have in turn contributed to weaksocial cohesion. Despite the problems of incomeinequality and social exclusion among certaingroups of the population, experience from the targetcountries shows that local problems that cannot beefficiently and effectively tackled by public and for-profit organizations can be dealt with, at least partial-ly, through the self-organization and self-reliance ofthe citizens concerned.

The social enterprise approach

Against the background of supporting institutionsthat can sustain human development, social enter-


5 György Jenei and Eva Kuti, ‘Duality in the Third Sector: the Hungarian Case’, Asian Journal of Public Administration, Vol 25, No 1 (June 2003), 133-157.

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prises provide an innovative approach and areeffective as poverty reduction agents that cancontribute to the promotion of cohesive commu-nities. This study draws on a conception of thesocial enterprise as a private and auto nomousorganization, providing goods or services, with anexplicit aim of benefiting the community, that isowned or managed by a group of citizens, and inwhich the material interest of investors is subjectto limits. More specifically, a social enterprise isconceived of as meeting both an economic andsocial goal within the third sector. The third sectorrefers to all non-profit organizations fostered bycivil society, including organizations devoted toadvocacy, redistribution or productive activities.

The interest in social enterprises stems from theimportance of these organizations as institution-al arrangements that are able to tackle economicand social concerns and challenges that neitherpublic agencies nor for-profit enterprises canaddress effectively. As such, social enterprises cancomplement the roles already displayed by otheractors (including, inter alia, public agencies, tradi-tional cooperatives and advocacy organizations)in addressing the problems of the target coun-tries. These include delivery of basic services (i.e.welfare, education, water and electricity) and thecreation of additional opportunities for employ-ment generation. In particular, their develop-ment contributes to strengthening organization-al pluralism and thus the possibility that differentinterests of various social groups are channelledand represented, thus contributing to democra-tize economic and social systems.

Social enterprise contribution to human devel-opment cannot be conceived of without aninnovative framework of cooperation and part-nership between various welfare actors, bothpublic and private.

Numerous examples from target countries –ranging from non-profit psychiatric hospitals forchildren, shelters for families, and schools fordrop-out children – show that the method ofdirectly providing innovative services by socialenterprises and then attracting government sup-port is often possible when lobbying and advo-cacy fail.5

The added value of social enterprise

The development of organizations driven by anentrepreneurial spirit, but focused on social aims,is a trend that can be observed in countries withdifferent levels of economic development, welfareand legal systems. This can be ascribed to bothdemand and supply factors. On the demand side,recent years have seen an extensive growth anddiversification of needs, which was prompted bythe interplay of various factors, including chang-ing patterns of behaviours and lifestyles coupledwith the transformation of welfare systems. On thesupply side, public funding constraints andbureaucratic burdens have made it increasinglydifficult to expand, or even to maintain, the provi-sion of certain services. This appears to be all themore dramatic for economic and social systemsthat are strongly characterized by weak and youngwelfare systems, such as those in the target coun-tries. In many countries of the CEE and the CIS,structural change and severe economic shockshave led to unemployment or under-employ-ment, as well as severe shortcomings in the deliv-ery of public services, especially for those who areunable to pay. The potential of social enterprisesas institutions capable of matching demand forservices with supply, and thus of contributing tothe socio-economic development agenda in vari-ous ways, has emerged against this background.

The contribution of social enterprises to socio-eco-nomic development can be seen from various per-spectives:

providing access to basic services (social, edu-cational, and health) to local communities,including people who are unable to pay;contributing to a more balanced use of localresources encouraged by wide participation oflocal stakeholders; contributing to the promotion of inclusivegovernance models that empower the localcommunity in strategic decision-making; creating new employment as a result of thenew services supplied and favouring labour-market integration of disadvantaged people(minority groups, single women, people withdisabilities, etc.) otherwise excluded fromincome-generating opportunities;


6 Toepler, S. and Salamon, L. (1999), The Nonprofit Sector in Central Europe: An Empirical Overview, Draft prepared for the 1999 Symposium ‘Ten Years after: CivilSociety and the Third Sector in Central and Eastern Europe’, Charles University, Prague, The Czech Republic, October 15-16.

7 Leś, E. and Jeliazkova, M. (2007), The Social Economy in Central East and South East Europe, OECD Local Economic and Employment Development (LEED)Programme.

8 Adam Piechowski, ‘Non-Cooperative Cooperatives: New Fields for Cooperative and Quasi-Cooperative Activity in Poland, in ICA Review of InternationalCooperation, Volume 92, No 1, 1999.

9 Toepler and Salamon, 1999.

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contributing to enhance social capital at locallevels (based on broad ownership and localparticipation), which is of crucial importance; contributing to take informal activities out ofthe underground economy for instance byregularizing the situation of illegal workers onthe black market.

They can serve all these roles thanks to their com-bining both social and economic roles, therebyallowing the pursuit of explicit social goalsthrough the carrying out of economic activities.

Summary of findings

Overall, the role displayed by social enterprisesappears to be marginal in the target countries incomparison with Western Europe. While the rele-vance of advocacy organizations for the con-struction and strengthening of democracy hasbeen generally acknowledged, the role of otherthan investor-owned organizations, includingcooperatives, as economic and welfare actorshas been overlooked. Whereas traditional coop-eratives are often still seen as a remnant of previ-ous times, advocacy and civic organizations,including environmental groups, succeeded inattracting Western funding.6 Overall, social enter-prises in the social systems and economies ofpost-communist countries are still a largelyuntapped resource and generally overlooked aseconomic actors.7

There are considerable impediments to socialenterprises. The barriers that hamper social enter-prise development include the lack of supportingenvironments and infrastructure, restrictedaccess to resources, privileged administrativetreatment of specific organizational forms,unsuitable institutional framework and an incon-sistent legal environment. As a result, there isoften a void in terms of suitable legal regulations.Moreover, the legal frameworks in place fail toconsider the social commitment and degree ofdisadvantage taken on by social enterprises and

restrict their potential to carry out economicactivities. In addition, fragile political systems pre-vent social enterprises from building mediumand longer-term strategies while the lack of skillsof social entrepreneurs adds to the chronic finan-cial problems of most social enterprises. The mar-ginal role of other investor-owned enterprisescan be partially ascribed to the negative imageenjoyed by cooperative enterprises followingtheir previous association with communism.8 It isalso linked to a number of scams and scandalsthat endangered the reputation of the sector inmany countries and lowered people’s trust inthird sector organizations.9

As far as the development of social enterprises isconcerned, three main development trends canbe pinpointed. First, the institutionalization ofsocial enterprises in some new member coun-tries, where legal frameworks designed for socialenterprises have been introduced. This is thecase in Poland, where a law on social coopera-tives aimed at integrating disadvantaged peoplehas been enacted. A category of Public BenefitCompanies has been introduced in the CzechRepublic. Nonetheless, several shortcomings ofthe laws enacted still prevent the full exploita-tion of the new legal frameworks. Second, thestrength of enterprises integrating disadvan-taged people. Despite a general mistrust towardseconomic activities carried out by third sectororganizations, social enterprises appear to bemore accepted when integrating disadvantagedworkers into the workplace. The Polish andSlovenian examples illustrate this, as such enter-prises have managed to upgrade their capabili-ties and offer their services on the open market. Apossible interpretation of this more favourableattitude is the long-standing tradition of cooper-atives for the disabled that were establishedunder communism and continue to exist in allpost-communist and socialist countries. Third,the creation of subsidiary commercial enterpris-es - set up and owned by associations and foun-dations – which are aimed at raising money tosupport the social activities carried out by theirfounders. Their income-generating activities are


10 It is worth emphasizing that although many third sector organizations enjoy tax-exempt status (or at least a less burdensome fiscal status), social enterprisesare not always granted this status despite the internalization of externalities that they bear.

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normally not consistent with the social goal pur-sued by the founders. This trend is, however, theonly way whereby social entrepreneurial activi-ties can be developed both in countries wherethe carrying out of economic activities by thirdsector organizations is limited by legal inconsis-tencies (Bulgaria) or strictly outlawed (Macedoniaand Belarus).

Support policies for social enterprises

Prerequisites for a full exploitation of the impor-tant social, economic and employment-genera-tion roles of social enterprises include a numberof basic policy and legal measures that areimportant for creating an appropriate environ-ment for social-enterprise development.

In broad terms, the principal requirement is tocreate a legal context which does not disadvan-tage social enterprises in comparison with busi-ness organizations – this means a legal frame-work that is not over-restrictive or over-regulat-ed, but allows flexible entrepreneurial activity.10 Inorder to avoid criticism of unfair competition, themeasures implemented to facilitate the entrepre-neurial activities of social enterprises vis-à-visunsubsidized small- and medium-sized enterpris-es (SMEs) should be based on the merit of theproducts and/or services delivered, and an over-all evaluation of externalities for the community.Second, the social dimension of activities carriedout by social enterprises should be supportedthrough fiscal measures. Social enterprises canovercome problems faced by public agencies andfor-profit providers such as the beneficiaries’inability to pay and problems stemming frominformation asymmetries between providers andbeneficiaries. Under such circumstances, socialenterprises often represent a more efficient wayof providing goods and services than for-profitand public organizations. As a result of the inter-nalization of externalities taken on by socialenterprises, public authorities should considercompensating in the form of fiscal advantages.There are two major arguments that justify thegranting of fiscal advantages to social enterpris-

es. On the one hand, unlike the case in traditionalenterprises, fiscal advantages should aim to com-pensate for the disadvantages dealt with bysocial enterprises (e.g. disadvantaged workersintegrated into the work force). On the otherhand, fiscal advantages should be granted tosocial enterprises when they contribute to thepublic interest and well-being of communities. Inboth cases, social enterprises should benefit fromfiscal exemptions on the non-distributed profits(this is a means to sustain social enterprise capi-talization), while additional advantages shouldbe granted and fiscal measures adopted with aview to reducing the cost of the activities carriedout. Third, the institutional context should beadapted to ensure that social enterprises canhave access to equivalent (financial, products andservices) markets as SMEs, despite the differentgoals pursued and different modes of operation.In particular, access to public procurement mar-kets should be developed. Fourth, the institution-al context in which social enterprises operateshould be supported so that self-regulatory fed-eral bodies can represent the interests of the sec-tor, and financial and business support bodiescan be developed to increase the capacity andeffectiveness of social enterprises. Such self-regu-lating federal structures might also take on thetask of taking measures to reduce corruption.

Despite the difficulty of offering recommenda-tions with the same degree of relevance for allthe targeted countries, the study advances somerecommendations for further action. In a nut-shell, actions from governments (at all levels)should focus on the creation of enabling legaland fiscal frameworks; the development of aconducive institutional context for social enter-prises; and further interaction with social enter-prises. These recommendations, however, are tobe considered while taking into account theexisting context, national legislation, and therole played by the third sector in the countriesunder study. Finally, the study advances specificrecommendations to support the intervention ofinternational actors and development practition-ers, as they can provide credit and assist in rais-ing awareness of realities that are not yet fullyrecognized in national contexts.


Acknowledgments

The authors and facilitators of this study would liketo thank the researchers from the 12 countries cov-ered in the study. Their dedication was inspiringthroughout the research process, and we expectthat new doors will open for future collaboration.From the new EU member states, we thank MariaJeliazkova in Bulgaria, Nadia Johanisova in theCzech Republic, Marit Otsing in Estonia, DziugasDvarionas in Lithuania, Ewa Leś in Poland andMatjaž Golob in Slovenia. The researchers in theBalkans to whom we extend our gratitude are:Risto Karajkov in Macedonia and Maria Kolin inSerbia. Lastly, the following people from CIS coun-tries were crucial for accessing data: tworesearchers from Belarus who wished to remainanonymous; Sergey Zlotnikov from Kazakhstan;Vladimir Korolev from Russia; and LyubovPalyvoda from Ukraine. Likewise, the project bene-fited from the hard work of Francesca Fiori (ISSAN),Sophie Adam (EMES) and Toby Johnson in thedocumentation and editing phases.

The authors of the Polish national report wish tothank all the partners of the “eS – in Search of thePolish Model of Social Economy” EQUAL DP. Theyhave been extremely supportive with their knowl-edge and energy throughout the three-year project.Particularly, our deep appreciation goes to theKlon/Jawor Association, which conducted an in-depth study on the Polish social economy, includinga survey of almost 2,000 social organizations andqualitative studies of 50 social enterprises in Poland.Without the data provided by Klon, it would nothave been possible to complete the report.

The authors of the Serbian national report – MarijaBabovic, Slobodan Cvejic, Olivera Pavlovic andOlivera Nusic – are experts of the SeConS Deve lop -ment initiative group. They would like to acknowl-edge the many responsible persons from third sec-tor organizations who generously gave their timeto be interviewed for the study, above all enthusi-asts from: Lastavica, Teledom Temerin, Mikrofins,Agromreza, Association of Persons with Paraplegiafrom Kraljevo and Social Cooperative Vivere. Theywould also like to thank the individuals from UNDPand EMES for their support and valuable sugges-tions, in particular to: Branka Andjelkovic, VesnaCiprus, Pavle Golicin, Milena Isakovic and BranislavSavic from the Serbia UNDP office, to Geoff Prewittfrom UNDP’s Bratislava Regional Centre (BRC), as

well as to Giulia Galera and Rocío Nogales fromEMES.

The authors of the Ukrainian national report wishto thank all those who contributed to the finalreport, namely: Tatiana D. Gladysheva, President ofthe Association of NGOs ‘Socio-Economic Stra -tegies and Partnerships’ (SESP), Donetsk, Ukraine,Tamara N. Kozenko, key expert of the SESPAssociation, Marina M. Kizilova, lawyer of the SESPAssociation, Nadezhda Timoshenko, key expert ofthe Rural Development Institute, Kiev; advisor toGonay & Partners Consulting Ltd.

Our deep gratitude goes to the staff of the UnitedNations Development Programme/Bratislava Re -gional Centre, especially to Ben Slay for his com-prehensive reviews of drafts and input to the pub-lication. Susanne Milcher, Vladimir Mikhalev, NickMaddock, Jonathan Brooks, Michaela Lednova,and Parviz Fartash, all of UNDP further comment-ed on drafts. Their feedback and ongoing supportto the research and the researchers have greatlyenriched the publication. Peter Serenyi (of UNDP)and Irena Guzelova (freelance) did an excellentjob of copy-editing. Lastly, Eunika Jurcikova of theRegional Centre, has ensured successful imple-mentation of the project’s administrative matters.

From the outset, we were aware of the enormityof the task and embarked upon it with the senseof humility that stems from many years of experi-ence in researching the field in various nationalcontexts. It is our hope that this publication willcontribute to opening the door to future cooper-ation to deepen the knowledge of a growing –and still unknown – sector in CEE and the CIS.Already, it is satisfying to see that, since thebeginning of the research project upon whichthis publication is based, several initiatives havebeen completed with an eye to exploring thepotential of social enterprises in combatingpoverty and social inclusion in such countries asArmenia, Croatia and Ukraine.

Authors of PublicationThe Project’s Scientific Committee, Giulia Galera and Rocío Nogales

Facilitator of PublicationGeoffrey D. PrewittPoverty Reduction and Civil Society AdviserBratislava Regional Centre, UNDP

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Acronyms and Abbreviations

ADF American Development FoundationALMP Active Labour-Market PoliciesAWIN Association for Women's InitiativeBRC Bratislava Regional CentreCAP Counterpart Alliance for PartnershipCCC Counterpart Creative CentreCCU Civil Code of UkraineCEE Central and Eastern EuropeCIC Community Interest CompanyCIDA Canadian International Development AgencyCIS Commonwealth of Independent StatesCIVICUS World Alliance for Citizen ParticipationCRDA Community Revitalization through Democratic ActionCSO Civil Society OrganizationESF European Social FundES State Employment Service of UkraineGDP Gross Domestic ProductGoNGOs Governmental Public AssociationsGUS Central Statistical Office of PolandIDP Internally Displaced PersonILO International Labour OrganizationMoLSP Ministry of Labour and Social Affairs of PolandNGO Non-governmental OrganizationOECD Organization for Economic Cooperation and DevelopmentOSCE Organization for Security and Cooperation in EuropePBC Public Benefit CompaniesPSE Potential Social EnterprisePWD People with DisabilitiesREGON National Official Business RegisterSCIC Cooperative Society of Collective Interest SE Social EnterpriseSEC Social Business CorporationSEEC South Eastern European CountriesSIF Social Investment Fund of SerbiaSMEs Small- and Medium-Sized EnterprisesTS Third SectorTSO Third Sector OrganizationUCAN Ukraine Citizen Action NetworkUSAID United States Agency for International DevelopmentUSSR Union of Soviet Socialist RepublicsVAT Value-Added TaxVEH Vocational Enterprise for the DisabledWISE Work Integration Social Enterprise

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Table of contents

PART I. INITIAL STUDY ON THE PROMOTION OF SOCIAL ENTEPRISES IN CEE AND THE CIS . . . . . . . . 12

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121. Overview of the Emergence and Evolution of Social Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . 15

1.1. The historical background of social enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151.2. From third sector to social enterprise in Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161.3. Locating social enterprises within the economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201.4. Trends in social enterprise development across Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211.5. Understanding the emergence of social enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291.6. Towards a working definition to map social enterprises in CEE and CIS countries . . . . . . . . . 31

1.6a A simplified definition of social enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311.6b Using the concept of social enterprises in CEE and CIS countries . . . . . . . . . . . . . . . . . . 32

2. Social Enterprise in CEE and CIS Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342.1. Overview of the third sector in CEE and CIS countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

2.1a The third sector under socialism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352.1b The impact of early transition reforms on the third sector. . . . . . . . . . . . . . . . . . . . . . . . 362.1c Political and legal recognition of the third sector in CEE and CIS countries. . . . . . . . . . . 372.1d Size of the third sector in CEE and CIS countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412.1e Description of the structure and dynamics of unemployment in the region. . . . . . . . . . 432.1f The integration of disadvantaged workers: a legacy of communism . . . . . . . . . . . . . . . . 46

2.2. Review of the social enterprise phenomenon in CEE and CIS countries . . . . . . . . . . . . . . . . . 482.2a Specific legal frameworks for social enterprises: the cases of Poland, the Czech Republic, Slovenia and Lithuania . . . . . . . . . . . . . . . . . . . . . . 522.2b Functions and effects of third sector organizations and social enterprises in transforming the economies and societies of CEE and CIS countries . . . . . . . . . . . . . . . . . 562.2c The impact of foreign donors and the emergence of domestic donors. . . . . . . . . . . . . . 58

3. Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 603.1. Overview of the Third Sector and Social Enterprise Phenomena in CEE and CIS Countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 603.2. Methodological Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 733.3. Towards a Social Enterprise Approach Adapted to CEE and CIS Countries . . . . . . . . . . . . . . 74

PART II. PROMOTING THE ROLE OF SOCIAL ENTERPRISES IN THREE SELECTED COUNTRIES: POLAND, UKRAINE, AND SERBIA . . . . . . . . . . . . . . . . . . . . . . . . . . 77

1. Promoting the Role of Social Enterprises in Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 781.1. The background for social enterprise in Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

1.1a The transformation of the welfare system and main features of the labour market . . . . 781.1b Main characteristics of the third sector in Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 811.1c. Main challenges for the third sector with respect to social enterprise development . . . 86

1.2. Social enterprise development trends in Poland. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 871.2.1. Dimensional aspects and spatial distribution of social enterprises . . . . . . . . . . . . . . . . . . . 871.2.2. Main sectors of activity and recipients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93


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1.2.3. Relations established between social enterprises and public agencies . . . . . . . . . . . . . . . . 961.3. SWOT analysis of social enterprise development in Poland . . . . . . . . . . . . . . . . . . . . . . . . . 1001.4. Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

2. Promoting the Role of Social Enterprises in Serbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1042.1. The background for social enterprises in Serbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1042.1.1. The transformation of the welfare system and main features of the labour market . . . . . 1052.1.2. Main characteristics of the third sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1082.1.3. Main problems and challenges facing the third sector with respect to social enterprise development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1122.2. Social enterprise development trends in Serbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

2.2a Associations of Citizens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1152.2b Cooperatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1212.2c Enterprises for the vocational training and employment of persons with disabilities . . . . 1252.2d Other forms of social enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

2.3. SWOT analysis of social enterprise development in Serbia . . . . . . . . . . . . . . . . . . . . . . . . . . 1322.4. Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138

3. Promoting the Role of Social Enterprises in Ukraine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1433.1. The background for social enterprises in Ukraine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143

3.1a Transformation of the welfare system and main features of the labour market . . . . . . . . 1433.1b Main characteristics of the third sector in Ukraine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1523.1c Main problems and challenges facing the third sector. . . . . . . . . . . . . . . . . . . . . . . . . . 159

3.2 Social enterprise development trends in Ukraine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1603.2a Concepts and definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1603.2b Current legislative framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1613.2c Typologies and dimensional aspects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1633.2d Main sectors of activity and recipients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1653.2e Potential of social enterprises in Ukraine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1673.2f Organizations supporting the development of social enterprises in Ukraine. . . . . . . . . 168

3.3. SWOT analysis of social enterprise development in Ukraine. . . . . . . . . . . . . . . . . . . . . . . . . 1693.4. Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173

PART III. GENERAL RECOMMENDATIONS ON HOW TO SUPPORT SOCIAL ENTERPRISES . . . . . . . . . 177

1. Preliminary conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1772. Assessing the potential for social enterprise development in CEE and CIS countries . . . . . . . . . 1803. Characteristics of an optimal policy and legal framework

for social enterprise development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1894. Recommendations for national governments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1915. Recommendations for international actors and development practitioners . . . . . . . . . . . . . . 1926. Closing remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196List of Boxes, Figures and Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208Appendix 1 – Glossary of terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211Appendix 2 – Matrix of laws relating to social enterprises in Serbia . . . . . . . . . . . . . . . . . . . . . . . . 213


11 Public goods are goods that are non-excludable and non-rival; consequently, they would either not be provided at all or they would not be provided in suffi-cient quantity by the market. For a thorough explanation on the various types of goods see Stiglitz, J. E. (2000) Economics of the Public Sector, 3rd ed., New York:W. W. Norton. Merit goods are destined for individual consumption, but they also produce some collective benefits.

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Introduction

This study explores the social enterprise phe-nomenon in Central and Eastern Europe (CEE)and in the Commonwealth of IndependentStates (CIS). Despite recording rapid economicgrowth, these countries are afflicted by pocketsof poverty, severe inequality and social exclu-sion. The study focuses on the following coun-tries: Bulgaria, the Czech Republic, Estonia,Lithuania, Poland and Slovenia (new EU memberstates); Macedonia and Serbia (the Balkans); andBelarus, Kazakhstan, Russia and Ukraine (CIScountries).

For this study a social enterprise is a private andautonomous organization providing goods orservices that has an explicit aim to benefit thecommunity. It is owned or managed by a groupof citizens, and the material interest of investorsis subject to limits. The objective of the study isto identify the development paths of socialenterprises in CEE and CIS countries with specialregard to:

the bottlenecks that prevent their expansion inareas severely affected by social and economicconcerns, including high levels of unemploy-ment and collapsing welfare systems, as well asthe factors favouring their development;

the roles displayed by social enterprises intransition processes.

More specifically, this study provides some recom-mendations for how to create an environmentconducive to the development of social enterpris-es. The study focuses on trends in social enterprisedevelopment across the aforementioned coun-tries, given their geographic proximity and theirpre-communist cooperative traditions. In thislight, the study relies on a theoretical frameworkthat is supported by the good practices of the EU-

15 countries with the aim of replicating the les-sons learned in the countries under study.

Social enterprises are important because theyare able to address crucial economic and socialconcerns that neither public agencies, which areoverburdened by serious budget constraints,and traditional for-profit enterprises, are unableto address effectively. As such, social enterprisescan complement the roles already fulfilled byother socio-economic actors (including, interalia, public agencies, traditional cooperativesand advocacy organizations) in addressing thecrucial problems of CEE and CIS countries.

The development of organizations driven by anentrepreneurial spirit, but focused on social aims,is a phenomenon that can be observed in coun-tries with differing kinds of economic develop-ment, welfare policies, and legal frameworks.There are a number of reasons for this trend,both on the demand and supply sides. On thedemand side, recent years have witnessed anextensive growth and diversification of needs,which was prompted by such factors as chang-ing patterns of behaviours and lifestyles, coupledwith the transformation of the previous welfaresystems. On the supply side, public funding con-straints and bureaucratic burdens have made itincreasingly difficult to expand, or even to main-tain, the provision of certain general interestservices. More specifically, in the countries of theregion, the inability to ensure the previous levelof security – through guaranteed employment,old-age pensions, free health care and otherservices – has led to unemployment or under-employment, and severe shortages in the deliv-ery of general interest services, especially forthose who are unable to pay. The potential ofsocial enterprises as institutions capable of facili-tating the confluence of demand for generalinterest services with supply, and thus of con-tributing to the socio-economic development

PART I. INITIAL STUDY ON THE PROMOTION OF SOCIAL ENTEPRISES


12 Organizations other than investor-owned enterprises and public agencies will henceforth be defined as third-sector (TS) organizations.13 Piechowski, 199914 Toepler and Salamon, 1999

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agenda in various ways, has emerged againstthis background.

The contribution that social enterprises canmake from a social and economic point of view isrecognized in the old EU member states, at boththe national and EU levels. Their economic valueis self-evident, as they:

supply basic public and merit goods,11 such associal, educational, health and general eco-nomic interest services (water, electricity etc.)to local communities, including to people whoare unable to pay;

contribute to the economic development ofdeprived communities;

create new employment opportunities as aresult of the new services supplied;

favour the integration of disadvantaged peo-ple, including minority groups, single women,people with disabilities, etc.

They fulfil these roles through the exploitation ofresources that would not otherwise be allocatedto meet welfare and development needs.

Moreover, many of them contribute to the inte-gration of different kinds of disadvantaged work-ers. Hence, they contribute to the enhancementof social cohesion, to the accumulation of socialcapital, and to a more equitable economic devel-opment at the local and national levels.Accordingly, social enterprises can act as povertyreduction agents.

The research conducted shows that recognitionof the real potential of social enterprises is stilllacking, albeit to varying degrees, in all the coun-tries of the region, and especially in the CIS andBalkan countries. In this region social enterprisesare acknowledged to play only a marginal role.This is due in part to the prevalence of a politicaland cultural approach that assigns only an advo-cacy and redistributive role to organizations thatare neither investor-owned (for-profit) enterpris-es nor public (state) agencies.12 Examples are

cooperatives that developed a negative imagebecause of their bureaucratization, centraliza-tion, subordination to state control and monop-olization of certain spheres of the economy dur-ing the socialist era.13 Hence national govern-ments and donors paid particular attention toparticipatory aspects and there was a generalmistrust towards economic activities carried outby third sector organizations. While cooperativeswere considered remnants of communist times,advocacy organizations (including for instanceenvironmental groups) were the most successfulin attracting Western funding.14 Overall, econom-ic activities carried out by third sector organiza-tions appear to be marginal, in the countries ofthe region, compared to what is the case inWestern European countries. When the law per-mits third sector organizations to carry out eco-nomic activities, the general trend is to recognizethem as long as they remain marginal, and to cir-cumscribe them strictly, allowing only those eco-nomic activities that sustain the organizations'statutory goals. In those countries where thedirect engagement of third sector organizationsin economic activities is not allowed (Belarus,Bulgaria, Macedonia and, to a certain extent,Serbia and Ukraine), third sector organizationscreate commercial enterprises to manage eco-nomic activities. In both situations the third sec-tor takes on a complementary role to those ofthe state and market.

An exception to these trends is provided bywork-integration enterprises, such as coopera-tives for disabled people that have been inherit-ed from communist times. Economic activitiesare, in this case, tolerated. However these enter-prises aim to serve niche markets, rather thanaddressing the wider market.

Part one includes three sections. Within the firstsection, subsections one and two describe theemergence and evolution of social enterprisesacross the 15 countries that used to form theEuropean Union, prior to its enlargement in 2004,offering a historical background. Subsection threeplaces the social enterprise phenomenon withinthe context of the third sector. Subsection fourdescribes the main economic theories that account


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for the emergence of social enterprises. Lastly, sub-section five provides a working definition to mapsocial enterprises in CEE and CIS countries.

Section two is divided into two main subsectionsthat cover the social enterprise phenomenon inthe countries under consideration. The first sub-section provides a historical overview and adescription of the third sector in these countries.It then draws attention to the modernizationprocesses in the market and civil society, theimpact of early reforms on fostering the thirdsector, as well as the sector’s political and legalrecognition. The structure and dynamics ofunemployment in the region are described,while focusing on enterprises whose aim is tointegrate disadvantaged workers. The secondsubsection explores more specifically the themeof social enterprise in CEE and CIS countries. Itfocuses on the extent to which third sectororganizations are allowed, in the various legalsystems, to carry out economic activity. Anoverview of the specific legal frameworks forsocial enterprises that have been enacted so farin a few countries – including Poland, the CzechRepublic, Slovenia and Lithuania – is then pro-vided. At this point, an analysis is offered regard-ing the functions played by social enterprises intransforming the economies and societies of thecountries from the region and the impact of for-eign donors. The third and last section of partone includes the various appendices relative tothis initial study. In an effort to synthesize themain findings of the exploratory phase of thispreliminary study, country overview tables areoffered. A methodological note about the studyand a conceptual note about the EMES approachto social enterprises and its adaptation to CEEand CIS countries close this section.

Part two includes the selection of three countrystudies from three different sub-regions – Poland(section one), Serbia (section two), and Ukraine(section three).

Lastly, part three provides some general recom-mendations on how social enterprises could besupported in the countries under study. Basedon the evidence, some preliminary conclusionsare offered in the first section. Following anassessment of the potential for social enterprisedevelopment in the selected countries (secondsection), the characteristics of optimal policy andlegal frameworks for social enterprise are

described in section three with a view to legaland fiscal aspects, relationships established withpublic bodies, and institutional aspects. Finally,specific recommendations, both for nationalgovernments (fourth section) and possible inter-vention for development practitioners (fifth sec-tion), are advanced. Some closing remarks aboutthe ways in which social enterprises’ advance-ment can be supported and facilitated areincluded in the fifth section.


15 Anheier, 2005.16 CIRIEC, 1999.17 Monzón Campos, 1997.18 Borzaga and Defourny, 2001.

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1. Overview of the emergenceand evolution of socialenterprise

1.1. The historical background of social enterprise

Only recently has social enterprise been recog-nized as an innovative approach to addressingcrucial issues such as gaps in social services, edu-cation, health care, housing services, environmen-tal concerns and fair trade. However, economicentities with social goals have long played animportant role in the social, economic and politi-cal history of market economies, former-commu-nist and developing countries. Social enterprisesare part of the economic fabric at both the nation-al and local levels.15

Charities and other types of non-profit organiza-tions have been spreading in the health andsocial service domains since the Middle Ages.Mutual societies date back to the same period:they were set up by workers to provide commoninsurance and assistance to their members.Entrepreneurial organizations with social goalsstarted developing all over Europe in the middleof the 19th century; agricultural cooperatives,credit unions and saving banks were set up inalmost every European locality, while other typesof cooperatives were consolidated in specificcountries. They include consumer cooperativesin the United Kingdom and housing coopera-tives in Germany, the United Kingdom andSweden. In countries such as France and Italy,which were characterized by a slower industrial-ization process, workers’ production coopera-tives took root.16 The first cooperative experi-ences were in fact a spontaneous defensiveresponse, on the part of the workers, to the harshconditions dictated by the industrial revolution.17

By promoting the interests of their members,cooperatives contributed to improving the qual-ity of life of these disadvantaged groups.

As a result of the development of nation-statesand their growing role – especially in welfare sys-tems – the fight against poverty, support to theweakest segments of the population, protectionof the public interest, redistributive functionsand all the social and health services wereincreasingly shouldered by central and local gov-ernment. In some countries the social and eco-nomic function of third sector organizations wasgradually reduced. This can also be accountedfor by the expansion of trade union movementsand the development of competitive markets ina number of economic domains. In other coun-tries, social services were increasingly organizedby public agencies in partnership with third sec-tor organizations.

The re-emergence of the economic and socialcommitment of third sector organizations wasstimulated by the difficulties generated by thecrisis among welfare states. The first ‘social enter-prises’ emerged at the end of the 1970s just aseconomic growth rates declined and unemploy-ment rose. These factors were at the origins ofthe crisis in the western European dichotomousmodel, which was centred around the ‘state’ andthe ‘market’.18 The traditional welfare state modelproved itself to be insufficient for distributingwelfare inclusively, as evidenced by its difficultyin coping with the growing inequalities andsocial exclusion. In particular, the traditional wel-fare model has proved inadequate at providingall the social services demanded, to ensure equalaccess to social services to all those in need, andto help people with non-standard problems.

The wide spectrum of socio-economic institu-tions that are neither investor-owned organiza-tions (the for-profit sector) nor public agencies(the state) has been described in various ways,with the definition used and specific featuresemphasized depending on the specific traditionsand national contexts, and the specific legalforms used. It may be said that three theoreticalapproaches to the study of these organizationshave gradually spread internationally, accompa-nied by statistical work aiming to quantify theireconomic importance – namely the non-profit


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approach, the social-economy approach, and thethird-sector approach.

The ‘non-profit’ approach

On the one hand, the ‘non-profit’ school empha-sizes the non-distribution of profits. This ‘non-profit-sector approach’ has been developingsince the second part of the 1970s, originally toaddress the US situation. The term ‘voluntarysector’, mainly used in the United Kingdom, alsobelongs to that school. Non-profit organizationsfulfil a broad spectrum of societal and politicaltasks, including lobbying and interest represen-tation and, in some cases, redistribution andservice provision. The non-profit constraintexcludes cooperatives and mutual-aid societieson the grounds that they can distribute part oftheir profits to their members.

The ‘social-economy’ approach

On the other hand, the concept of the ‘socialeconomy’, that brings together cooperatives,mutual societies and associations (and increas-ingly foundations), stresses the specificity of themission of these organizations, namely their aimto benefit either their members or a larger collec-tive, rather than to generate profits for investors.This approach thus includes the non-profit orga-nizational form, but rather than insisting on thenon-distribution of profits, it highlights the dem-ocratic character of the decision-making processwithin the organizations, the priority of peopleand labour over capital in the supervision of theorganization, and the limited distribution ofprofits (rather than the non-distribution con-straint).

The ‘third-sector’ approach

The concept of the ‘third sector’ has increasinglyestablished itself in recent years as a synonym forthe terms ‘non-profit sector’ and ‘social econo-my’, especially in European scientific literature.The third sector, as defined by the British govern-ment, refers to ‘Non-governmental organizationswhich are value-driven and which principally rein-vest their surpluses to further social, environmentalor cultural objectives. It includes voluntary andcommunity organizations, charities, social enter-

prises, cooperatives and mutuals’. Thus the term‘third sector’ refers to the institutionalized enti-ties found within civil society which are devotedto advocacy, redistribution or production. In CEEand CIS countries, these organizations are alsocalled non-governmental organizations (NGOs)in order to emphasize their independent nature,as compared to the ‘social organizations’ thatwere under strict governmental control underthe previous regime. The use of the term ‘thirdsector’ helps to overcome the differencesbetween the many national models. Therefore,this report will mainly employ the terms ‘thirdsector’ and ‘third sector organizations’ to refer toall the entities that are situated between thepublic and private domains and pursue specificsocial goals, while being totally or partiallybound by a non-distribution constraint. The term‘civil society organization’ (CSO) is not usedthroughout the text as it implies a wider range ofinstitutionalized and non-institutionalized enti-ties, including trade unions, political parties,youth organizations, women’s organizations,other public committees, independent commit-tees, etc. The definition used here includes thosecooperative organizations that limit the distribu-tion of profits, which is the case of cooperativesin many European countries. Against this back-ground, social enterprises are to be consideredas a subtype of the third sector and as a newdynamic within the sector, involving both exist-ing and newly established organizations.

1.2. From third sector to socialenterprise in Europe

Against the historical background brieflydescribed above, the social enterprise phenome-non has been fostered by the grassroots actionsof citizens. Indeed, since the 1970s civil society inseveral countries has reacted to both the lack ofsocial and community services and the inabilityof the welfare state to ensure employment –especially for the hard-to-employ. This develop-ment trend resulted in third sector organizationsbecoming increasingly involved in economicactivities, through the production of generalinterest services, often by relying on the volun-tary work of a significant number of citizens. Theinvolvement of associations and foundations –which were traditionally committed to advocacyactivities – in the production of services has


prompted these organizations to shift to a moreproductive and entrepreneurial stance. A parallelevolutionary trend has been displayed by coop-eratives, which have traditionally focused on thepromotion of the interests of their members(consumers, producers, farmers etc.). In somecountries, cooperatives have gradually started tomove beyond their traditional ‘mutual-interest’goals of serving their members19 and haveembraced general-interest goals, i.e. not simplypromoting the interests of a specific category ofstakeholders, but those of the community as awhole, through the production of general inter-est services. As a consequence, the traditionalcooperative and associative models havebecome more similar, with associations becom-ing more entrepreneurial and cooperativesbecoming less member-oriented. This shift, char-acterized by an expansion of the set of activitiescarried out, has assumed different patterns in dif-ferent countries, depending on the role previ-ously played by the third sector, its size, and itsrelationship with the public sector.20

The concept of social enterprise

In Europe, the EMES European Research Networkhas conducted pioneering work in analysing andconceptualizing the social-enterprise phenome-non.21 On the basis of research carried out by thisnetwork, it is clear that the concept of socialenterprise does not supplant existing conceptsof the third sector – such as the concept of thesocial economy or that of the non-profit sector.Rather, it sheds light on features of the third sec-tor that are currently becoming more prevalent,namely entrepreneurial dynamics focused onsocial aims. Organizations with legal forms whichare typically for-profit can be considered associal enterprises when they demonstrate specif-ic characteristics, including a constraint on thedistribution of profits.

The importance of the context in which socialenterprises emerge has recently been noted inthe literature together with the strategic benefitof situating them in a larger ‘social changeframework’ (Mendell and Nogales, 2008). Against

Box 1. Main Legal Frameworks Covered byThird Sector Organizations

Voluntary organizations, charities or associa-tions: this category includes both advocacyorganizations and other forms of free associ-ation of persons for the purpose of advoca-cy, participation in civil society, and some-times the production of goods and serviceswhere making a profit is not the essentialpurpose. Associations can be either general-interest organizations (a group of beneficiar-ies differs from a group of promoters) ormutual-interest organizations (the benefici-aries are the promoters). The names of theseorganizations vary from country to country(associations, non-profit organizations, vol-untary organizations, non-governmentalorganizations, charitable institutions etc.).

Cooperatives: Historically, these have devel-oped in those economic fields in which cap-italist activity remained weak. Cooperativesare associations of persons united voluntari-ly to meet their common economic needsthrough a jointly owned, democraticallycontrolled enterprise. Profits may be distrib-uted or not.

Mutual aid societies: they were launched inthe early 19th century to handle the prob-lems of work disability, sickness and old age,on the basis of solidarity principles, byorganizing the members of a profession,branch or locality in a group.

Foundations and trusts: they are legal entitiescreated to achieve specific goals for the ben-efit of a specific group of people or of a com-munity at large through the income generat-ed from assets held in trust. They have devel-oped mainly in Anglo-Saxon countries andthey are above all committed to supportingsocial, religious or educational activities andother general interest activities, according tothe founder’s will.

19 That is to say, single-stakeholder cooperatives, such as consumer cooperatives, agricultural cooperatives and producer cooperatives.20 Bacchiega and Borzaga, 2003.21 The EMES European Research Network owes its name to its first research project launched in 1996 under the French title "L'Emergence de l'Enterprise Sociale".

This work resulted in a book covering the 15 states which then made up the EU: Borzaga, C. and Defourny, J. (eds) (2001), The Emergence of Social Enterprise,London/New York: Routledge.

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the temptation to present social enterprises assolutions to deeply rooted and structural prob-lems of poverty and social exclusion – especiallyin vulnerable countries and regions – theirpotential can only be understood within a policyframework that recognizes their capacity andcritical need for enabling policy measures andsupportive structures. Experiences in WesternEuropean countries show that this is not a simpleprocess and that variations exist across countriesand cultures. Therefore, governments are active-ly engaged in the support of social enterprises tovarying degrees as ‘the institutional contextsdetermine the extent and the nature of thisengagement’ (Mendell and Nogales, forthcom-ing). Despite the fascination of internationaldonors and governments in social enterprises,the impact and long-term sustainability of suchorganizations can paradoxically be reduced ifthey are suspended from their context (Mendelland Nogales, forthcoming). In this sense, the‘third sector’ approach allows us to comprehendthe complex tissue of socioeconomic (inter)actionin which social enterprises are likely to emerge,and that varies greatly across countries.

What distinguishes social enterprises from othertraditional third sector organizations? On theone hand, compared to traditional associationsand operating foundations, social enterprisesplace a higher value on risk-taking related to anongoing productive activity22 (in the world ofnon-profit organizations, production-orientedassociations are certainly closer to social enter-prises than are advocacy organizations andgrant-making foundations). On the other hand,in contrast to investor-owned enterprises andmany traditional cooperatives, social enterprisesmay be seen as more oriented to the needs ofthe whole community. Moreover, social enter-prises can be created by different categories ofstakeholders and reflect these in their member-ship, whereas traditional cooperatives and manyassociations are usually set up as single-stake-holder organizations. These contrasting ele-ments, however, should not be overestimated,and while social enterprises are in some casesnew organizations, which may be regarded asconstituting a new sub-division of the third sec-tor, in other cases they result from evolutionary

processes at work within the third sector. Inother words, it can be said that the generic term‘social enterprise’ does not represent a concep-tual break with existing institutions of the thirdsector, but a new dynamic, encompassing bothnewly-created organizations and older ones thathave undergone an evolution towards moreentrepreneurial activities. Whether these socialenterprises choose a cooperative legal form, anassociative legal form or another legal formdepends often on the legal structures providedby national legislations.

Social entrepreneur, social entrepreneurship, social enterprise

Until recently, the concepts of ‘social entrepre-neur’, ‘social entrepreneurship’ and ‘social enter-prise’ were viewed practically as a continuum:social entrepreneurship could be seen as theprocess through which social entrepreneurs cre-ated social enterprises. However, it is importantto note that the fast-growing literature on thesesubjects, on both sides of the Atlantic, has pro-duced various definitions and approaches ofeach concept. Analysis of such differences isclearly beyond the scope of the present study,but a few features may be pointed out in order tostress some current trends:23

Since the mid-1990s, American foundationsand organizations such as Ashoka have empha-

Box 2. Social Enterprises

Social enterprises may be defined as private,autonomous, entrepreneurial organizationsproviding goods or services with an explicitaim to benefit the community. They areowned or managed by a group of citizens,and the material interest of capital investorsis subject to limits. Social enterprises place ahigh value on their autonomy and on eco-nomic risk-taking related to ongoing socio-economic activity. Social enterprises areeither prohibited legally from distributingprofits, or are structured in order to excludeprofit as the main goal.

22 That is to say the production and sale of goods and services. 23 Defourny, J. and M. Nyssens (2008), “Social Enterprise in Europe: Recent Trends and Developements", EMES Working Papers Series, no 08/01. Liege: EMES

European Research Network.

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sized the term ‘social entrepreneur’, providingsupport to individuals who start activitiesfocused on a social mission, while behaving astrue entrepreneurs through their dynamism,personal involvement and innovative practices.Such a social entrepreneur brings about newways of responding to social problems. InEurope, conversely, the emphasis is more oftenput on the collective nature and the associativeor cooperative form of the initiative.

The concept of ‘social entrepreneurship’ isincreasingly used in a very broad sense as, formany authors, it now refers to a wide spectrumof initiatives, ranging from voluntary non-prof-it activism to corporate social responsibility.Between these two extremes, many differentcategories exist: individual initiatives, newactivities launched by non-profit organiza-tions, public-private partnerships with a socialaim, etc. While North Americans now tend tostress the ‘blurring borders’ among institution-al and legal forms as well as the ‘blended valuecreation’ (profits alongside social value),Europeans stress the fact that, beyond the vari-ety of discourses, social entrepreneurshipmost often takes place within the third sector.

The concept of ‘social enterprise’ firstappeared in Italy in the late 1980s (well beforeits emergence in the United States) to refer tothe pioneering initiatives for which the ItalianParliament invented the legal framework of‘social cooperatives’ a few years later. As willbe shown, various other European countriesalso passed new laws to promote social enter-prises, most often within the third sector.Alongside such approaches, the EMESEuropean Research Network stresses the insti-tutional character of social enterprises.Drawing on the European tradition, socialenterprises are conceived of as autonomousand long-standing legal entities which providegoods and services with a public orientation,and which succeed in combining the pursuit ofa social aim and the adoption of entrepreneur-ial behaviours. They often rely on a mix ofresources, including public subsidies linked totheir social mission, commercial income, pri-vate donations and/or volunteering. This

allows for the positioning of European socialenterprises ‘at the crossroads of market, publicpolicies and civil society’.24 This clearly con-trasts with a strong US tendency to emphasizethe market reliance of social enterprises and toisolate them from public policies. In the UnitedStates social enterprises may sometimes alsoinclude initiatives and projects that come to anend following the accomplishment of the proj-ect that generated them, or enterprises thataim specifically to fund social initiatives.

In this complex conceptual landscape, there areopposing views as far as the mission of socialenterprises is concerned. Social enterprises areaccused of mission deviation, unfair competi-tion, and fraudulent exploitation of non-profitlegal status. Against this background, other insti-tutional forms (including traditional third sectororganizations) are considered by some to be bet-ter placed to serve the needs of fragile segmentsof society. Hence, the need to better understandthe role and functions of social enterprises aseconomic institutions endowed with specificcharacteristics on the demand and supply sideand explicitly devoted to pursuing social goals ofvarious kinds.

Although it is useful to be aware of this concep-tual complexity, the scope of the present studydoes not allow for wide theoretical debates. Forthe purpose of this study, we will rely mainly onthe conceptual foundations that have been builtup for more than 10 years by the EMES EuropeanResearch Network. This choice is supported bythe truly European nature of EMES's work, whichresults from a permanent dialogue among re -searchers from all parts of the European Union,representing various social, political and eco-nomic traditions. Moreover, as will be explainedlater, the EMES approach to social enterprise can(and will) be adapted in a pragmatic way in orderto serve as a flexible tool for the countries in thisstudy.

24 This is precisely the subtitle of the latest EMES book: Nyssens, M. (ed.) (2006), Social enterprise. At the crossroads of market, public policies and civil society,London/New York: Routledge.

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1.3. Locating social enterpriseswithin the economy

In the modern nation-state, social enterprises arelocated at the crossroads of the three main eco-nomic domains: the state, the market and thecommunity. The latter is to be conceived of as awide socioeconomic space where various actors(households, families, informal groups) performtheir activities. The graph below illustrates therelative position of the three sectors in currenteconomic systems. Their intersection givesground to a unique space occupied by the thirdsector (see definition above). Within the thirdsector, social enterprises emerge as specific sub-types that are triggered by new dynamics,whether in existing organizational forms (associ-ations, foundations, cooperatives) or in newlyestablished organizations that manage to com-bine an economic dimension and a social one(e.g. community interest companies, public ben-efit companies).

The representation below does not aim to coverall social enterprises. Given the specificities of

social enterprises in terms of context, their loca-tion varies according to socioeconomic and his-torical factors and legal and political conditions,including the type of interaction establishedwith public agencies.

The dots in the graph represent the most com-mon position of social enterprises both in EU-15(green dots) and CEE and CIS countries (bluedots). Various organizational trajectories can bepinpointed in the graph, which can be ascribedto various factors (political and economic institu-tions, degree of formalization of the economy,level of economic development, existing publicpolicies, etc.). In general, under socialism andcommunism, the economies of the countriesfrom the region were dominated by the upperarea (the state), although elements of marketalways existed to various degrees (including the‘black market’, which can be identified in thegraph by the area mixing ‘informal’ and ‘market’characters). The graph above allows one to takeinto account the informal sector, which repre-sents a key space for private and community-based initiatives in countries from the region,including a black or grey market.

Figure 1 - The Position of Social Enterprises in the Economy

Source: Adapted from V. Pestoff (page 17) in ‘The third sector in Europe’ (2004).

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Nowadays, many social enterprise-like initiativesmay still arise in the informal space, becomemore formal after a certain time, and operateeither in the market or in conjunction with pub-lic policies (or both), once they are politically andlegally recognized. By contrast, other socialenterprise initiatives may be prevented frommoving towards the formal economy as a resultof an inappropriate legal, financial and fiscal sys-tem. As a result, a ‘forced flexibility’ may pushsome social enterprises to continue to perform inthe informal economy, offering low-quality jobsand failing to declare their incomes.

Other trajectories exist in more developed eco-nomic systems where formal interactionbetween social enterprises and public bodies areinstitutionalized. This is the case of public poli-cies (the upper area) which try to promote socialenterprises through a ‘top-down’ process (shel-tered workshops, for example, might be consid-ered as being closer to that upper area).

One development path characterizing socialenterprises in some countries of the regionimplies the creation of subsidiary commercialenterprises - set up and owned by associationsand foundations – that are specifically aimed atgaining income to support the social activities oftheir founding entities. The economic activitiesare normally not consistent with the social goalpursued by the founding associations and foun-dations. This trend involves both countries wherethe economic activities of third sector organiza-tions are limited by legal inconsistencies (Bulgariaand Ukraine) and countries where social enterpris-es are strictly outlawed (Macedonia and Belarus).

1.4. Trends in social enterprisedevelopment across Europe

Legal forms of social enterprises

Social enterprises are a widespread and risingphenomenon all over Europe; they have under-gone a gradual institutionalization and political

recognition, inter alia through the introductionof specific legal frameworks. For the purpose ofthis study, attention is paid to institutionalizedentities that show certain features, and not tosingle acts of entrepreneurship that are charac-terized by a social goal.

It can be said that the majority of social enterpris-es in Europe are still operating in a traditionalthird-sector legal environment. They are usuallyestablished as associations in those countrieswhere the legal form of association allows a cer-tain degree of freedom in selling goods and serv-ices on the open market. In countries whereassociations are more limited in this regard, suchas the Nordic countries, social enterprises aremore often created under the legal form of coop-eratives. But besides these traditional legalforms, a number of countries have created newlegal forms specifically designed for social enter-prises. These new legal forms comply to varyingextents with our definition, and they have so farhad differing degrees of success.

In Italy, a new cooperative legal form – that of‘social cooperative’ (cooperativa sociale) – wasintroduced in 1991 with the purpose of recogniz-ing and providing a legal framework for specificsocial entrepreneurial activities, namely the pro-vision of social services and the employment ofdisadvantaged people.25 Social cooperativeshave so far represented the main type of socialenterprise in Italy. Since the adoption of the lawcreating this legal form (Law 381/1991), theseorganizations have registered an annual growthrate ranging from 15 to 30 percent. In 2003, therewere about 6,500 – 7,000 social cooperatives inthe country, employing some 200,000 workers(i.e. more than 1 percent of total employment)and benefitting 1.5 million people.

Other countries followed the Italian example.Portugal, for example, created the ‘social solidaritycooperatives’ (cooperativas de solidariedade social).These organizations are designed to support vul-nerable groups and socially disadvantaged com-munities, with a view to achieving their economicintegration.26 However, unlike Italian social cooper-atives, Portuguese social solidarity cooperatives

25 Law 381/91.26 Law on Social Solidarity Cooperatives of 1998.27 Perista and Nogueira, 2004.

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are only weakly embedded in the social fabric; thiscan be accounted for by the top-down nature ofthe process that has led to their creation.27

An example of social enterprises that are sup-posed to be the result of local dynamics is provid-ed by the French ‘cooperative society of collec-tive interest’ (société coopérative d’intérêt collectif,or SCIC), which was introduced in 2001. TheFrench law prescribes the existence of at leastthree categories of members, each having a dif-ferent relationship with the activity carried out;workers and users must be represented. The strictconditions relating to the opening of the socialbase to different stakeholder categories, on theone hand, and the strength of traditional associa-tions, on the other hand, seem to have so farslowed down the creation of new SCICs; only 97SCICs had been established as of August 2007.28

Another trend has been gaining speed morerecently: that of introducing more general legalframeworks for social enterprises. This trend firstappeared in Belgium, where the ‘social purposecompany’ (société à finalité sociale in French, ven-nootschap met sociaal oogmerk in Dutch) wasintroduced in 1995. This legal framework can beused by any commercial company, includingcooperative societies and private limited compa-nies, provided they meet a series of require-ments. However, this legal status has so far metwith only limited success, owing to the consider-able number of requirements which add to thoseimposed on traditional companies; the ‘socialpurpose company’ label has been adopted byvery few organizations so far and the previousassociative model continues to prevail.29

More recently, Italy and the United Kingdomhave followed a similar path. This trend parallelsthe expansion of the set of activities carried outby social enterprises, which are increasinglycommitted to supplying general interest servicesother than welfare provisions, including culturaland recreational services; activities aimed at pro-tecting and regenerating the environment; andservices aimed at supporting the economicdevelopment of specific communities.

In Italy, the recently-enacted law on social enter-prise widens the types of general interest servic-es that can be supplied and makes a wider rangeof legal forms eligible for classification as socialenterprises. According to the law, a social enter-prise is defined as a non-profit private organiza-tion, which permanently and principally carriesout an economic activity aimed at the produc-tion and distribution of goods and services ofsocial benefit, and pursues general interestgoals. Nevertheless, this legal framework has notproved to be very attractive so far for Italianorganizations, which mainly continue to use thesocial cooperative form. This can be accountedfor by the fact that the law is still incomplete,lacking fiscal and support policies, and by thefact that weak interest has been shown by therepresentative organizations of the third sector,especially by the well-established social cooper-ative movement.

The ‘community interest company’ (CIC) is a newtype of company that has been devised in theUnited Kingdom for enterprises that want to usetheir profits and assets for social benefit. CICs aredesigned to complement government servicesat the community level in areas such as childcareprovision, social housing, community transportor leisure. This framework is intended to be usedby enterprises generating benefits for the com-munity. The CIC law does not provide for any fis-cal advantages; it simply provides a flexible legalstructure and a lighter regulation, by comparisonwith that of charities.30 However, the lack of anyfiscal advantage is compensated for by the pos-sibility to partially redistribute profits. CICs arealso endowed with the ability to issue shares,which can contribute to both raising finance forcommunity endeavour and supporting localenterprise for local people.31 Interestingly, a con-siderable number of very diverse CICs – from vil-lage shops to large companies – have beenestablished so far:32 Since the legislation cameinto force regulating the creation and operationof community-interest companies, 1,176 CICshave been set up. They are engaged in a numberof diverse fields, including the provision of socialand personal services, real estate, education,

28 See www.scic.coop.29 Defourny, 2001.30 Regulator, 2007.31 Regulator, 2007.32 Court, 2006.

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health and social work. Other sectors witnessingan increasing involvement of social enterprisesinclude wholesale, retail and repair, financialintermediation, manufacturing and hotels andrestaurants.33

Unlike in the United Kingdom, the new legalframeworks designed for social enterprises inBelgium, France, Italy and Portugal appear toremain underused. For new laws to be appealingto existing organizations, they should crowd outprevious laws and provide for advantages linkedto the use of the new legal form. Other factors canalso play a role: for example, the newly recognizedsocial enterprises have so far met with a certain

opposition in Italy and the United Kingdom,owing to their productive nature. In order to sup-port their development, adequate fiscal and sup-port policies that take into account the merit char-acter of the activity carried out should be intro-duced, and fiscal advantages should not be limit-ed to non-profit organizations only – as is the casein several EU countries. However, the lesson of theUK – where no fiscal advantages are provided toCICs – shows that the development of socialenterprises can be independent from the intro-duction of fiscal advantages.

Italy United Kingdom EMES definition

Legal Act Legislative Decree155/2006

Companies Act of 2004

Community InterestCompanyRegulations of 2005

Legal forms admitted

Associations, founda-tions, cooperativesand for-profit enter-prises

All enterprises regulated by theCompanies Act of 1985

All legal forms

Entrepreneurialmodel

Collective Collective and individual

Collective

Definition of socialaim

The law enumeratesthe activities whichare considered ofsocial utility

The definition of thesocial aim is assessedby the Regulator viaa community interesttest

Explicit social aim

Profit distribution Direct and indirectdistribution of profitsprohibited

Partial distribution ofprofits allowed

Partial distribution of profits allowed

Governance Participatory nature Participatory nature Participatory model

Fiscal advantages Not foreseen yet Not foreseen

Table 1 - Laws regulating social enterprise in Italy and the UK and EMES definition

33 Regulator, 2007.

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Social enterprises and employment creation

Social enterprises contribute to national growthand income and, consequently, to jobs genera-tion in various ways. In general, social enterpris-es develop new activities and contribute to cre-ate new employment in the sectors wherein theyspecifically operate, that is to say, in the socialand community-care sectors that show a highemployment potential owing to their labour-intensiveness. Moreover, social enterprises allowfor the employment of unoccupied workers, forinstance women with children, who seek flexiblework opportunities such as part-time jobs.

Some social enterprises are specifically aimed atintegrating disadvantaged workers into work.This goal is pursued by work integration socialenterprises (WISEs) that are specifically designedto employ workers with minimal chances of find-ing a job in traditional enterprises. They areautonomous economic entities whose mainobjective is explicitly the integration – in theWISE itself or in mainstream enterprises – of peo-ple experiencing serious difficulties finding work.This integration is achieved through productiveactivity and tailored support, or through trainingto develop the qualifications of the workers.

WISEs have increasingly been a tool for imple-menting active labour-market policies – in otherwords, they have constituted a 'conveyor belt' ofactive labour-market policies. Indeed, they werepioneers in promoting the integration of exclud-ed persons through a productive activity. It couldeven be said that the first WISEs actually imple-mented active labour market policies before thelatter came into institutional existence. Thisrecognition by public authorities of the missionof integration through work performed by socialenterprises allows, in most cases, a more stableaccess to public subsidies but in a limited way.Usually only temporary subsidies are granted tostart the initiative and to compensate for theworkers’ 'temporary inability to be employed',i.e. the difficulty they face in obtaining employ-ment due to the deterioration of their skills fol-lowing their extended absence from the labourmarket. The objective of this kind of measure is

to facilitate the transition between unemploy-ment and the 'first' labour market. Let us empha-sise that in some cases (like the Social EnterpriseAct in Finland), these social enterprises are eligi-ble to benefit from these active labour pro-grammes on the same terms as any other type ofenterprise that employs people with therequired profiles.

Public schemes to support social enterprises

Besides the creation of new legal forms, the 1990ssaw the development in many countries of spe-cific public programmes targeting social enter-prise, most of them in the field of work integra-tion.34 Examples of public programmes on thenational level include empresas de inserção inPortugal, enterprises d’insertion and associationsintermédiaires in France, the social economy pro-gramme in Ireland, and social enterprises inFinland. On the regional level there have beenpublic programmes such as enterprises d’insertion,enterprises de formation par le travail and socialewerkplaatsen in Belgium and empresas de inser-ción in Spain. For example, in France in 2004 therewere 2,300 registered bodies providing work-integration services (work-integration enterpris-es, temporary work-integration enterprises, inter-mediary associations, etc.) and employing some220,000 salaried workers.

Public bodies recognize and support the actionsof WISEs – and at the same time, they also influ-ence their objectives. The philosophy of the inno-vative social enterprise that emerged in the 1980sclearly resided in the empowerment and integra-tion of excluded groups, through participation inWISEs whose aim was to offer disadvantagedworkers a chance to reassess the role of work intheir lives by supporting them while they gainedcontrol over their own personal affairs. This con-ception implies not only giving a job to these per-sons but also developing specific values, forexample through democratic management struc-tures in which the disadvantaged workers aregiven a role, and through the production of goodsand services generating collective benefits (suchas social services or services linked to the environ-

34 Let us note that sometimes these public programmes require that organizations adopt a specific legal form, such as a legal form created for social enterprises.

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ment) for the territory in which the WISEs areembedded. Getting workers back into the 'first'labour market was thus not the priority of thesepioneering WISEs. But the progressive institution-alization and professionalization of the field overthe years, through public schemes increasinglylinked to active labour market policies, has gener-ated a clear pressure to make the social missioninstrumental to the integration of disadvantagedworkers into the first labour market. This explainswhy some pioneering initiatives chose not to useWISE-specific public schemes. This is for examplethe case of the 'local development' initiatives inIreland, which did not adopt the 'social economy'framework.35 It should be noted too that whilepublic schemes have encouraged some initiatives,they have excluded others.

The UK experience provides a good example ofpublic policies supporting social enterprises: In2002 the Blair government launched the ‘SocialEnterprise Coalition’ and created a ‘SocialEnterprise Unit’ aimed at promoting social enter-prises throughout the country. The new govern-ment, unlike the previous administration, whichconsidered the market and the third sector asalternatives to the state, considered partnership

and the development of social enterprises36 asfundamental tools for the development of socialservices which may be ‘unattractive or inappropri-ate for the private sector, or cannot be deliveredeffectively by the public sector’.37 According to apoll recently carried out in the UK, nearly twothirds of the British public would prefer their localservices to be delivered by social enterprises.38

This is a good example of enabling policies thatacknowledge the complementary role of socialenterprises in new welfare systems. As such, socialenterprises are conceived of as a means wherebyto ensure the compliance with the principles ofnon-discrimination, equity and solidarity associat-ed with the supply of social services in an inclusivewelfare system. Accordingly, social enterprises arenot expected to replace the welfare state but tocomplement government efforts in areas wherepublic agencies are not best placed to fulfil theneeds of citizens, owing to their inability to graspnew needs that arise in society.

Activities carried out by social enterprises

As already stressed, social enterprises appear tobe engaged in a wide array of social activities.

Box 3. Social Enterprises Supplying Social Services

Austria Children’s groups: childcare services supported by a high level of parentalinvolvement.

France Parent-led childcare organizations: childcare services partly led and man-aged by parents. These organizations formed a national network (ACCEP).

Denmark Social residences: residential institutions designed as an alternative to con-ventional institutions for children and adolescents with difficulties. Theyfocus on training and care services.

United Kingdom Home care cooperatives: cooperatives employing their members, mainlywomen with dependents at home, on a part-time basis.

Italy Type A social cooperatives: cooperatives active in the fields of health, train-ing or personal services, and operating within the legal framework adopt-ed by Italy's national Parliament in 1991.

Portugal Cooperatives for the training and rehabilitation of disabled children; theymerged into a national federation in 1985.

35 O'Hara and O'Shaughnessy, 2004.36 Taylor, M. in Evers and Laville (2004).37 HM Treasury 1999, p. 14.38 Out of a representative sample of 2,287 adults, 64 percent said they would choose a ‘‘business that reinvests its profits for the benefit of the community’’ to

run their local healthcare, rubbish collection, and transport services as efficiently as possible, assuming the cost would remain unchanged. Paul Jump, ThirdSector online, 15 November 2007. www.thirdsector.co.uk, January 21, 2008.

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Indeed, social enterprises are likely to work inany field of activity, with any type of workers.However, for the sake of clarity, two main groupscan be distinguished. They correspond to thetwo main fields of activity traditionally carriedout by social enterprises, namely the provision ofsocial services and work integration. It shouldalso be noted that more recently, social enter-prises have expanded in other fields of interest.

1. Social enterprises providing social services. A sig-nificant number of social enterprises have beenestablished to provide new services or torespond to groups of people whose needs werenot met by public authorities or who wereexcluded from public benefits. Social enterprisesof this kind are the most developed. They havebecome more prevalent, owing to the strong

links established with public agencies andthanks to the public funding from which theyhave benefited. Their development has beenstrong in all EU-15 countries. Box 3 providessome examples of social enterprises of this type.

2. Work integration social enterprises (WISEs). Themain objective of these social enterprises is thework integration of people experiencing seriousdifficulties in the labour market or at risk of exclu-sion from the labour market and from society.39

WISEs are found in all countries of the EU-15. Thefour main modes of integration used by EU-15WISEs are:

Box 4. Examples of Work Integration Social Enterprises (WISEs) Classified According to theType of Integration They Provide

Transitionalemployment

- Portugal and Belgium: on-the-job training enterprises offer their traineesthe possibility to improve their personal, social and professional compe-tencies.

- Italy: type B social cooperatives are active in the field of work-integration ofindividuals in precarious situations (1991 legal framework).

Creation of permanent self-financed jobs

- France: long-term work integration social enterprises offer unemployedworkers a long-term job in order to allow them to acquire social and pro-fessional autonomy and to thrive as ‘economic actors’ within an open man-agement structure.

Professional integration with permanentsubsidies

- Portugal, Sweden and Ireland: sheltered workshops.- Belgium: adapted work enterprises offer various productive activities to

physically or mentally disabled people.

Socialisationthrougha productiveactivity

- France: centres for adaptation to working life do not aim to achieve adefined level of productivity, but to achieve the ‘re-socialization throughwork’ of people with psychological and social problems.

- Belgium: work integration social enterprises recruit people with serioussocial problems, with the aim of giving them a certain level of social andprofessional autonomy. One area of activity is that of salvaging and recy-cling waste.

- Spain: occupational centres offer occupational therapy to people with aserious disability who, owing to this disadvantage, cannot find work in theopen labour market.

39 There are two main definitions of disadvantaged workers. The first is more specific and depends upon the socio-economic context. The second is more gener-al; it refers to any person belonging to a category that has difficulty in entering the labour market without assistance. For more details, see the entry ‘disadvan-taged worker’ in the Glossary (Appendix 1).

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2.a. Transitional employmentThe aim of WISEs implementing this mode of inte-gration is to give their target group work experi-ence (transitional employment) or on-the-jobtraining, with a view to achieving the integration ofdisadvantaged workers in the open labour market.

2.b. Creation of permanent self-financed jobs These WISEs aim to create jobs which are stableand economically sustainable in the medium termfor people who are disadvantaged in the labourmarket. In the initial stage, public subsidies aregranted to make up for the lack of productivity ofthe target group. These subsidies are often tempo-rary, and they taper off until the workers becomecompetitive in the mainstream labour market.

2.c. Professional integration with permanent subsidiesFor the most disadvantaged groups, for whomintegration in the open labour market would bedifficult in the medium term, stable jobs that arepermanently subsidized by public authorities areoffered, in some cases in enterprises that are‘sheltered’ from the open market. These WISEsemploy mainly disabled workers, but also peoplewith a severe ‘social disadvantage’.

2.d. Socialization through a productive activityThe aim of the WISEs in this last category is not theprofessional integration of their workers in theopen labour market (even though this possibilityis not excluded) but rather the (re)socialization ofthe target groups through social contact, respectfor rules, a more ‘structured’ lifestyle etc. The activ-ity is thus ‘semi-formal’ in the sense that it is notgoverned by a real legal status or work contract.These WISEs mainly work with people with serioussocial problems (alcoholics, drug addicts, formerconvicts etc.) and people with a severe physical ormental disability.

It should be underlined that whereas the distinc-tion between social enterprises providing socialservices and those active in the field of work inte-gration is clear in most of the EU-15 countries(such as Italy, Spain and Portugal), in a number ofcountries, social enterprises can operate simulta-neously in both fields. For example, Frenchneighbourhood enterprises (régies de quartier)provide social services to the local communitywhile integrating minimally qualified workers. It

is noteworthy that the overlapping of both activ-ities represents an additional level of complexityin the supply of services.

3. Social enterprises supplying goods and serviceswith a high public value: social enterprises haverecently expanded in new fields of interest for thecommunity. Moreover, the progressive conceptu-alization of social enterprises by academics hasgone beyond welfare services by considering associally entrepreneurial other services with a highpublic interest. Services supplied by social enter-prises in this area include community and generalinterest services, such as transport, micro-credit,water supply, cultural development, recreation,urban regeneration, fair trade, management ofprotected sites and environmental activities. Thisdevelopment trend has been incorporated by UKand Italian legislation.

These initiatives are developing for instance inthe United Kingdom, where Community InterestCompanies can engage in any lawful trade, activ-ity or enterprise, provided that profits and assetsare used for the public good. Examples of activi-ties in this field include social housing, communi-ty transport and leisure. In Ireland local develop-ment enterprises with various legal statuses pro-vide a variety of services – transport, social hous-ing, training and capacity building, environmen-tal projects, culture and heritage activities – byrelying on a high degree of voluntarism.40

This latter sector of activity – goods and serviceswith a high public value – appears to be of greatinterest for the target countries, especially asregards the provision of economic general inter-est services.

Social enterprise interaction withpublic agencies, for-profit enterprisesand third sector organizations

Social enterprises are not isolated; they oftenhave relationships with public agencies, for-prof-it enterprises and third sector organizations in amore or less stable way.

40 O’Hara, 2001, p. 148.

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As already discussed, many social enterpriseswere started independently by groups of citi-zens, with little or no public support. However,after some years of unregulated activity, giventhe quasi-public nature of the services they sup-plied, social enterprises were acknowledged tobe of public interest. Nowadays, the state or localauthorities often finance the activity of socialenterprises; the subsidies granted often dependon the level of disadvantage of the beneficiaries.In some other cases, the development of socialenterprises was prompted from the start by pub-lic policies.

Generally speaking, the development of socialenterprises has stimulated the use of contract-ing-out procedures and has oriented publicintervention towards the satisfaction of unmetneeds, thus helping to reduce poverty andinequality. In the model now emerging inWestern Europe, public administrations tend toassume a new role as regulators rather thanproviders, while social enterprises perform anincreasingly important role in both the restruc-turing of welfare systems and the reform oflabour markets. In parallel, social enterprises arealso expanding into an increasing number ofnew fields.

Given their explicit social goals, social enterpris-es should be considered as welfare actors, andthey should work in close contact with publicagencies, with the ultimate goal of jointly devel-oping social and development policies suited tothe local context. Public policies should acknowl-edge this specific role of social enterprises andenvisage adequate support measures, whileavoiding opportunistic behaviours on the part offalse social enterprises.

The relationship of social enterprises with thefor-profit sector is increasingly important,although so far it has remained less developed.On the one hand, a large number of for-profitenterprises has turned into partial imitators ofsocial enterprises and has begun to embrace thebroader objective of maximizing the commonwelfare through the inclusion of distributiveissues in their production activities. The adop-tion of corporate social responsibility criteria,

while implying an increase in costs, also favoursa transfer of assets from shareholders to otherstakeholders, such as workers, suppliers and thelocal community.41 As concerns small for-profitenterprises, their traditional ways of supportingthe local community are now becoming moreinstitutionalized and they are increasingly direct-ing them toward social enterprise activities. Onthe other hand, as a growing number of socialenterprises secure the necessary publicresources for providing a service by participatingin calls for tenders, they end up competing withfor-profit enterprises.

Regarding the relations established by socialenterprises with traditional third sector organiza-tions, the most frequent type of relation is thatlinking a social enterprise with the third sectororganization by which it has been set up. Strongmutual relations can also be noticed amongsocial enterprises, for example within consortiaand between consortia and other third sectororganizations.

All forms of partnerships are increasingly impor-tant as a way to enhance social responsibility atthe local level and contribute to channellinghuman, monetary, and non-monetary resourcestowards the pursuit of goals valued by the com-munity.

The impact of social enterprise on socialand economic development

The historical experience of advanced economiesprovides evidence of social enterprise's greatpotential to support economic development,both in general and at the local level. Social enter-prises have been making an important contribu-tion to economic dynamism and growth fromvarious perspectives.

In environments characterized by poorly-func-tioning markets, they contribute to reducingmarket failures and to improving the welfare ofpeople and communities,42 thus supporting eco-nomic development in general. Social entrepre-neurial organizations are in fact designed to

41 Becchetti, 2005.42 Hansmann, 1996.

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manage transactions that are not efficientlymanaged by markets, be it from an economic ora social point of view.

Social enterprises also complement the supply ofgeneral interest services when public funding islacking or not available, as they succeed in col-lecting additional resources – including volun-tary work and donations – that would not other-wise be allocated to social and developmentissues. In short, social enterprises contribute tostronger social equity, to the advantage of theweakest stakeholders.

Social enterprises play, in various ways, a crucialrole in generating jobs. In general, social enter-prises develop new activities and create newemployment in the sectors in which they oftenoperate, i.e. social and community services thatshow a high employment potential. Moreover,they allow the employment of unoccupied work-ers, for instance women with children, who seekflexible jobs (part-time jobs, for example). Finally,work-integration social enterprises, as alreadymentioned, aim to integrate into the workforcedisadvantaged workers with minimal chances offinding a job in traditional enterprises.

Beside contributing to national growth andincome, social enterprises also have a directinfluence on the management of local economicdevelopment, as they promote inclusive gover-nance models that empower the local communi-ty in strategic decision-making.43 Social enterpris-es backed by an enabling legal environment cancontribute to taking economic activities with asocial goal out of the informal economy. Finally,they help to foster social cohesion, enhance thelevel of trust within society and the economy,and contribute to the accumulation of social cap-ital, which is embedded in a community. Allthese aspects are especially important for thetarget countries and confirm the importance ofsocial enterprises as innovative agents of eco-nomic development.

1.5. Understanding the emergenceof social enterprises

Despite country specifics, social enterprises rep-resent a rising field of practice at the internation-al level; however, this field remains understud-ied. A growing body of literature increasinglypictures social enterprises as a new form ofentrepreneurship that can contribute to a newenterprise culture, but research on the role andrationale of social enterprises is still quite frag-mented, with a great degree of confusion stillexisting between the concepts of social enter-prise and social entrepreneurship (see the sec-tion on ‘Social entrepreneur, social entrepre-neurship, social enterprise’ above).

From a demand perspective, social enterpriseshave been described as organizations capable ofmeeting an increasing and diversified demandfor social and general interest services that nei-ther public providers nor for-profit enterprisesare able to provide. Theories on the demand sidehave mainly focused on a number of difficulties –such as information asymmetry problems44 andgovernment failure45 – that can be more success-fully addressed by non-profit organizations. Asimple characterization of non-profit organiza-tions has prevailed, which has conceptualizedthem as a marginal and deviant form of for-prof-it firms or public agencies, doomed to disappearas a result of technological progress and marketcompetition.46 Furthermore, this approach hasnot questioned the main assumptions of main-stream economics, including the existence ofself-seeking agents, thus preventing a full expla-nation of the phenomenon on the supply side.

From a supply side, the emergence of socialenterprises has been ascribed to a specific entre-preneurial behaviour. A more limited traditionalapproach pictures social enterprises as the out-put of religious groups, which can in this wayadvance their own beliefs.47 But this approachonly allows for the understanding of specificsocial enterprises – namely those that rely heavi-ly on a strong religious background. In a wider

43 Sugden and Wilson, 2000.44 Hansmann, 1996.45 Weisbrod, 1998.46 Hansmann, 1996.47 James, 1989.

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perspective, social enterprises can be seen asresulting from the action of altruistic and ideo-logical entrepreneurs.48

Demand- and supply-side models have con-tributed to explaining the upsurge of certaintypologies of non-profit organizations, but theyhave only partially explained the developmentof entrepreneurial organizations explicitly devot-ed to social goals. This limitation can be over-come in two ways.

The first approach to overcoming the limitationsof demand-side and supply-side models drawson recent developments in economic analysis,which show that the premises of traditional eco-nomic theory are too restrictive; the secondapproach bridges the various theories so fardeveloped on both the demand and supplysides, in order to conceive social enterprises asinstitutions characterized by specific features onboth the demand and supply sides, which ulti-mately explain, under certain circumstances,their advantage over alternative architectures.Thus, in addition to social enterprise’s correctingdevices on the demand side, one should consid-er also some general aspects on the supply side.In this perspective, an initial step for the develop-ment of a theory explaining the existence ofsocial enterprises is the consideration of a plural-ity of organizational objectives and actors’ moti-vations. Accordingly, two main traditionalassumptions of mainstream economic analysisought to be challenged.

The first one is the assumption that all individualsare self-seeking. The assumption that behaviouris based on pure self-interest is challenged by anew and more complex conception, which alsoconsiders the existence of non self-interestedmotivations. Alternative theoretical approachessupported by recent experiments and a growingbody of empirical evidence have demonstratedthat assuming that individuals are self-seeking isnot realistic.49 Of particular interest are the find-ings of studies on the attitudes of entrepreneursand workers employed in social enterprises,which demonstrate that worker satisfaction isalso influenced by elements other than monetaryrewards. Hence the crucial importance of the

motivational factor in defining the relationbetween the agent and the organization. Agentswho are more highly motivated at the intrinsicand relational levels tend to be more satisfied.50

The second traditional assumption that is chal-lenged is the conception of the firm solely as aproduction function or as a cost-minimizingdevice. Recently the enterprise is increasinglybeing seen as a problem-solving device that isable to adapt to local conditions, given itsembedded nature. In this respect, social enter-prises are expected to show several comparativeadvantages over traditional enterprises, thanksto their natural capacity to re-embed the socialdimension into the economic sphere, enhancerelations and solidarity behaviours at the locallevel, and adapt values and operations to suitnew demands.

The integration of different theoretical streamscan contribute to the development of a morecomprehensive theory of the enterprise, whichcan be especially useful in order to grasp theadded value of social enterprises as comparedwith alternative institutional architectures, name-ly public agencies and for-profit enterprises, inthe production of certain goods and services.

This aspect appears to be all the more importantfor countries that are characterized by pockets ofpoverty, rising unemployment rates among cer-tain segments of society, and severe gaps in thedelivery of general interest services. In such con-texts, social enterprises emerge as new econom-ic actors that can contribute to social and eco-nomic development at the local level.

To conclude, social enterprises, owing to theirinstitutional features on both the supply anddemand side of the provision of general interestservices, allow for the overcoming of a numberof obstacles that public agencies and for-profitproviders fail to deal with, such as the inability ofusers to pay for services, and problems stem-ming from the asymmetry of information. Hence,under such circumstances, they turn out to bemore efficient than for-profit and public organi-zations. In this light, public authorities areexpected to compensate social enterprises, since

48 Young, 1983; Rose-Ackerman, 1987.49 Fehr and Gächter, 2000; Fehr and Schmidt, 2001.50 Borzaga, 2000.

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they internalize many externalities. There aretwo major arguments that justify the granting offiscal advantages to social enterprises. First,unlike what is the case in traditional for-profitenterprises, social enterprises deserve financialcompensation for working with disadvantagedgroups, dealing with public service delivery, andgenerating new forms of employment. Secondly,advantages should be granted to social enter-prises when they generate collective externali-ties. In both cases, social enterprises should ben-efit from fiscal exemptions on the non-distrib-uted profits (this is a means to sustain socialenterprise capitalization); and additional advan-tages should be granted and fiscal measuresadopted with a view to reducing the cost of theactivities supported.

1.6. Toward a working definition to map social enterprises in CEE and CIS countries

Since 1996 the EMES European Research Networkhas devoted itself to the definition of criteria toidentify organizations likely to be called ‘socialenterprises’ in each of the 15 countries that thenformed the European Union. A set of criteria –both economic and social – have been identifiedto describe an ‘ideal type’ of social enterprise, i.e.a theoretical concept that does not necessarilycorrespond to concrete organizations but allowsthem to be analysed.

For the purpose of the present study, the originalEMES definition was reshaped and a simplifiedtheoretical definition was produced, whichallows us to better grasp the internal dynamics ofthird sector organizations in the countries fromthe region and to analyse a variety of entrepre-neurial organizations that pursue a social goal,including embryonic initiatives that are expectedto evolve into social enterprises. The definitionproposed is meant to encompass a number ofinstitutionalised entities that deliver not only wel-fare services, but also services that satisfy thegeneral interest, including inter alia water supply,public transport and electricity. Indeed, welfare-and local development-related services are par-ticularly important in the CEE and CIS countries,given the weakness of the role played by public

authorities, the strict budget constraints that thelatter are facing, and the severe shortcomingsthat characterize public-service delivery.

1.6a A simplified definition of social enterprise

The simplified definition includes three econom-ic and three social criteria, which are explainedbelow.

Economic criteria:

An economic activity producing goods and/or selling services

Social enterprises are not engaged in advocacywork or in the redistribution of financial flows asa major goal. They are involved or tend to beinvolved in the production of goods or the provi-sion of services on a continuous basis.

A degree of autonomy

People normally create social enterprises andgovern them in the framework of an autonomousproject. Accordingly, they may depend on publicsubsidies, when the services provided are in theinterest of public authorities, but are normally notmanaged, directly or indirectly, by these publicauthorities or other organizations (federations,private firms etc.). Their owners have the rights ofboth ‘voice’ and ‘exit’ (the right to take their ownpositions and to terminate their activity).

A trend towards paid work

The activity can be carried out only by volunteersand it does not necessarily require the involve-ment of paid workers, provided that there is anorganizational commitment to job creation.Organizations sharing most of the characteristicsspecified, albeit relying on voluntary work, areindeed considered as social enterprises in theirinitial stage of development.

Social criteria:

An explicit aim to benefit the community or a specific group of people

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One of the main goals of social enterprises mustbe to serve the community or a specific group ofpeople sharing needs that are recognized asbeing in the public interest, not that of certainindividuals.

Decision-making power not based on capital ownership

Power is not exercised according to the numberof capital shares one has. Decisions in governingbodies are shared, and a high degree of stake-holder participation is favoured. Customer andstakeholder interests are accounted for in deci-sions, and the management style is democratic.

Exclusion of profit-maximizing organizations

Social enterprises include not only organizationsthat refrain from distributing any profits, but alsoorganizations that may distribute some portionof their profits.

Rather than constituting prescriptive criteria, theindicators above describe a ‘virtual social enter-prise’ that enables researchers to position enti-ties within the ‘galaxy’ of social enterprises.Without any normative perspective, they consti-tute a tool, somewhat analogous to a compass,that can help researchers locate the position ofcertain entities relative to one another, andwhich may enable researchers to establish theboundaries for organizations that they will con-sider to be social enterprises.

1.6b Using the concept of social enterprises in CEE and CIS countries

The EMES approach includes two additional ele-ments, the first of which has been underlinedabove. These economic and social indicators cannot only allow one to identify new social enter-prises, but also classify older organizations thathave been reshaped by new internal dynamics.

A second consideration is even more crucial: theindicators that have been just described do notsuggest a set of conditions that an organizationmust meet to qualify as a social enterprise.Rather than constituting prescriptive criteria,these indicators describe an ‘ideal-type’ inWeber’s terms, i.e. an abstract constructionbased on all major characteristics that may befound in social enterprises, although most socialenterprises do not possess all these characteris-tics at the same time.

Such an ideal type enables researchers to posi-tion themselves within the ‘galaxy’ of socialenterprises. It constitutes a tool, somewhat anal-ogous to a compass51, which can help researcherslocate the position of observed entities relative toone another and maybe establish the boundariesthat define social enterprises.52 Given the goal ofthis study – to map social enterprises in CEE andCIS countries – attention is paid here to organiza-tions that might have (to varying degrees) sever-al characteristics in common with social enter-prises, keeping in mind that, in many countriesunder study, the notion of social enterprise maynot be used or even exist.

The term social enterprise encompasses the mul-tiplicity of organizations that have an entrepre-neurial orientation without pursuing profit forthe owners as the ultimate goal. This definitionembraces cooperatives, credit unions, and mutu-al-aid societies, which form an important part ofthe European legacy, including in the CentralEastern European countries that saw an impor-tant development of these organizations in thepre-communist time. Hence the key criteria foridentifying social entrepreneurial organizationsare the specific goals pursued and the assign-ment of ownership rights and control, ratherthan the ‘non-distribution constraint’.53

For illustrative purposes, a few examples of suchcategories of organizations are listed here:

51 Heading northeast or northwest is not better or worse than heading north.52 For example, in the first identification phase of the research project called EMES, the members of the EMES European Research Network differentiated between

a ‘central’ group of social enterprises and a more ‘peripheral’ group, around this ideal-type. For more information on this project, visit www.emes.net.53 The strict limits on the appropriation of the organization’s surplus in the form of monetary gain by those who run and control it is still the profit distribution con-

straint. This is considered the principal characteristic that distinguishes non-profit organizations by a large part of the literature. Helmut Anheier and Avner Ben-Ner, The Study of The Nonprofit Enterprise, Theories and Approaches, Dordrecht: Kluwer, 2003, 5.

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1. Voluntary organizations (linked to religiousgroups or not) that supply services (not neces-sarily on a continuous basis);

2. (Unregistered) citizen self-help groups thatexperiment with new, innovative modes ofwork and social integration, adapted to localpotential and resources;

3. Public social entities (incubators) that experi-ment with new integration and local develop-ment strategies and that have become, or areconsidering evolving into social enterprises;

4. Cooperative organizations acting as commu-nity enterprises, locally embedded and devot-ed to the promotion of the interests of specifictarget groups or the community as a whole;

5. Other new forms of not-for-profit organiza-tions engaged in public service provision andpursuing commercial activities in order to raisefunds for those services;

6. Charities, foundations, open foundations orcentres;

7. Associations or foundations that establishowned and controlled subsidiary commercialentities whose goal is to raise revenue for pub-lic benefit.

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2. Social enterprise in CEE and CIS countries

2.1. Overview of the third sector in CEE and CIS countries

The third sector before socialism

Foundations, associations and cooperatives havea long-established history in Central, Eastern andSoutheast Europe. They are not a ‘product’ of theregime transformations of 1989.54 Mutual sup-port within a wide range of activities, includingproduction, consumption, credit and trade,developed in different spheres of public life longbefore the end of the 1980s. Their roots can betraced back to the Middle Ages. Voluntary andservice organizations thrived throughout pre-World War II Europe, and have a rich and diversehistory in all the countries of the region.55 InUkraine, for instance, the first recorded informa-tion about associations – the so-called brother-hoods – can be found in chronicles of 1134 and1159, although their activity only became morevisible in the 14th to 18th centuries, when brother-hoods were born and began to play an impor-tant role in the political and socio-cultural life ofsociety.

At the end of the 19th century the system of coop-erative societies spawned mass social move-ments, as it represented an effective mechanismto enhance the competitiveness of farmers,workers and craftsmen. Cooperatives performedan important role as economic and social institu-tions and were committed to dealing with thevarious social problems affecting local communi-ties. The Czech Republic, for example, has had asturdy voluntary and cooperative sector sincethe late 19th century, when it was still part of theAustro-Hungarian empire: cooperatives startedemerging in the 1860s, especially after the enact-ment of the first cooperative law in 1873. Thesector flowered during the 20 years of independ-ence, between 1918 and 1938; it included farm-

ers’ marketing cooperatives, consumer coopera-tives, food processing cooperatives and manyother types of cooperatives, including creditcooperatives, which were the most numerous.Czech credit cooperatives, based on theRaiffeisen model, numbered 7,500 in 1937 andwere an important source of support to smallfarmers.

In pre-World War II Poland, foundations, associa-tions and cooperatives augmented the govern-ment’s provision of social, educational, andhealth services. In 1934, Poland had 22,700 coop-eratives (savings and credit, consumer, housingand worker cooperatives).

In Bulgaria, after the establishment of the nation-state in 1878 and until the end of World War II,the most widespread forms of cooperation were:cooperatives in the agricultural sector; creditcooperatives; production cooperatives; con-sumer cooperatives;56 chitalishte (a specific formof cultural association, which supported educa-tional and cultural activities in local communi-ties); foundations and associations (amongthese, women’s associations became rather pop-ular). Similarly, Slovenian society has a long andextensive tradition of associations, self-organ-ized by different groups of people according totheir respective interests.

In Serbia, cooperatives centred on collectivefarms and credit unions spread from the end ofthe 19th century. At that time, 995 cooperativeswere members of regional associations. Theyengaged in organizing the production activity offarmers (both members and non-members), sup-plying tools and equipment, processing agricul-tural products, and selling them to domestic andforeign markets. The majority of agriculturalcooperatives were organized in the form of cred-it and purchasing cooperatives. Nevertheless,specialized production cooperatives were alsoestablished to produce grain, dairy products,wine, fruit and apicultural products. These enti-ties performed an important role in the process-ing and marketing of products, as well as in thepurchase of agricultural equipment and sup-plies, while also dealing with a number of prob-lems affecting the local communities at large. As

54 Leś and Jeliazkova, 2005.55 Davis, 2004.56 Numbering 4,476 in 1941.

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for philanthropic activities, they culminated inthis country at the beginning of the 20th century.

Charitable organizations, voluntary associationsof citizens aimed at meeting their various needsand interests, and cooperatives also flourished inBelarus, Russia and Ukraine, before the establish-ment of the USSR in 1917. It is noteworthy that inRussia religious organizations were a part of thestate machine. The Russian Church was entitledto perform some public duties, such as civil regis-trations. In Ukraine, by the end of 1916, the num-ber of associations reached 2,643. Associationsbuilt roads, schools and shelters, organized scien-tific research expeditions, published scientificbooks, established social funds for voluntary peo-ple, and operated kindergartens.

Tribal support and charity rendered by ‘rulers’(khans) and wealthy people have deep historicalroots in Kazakhstan; they date back to the 17th

century. Many such ‘community-based’ groupsprovided social support to vulnerable groups (theelderly, the poor, etc.). The first cooperative initia-tives appeared as fishing cartels in the 19th centu-ry, mainly in the Western part of Kazakhstan (onthe Caspian Sea). As a part of the Russian empire,Kazakhstan also boasted several people whopatronized the arts and pursued philanthropy.

The rich traditions of charity, cooperation andthe solidarity principles of the pre-revolutionaryperiod certainly represented a positive socio-cul-tural stimulus, which contributed to the renais-sance of the third sector after the collapse of thecommunist regimes.

2.1a The third sector under socialism

The Soviet and post-World War II periods werevery unfavourable for those institutions that hadbeen founded on the principles of autonomy,solidarity, participation and mutuality. Duringthese years, economic activity was characterizedby varying degrees of informality.

Cooperatives became an instrument for trans-forming private property into socialist property

through the promotion of both a socialist con-sciousness and a socialist education. Theybecame an integral part of the political systemand the planned economy;57 consequently, theywere considered public enterprises. However, itshould be noted that there were considerable dif-ferences from one country to another in terms ofthe extent of the communist interference.Foundations in Central and Eastern Europe wereincorporated into the public infrastructure, whilecooperatives and associations became part of thenationalized economy and were forced to playthe role of quasi-public agencies. In this role,associations had to deliver a narrow range ofservices and cooperatives had to produce goodsand services within the nationalized economy. Inthe late 1940s and early 1950s, third sector organ-izations were under strict political and adminis-trative control. To a great extent, the functions ofthird sector organizations were taken over by thepublic sector and the majority of citizen organiza-tions were dissolved. In Poland, credit unions andmutual aid societies disappeared during commu-nist rule. Foundations were banned in 1952 andtheir assets confiscated and taken over by thestate, and strict limitations were also imposed onassociations. Those organizations that wereallowed to exist and enjoy state support had amonopolistic position in the field.58

After the communist takeover in 1948, all Czechvoluntary and non-profit organizations weresubsumed under an umbrella group called theNational Front, which was controlled by theCommunist Party and funded by the state. It isnoteworthy, however, that control was neverabsolute and that some organizations actuallymanaged to protect activities not altogetherapproved by the government. As for coopera-tives, farmers were forced to join the unified agri-cultural producer cooperatives, and credit, insur-ance and urban consumer cooperatives werenationalized or abolished. Producer coopera-tives, housing cooperatives and some of the ruralconsumer cooperatives lost their autonomy andbecame quasi-state-owned enterprises.

Southeast European countries also witnessed thenationalization or transformation of the third sec-tor into quasi-state organizations, although the

57 Münkner , 1998.58 Leś, 1994.

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former Yugoslav communist regime did not go asfar in this direction as those of most other EastEuropean countries, especially as concerns recre-ational activities and activities aiming to supple-ment state programmes. It is also noteworthythat in Slovenia the rise in the number of thirdsector organizations was most intense in the peri-od between 1975 and 1985, and not in the 1990s,after the fall of communism. This demonstratesthat, as early as the 1970s and 1980s, Sloveniahad experienced some democratic changes withconsequent changes of state policies towardsthird sector organizations. In Bulgaria, under theconditions of accelerated and forced industrial-ization and urbanization which characterized thecountry during the communist era, cooperativesbecame the main organizational structures forthe development of agriculture. It can be saidthat in Bulgaria the communist regime preservedand enhanced the existing tradition to associateand cooperate, adjusting the various organiza-tions to its own needs, while also keeping themunder strict control.

In the Soviet Union, the Communist Partybecame the core of the political and state sys-tem. The USSR Constitution, defined the activi-ties of all state and voluntary organizations (evenreligious ones, although those were separatedfrom the state). Youth and children’s organiza-tions (Komsomol organizations, Pioneer organi-zations, oktyabryata) became the cradle forfuture communists, as they were specificallyaimed at popularizing the communist ideology.Thus, the system of civic institutions – includingtrade unions, komsomol (youth organizations),cooperatives (collective farms, consumer soci-eties, housing cooperatives) and scientific, cul-tural and educational institutions – was estab-lished and governed by the state.

Tendencies towards greater autonomy becamestronger at the beginning of the 1980s in thewhole region, including former Soviet Unioncountries, where informal associations wereformed. In Belarus, for instance, the first true civilinitiatives began to spring up in the late 1980s.They mainly aimed to regenerate a national con-sciousness by reviving the Belarusian languageand culture. These new groups mainly advocat-ed for the recognition of fundamental rights,which had been ignored by the Soviet regime.

2.1b The impact of early transitionreforms on the third sector

The fall of communism and the subsequentpolitical and economic transition have openedup unprecedented space for citizen action andnew opportunities for third sector organizations.The development of the latter in transition coun-tries can be considered a renaissance of diverseforms of citizen organizations.

However, at the outset of the transformation,mainstream policies resulted in most countries ina lack of political interest towards certain organi-zational models, in particular cooperative organ-izations, which had not received official recogni-tion until then. Such a deficit in political atten-tion resulted in the lack of a favourable legalframework, which in turn hampered the devel-opment of third sector organizations.

Despite this overall unfavourable legal environ-ment, the growth of organizations such as asso-ciations has been impressive in the aftermath ofcommunist rule. This can be attributed to theattention paid by donors and national govern-ments to the relevant contribution that theseorganizations can make to the construction andthe strengthening of democracy. By contrast, lit-tle regard has been given to the potential of pro-ductive third sector organizations as vehicles foreconomic development, be it at the local ornational level. It is noteworthy that after the rev-olution of 1989, the discrediting of state andcooperative ownership contributed to the wide-ly held belief that there was no alternative to pri-vatization via traditional for-profit enterprises. Asa result, an argument for privatization gainedground, causing the cooperative sector to under-go a decline in several countries (Czech Republic,Poland). This hostility towards cooperatives canalso be traced back to the ambiguous role theyplayed in the years between the establishmentof the Soviet system and the first transitionphase, when the first private profit-orientedenterprises were allowed under the 1988 coop-erative law enacted in the Soviet Union. An addi-tional factor that contributed to the bad reputa-tion of cooperatives is the monopolistic positionthat cooperatives enjoyed under communism insome areas of the national economy.59

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The underestimation of the importance of organ-izations other than investor-owned ones wasconsistent with the mainstream thinking thatportrayed the market and for-profit enterprises asthe sole actors capable of rapidly filling the gapleft by the withdrawal of direct state involvementin the economy.60 In Poland, for example, the eco-nomic institutions of advanced capitalism (e.g.liberalization of the Polish currency and de-indus-trialisation policy) were introduced right at thebeginning of the transformation.

However, capitalist institutions proved ill-adapt-ed to the local economy61 and most transitioncountries were hit by a recession of unprece-dented severity; these factors contributed to achange in orientation that reinforced the institu-tionalist perspective62 and paved the way for anincreasing openness to solutions other than thestate and the market. Interest in these issues hasalso increased recently within international insti-tutions. In this regard, it is worth mentioning therecent EU communication On the promotion ofcooperative societies in Europe, that recommendsa greater focus on the new member states andcandidate countries, where (despite extensivereforms) the instrument of cooperatives has notbeen fully exploited yet.63

2.1c Political and legal recognition of thethird sector in CEE and CIS countries

The degree of recognition and governmentalcommitment to support the development of thethird sector and more specifically of social enter-prises varies across the region.

New EU member states (Bulgaria, Czech Republic,Estonia, Lithuania, Poland and Slovenia)

It is worth noting that in the new EU membercountries, third sector organizations have beenlegally and financially recognized. Some coun-tries have enacted new laws well suited to legit-imize social enterprises and third sector organi-zations. The development of the third sector in

Bulgaria, the Czech Republic, Estonia, Lithuania,Poland and Slovenia has been spurred both bygrassroots activities and political pressures toconform with the basic standards of contempo-rary parliamentary democracy, as well as by insti-tutional innovation undertaken by the commu-nist regimes prior to the transformation processin non former Soviet Union countries. For exam-ple, Poland re-established foundations in 1984 –five years before the fall of communism.

The accession of these countries to the EU and thewider distribution of structural funds have con-tributed to the political recognition, upgradingand institutionalization of the third sector. A posi-tive impact of EU accession on cooperative devel-opment can be seen in Slovenia for instance in theagricultural sector, where new small cooperativeshave recently been set up. Nevertheless, as report-ed in the Czech case, the potential positive impactof EU structural funds on the third sector is limitedbecause small locally rooted organizations areoften discriminated against in public procure-ment procedures. The EU banking directive is anexample of how EU policies often have ambigu-ous impacts. On the one hand, the EU bankingdirective has helped consolidate these countries’banking systems, allowing them to recover fromthe financial collapses of the late socialist/earlytransition period. On the other hand, the samedirective is blamed for the destruction of a wholepromising cooperative sector – credit unions – inthe Czech Republic, owing to the unrealistic basiccapital requirements.

The main legal forms to be found in the newmember states are associations, foundations andcooperatives, plus a number of additionalincome-generating not-for-profit forms of organ-izations, which are not yet fully exploited.Associations and foundations are the most wide-spread forms of organization. Most of the coun-tries under study also explicitly guarantee theright to form unregistered associations, consis-tently with the requirements of international law.Looking more specifically at different countryexperiences, in Bulgaria, the third sector hasbeen legally and financially recognized, in a for-

59 Leś and Jeliazkova, 2005.60 Smyth, 1998.61 Leś and Jeliazkova, 2005.62 Murrell, 2005.63 EU Commission, 2004.

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mal way, to a degree similar to other sectors.Legal opportunities for the development of thirdsector organizations were available from thevery beginning of transition. The institutionalrecognition under which third sector organiza-tions are established evolved from the Law forPersons and Families to the more specialized leg-islation introduced by the Law on Legal Personswith Non-profit Purposes, introduced in 2003.The new law distinguishes public-benefit organ-izations from private-benefit organizations andintroduces some requirements for public-benefitnon-profit organizations (for example, registra-tion and audit). The third sector as a whole iscomposed of non-governmental organizations(which include foundations, associations, reli-gious organizations and chitalishte), coopera-tives and informal self-help and neighbourhoodgroups. Recent legal reforms in the provision ofsocial services (Social Assistance Act of 2003)have provided room for new partnerships to beestablished among state and local authoritiesand third sector organizations. The law on chital-ishte from 1996 provided opportunities for taxexemptions for their main activity. Cooperativesare established under the Law on Cooperativesof 1996, whose framework is considered inade-quate. Informally, there is pressure for somechanges in the law for NGOs to increase theireconomic freedom. However, due to the under-developed networking capacity of these organi-zations, such attempts have only been support-ed by small groups of organizations.

The organizations that make up the third sector inthe Czech Republic are associations, cooperatives,public benefit companies and grant-making foun-dations. This country underwent an idealistic peri-od right after the revolution. In 1997, the totalnumber of associations was 33,566, with 23,811local or regional branches and groups. In 2003,this had grown to 43,804, with 30,878 localgroups.64 The creation of associations (občanskésdružení) and foundations (nadace) was stimulat-ed by the law on citizens' associations (Law83/1990), which replaced the previous law, inforce before the transition. As a unique caseamong the post-communist countries, in this peri-od an advisory government body was also found-ed to coordinate policies towards the country's

third sector (Rada pro nadace) and a FoundationInvestment Fund was created (Nadacni investicnifond), which later channelled a fraction of the gov-ernment’s earnings from the privatization of pub-lic assets into Czech foundations.

The main organizations in Estonia and Lithuaniaare associations and societal organizations, char-ities and foundations, and cooperatives. InLithuania the third sector has been legally recog-nized, but improvements have to be made froma financial perspective, as the third sector contin-ues to be financially deprived. Furthermore,complicated by-law regulations prevent thirdsector organizations from enhancing their entre-preneurial orientation and sustainability. It is alsonoteworthy that the law on social enterprisewhich was approved recently contemplates thetransformation of workshops for disabled peoplefrom the Soviet era into social enterprises. This isa restrictive interpretation of social enterprises ifcompared to the concept of social enterpriserecently developed in Western Europe.

Estonia’s parliament approved the ‘Concept ofDevelopment of Estonian Civil Society’ (EKAK),which defines the complementary roles of publicauthorities and civil initiatives, the principles oftheir cooperation and the mechanisms and pri-orities for cooperation in shaping and imple-menting public policies and promoting civil soci-ety. Housing cooperatives constitute one of themain institutional forms of the Estonian thirdsector: An impressive 60 percent of the popula-tion live in cooperative housing.

In Poland, the third sector consists of a multiplici-ty of organizations, including foundations andassociations, social cooperatives, vocationalenterprises for disabled people, social integrationcentres and clubs. The development of third sec-tor organizations has been made possible bydomestic factors, including a conducive politicalenvironment; freedom of association and expres-sion; basic legislation on foundations and associ-ations and on social employment; legislation onsocial rehabilitation, employment of disabledpeople, employment promotion and labour-mar-ket institutions; and external factors (the intro-duction of a culture of ‘associative life’; profes-

64 It should be noted, though, that these figures might overestimate the reality, as associations are not required to inform the registry when they disband.Moreover, these figures include trade unions.

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sionalization; financial support; local, nationaland European financial incentives; and sponsor-led development of citizen organizations).

Even though cooperatives are legally sanctioned,private institutes, funds and associations still con-stitute the bulk of third sector organizations inSlovenia. As already noted, the rise in the numberof third sector organizations in this country wasmost pronounced in the period between 1975and 1985, and not in the 1990s, after the change ofthe political system. This increase was due to thefact that the only way to establish a private com-pany prior to 1990 was to found a third-sectorentity. In contrast to other transition countries, theachievement of independence in 1991 did notbring about a mass emergence of new third sectororganizations in Slovenia. The new Constitutionand new Societies Act of 1974 marked the begin-ning of a new era in the development of the thirdsector in that country. However, third sectororganizations remained small and restricted intheir numbers, owing to a lack of financial supportfrom the state. In that same period, self-supportgroups, groups for mutual help and alternativegroups developed in those areas where the statewas not present. Characteristically, new socialmovements in Slovenia were not mass-based.

The Balkan countries (Macedonia and Serbia)

In the two Balkan countries under study –Macedonia and Serbia – the third sector firstdeveloped within the legal frameworks inheritedfrom communism, which have remained in forceuntil recently. A major contribution to the sec-tor’s emergence was provided by internationalactors. In Macedonia, the expansion of citizens’associations started in the early 1990s. Themovement experienced a second wave of devel-opment as a result of the refugee crisis of 1999.Owing to the high rate of unemployment (37percent), the creation of employment opportuni-ties ranks high on the agenda of third sectororganizations, whose activities focus on pro-grammes for business start-ups and vocationaltraining particularly addressed to disadvantagedgroups. Macedonian thirdsector developmentwas spurred by international donors and contin-ues to be for the most part foreign-funded.

Overall, the third sector in Macedonia is under-regulated; the normative frame consists of onesingle piece of legislation, namely the Law onCitizens’ Associations and Foundations of June1998,65 which replaced the previous law on socialorganizations and associations of citizens, whichdated back to the communist period. The law iscurrently up for amendment, with the aim ofestablishing a clearer distinction between publicbenefit and mutual benefit as a prerequisite forobtaining government funding. In 2002, a Lawon Cooperatives was also enacted in order to cre-ate better conditions for organizations of people

Box 5. Macedonia: Humanitarian andPhilanthropic Association of Roma(Mesecina)

Mesecina is one of the oldest organizations inthe country; it has been operating in the cityof Gostivar (upper Polog region, in the west-ern part of the country) for more than adecade. Most of its work focuses on theimprovement of the socio-economic status ofthe marginalized Roma community and itsbetter integration. From 2000 to 2003,Mesecina has been running the project ‘Weare for Education too’. The project is support-ed by a local donor, the Macedonian Centrefor International Coope ration (MCIC), throughcooperation with Danish Church Aid. In oper-ates in two strands for two distinct targetgroups: children and young adults. Its goalsare to facilitate the inclusion of Roma childrenin primary schools, and to provide vocationaltraining opportunities to Roma youth. Bothstrands are run through close cooperationwith local stakeholders, i.e. schools, local gov-ernment, business and parents. In particular,linkages between the school and the teacher,on the one side, and the parents, on the otherside, are fostered and representatives of theRoma community are appointed to the schoolboard. About 100 Roma children took part inthe project during its three-year duration and30 young Roma without any formal qualifica-tions were offered vocational opportunitieseither with local industries, or with artisansand service providers.

65 Three forms of associations can be registered: associations of citizens; associations of foreign citizens (who have permanent residence or temporary residenceof over one year in the country), with prior consent of the Foreign Ministry; and branches of foreign organizations, with prior consent of the Foreign Ministry.

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associating with one another for economic pur-poses. Apart from about 20 to 30 big local organ-izations, the third sector is primarily composed ofsmall organizations, which usually do not havethe capacity to go beyond the local level andrarely have more than a few paid staff. Most ofthe active organizations are professional groups,which compete for donor funding and do nothave a membership base.

As for Serbia, despite the lack of a democraticenvironment and favourable legal conditions, agreat number of third sector organizationsemerged, thanks to US and EU donors. This newlyemerging sector created the foundations forsocial change and contributed to the politicalchanges of October 2000. In the absence of reli-able statistics about third sector organizations,two segments of social organizations can be iden-tified: self-help groups (refugee groups, women’sself-help groups, minority self-help groups) andreligious groups, on the one hand, and coopera-tives (farmers’ cooperatives, ecological coopera-tives, women’s cooperatives and minority- groupcooperatives), on the other hand. Besides playingan advocacy role, the third sector also providesservices to the most vulnerable and at-risk groups.In both Bulgaria and Serbia, religion appears to bean important driving force for the development ofthose third sector organizations that are mainlyengaged in social service delivery.

Former Soviet Union countries (Belarus,Kazakhstan, Russia and Ukraine)

Legislation on social and voluntary organizationsin the CIS was introduced soon after the collapseof the USSR. Nearly all governments in this sub-region passed their own, albeit similar, laws onpublic association. In Ukraine the Law on Unionsof Citizens came into force right after the countryproclaimed independence in 1991. In Belarus, theLaw on Public Associations was enacted in 1994and in Russia, in 1995. However, a low degree ofindependence from the state can still beobserved. In particular, despite the rapid growthof the third sector, government mistrust of citi-zens’ action and a lack of government trans-parency still persist in the CIS.

Belarus provides the most negative example ofgovernmental mistrust towards third sectororganizations. Third-sector numerical growthaccelerated after the introduction of the new lawon associations in 1994: the total number of reg-istered organizations increased during this yearto 784 and peaked at 2,433 before mandatory re-registration was announced in early 1999.66

Nevertheless, this trend was followed by stagna-tion and decline; this decline was accelerated bygovernment intervention and public controlover the third sector, which is increasing overtime and evolving towards the limitation andeven suppression of the third sector. Among thelegal pressures on the third sector, one shouldmention the ban on the operation of public asso-ciations without state registration; the permis-sion-based procedure for receiving and usingforeign financial aid (although the procedure isreferred to as ‘registration of a grant’), the com-plicated, resource-consuming (in terms of time,effort and money) procedure of registration andthe control over activities of any public associa-tion. As a result of all these legal and politicalrestrictions, the development of third sectororganizations in Belarus has so far been modestcompared to other neighbouring countries.Interestingly, a new type of not-for-profit organ-ization has recently been introduced in Belarus:the ‘republican governmental public associa-tion’, which may be considered as an attempt tocontrol the activity of citizens’ organizations andlimit their autonomy. Not surprisingly, this typeof organization (whose tasks are defined by thestate) enjoys favourable treatment, in terms ofadministrative and financial support, from thegovernment.

In Kazakhstan, following the legal recognition ofcitizens’ associations, third sector organizationshave been growing rapidly. In 1989, theKazakhstan Supreme Soviet issued a decree ‘Onthe Formation Procedure and Operations ofPublic Associations’, and in 1991 the Law ‘OnPublic Associations in the Kazakh SSR’ was prom-ulgated. In the first period of development (fromthe end of the 1980s until 1994), 400 organiza-tions (mainly engaged in human rights protec-tion) were established, according to national andinternational experts. The second period (from

66 Kuzmenkova et al., 2004, p. 56.

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1994 to 1997) was one of qualitative and quanti-tative growth of third sector organizations (thenumber of NGOs increased fourfold), mainly as aresult of major financial support by internationaldonor organizations in the form of grants. Thethird period (from 1998 up to now) is a qualita-tively new stage, in which interaction mecha-nisms between the government and third sectororganizations have become a subject of seriousdiscussion.

Following the enactment in Russia of the FederalLaw ‘On Non-profit Organizations’ in 1995, thethird sector has increased its presence in thesocial, political and economic spheres of the coun-try. However, unfavourable conditions for thedevelopment of civil society and several restric-tions still continue to jeopardize the developmentof the third sector and the full exploitation of itspotential. In particular, recent legal changesaimed at increasing transparency introduceddemanding and time-consuming reportingrequirements that result in new forms of govern-mental control on the activity carried out by thirdsector organizations. According to the RussianFederation's Civil Code, non-commercial organi-zations can be created in the form of consumercooperatives, public and religious organizations,foundations, establishments and associations oflegal persons.67

A similar classification has been introduced bythe Belarusian Civil Code. Worth emphasising isthe explicit reference made by the Russian andBelarusian legislation to religious organizations,whose number is increasing and whose prestigeand influence on Russian and Belarusian soci-eties is growing.

The number of third sector organizations is alsogrowing in Ukraine, where 4,000 to 5,000 newassociations (voluntary associations) of citizensare registered annually. Nevertheless, it has to beunderlined that most of them are created withthe hope of obtaining funding for their activitiesthrough grants or charitable donations from for-eign sources. An example of the discriminationagainst not-for-profit organizations in Ukraine isprovided by the registration process required forthe ‘unions of citizens’, which is more regulated

and time-consuming than the registration pre-scribed for for-profit enterprises. However, itshould be underlined that the process of registra-tion of organizations in Ukraine has recently beensimplified by the New Law on State Registrationof Legal Entities and Individual Entrepreneurs(2003). After the Orange Revolution, the third sec-tor started enjoying more freedom and facingless harassment and limitations on its activity.

2.1d Size of the third sector in CEE and CIS countries

John Hopkins University and CIVICUS made someprogress in assessing the true size of the socialenterprise sector, but this is a very difficult task, fora number of reasons, namely:

Time-consuming and complex registration proce-dures encourage many organizations to operatewithout registering. This is the case in the CIS coun-tries, where a considerable number of grassrootsorganizations operate informally. In the case ofBelarus, according to expert opinion, the numberof unregistered organizations is equal to that ofregistered ones;

Difficulties in closing an organization, which in anumber of countries is far more complicated thanregistering one. In Macedonia, out of the 5,500organizations registered, approximately 5 per-cent are thought to be active. In Ukraine, once anorganization is registered, its dissolution is nextto impossible, leading to an ever-increasing num-ber of registered organizations that are inactive.Out of the 28,703 third sector organizations regis-tered in this country, it is estimated that only 10to 15 percent actually operate. In the case of theCzech Republic, associations are not required toinform the authorities when they disband. All thisinevitably leads to an overestimation of the sizeof the sector;

The lack of data regarding the third sector’s shareof GDP, the number of workers and volunteersemployed in such organizations;

67 Civil Code RF, Part I, Sec. I, Sub-sec. 2, Ch. 4, paragraph 5.

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68 Statistics on the size of the Third Sector in Lithuania are unavailable.69 Of which: 755 housing cooperatives; 62 consumer cooperatives; 303 producer cooperatives; 33 credit cooperatives; 678 agricultural cooperatives (Czech

Cooperative Association, 2004).70 Official statistics identify about 24,000 social and citizen organizations, of which the majority are sports clubs, cultural and artistic organizations, humanitari-

an and charity associations, and professional organizations.71 There are over 2,800 cooperatives in Serbia registered at the Agency for Business Registers. About 600 of them are estimated to still exist.

Country Types of organization Number of organizations

BulgariaFoundations and associations Cooperatives

Total

22,0007,000

29,000

Czech RepublicAssociationsCooperativesPublic Benefit Companies

Total

54,9641,831 69

1,15856,852

EstoniaAssociations and societal organizationsConsumer/agricultural cooperativesHousing cooperatives/associations

Total

12,000200

8,00020,200

Poland

Associations and foundationsCooperativesSocial integration centres and clubsSocial cooperativesCooperatives for disabled peopleVocational centres for disabled people

Total

78,22810,585

135107350

3083,465

Slovenia

Non-profit societies and associationsCompanies for disabled peopleCooperativesPrivate not-for-profit institutes

Total

20,000150988534

21,672

Table 2 - Size of the Third Sector in New EU Member States 68


MacedoniaAssociations and foundationsCooperatives

Total

5,500N/A

5,500

Serbia

Social and citizens’ organizations70

(of which: NGOs: 3,000; self-help and religious groups: 300 to 400)Cooperatives71

Total

24,0002,800

26,800

Table 3 - Size of the Third Sector in Balkan Countries

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The unavailability of reliable statistical data orcomplete statistics, especially in the CIS countriesand Balkans (owing to still unreformed social sta-tistics), but also in the new EU member countries.In numerous cases, statistics on third sectororganizations also include trade unions (this isfor example the case in the Czech Republic)and/or are very incomplete (as in Slovenia).

2.1e Description of the structure and dynamics of unemployment in the region

From 1945 to 1989 unemployment was an un -known phenomenon in the region.75 Registeredunemployment did not exist and most analystspointed instead to a shortage of labour. But sincethe transition, the labour market has undergone

many dramatic changes. In transition countriesthe processes of privatization, economic reces-sion, restructuring of national economies andrapid deindustrialization, coupled with changes inagriculture triggered a decline in the number ofemployees in the national economy. During thetransformation period, unemployment became arecognized phenomenon in the region; it nowstands at a very high rate in most of the countriesunder consideration, even though it must bestressed that, in many transition countries, theregistered unemployment rates still understatethe real, actual level of joblessness. Indeed, insome countries of the region, such as Poland andSerbia, there is a significant level of hidden unem-ployment and quite a large informal sector.

In recent years, the common characteristics ofthe labour markets in CEE, SEE and the CIS haveincluded:


BelarusLocal public associations Nationwide and international associationsCooperatives

Total

1,245969N/A

2,214

Kazakhstan

Self-help groups (unregistered)Active NGOs72

Cooperatives73

Vocational enterprises for disabled peopleTotal

NA2,0007,491

NA9,491

RussiaPublic organizationsReligious organizationsCooperatives

Total

80,49421,664

N/A102,158

Ukraine74

Unions of citizensCharity organizationsCooperatives

Total

21,2767,427

N/A28,703

Table 4 - Size of the Third Sector in the CIS

72 Some 32 percent of registered NGOs are located in Almaty, the ex-capital city.73 Including agricultural cooperatives, water-users' societies, apartment owners' societies and consumer cooperatives.74 As of 1 January 2006.75 This does not include the former Yugoslavia, where high unemployment has caused numerous Yugoslavs to emigrate, particularly from the poorest regions

(Macedonia, South Serbia, Kosovo, Sanjak).

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1. an increase in unemployment to levels nowexceeding those in EU and OECD countries;

2. a high level of long-term unemployment;

3. a high incidence of youth unemployment andlow levels of youth participation;

4. high unemployment among poorly educatedpeople (i.e. those with at most primary or sec-ondary education);

5. growing regional disparities in unemploy-ment.

The resumption of economic growth in some of thecountries of the region has not generated employ-ment. In some countries employment star ted togrow only in 2003, and moreover this growth hasbeen slow. In other countries of the region, such asPoland, joblessness is still increasing.

The Czech Republic ranks among advanced tran-sition economies with a low level of unemploy-ment, while Poland’s and Macedonia’s unem-ployment rates are much above the average fortransition economies.

In Bulgaria, after 2003, numerous employmentgeneration measures were implemented, and theunemployment rate decreased from 18 percentin 2002 to 10.1 percent in 2005. This is close to theEU average of 8.7 percent, but long-term unem-ployment remains a major problem, as itaccounts for more than half (55.9 percent) of total

unemployment. The incidence of long-termunemployment is particularly high among poorlyeducated and poorly qualified people. Anotherproblem in Bulgaria is the very low wage levelsand salaries that accompany this decrease ofunemployment and economic growth.

To generate new employment in transitioneconomies, the development of labour-intensiveactivities is needed. third sector organizationsand social enterprises, in particular, have a role toplay in promoting new employment in the fieldswhere they have a comparative advantage. thirdsector organizations and social enterprises per-form significant functions in the labour market,activating the unemployed and reintegratinglow-skilled groups by:

reducing the duration of unemploymentthrough the generation of new temporary andpermanent jobs within social enterprises

expanding the share of social-enterprise activ-ities

sustaining the level of employment in socialenterprises

addressing the specific problems of youth,women and poorly educated people

Table 5 - Unemployment Rates in Bulgaria, the Czech Republic, Poland and Serbia (1995-2004)

1995 2000 2002 2004

Bulgaria 15.7 16.4 18.1 12

Czech Republic 4.1 8.7 7.3 8.3

Poland 14.9 15.1 20.0 18.8

Serbia 10.7 9.5 11.1 N/A

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Box 6. The evolution of unemployment: The case of Poland

During the period 1990-2002, the Polish labour market was characterized by a high level ofunemployment and low outflows from work inactivity, except during the years 1994-1997. Thefollowing reasons account for the massive upsurge of unemployment in Poland: - Decreasing economic growth rates that constricted the numbers of new job openings;- An over-supply of labour due to an influx of school graduates;- Rigid labour laws impeding negotiations between employers and employees;- A decreasing number of government labour-market programmes, due to cuts in the public

budget and the Labour Fund. Since 2005, the Polish labour market has seen employment increase and unemploymentdecrease. The unemployment rate dropped from over 18 percent in 2003 to 13 percent in 2007.The reasons are threefold: 1) The opening of some European labour markets, which has given the opportunity to 1 million

people to find a job abroad; 2) The generation of over 1 million new jobs in Poland;3) The increase in financial support for active labour market policies (ALMPs), whose potential

beneficiaries make up some 20 percent of the unemployed (over 250,000 unemployed per-sons found employment in 2005 and 2006).

Nevertheless, in some regions, the unemployment rate still reaches 40 percent and, accordingto some research (U. Sztanderska, 2007), there are high discrepancies between labour skillendowments and the needs of the market. Among the unemployed, only 15 percent remainentitled to retain the right to unemployment benefits. The Polish unemployed fall into two maincategories: a) Long-term unemployed;b) Unemployed with a long record of unstable employment.Among those particularly hit by unemployment are young women (over 700,000 women havenegligible work experience or less) and people over 50 years of age, whose labour activity rateis among the lowest in the whole EU (it stand at 25 percent). According to some Polish analysts,the implementation of the European Social Fund (2004-2006) has not yet yielded significantresults (J. Tyrowicz, P. Wojcik, 2007). However, local labour markets still have untapped poten-tial, embodied in the high number of young people ready to pursue further education andaccept flexible working hours. Furthermore increased tourism represents a great employmentopportunity for many in some areas. Still, the rate of employment and the proportion of unemployment (11 percent in 2007), includ-ing long-term unemployment, are much higher in Poland than in most OECD countries.According to experts, unemployment in Poland has the following three features: - Unemployment rates vary greatly depending on location: By the end of 2004, the total unem-

ployment rate ranged from 15 percent in Mazovian voivodship (former Warsaw region) to 28.7percent in the Mazury and Warmia regions;

- A high share of young people amongst the unemployed: 26 percent of unemployed people areunder 24;

- A high rate of long-unemployed people: more than half of all those without work are long-term unemployed. Indeed, among the unemployed, 51.2 percent have had no job for morethan 12 months.

Also worth noting is that a substantial part of Polish unemployment is located in rural areas:almost 42 percent of unemployed people live in rural areas. Another feature of Polish unem-ployment is the prevalence of women among the jobless: As of 2003, 51.5 percent of the unem-ployed were women. Finally, another alarming phenomenon is the extremely high level ofredundant workers between the ages of 55 and 64. This is particularly true for women.

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2.1f The integration of disadvantagedworkers: the legacy of communism

Communism has left a contradictory legacy asconcerns third sector organizations and socialenterprises. Mistrust of cooperatives and net-works, coupled with suspicion towards the vol-unteer ethos, are certainly negative legacies. Butone should not overlook the ideal of equity andsolidarity in rural areas and the survival of com-panies for the disabled. This constitutes a posi-tive legacy from Soviet times. Companies for thedisabled were indeed the organizations closestto the concept of social enterprise before thebeginning of the transition period. During theCommunist time, they were an important mech-anism for integrating the disabled populationinto work and society. They provided shelteredlabour for disabled people in specific subsidizedfactories (for example, in the suitcase industry,tailoring and shoemaking). They benefited froma state-guaranteed market – based on a monop-oly of production – and from the relative auton-omy they enjoyed in their economic activities.Different groups of disabled people had differ-ent specializations and monopolies in the pro-duction of different goods. (For example, inBulgaria the cooperatives of the Union of theDeaf specialized in the production of goods forthe healthcare field, while those of the Union ofthe Blind were active in the plug industry). Innationalized economies, cooperatives for thedisabled were an integral part of the plannedeconomic system.

These organizations continue to operate in allthe countries under study. Compared to otherthird sector organizations, they are subject tofewer limits on the development of productiveactivities.

In Poland, between 1945 and 1989, the coopera-tives for the disabled and, since the 1970s, coop-erative sheltered enterprises (spółdzielcze chro-nione zakłady pracy), have been the main mecha-nism for the rehabilitation and integration of thedisabled population into the workforce and soci-ety (this has been called ‘the Polish model ofrehabilitation of the disabled’). Cooperatives forthe disabled have employed specific disability

groups that are incapable of performing theirprevious employment (including blind and deafpeople) and other categories of the disabled thatare unable to hold regular employment owing topermanent or protracted health problems.Under the nationalized economy, cooperativesfor the disabled were an integral part of theplanned economy and were incorporated intonational economic policies. Their economicactivity was subjected to central and regionaleconomic plans.

As a result, during the 1940s and 1950s, cooper-atives were heavily taxed and subjected to eco-nomic plans imposed from above. In the 1970s,the economic and fiscal policies regulating theactivity of cooperatives for the disabled were lib-eralized and the cooperatives obtained severalprivileges, such as tax exemptions on turnovertax and property tax, while still benefiting frommonopolies in some branches/niches of produc-tion. In the 1970s, out of a total of 800,000 dis-abled persons employed in various forms ofemployment, over 200,000 were employed inthe cooperatives for the disabled. The remaining600,000 worked in regular establishments or per-formed cottage work76 if they were unable toundertake any outside employment. The num-ber of disabled employees in cooperatives forthe disabled decreased in the 1980s to some160,000.

Currently in Poland efforts to boost the employ-ment of the disabled are based on two pillars: 1)supporting employment of the disabled on theopen labour market by setting up de facto shel-tered employment in regular enterprises; 2) devel-oping various forms of sheltered employment,both transitional (vocational enterprises for thedisabled, workshop therapy) and permanent(sheltered employment in regular enterprisesand cooperatives for the disabled). In 2001, onequarter of sheltered enterprises were coopera-tives for the disabled; the rest were differenttypes of for-profit companies. Between 1989 and2005, the number of cooperatives for the dis-abled declined from some 550 to 350 and thenumber of employees from 160,000 to 30,000.The funding policy is based on direct (subsidiesand donations) and indirect public support (taxdeductions and exemptions from corporate

76 A cottage industry is an industry in which the production of goods takes place at the home of the producer.

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income tax). Sheltered enterprises transfer 10percent of the obligatory taxes to the ‘PublicFund for the Rehabilitation of the Handicapped’,while the remaining 90 percent finances theenterprise rehabilitation fund. Since 2004 the sys-tem based on deductions and exemptions hasbecome one based on a subsidy for each disabledperson employed. The Public Fund for theRehabilitation of the Handicapped, which pro-vides support in the form of subventions anddonations, is the main source of public funding ofsheltered enterprises in their various forms. Theextent of support available depends on the kindof sheltered enterprise: vocational enterprises forthe disabled are exempted from most taxes,including property taxes, while cooperatives forthe disabled are reimbursed for social securitypayments and the wages of the disabled employ-ees are co-financed by the Public Fund forRehabilitation of the Handicapped.

In Slovenia the so-called companies for the dis-abled are regulated by the Law on EmploymentRehabilitation and Employment of the Disabled.These organizations aim to create new jobs forpeople with disabilities. They were first devel-oped before 1976, as workshops for people withdisabilities. In 1988 they were transformed intocompanies for the disabled. Today there are over150 companies for the disabled in Slovenia,evenly distributed throughout the country, andthey employ some 13,000 people, of whomabout half (6,200) are invalids. These organiza-tions operate on the open market and performproductive and service activities. The companiesfor the disabled are exempt from paying taxes onsalaries, and they also get monthly subsidies forthe salary of each disabled person employed.They are nevertheless mostly funded throughtheir business activity.

It is worth noting that in the Czech Republic sev-eral producer cooperatives have started toemploy disabled people. They call themselvessocial cooperatives (socialni druzstva), as theyhave a specific ethical clause in their memorandaof association specifying that they aim to inte-grate disabled people.

In Serbia, a well-organized segment of self-helporganizations, focused on the integration of dis-abled people, was established in the 1970s undersocialism. During the transition, many of theseorganizations started to upgrade their internal

capabilities and provide more extensive services,such as self-employment programmes designedto strengthen entrepreneurial activities and otherprogrammes aiming to integrate people withmental or social problems into active life. Foreigndonors and, more generally, the internationalcommunity have been the main promoters andfinancial supporters of a new emerging system inwhich public institutions, professional bodies andself-help groups of disabled people have startedto cooperate in joint programmes. For instance,Handicap International cooperated with the gov-ernment (in particular with the Ministry ofLabour, Employment and Social Affairs) and otherdonors to develop the necessary conditions –policies, laws, capacities, programmes, infrastruc-tures, institutions – for contributing to the work-integration of disadvantaged people. However,crucial problems remain: financial shortages ofgovernmental bodies, misunderstandings, confu-sion and a lack of confidence in the professionalcompetence of self-help groups.

Labour niches for the unemployed and poor peo-ple are also provided by the remaining Bulgariancooperatives for the disabled. The insufficientsupport provided by the state in the first decadeof transition has weakened these organizations,although it is worth noting that they are current-ly undergoing some kind of stabilization.Specialized enterprises for the disabled can beestablished in Bulgaria under various organiza-tional forms – companies, NGOs, cooperatives,municipal enterprises etc. – and they are allowedto produce for the market. According to the Lawfor the Integration of People with Injuries, whichdoes not differentiate among different organiza-tional forms, exemption from the profits tax canbe granted, depending on the share of disabledworkers among the employees. A morefavourable regime for such enterprises is provid-ed by the Law for Public Orders, as well as taxconcessions for disabled individuals. The differ-ent unions of the disabled have established vari-ous enterprises and cooperatives.

A core of several strong and very active organiza-tions of disabled people are also present inMacedonia, where they strenuously advocatethe inclusion of disabled people in all spheres ofpublic life.

The most influential national associations of dis-abled people that existed under the Soviet

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regime are still active in Ukraine and have a num-ber of branches throughout the country. Theirsubsidiary enterprises have a special legal andtax status and continue to receive regular fund-ing from the government for the professionaland social rehabilitation of the disabled.

In Belarus, most public associations for the dis-abled (for example the Belarusian Society ofDisabled People, the Belarusian Society of theDeaf, the Belarusian Society of the Disabled bySight) were created during Soviet times and con-tinue to receive governmental support. However,if the activity of associations of disabled peoplegoes beyond the scope of the politically approvedactivity and support of the disabled, it is subjectedto the same sanctions applied to any other publicassociation.

The largest associations of disabled people man-age their own manufacturing firms and can pro-vide jobs, training and re-training to the dis-abled. Over 150 firms of this kind provide over8,000 jobs for disabled people with mobility,sight or hearing disabilities. The public associa-tions which own such firms receive tax benefits.A fraction of tax revenue is allocated to thedevelopment and strengthening of the materialand technical resource base of these organiza-tions as well as to meeting the social needs of thedisabled. The outputs of the manufacturing firmsof the disabled are sold as consumer products.

In Kazakhstan vocational enterprises for the dis-abled (VEHs) are still the only job providers fordisabled people. VEHs mainly carry out produc-tive activities, such as manufacturing workclothes or simple domestic electrical appliances.They are considered as ordinary business struc-tures, enjoy very modest tax privileges and haveseen a substantial decline in governmental sup-port since independence.

In most countries of the region, it is worth notic-ing that work integration by the social enterpris-es inherited from Communist times is very nar-rowly defined. Work integration is in most casesconfined to sheltered employment and tends toignore the three other goals pursued by workintegration social enterprises in the EU-15 –namely transitional occupation, creation of per-manent self-financed jobs, and socializationthrough productive activities. In addition, workintegration social enterprises operating in most

CEE and CIS countries tend to use an extremelynarrow definition of disadvantaged workers,which is confined to disabled workers.

2.2. Review of the social enterprisephenomenon in CEE and CIScountries

Permissibility of economic activity for associations, foundations and other non-profit organizations in CEE and CIS countries

The degree of permissibility of economic activityby non-profit organizations is of utmost impor-tance for the development of social enterprises.

In Poland associations and foundations areallowed to conduct economic activity providedthat the income generated by this economicactivity is used entirely to perform the organiza-tion’s mission; it cannot be divided among mem-bers or founders. Thus, in the case of associationsand foundations, economic activity is perceivedas additional to the institutional activity, whichmeans that the economic activity cannot be thepurpose motivating the creation of a voluntaryorganization; it can only serve to generateincome for the organization’s mission. In thecase of social cooperatives, at least 40 percent ofany surplus has to be allocated to the commonfund. In the case of vocational enterprises for thedisabled, profit from economic activity is trans-ferred to the enterprise’s activity fund. The exist-ing taxation system does not provide any taxincentives based on the legal form of associationor foundation, except for public-benefit organi-zations. Tax incentives are related to the activi-ties carried out (including charitable work andeducation) rather than to the legal form of theorganization. Associations and foundationsmainly rely on public resources; their secondmost important source of income is marketresources, and the third one is corporate giving.

In the Czech Republic, whereas it is strictly pro-hibited for foundations to engage in businessactivities,77 associations are allowed to carry outeconomic activities, according to their statutes,

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but they normally do not produce goods andservices for the market. If they do, they tend tooffer services free or for a very modest charge.More specifically, associations and public benefitcompanies (PBCs) are allowed to conduct eco-nomic activities if these are named in theirstatutes (articles of association). These activitiesare expected to be ‘of public benefit’ and thustheoretically qualifying for a tax rebate. Typicalservices carried out by Czech associations are forinstance shelters for the homeless and drop-incentres for young people, which are mainly fund-ed through public resources.78 It is worth notingthat Czech law fails to define the activities thatassociations are allowed to engage in, thus lead-ing to a lack of transparency. Moreover, theabsence of an overarching definition of ‘activitiesof public benefit’ has contributed to a lack ofclarity on the tax rules to be applied. Tax rulesdefine the activities that are eligible for taxexemptions, but they fail to take notice ofwhether the said activity is practiced on a for-profit or a not-for-profit basis – hence the uncer-tainty experienced by third sector organizationsregarding their tax liabilities and rights. There is astruggle going on at the moment in the legisla-tive sphere: a revision of the civil code may leadto new paragraphs specifying details on legalforms, or it may lead to a clear definition of ‘non-profit’ and ‘public benefit’, with organizationsseeking tax exemption needing to go through awell-defined and transparent screening process.

In Lithuania, following the approval of the Lawon Social Services in 1996, it became possible tocontract out the supply of social services to asso-ciations and societal organizations. Nevertheless,this possibility has not been exploited so far, asspecific regulations for licensing the provision ofsocial services by associations and societalorganizations have not yet been enacted.

Slovenian legislation allows organizations of thethird sector to acquire the necessary financialresources to achieve their main goal by perform-ing additional economic activities. Accordingly,associations, not-for-profit institutes and similarorganizations of the third sector can act in themarket of goods and services like commercial

companies, the only difference being that in thecase of third sector organizations, the profit sogenerated should aim at the realization anddevelopment of the organization's basic activity.Beside public financial resources (from the stateat both the national and local levels), the mostimportant financial resource for not-for-profitsocieties and associations of people is member-ship fees. The third source of income is repre-sented by donations, and an increasingly impor-tant share is generated by commercial activity.

However, while legal barriers to the work of thirdsector organizations were removed with thechanges of the relevant laws after 1990, stimuliwhich would have promoted a more rapid devel-opment (e.g. tax exemptions, support system,public compensation for the services delivered)were insufficiently developed. Whereas tax regu-lations are more favourable for not-for-profit soci-eties and associations of people than for for-prof-it enterprises, legal regulations regarding theimplementation of market activities and access tofunding are more rigorous for not-for-profit soci-eties and associations of people. Thus, the lawsare not mutually consistent and legal regulationsare often not implemented in practice.

The general trend towards restricting third sec-tor organizations from engaging directly in eco-nomic activities is exacerbated in a number ofBalkan and CIS countries. In Macedonia, organi-zations wishing to conduct economic activitiesneed to do it through a separate joint-stock orlimited-liability company.79 The subsidiary com-pany set up must pay the single profit tax of 15percent. Not-for-profit organizations are subjectto all fiscal regulations applied to legal persons inMacedonia, but they are exempted from payingtaxes on grants and donations, which adds somelegal certainty to the financial affairs of not-for-profit organizations, given the prevalence ofgrant funding (90% of not-for-profit organiza-tions' resources). Overall, tax regulation of thenot-for-profit sector is relatively limited and itdoes not provide real incentives for companiesor for individuals interested in supporting thedevelopment of third sector organizations.

77 They are regulated as grant-making organizations.78 In 2003, Czech NPOs received a total of €180 million from the central government.79 With a consequent increase in transaction costs.

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The right to make a profit is not envisaged forBulgarian NGOs either. Thus, if they producemarket goods and services, they have to estab-lish a company within the NGO and the taxationsystem for this company is the same as for anyfor-profit company. The tax exemptions imple-mented at the beginning of transition have beenwithdrawn, owing to widespread corrupt prac-tices. Self-help and neighbourhood groups, sincethey are not legally recognized organizations,are not allowed to produce services.

In Serbia, religious groups and self-help groupsare both involved in the provision of innovativeservices and in the production of goods in a moreor less stable and continuous way. However, thelack of an adequate legal base hampers the pro-motion of social enterprises. More than 300 self-help groups and some 20 to 30 religious groupsare reported to perform socially entrepreneurialactivities and, as such, can be considered as socialenterprises in their initial stage of development.Most of these entities are organized according tothe Law on Associations of 1989. They do not rep-resent a large part of the third sector, and owingto legal restrictions on economic activity within

voluntary groups, they are often forced to initiatecooperatives. Moreover, their reliance on dona-tions and charitable giving may hamper theirdevelopment as full-blown social enterprises.

Accounting and bookkeeping rules for not-for-profit organizations are the same as for for-profitenterprises, and the tax regime is the same as forsmall- and medium-sized enterprises. Exceptionsare envisaged in the case of imported equipmentwithin humanitarian assistance programmes andwhen it is intended for disabled people. In boththese cases, third sector organizations benefitfrom a preferential import tax. Moreover, in somerare cases (for instance in case of money transfersand donations from international organizations),local third sector organizations are exempted fromadded-value payments. A new law is supposed toimprove administrative practices for third- sectororganizations; it should inter alia include the intro-duction of a low-threshold registration processand tax deductions aimed at fostering corporateand charitable giving. As for cooperatives, the taxregime under which they operate is currently sim-ilar to that applied to for-profit enterprises.

Box 7. Serbia: Lastavica Association and Lastavica Cooperative

Lastavica was set up in 1996, within the framework of the Law on Associations, as a response to theextremely difficult situation faced by many single women refugees in Serbia. The association start-ed as a project jointly promoted by the Women’s Centre from Belgrade and the British humanitari-an organization Oxfam. The main goal was to provide shelter, psycho-social support, education andeconomic empowerment for this vulnerable segment of Serbian society. Lastavica’s activities todayinvolve multiple objectives, focusing not only on refugees but also on local marginalized inhabi-tants. Among the activities carried out, are computer courses, English language learning, sewing,weaving, and communication skills. Special programmes are addressed to elderly people and con-sist of psycho-social support, work therapy, recreation and health programmes and humanitariansupport. During its 10 years of existence, Lastavica has helped several thousand beneficiaries.

The catering service has turned into the most successful among the economic reinforcement pro-grammes implemented. Since current law does not allow non-profit organizations to carry outeconomic activities, this women’s association decided to establish Lastavica-catering as a cooper-ative, whose institutional characteristics are those typical of enterprises with a social goal, includ-ing its democratic character and the prevalence of solidarity and mutuality over capital. The firststep Lastavica took was to organize a three-month training course for the group of 13 interestedwomen, who perfected their culinary skills with the help of a professional caterer.

The company is located in the heart of the city, in an adequately furnished office, and a staff of ninepeople is involved. Lastavica is now a small firm specializing in preparing, distributing, and arrang-ing food for cocktails, receptions, banquets, birthdays and other celebrations. Its specialties arehome-made cakes, various pies, strudel and other homemade products.

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Developments in the legal framework regulatingentrepreneurial activities of Ukrainian third- sec-tor organizations show some promising trends.Nevertheless, the Ukrainian Law concerning thePurchase of Goods, Works and Services from StateFunds, issued in February 2000, practically pre-vents third sector organizations from bidding forprocurement contracts. Moreover, the Law onSocial Services, while acknowledging the exis-tence of the third sector and the supply of socialservices by the latter, contains a number of provi-sions that may be viewed as discriminatoryagainst the third sector. Specifically, the lawrequires that ‘statutes of bodies that providesocial services must contain a list of social services,categories of recipients, and terms and proce-dures for the provision of such services’. The serv-ices supplied range from educational, training andenvironmental services to job training and healthservices. The types of services offered are still par-tially dependent upon what donors are willing tofund. Although this trend is changing, the servicessupplied are increasingly based on the con-stituents' needs. Concerning the taxation system,unions of citizens as well as charity organizationshave to register their non-profit status in the StateTax Administration Registry. Charitable donationsand grants are exempted from taxation.

Generating an income through the sale of servic-es and goods not listed in the organization’sstatutes is allowed, but the organization is thensupposed to pay taxes on this income just as for-profit enterprises, and this may cause the exclu-sion of the organization from the State TaxAdministration Registry. Indeed, a serious confu-sion concerning the ‘related’ and ‘unrelated’incomes prevails. In general, since June-July2000, having business activities is not a legal rea-son for exclusion from the register of tax-exemptorganizations. However, if the taxable incomefrom unrelated business activities (i.e. activitiesnot listed in the organization's statutes and thussubject to taxation) exceeds a third sector orga-nization’s income from tax-exempt sources, thisorganization will be taxable as a business com-pany. Thus, the only way whereby unions of citi-zens can generate incomes through economicactivity without losing their non-profit status isthrough commercial firms.

Before 2005, Belarusian public associations wereallowed to run entrepreneurial activities, provid-ed the profits generated were used to achievethe goals defined in their statutes, but organiza-tions involved in economic activities were quitefew in number. The 2005 revision of the law onpublic associations (article 20) outlawed socialenterprises, unless their economic activities arecarried out within a specifically established prof-it-making organization; the latter is subject tothe rules and norms (including those of taxation)of the for-profit sector. Similarly, public associa-tions’ activities are taxed in the same way asthose of for-profit organizations.80 The currenttaxation system for public associations does notdepend on the character of their activities, if oneexcludes the associations of disabled people andsome sport and creative organizations.

As for Russia, the carrying out of economic activi-ties by third sector organizations is regulated in aless restrictive way. A non-profit organization mayconduct business activity so far as this serves theachievement of the objectives for which it hasbeen created. Such activity shall be deemed to bea profitable production of goods and services cor-responding to the objectives which motivated thecreation of the non-profit organization. Public andreligious associations carry out a wide spectrum ofactivities for disadvantaged people: creation ofnew jobs; assistance in entering the labour mar-ket; additional education; training and retraining;and social, labour and medical rehabilitation.However, two major obstacles hamper the carry-ing out of economic activities by third sectororganizations. The first obstacle is of a fiscalnature: the income generated by the carrying outof economic activities is fully taxed. No fiscaladvantages are allowed to non-profit organiza-tions in this case, notwithstanding the eventualexternalities produced for society at large and thesocial commitment taken on. Secondly, oneshould mention the attitude of internationaldonors, who tend to consider with suspicionthose third sector organizations that are engagedin economic activities.

Just as in Russia, the carrying out of economicactivities by all third sector organizations is per-mitted in Kazakhstan, but when carrying out eco-

80 Exemptions are envisaged for: entrance, share, and membership fees in amounts stipulated in their statutes; property and finances received for free from legalentities and individuals of the Republic of Belarus, and directed at the stated purposes; and profit (interest) from keeping the above-mentioned finances inchecking, savings and other bank accounts.

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nomic activities, these organizations are treatedas ordinary business structures. Accordingly, notax privileges are granted to third sector organiza-tions that are engaged in economic activities.Interestingly, some third sector organizations stillprefer to set up subsidiary for-profit companies inorder to simplify their tax accounts. Worth notic-ing is the recent governmental initiative aiming topromote the social business corporation model.This initiative was officially announced and initiat-ed after the President’s annual message in 2006.

2.2a Specific legal frameworks for social enterprises: the cases of Poland, the Czech Republic,Slovenia and Lithuania

As underlined in the previous section, the intro-duction of specific legal frameworks is perceivedas a necessary step if the development of socialenterprises (both in the form of work-integrationsocial enterprises and social enterprises provid-ing social services) is to be sustained.

Whereas in some countries the development ofsocial enterprises is outlawed or heavily restricted(especially in the CIS and Balkan countries, includ-ing Belarus, Ukraine and Macedonia) and third-sector organizations are discriminated againstcompared to for-profit organizations, in CEEcountries the legal environment appears to besignificantly more favourable. In a number of newEU member countries, specific legal frameworks

Box 8. Ukraine: Association Peace. Beauty. Culture.

The association Peace. Beauty. Culture. was registered as a non-governmental organization in 1996.Its main goal is to strengthen civil society through the provision of information and consultancyservices and to implement educational and cultural programmes aimed at individuals’ develop-ment and empowerment. Beneficiaries are orphan children, children from poor and vulnerablefamilies and women. In 1998, the association received its first grant from international donors andin 2000 it became a participant of the Counterpart Alliance for Partnership (CAP) programme,which focuses on the support to and development of social enterprises in Ukraine. CAP providedparticipants of the social enterprise project with intensive training and technical support in busi-ness management and business idea development, legal education, marketing tools developmentetc. At the same time, Counterpart provided Peace. Beauty. Culture. with an initial start-up grant forsocial enterprise development. The association was able to expand its presence to 12 oblasts ofUkraine and make money from a wide range of activities such as the production of garments andfurniture, the running of a design and fashion school, computer courses etc.

The association did not establish a business enterprise but channels its revenue in the form ofcharitable donations and private entrepreneurial initiatives. The association's main programmesare informational-coaching services for citizens of Kherson (12,000 people per year receive variousservices); computer courses for children (during the last four years, 1,000 children took part inthese courses, which were free for children from poor and vulnerable families); a scientific-methodological centre for school self-government (some 1,480 school children each year fromseven schools take part annually in different seminars and workshops, gaining knowledge andpractical skills in self-governance; an additional 1,080 children sharpen and apply the acquiredknowledge and skills in summer camps); a support and development centre for creative initiativesand thinking, where personnel of the association help people to realize their potential and makethe best use of their talents and skills (10 people per month receive this kind of support); annualcultural exhibitions and festivals, involving up to 30,000 people. The association also helped 30orphans to get into university. The association uses creative approaches and marketing tools; itsstory and its work are amazing but, unfortunately, rare in Ukraine.

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for social enterprises have even been introducedrecently.

Institutional and legal recognition of socialenterprises initiated by low-income groups wasattained in 2003 and 2004 in Poland, followingthe enactment of two specific acts: the Act onSocial Employment and the Act on EmploymentPromotion and Institutions of the Labour Market.The latter introduced social cooperatives as para-worker cooperatives. The law on social coopera-tives was introduced in April 2006. Social cooper-atives aim to integrate the homeless, drug andalcohol addicts, the mentally ill, ex-prisoners,refugees and the long-term unemployed. Thesegroups alone have the right to be the foundingmembers and the ordinary members of a socialcooperative. In 2007, a new legal initiative aim-ing to change the Law on Social Cooperativeswas taken by a group of members of parliament,politicians and researchers.81 The initiative wasbased on the experience accumulated duringthe two years of existence of the law and its goalis to strengthen social cooperatives as a workand community integration mechanism forthose people who are outside of the mainstreamlabour market. The most crucial arguments andproposals are:

1. To modify the structure of the workforce: Theexisting regulation, which provides that at least80 percent of the workers in a social cooperativemust be disadvantaged workers, has proved tobe counter-effective and has so far hampered

the development of cooperatives of this type.The legal initiative advocates an increase in thepercentage of ‘ordinary’ (non-disadvantaged)workers allowed to at least 50 percent of thetotal workforce and it proposes to introduce theoption for the local authority to be a founder orco-founder member of a social cooperative.

2. To change the regulations concerning the dis-tribution of the surplus of social cooperatives,allowing the allocation of up to 80 percent ofthe profits to the investment and stabilizationfund while reducing the share of the profits tobe allocated to the obligatory reintegrationfund from 40 percent to 15 percent.

3. To contribute to a more enabling environmentfor social cooperatives through an increase inthe subventions available to founding andordinary members, from the current amount ofthree average monthly wages up to five aver-age monthly wages (over €3,000 and €2,000respectively).

4. To prolong the reimbursement of social secu-rity liabilities from 12 months to 36 months.During the first 24 months social cooperativesenjoy 100 percent reimbursement and duringthe third year 50 percent.

5. To make access to public procurement marketspossible through the acknowledgment of thesocial commitment taken on by social coopera-tives employing disadvantaged workers.

Box 9. Poland: Social Cooperative ACTUS

The social cooperative ACTUS is an interesting initiative promoted by the target group itself –namely the physically disabled – and organized within the framework of the Association for theVocational and Social Reintegration of the Disabled. The association, located in Wrocław, is madeup of disabled people looking for a job who have not been formally unemployed and have livedon the disability pensions. They set up an informal group, WWW Promotion, focusing on informa-tion technologies. In May 2005, the group established the Social Cooperative WWW Promotion.The cooperative explicitly aims to promote the interests of the disabled group itself (mutual-inter-est orientation). The products supplied are: web positioning, web designing, web mastering andweb hosting. The services are sold in the market. The founding sources are seed money (approxi-mately €4,000) from the Regional Fund for the Social Economy, set up in 2005 by the Ministry ofSocial Policy, and the revenues generated by the sale of products.

81 This initiative sprang from the EQUAL project ‘We have Jobs’ in which researchers from the Warsaw University Institute of Social Policy participated.

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The Act on Social Employment also stimulatedthe creation of Social Integration Centres andClubs, which are committed to reintegrate thelong-term unemployed and economically inac-tive population by means of social re-adaptation.Both types of organizations must create jobopportunities for disadvantaged workers.

The Czech Republic also has a specific legalframework for social enterprises: that of thePublic Benefit Company, which is committed tosupplying services of public benefit. The lawestablishing this legal form has two main short-comings, which prevent the full exploitation ofthis organizational form. First, it stipulatesunnecessary details on the board structure.Secondly, it fails to clearly define the public ben-

Box 10. Poland: Support Centres for Social Cooperatives

In 2004 the Polish government introduced a pilot project aiming to provide training services andorganizational and financial support to promote work integration social cooperatives. At the begin-ning, there were five Regional Funds for the Social Economy, which provided support for the settingup of social cooperatives (€3,500 for each cooperative). In 2006 the Fund was transformed into a newmechanism: Support Centres for Social Cooperatives. There are 10 such centres in Poland, providingservices to social cooperatives located in all 16 regions of Poland. Each work-integration cooperativemay obtain a subvention of up to €3,500 for setting up a social firm and/or for small investments(adaptation of facilities, purchase of appliances, tools, machines). The Polish government has recent-ly adopted some strategies to develop more fully work integration cooperatives and other socialenterprises’ social and economic contributions. Polish social enterprises – in the form of social coop-eratives, foundations and associations – have been mentioned in several policy documents andmeasures. This new, more enabling environment should increase their access to both financial andbusiness support. In the new programming period Polish social enterprises will be entitled to finan-cial support up to €30,000.

Box 11. Czech Republic: Rural Social Cooperative Hostetin Apple-Juice Plant

The Hostetin Apple-Juice Plant is situated in the White Carpathians, a region that suffers from rela-tively high unemployment caused by a decline in demand for its traditional agricultural products(wool, meat, fruits). The project has been able to build on decades of grassroots efforts by localinhabitants in the field of nature protection and has grown out of a tradition of informal coopera-tion and know-how, enhanced by the city-based Veronica Foundation, which was able to channelthe much-needed seed funding for the project.

A primary mission of the organization is to encourage local growers to care for their rare appletrees by providing a market for them. Other associated goals include the production of healthyand environment-friendly products and support to local employment. Profits go to the owner, anon-profit association bringing together environmental charities, local councils, businesses andindividuals, which use them to preserve local natural and cultural diversity (two aspects that theorganization views as interlinked). The organization can thus be seen as benefiting the local com-munity as well as the local landscape, tradition, and the interests of future generations. An impor-tant player, from the beginning, was the village of Hostetin (240 residents), which has supportedthe project and is itself a member of the organization White Carpathian Traditions. A key factor inthe success of this project was the fact that it was able to access a start-up grant from governmentand loans from ethical institutions (a Luxembourg ethical bank and a local foundation). The pricesof the products are competitive on the market, and the organization does not need funding for itsoperation. It is financially sustainable, having paid off the loan, and even generates a profit.

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efit goals of the organization, thus leaving a largeloophole for swindlers.

A specific law on social enterprise was enacted inLithuania in 2004. However, the enforcement ofthe law has proved to be complicated, owing tothe lack of by-law provisions. Up to now, about30 companies for the disabled, inherited fromCommunist times, have been transformed intosocial enterprises and continue to receive gov-ernmental subsidies (70 percent of the totalsalaries of the disadvantaged workers are sup-ported by the state). The law is criticized by somefor having been designed to rescue the compa-nies for the disabled, inherited from theCommunist era, which cannot be funded any-more by the state, due to the country's joiningthe EU. In particular, the law makes it very diffi-cult for third sector organizations to obtain thestatus of social enterprise, as they need todemonstrate a turnover similar to that of an SME.

In Slovenia a specific form of income-generatingnon-profit organization has been introduced: thePrivate Not-for-Profit Institute. This is a legal enti-ty that can be founded by one or more individu-als or firms to perform activities in the field ofeducation, science, culture, sports, health orsocial affairs. Noteworthy is the fact that the stateand municipalities support the work of not-for-profit institutes primarily by annual subventionsor through the financing of individual projects,but very rarely on the basis of long-term financialarrangements, such as concession contracts. Themost important source of income of not-for-profit institutes is represented by commercialactivity in the market. So far, this legal form hasnot yet been exploited fully. There are indeedonly 250 Private Not-for-Profit Institutes, out of atotal of some 21,000 third sector organizations.

Box 12. Czech Republic: Zahradky Arts and Crafts Workshop

The Zahradky Arts and Crafts Workshop is situated in a relatively remote rural area in the south ofthe country that has suffered from unemployment and population decline in the period following1989. The organization has a triple mission: 1. to support traditional arts and crafts in the area; 2.to sustain local employment and new uses for under-used buildings; 3. to demonstrate that localscan opt for strategies other than the conventional ones to make a living, such as self-employedcraftwork. A hostel with 40-odd beds, meant primarily for visitors to the workshop, opened at thesame time. The workshop, launched in 1999, has hosted numerous week-long and weekend cours-es of basket weaving, embroidery, woodcutting, flower-arranging, candle-making etc. Two-thirdsof the tutors are from within the local area, and participants come from all over the country,although the primary target group is the local community and special emphasis is laid on the par-ticipation of the locals (local children receive a subsidy from the council covering 50 percent oftheir subscription). The workshop and hostel combined have created two full-time and one part-time job in the village. Both projects are financially self-sustaining and the hostel has shown a prof-it, which has been re-invested in the upgrading of the premises.

In its start-up stage, the project was funded through several sources, including a grant from a stateprogramme and international foundations. The local council, local small businesses, and the vil-lage councillors also chipped in, the latter making most of the money donated by selling Raiffeisenbank insurance. The village councillors also contributed in kind: they personally took part in someof the work involved in the building preparations.

The Zahradky Arts and Crafts Workshop and village hostel are organizationally part of the villagemunicipality and are governed by the elected village council and mayor, although they have a sep-arate budget and produce an annual report. The problem with this is a lack of stability and conti-nuity: a new village council, headed by a different mayor, may choose to discontinue the project.Besides, as a municipal project the workshop is not eligible for ongoing financial support, andlacks a supervisory board. A change of the legal structure into a public benefit company would bedesirable.

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2.2b Functions and effects of third sectororganizations and social enterprisesin transforming the economies andsocieties of CEE and CIS countries

The main functions performed by third sectororganizations and social enterprises are those ofadvocacy and service provision, albeit mostly notfor the market. The services supplied includeservices for various vulnerable segments of the

population, such as the elderly, who have beenmarginalized during the transition process.

It can be said that third sector organizations con-tributed significantly to political and socialchange at the beginning of transition. However,they currently fulfil only a minor political func-tion in most of the countries of the region, if oneincludes those with more controlling regimes.Indeed, third sector organizations and socialenterprises are partially engaged in the imple-

Box 13. Slovenia: ŠENT – Slovenian Association for Mental Health

ŠENT is a non-profit voluntary organization, founded in 1993 and registered as an association,which brings together individuals with mental health problems, their families, field experts andeveryone interested in mental health issues. Its mission is to favour the psycho-social rehabilitationof people with mental health problems and to create new employment possibilities for hard-to-employ people. ŠENT carries out various activities, including educational activities, vocationaltraining for hard-to-employ people, consultancy, and providing information to the general public.It manages a day-care centre that aims to tackle social exclusion through the organization of arange of workshops, courses and other activities that promote group as well as individual work.ŠENT also cooperates with other similar organizations in Slovenia and all over the world, in orderto attain its goals not just at the local and regional levels, but at the international level as well. Theassociation relies on diverse sources of funding: the Ministry of Labour, Family and Social Affairs,the foundation that funds organizations for the disabled and humanitarian organizations (FIHO),the Employment Service of Slovenia, and sponsors and international donors (in particularEuropean funds).

ŠENT also helps its beneficiaries to find jobs through employment rehabilitation, work qualifica-tion, work inclusion programmes and a range of active employment policy programmes. It pro-vides users with the necessary work experience and skills required to find a suitable job. The pro-grammes carried out include:

the active employment policy, which is a governmental programme funded by the EmploymentService of Slovenia aiming to employ people who have difficulties in finding a job and who havebeen unemployed for a long period of time;

Dobrovita plus d.o.o. (a type of social enterprise), which employs 40 % of disabled workers. Itwas set up by Šent, but now works independently. Dobrovita takes care of green areas inLjubljana and its surroundings and also of private properties;

the Razori estate, which is located near Ljubljana, in a small village called Podlipoglav. Users canwork as farmers, fruit-growers, gardeners or foresters. They have a greenhouse and they rear aspecial kind of goat;

employment that offers the users and their employers all the necessary support, including psy-cho-social counselling;

work inclusion, which is intended for users who are unable to work in the traditional labour mar-ket. At the day centre they can be employed as porters or cleaners, they can help with adminis-tration work and they can be included in creative activities.

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mentation of strategies to reduce povertyengage people in welfare-to-work programmes,but they rarely participate in policy formulationand local decision-making.

In some countries the third sector promotes spe-cific programmes aiming to support and stimu-late business activities, and other productive ini-tiatives for the social inclusion of vulnerable seg-ments of the population. Minority self-helpgroups and Roma associations are active in jobcreation initiatives and credit unions in a numberof countries. Thus, they encourage social andeconomic development through employabilityprogrammes in which alternative employment isone of the core elements.

The potential role of third sector organizations inthe social systems and economies of the coun-tries from the region is still widely overlooked, asthese organizations are not recognized as long-term welfare and economic partners. They arerather considered as ad hoc, short-term, ‘gap-fill-ing’ agents and as a shunting yard for the prob-lems generated by the transformation processes.This weak recognition is often combined withthe view that third sector organizations arefinancially vulnerable, economically unsustain-able and therefore not able to produce goodsand deliver services on a long-term basis andgenerate employment.

Nevertheless, there are emerging examples ofthird sector organizations performing a produc-tive function and being innovative agents inlocal economies: helping excluded workers(re)join the labour market; creating new jobs;providing additional education, training andretraining, and medical, social and vocationalrehabilitation. Ecological farms promoting envi-ronmentally safe agriculture (as in the case of theRural Social Cooperative Hostetin Apple-JuicePlant in the Czech Republic – see Box 11, page54) provide a good example of this.

third sector organizations also provide the basis forother related activities, such as tourism, industry,education, science and crafts. They support indige-nous grassroots initiatives that have grown out ofa tradition of informal cooperation through pre-serving traditional modes of production in variousfields by channelling seed-funding for the projects,paving the way for other sources of support(including public funding), providing a market for

their products and thus contributing to their eco-nomic sustainability as well as to the preservationof the cultural heritage of local territories.

The ‘soft’ contributions of third-sector/socialenterprises to the economy include shaping acommon identity and developing trust, mutualand solidarity-based relationships among differ-ent stakeholders in communities – be they schoolteachers, parents, local government representa-tives, local entrepreneurs, local media, or organ-ized or unorganized civil society initiatives – thuspreparing the ground for economic initiatives.The role of third-sector/social enterprises includeboth producing innovative goods/services for thecommunities and preserving the local heritageand local traditions. In this context, third-sec-tor/social enterprises play a role of bridging thegap between the past and the future. Graduallythird sector organizations are also beginning tobe seen as potential employers.

Keeping in mind the preliminary nature of thedata gathered, a couple of initial remarks emergeon the effects displayed by social enterprises intransforming the economies and societies of thecountries of the region:

They represent a modest, albeit increasing eco-nomic force in these countries (small workforce);

Their social impact is substantial, but they repre-sent a relatively small share in the core welfareareas. This is to a great extent due to the way thesocialist welfare state has adapted to the transi-tion. Third-sector actors are not perceived to bepart of the options; what prevails is a bi-polarmodel (state and for-profit private enterprises).Thus, activities carried out by third sector organ-izations are mostly financed on a project basis,dependent on specific financial streams;

They are increasingly engaged in the produc-tion of local goods and regular and innovativeservices, which are increasingly supplied bygrassroots groups;

They increasingly introduce new institutionalmodels that can solve socio-economic prob-lems and meet basic needs in the transitionalcountries, such as social and territorial inclu-sion initiatives or small schools in rural areas,which otherwise would have been closeddown by public authorities;

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They contribute to developing new models ofpublic-service delivery based on the co-pro-duction and co-financing of local services;

They play a growing role in rediscovering localareas as independent and significant players insocio-economic development. They do so byadvocating and implementing the integration ofvarious local stakeholders around an innovativediagnosis of local potential and strengths and bybuilding socially and economically responsibleareas via partnerships, pacts and consortia;

They tap the local indigenous cultures of sur-vival and development, local economic poten-tial and local social capital – both organizedand informal – that have been overlooked asagents of change in the majority of transitioncountries;

The potential values and contributions of socialenterprises are increasingly recognized by gov-ernments – both at the central and local levels.

2.2c The impact of foreign donors andthe emergence of domestic donors

Foreign donors have spurred the developmentof third sector organizations in all the countriesof the region, most notably in Serbia andMacedonia, where they stepped in to deal withemergency situations. In these two countries, aswell as in Ukraine,82 foreign donors continue tobe the main source of funding for non-profitorganizations. In the new member states of theEuropean Union, foreign donors are currentlywithdrawing, as EU support is replacing fundingfrom the donor community.

The impact of foreign aid has been controversial sofar. Critics emphasize the prevalence of donor-driven projects that strengthen the dependency ofbeneficiary organizations upon Western partnersand which disregard the local context. Additionalproblems reported are the lack of transparency – inBulgaria, for example, not all funds reach the ben-eficiaries. In countries such as Macedonia, a lack ofgovernment coordination exists, worsened by a

high degree of administrative centralization,which leads to increased corruption. In somecases, local organizations that benefit from foreignfunding have a bad reputation. This is true forRussia and Serbia, where funded organizations ‘areaccused of espionage, of being secretive, manipu-lative, nepotistic, and of being run by a social elitewho are rewarded with high salaries, travel, com-puters and other benefits’ (Serbia).83

In several cases, funding programmes appear toremain behind the trends. For example, EU pro-grammes specifically designed to assist theRoma minority flourished in Bulgaria as a resultof the country's accession to the EU. But then theinternationally sponsored organizations devotedto Roma issues became more numerous than theRoma organizations themselves. Paradoxically,despite the large funds allocated to sustain theRoma, this minority group has grown increasing-ly impoverished. Moreover, as has been reportedin the Polish case, the majority of donors’resources tend to benefit a small group of organ-izations, giving rise to a sort of ‘oligarchization’ ofcitizen organizations.

Donors played a most valuable role in supportingthe emergence of the third sector, both financiallyand in terms of other forms of support, includingtraining and stays (traineeships) abroad, at a timewhen no other financial support was forthcoming,but donors’ intervention has been incapable ofboosting local development processes. Indeed,the efforts made to build democracy by creating athriving third sector across Central and EasternEurope seem to have ignored the specificities ofthe social and cultural contexts of individual coun-tries.84 In other words, in their attempt to create dis-tance from the former regimes, donors overlookedboth cooperatives and state-sponsored associa-tions that were undergoing a transformationprocess. In so doing, they underestimated the roleof grassroots initiatives in re-awakening, strength-ening and legitimizing local social capital.

Donor programmes have in general ignored coop-erative organizations and mass organizations thatexisted during the Communist time, while foster-ing a high dependency on the part of the benefici-ary organizations involved in advocacy activities.

82 Where 30 percent of an organization’s income on average comes from international grants.83 Kolin 2005, p. 148. 84 Carmin and Jehlička, 2005.

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Project-based funding has also hampered the sus-tainability of third sector organizations.

One specific category that has to be taken intoaccount is that of voluntary workers, who providespecific skills to social enterprises. This preciousresource has not been fully exploited in CEE andCIS countries. This is due to the legacy of coercivevolunteerism present during Communist timesand the low income level in some countries of theregion (more specifically, the Balkan and CIS

countries). An exception is provided by the newEU member countries, where volunteers repre-sent an increasing share of employment. InSlovenia about 90 percent of not-for-profit soci-eties and associations of people rely solely on vol-unteers. In Poland, associations and foundationsrely mainly on voluntary work; only about 33 per-cent employ personnel. Volunteers perform allkinds of tasks, including service delivery, paper-work and organizational tasks.

Box 14. Bulgaria: Recent Developments

The accession of Bulgaria to the EU (on 1 January 2007) has reinforced the role of third sectororganizations in the social and economic development of the country. The strategic vision and roleof the third sector are outlined in all the basic national documents prepared to follow the EUguidelines, such as the National Development Plan 2007-2013, the National Strategic ReferenceFramework 2007-2013, the National Reform Programme 2006-2009 etc.

Capacity building and enhancement of the effectiveness of the third sector are envisaged in manydifferent spheres, including the social protection system, tourism, services for businesses, educa-tional services, deinstitutionalization, healthcare, childcare etc. All the Operational Programmesfoster interaction between the state and third sector organizations, and highlight their interven-tion capacity and public-private partnerships. Third sector organizations are identified as key ben-eficiaries of a number of EU-funded actions.

The ‘Administrative Capacity’ Operational Programme has already started to finance proposalsaiming to develop civil society structures, helping them establish better partnerships with theadministration, increasing their effectiveness and sustainability, and improving the skills and qual-ifications of their staff and members.

The ‘Human Resource Development’ Operational Programme identifies third sector organizationsas beneficiaries under all its priorities (more concretely with regard to the integration of vulnera-ble groups in the labour market; improvement of working conditions at workplaces; access of vul-nerable groups to education and training; youth in education and society; further development oflifelong learning systems; social services for the provision of employment; development and mod-ernization of the labour market system). The social services budget for the activities delegated bythe state increased by 18.5 percent in 2006. The number of private social service providers hasincreased to 631 (as of 30 April 2006). Enhanced measures are put in place to encourage third sec-tor organizations to participate in the direct provision of services to disadvantaged people, to vul-nerable ethnic minorities and to the mentally disabled. Social inclusion and enhancement of socialenterprises are identified as special priorities by the European Anti-Poverty Network Bulgaria. ‘Themain objective of this operation is to raise the level of social capital… The operation includes twomain groups of activities, the first one being targeted at directly supporting enterprises operatingin the so-called social economy and the second one related to creating conditions for triggeringcommunity, volunteer and partnership initiatives, which help to raise the level of social capital asan innovative factor of production.’

Thus in 2007 the potential opportunities for third sector organizations seem quite promising.However, there is a severe need for social impact assessment and independent monitoring andevaluation in order to assess how the strategic political intentions are implemented in practice.

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3. Appendices

1. CZECH REPUBLIC

Historicaloverview

A strong voluntary and cooperative sector has existed since the late 19th century.Cooperatives – which included farmers’ marketing cooperatives, consumer cooperatives,food-processing cooperatives, and credit cooperatives (the most numerous ones) – startedto emerge in the 1860s and the movement grew after the enactment of the first law in 1873.After the communist take-over in 1948, all organizations were subsumed under an umbrel-la group – the National Front – controlled by the Communist Party and funded by the State.However, control was never absolute and some organizations managed to shield activitiesthat were not sanctioned by the government (e.g. a semi-independent environmentalorganization in Prague). Farmers were forced to enter unified agricultural-producer cooper-atives. Credit and insurance cooperatives were nationalized or abolished, as were all othercooperatives with the exception of producer coops and a part of consumer coops, whichapproximated state-owned enterprises.

Legacy of communism

Mistrust of umbrella groupings and networking has remained to some extent. The voluntaryethos has been lost in some fields, but it remains strong in others. The term cooperative hasbeen hijacked; it has for most people a communist connotation.

Legal evolution Excessively vague and incomplete legislation initially enabled many non-profit organiza-tions to blossom, but many people misused the legal forms of association, foundation, andcredit union. More recently, laws have been consolidated and legal forms are more precise.However, excessive regulation85 has contributed to the semi-demise of the credit union sec-tor and has made the setting up of new associations more difficult.

Legal frameworks apt to fit SE

Permissibility of economic activity

for third sectororganizations

and tax exemptions

Foundations are not allowed to engage in economic activity.Associations and PBCs are allowed to conduct economic activities if these are named intheir statutes. Associations do not normally produce goods/services for the market.Economic activities have to benefit the public and thus are subject to a tax rebate. The lackof an overarching definition of ‘non-profit’ and ‘public benefit’ in Czech law has led to a lackof clarity of tax rules.

Typology of organization Activities carried out86 #87

AssociationsThey are supposed to exist for thebenefit of the public and they donot produce goods/ services for themarketThey include: self-help groups; advo-cacy groups, etc.

Their activities span culture, thesocial sphere, health, sport, edu-cation, social inclusion, environ-ment etc.

48,804(of which

30,878 local

groups)

Public Benefit Companies They are expected to provide servic-es for the benefit of the public.

Activities are carried out in a num-ber of areas including culture,health and social welfare, etc.

1,158

TOTAL 49,962

3.1. Overview of the Third Sector (TS) and Social Enterprise (SE)Phenomena in CEE and CIS Countries

85 Reference is made to the EU banking directive.86 A major shortcoming of NGO service delivery is the lack of capacity of organizations to deliver services over a sustained period of time.87 Number of registered organizations is not reliable. According to the USAID NGO Sustainability Index for 2004 (The 2004 NGO Sustainability Index for Central and

Eastern Europe and Eurasia, USAID, Washington DC, 2005) out of the 5,500 registered organizations, 5 percent are thought to be active.

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2. ESTONIA

Historicaloverview

At the beginning of the 20th century, Estonia had a very large and well-developed third sec-tor. Under communism only some third sector organizations were allowed to exist (choirs;folk dance clubs, etc.). They were subjected to very strict control by the state and theCommunist Party. The right of association was re-introduced during Perestroika. The law onassociations of citizens was introduced in 1989. It was revolutionary because it releasedassociations from communist control. Only after independence in 1991 was a new law intro-duced that provided a general framework for the regulation of non-profit associations.Estonia boasts an enormous number of registered non-profit organizations, includingabout 8,000 housing associations, where 60 percent of the population live.

Legacy of communism

Soviet ideology did not support independent thinking. After Estonia’s re-independencepeople were not used to being active citizens, to organizing themselves and to defendingtheir collective interests.

Legal evolution The Law on Foundations and the Law on Non-Profit Associations were both adopted in1996. Additionally some NGOs are regulated in specific fields. Activities of cooperatives areregulated by the Act on Profit- Making Cooperatives.




and tax exemptions

Third sector organizations are allowed to conduct economic activities, provided that theprofit gained is not distributed among members.According to the Estonian Income Tax Act, associations and social organizations do not paytaxes on their income. Corporate bodies and individuals can make tax-exempted gifts anddonation to public interest organizations listed by the Ministry of Finance (1,200 organiza-tions are marked in that list.) Individual donors can give up to US$ 5,900 tax free to theseorganizations.

Typology of organization Activities carried out # Funding sources

Associations and societalorganizations

Sport, culture, art. Mainlyadvocacy organizations.

12,000Variety of sources:membership fees;

public sectorappropriations;

grants from localand international

foundations.

Cooperatives Agricultural, consumer,credit, etc.

200

Housing associations 8,000

TOTAL 20,200

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3. LITHUANIA

Historicaloverview

The Lithuanian third sector has experienced an interrupted development, as people’smovements and gatherings during the Soviet time were strictly controlled by the authori-ties and the state security organization, the KGB. Some social organizations that wereapproved by the Communist Party were used by Lithuanians as a way for fulfilling someneeds not met by the regime. After the Soviet regime collapsed, new laws for associationsand societal organization, charities and foundations, and cooperatives were introduced.Moreover, two other laws were approved by parliament: the law on ‘Public Establishment’and the law regulating ‘Credit Unions’.

Legacy of communism

Fifty years of Soviet occupation and social restrictions contributed to a strong sense of citi-zenship among Lithuanians. The term ‘cooperative’ is reminiscent of ‘Kolkhozen’, whichexplains the slow development of cooperatives in Lithuania.

Legal evolution From a legal perspective, the recognition of the third sector is in place. The main problem isfinancial sustainability that hampers the development of the third sector. In May 2004 theLaw on Social Enterprises was enacted. Owing to the rigidity of the law, no new social enter-prise has been established according to its guidelines.




and tax exemptions

The Law on Social Services (1996) allows for social services to be contracted out to associa-tions and societal organizations. Associations and societal organizations are allowed to con-duct business activity, but productive activities are still underdeveloped.

Typology oforganization

Activities carried out #88 Funding sources

SocietalOrganizationsand Associations

Social services, training, advocacyactivities, leisure and sport, culture,environmental issues.

NA Donations.Still lacking themechanism of pub-lic procurement inthe field ofsocial/communityservices

Companies fordisabled

NA Public subsidies

Cooperatives Consumer, agricultural, credit. NA Commercial activity

TOTAL NA

88 Only 5-10 percent are estimated to be active organizations. Indeed, the procedure for terminating an organization is far more complicated than the procedurefor registering one.

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4. POLAND

Historicaloverview

Modern coops, associations, foundations, mutual-aid societies, and credit coops date backto the 19th century. In the pre-World-War II period, foundations and associations comple-mented the government by supplying social, educational, and health services. In 1934 therewere 22,700 coops with over 2.6 million members. After World War II, coops turned intoquasi-state agencies and produced goods and services within the nationalized economy.Credit unions and mutual aid societies were dissolved; foundations were incorporated intothe public infrastructure; associations started to deliver a narrow range of services.The last 16 years of the Polish transition have seen an upsurge of various organizations,including foundations; associations, and credit-savings cooperatives (SKOS). At the sametime, the years 1989-2005 saw a shift from mechanical participation - with often coercedmembership - in officially sanctioned organizations to multidimensional participation notlimited to membership.

Legacy of communism

Communism helped to weaken the material infrastructure of voluntary organizations.Coops are still perceived as a relic of the communist regime. Such distrust has resulted in adecrease in the number of cooperatives, following the dissolution of cooperative federa-tions.

Legal evolution Legal acts regulating associations and foundations were promptly introduced, while otherthird sector organizations were recognized later. Further legal recognition occurred in 2003and 2004 (The Law on Social Employment and on Employment Promotion and Institutionsof the Labour Market).



and tax exemptions

Associations and foundations are allowed to conduct economic activity, provided that theincome generated from the activity is used entirely to further the organization’s mission andcannot be distributed among members. In the case of social coops, not less than 40 percent of the surplus has to be dedicated to thecommon fund. In the case of vocational enterprises for the handicapped, profit from eco-nomic activity is transferred to the enterprise’s activity fund.No tax incentives based on the legal form (Act on Public Benefit and Volunteerism).Public benefit organizations subject to tax exemptions.

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AssociationsFoundations

About 20,000 organi-zations operate in thefield of social welfare,health care, educationand local development(socio-educational pro-grammes; training pro-grammes; assistance toemployment pro-grams)

52,000(45,000

assoc.and

7.000found.)

Public sources: 30%Earned income: 20%Corporate giving: 7%

Cooperatives Various 10,585 Income from sellingof goods/services

Social Integration Centresand ClubsGoal: reintegrate thelong-term unemployedand economically inac-tive populations viasocial reintegration

Various types of thera-py (individual, group,family), self-helpgroups, social educa-tion and vocationalintegration (vocation-al training, workshopsand internships)

175 Public sources (central/regional/local governments)

Social CoopsGoal: work integration oflong-term unemployed,and economically inac-tive groups

Elderly home-careservices, cleaning serv-ices for households,building/repair servic-es, growing plants andmaintenance of publicgreen areas, recyclingservices

30 No data on incomestructure

Vocational enterprises forhandicappedCoops for handicapped

Provide transitional(vocational enterpris-es) and permanentemployment for dis-abled people

25 The founding policyis based on direct(grants and dona-tions) and indirectpublic support in theform of tax deduc-tions and exemp-tions.

TOTAL 62,815

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5. SLOVENIA

Historicaloverview

Slovenian society has a long and rich tradition of association. The Catholic Church played animportant role in creating and supporting various kinds of organizations. With the arrival ofthe socialist system the functions previously displayed by the third sector were taken over bythe public sector. However, the rise in number of third sector organizations was the mostintense in the period between 1975 and 1985, and not in the 1990’s after the collapse of com-munism. In contrast with other transitional countries, Slovenia did not experience a massemergence of new third sector organizations after independence in 1991, except in somefields (sports; culture; social welfare). The role of the third sector, albeit politically recognizedand financially supported, is still limited to filling the gaps left by the public sector.

Legacy of communism

Slovenia has a long tradition in the development and realization of vocational trainings andemployment programmes for people with disabilities that have been partially inheritedfrom communist time.

Legal evolution89 Third sector organizations are regulated by several legal acts; each organizational form is cov-ered by one act. A broader definition of the Non-Profit sector is given by the ‘Corporate ProfitTax Act’ by establishing that associations, religious communities, private funds and otherorganizations and institutes, created for ecological, humanitarian, charity and other non-profitpurposes do not have to pay tax.




and tax exemptions

The Slovenian legislation envisages the possibility for third sector organizations to acquirenecessary income by performing additional activities that are economic in nature. Thereforea non-profit organization can act like a private company; the only difference being that theprofit created should further the development of its basic activities. The existing tax systemin Slovenia envisages some form of tax relief for third sector organizations, which are rela-tively low. However, the tax and other regulatory systems have not been conducive for thedevelopment of social entrepreneurship in Slovenia. The laws are inconsistent and law reg-ulations are not often practiced.


Non-profit societies andassociations

Advocacy or productiveactivities (sport, culture,welfare)

20,000

Public financialsupport

Membership feedonations

commercialactivities

Foundations, religious andother humanitarian organ-izations

255

Private Not-for-ProfitInstitutes

Education, science, cul-ture, sports, health, socialaffairs and others

250

Cooperatives Housing; manufacturing;construction/building;other)

534

Companies for the dis-abled

Work on the open market 150

TOTAL 21,189

89 Non-profit organizations can be created in the form of consumer cooperatives, public and religious organizations (associations), foundations, establishments,corporations of legal persons (associations and unions) (the CCRF, Part I, Sec. I, Sub-sec.2, Ch.4, paragraph 5). 10 It is noteworthy that about 10 Russian organ-izations carrying out advocacy activities have been recently accused by the Russian Federal Security Service of having been funded by representatives of theBritish Intelligence Service in Moscow. www.hro.org.

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6. BULGARIA

Historicaloverview

After the establishment of Bulgaria, three basic forms of cooperation for mutual supportwere quite popular: • various forms of cooperatives-credit, producer, consumer coops mainly developed in the

agricultural sector; • a specific form of cultural association – chitalishte – that supported educational and cul-

tural activities at the local level; • urban voluntary civil sector composed of foundations and associations. During the communist period, cooperatives turned into main organizational structures forthe development of agriculture. Many consumers, housing and cultural cooperatives exist-ed and the cooperatives for disabled came into being. State support was guaranteed by theconstitution. Third sector organizations resembled quasi-state agencies. The first decade oftransition witnessed an underestimation of third sector organizations. Currently, the atti-tude of the state towards the third-sector has changed: from negative to neutral withregards to cooperatives and from neutral to positive with regards to NGOs.

Legacy of communism

The legacy of the past has had strong and contradictory influences on the development of differentforms of social economy. The lack of developed civil society, the low level of citizenship and the miss-ing civil society ‘spirit’ have led to hardships for the successful development of the third sector.

Legal evolution From 1990 until 2003, NGOs were established according to the Law on Persons andFamilies, 1949. More specialized NGOs legislation was approved in 2001 (Law on Firms withnon-profit purposes) and effectively introduced in 2003. Simultaneously, the legislation onthe provision of social services, the Social assistance Act/2003 and the regulations for itsimplementation have provided room for NGO involvement in the provision of social servic-es. The new legislative framework enforced partnerships among state and local authoritiesand NGOs and made it possible for the state and local authorities to finance NGOs. Thecooperatives are established under the Law for Cooperatives, 1996.




and tax exemptions

According to Bulgarian legislation, NGOs can engage in additional economic activities if they arerelated to their main registered activity and follow the rules and conditions determined by the lawsregulating the respective type of economic activity. However, to operate on the market of goodsand services, NGOs have to establish a company. For NGOs, different tax exemptions were available from the beginning of the transition, althoughsome of them were cancelled later on. For the Cooperatives there are some tax exemptions as well.

Typology of organi-zation

Activities carried out90 #91 Funding sources

NGOs (foundations, associ-ations, local branch-es of national organ-izations, religiousorganizations...)

The main fields of activities ofthese organizations includeactive measures on thelabour market, integration ofminorities (Roma), localdevelopment, ecology, pover-ty alleviation, etc.

10,000(Foundations:1,200; Assocs.:

4,500;Religious: 100;

Chitalishte:4,200)

Foreigndonors, public sup-port, donation.

Cooperatives Consumer, agricultural, credit,housing. Production of goodsand services for the marketand/or for their members.

7,000 (agri-cultural

3,000)

Income from their produc-tion on themarket.

Cooperatives for dis-abled

They were engaged in specif-ic production before transi-tion.

NA Public sup-port was themain sourcebefore the transition.

TOTAL 17,000

90 A major shortcoming of NGO service delivery is the lack of capacity of organizations to deliver services over a sustained period of time.91 The number of registered organizations is not reliable. According to the USAID NGO Sustainability Index for 2004 (The 2004 NGO Sustainability Index for Central

and Eastern Europe and Eurasia, USAID, Washington DC, 2005) out of the 5,500 registered organizations, 5 percent are thought to be active.

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92 A major shortcoming of NGO service delivering is the lack of capacity of the organizations to deliver services over a sustained period of time.93 The number of registered organizations is not reliable. According to the USAID NGO Sustainability Index for 2004 (The 2004 NGO Sustainability Index for Central

and Eastern Europe and Eurasia, USAID, Washington DC, 2005) out of the 5,500 registered organizations, 5 percent are thought to be active.

7. MACEDONIA

Historicaloverview

The following institutions all predated communism in Yugoslavia (1945-1991) andremained prevalent during the communist years: Rural traditions of mutual aid in times ofenhanced agricultural activity, burial groups, other forms of reciprocal solidarity; urbancraftsmen or trade guilds; workers' associations, local choral societies and sports clubs.During communism freedom of association was limited to the forms that were approvedand encouraged by the ruling ideology. Traditional groups, which served membershipinterests, continued to exist (sports and other leisure activity groups). Another dimension ofcivic organizations were the large membership-based organizations – such as YouthOrganization, Women's Organization, Organization of Pensioners, etc. The early years afterindependence witnessed the spread of such organizations and the widening of issues thatcivil society represented. Three stages were particularly important in terms of the growth of the civil sector:• The independence of the country in 1991 and its opening to foreign aid and interest of for-

eign donors and organizations;• The Kosovo refugee crisis of 1999 which brought in a tremendous number of foreign actors;• The Macedonian crisis of 2001 which led to a second flow of foreign emergency relief groups. Worth noticing is that the third sector is currently quite divided along ethnic lines.

Legacy of communism

Limited freedom of association; lack of tradition and experience in independent civilorganizations.Negative impact of previous over-reliance of the citizenry on the state for delivery of pub-lic services: lack of individual and collective civic responsibility over management of collec-tive affairs.

Legal evolution In the first eight years of independence the third sector was regulated by the communist-eraLaw on Social Organizations and Associations of Citizens. In June 1998 it was replaced by theLaw on Citizens’ Associations and Foundations. One major difference between the old andthe new piece of legislation is the government body in charge of the registry process. Beforeit was the Ministry of Interior and under the new law it is the local courts. The Law is current-ly up for amendment, with the aim to make a clearer distinction between public benefit andprivate benefit groups, as a prerequisite for obtaining government funding.




and tax exemptions

Organizations wishing to conduct economic activities need to do it through a separatejoint-stock or limited-liability company.Not-for-profit organizations are subject to all fiscal regulations applied to legal persons, butare exempted from paying taxes on grants and donations.

Typology of organization Activities carried out92 #93 Funding sources

Associations(associations of citizens,associations of foreign cit-izens, branches of foreignorganizations) and foundations (bothadvocacy and service, butnot economic activity)

Variety of services to dif-ferent target groups;education, counselling,psychosocial support,legal and social supportservices; services tailoredto the particular needs ofspecific target groupssuch as the disabled, vul-nerable women, Roma,etc.

5,289 reg-istered

of which1,512active

Mainly funded byforeign donors

TOTAL5,289

(1,512)

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8. SERBIA

Historicaloverview

Philanthropic activities culminated in the 20th century. In addition, Serbia has a long tradi-tion of cooperatives comprising agricultural collective farms (specialized in grain; dairyproducts; wine etc.) and credit unions that developed at the end of the 19th century.After World War II the evolution of cooperatives was strongly influenced by the communistidea to collectivize the agricultural sector. Cooperatives became an integral part of the polit-ical system and planned economy. If compared to other Eastern European countries prior to1989, the Yugoslav communist regime was more liberal and tolerated a certain degree ofself-initiative at a local level. Despite the lack a democratic environment and favourable legal conditions, a great numberof civil society organizations emerged in the past decade. The newly emerging third-sectorhas created the foundations for social change and contributed to the end of the Milosevicregime in 2000. Besides its political role, the third-sector also provides welfare services tothe most vulnerable and at-risk groups and contributes to job creation.

Legacy of communism

Communism strongly influenced the structure and functioning of the organizations estab-lished during communist rule, which continue to operate today.

Legal evolution The legal environment is not adequate and does not contribute to the sustainability of thirdsector organizations. In addition, current regulations addressing religious groups, which arean important component of the Serbian third sector, are more rigorous if compared to theregulations envisaged for for-profit enterprises and for the other third sector organizations.Noteworthy is that the law in force originates from the communist period.




and tax exemptions

Owing to legal restrictions on profit-seeking activity by voluntary groups, self-help groupsare often forced to initiate cooperatives. Accounting and bookkeeping rules for not-for-profit organizations are the same as for for-profit enterprises. The tax regime is the same asfor small- and medium-sized enterprises. Exceptions are envisaged for equipment importedunder humanitarian assistance programmes or when it is meant for disabled people.Similarly the tax regime envisaged for cooperatives is currently similar to that applied to for-profit enterprises.



Associations(of which: self-help – 300/400 - and reli-gious groups about30/50)

Citizens’ self-helpgroups and religiousgroups95 specialized inwelfare and social pro-tection of the most vul-nerable people

3,000 The majority of religiousand self-help groups areheavily dependent onresources provided byinternational organiza-tions. As for religiousgroups, some organiza-tions depend on reli-gious network (Caritas;Serbian-OrthodoxChurch)96

Cooperatives Consumer, credit, agri-culture

2,800 Commercial sources;fees; no governmentalsupport

TOTAL 5,800

94 Due to unreliable official statistics, it is almost impossible to obtain numbers and typologies of Serbian organizations. According to the Centre for Non-ProfitSector Development (CRNPS), there are more than 3,000 autonomous NGOs registered under the Law on Associations of 1989. According to a recently pub-lished research paper by Civil Initiatives, in 2005 there were about 900 active organizations.

95 Citizens self-help groups are mainly grass-root organizations experimenting with new social services and job-creation activities in the embryonic phase. Themain sub-categories are: women’s groups; refugee groups; associations for disabled people; other marginalized self-help groups (such as the Roma) that pro-vide innovative services and are experimenting with job creation activities at an embryonic phase.

96 The existing law, inherited from communism, prevents religious institutions from raising public funds.

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9. BELARUS

Historicaloverview

Before the 1917 communist revolution, Belarus was home to numerous third sector organ-izations, including charitable organizations, literary societies, consumer cooperatives, andwomen’s unions.From 1917 until 1986 there were no real third sector organizations. All Soviet associationswere tailored and controlled by the state to serve the Communist ideology. Belarusian thirdsector organizations – representing true civic interests – began to appear in the late 1980s.Third sector organizations flourished during the years 1990 until 1996.

Legacy of communism

Low stocks of social capital and mistrust of cooperative organizations

Legal evolution In 1991 the first legal acts were adopted to regulate third-sector activities. The 1996Constitutional revision strengthened executive power and resulted in an increasing author-itarianism and pressure on civil society and its institutions. The procedural framework ofthird sector organizations became more complicated, efforts to provide financial aidencountered obstacles, and all aspects of third-sector activity became subject to licensing.As a result, the third-sector became more politicized. The State has strongly promoted theadvancement of governmental NGOs and thus has created an illusory civil society. Severeexternal conditions reinforce authoritarian leadership styles within third sector organiza-tion. Since 2003, legislation permits the establishment of republican governmental publicassociations (GoNGOs), which are designed to accomplish those tasks that are incumbenton the State. GoNGOs may be founded by, and made up of, individuals and legal entities, aswell as the Republic of Belarus represented by an authorized governmental body or otherlegal entity.




and tax exemptions

Following the 2005 revision of the Law on Public Associations (article 20), public associa-tions and their unions (associations) can carry out entrepreneurial activity only within a spe-cially established profit-making organization. They can thus perform their activity only asequals of profit-maximizing organizations and are subject to the rules and norms of the tra-ditional market, including those of taxation. In addition, public associations are allowed tosell products/services of their chartered activity (publishing, conferences, exhibitions, sportsevents etc.) provided that the fees charged for these products/ services are equal to thecosts spent on their production.

Typology of organ-ization

Activities carried out # Funding sources

Public associations Training, workshops, camps,international exchange,round tables, conferences,open discussions, Internetforums.

1,245 Membership fees repre-sent the prevalent

source of revenue, fol-lowed by internationalgovernmental fundingand international non-governmental funding;fundraising activities;

entrepreneurial activitiesand finally governmental

funding

Republican gov-ernmental associa-tion

Accomplish tasks defined bythe state and enjoyfavourable conditions

969

TOTAL 2,214

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10. KAZAKHSTAN

Historicaloverview

The first cooperatives appeared in Kazakhstan in the 19th century, mainly in the Westernpart (Caspian Sea), as fishing cartels. As a part of the Russian Empire, Kazakhstan boastedseveral organizations that patronized the arts and pursued philanthropy. In the communistperiod grassroots initiatives were replaced by top-down initiatives. After mass collectiviza-tion, only consumer groups remained active. The development of real third-sector groupsstarted after independence in 1991. In the first period of development (the end of 1980suntil 1994)97 400 NGOs98 were established, being generally involved in human rights pro-tection. Period 2 (1994-1997) was one of qualitative and quantitative growth of third sectororganizations (NGOs alone grew by a factor of four), mainly as a result of major financial sup-port by international donor organizations in the form of grants. Period 3 (1998 up to now)is a qualitatively new stage, when the issue of interaction mechanisms between govern-ment and third sector organizations has become a subject of serious discussion.

Legacy of communism

--

Legal evolution In 1985, following a Resolution on ‘Amateur Associations and Interest Clubs’, a great numberof organizations appeared. In 1989, the decree ‘On the Formation Procedure and Operationsof Public Associations’ was issued by the Supreme Soviet in 1991 and the Law ‘On PublicAssociations in the Kazakh SSR’ was promulgated. There are several laws regulating the activ-ity of social enterprises (the Law on Public Associations’, 1996; the law ‘On Housing Relations’,1997; the law ‘On Agricultural Associations and Their Alliances’, 2000; the law ‘On Consumers’Cooperative’ dated 2001, with improvements made in 2003; the law ‘On Non-commercialOrganizations’, 2001; the law ‘On State Social Order’, 2005). These laws regulate single activ-ities of different types of social enterprises, and there are some overlaps and contradictions.There is no unified law on social enterprise as such yet.




and tax exemptions

The social business corporation (SEC) model was presented in the Yearly President’sMessage (2006) as a stable business structure, receiving profit from production or serviceprovision, but reinvesting the profit in the realization of social, economic and cultural goalsof the community (region) turning thus into regional ‘development locomotives’.

Typology of organiza-tion


Self-help groups Unregistered community-basedgrass-roots groups uniting rural, vul-nerable populations or nationalitiesliving side by side.

NA

--

NGOs (active founda-tions and associations)

Producing goods or providing servic-es, mainly registered in different legalforms

2,000--

Cooperatives Agricultural cooperatives; water-userssocieties; real estate administrationand apartment owners’ societies;consumer

7,491

--

Vocational enterprisesfor the handicapped

NA

TOTAL 9,491

97 ‘Non-Governmental Organizations of Kazakhstan: Past, Present, Future’, UNDP Kazakhstan Report, Almaty 2002.98 The term NGOs means not-for-profit organizations, excluding trade unions, political parties, religious confession and government institutions.99 Only 5-10 percent of organizations are estimated to be active. Indeed, the procedure for terminating an organization is far more complicated than the proce-

dure for registering one.

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100 It is noteworthy that about 10 Russian organizations carrying out advocacy activities have been recently accused by the Russian Federal Security Service ofhaving been funded by representatives of the British Intelligence Service in Moscow (www.hro.org).

101 Non-profit organizations can be created in the form of consumer cooperatives, public and religious organizations (associations), foundations, establishments,corporations of legal persons (associations and unions) (the CCRF, Part I, Sec. I, Sub-sec.2, Ch.4, paragraph 5).

102 Public associations include: public organizations, public movements, public foundations, public establishments, independent bodies, political parties.

11. RUSSIA

Historicaloverview

In pre-Soviet Russia there were many voluntary associations of citizens aimed at meetingvarious needs and interests (such as cooperatives, and societies for sport, culture, engineer-ing, knowledge promotion). Religious organizations were a part of the state machine andthe Russian Church performed some public duties such as civil registration. According to the Soviet constitution, the Communist Party of the USSR defined activities ofall state and voluntary organizations (even religious ones in spite of their separation fromthe State). However, many organizations existing under communism had a social-orienta-tion in spite of their dependence on the State. The post-Soviet period has been characterized by the development of diverse forms of volun-tary associations and non-profit organizations that have not yet been fully recognized.100

Legacy of communism

The implementation of the new legislative system has led to the enactment of a number ofnew laws in a short period of time. In addition, the new laws have required numerous sup-plements and amendments, which have hampered the development of the third sector.

Legal evolution101 The Federal Law ‘On non-profit organizations’ was adopted by the State Duma on 8December 1995. Non-profit organizations may be created in the form of social or religiousorganizations (associations), non-profit partnerships, establishments, autonomous non-prof-it organizations, social, charitable and any other foundations, associations and unions, andalso in other forms stipulated by the Federal laws.




and tax exemptions

Owing to legal restrictions on profit-seeking activity by voluntary groups, self-help groupsare often forced to initiate cooperatives. Accounting and bookkeeping rules for not-for-profit organizations are the same as for for-profit enterprises. The tax regime is the same asfor small- and medium-sized enterprises. Exceptions are envisaged for equipment importedunder humanitarian assistance programmes or when it is meant for disabled people.Similarly the tax regime envisaged for cooperatives is currently similar to that applied to for-profit enterprises.


Activities carried out # Funding sources

Public associations102 Public associations carry out a widespectrum of activities supportingdisadvantaged people: creatingnew jobs, assisting people withentering the labour market, con-ducting additional education, train-ing and re-training, social, labourand medical rehabilitation.

64,850 Structure notknown

Autonomous non-profit organizations(non-membershiporganization)

Services in the sphere of education,health protection, culture, science,law, physical education and sports

NA Structure notknown

Consumer coopera-tives

Trade, storage, production andother activities aimed at meetingthe material and other needs ofmembers

NA Incomesfrom busi-ness activity

TOTAL 64,850

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12. UKRAINE

Historicaloverview

Civic associations were first formed in the first part of the nineteenth century, when theirnumber reached 2,643. These associations built schools, roads, shelters, organized researchexpeditions, published scientific books, conducted charity lotteries, and organized kinder-gartens. After the Bolshevik revolution of 1917, civic organizations were suppressed or transformedinto public-led organizations. In the former Soviet Union the state not only established asystem of civic institutions, but also governed them. By the end of the 1980s civic activitybegan to grow and especially many informal youth associations were formed.

Legacy of communism

Leaders of the third sector are in many cases products of the old communist system. Thelegacies of the communist approach to third sector organizations, as the offshoots of theauthoritarian or paternalistic government, are still extensive in Ukrainian policies and thelegal framework.

Legal evolution After Ukraine proclaimed its independence in 1991, the Supreme Council adopted a new lawon the Union of Citizens, requiring that the establishment of associations comply with dem-ocratic principles. The number of organizations grew rapidly. Every year 4,000-5,000 newunions of citizens and charities have been registered. Private foundations are still uncom-mon, because the omnibus law on registration of legal entities became effective only in mid2004. A new Law on the State Registration of Legal Entities and Individual Entrepreneurs,adopted in spring 2003, simplifies registration procedures for unions of citizens and createsan automated public single national register of such organizations.




and tax exemptions

Delivery of public services by third sector organizations is allowed by law, but practicallyimpossible owing to legal inconsistencies. According to law 2460/92 non-profit associations can run business activities through theirsubsidiary enterprises. Quite promising improvements introduced by the 2004 Civil Code,according to which non-business corporations and institutions shall have the right to runbusiness activity, within their statutory activities and in compliance with their statutory goals. Moreover, the law on social services 966/03 allows third sector organizations to receivecompensation for social services. But practically the only way whereby unions of citizenscan generate incomes through economic activity is through commercial firms. The tax coderestricts tax privileges to grants and donations. In addition, revenues accumulated have tobe spent within the following tax year.



Unions of citizens(limited provision ofservices)

Most organizations work with chil-dren and youth. The most commonactivity is advocacy and lobbying,followed by training and consulta-tive support, dissemination of infor-mation and educational activities. Itshould be noted that the numberof organizations dealing with socialissues has increased in recent years.

42,000 Foreigndonations

Charities 9,000

TOTAL 51,000104

103 Only 5-10 percent are estimated to be active organizations. Indeed, the procedure for terminating an organization is far more complicated than for registering one.104 Of which: 95 percent local organizations; 4 percent national; 1 percent international. Organizations most developed are in the urban areas (Kyiv; Lviv; Kharkiv; Donetsk).

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3.2. Methodological Note

This study consists of three stages:

STAGE 1:

The first stage was devoted to adapting the wideconcept of the Social Enterprise worked out bythe EMES European Research Network to the spe-cific context of CEE and CIS countries (See section3.3). Accordingly, the broad definition was refinedon the basis of the work carried out by the EMESresearch group during the last 10 years across theoriginal 15 Member States of the European Union.In parallel, National Contacts were identified andcontacted in 12 countries of the region includedin this research. The selected researchers are com-mitted to the study of the third sector in theircountries and are included in the table below:

STAGE 2:

The first step of the second stage was aimed atidentifying categories of organizations thatmight be considered as having several character-istics in common (to varying extents) with socialenterprises as defined by the EMES Network.Thus, National Contacts were asked to:

a) Provide a country analysis aimed at identifyingthe categories of third sector organizations thatmay fall under the revised Social Enterprise defi-nition;

b) On the basis of the information previously sub-mitted, complete a questionnaire designed foreach category of Social Enterprise identified;

c) Provide a final country report on the social enter-prise phenomenon at a national level.

Country Researcher Affiliation

1. Czech Republic Nadia Johanisova Ostrolovsky Ujezd 14 37401 Trhove Sviny

2. Estonia Marit Otsing Estonian Union of Cooperative Association

3. Lithuania Dziugas Dvarionas Institute of Social Economy - Kaunas

4. Poland Ewa Leś Warsaw University – Institute of Social Policy

5. Slovenia Matjaž Golob Human Resources Development Fund

6. Bulgaria Maria Jeliazkova Institute of Sociology

7. Macedonia Risto Karajkov University of Bologna

8. Serbia Maria Kolin Institute for Social Science - Belgrade

9. Belarus [The researchers have requested to keep their names confidential.]

10. Kazakhstan Tatiana Sedova ARGO consultant

11. Russia Vladimir Korolev Moscow State University of Service, WorldEconomy Department

12. Ukraine Lyubov Palyvoda Counterpart Creative Centre Charity Foundation (CCC)

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The second step of stage 2 stemmed from thedata gathered through which the developmentpaths of social enterprises in the various countriesunder investigation were identified, with specialregard to:

The activities carried out;

The institutional and legal recognition;

Human resources;

The typologies of relationships established withthe public administration(s), for profit sector,and local communities;

Funding resources;

Public policies;

Donors;

Networking;

Legal and fiscal framework for social enterprises.

One country visit was carried out to the RussianFederation on 23-25 March 2006. The goal of thisvisit was to meet and interview directly theRussian researcher appointed, Prof. VladimirKorolev of the Moscow State University, withwhom no previous contacts had been estab-lished before. The meeting allowed researchersto devote some time to share the social enter-prise definition worked out by the EMES researchgroup, to describe the main outcomes of thestudy carried out so far, and to assess with thehelp of the Russian expert the suitability of thesocial enterprise definition tailored for CEE andCIS countries to the Russian context. In addition,the study visit offered an opportunity to establishnew contacts with a Russian legal expert, DariaMiloslavskaja, who provided an overview of thelegal frameworks for third sector organizationsand social enterprises in the Russian Federation.The information and data gathered helpedresearchers complete the study with respect tothe case of the third sector and social enterprisephenomena in the Russian Federation.

3.3. Towards a Social EnterpriseApproach Adapted to CEE and CIS Countries

i. The Conceptual Background

The wide spectrum of socio-economic institu-tions other than investor-owned (the for- profitsector) and public agencies (the state) has beentermed in various ways depending on the specif-ic tradition and definitions used, national context,and specific features emphasized. It may be saidthat two theoretical approaches to the third sec-tor have gradually spread internationally, accom-panied by statistical work aiming to quantify itseconomic importance:

The ‘non-profit’ approach

On the one hand, the ‘non-profit school’ approach-es this sector via the statutory ban on the distribu-tion of profits in these organizations. This ‘nonprofit-sector approach’has been developing sincethe second part of the 1970s to take into accountthe US situation. The term ‘voluntary sector’main-ly used in the UK also fits in that ‘school’. Thesenon-profit organizations fulfil a broad spectrum ofsocietal and political tasks, among those are lobby-ing and interest representation, as well as serviceprovision. This definition excludes cooperativesand mutual-aid societies on the grounds that theycan distribute some of their profits to members. Itcan be said that the Comparative Non-profit SectorProject, coordinated by the Johns HopkinsUniversity, relied on such an approach.

The ‘social economy’ approach

On the other hand, the concept of the 'socialeconomy', that brings together cooperatives,mutual societies and associations (and, withincreasing frequency, foundations), stresses thespecificity of the mission of these organizations,namely their aim to benefit either their membersor a larger collective rather than generating prof-its for investors. This approach also highlightsthe democratic character of the decision-makingprocess within the organizations and the preva-lence of people and labour over capital in thedistribution of incomes.


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The concept of social enterprise

The concept of social enterprise does not seek tosupplant existing concepts of the third sector –such as the concepts of the social economy, thenon-profit sector. Rather, it is intended toenhance third-sector concepts by shedding lighton particular dynamics within this sector: namely,entrepreneurial dynamics focused on social aims.On the one hand, compared to traditional associ-ations, social enterprises place a higher value oneconomic risk-taking related to an ongoing pro-ductive activity (in the world of non-profit organ-izations, production-oriented associations arecertainly closer to social enterprises than areadvocacy organizations and grant-making foun-dations). On the other hand, in contrast to manytraditional cooperatives, social enterprises maybe seen as more oriented to the whole commu-nity and putting more emphasis on the dimen-sion of general interest. Moreover, social enter-prises are said to combine different types ofstakeholders in their membership, whereas tradi-tional cooperatives have generally been set upas single-stakeholder organizations. These con-trasting elements, however, should not be over-estimated: while social enterprises are in somecases new organizations, which may be regardedas constituting a new sub-division of the thirdsector, in other cases, they result from a processat work in older experiences within the third sec-tor. In other words, it can be said that the gener-ic term 'social enterprise' does not represent aconceptual break with institutions of the thirdsector but, rather, a new dynamic within it –encompassing both newly-created organiza-tions and older ones that have undergone anevolution. Whether these social enterpriseschoose a cooperative legal form or an associativelegal form often depends primarily on the legalmechanisms provided by national legislations.

To summarize, social enterprises may be defined asorganizations providing goods or services with anexplicit aim to benefit the community, initiated by agroup of citizens and in which the material interestof capital investors is subject to limits. Social enter-prises also place a high value on their autonomyand on economic risk-taking related to ongoingsocio-economic activity.

The EMES criteria of social enterprise

The broad definition may be refined, on the basisof the work carried out by the EMES EuropeanResearch Network during the last 10 years acrossthe then 15 Member States of the EuropeanUnion. A set of nine criteria – both economic andsocial – were identified to describe an ‘ideal type’of social enterprise, i.e. a theoretical definitionwhich does not necessarily correspond to con-crete organizations but allows researchers toanalyse them. Thus, departing from the EMESsocial enterprise definition, researchers are pro-vided with a working definition adapted to coun-tries from the region that includes three eco-nomic and three social criteria (listed below).

Economic criteria:

Activity producing goods and/or selling services

Social enterprises are not engaged in advocacyactivity or in the redistribution of financial flowsas a major goal. They are involved in the produc-tion of goods or the provision of services on acontinuous basis.

A degree of autonomy

Social enterprises are normally voluntarily creat-ed by a group of people and are governed bythem in the framework of an autonomous proj-ect. Accordingly, they may depend on publicsubsidies but are normally not managed – direct-ly or indirectly – by public authorities or otherorganizations (federations, private firms, etc.)and they have both the right of ‘voice and exit’(the right to express their own opinions as well asto terminate their activity).

A trend toward paid work

The activity carried out does not necessarilyrequire the involvement of paid workers, provid-ed that there is an organizational commitmentto job creation. Organizations sharing most ofthe characteristics specified, albeit relying onvoluntary work, are considered as social enter-prises in their initial stage of development.


Social criteria:

An explicit aim to benefit the community or a specific group of people

One of the main goals of social enterprises is toserve the community or a specific group of peo-ple, not single individuals.

A decision-making power not based on capital ownership

Voting power is not distributed according tocapital shares on the governing body, which hasultimate decision-making rights. Decisions areshared and a high degree of stakeholder partici-pation is favoured. Representation and participa-tion of customers, stakeholder orientation and ademocratic management style are importantcharacteristics of social enterprises.

Exclusion of profit-maximizing organizations

Social enterprises include not only organizationsthat are characterized by a total non-distributionconstraint, but also organizations that may dis-tribute profits to a certain extent. Organizationswhich can distribute without constraints all or ahigh percentage of profits (at least 50 to 60 per-cent) can be included; the key-criterion is theexclusion of organizations with a profit-maximiz-ing goal.

As already stressed, rather than constituting pre-scriptive criteria, the indicators listed abovedescribe a ‘virtual social enterprise’ that enablesresearchers to position themselves within the'galaxy' of social enterprises. Without any norma-tive perspective, they constitute a tool, some-what analogous to a compass, which can helpthe researchers locate the position of certainentities relative to one another, and which mayenable researchers to establish the boundaries ofthe organizations that they will consider to besocial enterprises.

ii. Towards an identification of socialenterprises in targeted countries: major guidelines for Stage 1.

Mapping social enterprises

According to the above perspective, the firststep is not to identify social enterprises in thecountries of the area that would fulfil all EMEScriteria. In many countries, the notion of socialenterprise may not be used or exist. Rather, thisresearch first aims at identifying categories oforganizations which might be considered as hav-ing several characters in common (to varyingextents) with social enterprises as defined by theEMES Network.

For illustrative purposes only, some examples of such categories are listed here:

1. Voluntary organizations (linked to religiousgroups or not) that supply services not neces-sarily on a continuous basis that can be consid-ered social enterprises at an embryonic phaseof development;

2. Citizen self-help groups (not registered) thatexperiment with new innovative modes ofwork and social integration adapted to localpotential and resources;

3. Originally public social entities (incubators)that experiment with new integration andlocal-development strategies and that are inthe process of transforming into a social enter-prise;

4. Cooperative organizations acting as commu-nity enterprises, locally embedded and devot-ed to promoting the interests of specific targetgroups or the community as a whole;

5. New forms of not-for-profit organizationsengaged in public-service delivery and pursu-ing commercial activities in order to raisefunds for those services;

6. Service-providing associations, foundations,open foundations, or centres

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The pattern of development of social enterprises– in terms of activities carried out and institution-al assets developed – is extremely country-specif-ic and reflects particular problems and challengesfaced at the national and local level. Hence, theselection of three country studies from three dif-ferent sub-regions – Poland, Serbia, and Ukraine.They are especially interesting in terms of bot-tom-up institutional responses to crucial eco-nomic and social problems that have come topass during a transformation towards a demo-cratic system and market economy.

Poland is a case in point of a post-communistcountry that has recently managed to recognizesocial enterprises both from a political and legalpoint of view. This process has paved the way forthe recent introduction of a legal framework thathas aimed to support the labour-market integra-tion of disadvantaged workers, a group that hasfaced serious unemployment.

In Serbia social enterprises are non-integrated ini-tiatives that address the problems of unemploy-ment and social disintegration on a small scale.

In Ukraine the environment for social enterprisesis not as promising as in Poland and Serbia. As aresult, payments for the delivery of services areoften received through a system of charitablecontributions, through private entrepreneurs aswell as through enterprises owned and managedby third sector organizations (e.g. unions of citi-zens and foundations) as the legitimate subjectof trade.

As the three country studies show, social enter-prises are fundamental by-products of third sec-tor organizations, whose development andimpact upon local communities depend uponthe availability of supporting legal and institu-tional structures, as well as on the endowment ofsocial capital at the community level.

PART II. PROMOTING THE ROLE OF SOCIAL ENTERPRISES IN THREE SELECTED COUNTRIES:POLAND, UKRAINE, AND SERBIA

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1. Promoting the Role of SocialEnterprises in Poland

1.1. The background for socialenterprise in Poland

In the past few years, the concepts of social econ-omy, social entrepreneurship and social enter-prise have become more and more popular inPoland, for several reasons. Some of these reasonsare of purely opportunistic nature – the idea hasbeen widely promoted, mostly by the EQUALCommon Initiative projects, and thus attractedthe attention of many actors in search of newfunding opportunities or just of new ways toorganize and carry out activities serving the pub-lic interest. Other reasons are more circumstantial.Among these, the most prominent one is the factthat the social economy concept creates a chanceto look for new solutions to some old problems.Why is it so attractive? The essential, and at thesame time most appealing, characteristic of socialenterprises is that they are based on the notion ofempowerment and self-reliance. For individuals,social enterprise may become a new mechanismof social inclusion, enabling people to quit theirclient role, where they are dependent on others'help, and to create a chance for themselves toattain independence. For organizations, socialenterprise represents an opportunity to obtainthe resources needed for their activities, to evolvefrom the position of asking for funds, and beingdependent on public institutions, to becoming anindependent entity, capable of taking action inthe public sphere in accordance with its own mis-sion and with the choices of its members andfounders. For communities, social enterprise rep-resents a chance to shape independent develop-mental strategies, based on their own resources,conducive to genuine self-government and com-munal well-being. And finally, for the state socialenterprise constitutes a possible way out of the‘welfare trap’ which is currently prevalent in manyEuropean countries.

1.1a The transformation of the welfaresystem and main features of thelabour market

Specific situation on the labour market

The aforementioned hopes and motivationsbecome clearer when the features of the labourmarket and economic transformation are takeninto account. Almost from the very beginning ofthe Polish transformation process, the Polishlabour market was characterized by an extremelylow employment rate and very high unemploy-ment. Structural reforms have resulted in manytensions on the labour market and growing socialstratification. In recent years, the employmentrate amounted to 52 percent (i.e. 11 percentbelow the EU average and 18 percent below theLisbon Strategy benchmark), despite a quite higheconomic growth (estimated at 4.5-4.6 percent in2006). This situation resulted in a very high unem-ployment rate. In 2003, it reached 20 percent –the highest level in all EU member countries, andtwice as high as the EU average. The recentdynamic economic development is mainly due toproductivity growth, and it has not (yet) broughtabout a significant increase in the number of jobs,although the unemployment rate dropped from17.6 percent in 2005 to 11.6 percent (as ofSeptember 2007). This decline is partially due tothe massive job-related migrations to countrieslike the UK, Ireland or Germany.

Also important for the third sector is that eco-nomic growth has reached quite elevated rateswithout being matched by enhancements insocial capital. The level of mutual confidence (oneof the dimensions of social capital) in Poland isextremely low (the lowest in Europe, according toall comparative research, including the EuropeanSocial Survey or the Euro barometer). Hence, wecan say that economic development in Poland is‘highly individualistic’ rather than cooperative innature. The phenomenon has great bearing onthe growth of the third sector as a whole and,more specifically, on the development of socialenterprises which are, to a great extent, based onsocial capital and mutuality.

In the second quarter of 2007, the unemploy-ment rate in Poland dipped to 11 percent, i.e. thelowest level since 2001. This represented a sub-stantial decrease in relation to previous quarters


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(in the first quarter of 2006, the unemploymentrate was 17.9 percent, and in 2005, 17.7 percent).Despite this positive development, the situationin some of the niches of the Polish labour marketstill remains dramatic. The level of professionalactivation has not risen to the extent that theunemployment figures would suggest. Thecountry struggles with a very high level of struc-tural unemployment, estimated at 80 percent ofthe total number of unemployed. (People struc-turally unemployed are often low-qualified,immobile, un-entrepreneurial, and their unem-ployment tends to be a long-term one.) A highpercentage of unemployed people are threat-ened by permanent exclusion from the labourmarket (and, more generally, by social exclusion).Groups particularly at risk include:

Disabled people (14.3 percent of the Polishpopulation): According to data from theCentral Statistical Office of Poland (GUS), asmuch as 80 percent of disabled people inPoland remain outside the employment mar-ket – which is the highest level in the wholeEU. A significant share of the substantial publicresources that have been allocated to the inte-gration of disabled workers, has not been ade-quately exploited. The system of protectedworkshops, in addition to proving ineffective,has often treated disabled workers in a per-functory way, thus leading to the devaluationof their work culture.

Young people (between 15 and 24 years ofage) not attending regular schools: In the firstquarter of 2005, the unemployment rate in thisgroup reached 41 percent, and young peopleaccounted for approximately 24 percent oftotal unemployment.

Other groups, such as former prisoners, thementally ill, the homeless, immigrants, nation-al and ethnic minorities are also particularly at-risk of exclusion from the labour market, insome cases as a result of their life situation, butin others as a result a low social acceptance.

In general, groups such as disabled people, eth-nic minorities, women as a whole, and singlemothers in particular, homeless people, formerprisoners, chronically and mentally ill people,have very limited opportunities to find employ-ment. Creating specially tailored jobs for thesepeople, training and employing them in the long

run are not, in purely economical terms, reason-able actions, as they entail additional costs thattraditional market enterprises are not willing to(and cannot) bear. Moreover, public authoritiesdo not constitute an edifying example in thisfield: they have legally obliged private enterpris-es to employ disabled people, while not takingany action themselves in this regard.

The statistical picture of the labour market over-looks some important underlying systemic condi-tions. In 2006 Poland, together with Lithuania, wasthe poorest member of the EU-25 (in terms of percapita GDP). Moreover, regional disparities arehuge in Poland, as measured for a given Polishregion as the percentage of the average EU percapita GDP. They range from 70 percent to 31 per-cent. Every sixth employable person lives in ahousehold where nobody works. In addition, to amuch greater extent than in other EU countries,even in Poland having a job does not ensure pro-tection against poverty. The so-called ‘workingpoor’ – people who, in spite of continuousemployment, are still below the poverty threshold– amounts to 12 percent of people with a job. Inthe case of the self-employed, this indicator evenreaches 21 percent. In statistical terms, the situa-tion of other social groups not active in the labourmarket (e.g. pensioners) is much better: only 7percent of them are threatened by poverty.

Welfare system / welfare dependency

All the above circumstances may make it veryhard to include the concept of social economy inpublic policies, as this concept, in its classicalform, evokes the idea of entrepreneurship,together with an inherent risk. In Poland, as wellas in other countries of the former Soviet bloc, apeculiar model of the post-socialist welfare stateis still deeply rooted, and quite often successful-ly exploited by different political parties in theirstruggle for votes. Thus, the model is perpetuat-ed. As Professor Edmund Mokrzycki – a distin-guished Polish sociologist – put it: ‘Poles stillwould like to live in socialism after it was over-thrown by them’. Cobbling together an incomefrom various social transfers, together with occa-sional work on the black market, becomes wide-spread and, for many, often constitutes the onlyway to make ends meet. This situation alsoentails a specific lifestyle, wherein it is really hardto promote, especially among excluded people,the attitudes of self-reliance and pro-activeness.


We should add that Poland is not the only countrythat has to cope with the problem of its citizensbecoming, in growing numbers, the consumers ofsocial transfers: it is an urgent problem in all (andnot only) EU countries, no matter what model ofsocial policy they adopted (residual, continental,social-democratic or so-called Mediterranean).Everywhere, the ‘end of welfare as we know it’ hasbecome evident, which explains the widespreadefforts to find some new model that would leadfrom a welfare state to a welfare society, or fromwelfare to workfare. Increasingly, a ‘privatizationof responsibility’ is needed.

Poland, though somehow awkwardly, is trying tofind such new social models – some of the effortsmade in this sense are discussed below. What islacking most acutely is an honest debate onsocial policy. The instruments used in public pol-icy are often political ‘gifts’ to potential or actualvoters. There is no sound intellectual and analyt-ical background for, and more generally, nomodern thinking on social policy as a whole.Instead of a broad vision, which is lacking, everchanging ideas and fashionable models arebeing implemented without proper preparationor reflection on their usefulness.

Access to EU funds

In connection with EU accession, a SectoralOperational Programme of Human ResourcesDevelopment for 2004-2006 was prepared todevelop a framework for the use of EuropeanSocial Fund resources. The main purpose of theprogramme consists in ‘building (…) an open,knowledge-based society by creating conditionsfor human resources development through edu-cation, training and work’. This aim is to beachieved through the implementation of activi-ties within three priority areas: 1. Active employ-ment market and occupational and social inte-gration policy; 2. Development of a society basedon knowledge; and 3. Technical assistance. Threequarters of the programme's funding were pro-vided by the European Social Fund (ESF), whilethe rest of the resources come from domesticpublic sources. In total, the total budget for theprogramme's implementation amounted toalmost 2 billion euros.

In the employment market policy perspective, theIntegrated Operational Programme for RegionalDevelopment also plays an important role, andone of its priorities – enhancing human resourcesin regions – includes issues such as occupationalre-orientation, skill improvement, and education-al opportunities levelling. Over 4 billion euroswere used for the implementation of the pro-gramme. Activities related to the employmentmarket are also supported within the frameworkof the EQUAL Initiative (approximately 120 millioneuros from the ESF), which mainly focuses on test-ing and promoting innovative methods to fightdiscrimination and inequality on the employmentmarket. The EQUAL Initiative is especially worthnoting here, as one of its components (theme D) isdedicated to social-economy and third-sectorenhancement. In Poland, 27 partnerships withsuch a purpose are operative (to a large extent,they focus on assistance to social cooperatives).

Territorial self-government (inter alia, localEmployment Offices) has been the main benefi-ciary of EU Structural Funds. The basic frame-work of Polish employment services was shapedin the early 1990s (partly as a result of the assis-tance provided by many EU countries and theimplementation of a World Bank project focusedon the needs of employment offices). In the years1993-1999, public employment services inPoland operated as special administration agen-cies, under the supervision of the Minister ofLabour and Social Policy. A decisive change intheir functioning came with the reform of theadministration in Poland – employment policywas decentralized, which resulted in numerousproblems, such as the inability to implement acoherent, comprehensive policy in the field or touse common standards of services. These prob-lems were deepened by public employmentservices personnel problems, connected withhigh turnover rates and financial deficit.

According to data from 2005105, public employ-ment services include 350 offices, and employapproximately 18,000 people; their humanresources capacities increased in comparison to2003, but still seem to be insufficient to ensure anefficient and effective operation of public employ-ment services (by the end of 2004, in Poland,every employment broker serviced on average

105 Based on a diagnosis prepared for the purpose of the National Employment Strategy for 2007–2013.

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approximately 1,850 unemployed people, againstan average of 300 people in other EU countries).Public employment services personnel qualifica-tions also remain unsatisfactory: less than 50 per-cent of them have a university degree. It shouldbe noted that in 2007 the Foundation for SocialEconomic Initiatives organized (in cooperationwith the Ministry of Labour) a national social econ-omy training program for all Public EmploymentAgencies.

By mid-2006, the majority of financial resourcesfrom the Structural Funds for the years 2004-2006had already been allocated. According to the diag-nosis established for the purposes of the NationalCohesion Strategy (National Strategic Framework ofReference 2007-2013, supporting economic growthand employment), in the years 2004-2006, fundsfrom the EU had been allocated mainly to infra-structural projects in the fields of transportationand environmental protection, and only to a small-er extent to activities supporting human resourcesdevelopment or the information society andresearch and development projects. Nevertheless,as shown in the aforementioned diagnosis, anincrease in demand for occupational trainings hasbeen recorded, which resulted to a great extentfrom the availability of ESF funds: it seems thattrainings became more popular as a result of agreater ‘supply’ of financial resources supportingthese kind of activities. Indeed, the trainings arevery widespread, but unfortunately they seem tobe lacking in effectiveness and clear direction tothe groups where they are most needed. More andmore often, the organizations providing trainingare ‘hunting’ for beneficiaries. It is also worthunderlining that non-governmental organizations(NGOs) – smaller ones in particular – have only verylimited access to financial resources from the EU.Efforts are currently being made to facilitate accessto the funds available in the framework of theplans prepared for the new programming period(2007-2013). The non-governmental circles active-ly solicit the introduction of a special micro-grantssystem, addressed to micro-initiatives.

Modernization of the various approaches to the third sector

When observed through the glasses of the socialentrepreneurship paradigm, the third sector re -

veals various seemingly inherent limitations –what has been termed the ‘voluntary failure’.106 Inthe context of the discussion on social entrepre-neurship and its possible beneficial effects, themost important drawbacks worth mentioninghere, from a funding perspective, are the so-called‘philanthropic insufficiency’ and ‘philanthropicamateurism’. Still, the third sector seems to consti-tute the most promising – and in some sense themost natural – institutional basis for the fast devel-opment of social enterprises in Poland. The thirdsector itself should see social entrepreneurshipand social enterprises as an effective method fororganizations to achieve relative financial inde-pendence from both sponsors and public admin-istration.

Social entrepreneurship may also prove attrac-tive for the so-called ‘old social economy’ organ-izations, which, in the communist period, werelargely overtaken (at least in Poland) by the stateand are nowadays undergoing a severe crisis ofidentity. These organizations must have noticedthe new markets which are opening up in thefield of public services and common-good servic-es. In these fields, inevitably, they have to com-pete with the non-governmental sector. In thisperspective, the area of the ‘new social economy’can be seen as a kind of common ground for thetwo sectors, and to some extent a common rem-edy for their respective problems. The new socialeconomy may prove interesting at least for thesection of the cooperative movement that is notcapable of surviving on the open market for serv-ices (without compromising its character andundergoing de-mutualization processes), while,for the third sector, it can constitute an opportu-nity to achieve true autonomy or self-reliance.

1.1b Main characteristics of the third sector in Poland

The concept of the third sector, as an area distinctfrom both the state and the market, started to beused in Poland with the transformation of the1990s. It was accompanied by notions such as‘non-profit organizations’ or ‘non-governmentalorganizations’, which soon replaced the exploitedand historically compromised concept (associated

106 Salamon, 1987.

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with the ‘social actions’ of the communist era) of‘social organizations’. The fact that the Polishcounterpart of the term ‘non-governmentalorganization’ was finally adopted to refer to thethird sector was by no way accidental. Indeed, theterm ‘non-governmental organization’ seemed tobe, for historical and political reasons, the easiestto accept and the best-fitted to express the eman-cipation nature of the civil movement of the early1990s. It should however be noted that, from thevery beginning, it was in practice used inter-changeably with the term ‘non-profit organiza-tion’. Both terms have, so to speak, a somewhat‘negative’ and ‘residual’ nature: both start with theprefix ‘non’, which demarcates these conceptsrespectively from the state (‘non-governmental’)and from the market (‘non-profit’).

Later, the concept of the third sector started to beused more widely, in an effort to unify the existingterminology. Though the term ‘third sector’ is theleast recognizable (public opinion surveys led byKLON in 2005 show that the term is recognized byonly 5 percent of respondents, while 30 percent ofrespondents recognized the term ‘non-govern-mental sector’), it served as a kind of synthesis,referring to organizations which were simultane-ously non-profit and non-governmental. By usingthis term, one avoids the necessity to specifywhich of the two oppositions (to the state or tothe market) is most relevant in a particular case;the ‘third sector’ concept even goes further in thisdirection, as it indicates that both oppositions areto some extent relevant. Finally, it also underlinesthe fact that the described organizations form aseparate ‘sector’. The three concepts – ‘non-gov-ernmental sector’, ‘non-profit sector’ and ‘thirdsector’ - thus started to be used in practice as syn-onyms, in particular among practitioners.

During the above-described process of terminolo-gy shaping, in the early 1990s, the third sectorpractically excluded the so-called ‘old social econ-omy’ (and in particular cooperatives). In the pre-vailing view, they were indiscriminately doomedto remain in the area of the previous communistrule, and were not counted as genuine partici-pants of the emerging third sector – at the time,they seemed neither very non-governmental, norvery non-profit. In fact, even the cooperative sec-tor saw itself as a separate realm. And to someextent, the situation has remained unchanged tothis day, and not only in Poland. The belief accord-ing to which the cooperative sector in Poland was

not part of the third sector became predominant.Today, this situation gives rise to some logicalproblems: Indeed, if we assume that cooperativesare not included in the third sector, then general-ly (if we accept the division in three sectors) theybelong nowhere. It is also a problem for coopera-tives themselves, and perhaps the price they payfor their close affiliations with other sectors.

This terminological problem becomes especiallyvisible as far as the social economy is concerned.Leaving the old social economy outside the thirdsector seems to be a mistake. But on the otherhand, considering, in the Polish context, that thethird sector also includes cooperatives, amountsto supporting a thesis that – although apparent-ly correct from a logical and formal point of view– is contrary to the widespread and acceptedopinion. How could this deadlock be broken? Itseems that two concepts of the third sector (onenarrower, the other one broader) are in use here.Indeed, we can speak of the third sector in itsnarrower sense, as it is the case in Poland, andfocus on the traditional non-governmental ornon-profit organizations. On the other hand, wecan also (as we do in this publication) use theconcept of the third sector in a broader sense,including in this sector almost every institutionalform situated outside the market, the state andthe family (production, redistribution, reproduc-tion) - hence not only foundations and associa-tions, but also cooperatives and mutual societies.

As for the ‘social economy’, although the termwas not commonly used until very recently, therealities it refers to have a long tradition inPoland. For a long time, social economy organi-zations have had a specific status, not only as aninstrument of emancipation of their members,but also a tool of emancipation of the nation as awhole. Some 120 years of annexation created asystem of institutions addressing the needs ofthe society in which they were created, as well asvarious strategies of acculturation of the Polishnation imposed by the occupants. While at thetime in Western Europe the impulse for thedevelopment of the social economy was mostlyrelated to the industrialization processes, inPoland, it was also associated with political moti-vations, which resulted in a situation wherepurely economical ventures were in fact shapedaround social purposes.107 It might be as a resultof these particular circumstances that in the 20-year period between the two World Wars, the

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social economy in Poland accounted for a signif-icant segment of the national economy. Itsimportance was due not only to its economicimportance (there were over 20,000 coopera-tives in the country, and 50 percent of the insur-ance market was under the control of mutualinsurance companies), but also to its importanceas a sector inspiring social and cultural activities,especially in the rural areas.108

However, the events of the last 70 years have to alarge extent ruined these accomplishments. Forthose entities of the ‘traditional’ social economy(such as cooperatives) which survived, the cost ofthis survival was the loss of their independence.They are still paying the price today, strugglingwith their image (as well as their past) of servileextensions of the communist regime. The ‘newsocial economy’ is only starting to sprout, mainly inthe non-governmental sector, which is itself(despite the existence of a small number of organ-izations which managed to survive the communistera and the transitory period after the collapse ofcommunism) in the phase of early youth. Underthese conditions, articulating social enterprises asa specific dynamic within third sector organiza-tions represents a challenge. To address it proper-ly, it is not enough to assess the extent to whichthe formal characteristics of these institutions fitthe idea of social entrepreneurship; one must alsoassess the extent to which the concept reflects thereality of their functioning. Taking this into consid-eration, we propose below a review of the Polishthird sector based on the criteria that allows for theconsideration of this sector as enabling for socialenterprises. Due to the continuity of ‘The Role ofSocial Enterprises in Employment Generation inCEE and the CIS’ project and the need for maintain-ing a common perspective with the participatingpartners, the starting point was the definition pro-posed by EMES within the scope of the project.109

Analysing the background for social enterprises in Poland

The analysis will be used for three purposes. First ofall, it will deliver basic information on the charac-

teristics and the number of organizations, takinginto account the whole spectrum of institutionswhich constitute the basis for the development ofsocial enterprises. Second, it will be used to distin-guish those organizations within the Polish thirdsector that can already be regarded as making upan emerging ‘social enterprises sector’, and todescribe their conditions and profile of operations.Finally, it will constitute an opportunity to presentseveral comments related to the applicability ofthe EMES criteria under the Polish conditions.

We will start our analysis with the presentation ofthe data describing the potential of the socialeconomy in Poland. Putting aside discussionsconcerning the delimitation of its borders andthe extent to which different solutions in this areacan be treated as universal, one should beginwith the currently most popular institutional def-inition of the social economy, according to whichthis term is synonymous with the broader defini-tion of the third sector. It includes voluntaryorganizations (non-profit organizations or associ-ations), economic self-governing organizations(which in Poland form a separate, legally distin-guished form of gathering), cooperatives, mutualaid societies, foundations and trusts. Some ofthese organizational forms have a long history inPoland, while others (such as trusts) are practical-ly non-existent. Over the past years, new, hybrid-type organizations are also being set up, as aresult of the increasing popularity of the socialeconomy concept; these organizations combinedifferent characteristics of the abovementionedtypes of institutions. In the broad categories ofthe ‘traditional non-profit sector’ and of the ‘new’and ‘old social economy’, the following types ofentities could evolve into social enterprises.

Voluntary organizations (associations and foun -dations): according to the data of REGON (Na tio -nal Official Business Register) from September2006, there are currently over 63,000 non-gov-ernmental organizations in Poland (not countingapproximately 15,000 Voluntary Fire Brigades110),namely 55,000 associations and 8,200 founda-tions. These data only include organizations reg-

107 Frączak, 2006.108 Kochanowicz, 1992.109 EMES European Research Network, 2006.110 Voluntary Fire Brigades, although they have a legal form of associations, are treated in Poland as entities of a different character, mostly due to their direct

relations with the local government, political connections and strongly centralized structure. Nevertheless, it is worth emphasizing that they constitute prob-ably the most important social institutions in the rural areas, especially in Eastern Poland, where they ‘replace’ other forms of organizations (a situation which,from the point of view of strategies aiming at developing the non-governmental sector, can be regarded as a problem).

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istered in the REGON system as ‘parent units’. Ifwe also take into consideration these organiza-tions' local branches, the total number of regis-tered non-governmental organizations in Polandexceeds 70,000. However, it should be stressedthat some organizations listed in REGON (from10 to 40 percent of the registered organizations,depending on the method of assessment) are nolonger operational. They do not exist anymorebut stay in the system because organizations arenot required to inform the REGON of their dis-bandment as well as because this disbandmentrequires complicated procedures. On the otherhand, the REGON does not take into considera-tion ‘informal’ initiatives – de facto organizationswhich do not have a legal status and are not reg-istered as local branches. There are quite solidreasons to believe that they are numerous.

Business support/professional organizations:Although these organizations were not includedin the Polish part of the initial EMES report, theyare direct inheritors of the traditional ways oforganizing around economic interests, in theform of guilds, economic chambers, professionalorganizations, etc. There are around 5,500 suchorganizations in Poland today.

Cooperatives: More than 12,500 cooperatives areregistered in Poland today (even though, accord-ing to the data of the National CooperativeCouncil, in practice, less than 10,000 cooperativesare actually in operation): housing cooperatives(approximately 5,000), agricultural and rural pro-duction cooperatives (about 4,000), workerscooperatives (1,300), cooperative banks or finan-cial societies (approximately 800).

Mutual societies: This history of mutual societiesin Poland goes back to the Middle Ages. Theyplayed a significant role in rural areas, as a form ofcollective protection against natural threats (e.g.fire associations served as a common insuranceagainst damages caused by fire), management(e.g. water companies), providing neighbourhoodaid, cheap credits and loans as well as grants forthe poorest. Mutual Insurance Associations wereamong the largest ones; their market sharereached 50 percent before World War II. After thewar, the whole mutual movement was practicallydestroyed,111 and it is currently slowly being rebuilt.

In Poland there are today nine Mutual InsuranceCompanies operating (their joint turnover reachedalmost 200 million PLN, i.e. around 50 million eurosin 2005), and almost 900 other mutual institutions(mainly savings and loans associations).

The ‘new social economy’

Transformations of ‘traditional’ entities of thethird sector after 1989 have recently been accom-panied by the development of new types of insti-tutions and organizations, which combine thefeatures of economic and social ventures. The for-mation of some of them is the result of a sponta-neous evolution of the sector itself (e.g. ‘econo-mization’ of existing non-governmental organi-zations, or creation of other, new organizations).This evolution is linked to the ‘founding’ process,stimulated from above (for example by theadministration), which sees these organizationsas a means of dealing with the inefficiency of thepublic system of social aid. The new social econo-my includes Social Cooperatives, VocationalRehabilitation Facilities and Social IntegrationCentres. Social Cooperatives, formally introducedby the provisions of the Act on social coopera-tives of 27 April 2006, had in practice started tosprout over a year earlier. Modelled on Italiansocial cooperatives, they combine an economicactivity with the social and professional integra-tion of their members – disabled people or peo-ple experiencing difficulties on the labour mar-ket. By the end of 2006, over 60 social coopera-tives were operational throughout the country.Vocational Rehabilitation Facilities are basicallybusinesses operating in the field of supportedemployment, helping people who experienceparticular difficulties to access the labour market.Founded by the Act on vocational rehabilitationand employment of the handicapped of 27August 1997, they are still very few (35 as of theend of 2006), which is mostly due to formal prob-lems connected with their operation. A signifi-cant share of these organizations were estab-lished by self-government authorities and con-trolled by them, which – together with the factthat they are not membership-based organiza-tions – seems to be problematic when one recallsthe dominating conceptions of the social enter-prise. However, they are regarded by many as akind of ‘prototype social enterprise’ in Poland.

111 Leś, 1994.

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Finally, Social Integration Centres and Clubs con-stitute newly introduced support facilities; theywere founded by the Act on social employmentof 2003. Altogether, at the end of 2006, therewere around 35 Social Integration Centres andover 90 Social Integration Clubs in Poland. Thesetypes of organizations can be established both by

public and private institutions; currently, theirfounders are most often local authorities or insti-tutions of public administration operating in thesphere of social help.

The information presented above draws a pictureof the social economy in Poland as a sector includ-

Types of organizations No. of regis-tered organi-

zations

Employment(No. of

employees112)

Members

Associations & foundations

63,000 120,000 9-10,000,000113

Business-support organizations

5,500 33,000 1,100,000

Cooperatives 12,800 440,000114 6,000,0008

Cooperatives for theDisabled

350 55,000115 30,000

Mutual InsuranceAssociations

9 500 ?

Other mutual aid associ-ations

880 ? ?

Social Cooperatives 106116 500 400

Vocational RehabilitationFacilities

35 1700 -

Social IntegrationCentres+Clubs

35+90 500+? -

Total Approx. 83,000 Approx. 600,000 Approx. 16-17,000,000

112 The employment statistics refer to the number of paid employees, regardless of the form of employment. 113 This figure should not be treated as referring to the number of people who are members of organizations, as it is based on the data acquired from the organ-

izations, not from individuals, and thus reflects the total number of members declared by organizations. The distinction is important because, on the onehand, some people may be members of more than one organization and, on the other hand (especially in Poland, given the size and the image of some ofthe organizations, like the Polish Red Cross or the Polish Fishing Association), not all members may be aware that they actually are members. At the level ofindividuals, the total number of Poles declaring membership in at least one organization is approximately 6.8 million (see Gumkowska M. (2006)‘Volunteerism, Philanthropy and 1 percent in Poland 2005’, Warsaw: Klon/Jawor Association).

114 Krysiak I. (2006) Information on the cooperative sector in Poland. Prepared for BISE Bank. Available at:‘http://www.ekonomiaspoleczna.pl/files/ekonomiaspoleczna.pl/public/biblioteka_eS_pliki/Raport_o_sektorze_spoldzielczym.doc. Data from the research‘Condition of social economy sector in Poland 2006’ deliver almost the same results.

115 Based on the assumption (on the basis of National Cooperative Council assessments) that the number of active cooperatives approximates 10,000, and with-in the cluster of cooperatives for the handicapped there are 260.

116 At the beginning of 2007.

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Table 6 – The Third Sector in Poland


ing a wide and heterogeneous set of institutions.On the basis of the available figures (which, insome cases, are estimates), it can be said that thissector includes over 75,000 organizations, employ-ing almost 600,000 people and brings together atotal of 15 million members.117

These numbers in fact do not say much aboutthe potential of the Polish third sector as a driv-ing force in the development of social enterpris-es. They only indicate how broad the researcharea can be. It is difficult to evaluate the odds forsocial enterprises’ development within thediverse sub-sectors. For this purpose, we willnow try to take a look at various entities that canbe considered social enterprises using the defini-tion proposed by EMES.118

1.1c Main challenges for the third sector with respect to social enterprise development

It seems that people in Poland are increasinglyrecognizing the terms ‘social economy’, ‘socialentrepreneurship’ and ‘social enterprises’, atleast judging from discussions with representa-tives of non-governmental organizations. Ofcourse, the concepts have not entered yet (andmay never enter) everyday language. In fact,when used outside the circle of interested peo-ple, an explanation is needed as to their precisemeaning. Perhaps, like in the case of the term‘third sector’, the notions are doomed to remainunfamiliar to the wider public. But the problemlies elsewhere: indeed, the important issue is notwhether the terms will be more and more oftenmentioned in discussions, but rather whetherthe realities they refer to will become more wide-spread. So far, real achievements of the ‘newsocial economy’ in Poland are still far from beingimpressive. The limits of the social economy arebeing extended through terminological manipu-lations (such as the assumption that non-govern-mental organizations are in fact part of the socialeconomy) rather than by its real growth. On thesectoral map, borders are being moved andalready existing activities are being incorporatedinto the social economy, but the latter's real size

remains practically unchanged. Such a ‘develop-ment’ is of artificial rather than substantialnature. What could foster the genuine growth ofthe social economy, and in particular of socialentrepreneurship? Below, we try to outline abasic, and necessarily far from exhaustive, ‘map’of barriers and challenges for the developmentof the social economy in Poland.

We should start with challenges related to the dif-ficult ‘migration’ of traditional non-profit organi-zations towards social enterprises. In fact, thevery first risk is the risk of rejection of the socialentrepreneurship idea within the non-profit sec-tor. Data concerning the Polish non-governmen-tal sector show how limited is the developmentof organizations that would meet the theoreticalcriteria of the EMES definition of the social enter-prise. Every fifth organization employs remuner-ated personnel, every tenth receives more than20 percent of its revenues from formally regis-tered economic or remunerated activity, andmore or less every twentieth meets both condi-tions. If we take into account other, ‘softer’ but atthe same time perhaps more fundamental pre-conditions for defining social enterprise, such asfor example a visible orientation towards usingeconomic activity as a means to solve social prob-lems, the group becomes even smaller. Non-gov-ernmental organizations are not especially exem-plary organizations (in comparison to other seg-ments of the third sector) as employers offeringjobs for groups that are vulnerable to exclusionon the employment market.

Thus, we can advance the conclusion that socialentrepreneurship in Poland is still a rare practice,and that examples of Polish social enterprisesshould be looked for using an Internet browserrather than scientific analyses. We may bepleased to see that, as it seems, the group oforganizations willing to use economic instru-ments in their activity gradually grows in Poland.But we have no evidence to say that the last twoyears have witnessed an increase in the numberof initiatives which engage in economic activitieslinked with a significant level of risk. It is also dif-ficult to distinguish those initiatives that regardeconomic activity as a means to solve socialproblems from those for which it is only a

117 This does not mean, however, that 15 million Poles are members of third sector organizations (see note 5).118 We will refer to the results of the research entitled ‘State of social economy sector in Poland 2006’, carried out in August 2006 on a stratified, representative

sample of almost 2,000 different social-economy institutions.

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method of self-financing. Finally, we have to askwhat the prospects for a dynamic growth of thistype of activity are, or more generally, whether,in the light the present situation, one can expectan evolution of the Polish third sector towards asocial entrepreneurship or social enterprisemodel.

Within the Polish non-profit sector, a substantialbarrier to the development of social enterprisesmay be the specific ethos of social activity, whichis understood rather in terms of redistributionthan trade. For the majority of Polish organiza-tions (and a vast majority of Poles), civic activityis defined by opposition to the logic of the mar-ket or the idea of ‘profit’. More than half of asso-ciations and foundations (when we excludethose officially engaged in economic activities)are likely to agree that social organizationsshould provide all their services for free, andeven more conceive of the sale of services bysocial organizations as inappropriate.119 The spe-cific, anti-economic self-definition of the Polishnon-profit sector which emerges from theseopinions probably represents a more seriousproblem for the promotion of social enterprisesthan the present, limited scale of economicactiveness within the non-profit sector. As aresult, incubating social enterprises within thenon-profit sector in Poland would require a cul-tural shift, an effort to influence the predominantethos of social activeness, and it should be sup-ported accordingly by the implementation ofincentives aimed at the development of institu-tions with educational programmes.

Although non-governmental organizations maybe expected to be interested in an evolutiontowards social entrepreneurship, the process ofmigration towards social entrepreneurship with-in the non-governmental sector may face manyobstacles. First, many organizations generallyprefer less risky financing strategies for theiractivities, based on sponsors and grants.Moreover, a lot of organizations believe thatNGOs should not, in principle, pursue any eco-nomic activity. These doubts are not unreason-able: in some cases, we can already witness akind of ‘slipping into commercialization’ amongNGOs. Indeed, some organizations, after startinga commercial activity, quickly become virtually

undistinguishable from commercial businesses.After their ‘conversion’ to the market, they oftenreveal an unhealthy eagerness of neophytes,unfalteringly sticking to the principle that ‘noth-ing is for free’. When absolved from the ‘sin’ ofprofit making, they seem to forget the goals forwhich they make this profit.

The key to this process lies not only in the sphereof intentions but also in the field of skills.Although NGOs are quite uncritical in the evalu-ation of their own competence and capability tocompete on the open market, in our opinion theissue of competence may here be an importantchallenge.

1.2. Social enterprise developmenttrends in Poland

1.2.1. Dimensional aspects and spatialdistribution of social enterprises

In order to carry out an analysis of NGOs thatmay be considered social enterprises, one oughtto start by identifying such organizations. Thisshall be done with reference to the EMES defini-tion of social enterprise analyzed in the first partof this report. But to allow a statistical analysis,the group of selected enterprises needs to belarge enough; consequently, we shall ignorethose criteria which are not of key importancehere or those which are difficult to operationalizein the Polish context. The criteria retained in thisperspective are the following:

sale of goods or services;

independence from public administration andother legal entities;

(assumed) exposure to economic risk.

These criteria define the set of organizationswhich we consider as the potential avant-gardeof Polish social enterprises within the non-profitsector. This group includes both associations andfoundations.

119 Gumkowska and Herbst, 2006.

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It is also considered that all non-profit organiza-tions are by nature meeting the following criteria:

explicit aim to benefit the community;

restricted profit distribution.

In view of the lack of data permitting a reliableanalysis, the following criteria were not takeninto account:

‘grass-roots’ nature of an organization;

decision-making not based on capital owner-ship120;

participatory nature.

It is worth noting that leaving these criteria asidedoes not seem to lead to fundamental changes inthe definition of the boundaries of the organiza-tions in question, as we are of the opinion that avast majority of NGOs meets them all anyway.Having applied the above criteria, exactly 100units were selected from the 1,043 NGOs sur-veyed. We will now analyse the way in whichthese organizations (referred to as ‘PSEs’ –Potential Social Enterprises - hereinafter) standout from the non-governmental sector as awhole. On the grounds of statistical weights com-puting results for the entire population of NGOsin Poland, one may estimate that some 3,000-4,000 organizations in the country meet theretained criteria. Of course, this should not beconsidered as the actual number of NGO-basedsocial enterprises (‘real’ social enterprises are infact very few). This set ought to be treated as thesegment of the non-government sector that isclosest to the social enterprise concept ratherthan as the ‘hub’ of social entrepreneurship.

Legal forms

The vast majority of entities forming the non-gov-ernmental sector in Poland are associations. Theyrepresent 87 percent of the total number oforganizations in the sector. In terms of legal forms,the structure of the group of organizations select-ed as PSEs is somewhat different. Almost one

fourth of these organizations are registered foun-dations, which no doubt is attributable to the factthat this status is more convenient for commer-cially oriented organizations. The relative overrep-resentation of foundations among PSEs highlightsthe strain between some of the theoretical criteriaof the definition of social enterprises, whenapplied to the non-profit sector. From the point ofview of the EMES ‘social’ criteria for social enter-prises, the most suitable institutional solution forsocial enterprises would be an association, whilefrom the economic perspective it is the founda-tion that seems most appropriate. It is worthpointing this out because it demonstrates that infact neither of the two legal forms is ‘tailor-made’to the concept of social enterprise, and a questionarises as to whether a new form or at least newlegal arrangements (strengthening the social tiesof foundations and/or inducing proper manage-ment, economic and tax solutions in the case ofassociations) would be needed to promote socialentrepreneurship.

‘Demographic profile’

In terms of the age structure, organizations thatcan be classified as potential social enterprisesdo not differ to a great extent from the majorityof NGOs in Poland. PSEs are relatively young, as isthe case of the entire Polish non-governmentalsector. One fourth of the organizations haveexisted for fewer than three years and nearly 50percent were established after 2001. Whatstands out is the proportionately large share, inthe entire non-governmental sector, of organiza-tions registered between 2001 and 2003. It canbe stated that organizations founded in recentyears more often than before intend to generateat least part of their funding from their own busi-ness activity. This is undoubtedly connected withthe adoption of the Bill on Public Benefit andVolunteer Work (2003), which allowed organiza-tions to run non-gratuitous non-profit businessactivity. The passing of this bill resulted in anincreased interest, on the part of organizations,for the sale of their services, even though the Billimposes many conditions – such as salary restric-tions - on NGO business activity (conditions that

120 This criterion could be applied theoretically if foundations were not included in the analyses set. However, in Poland a situation when donors are of key impor-tance is as rare as are foundations that boast rich donors. Most foundations in Poland are founded without significant initial capital. This legal form is select-ed for other factors.

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entities running regular business activity do nothave to comply with).

From the point of view of social enterprise fore-casts in Poland, and in particular the plans con-nected with the establishment of non-profitemployment-oriented organizations, this tenden-cy is positive. However, a relatively large share ofpotential social enterprises of the youngestorganizations is more prone to the many ‘child-hood diseases’ suffered by all developing institu-tions. The promotion of social enterprises in thePolish NGO sector should include institutional aidfor newly established entities and support fortheir activity, in order to help them survive the firstfew years and overcome the initial problemsencountered and errors committed.

Spatial distribution of social enterprises

In Poland, non-governmental organizations areconcentrated in urban areas. According to REGONdata, only slightly less than 20 percent of all NGOsregistered in Poland are situated in rural areas (inrural municipalities and in rural parts of urban-rural municipalities), while 70 percent of them arelocated in urban communities (the remaining 11percent are located in urban parts of the so-called‘mixed’ - i.e. rural-urban - municipalities). The cor-relation between the urbanization of a localityand the presence of non-governmental organiza-tions (as well as the latter's affluence in resources -an issue that will be discussed later) is also con-firmed by survey data, which show that almostevery third organization has its seat in rural areasor in towns of less than 20,000 inhabitants, 15 in

the Voivodship capitals alone (excluding thenational capital). When we include Warsaw, thenthe share of NGOs operating in the 16 majorPolish cities reaches 40 percent of the total num-ber of NGOs. This disproportion is, to some extent,understandable, as the biggest cities, which aredensely populated and are regional administra-tion centres, form a naturally favourable environ-ment for self-organization. However, the positivecorrelation between the relative number oforganizations and urbanization depends not onlyon the number of inhabitants of a locality or itsadministrative position. It holds true even whenwe ‘correct’ the figures by taking into account thedifferences in density of population, i.e. when weuse the indicator of the ‘number of organizationsper inhabitant’.

Employees in social enterprises

As mentioned before, the employment of remu-nerated personnel is one of the most important(theoretical) criteria for including an organiza-tion into the group of ‘social enterprises’. So first,social enterprises are to employ personnel,because their activity should be based on princi-ples similar to those accepted by ‘normal’ (in thesense of ‘operating solely on the principle of eco-nomic effectiveness’) enterprises that, in theirmanagement practice, take into account eco-nomic calculation rather than activism or socialengagement (which, of course, does not meanthat they are not allowed or should not use thesespecific resources). Second, social enterprises areto employ personnel to meet expectations thatthis type of organization will create jobs, expand

Figure 2 - The Rural-Urban Differentiation of PSEs

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employment and achieve important social goals,while at the same time contributing to economicemancipation of their employees. And third, it isexpected that some social enterprises (e.g. workintegration social enterprises) will be employersof a special kind, offering jobs and professionaljob training opportunities to people who, for var-ious reasons, cannot find employment on theopen market.

Thus, in theory, the organizations described hereas ‘potential social enterprises’ should all employremunerated personnel. But as we mentionedbefore, the Polish non-governmental sector isnot ready yet to meet this requirement: it is sofrequent for Polish organizations not to meet thiscondition that it cannot be taken into account inour analysis. That is why a quite high percentageof organizations included in our group do notemploy remunerated personnel, though most ofthem, unlike the rest of Polish NGOs, do.Approximately 60 percent of the organizationsselected on the basis of the other criteria haveremunerated employees, while in the wholenon-governmental sector, only 25.5 percent oforganizations employ paid personnel. Almosthalf of PSEs employ workers on the basis of (per-manent) employment agreement; this figureonly reaches about 20 percent for all NGOs. Thelack of remunerated personnel in organizationsis compensated by the social commitment ofvolunteers (this issue will be discussed in more

detail later), be it as members or directors. Suchvoluntary help may take the form of regular,unpaid work for the organization, and it consti-tutes an important factor both in individualorganizations and in the non-governmental sec-tor as a whole, though it is usually ignored indocuments on NGOs' ‘human resources’, whichonly take into account data on the membershipof organizations. When trying to estimate thescope of the phenomenon, we find out that twoPolish organizations out of three rely, for theiractivities, on the regular voluntary work of morethan five persons. For the whole sector, volun-tary commitment amounts to approximately800,000 ‘voluntary workers’ (who, as we havejust said, should not be mixed up with volunteerscoming from outside of the organization).

These data, compared with the results of earliereditions of the survey led by Klon/JaworAssociation, shed new light on the situation. Onthe one hand, in the last two years, the percent-age of organizations employing remunerated per-sonnel has significantly fallen – from 33 percent in2004 to 25.5 percent in 2006. But on the otherhand, statistical data on the total numbers ofemployees in the sector, based on respondents’answers about the number of employees in theirorganizations, have remained unchanged. Like in2004, the total number of people remunerated fortheir work in non-governmental organizationscan be estimated in 2006 at approximately

Distributionof Polish

NGOsaccording to

their num-ber of

employees


NGOsaccording to

their num-ber of per-

manentemployees

Percentageof organiza-tions wheremembers or

directorswork for the

organiza-tion as vol-unteers –

Poland


PSEs accord-ing to theirnumber ofemployees

Percentageof organiza-tions havingpermanent

employees -%PSE

Percentageof organiza-tions wheremembers or

directorswork for the

organiza-tion as vol-

unteers -%PSE

None 74.5% 80.6% 2.3% 41.9% 53.2% 6.7%

1-5 employees 18.1% 15% 38% 34.1% 37% 36.2%

6-10 employees 2.5% 0.9% 24.3% 9.6% 1% 22.6%

11-20 employees 2.4% 1.9% 17.9% 9.6% 6% 18.4%

> 20 employees 2.4% 1.6% 17.5% 4.9% 2.8% 16.1%

Total 100% 100% 100% 100% 100% 100%

Table 7 - Distribution of Polish NGOs and PSEs According to Their Number of Workers

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120,000, and the number of full-time jobs atapproximately 64,000.

Structure and dynamic of organizations’ income

Between 2004 and 2006, no major changes wererecorded in the structure of the non-governmen-tal sector’s income sources. The slight changesthat have taken place seem to indicate a negativeevolution. In 2004, a ‘median’ organizationenjoyed an annual income of approximately13,000 PLN (which means that the annual in comeof half the organizations did not exceed thisamount), while in 2006, this figure did not exceed10,000 PLN, but this difference is not largeenough to be statistically significant. In 2006, asin 2004, one Polish non-governmental organiza-tion out of five had an income not exceeding1000 PLN, while approximately 4 percent ofPolish NGOs had an income superior to 1 millionPLN. The extent of the sector’s stratification interms of income is evidenced by the fact that 4percent of organizations account for between 70and 80 percent of the sector's total income(depending on the method of estimation).

As can be expected from the data describedabove, the budgetary structure of PSEs significant-ly differs from that of the non-governmental sectoras a whole. In this respect, like in terms of scope ofactivities or number of employees, PSEs are, statis-

tically, much stronger than simple NGOs. Less than10 percent of PSEs belong to the group of organi-zations that are practically bereft of funds, whileapproximately 85 percent of them (against slightlymore than 50 percent of all NGOs) had in 2005funds exceeding 10,000 PLN. Moreover, 45 percentof PSEs report that they possess some financial sur-plus that may be used when existing sources offinancing fall short – in the non-governmental sec-tor as a whole, this figure is only 18.5 percent.

As already mentioned, the financial condition ofthe non-governmental sector as a whole remainsstatistically stable, though it should be noted thatthe evaluation is based on incomplete data.121 Onthe basis of the latter, a thesis may neverthelessbe advanced: Within the group of organizationsfor which trend charts can be developed (i.e.organizations which had existed for more thantwo years)122, the financial situation of every sec-ond organization has changed only very slightlyin recent years (the average annual incomegrowth has not exceeded 7 percent). However,one NGO out of four has recorded annual budgetgrowth of more than 35 percent in recent years.

In the light of the available data, PSEs seem to bein slightly better shape than the remainingNGOs. For one PSE out of two, the average annu-al growth rate of budgetary resources in recentyears has reached 15 percent.123

Figure 3 - Distribution of PSEs and NGOs According to Their Income Level (2005)

121 In the 2006 survey, in addition to providing their budget figures for 2005, organizations were asked to indicate their budgets for earlier years, starting with 2002(except, of course, for organizations that did not exist previously). When gathering such data, an obstacle was often encountered: namely, the fact that NGOs(just like any other body) are reluctant to provide information of this kind. Moreover, recovering precise financial data for several years back may often be a quitedifficult and time-consuming task. Nevertheless, the question was answered by 417, 486 and 584 respondents for the years 2002, 2003 and 2004, respectively.

122 Given the instability of the trends recorded for the organizations with the smallest budgets, the latter were excluded from the analysis; extreme cases wereexcluded as well.

123 The limited number of organizations included in the sample does not allow for significant statistical analysis.

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Has your organization relied on the following fundingsources in 2005?

% of positiveanswersamong PolishNGOs

% of positiveanswersamong PolishPSEs

Membership fees 59.5% 67.5%

Local self-government sources (funds from the municipali-ty, district or voivodship self-government)

43.3% 37.8%

Gifts from individual persons (excluding the one-percentmechanism)

35.5% 30.0%

Gifts from institutions and firms 34.5% 35.8%

Governmental sources (funds from ministries, governmen-tal agencies, Voivodship administration)

19.6% 24.2%

Bank interest, return on capital, deposits, shares, publiccompany shares

14.4% 31.0%

Payments (covering costs) received for remunerated statu-tory activity of organization

9.3% 54.5%

Other sources 7.5% 7.7%

Assistance from other domestic non-governmental organi-zations

7.4% 6.7%

Income from campaigns, public collections, charitable ini-tiatives

7.0% 7.7%

Income from economic activity 6.9% 53.5%

Income from the one-percent tax mechanism (concernsonly public-benefit organizations)

6.0% 9.2%

Subsidies from another division of the same organization 4.6% 5.7%

Assistance from foreign non-governmental organizations 3.5% 3.7%

Income from assets (e.g. from rental of property, equip-ment, asset rights etc.)

3.2% 10.3%

Resources from EU structural funds 3.0% 5.7%

International assistance programmes 2.6% 3.9%

Table 8 - Sources of Income of PSEs and NGOs

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Sources of income

As regards their sources of income, PSEs also dif-fer from other organizations. This is obviouslyrelated to the fact that they pursue extensiveremunerated economic activity. Nevertheless,the main source of income among PSEs is mem-bership contributions, which is all the more curi-ous since PSEs take the form of foundationsmuch more often than other NGOs do (24 per-cent of PSEs are foundations, against only 13 per-cent of all non-governmental organizations).Another characteristic which is worth notinghere and which definitely differentiates PSEsfrom other NGOs is the fact that PSEs cite savingsand investment (i.e. interests on bank accounts,returns on capital, deposits, shares and publiccompany shares) as a source of income morethan twice as often as NGOs in general. In thisrespect, the difference between PSEs and otherNGOs is thus very pronounced. What mightaccount for this is that PSEs are, in statisticalterms, bigger than NGOs in general, more oftenlocated in big cities and, most importantly, havefunds to invest – almost half of them reportedfinancial surpluses. As for now, on the basis ofavailable data, we can only say that PSEs, in com-parison with other NGOs, seem to be extremelyactive in managing their assets and have moreprofessional systems to do so. In short, they aremore entrepreneurial. This is not surprising, sincethey pursue extensive economic activity.

1.2.2. Main sectors of activity and recipients

NGO fields of activity

NGOs covered by the survey were asked to indi-cate in which fields they were active and whichfields among these were the most important inview of their declared mission. Their answersbrought no surprise. Organizations mainly activein the areas of sports, recreation, tourism or hob-bies were the most numerous: together, they rep-resented almost 40 percent of the whole Polishnon-governmental sector. The second mostimportant group, in terms of number of NGOs

(with a much lower number of organizations) isthat of organizations which mainly pursue activi-ties in the area of art and culture, education, socialservices and social assistance, as well as health-care. Only 2 percent of the surveyed organizationshave chosen the area of ‘job market, employmentand professional skills training services’ as theirmain field of activity. Bearing in mind the scale ofemployment-related problems in Poland, as wellas expert opinions that the non-governmentalsector should more actively participate in employ-ment-market policy implementation124, this per-centage seems to be extremely low. But what thisfigure shows is in fact that the field of labour-mar-ket services in Poland has been completely ‘over-taken’ by public agencies and (in the case of someservices) by the commercial sector. Since mostpeople who are permanently excluded from thelabour market are unable to benefit from the serv-ices supplied by these agents, one can concludethat there is almost no real alternative designed tofit the needs of this group. The fact that almost 10percent of organizations indicated employmentmarket services as one of their areas of interest(and not necessarily the main one) does not reallyimprove this gloomy picture.

Among PSEs, the situation regarding organiza-tions' main field of activity is at first glance quitesimilar. The only field in which they seem to beengaged slightly more often than NGOs in gen-eral is that of education. But differences appearwhen analysing the figures about PSEs' variousareas of activity (and not only their main field ofactivity): As much as 60 percent of PSEs – i.e.nearly double the number of NGOs – see educa-tion as an important field of activity. This per-centage is obviously very likely to be linked tothe fact that as much as 45 percent of PSEs citetraining as their main field of economic activity.The fact that ‘support for institutions and organ-izations' and ‘scientific research’ are also impor-tant fields of activity – cited by PSEs more fre-quently than by all NGOs - might be due to thesame reason.

Labour market services

As already mentioned, one of the main reasonswhy the debate around social enterprises has

124 Cf. For example UNDP Report (2005), In care of work (W trosce o pracę), Warsaw: CASE, UNDP.

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become so heated today lies in the high hopesthat social enterprises generate in their role asproviders of new employment services and ascreators of new jobs for groups that are especial-ly vulnerable to exclusion from the open labourmarket. Both experts125 and, to some extent, theresults of the discussed survey confirm that thenon-governmental sector creates an environ-ment that is particularly conducive to the estab-lishment of such organizations. The reasons forthis include both the specific characteristics ofthese employment markets, which enable moreflexible employment and are favourable to theemployment of people in non-traditional life sit-uations, and the potential role of non-publicinstitutions that can be played by third sector

organizations in delivering employment-marketservices.

This role is qualified as ‘potential’ because theavailable data on the Polish non-governmentalsector's participation in the fight against unem-ployment reveal that only about 8 percent ofNGOs are active in employment generation serv-ices, and only 2 percent see this field as theirmain field of activity. Most commonly, theiractivities consist in delivering trainings, profes-sional counselling, and services related to socialand professional inclusion. The more demandingtask of creating (permanent, temporary or pro-tected) jobs is undertaken by some 40 percent ofNGOs dealing with labour-market services, i.e.

Table 9 - NGOs’ and PSEs’ Fields of Activity

Field of activity Distributionof Polish

NGOs accord-ing to their

main field ofactivity -

2006

% of PolishNGOs indicat-

ing a givenfield as one oftheir fields of

activity -2006


PSEs accord-ing to their

main field ofactivity -

2006

% of PolishPSEs indicat-ing a given

field as one oftheir fields of

activity -2006

SPORTS, TOURISM, RECREATION, HOBBIES 39.2% 46.7% 31.9% 37.2%

ART AND CULTURE 12.8% 23.1% 18.3% 35.5%

EDUCATION 10.3% 35.6% 15.5% 60.4%

SOCIAL SERVICES, SOCIAL ASSISTANCE 9.9% 20.5% 5.2% 14.6%

HEALTHCARE 8% 16.8% 5.8% 10.2%

LOCAL DEVELOPMENT 5.9% 13.4% 2.3% 12%

JOB MARKET, EMPLOYMENT, PROF. TRAINING 2.3% 8.8% 3.5% 11.3%

ENVIRONMENTAL PROTECTION 2.2% 8.8% 3.2% 14.9%

PROFESSIONAL AND INDUSTRIAL ISSUES 1.9% 3.9% 6.4% 9.3%

LAW, HUMAN RIGHTS, POLITICAL ACTIVITY 1.8% 6.9% 0.0% 4.7%

SCIENTIFIC RESEARCH 1.3% 5.6% 3.5% 11.4%

SUPPORT FOR INSTITUTIONS, NGOs 1% 9.5% 1.1% 20.6%

RELIGION 0.8% 3% 0.0% 4.5%

INTERNATIONAL ACTIVITIES 0.6% 7% 0.0% 12.3%

OTHER ACTIVITIES 2% 4.7% 3.3% 5.8%

125 Cf. for example www.bezrobocie.org.pl or the already mentioned report by the UNDP and CASE, In care of work.

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only 3.6 percent of all NGOs. These organizationsare presumably those that are making the firstcontribution to social enterprise development inPoland. This is especially true if we take intoaccount the functions they should fulfil as socialpolicy implementation organizations.

On the basis of data about the frequency atwhich Poles use the services delivered by differ-ent kinds of organizations, it can be estimatedthat the group of recipients of services deliveredby ‘labour-market NGOs’ includes at least400,000 people (Gumkowska, 2006).

Quite independently from NGOs’ actual orpotential role in the active fight against unem-ployment, NGOs themselves form, in the opinionof many observers, an interesting niche on thejob market, especially fitted to the needs of peo-ple who find it hard to get a job in other sectors.This may well be the case, but we have to saythat, so far, this hypothesis finds no support in

the statistical data. It is true that approximately60 percent of organizations employing remuner-ated personnel hire employees who, in view oftheir age, health condition or disabilities, areespecially vulnerable in the labour market, andthat 7.3 percent of these organizations use sup-ported forms of employment, but when com-pared with economic entities, and in particularcooperatives, they do not seem to be a ‘haven’for such people. Thus, though it is hard to refutethe notion that the non-profit sector could cre-ate an especially attractive environment for flex-ible forms of employment, especially for thosewho are experiencing difficulties on the labourmarket, in Poland this potential remainsuntapped. This function of the sector remains aproject rather than a practice, and if employmentin the non-governmental sector is indeed ‘flexi-ble’, in terms of loose ties between employeesand employers, it is simply due to the weaknessof NGOs, which are unable to offer stableemployment to their workers.

Table 10 - The Third Sector as an Employer for Vulnerable Groups

Categories of employees % of organizations employing people from a given category

(among organizations employing remunerated personnel)

Non-governmentalorganizations

Business organizations

Cooperatives

People...

Over 50 years of age 39.1% 65.2% 85.9%

Retired or pensioners 28.8% 25.5% 43.3%

Entering the job market (young people) 18.4% 12.5% 19.5%

Physically disabled 5% 7% 13.9%

Long-term unemployed 4.9% 1.8% 6.3%

Working at home for health reasons 1.9% - 0.5%

Recent immigrants or refugees 1.3% - 1%

Working at home for family reasons 1% - 1.1%

Unemployed or under public works programmes 0.9% 2.1% 1.4%

Ex-convicts 0.61% - 0.3%

Mentally disabled 0.3% 3.4% 2.6%

Homeless or exiting homelessness 0.03% 1.8% 1%

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Economic activity

In 2006, in the entire Polish non-governmentalsector, 14.7 percent of organizations pursuedremunerated not-for-profit activities (a form ofeconomic activity introduced by the Act onPublic Benefit and Volunteerism of 2003) and 8percent ran a ‘regular’ business.126 New light isshed on these data if we bear in mind that in 2004economic activity was declared by approximately16 percent of organizations, while income from(at the time, recently allowed) remuneratedstatutory activity was declared by a small per-centage. It seems that in migrating towardsremunerated not-for-profit activity organizationshave encountered both formal obligations con-nected with ‘regular’ business activity, as well ascultural and mental barriers, which are describedin more detail below. We can reasonably hopethat organizations’ increasing tendency to coversome of their own costs – a trend that was initiat-ed by the Act – will continue in the future.However, at the same time, the radical decreasein the number of organizations that openly pur-sue economic activity (involving the risk-takingrelated to the sale of goods and services) may bea worrying factor for the supporters of a marketorientation by the third sector.

Economic activity, whatever its form, is pursuedby 18 percent of organizations, which means thatover 80 percent of organizations do not offerremunerated services. But reality diverges to agreat extent from this official picture. This is goodnews – rather than a troubling fact – for the sup-porters of a market orientation for third sectororganizations. Among those 18 percent of ‘formalenterprises’, in practice, only one enterprise out often derives more than 20 percent of its incomefrom the remunerated activity. Organizations thatproduce something are almost nonexistent: mostcommonly, they offer training services and servic-es related to the organization and operation ofvarious events. Slightly less frequently, they areactive in the areas of publishing, trade and servic-es. If we bear in mind the role of income fromremuneration in the structure of their revenues,we should not be surprised that PSEs (more oftenthan other NGOs) carry out more than one type ofactivity. As mentioned earlier, more than half of

them operate on the training market, and approx-imately one fifth organizes events or engages inpublishing or trade and service activity.

1.2.3. Relations established between socialenterprises and public agencies

The role of government

In recent years, the government in Poland hascontributed to the promotion of the social econ-omy. This is especially true of several officials inthe Ministry of Labour and Social Policy, whomade special efforts to create a separate legisla-tion regulating the operation of the so-called‘social cooperatives’. Provisions were graduallyintroduced, first as a part of the Cooperative Law,and then as a separate Act. But once again, weshould underline here that many of the achieve-ments resulted from efforts of individual govern-ment officials rather than from a concertedaction and strategy on the part of the whole gov-ernment. The Law on Social Cooperatives is cur-rently under legislative revision, but the processhas been interrupted by recent parliamentaryelections.

At present, the government is also completingthe preparation of documents related to the so-called new EU programming period, for the years2007-13. These documents may have a hugeimpact on the future development of Poland. Itshould be noted that the ‘social economy’ con-cept is present in the documents (both at theregional and national levels). Interestingly,Poland openly promotes the social economy aspart of its 2007-13 programming documents.

So far, social economy development is consid-ered in the context of priorities related to humancapital development, especially regarding socialintegration. The inclusion of the social economyin the leading themes of the biannual NationalAction Plan for Inclusion can also be seen as asignificant success. On the part of the non-gov-ernmental sector, consultations on the said doc-uments have been organized mainly by the StałaKonferencja Ekonomii Społecznej – SKES (Perma -

126 These results are slightly different from data on the organizations’ sources of financing. This can be accounted for by the fact that some organizations thatformally pursue an activity may, in a given year, have no income deriving from it. The difference may also result from the incompleteness of financial data:usually, a minor percentage of organizations refuse or are unable to provide information in this area.

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nent Conference on the Social Economy inPoland). Founded three years ago, SKES bringstogether various circles connected with thesocial economy in Poland, and its unique advan-tage lies in the simultaneous participation of rep-resentatives of the traditional NGO circles and ofthe cooperative circles.. SKES prepared a list ofproposals concerning the role of the social econ-omy in programming documents for the years2007-13.127

Modernization of the legal / regulatory environment

The Act on Social Cooperatives

There are several regulatory efforts related to so -cial economy development in different areas. Thefirst one is the Act on Social Cooperatives of April27, 2006, that came into force on July 6, 2006128.This Act represents in itself a small history ofhopes and illusions related to regulatory efforts. Itdeserves special attention because it is the firstlegislation especially designed to promote a spe-cific legal form for social economy initiatives,namely the so-called ‘social cooperative’. In fact, inthe Polish legal system, the social cooperativeform was introduced earlier, with the coming intoforce, on 1 June 2004 of the Act on the Promotionof Em ployment and on Institutions of the LabourMarket of 20 April 2004129, which amended the Actof 16 September 1982 – the so-called CooperativeLaw.130 According to the Act on Social Coope -ratives, the latter are a kind of labour cooperative,established by a special category of individuals,namely unemployed people (such as defined bythe Act on the Promotion of Employment and onInstitutions of the Labour Market) and peoplementioned in the Act on Social Employment of 13June 2003, i.e.:

homeless people who follow an individualizedprogramme to get off the streets;

alcoholics, after completion of psychotherapyin an appropriate medical institution;

drug addicts or people addicted to other illicitsubstances, after completion of a therapy in anappropriate medical institution;

mentally ill people, such as defined in the reg-ulations on mental healthcare;

former prisoners who encounter social inte-gration problems;

refugees who implement an individual inte-gration programme.

The Act on Social Cooperatives is seen by its pro-moters as a great achievement. In many respects,this Act was inspired by the Italian model of B-type social cooperatives. This legislative ‘borrow-ing’ generates great expectations (which, if dis-appointed, may cause problems for coopera-tives), but social cooperatives are not flourishingin Poland: though it has been possible to estab-lish social cooperatives since 2004, only 100 ofthem had been created as of October 2006, andmany of these remain far from economicallyviable. In fact, many of them have not yet startedoperating; in their activity, they encounter manyobstacles that result both from the environmentin which they operate and from the lack ofappropriate skills on the part of their founders,who often lack a proper ‘sense of entrepreneur-ship’. It is also often difficult for cooperatives toobtain orders, be it from individuals, private busi-nesses or public administration. It seems thatthere is a kind of incompatibility between thecapabilities and aspirations of the cooperatives'members, on the one hand, and the expecta-tions and requirements of their potential clientsand partners, on the other hand. So far, in Polandthere is no appropriate legal and cultural envi-ronment for social cooperatives. Quite often,they have an unfavourable public image, usuallybased on unjustified stereotypes. Their legalenvironment also reveals many defects, so theyhave to operate in a rather ‘unfriendly environ-ment’. For many, they are neither non-govern-mental organizations, nor real businesses.Indeed, the situation of Polish social coopera-

127 The proposals relate in particular to the issue of equal treatment of social economy entities in terms of access to EU resources; demand for social economydevelopment to be recognized as one of action directions; and covering of social economy institutions (which so far are almost exclusively seen as related tosocial integration and employment) by the support offered to traditional entrepreneurship (and especially to small- and medium-sized enterprises), in partic-ular in the fields of training support, advisory support, and development of financial infrastructure adapted to the needs of the social economy. According tothe plan, some 40 social-economy incubators will be established in different regions of Poland.

128 DzU 2006, nr 94, poz. 651.129 DzU 2004, nr 99, poz. 1001.130 DzU 2003, nr 188, poz. 1848 ze zm.

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131 In 2005, the KLON/JAWOR Association led a survey covering a group of approximately 300 experts (Expert Panel 2005); over 70 percent of these experts wereof the view that the new Act would improve the situation of organizations.

132 Some 85 percent of the Panel respondents supported this provision.

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ferability’ of models. It is worth noting here thatin Italy, the discussion on social cooperatives hadbeen going on for over 10 years, with the partic-ipation of both the Christian Democrats and theCommunists, before the legal act regulatingsocial cooperatives was adopted. And a move-ment for the economic self-reliance of specialgroups of people (a kind of proto-cooperative)had already started at least in the mid-1970s; thelegal act of 1991 only regulated an existing andvigorous social sphere.

Obviously, the simple ‘translation of the lastchapter’ cannot quickly bring about the desiredresults. The Polish legal and cultural environ-ment, which is very different from the Italianenvironment (for example, in terms of regulationof access to public finances), makes the task evenmore difficult. The idea that people formerlyexcluded from the labour market can successful-ly start an economic activity meets either withsuspicion (e.g. on the part of employers, con-cerning alleged fiscal manipulation and unfaircompetition), or with doubts as to the skillfulnessof the workers concerned.

Law on Public Benefit and Volunteerism

The regulation that has had the most prominentimpact on the development of forms of econom-ic activity within the third sector is the Act onPublic Benefit and Volunteerism. Passed in 2003,after seven years of preparation, this Act con-tains many very important provisions. The Actwas welcomed by the majority of experts131 andorganizations.

First, the Act introduced the concept of a publicbenefit organization, but in our discussion thisaspect is less relevant. Most importantly, the Actprovides for the possibility for organizations toconduct a so-called ‘not-for-profit remuneratedactivity’. In practice, the provision means that, inaddition to the formerly allowed possibility topursue an economic activity (which, however,should be separated from the statutory activity),organizations are also permitted to receive -though only to a limited extent - payment foractivities pursued in the field of their statutory

tasks. Such activity is not treated as an economicactivity. The amount of the payment receivedshould not exceed the amount necessary tocover the direct costs incurred in connectionwith the activities pursued (hence, by definition,the organization must not realize profits).

Secondly, in order to regulate the level of costs,some limitations on wages were introduced (1.5times the average wage in the industry) fororganizations pursuing not-for-profit remunerat-ed activities. A great majority of experts132 andNGOs supported the new arrangements.However, an important problem lies in therequirement, included in the Act, to separate thestatutory activities from the economic activity.For many years, among practitioners, lawyersand judges alike, a discussion has been held onthe relationship between the area of statutoryactivity and that of economic activity. The issue isobviously of fundamental importance for thedevelopment of social enterprises. Among manynon-governmental organizations, the economicactivity is often seen as a ‘necessary evil’, permis-sible only in view of the weakness of domesticphilanthropy, and the resulting need to supple-ment the funds used for statutory tasks.Regularly, but fortunately without effect, propos-als are submitted to prohibit NGOs from carryingout an economic activity. The Law on PublicBenefit and Volunteerism is currently under revi-sion, and one of the most important elements ofdebate is the question of the economic activitiesof NGOs. In September 2007, a ParliamentaryPublic Hearing was organized. The newly electedparliament will continue to work on the pro-posed modification of this regulation.

Proposed new legislation – the Law on Social Enterprises

Currently, a new legal initiative is becoming thesubject of intense deliberation; a conceptualframework, partially inspired by the British‘Community Interest Company’ concept, hasbeen developed by a group of scholars (Prof.Izdebski and Prof. Hausner). According to theproposal they have made, any type of institutionwould be able to establish a special subsidiarysocial enterprise (without separate legal incorpo-


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IONration), defined by a set of criteria very close to

those introduced by EMES. The draft of the Lawon Social Enterprises will most probably be avail-able at the beginning of 2008.

Government strategy for the development of social enterprises

The government agenda includes several effortsto promote social entrepreneurship and socialenterprises. Recently the government (in consul-tation with the non-governmental sector) con-cluded its work on a Strategy for the Developmentof Civil Society in Poland. The chapter of this strat-egy dedicated to plans related to the social econ-omy is quite vague and should be further devel-oped later. It is worth considering trying to con-vince the government (as happened for examplein the UK) to give the social entrepreneurshipand social enterprise issue a more strategic posi-tion. This could be achieved by various groupsinvolved in the last phases of the Equal Projects,as several Partnerships are involved in the main-streaming of their results. In particular, one of thePartnerships – ‘In search of a Polish Model ofSocial Economy’ (administrated by the Found -ation for Socioeconomic Indicators) is specifical-ly working on the elaboration of an aggregatedand agreed upon set of recommendations relat-ed to the development of social enterprises. Itwill take the form of a ‘Manifesto for the SocialEco nomy’ (similar to those published in the UKand Finland for social enterprises).


1.3. SWOT analysis of social enterprise development in Poland

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Strengths Weaknesses

Good internal communication of social econo-my actors.

Well-developed social economy infrastructure(training, information, integration)

Relatively well-developed research related tosocial economy

Dynamism of individuals involved in socialeconomy promotion

Good (dense) international network of coop-eration

Relatively small size of social enterprise sector.

Lack of access to proper financial infrastruc-ture (specially funding for capacity buildingand necessary investment of social enterpris-es). Funding is available only for ‘soft’ part ofenterprises.

Too few examples of sustainable projects(many of them are still heavily subsidized)

Overlapping efforts of many actors

Difficult incubation phase of majority of socialcooperatives (many of them were not able tosurvive)

Social integration methods are not modern-ized – particularly outdated tools exist in thepublic administration of employment andwelfare services (some of them in fact rein-forcing existing dependencies and ‘wel-fareism’)

Opportunities Threats

Relatively good communication with decisionmakers (both in Government and Parliament)

Personal involvement of key individuals inGovernment promotion efforts

Social economy is part of the NationalDevelopment Strategy and is relatively wellpositioned within the 2007-13 implementa-tion plan.

Many national and regional programmes pro-moting the social economy.

Massive efforts of modernization and trainingfor public administration of employment andwelfare services.

New legal projects – particularly proposed Acton Social Entrepreneurship

Terminological chaos – lack of clear communi-cation

Reservation related to economy with ‘adjec-tives’ (social) as artificial ‘fake’ economy

‘Creaming’ of beneficiaries. Due to specificprocedures (lack of readiness for risk) of accessto EFS funds social economy actors might notbe interested in working with really mostdeserving / demanding beneficiaries.

NGO sector will not answer the social econo-my ‘call’ – since other options (grants, philan-thropy) are more comfortable, independenceis not the key issue for them.

Specific ethos of social activeness, which isunderstood rather in terms of redistributionthan trade

Unclear legal status of mission related eco-nomic activities of NGOs.


1.4. Recommendations

Many of the recommendations referring to thedevelopment of social entrepreneurship andsocial enterprise in Poland have been alreadypresented in previous sections. Below, we shallrecapitulate only those that we believe to be ofkey importance in political terms. We will alsomention ideas that were not properly discussedin the main section (due to its limited length).

Terminological problems should be solved –There is a strong need for a definition of the socialeconomy. Social economy and social enterprise(the former to a greater extent, the latter to a less-er extent) are currently subject to a terminologicalevolution process, similar to the one that hasaffected, for a much longer period of time, theconcept of civil society. Also in this case, weencounter multiple traditions, and – like with thenotion of civil society – for some people, these arekey concepts, while for others, they are only mis-leading names which, dangerously enough, givethe impression of a consensus only to hide realdifferences. In both cases we can distinguish atleast three aspects in the definition of the con-cept. So, in short, in analogy to the case of civilsociety, we can speak of the social economy as:

A noun – social economy as a group of institu-tions,

An adjective - social economy as a specialkind of economy, with special (social) charac-teristics such as values, specific relationsbetween participants etc.

A space – social economy as a network, space,means of communication between partici-pants (mutuality), characterized by ‘horizontaltrust relations’, a capability to mobilize variousresources, ‘access’ to goods rather than totheir ownership.

When trying to define what the social economyis and how it works, it is crucial to avoid dogma-tism. Both the excessive ‘narrowing’ of the con-cept (e.g. to cover only social employment) andthe undue ‘broadening’ of its meaning (toinclude e.g. business philanthropy, corporatesocial responsibility, and the household or infor-mal economy, thus leading to its total vaguenessand ‘trivialization’) may be harmful to social

enterprises. When searching for the right defini-tion, we also have to bear in mind that the socialeconomy and even social entrepreneurship mayprove to be too general, or even too abstract,concepts to call the attention of practitioners orthe wider public. General debates on their truemeaning are prone to be long-lasting ones, alsobecause they seem to be intrinsically ‘evolving’concepts. Although it is worth pursuing suchdebates, for the purposes of the promotion ofsome practical solutions, it is better to distin-guish some clear-cut and well-defined elements:like in the case of the civil society, a broad aware-ness of the social economy concept's theoreticalunderpinnings is not necessarily needed to ‘putit into practice’. In addition, we have to remem-ber that a reverse path of theory-building is alsopossible: theory may just ‘experimentally’emerge from practice.

The specific identity of the Polish social econ-omy should be defined - In the process of socialeconomy development in Poland, a properrecognition of its domestic origins should beensured. Social enterprise comes as a new termand label, but in fact it refers to solutions that,often enough, have a quite long and rich tradi-tion in Poland. In fostering a national version ofthe social economy, identifying the Polish rootsof the field may not only serve as a source ofinspiration, but also anchor these efforts in exist-ing values and traditions. Of course, growth inthe social economy may take place because ofexternal factors, but the latter cannot be directlytransplanted, since their local context is untrans-latable. Often enough, solutions that work in onecountry prove to be of a very limited usefulnessin another one.

Regulatory issues should be settled – Definingwhat is needed, what is possible, and what is notpossible. The regulatory arrangements can,undoubtedly, influence the growth of the socialeconomy, though the causal power of legal actsshould not be overestimated. In recent years,many efforts have been made to improve thelegal environment for the operation of the thirdsector in general and the social economy in par-ticular. This task was very demanding, andrequired intense work which, in view of the limit-ed resources available, meant that other activi-ties had to be neglected to some extent. Today,despite several shortcomings, the Polish legalsystem is more advanced than those of other CEE

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countries in terms of how it regulates socialenterprises. The question remains whether thislegal environment, while not hampering thedevelopment of the social economy sector, hasstarted to foster it. The answer to this questionseems to be affirmative, but it is still too soon toprovide a definitive answer. ‘Pushing’ socialenterprise growth with the help of legal regula-tions entails a risk of bringing effects contrary tothe best intentions of social entrepreneurshippromoters, especially when such regulations arehurriedly prepared and are thus not based on adeep analysis of their implications or sufficientlyample material from pilot projects.

Keeping this in mind, we would like to indicateseveral important issues that neverthelessrequire some legal regulation. A general decisionis needed as to the extent to which, in fiscal legalterms, organizations should be allowed to per-form their social (statutory) tasks on the basis oftheir income from economic activity. The prob-lem is that in the case of social enterprises, thevery combination of the notions of social task andeconomic activity (a combination which is so farregarded as unacceptable in Poland) becomesthe fundamental principle of operation: socialenterprises perform their statutory tasks througheconomic activity. This ‘collision’ may lead to ten-sions. For some, social enterprises' hybrid status isan interesting innovation, while for others it leadsto a kind of ‘confusion’, detrimental to the logic ofthe legal system. Today, the issue of separation -or combination - of the statutory and economicactivities is possibly one of the greatest chal-lenges faced by the sector. Whether social enter-prises (or, more generally, non-governmentalorganizations) should be treated as ‘normal’ com-mercial enterprises constitutes a closely relatedquestion. The answer that will be given to thesequestions will have implications regarding themechanisms of access to public resources – thesystem of grants that has been developed inrecent years is based on the assumption that itsbeneficiaries are not-for-profit organizations. Onthe other hand, the public procurement system(quite often implemented in a rather unthinkingway) is much better adapted to traditional enter-prises than to NGOs.

The social economy should be recognized as apotential driver of growth - There are manyreasons to suppose that the social economy isconducive to self-fulfilling expectation: we need

to strongly believe in its importance for this tobecome true. But such faith on the part of inter-ested actors is not enough: institutions and par-ties determining the direction of Poland’s devel-opment, be it at the central, regional or locallevel, should also be convinced of the socialeconomy's potential. In our view, the social econ-omy (or rather the whole set of related activities,such as empowerment, community develop-ment, community welfare, participatory gover-nance etc.) is badly needed in Poland where, fordecades, a model of ‘top-down’ organization ofsocial life was cultivated, despite its poor results.In spite of some achievements in the fields ofself-government promotion and general decen-tralization, today Poland needs new develop-mental paradigms, and in this respect, almost allsolutions offered by the social economy mayprove to be helpful. Challenges are indeednumerous: the social and employment assis-tance systems are anachronistic and passive; thelevel of inclusion of disabled people in the labourmarket is shockingly low (the lowest in Europe);the level of social capital is dangerously low aswell; there is a deep deficit of civil participation;non-governmental organizations are dependenton public administration; public governance isbureaucratic and ineffective etc. Consequently, itis worth listing the basic proposals in this field.

First of all, social economy organizations shouldno longer be discriminated against in terms oftheir access to support resources (many pro-grammes list eligible beneficiaries, often exclud-ing social economy organizations). Social enter-prises should not be confined solely to the inte-gration and pro-employment spheres (this is thecase of social cooperatives in Poland), which aremoreover controlled by public administration.Instead, the numerous programmes aimed atsupporting small- and medium-sized enterprisesshould be open to – and even encourage theparticipation of – social enterprises.

Soft financing (supported by training and properbanking instruments) as well as the improvementof technical infrastructure for social entrepre-neurship initiatives should be given much broad-er attention. The social economy does not onlyrefer to a group of institutions but also to a spe-cial network, constituted on the basis of mutualrelations and on the principle of partnership.Assistance offered to Poland should not be seenas a gift for officials and the government adminis-

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tration but rather as a means to support (whilenot substituting for) the efforts of individual com-munities. It is not a good idea to try to absolve cit-izens for their lack of future-directed thinking:instead, more organic and participative attitudesin the preparation of developmental strategiesand implementation should be fostered, other-wise the transitional assistance from the EU willnot result in fostering citizens’ activity and self-sufficiency, but may rather lead to a completedegradation of those virtues. In this respect, agreater recognition of collective actors (such asLocal Action Groups) than what has been thecase hitherto is urgently needed, for these actorsare better placed to collectively prepare andimplement locally-based plans. It is impossible(though, in our opinion, it would be highly desir-able) to reformulate the programming and imple-mentation of the 2007-13 budgetary pro-grammes in such a way as to make these groupstheir basic ‘element’ (like in the British SingleRegeneration Budget), but it is necessary toinclude at least those of them that are capable ofself-organization in the category of beneficiariesand intermediaries that support local initiatives.We do not refer here to the traditionally con-strued Global Grants mechanism (on the macrolevel) but rather to the role of intermediary in thedistribution of micro-grants. If there is no roomfor such solutions, we will have to forget aboutany chances of obtaining EU support for thesmallest and often very valuable local projects(even today, only 4 percent of them have beencapable of benefiting from such funds).

A far-reaching developmental reflection is need-ed, that will not back off from risk-taking or eventhe plausibility of failure (given that failure is anopportunity to gain new, useful experience).Thus, first of all within financing systems, mecha-nisms should be created that would allow forhigher risk levels (here, we do not suggest morelaxity in the financial management of pro-grammes, but rather refer to mechanisms leav-ing more room for initiatives that may faildespite all the necessary efforts on the part oftheir authors). Otherwise, there is a risk thatfinancial resources will be spent for activities thatare easy, secure, and unnecessary, while thoseinitiatives that really need assistance will be lefton their own.

Finally, an intense investment should be made inwhat could be called ‘education for entrepre-

neurship’ (the latter being understood as mean-ing something broader than merely ‘businessand generation of wealth’). What we are referringto here is the promotion of an attitude of respon-sibility, openness to risk-taking and general will-ingness to change the world around. This is akind of human capital that is lacking in Polandand should be strongly supported. Heretical as itmay sound, we would insist on the fact thattoday, support is needed for entrepreneurial atti-tudes at the individual level (especially amongyoung people), for there lie the true origins ofthe sense of entrepreneurship. Programmes sup-porting young entrepreneurs have been imple-mented in many European countries: inGermany, for example, a special federal body hasbeen operating for this purpose for severaldecades; in England too, numerous initiativeshave recently been launched – see for examplethe so-called UNLtd at http://www.unltd.org.uk/,an organization that has given assistance to1,400 young individuals in their efforts to realizetheir social projects.

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2. Promoting the Role of SocialEnterprises in Serbia

2.1. The background for socialenterprises in Serbia

The economy in Serbia and former Yugoslavia asa whole was characterized by several featuresthat made it very different from other socialistcountries in Europe. Although it was basically acommand economy, socialist enterprises hadfree access to internal quasi-markets and exter-nal markets. Also, these enterprises were inter-nally organized on the principle of self-manage-ment. Collective ownership over enterpriseassets defined as ‘social ownership’, as well asautonomy of employees in decision-makingrelated to business, profit distribution and selec-tion of management, made the whole economyof former Yugoslavia look very much like ‘socialeconomy’. However, such a type of organizationin the economy showed very soon another face:the inefficient organization of enterprises, lowproductivity and lack of investment in new tech-nologies produced severe losses. The wholeexperience showed that this ‘social economy’could have persisted only if protected from mar-ket risks and limited in size. Finally, during the1980s the economy and political system fell intodeep crisis.

The post-socialist transformation in Serbia wasalso marked by many specific aspects, as com-pared to other post-socialist countries. The lastdecade of the 20th century saw the hindrance ofthe reform processes, an unregulated institution-al framework, and an extremely grave economiccrisis to which devastating wars also contributed.All this led to a deterioration of the position ofnumerous social groups. The true transformationprocesses were not to begin until 2000. Further -more, they started from a significantly worseposition than countries that were more success-ful in the transition processes, or than the condi-tions prevailing in Serbia itself at the end of 1980s.

The conditions for the development of the socialeconomy in Serbia are characterized by the speci-ficities of belated and hindered post-socialist trans-formation which can be termed ‘blocked transfor-mation’. ‘Blocked transformation’133 was a processin which the former League of Communist ‘societalmonopoly was replaced by interlocked positions ofeconomic and political dominance in order to post-pone the development of a market economy andpolitical competition’ (Lazic, in Higley and Lengyel,eds. 2000). Although a number of institutionalchanges were introduced during the period of‘blocked transformation’ (the multiparty politicalsystem and the market economy), substantialchanges were blocked by the centralized power ofthe interconnected political and economic elites,which resulted in the continuing regulatory role ofthe state in the economy, postponement of a moreextensive privatization, etc. On the one hand,these extremely disadvantageous conditions dur-ing the period of blocked transformation resultedin increased needs for various forms of social inte-gration, while, on the other hand, the systemicframework hindered the development of organi-zations, initiatives and actions that could lead tothe development of the social economy. The majorfeatures of the blocked transformation periodcould be summed up as follows:

quasi-democratic political system

lack of adequate restructuring and privatiza-tion of the economy

marked expansion of the informal economy134

hindrance of civil society development

isolation by the international community

The aforementioned conditions resulted in asudden weakening of the social functions of thestate and a rapid impoverishment of a major partof the population. Socially disadvantaged cate-gories of the population expanded to includenot only the traditionally marginalized groups(Roma, persons with disabilities and the like), butalso refugees, internally displaced persons (IDPs)from Kosovo and Metohija, and an impoverished

133 The ‘blocked transformation’ lasted from 1990 until 2000.134 In the first half of 1990s the share of the grey economy in the official domestic product amounted to as much as 54.4 percent, but fell to 1/3 during the sec-

ond half of the decade (Krstić et al., 1998:7).


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domiciled population constantly increasing innumber.

The fall of the Milošević regime in 2000 and thearrival of democratic powers mark the beginningof the real post-socialist transformation in Serbia.At the beginning, macro-economic stability wasestablished, as well as a relatively satisfactoryrate of economic growth,135 and key systemicreforms initiated. By 2004 the reform of majorfinancial institutions was accomplished, and awhole range of laws improving the business cli-mate were introduced. However, relatively sloweconomic growth, under-developed markets forgoods and services, as well as the relatively lowpurchasing power of the population furtherreduced the scope for the development of eco-nomic activities by social enterprises.

The process of privatization was also intensi-fied,136 aggravating the situation in the labourmarket. Privatization, restructuring, and down-sizing of socially-owned enterprises137 led to asignificant increase in unemployment.138 At thesame time, intensive labour market reforms wereundertaken, with the support of the new legalframework and National Employment Strategywhich emphasizes active employment measures.In 2002 the new law on local self-governancewas enacted, transferring a large portion ofauthority in the field of economic development,education, social welfare and other processes tolocal authorities. The reform of the social policysystem is also under way. A whole range ofimportant national strategies were adopted toimprove the position of disadvantaged socialgroups. Two general strategies, the Strategy forPoverty Reduction and the National Strategy forEmployment, contain measures to improve theposition of all vulnerable groups. Other strate-gies such as the National Strategy for SolvingProblems of Refugees and Internally DisplacedPersons, National Strategy for Improving the

Position of Persons with Disabilities and theStrategy for Roma Integration focus on particularvulnerable groups. All the strategies mentionedcontain a set of labour market measures, tailoredfor marginalized groups. From 2002 to 2004 thenumber of people included in programmes of‘active job seeking’ doubled (from 22,740 to50,586 persons).139

Reform processes bring about an increasingneed to adopt an innovative approach whendealing with social integration, social welfareand social development. Against this back-ground, new approaches in the field are becom-ing more numerous and more evident.

2.1.1. The transformation of the welfaresystem and main features of thelabour market

The welfare system

From the socialist period Serbia inherited a cen-tralized system of social welfare in which thestate planned, financed, and provided services.The state provided various types of services thatwere available to all categories of the populationand to all groups of citizens from all sectors ofthe welfare system. These services were deliv-ered through state institutions/organizations, aswell as through state enterprises, unions andother social stakeholders. In that period the statepromoted a full employment policy.

The part of the system which is mostly related tothe vulnerable groups – social protection – wasestablished during the socialist regime as sepa-rate from other parts of the welfare system. Itwas – and still is – based on a network of residen-tial institutions and centres of social work (CSW),managed from the central level.

135 During the first two years, the growth rate was over 5 percent (Strategy for Poverty Reduction, Government of the Republic of Serbia).136 According to the Law on Privatization of 2001, from the beginning of the privatization process until 30 September 2005, 2,482 enterprises in social or state

ownership were privatized. This brought in proceeds of €1.4 billion, of which €899.9 million was intended for investment, and €272.4 million for the socialprogramme for workers made redundant in the privatized enterprises (Republic Development Bureau, 2005).

137 While in other former socialist countries state ownership was the main ownership form, in Serbia the dominant form was the so called ‘social ownership’.Owners were neither the state, nor individuals as natural persons or other legal persons, but society. During the privatization, the ownership of those organ-izations was transferred to the state. Many of those enterprises were downsized, due to a lack of interest or eligibility for privatization.

138 Unfortunately, there are no precise data on total number of persons made unemployed as a result of the privatization, downsizing, and restructuring ofenterprises. However, data on redundant employees who were included in the programme for resolving the surplus of employees are available (OfficialGazette of the RS no. 64/05). According to these data more than 126,000 surplus employees from 231 companies were included in these programmesbetween 2002 and 2005.

139 The First Report on the Implementation of the Poverty Reduction Strategy (Government of the Republic of Serbia, 2005) presented the achievements in imple-menting the policy measures defined in different strategies.


At present, numerous reform initiatives are tak-ing place in this area. These initiatives aim toinvolve new actors and stakeholders in servicedelivery. However, public institutions are still themain service providers. The government plans tocreate the conditions for the introduction ofother service providers in order to promote com-petition and improve the quality of services.

The law defines the important role of localauthorities in the area of social protection. Theirobligation is to finance community-based servic-es such as shelters, day-care centres, home care,etc. However, only a small number of municipal-ities completely fulfil their obligations in the fieldof social welfare, the reasons for which are mostoften found in the constant lack of financialresources and the absence of obligatory controlby local authorities in respect for the rights ofvarious groups. The reasons also include the lackof established criteria on the minimum amountof municipal budgetary allocations for social wel-fare (Government of the Republic of Serbia,2005).140 The average percentage of local budgetallocation for social protection in Serbia is 2 per-cent141 and it is insufficient to cover all vulnerablegroups in the local community.

In 2005, the government of Serbia adopted animportant document in this area, the SocialProtection Development Strategy. Apart fromimproving the work of public services, the strate-gy stipulates a gradual transition from the pre-dominantly residential to open forms of care,that is, the development of various services of

social protection within local communities. Thisfollows the trend initiated several decades ago indeveloped countries, since the open forms ofprotection are the most inexpensive ones142 andyield better results in strengthening the capaci-ties of beneficiaries.

The strategy stipulates the transformation andclosing down of some of current major residentialinstitutions, sector and fiscal decentralizationwhich would give local authorities more autono-my to open new services, and, importantly, thepluralization of service providers. Instead of thecurrently prevailing dominance of the public sec-tor, the state plans to have the non-profit sector asthe provider of an important part of local socialservices. To that end, the government establishedthe Fund for Support to Persons with Disabilities(financed by the State Lottery funds), the SocialInnovation Fund (in cooperation with UNDP, theEU and other international partners), and otherprogrammes that contribute to developing thesector of non-profit social services and creatingnew space for the market of new service providers.Through these programmes, numerous clubs, day-care centres and other non-profit services wereopened with significant potential for employment(of vulnerable groups, among others). These pro-grammes also enabled the development of capac-ities of the non-govermental (mainly non-profit)sector for providing social services.

Table 11 - Indicators for the Labour Market Situation in Serbia and the EU (2006)

Labour market indicators EU 15 EU 27 Serbia

Employment rate 66.2 64.5 49.8

Unemployment rate 7.0 7.1 21.6

Source for EU: Eurostat143 ; Source for Serbia: Labour Force Survey,144 2004, Statistical Office of Republic of Serbia.

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140 According to the data in the Social Protection Development Strategy, more than 100 municipalities provide no care services whatsoever for the elderly and dis-abled in their natural environment (Government of the Republic of Serbia, 2005).

141 Matkovic, 2006.142 Data for Romania show that the cost of placing a child in an institutionalized setting is double the cost of placing a child in a professional foster family, and

10 times the cost of adoption or reintegration in its own family (Tobis, 2000: 30). Insufficient data for Serbia show the same trends: average cost of placing ininstitutional care is almost double the cost of family-based care. (Lišanin, 2005).

143 http://epp.eurostat.ec.europa.eu144 The Labour Force Survey is a regular research study of the Statistical Office of the Republic of Serbia which every October gathers information on the labour

force from a sample of around 6,500 households and 17,000 individuals. The methodology was brought into line with the standards of International LabourOrganization (ILO) and Eurostat, with the aim of making the data comparable.


The main features of the labour market

Transition processes in Serbia aggravated thegeneral conditions in the labour market. Thelabour market in Serbia is characterised by: a trendto increasing unemployment, surpassing the ratein the EU and many East European countries; ahigh percentage of long-term unemploymentand a constant rise of the average unemploymentperiod; a high degree of unemployment amongthe young population; a high unemployment rateamong workers with secondary school and lowereducation level; a problem of regional inequalityin unemployment; and high employment in theinformal economy. Key indicators reveal that theoverall situation in the labour market in Serbia issignificantly inferior to that of the EU (Table 11).The labour market in Serbia shows a loweremployment rate and a higher unemploymentrate than average EU rates. In 2004 the employ-ment rate in Serbia was just slightly higher thanthat of Poland (51.7 percent), while the unemploy-ment rate was higher than the rate in all EU coun-tries, Romania, Bulgaria, Croatia or Turkey.Privatization led to a significant transfer ofemployees from the social/state sector to the pri-vate sector: 21 percent of total employment wasin the private sector in 2002 compared to 60 per-cent in 2005 (Statistical Yearbook, 2003; LabourForce Survey, 2005). 20.6 percent of employeeswere self-employed, 71.3 percent were engagedby an employer, while 8.1 percent were familyworkers (Labour Force Survey, 2005).145 There is norecent evidence on employment in the informaleconomy, but the Economic Institute146 carried outan analysis of the hidden economy in 2000, whichwas based on a representative sample of 3,865persons. Around 30 percent of the labour forceworked in the informal sector, 51 percent of themon a regular basis every month. This correspond-ed to at least 1 million people engaged in theinformal sector.

Long-term unemployment prevails among theunemployed in Serbia. As many as 65 percent ofall unemployed persons have had that status forover two years. Some 40 percent of unemployedpeople are seeking employment for the first time,while among those who have had employmentin the past, more than a half became unemployeddue to the liquidation of their enterprises, or weremade redundant.147 Unemployment strikes theyoung population (15-24 years old) especiallyhard; among this group the unemployment rateis 44.83 percent, which in 2003 was three timeshigher than the average for this age cohort in theEU of around 15 percent (National EmploymentStrategy, 2004). It also strikes persons who losttheir job at a late age (in their 50s), as well as qual-ified manual and non-manual workers (NESreport, September 2004).

The position of women in the labour market issignificantly worse than that of men, as is evidentfrom lower activity and employment rates andhigher unemployment rates among women thanamong men.148 Marginalised groups – Roma,refugees, internally displaced persons and per-sons with disabilities – are in a particularlyunfavourable position in the labour market.149

According to a UNDP research study in 2004,unemployment rates among marginalizedgroups are significantly higher than the unem-ployment rate of the general population inSerbia. While the unemployment rate for the gen-eral population is around 19 percent, for the pop-ulation of refugees and internally displaced per-sons it is around 32 percent, while for Roma itamounts to as much as 39 percent.150 Indicators ofthe position in the labour market for persons witha disability are not available, which poses an addi-tional difficulty in designing detailed measuresaimed at increasing employment in this category. Besides a much higher unemployment rate, mar-ginalized groups also show higher employment inthe informal sector, as well as a substantially dif-

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145 Family workers are persons who help other family members to run a family business or farm and are not paid for their work. The majority in this category arewomen in farming households.

146 Krstic et al., 2001.147 Ibid.148 An extensive analysis of the position of women in the labour market was presented in the study Position of women in the labour market in Serbia (UNDP, 2006b),

according to which the activity rate of women was 18 percent lower than that of men, and their employment rate was almost 20 percent lower than that ofmen, while their unemployment rate was around 8 percent higher than that of men.

149 There are no precise data on these groups. Refugees are estimated to number 107,000 and internally displaced persons 200,000 (Group 484, 2005). Censusdata on the Roma population is extremely imprecise. According to the 2002 census 108,193 Roma are registered in Serbia (1.44 percent of the population),while some secondary sources indicate a figure of more than 400,000 (Minority Rights Centre, 2005). There are also around 760,000 people with disabilities(Strategy for Improvement of Position of Persons with Disabilities in Serbia, 2006).

150 UNDP, 2006a.


ferent industrial structure of employment, as com-pared to the domiciled non-Roma population.

Features of poverty

After the breakdown of socialism, the problem ofpoverty in Serbia emerged as almost a new phe-nomenon. The major causes of the transparencyand the increase of poverty came from both thepolitical and the economic fields. The increasingpolitical liberties blew away the egalitarian ideo-logical cover from the real social inequalities,allowing ‘traditional’ poverty to pop up (amongsmall peasants, unskilled employees and Roma).The ideological shift also let ‘mechanical’ solidari-ty fall apart: the all-encompassing socialist welfarestate was substituted by an anomic gap. At thesame time economic reform led to an increase ofpoverty in three ways. First, it was time to uncoverand face the heritage of the command economy:hidden economic inefficiency accompanied witha debt burden. Second, only a small number of cit-izens played a central role in privatization and theaccumulation of capital. Third, an additional reces-sion occurred during the 1990s owing to second-ary damage from Milošević’s financial engage-ment in the Bosnia, Croatia and Kosovo conflicts,bringing about a sharp decrease of GDP. Thewhole picture was worsened by international iso-lation. The costs and benefits of transition havenot been shared equally. This twofold economictrajectory produced a rapid and intensive increasein social inequality, with Gini coefficients rising toover 0.30. The basic characteristics of poverty inSerbia screened according to the World Bankmethodology are presented in table 13.

In 2005 the Statistical Bureau used three method-ologies to estimate the poverty rate, and the esti-mates varied from 6.55 percent to 25.06 percent(8th Bulletin on the Application of Poverty Reduc -tion Strategy in Serbia, Government of the Re -pub lic of Serbia). This study, as well as earlier ones(2002, 2003), showed that poverty is highest inurban areas, in southern and western regions ofSerbia, and among single parents, elderly cou-ples, and poorly educated people. Other studiesshowed that poverty in Serbia is not only aboutthose who are under the poverty line, but alsoabout those who are just above the poverty line(Cvejić, 2006). According to this research, at theend of 2003 the number of poor people was esti-mated at 13 percent, but the next category ofeconomic position (lower middle) contained asmany as 44 percent of citizens, and 25 percent ofthese were defined as jeopardized by povertybecause they also scored low on the measure ofsocial capital (ability to rely upon a social networkwhen needed).

2.1.2. Main characteristics of the third sector

Since the beginning of the 20th century, with theongoing development of democracy in Serbia,the first associations of citizens emerged. Withthe establishment of socialism after WWII, associ-ations of citizens were placed under centralizedstate control, but when the socialist systemdeclined and the rise of cultural freedoms beganin 1980s, the number of organizations and move-ments increased. However, not all the NGOs and

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Table 12 - Employment in Specific Branches of the Economy, 2004, in percent

Domiciled non-Roma Roma Refugees/IDPs

Trade 18% 23% 21%

Agriculture and forestry 2% 22% 11%

Industry and mining 13% 9% 7%

Leisure services 10% 6% 12%(tourism, restaurants, etc.)

Public utilities 10% 5% 9%

Source: National Vulnerability Report for Serbia, UNDP, 2006.


movements that appeared instigated the devel-opment of civil awareness. The structure ofSerbian society, in which the rural population, aswell as traditionalism and an authoritarian con-sciousness were still predominant, preferred therising nationalism and populism.

During the 1990s the development of the thirdsector was significantly marked by the features ofblocked transformation. Owing to the strongnationalist movement, authoritarian political con-victions and the war in the vicinity, the activities ofmost of the newly established NGOs were to a sig-nificant degree oriented towards the develop-ment of civil society, anti-war activities, the devel-opment of democratic institutions and the like.These activities contributed significantly to thechange in the political system in 2000 and themodernization of the institutions that ensued.Today, the third sector in Serbia is dominated byNGOs. There are also voluntary associations andcharity organizations.

War and humanitarian catastrophe in the mid-1990s brought to Serbia a large number of inter-

national humanitarian organizations and donors.Through cooperation with these organizationsthe development of another type of NGO began,which was closer to the social economy andwhich not only represented but also drewtogether the members of disadvantaged groups(Roma, refugees, women, the unemployed, warwounded, etc.). The development of theseorganizations stimulated the awareness of mar-ginalized groups and disintegration processes,as well as the scope and quality of the solutionsoffered for their integration.

Prior to 1990, there were about 17,000 NGOs, pri-marily various sports associations, professionalassociations, etc.151 In the period 1990-2000,around 2,000 new NGOs were registered, ofwhich as many as 695 during 1997 after demo-cratic opposition parties had won local politicalpower in major towns all over Serbia. During thefirst six months after the fall of Milošević, around900 new NGOs were registered. On the onehand, the new government was more responsiveto the NGO sector. Since the mid-1990s manyNGOs formed informal coalitions, and in 2000

Table 14 - Regional Distribution of Serbian NGOs According to Year of Establishment, in percent

Period 1990 1991-1995 1996-2000 2001-2003

Belgrade 19.6 29.4 41.2 9.8

Serbia excluding Belgrade 1.9 9.8 56.8 31.4

Source: NGO Policy Group: Third Sector in Serbia, 2001.

Table 13 - Poverty indicators in Serbia in 2002-2007

Poverty index, % Poverty gap, % Poverty intensity, %

2002 2007 change 2002 2007 change 2002 2007 change

Urban 11.2 4.3 -6.8 2.1 0.8 -1.3 0.6 0.3 -0.4

Rural 17.7 9.8 -8.0 4.2 2.0 -2.2 1.5 0.6 -0.9

Total 14.0 6.6 -7.4 3.0 1.3 -1.7 1.0 0.4 -0.6

Note: Changes in % between 2002 and 2007Source: Krstic, G. Poverty Profile in Serbia 2002-2007

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151 The data on the NGO sector are based on the study of 821 NGOs by Policy Group in 2001, and the study of 102 NGOs carried out by Lazić in 2004 (cf. NGOPolicy Group, 2001; Lazić, 2005).


formal coalitions, with opposition democraticpolitical parties, which, in the end, led to theexpansion of the democratic political movementand electoral triumph. A large number of NGOactivists found places in the new institutionsafter the change, thus directly transferring ideasand experiences from civil society to the institu-tions. On the other hand, there was an apparentgrowth of external aid after the political changesin 2000. This fact was registered in the NGO sur-vey as well. The most important sources offinance for NGOs were foreign funds. As many as84.4 percent of NGOs were using foreign funds(mostly foreign foundations and internationalNGOs), 21 percent local private ones, 10.4 per-cent local public ones, 7.6 percent the nationalbudget, and 15 percent were charging member-ship fees.152 New NGOs first started to be estab-lished in Belgrade, the rest of Serbia following(Table 14).

The somewhat slower rate of NGO sector devel-opment in the interior of Serbia resulted fromthe lack of human resources, tougher traditional-ism and insufficient ability to resist political andideological pressures, that is, the slower develop-ment of social capital.

What is more, by the beginning of 2000 the thirdsector was showing poor employment potential,as well as relatively scarce financial resources. Asmany as 77.3 percent of NGOs in 2001 did nothave a single employee, 16.9 percent employed1-5 people, and 2.3 percent 11 or more.153 Almosthalf the NGOs surveyed had small budgets (up to€2,500). There is no systematic evidence on thenumber of employees in NGOs in Serbia.Therefore we must rely upon the rough estimatemade by the Centre for Development of theNon-Profit Sector that NGOs in Serbia employ3,170 people (with the Red Cross accounting for690 of these).

Although the vast majority of NGOs still rely onforeign funds to perform their activities, it isnowadays becoming more frequent that theycooperate closely with the local and stateauthorities. Besides, the state institutions are

beginning to recognize non-governmental insti-tutions as partners in the realization of pro-grammes of social support and social welfare.Although such a practice is still largely limited toindividual programmes and is carried out withthe support of instructions from foreign partners,it marks the beginning of an important trend ofestablishing continuous cooperation betweenthe state and NGOs.154

The founders of associations of citizens with areligious affiliation in Serbia are the SerbianOrthodox Church, the Islamic ReligiousCommunity and the Catholic Church. The opera-tion of these organizations is regulated by theLaw on Churches and Religious Communities of2006. This law gives the churches and religiouscommunities the right to establish institutionsand organizations in their social and charitablework. Social and charitable activities are separat-ed from religious services and charity organiza-tions are obliged to clearly publish the name oftheir founding church/religious community andto present the full name under which they havebeen registered. According to the law, churchesand religious communities may be completely orpartially exempted from the payment of taxesand other obligations while conducting theiractivities or generating an income. Althoughthese organizations mostly provide humanitari-an aid to vulnerable groups, some of them dealwith production or services directed towards theeconomic activation and empowerment of thevulnerable (e.g. agricultural production) ortowards social care (e.g. daily home care).

No law on social enterprises exists in Serbia. Theformation and activities of voluntary organiza-tions are regulated by two laws, which are bothobsolete: the Law on Social Organizations andAssociations of Citizens of the Republic of Serbiaenacted in 1982, and the Law on Associations ofCitizens, Social Organizations and PoliticalOrganizations in the Socialist Federal Republic ofYugoslavia, enacted in 1990. The former stipulat-ed that associations of citizens and social organ-izations could be founded by persons (only natu-ral, not legal ones). Social organizations or asso-

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152 The total percentage is higher than 100 percent because of multiple options listed by NGOs.153 NGO Policy Group: Third Sector in Serbia, 2001.154 For example: the local authorities of Novi Sad rely on the experience of Caritas in organizing home care services within the Gerontology Centre; the Ministry

of Labour, Employment and Social Policy has engaged several NGOs to monitor projects the Ministry finances through the Fund for Social Innovations andthe Fund for Support to Organizations of Persons with Disabilities.


ciations of citizens could be founded by not lessthan 10 citizens, and if membership fell belowthat limit, the organizations or associations wereto be closed down. The registration process isstill regulated according to the Law onAssociations of Citizens, Social Organizationsand Political Organizations in the SocialistFederal Republic of Yugoslavia, from 1990.Unlike the Republic law from 1982 that allows forthe foundation of a separate enterprise by volun-tary organizations, the Federal law of 1990 doesnot foresee the possibility that economic activi-ties are carried out by voluntary organizations,and stipulates that these organizations arefinanced through membership fees, grants andother ways stipulated by law. Both laws (federaland republic) are relicts of communist ideology,both in terms of terminology and content.

The new bill on the Associations of Citizens wassubmitted to parliament for discussion andenactment.155 It aims to regulate the process offounding and the legal status of associations,registration and deregistration, membership andorgans, changes in status, cessation of work, aswell as other issues important to the work ofassociations. With the enactment of this law theabove-mentioned two laws will cease to be inforce. In principle the bill liberalizes the work ofassociations of citizens, but regulates ratherrestrictively the use of the property of an associ-ation by its founders. The bill lays down that anassociation is a voluntary, non-governmental,non-profit organization, founded in accordancewith the principle of freedom of association byseveral natural or legal persons, with the aim ofaccomplishing and improving a common or gen-eral goal or interest. It stipulates that the registra-tion of an association is voluntary, but it can onlyattain the status of a legal person after registra-tion, which means that it cannot function with-out registration. Associations can be founded byno fewer than three legal persons or natural per-sons eligible for work, but at least one of thesepersons must have its registered office or resi-dence in the territory of the Republic of Serbia.The Registry of Associations is to be entrusted by

the ministry with governance competencies. Thebill stipulates that an association can acquireproperty through membership fees, voluntarycontributions, donations and grants (in moneyor in kind), financial subsidies, inheritances, inter-est on deposits, leases, dividends and other waysstipulated by the law. The property of associa-tions can be used only with the aim of attainingthe goals stipulated by its Articles of Association,and cannot be shared among its members,founders, members of the association’s bodies,managers, employees or other persons relatedto the above-listed persons (with the exceptionof expenses and salaries).156

The bill expressly stipulates that a branch officeof a foreign association can perform its activitiesin the territory of the Republic of Serbia follow-ing registration in the Register of ForeignAssociations kept by the ministry with gover-nance competencies.

The cooperative sector is undergoing a slow trans-formation. Overall, there are almost 3,000 regis-tered cooperatives, with a majority of agriculturalcooperatives. However, accurate data on the num-ber of active cooperatives are not available. Thefoundation and functioning of cooperatives is stillregulated by the old Law on Cooperatives that wasenacted in 1989. According to this law coopera-tives are ‘independent self-managed organiza-tions of workers and citizens who freely associatetheir labour or resources, into an artisan, housing,youth, savings and loan, consumers' cooperative,cooperative for intellectual services, and otherkinds of cooperatives for the provision or produc-tion or services’.157 During the last years manycooperatives that were founded during the social-ist period have been closing down; those who arestill active face problems of untransformed landownership.158 However, there are also trends ofestablishing new, modern agricultural coopera-tives, mostly due to international donors’ pro-grammes. The development of social cooperativesis a new phenomenon and these kinds of coopera-tives are still small in number (cf. section 2.2.).

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155 Enactment of this law was postponed several times in the last six years owing to debate between the main stakeholders.156 On the dissolution of an association, the Articles of Association can stipulate only a domestic non-profit legal person with the same or similar goals as the

grantee of its property. Otherwise, the property of the association becomes the property of the Republic of Serbia, and the right to use the assets is given to thelocal authority where the association had its registered office, and is to be used for the purposes similar to the association’s goals, or for social purposes.

157 Official Gazette RoS, No. 57/89, 46/95.158 During the socialist period cooperatives were formed on nationalized land taken from small peasants who were allowed to possess a maximum 10 hectares of land.


2.1.3. Main problems and challenges facing the third sector with respectto social enterprise development

Generally, the third sector in Serbia has a limitedbut stable potential for developing social-enter-prise activities. Numerous NGOs159 possess thehuman resources, knowledge and experience, aswell as the financial capacities and versatility offinancing sources that would enable them totransform themselves into social enterprises.

However, there are significant obstacles facingNGOs that want to promote social-enterpriseactivities:

Unrecognized concept of social enterprise.The social enterprise concept is not delineated inrelevant legislation, and entities that could fallinto that category do not self-identify as socialenterprises. There is a lack of awareness amonggovernment officials and in the third sectorabout the principles and potential of socialenterprises. Nevertheless, professional and aca-demic circles are expressing increasing interestin this field. Usage of the concept in professionaland academic circles is increasing. Social enter-prise in Serbia currently exists in the form of non-integrated initiatives that address problems ofunemployment and social disintegration on asmall scale.

Undefined legal status. Even the new bill on theAssociations of Citizens represents only a legalframework for the establishment of NGOs. On apractical level NGOs are regulated by numerouslaws (on employment, on financing and taxation,etc.) and regulations. Some of these regulationsare contradictory, which allows for biased inter-pretation by state institutions. An example is theinstruction from the Ministry of Finance that allNGOs should pay a 5 percent tax on foreigndonations and 18 percent VAT on local dona-tions. The instruction is not compulsory, butmany local public revenue offices follow it, andfew NGOs complain. Also, the income-generat-ing activities of NGOs are not regulated (unlikethose of charity organizations).

Weak experience in production activities.Most of the social enterprise-like activities ofNGOs so far have been in training and social-careservices. Production activities are sporadic.

Distorted public image of the NGO sector. As arelic from the times of conflict with the Miloševićregime, when some NGOs played a major role inthe civic struggle, an ideological perception ofthe whole NGO sector as ‘traitors’ to the nationalinterest has persisted. This distortion is perpetu-ated by a significant number of political parties,even those that are ‘democratic’ in name. Suchan image obscures the increasing achievementsof NGOs in training, social care, social integrationand the like.

Quick withdrawal of donations, insufficientsupport from the state. After the fall of theMilosevic regime, many funds directed to developcivil society, as well as funds aimed to supporthumanitarian programmes were withdrawn.However there are no systematic data on the sizeand structure of donations. The self-sustainabilityof many NGOs is still fragile and the state is playingan insufficiently active role in creating favourableconditions for NGOs and providing support.

2.2. Social enterprise developmenttrends in Serbia

The existing legal framework in Serbia does notrecognize organizations that could be strictlydefined as social enterprises. However, the follow-ing forms of organizations that almost entirely cor-respond to the concept of social enterprise, or arevery close to the model, can be identified in Serbia:

associations of citizens

cooperatives

social cooperatives

vocational enterprises for persons with disabilities

spin-off enterprises in the form of limited andjoint-stock companies

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159 The NGO sector includes both associations of citizens (the majority) and foundations.


incubators

agencies for the development of small- andmedium-sized enterprises

A mapping of social enterprises conducted in2007160 showed that cooperatives (particularlyagricultural cooperatives) represent the largestpart of this group, followed by associations of cit-izens and enterprises for persons with disabili-ties. A detailed breakdown is presented in Table15. Most social enterprises are found in Serbia’snorthern province of Vojvodina (45.3 percent),followed by Central Serbia (42.3 percent) and theCity of Belgrade (12.3 percent). When agricultur-al cooperatives are excluded, a different regionaldistribution can be observed as the other typesof social enterprises are more concentrated inCentral Serbia.

In terms of their legal framework, there are notmany types of social enterprises: association ofcitizens, cooperative, limited-liability companies,joint-stock companies and enterprises for train-ing and employment of persons with disabilities.However, organizations with the same legal formcan differ radically according to their principal

functions (objectives and activities); that is,organizations of the same or similar functionalcharacteristics can take completely different legalforms. For the sake of systematization, organiza-tional forms are shown primarily in relation totheir legal forms, while functionally distinctorganizations are shown within each legal form.

The forms of organizations listed above differ intheir degree of similarity to the social enterpriseform as defined by EMES.162 Some of them meetthe criteria almost completely (forms like socialcooperatives, to be explained later in chapter 2.2.),while others stray from the ideal type (due to suchfactors as the degree of profit orientation in agri-cultural cooperatives, low amount of paid workand production/service activities in voluntaryorganizations, low degree of autonomy in agen-cies for the development of small- and medium-sized enterprises and the like). Some of them havethe potential to grow into real social enterprises,while others, in changed legal or social conditions,will deviate from this type. In present conditions,despite the differences, organizations identifiedas social enterprises share the following socialfunctions:

Type of organization Number of identified Percentage of the SESEs sector in Serbia

Associations of citizens 162 14.2

Cooperatives 898 78.6

Enterprises for PWDs 55 3.3

Spin-off enterprises 24 2.1

Agencies for SME development 13 1.1

Business incubators 6 161 0.5

Other SEs 2 0.2

Total 1,160 100

Table 15 - Mapping Outcome

Source: Second Development Initiative Group, Social Enterprise Mapping in Serbia, 2007.

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160 Mapping of Social Enterprises in Serbia, SeConS, UNDP, 2008.161 During the mapping 15 business incubators were found, but 9 are still in the construction process.162 Cf. Part I, ‘Initial Study on the Promotion of Social Enterprises in CEE and the CIS.’


Potential to generate new jobs, either throughdirect employment or through services that in -crease the target groups’ potential for (self-)employment;

Achieving the economic integration of disad-vantaged groups through their employment orthrough connecting various participants, pro-viding access to market information and the like;

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Legal form Relevant laws Income-generating orientation

Ownership Types

Association ofcitizens

The Law onSocialOrganizationsandAssociations ofCitizens, 1982

The Law onChurches andReligiousCommunities,2006

Absent or marginal

Collective - Voluntaryorganization

- self-helporganization

- Religiousorganization

- Microfinanceorganization

Cooperative The Law onCooperatives,1989

Dominant Collective - Agriculturalcooperative

- Women’scooperative

- Social cooper-ative

Limited- liabilitycompany

The CompanyLaw, 2004

Dominant Private - SME Agency- Incubator- Spin-off enter-

prise

Joint-stockcompany163

The CompanyLaw, 2004

Dominant Private Spin-off enterprise

Vocationalenterprise forthe handi-capped

The Law onEnterprises forVocationalTraining andEmployment ofPersons withDisabilities,1996

Dominant State,Private

Vocationalenterprise forthe handi-capped

Table 16 - Review of Different Legal Forms for Social Enterprises

163 Joint-stock companies that are characterized by a profit distribution constraint and whose stockholders are members of an Associations of Citizens.


Achieving the social integration of marginalizedsocial groups that can be carried out througheconomic integration, or solely social integra-tion (through day centres for persons with dis-abilities, inclusion of refugees in organizationsalong with members of the domiciled popula-tion etc.);

Meeting the economic, social, cultural and heath-care needs of disadvantaged groups;

Improving the living standards of target groups(through donations, material support, services)or through various forms of integration;

Supporting local development in disadvan-taged areas, which improves the chances tointegrate marginalized groups.

Social enterprises are of utmost importance tothe transformation of the welfare system inSerbia – from the former socialist system in whichthe functions of the welfare state were limited tothe centralized institutions of the state, to a mod-ern system in which the state, civil sector and pri-vate sector join forces to provide welfare servicesin a new way, as described in section 1.1.

2.2a Associations of Citizens

Voluntary organizations are most often in theform of associations of citizens.164 There is no sys-tematic and detailed record of the activities ofthese organizations in Serbia. According to theresearch carried out in 2001, these organizationsshow extreme diversity in terms of their goalsand missions (Table 17).

Although at the beginning of 2000 most organi-zations were still oriented towards the goals ofcontributing to the development of certainaspects of civil society, social enterprises havesince become more orientated towards the inte-gration of marginalized groups and the develop-ment of the local community. Unfortunately,there are no more up-to-date data on the basis ofwhich it would be possible to check non-system-atic observations on the growing trend towardssocial enterprise. The data on the orientationtowards various target groups are to be taken

with a certain reserve, bearing in mind that theydate from the same period (beginning of 2000).

NGOs carry out social-enterprise activities in var-ious ways. They can be divided into two groups –those oriented towards providing support andhelp to precisely defined target groups (such aspersons with disabilities, refugees and the like)and those oriented towards providing supportand help to several target groups, or even orient-ed towards a more integral development of thelocal community aimed at improving the eco-nomic and social integration of disadvantagedgroups (e.g. establishing and connecting agricul-tural cooperatives, or introducing IT in rural com-munities). Besides, these organizations candirectly include members of their target groupsin their work and be established as a self-helporganization, or have their target group appear-ing solely as a beneficiary, but not involved intheir activities. Having this in mind, it is useful todistinguish between two basic types of organiza-tions differing in terms of the above aspects:

Self-help organizations incorporating the ben-eficiary group, most often established throughself-organization of a disadvantaged group,with the aim of meeting their needs and fur-thering their interests;

Externally socially oriented organizations – ori-ented towards external goals and groups,which can further be divided into: a) organiza-tions designed to assist a strictly defined tar-get group (e.g. women’s organizations provid-ing care to the elderly), and b) organizationsoriented towards several target groups ortowards general local development (e.g.organizations providing vocational training forvarious groups of disadvantaged people, orproviding wider simultaneous support to theeconomic integration of farmers, women oryouth in rural areas).

Organizations of both types organize productionor service activities (self-help being significantlymore common than the other ones) for two mainreasons: through these activities they employthe members of target groups (especially theself-help organizations) and endeavour toachieve economic sustainability through these

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164 Legal grounds for founding and regulating the work of NGOs are described in the legal framework section.


activities. Bearing in mind that the laws in forcedo not stipulate the possibility of performingmarket activities by voluntary organizations,they employ the following solutions:

they organize this activity within the same or -ga nization (very often a separate organization-al unit is established for these purposes);

they establish a separate legal entity registeredto perform the given production/service activi-ty; these legal entities can be enterprises foremploying persons with disabilities, limited-lia-bility companies or joint-stock companies.

According to the Law on Churches and ReligiousCommunities from 2006, voluntary organiza-tions with a religious affiliation can establish cer-tain institutions and organizations within the

framework of social and charitable activities withthe aim of performing production and/or serviceactivities. The law also stipulates that in perform-ing the activities and providing income, church-es and religious communities can be fully or par-tially exempted from paying taxes and otherobligations, in accordance with the laws definingcertain public revenues. According to the law,these organizations are to display in a noticeablemanner the full title under which they were per-mitted to perform their social or charitable activ-ities, as well as the title of the church or religiouscommunity that founded them. The founders ofthese organizations are the Serbian OrthodoxChurch, the Islamic Religious Community andthe Catholic Church. Although the goals of theseorganizations are most often to provide human-itarian support for disadvantaged groups of thepopulation, certain organizations also undertake

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Table 17 - Associations of Citizens According to Main Goal/Mission (2007)

Type of Association of citizens % of associations

Environmental protection 10.5

Local development 10.9

Support to the Roma population 9.5

Support to elderly 5.3

Support to PWDs 16.8

Support to refugees and IDPs 2.2

Support to women 4.3

Support to children and youth 8.3

Support to (self)employment, entrepreneurship 2.0

Development of agriculture 14.8

Support to other, several vulnerable groups 11.9

Preservation of tradition 1.6

Improvement of education 1.1

Other 0.6

Total 100

Source: SeConS, UNDP, 2008


production or service activities intended to inte-grate the disadvantaged, or to provide certainsocial services.165

The majority of NGOs that we can characterize associal enterprises still have multiple sources offinancing; that is, what they earn through theircommercialized services constitutes only a partof their income. Their spin-off enterprises, how-ever, often operate fully as market-based enti-ties, and receive donations only as a support inestablishing themselves.

Social enterprise within self-help organizations

This type of organization comprises associationsof persons with disabilities, and organizationsfounded by representatives of disadvantagedgroups (such as refugees, single mothers, unem-ployed women and the like) with the aim of attain-ing the objectives and interests of their group andendeavouring to attain these goals by organizingproduction/service activities in the market.

There are a large number of associations of per-sons with disabilities in Serbia, the majority ofwhich were founded several decades ago undersocialism. Bearing in mind that during that peri-od associations were formed with the strongsupport of the state, many of these associationshave kept the practices and organizational struc-tures of the previous system. Nevertheless, theycan be considered self-help organizations. Thegreat majority of these associations still rely to a

significant degree on local budgets. Theresources they provide from their own fundsenable them to cover material costs. Programmeactivities are organized by various organizationsto different degrees and are financed by individ-ual donations.

Associations of persons with disabilities adjust tochanged social conditions to differing degrees,and manage to transform their organizationswith different levels of success. Thus, one canobserve that today certain associations of per-sons with disabilities are developing an entrepre-neurial orientation, initiating production/serviceactivities and employing their own members. Anexample is given in Box 15 below.

Contrary to these ‘old-system’ associations of per-sons with disabilities, the new ones are estab-lished as real ‘self-help’ organizations with a moreprominent entrepreneurial orientation, and withthe aim of better responding to the needs of theirmembers,166 which is in certain cases realizedthrough establishing a separate enterprise.

Since NGOs cannot initiate production activities,they most often provide services, or, if they doengage in production activities (mainly crafts),they are usually considered to be involved inwork-therapy or socialization of their members.Resources generated through selling these prod-ucts are treated as donations. Such activities areusually on a small scale (according to the numberof employees, quantity of products and turnover),

Box 15. Massage Saloon of the Belgrade Association of Blind Persons

The Massage Saloon of the Belgrade Association of Blind Persons was founded as an extendedactivity by the authorization of and with material support from the Belgrade authorities in the mid-1990s. The saloon employs eight blind persons who received proper training (at the physical ther-apy and massage training school). The saloon is not a legal entity and operates through theaccounts and administration of the Belgrade Association. The saloon is not a VAT payer. Its profitgoes to the treasury of the Association, and the Association determines the salaries of employeesand decides on the distribution of the remaining profit to meet the expenses of the saloon or theadministrative expenses of the Association. The profit covers the salaries and contributions ofemployees, while 20-30 percent goes to the Association. In principle, the saloon is run by the chair-man of the Association. Decisions relating to the operation of the saloon are adopted by the exec-utive board of the Association, but in practice the saloon is run by its employees who manage itby mutual agreement.

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165 Organizations like ‘Čovekoljublje’ (Serbian Orthodox Church) and the Muslim Humanitarian Society Merhamet Sandžak, carry out programmes of agriculturalproduction (greenhouses, animal husbandry, etc.), while organizations such as Caritas provide home assistance services and day centres for the elderly.

166 An example of such an organization is given in the section on enterprises.


and are treated as an extended activity, so that theassociations could remain within their legalframework. An example is given in Box 16.

There is a tendency, noticeable in both associa-tions of persons with disabilities and self-helporganizations of other vulnerable groups, that assoon as the volume of production or servicesincreases to such an extent that it begins to bringsignificant resources and demands adequateorganizational and logistical solutions, suchorganizations tend to found a separate enterprise(more in the section on enterprises) to handlethese activities. It is important here to note thatalthough such enterprises are separate legal enti-ties, their work and goals remain to a great degreein line with the work and goals of the associationitself (see more about this in the section on Spin-off enterprises of voluntary organizations).

Socially oriented organizations with an entrepreneurial orientation

Contrary to self-help organizations, these organ-izations are more externally oriented, that is,they do not include or engage the target groupsthrough membership or employment,167 sincetheir mission is sometimes not to help vulnerablegroups per se but to develop the local communi-ty. Such organizations usually offer programmesto educate certain vulnerable groups and sup-port their employment, or provide services toimprove the quality of life of vulnerable groups(e.g. home care for the elderly). However, besidesthe above-listed services common in the activi-ties of third sector organizations, there is a veryspecific type of organization – microfinanceorganizations – among the organizations of thistype, a fact which results from inadequate legal

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Box 16. Programmes for Economic Support of Disadvantaged Women in the NGO‘Lastavica’

‘Lastavica’ was established in 1996 with the arrival of a great wave of refugees from Croatia, as anassociation supporting disadvantaged women. Although in the beginning enough funds for indi-vidual projects of support to women were provided from donations, the members soon began toplan income-generating projects which could later on allow the organization to sustain itself. Themajority of the target group members were elderly women and women without qualifications.Their skills were mainly reduced to cooking, knitting, chicken-keeping etc. Apart from that, 70 per-cent of them were illiterate and could not take care of their own affairs. ‘Lastavica’ provided man-agement, administrative services and training for the women.

First of all, a textile workshop was opened, and it has been working ever since as an extendedactivity of the NGO. Soon afterwards, a catering service was opened, and it developed to such anextent that it began to generate serious income and a separate enterprise, a limited-liability com-pany, was founded. Besides, there is a workshop for pickling and preserving food for winter (a sea-sonal activity) established as an extended activity.

The activities listed above enable women from the refugee population to find employment andearn an income, but also enable the whole organization to improve the realization of its socialgoals through long-term programmes such as the Club for Reinforcing the Employment Capacitiesof Unemployed Persons (computer courses, English courses and communication courses) andProgrammes for the Elderly (mobile teams for home care, and a club for the elderly).

167 With rare exceptions concerning the sporadic employment of members of vulnerable groups, similarly to organizations with a religious affiliation which employmembers of vulnerable groups, (most often) through agricultural programmes.

168 Microfinance in Serbia appeared with the influx of a large number of refugees in the mid-1990s. First of all, the UNHCR developed the 'Income-generating Projects'programme, the aim of which was to provide support to refugees. The programme was realized through six international humanitarian organizations, and wasbased on a combination of humanitarian and economic criteria. The programme supported a certain number of refugees to gain economic independence.

169 Such instances of microfinance are intended for the unemployed, but cannot be used in the following fields: agricultural production, infrastructure development,taxi services and programmes whose estimated cost exceeds €20,000. The loans are granted as mortgage loans or warranty-loans with an annual interest rate of 1percent, and a 3-5-year repayment term. The basic criterion for granting these loans is the number of jobs created. The borrower is to maintain the reported num-ber of jobs for the period of repayment. Monitoring of the activity supported by the loan and the number of employees is carried out by the National EmploymentService, which submits a report to the Ministry of Economy.


framework for ‘conventional’ microfinance activ-ity. An example is given in Box 17.

Microfinance is an important form of economicreinforcement of socially disadvantaged groupsand support to their integration into the labourmarket through the development of small-scaleenterprises.168 No law on microfinance exists, andthe area of establishing microfinance organiza-tions is also unregulated by law. Certain com-mercial banks have microfinance programmes,and the Government of Serbia established aFund for Development of the Republic of Serbia,which offers microfinance.169

Apart from those organizations that are relative-ly narrowly oriented towards clearly defined tar-get groups and/or a limited number of services,there are also organizations with a more integral(holistic) approach to the development of localcommunities in Serbia. At the same time they areoriented towards various target groups in thesame environment. Such an integral approach to

the development of local communities is espe-cially important in Serbian society, since it ischaracterized by vast regional differences interms of development, economic structure andsocial problems. An integral approach to localcommunities, carried out simultaneously in vari-ous regions, can definitely produce better resultsand contribute to reducing regional differences.Also, their activity in rural environments is of spe-cial importance, since rural areas are facing seri-ous problems – underdevelopment, poverty,depopulation and degradation of resourcesessential to agricultural development. An exam-ple of such an organization is given in Box 18.

An important trend can now be noticed amongthe organizations of this type in Serbia: the net-working of organizations sharing the same mis-sion and active in various regions of the country.The networking of organizations has three bene-fits: a) it enables individual organizations to rein-force their individual resources; b) from the pointof view of the community, better overall effects

Box 17. Mikrofins – NGO for Micro-Loans

Mikrofins was established in 2000 in accordance with the Law on Associations of Citizens. Accordingto its Articles of Association, its principal activity is financial and educational support to disadvan-taged groups: refugees, internally displaced persons and the local impoverished population. TheArticles of Association define microfinancing as the activity of granting microfinance loans.

The main goal of the organization is to enable members of disadvantaged groups who do notmeet the requirements to get bank loans to gain access to microfinance to develop their entrepre-neurial activities, and to provide training and information to these groups. It improves their socio-economic position, increasing sustainability, access to markets and the development of their firms,therefore generating new jobs. Mikrofins grants loans to individuals, not firms, and these individ-uals can be legal entrepreneurs (owners of small registered enterprises), or informal ones (individ-uals who have not yet registered their enterprises). What makes Mikrofins so specific in compari-son to other microfinance organizations is that besides providing microfinance, it also provides itsbeneficiaries with training for their specific job, as well as support until they establish their busi-ness properly. Through its ‘access to market’ programme, Mikrofins aims at market networking ofits beneficiaries, by connecting, for example, fast-food producers with packing producers and thelike. Apart from microfinancing entrepreneurship, Mikrofins also grants disadvantaged peoplehousing credits of up to €4,000.

Although still relying on donations, Mikrofins provides a part of its microfinance resources throughits own turnover. Interest income is used to cover expenses, and the surplus is returned to theportfolio to fund new loans. Mikrofins thus continually increases the number of loans and thenumber of beneficiaries. It currently has around 4,400 active loans, and every loan generates 0.6jobs. Mikrofins is economically self-sustaining, but one of its major problems is an undefined taxobligation. In order to avoid problems in tax-paying, Mikrofins pays profit tax, but has also begunnegotiations with the relevant authorities for a tax refund, citing its non-profit status.

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are achieved through the simultaneous realiza-tion of the same or similar programmes; c)organizations included in the network can lobbytogether and exert stronger pressure for ade-quate legislation. Networks differ from otherforms of connecting NGOs with various partners,primarily because partnerships and cooperationare not limited to individual projects – the net-work is built on the basis of the shared long-termmission of the member organizations. These net-works usually have a central organization actingas a focus and co-ordinating the work of thewhole network. Examples of such organizationsare the Association for Women's Initiative –AWIN – which brings together a large number ofwomen’s organizations and initiatives all overSerbia through various programmes of educa-tion and employment of women; Ethno-net-work, linking together cottage industry and ruraltourism cooperatives and informal organizationsof women performing these activities in ruralareas; Agro-network, linking together clubs offarmers, cooperative managers and women’sclubs in rural areas; and the network of telecot-

tages linking together telecottages as informa-tion centres in rural communities.

Since 2000, the telecottage movement has beendeveloping in Serbia, and includes around 70telecottages all over Serbia. Telecottages arenon-governmental organizations with the princi-pal mission of supporting the development ofrural communities and connecting them withthe wider community through the introductionof information technologies.170 They are smallinformation centres open to all members of thelocal community, and they provide various infor-mation technologies services (using computers,internet access, certain services specific to cer-tain telecottages only), opening the local com-munity to the wider community and creatingnew potential for the members of local ruralcommunities. An example is given in Box 19.

Telecottages are connected into a network, theorganizational core of which is the TelecottagesAssociation of Serbia, which grants licences toorganizations meeting the conditions needed tobecome a telecottage. It also provides network

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170 Telecottages were established in 2000, through a competition opened by the Hungarian organization DemNet, funded by USAID resources. This projectresulted in opening 66 telecottages in various parts of Serbia.

Box 18. Agromreža – A Network for Rural Development

Agromreža was established in 2002 with the mission to modernize and develop agricultural pro-duction in Serbia and to revitalize rural communities. Agromreža improves the organization ofsmall farmers by opening farmers' clubs; develops agricultural cooperatives by establishing andnetworking clubs of cooperative managers; provides professional logistic support to cooperativesand farmers through a club of consultants; activates rural youth through rural youth clubs, andsupports the economic activation and organization of rural women (cottage industries and ruraltourism) through women’s clubs. Apart from that, Agromreža constantly follows the markets foragricultural products and, in the absence of an agricultural products exchange, informs farmers ofdevelopments in agricultural markets through a market information system. Agromreža is alsoactive in introducing domestic and European standards in agricultural production.

Agromreža has so far established nine rural development centres, founded 13 agro-business clubsalone and 24 in cooperation with ADF, and founded eight women’s clubs, two youth clubs andaround 70 cooperatives (out of which 20 in cooperation with ADF). Some of these programmes arefinanced from its own resources. Agromreža members pay an annual membership fee of €60 andreceive a package of services comprising education, logistic support to found cooperatives andclubs and information through the information exchange. Other services that demand specificprofessional support are charged additionally, and are carried out by the club of consultants.Agromreža is still to a significant degree supported by donations, so far generating only 20 per-cent of resources through its own activities.


members with information on competitions forvarious projects, and establishes connection withrelated foreign and international organizations.

Telecottages combine mainly commercial activi-ties with humanitarian and civil ones. However,some telecottages are more commercially ori-ented,171 while others are more oriented towardsthe welfare of the local community.172 Besides,the first steps have been taken to link the con-cept of telecottages with local associations ofpersons with disabilities: a telecottage in Ivanjicais the first in Serbia to be founded within theframework of an association of persons with dis-abilities, and the first one to directly employ per-sons with disabilities.

The experience of telecottages in Temerin andthe like shows that telecottages in major villagescan establish basic economic sustainability, whilethose in small and exceptionally under-devel-oped villages cannot exist without local commu-

nity support. At the same time, these telecottagesare the weakest links in the network and pose anobstacle to its long-term development.

2.2b Cooperatives

Cooperatives are undergoing a process of slowtransformation. Cooperatives include both theremnants of the predominantly agricultural coop-erative organizations inherited from the socialistperiod, as well as attempts to establish modernforms of agricultural and social cooperatives.

With the aim of transforming agricultural as wellas other forms of cooperatives (which were lesscommon in the previous system), in 1989, theLaw on Cooperatives was passed, according towhich cooperatives represent ‘independent self-managed organizations of workers and citizenswho freely associate their labour, or onlyresources, into artisan, housing, youth, savings

Box 19. Temerin Telecottage

Temerin Telecottage was founded in 2000 and is an example of an exceptionally successful tele-cottage, which has managed to expand its technological capacity from 5 to 17 computers. Thetelecottage was founded with the support of the local community, which provided it with space.

The telecottage is self-sustaining – it supports itself through commercial services, but the prices ofthese services are below market prices, and it provides services to civil organizations at exception-ally favourable prices. As a non-profit organization it should not be subject to the same financialobligations as for-profit ones. However, as the new law on non-governmental organizations hasnot yet been enacted, it is forced to operate as a for-profit organization (fiscal cash register; sub-ject to taxation as a for-profit organization).

Temerin Telecottage has three employees and combines its commercial activities with humanitar-ian and civic ones: it provides administrative and IT services (use of internet and computers); pro-vides information (on markets, jobs, competitions, loans); organizes English language courses atvery affordable prices; organizes programmes of IT training for entrepreneurs; cooperates with theNational Employment Service (engages unemployed persons who undergo telecottage trainingthrough work paid for by the NES for a six-month period); sends information on vacancy noticesto unemployed persons; allows unemployed persons to search free of charge for vacancies on theInternet; and organizes humanitarian and environmental activities either alone or in cooperationwith the Red Cross and the association of persons with disabilities (it single-handedly compiled alist of all 1,030 persons with disabilities in Temerin, registered the type and degree of disabilityand compiled a list of orthopaedic aids and products needed in the community).

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171 Like Ljig telecottage, which specializes in developing websites.172 Like Guča telecottage, which is especially active in environmental projects, and in providing psycho-social support to disadvantaged children in the wider

community.


and loan, and consumers' cooperatives, coopera-tives for intellectual services, and other coopera-tives for the provision of production or servic-es’.173 This law is still in force, even though termi-nologically and essentially outdated, which resultsin a series of difficulties for the development ofmodern cooperatives. Activities to amend andsupplement this law are in progress in the Ministryof Economy of the Republic of Serbia.

In 2006 the federal law on cooperatives wasenacted. According to the law, the founders ofcooperatives are individuals. A cooperative canbe established with shares in the form of movableand immovable assets, or without any shares. Theproperty of cooperatives is collective and consistsof movable and immovable objects, monetaryfunds, and securities. Cooperative property isformed from the shares of its members that havebeen transferred to the cooperative or fromcooperative membership fees,. It also can beformed from funds acquired by the operations ofthe cooperative, or from funds acquired by thecooperative by other means (for example, fromdonations). A cooperative may be founded by nofewer than 10 persons. The law also prescribesthat in managing the cooperative, members haveequal voting rights (one member – one vote), andthat the organs of the cooperative are theAssembly, Management Board, SupervisoryBoard, and Director. A part of the profit, i.e. thesurplus of income over expenditure, is placed inthe compulsory reserve fund, in a percentagedetermined by the cooperative. The share of prof-it that the cooperative does not place in funds, ordoes not use for other purposes, is distributed toits members in accordance with its rules.

According to the law, the following types of coop-eratives can be founded: agricultural, housing,consumer, artisan, health care, savings and loan,youth, students', and pupils', as well as other typesof cooperatives for the production and sale ofgoods and services. However, in reality, the mostcommon are agricultural cooperatives, while theother types are extremely rare, and are oftencooperatives only in the formal sense, and do notbase their functioning on actual cooperative prin-ciples (for example, youth and students' coopera-tives represent specific labour markets for the

engagement of young people for occasional jobs,housing cooperatives have ceased to exist, etc.).

Like all legal entities, cooperatives are subject tolegal provisions, with an obligation to pay VAT iftheir profit exceeds two million CSD. All obliga-tions to the Tax Administration are the same asfor other enterprises: to submit the annual bal-ance sheet, as well as individual tax returns.Reserves placed in different funds that are notdistributed are not taxed again.

The main obstacles that cooperatives have todeal with include an obsolete law that fails torecognize modern cooperatives (such as socialcooperatives), a non-reformed land ownershiplaw that poses many problems to agriculturalcooperatives,174 a bad image of cooperativesinherited from socialist time, which prevents theestablishment of new cooperatives.

The following three forms of cooperatives arecurrently present in Serbia:

Agricultural cooperatives, created by associa-tions of small agricultural producers in aneffort to strengthen their position in the mar-ket, and pool the resources required to devel-op agricultural production;

Women's cooperatives, created by the effortsof women's NGOs in order to enable womenwith a marginal position in the labour marketto be included in the sphere of economic activ-ities, and thus improve their economic andoverall social position;

Social cooperatives, created to integrate –both economically and socially – extremelymarginalized groups of persons with disabili-ties, who have limited capacities to work.

Agricultural cooperatives

Agricultural cooperatives are income-generatingorganizations with the primary goal of strength-ening their market position. However, under con-ditions of growing rural poverty, abandonmentof land, and decline of agricultural production,they represent an organizational form with the

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173 Official Gazette of the Republic of Serbia, Nos. 57/89, 46/95.174 Many of agricultural coops were founded during socialism and their land is still in state hands. Denationalization of land is a prerequisite for their transformation.


important social goal of strengthening small agri-cultural producers in the countryside, where asignificant part of the population still lives.

The benefits offered by cooperatives to theirmembers can be summed up as follows:

A collective position, which is especiallyimportant when clients are large consumerswith product needs that cannot be filled byfarmers as individual producers;

Easier and more favourable acquisition of rawmaterials and supplies;

Production is modernized because only somemembers need to complete a particular spe-cialization. They can convey this to the wholecooperative. Also, the introduction of newtechnologies is easier;

A joint approach to solving critical situations(assistance in case of losses sustained by somemembers, problems in production, etc.).

Since many registered agricultural cooperativesare not active in Serbia175 the question of howmany are operating according to modern cooper-ative principles remains open. An important rolein developing modern agricultural cooperatives isplayed by foreign donation programmes, whichcombine education with technological and finan-cial support, to assist the formation of moderncooperatives. Organizations such as the AmericanDevelopment Foundation (ADF) and CommunityRevitalization through Democratic Action (CRDA)have implemented programmes of revitalizationfor agricultural cooperatives and for upgradingagricultural production in numerous municipali-ties in Serbia. An example is given in Box 20.

In addition to foreign donors, significant supportto the development of modern agricultural coop-eratives is provided by domestic NGOs specializ-ing in the modernization of agriculture and thedevelopment of cooperatives: the Association ofCooperatives of Serbia, founded in 1895,176 and arelatively new NGO specializing in supporting theformation and activities of cooperatives and ruraldevelopment in general – Agronetwork.

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175 According to the Cooperative Association of Serbia, almost 1,000 agricultural cooperatives are members of this NGO association.176 The association of cooperatives is facing a series of difficulties, as a consequence of the more or less successful transformation of its member cooperatives,

the majority of which were founded during the pre-transition period.

Box 20. Paradiso Agricultural Cooperative

The Paradiso vegetable growing cooperative is a good example of founding a cooperative withhelp from donors. The cooperative was founded in 2006, in a village in Vojvodina, in northeastSerbia, after one of the founders was educated in Holland. The cooperative is unique, owing to thefact that its members are local farmers and refugees who have decided to integrate into the localcommunity, and to participate in agricultural production. The American Development Foundation(ADF) provided plastic hothouses, and initially the share of each of the 10 cooperative memberswas 200 m2 in these hothouses. The cooperative specializes in producing tomatoes, and after ade-quate training and the introduction of standards, it uses the so-called integral production method,which implies better quality compared to ‘production in the wild’ in Serbia, although the quality islower than with ecological production.

Since the cooperative has only just been founded, members are gradually adjusting to the newway of working, are working individually on their own segments, and are still often individuallyacquiring raw materials and materials for reproduction, but the most important aspect is their jointappearance on the market.

Profit is shared equally. Thanks to joint production, they are generally able to produce and deliverthe product in the quantities required by large supermarkets such as Metro, and owing to integralproduction according to European standards, they are able to satisfy quality criteria. However, inorder to become regular suppliers of such supermarkets, they must increase production.


Women's cooperatives

An important trend of revitalization and develop-ment of cooperatives was initiated by women'sorganizations, who found themselves marginal-ized in the labour market, as well as women whoare unemployed owing to strong traditional mod-els (primarily in rural communities). Labour marketindicators show a pronounced level of unemploy-ment of women in Serbia, reaching 24 percent in2004 – the highest level of unemployment ofwomen in Europe. On the other hand, data for theperiod 2002-2005 indicate a persistent downwardtrend in the employment of women. Women inrural areas are most frequently regarded as assist-ing members of the household, who supplyunpaid labour for the family’s agricultural produc-tion (while also being deprived of pension insur-ance), and in a significant number of casesdeprived of ownership over land, real estate, andthe means of production.

Even though women's cooperatives in theirmodern forms are only just emerging, positiveexamples of successful women's cooperatives,along with programmes of education, can in thefuture contribute to a more significant develop-ment of this form of social enterprise.

One of the important initiatives in the foundationof women's cooperatives originated from theAssociation for Women’s Initiatives (AWIN) in2003, when a group of female activists organized

education seminars throughout Serbia, with 12cooperatives resulting from this programme invarious regions. Owing to the outdated andimprecise legal framework, some of these cooper-atives were faced with serious difficulties in regis-tering. The Commercial Court, which is in chargeof the registration process, at first declined to reg-ister cooperatives for performing educational andhealth care activities. Only after consultations on abroader level, and additional interpretations ofthe law, did the court agree to register these twocooperatives. This lack of legislative precision, aswell as clarity pertaining to the competences ofindividual state institutions, is a consequence ofthe still incomplete transformation of the broaderinstitutional system, as well as the absence of new,more precise laws. The registration of coopera-tives is currently overseen by the Agency forEconomic Registers, which significantly expeditesthe procedure. An example of a women’s cooper-ative is given in Box 21.

In addition to the above-mentioned forms ofwomen's cooperatives, there is also a growingtrend to found women's cooperatives in villages,to trade in women's handicrafts and engage inrural tourism. The aim of such initiatives is tostrengthen the socio-economic position ofundereducated and older rural women, whilesimultaneously introducing new activities intolocal rural communities, thus contributing totheir overall development.

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Box 21. Women's Educational Cooperative in Užice

This cooperative is an example of a successful association between players within the local com-munity, with the goal of founding and sustaining the cooperative. The cooperative is registered forforeign- language courses. Premises were donated for use by the local community, and equippedusing donations. In return, every year the cooperative provides courses free of charge for five stu-dents selected by the local community. Courses are charged at below-market prices, and studentsare selected from among the employed, pensioners, and those employed at wages lower than theaverage for the republic. Even under such conditions, the cooperative is operating profitably, andregularly pays fees to professors. During the last year, the cooperative had over 140 students fol-lowing five language courses. Owing to the need to enlarge capacity, negotiations are in progresswith the local post office to provide space, with the cooperative in return organizing courses forpost office employees at a preferential price. Not all engaged professors are members of the coop-erative. Some are engaged on a part-time basis. In addition, some members organise individualteaching, in premises they obtain themselves, giving the cooperative 10 percent of the profit.Thus, professors do not provide private ‘black market’ classes which have been very frequent sincethe beginning of the 1990s, but rather legalize their work via a suitable, flexible arrangement.Members of the cooperative also pay an annual membership fee.


Social cooperatives

As opposed to agricultural and women's cooper-atives, social cooperatives have a strong socialfunction. This is not only because they are direct-ed to a larger extent towards providing certainservices in the local community, but alsobecause, in order to serve the interests andneeds of their members, the enterprise aims tointegrate them into the community. Regretfully,initiatives for founding social cooperatives arestill at the very initial stages, and one can morecorrectly speak of individual cases that couldserve as examples of the spread of similar initia-tives. An example is given in Box 22.

Social cooperatives of this type represent a veryfavourable form of organization, not only forinclusion into work processes and social care,and integration via a day-care centre, but alsobecause of the way in which beneficiaries areintegrated. They are simultaneously beneficiar-ies and members, which enables them to play ahighly participative role, and to personalize serv-ices, which most frequently is not the case whenusing the services of state social welfare institu-tions, and is to a lesser extent possible in otherforms of organization.

2.2c Enterprises for the vocational train-ing and employment of personswith disabilities

Enterprises for the vocational training andemployment of persons with disabilities are reg-istered according to the law of 1996.177 A new lawis expected to enter into force in 2008, and willencompass measures for persons with disabili-ties to enter the open labour market, as well as,under special conditions, work in so-called shel-tered workshops.

In reality, there are various forms of organizationof enterprises for the vocational training andemployment of persons with disabilities. Theseenterprises can be founded by associations ofpersons with disabilities, and can have relativeautonomy from their founders. In addition, theycan be founded by large profit-driven enterpris-es (and employ mainly persons with disabilitiesresulting from work-related causes), with virtual-ly no autonomy in their operations.

According to data from the Ministry of Labourfrom February 2006, 52 enterprises for the pro-fessional rehabilitation and employment of per-

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177 These enterprises originate from two earlier forms of enterprises for persons with disabilities, known as DESs (independent enterprises for employment ofpersons with disabilities), and sheltered or ‘protective’ workshops (parts of larger systems, with the function of employing primarily persons with labour relat-ed disabilities). These two terms are still broadly used, however today they all have a common name and operate according to the same law.

Box 22. Vivere Social Cooperative in Kragujevac

The cooperative was founded according to an Italian model, and with Italian assistance in the formof training and donations. It was founded by a group of women who had completed programmesof education, and a group of parents of mentally retarded adults (for a total of 13 members). Thecooperative combines a day-care centre for mentally retarded adults, with sewing, embroidery andweaving workshops. Women working in the workshops spend part of their time producing for themarket, and part of their time training persons who have limited mental capacities for work. Personswith disabilities undergo training in sewing, embroidery and weaving, and once they master theseskills, they will produce according to their capacities, under the expert supervision of the women,simultaneously making use of the services of the day-care centre, while persons without the capac-ity to work will continue to use only the services of the day-care centre. Women already working inproduction give the cooperative only 10-15 percent of their earnings. The day-care facility acceptsall mentally retarded persons over 24 years of age. The cooperative is located in premises providedby the local authorities, equipped from donations. The six employees of the cooperative are paid bythe City Assembly, with minimum salaries. The city also provides food for the beneficiaries of theday-care centre. The cooperative presently has 13 regular beneficiaries and two who come occa-sionally. Parents of beneficiaries of the day-care centre contribute 2,000 CSD a month, and thesefunds are used to cover the costs of accounting services, cable TV and disposable materials.


sons with disabilities employ a total of 2,926 per-sons with disabilities.178 Of this number, 60 per-cent are persons with disabilities due to work-related causes, 21 percent are persons with men-tal disorders, and 12 percent are persons withhearing disorders. Of the total number ofemployed persons with disabilities, 86 percenthave not completed secondary education. Thereis no data on the total number of persons withdisabilities who could enter the labour market,nor on the number of such persons who are reg-istered with the National Employment Service(NES). Some unreliable estimates of the formercould be provided by associations of personswith disabilities. Regarding the later, registrationof disabilities of individuals who apply to the NESis part of the current reform of the service.

For an enterprise to be eligible for state support,at least 40 percent of its employees must be per-sons with disabilities, and it must fulfil the follow-ing conditions: it must employ suitable experts(psychologists, defectologists, teachers of practi-cal subjects for vocational training); it must havea programme for the vocational training of per-sons with disabilities approved by the ministriesof Education and Health; it must possess ade-quate premises and be technically equipped.

Regular budgetary funds are set aside to supportthese enterprises, and in accordance with thelaw, the ministry assists them in two ways:

by regular financing (on a monthly basis) andaccording to the principle of paying half theaverage national salary for each employedperson with disabilities;179

annually, according to governmental decree,these enterprises are allotted funds for innova-tive programmes (based on an open competi-tion) aimed at improving working conditionsor upgrading production.

Enterprises that specialize in the rehabilitationand employment of persons with disabilitiesenjoy tax benefits in accordance with the regula-tions of the Ministry of Finance. These include:

exemption for 24 months from payment of contri-butions for employees newly employed throughthe National Agency for Employment; VAT reduc-tion from 18 percent to 8 percent; exemptionfrom profit tax; lower customs tariffs for theimport of machines and equipment not manufac-tured in the country. These enterprises may alsobe treated preferentially by local governments(for example, by receiving subsidies for communalservices and electricity). In addition, they have pri-ority when competing for the procurement of cer-tain services, provided they fulfil the other criteria(regular payment of contributions for employees,quality of products and services).

However, these enterprises face numerous prob-lems:180 frequent operating losses, inability toestablish significant market presence, inability tocollect debts, the burden of debts from previousyears, surplus labour coupled with the inability totransfer the surplus to the National Agency forEmployment (due to unpaid obligations), lowqualifications of employees, frequent absenteeismfrom work, outdated technologies and productionprogrammes, weak entrepreneurial initiatives, fre-quent changes of management, and insufficientcooperation with local government. In addition,workspaces are frequently not adapted foremployees with disabilities, and there is no ade-quate protection at work (occasionally not evenelementary conditions of hygiene). Enterprises fre-quently (in up to approximately 90 percent ofcases) do not employ the experts prescribed bylaw. Certain enterprises have solved this problemby entering into cooperation contracts with spe-cial schools, centres for social welfare, or thefounder of the enterprise, even though significantnumbers of enterprises approach the Ministry ofLabour, Employment and Social Policy with sug-gestions for engaging persons with adequatequalifications from the civilian national service. Inaddition, labour-related documentation (decisionspertaining to persons with disabilities, applicationsfor compulsory social insurance, and labour con-tracts), are not harmonized with existing regula-tions, and in some enterprises, employees with dis-abilities are not placed in jobs in accordance withdecisions to work under special conditions. A cer-

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178 Data from the report on surveillance performed by the Ministry of Labour, Employment, and Social Policy of the Republic of Serbia.179 These funds are not specifically provided for salaries of persons with disabilities employed therein, which frequently causes misunderstandings, since certain

employees feel that they are entitled to 50% of the average salary in the republic, even if the enterprise has operating losses.180 The problems are listed in the report of the Ministry of Labour and Social Policy of Serbia on the survey carried out in February 2006, in 61 enterprises for voca-

tional training and the employment of persons with disabilities, of which 52 submitted valid data.


tain number of enterprises do not pay salaries toemployees, but only contributions, while in mostenterprises salaries are owed for over one year.

Changed conditions obliged these enterprises toreplace their strong reliance on the state with astronger market orientation, with state assistancerepresenting an additional element of support.There are few examples of enterprises that havealready undergone such a transformation, and areoperating successfully. However, there are alsoexamples of enterprises that were successful, butfailed to retain sustainability, because of politicalinstability at local government level. An exampleis given in Box 23.

The Ministry of Labour and Social Policy hasdefined the following goals for the process oftransformation of such enterprises: introducingchanges into programmes for production or servic-es, upgrading the quality of management, owner-ship transformation and restructuring, closing ofcertain enterprises, with the transfer of employees

to more successful enterprises. One of the strate-gies for transformation contemplated by the min-istry is to transform social enterprises employingpersons with mental and sensory disabilities intostate enterprises, and to privatize the remainingenterprises, with the obligation of the new ownerto respect the Law on the Professional Reha bili -tation and Employment of Persons with Disa bi li -ties. Such solutions are still being deliberated, sincethere are huge differences between individualenterprises, and there is a relatively strong resist-ance from the persons with disabilities that theyemploy. Also, detailed analyses need to be carriedout, and clear criteria for privatization established.

2.2d Other forms of social enterprise

Social enterprise also appears in Serbia in legalforms characteristic of profit-oriented enterprises,limited liability enterprises (Ltd) and joint stockcompanies.181 Such enterprises are founded forseveral reasons:

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Box 23. The Djepeto Enterprise for the Rehabilitation and Employment of Persons with Disabilities

The Djepeto enterprise for the rehabilitation and employment of persons with disabilities was found-ed in 1994 in Vršac. Its funders were a female professor in the school of mental disability (who wasalso the source of the idea), the Society for Aiding Mentally Underdeveloped Children, two large eco-nomic enterprises and the municipal council. Founding investments were set so that the majorfounder (60 percent) was the municipal council. A workshop was provided by the municipality (240m2), but since the building was completely dilapidated, it was gradually rehabilitated with the helpof donations, and equipped for production (looms, sewing machines). The enterprise has existed for13 years, and only during the last three years has it been partially financed by the municipality. In thebeginning, it was financed by projects for the vocational training of persons with disabilities, mainlychildren from the local special schools. Later on, it became self-sustaining owing to its productionactivities, which included sewing and weaving. Various articles were manufactured, from flags fororganizations and state institutions, to fashion clothing presented at fashion shows. The enterpriseemployed seven persons with disabilities, of whom four had impaired hearing, and three were mild-ly mentally disabled. The enterprise went out of business due to a change of heart by the localauthority. At local elections after 2000, a different political group gained a majority in the municipalcouncil. It wanted to make a part of Djepeto’s workspace into an editorial office for the municipalpaper. The municipal assembly voted to discontinue Djepeto’s financing, while the managementboard of the enterprise (in which the municipality had the majority of votes) decided to give thepremises to the municipality. Djepeto therefore ceased to exist because of the local authority.

181 An Ltd is a form of enterprise in which the founder’s responsibility for the company debt is limited usually up to the amount the founder has invested in thecompany. A joint-stock company is a form of business organization that falls between a corporation and a partnership. The company sells stocks and its share-holders are free to sell their stocks as well, provided that the shareholders are liable for all the debts of the company. The dominant form of spin-off enterpris-es founded by voluntary organizations is the Ltd enterprise. However, there are some examples of voluntary organizations that founded joint-stock compa-nies in partnership with other enterprises.


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1. As a consequence of the need for voluntaryorganizations to perform manufacturing/serviceactivities, for which they employ representativesof vulnerable target groups;

2. As a consequence of the effort of voluntaryorganizations to use proceeds from marketoperations to ensure the sustainability of theorganization and/or the better realization ofits goals;

3. To pool the resources of several players whosemission it is to develop social enterprises in apredominantly indirect form, via education,aid and support, as is the case with the Agencyfor Development of Small- and Medium-SizedEnterprises;

4. To use the efforts within one organizational unitto directly generate new small businesses, as isthe case with business incubators.

Types one and two are founded by associations ofcitizens, while types three and four are usuallyfounded by different stakeholders, including asso-ciations of citizens, local governments, local insti-tutions, and for-profit enterprises. Spin-off enter-prises founded by associations of citizens areeither owned by the founders or members of thefounding organization.

The issue that essentially differentiates socialenterprises from profit-oriented enterprises,regardless of the fact that they may share the samelegal form, are limitations regarding generatingand distributing profit. In social enterprises, profitis generated to serve goals resulting from thesocial mission of the founder, and therefore profitis channelled toward fulfilling that social mission.

Spin-off enterprises of voluntary organizations

Enterprises that are formed as voluntary organi-zations' spin-offs may have one founder (NGO),or several founders, among which voluntaryorganizations are most frequent, while otherfounders represent partners in the form of thelocal community, individuals, and even profit-oriented enterprises (mainly significant donorsto voluntary organizations). These enterprisesmost frequently have the legal form of a limitedliability enterprise, and rarely the form of a jointstock company. Therefore they pay taxes like allfor-profit organizations. However, regardless of

their legal form, these enterprises are character-ized by a close association with the mother NGO,as well as by a subordination of the businessgoals of the enterprise to the mission and goalsof the NGO. In this sense, these enterprises haverelatively limited autonomy as main decisionsare taken by the founder and owner. The associ-ation frequently also shares personnel with themother voluntary organization. Sometimes,these enterprises contain within their very namethe recognizable name of the voluntary organi-zation from which the enterprise was spun off, oremphasize in some other fashion that they arean organization with social goals. An example isgiven in Box 24.

It needs to be emphasised that this form ofdevelopment of social enterprises is still in an ini-tial phase, and that organizations are still makingefforts to find the forms that best suit their expe-rience and needs. The major problem empha-sized was precisely that of defining the relation-ship between ‘social’ and ‘entrepreneurial’, i.e.between an NGOs’ wider social goals (support-ing vulnerable groups) and the vital need of‘daughter’ enterprises to operate efficiently as anincome-generating entity (preventing lossesproduced by unrealistic expenditures on thesocial programmes of the founding NGO). In thecase of the Lastavica catering service, this wasnoticed early on and a consultant was engagedto devise a proper solution. As an outcome, acontract was produced that ensured that for thefirst three years all operational costs of the enter-prise would be covered, after which a part of theprofit would be transferred to the NGO.

There are also examples of self-help organiza-tions that found separate enterprises with thegoal of generating profits for the mother organi-zation, but which for the time being do notemploy their members in the spin-off enterprise.An example is given in Box 24.

Agencies for the development of small- and medium-sized enterprises

Agencies for the development of small- and medi-um-sized enterprises were encouraged through aprogramme of donations from the EuropeanAgency for Reconstruction in 2001, that wasaimed at supporting the development of entre-preneurship. In 2001, the Republic of Serbiapassed a Law on the Agency for the Development


of Small- and Medium-Sized Enterprises. This lawresolved the status of the national agency and theregional agencies, defined their basic work goalsand their manner of financing. According to thislaw, the national agency is a legal person, withrights, obligations, and responsibilities estab-lished by the law and the statute. It operatesaccording to the regulations governing publicservices. The decision to form regional agencies ispassed by the government, at the suggestion ofthe national agency. The ministry responsible isthe Ministry of Economy, which has a Sector forthe Development of Small- and Medium-SizedEnterprises and Entrepreneurship.

The foundation of agencies has promoted theprinciple of partnership between the public sector,the private sector, and the non-government sec-tor. They were founded as limited liability compa-nies (Ltd). This legal form was selected since therewas no other form which would result in an organ-ization that is both non-profit and has private enti-ties as founders. The non-profit orientation of theagencies is set out in their statutes, via provisionslimiting the generation and distribution of profits.

In the Strategy for Development of SMEs (2003),and the Action Plan (2005), regional centres arerecognized as the most important partners at theregional level for the realization of local econom-ic development, together with local manage-ment, banks and associations of citizens. The net-work of individual agencies/centres has devel-oped over time into a network of autonomouscentres with their own strategies for growth anddevelopment. Currently, 12 agencies form thenetwork. Regardless of the fact that this is a net-work managed by the national agency, coopera-tion agreements have been signed betweenmembers of the network, while contracts pertain-ing to obligatory services are signed every year.

According to the law, the national agency’s activ-ities are directed towards the preparation ofdevelopment strategies and measures of eco-nomic policy, offering expert assistance for for-eign investment and for forming enterprises,coordinating programmes, promoting entrepre-neurship through various forms of assistance anddirect work with entrepreneurs. The activity ofthe regional agencies follows the general guide-

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Box 24. Catering-Lastavica Spin-off Enterprise

Catering-Lastavica is an enterprise which separated from the NGO Lastavica, after having achieveda significant level of operations and income. The NGO is the founder and owner of the enterprise.The enterprise originated as a means for broadening the scope of activities of the NGO, which ini-tially primarily offered psychological and social aid to women refugees from Croatia. Within aneconomic development programme, in view of the (low) educational profile of women, a cateringprogramme was initiated, which involved the production of finger foods for organizations withwhich Lastavica cooperated. This type of service found a good market, and due to a rapid expan-sion of activities, experts were engaged to train women to prepare food, as well as to standardizerecipes and preparation procedures. In addition, two women completed training to use comput-ers, followed by a series of training courses in management, preparing business plans and publicrelations. They began to work on organizing the operations of the enterprise (a system of Internetordering was also introduced), and developing business plans. Initially, the enterprise employedfive women. Today, nine persons are employed, while efficiency has also improved. The womenemployed no longer come exclusively from the refugee population, as women from other vulner-able groups are included as well (single mothers, financially vulnerable women).

Relations between the catering firm and the NGO are clearly defined. The NGO Lastavica is thefounder, and nominates the management board, which elects the director. As a result of the con-cern that the financing of the NGO by the catering firm will threaten the development of the enter-prise, an agreement was reached according to which during the first three years all the profit isretained by the firm, to be used for future development. In the initial period, the NGO offered sig-nificant financial, administrative, and educational support to the enterprise. Now the three-yearperiod is over and the enterprise should start to transfer part of its profits to the NGO. However, aquestion has arisen as to the form in which the NGO is able to accept this money.


lines prescribed by this law, but must be adaptedto meet local needs in order to fulfil the goalsdefined at their foundation. These are to supportlocal economic development and create newjobs. In the beginning, most services were free ofcharge, while today most services are chargeable,though not at actual market rates. This meansthat agencies can target their programmes atgroups of beneficiaries who are not able to payfor services, but have entrepreneurial potential.

Initially, the agencies had the same goals, plansand programmes of activities. With the discontin-uation of permanent donor funds, the functioning

of the national agency and the regional centresbegan to differ. In some cases, the municipalityplays a more active role, and provides funds fromthe local budget for the work of a specific region-al agency, while in other cases there is morereliance on donor funds. All regional agenciesoffer a certain number of services financed fromthe central budget.182 They pay tax like profit-ori-ented enterprises. An example is given in Box 25.

The agencies for the development of SMEs arebound to a partial profit distribution constraintand must deliver important services (training, busi-ness education, administrative support in prepara-

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Box 25. Zlatibor Regional Centre for Development of SMEs and Entrepreneurship

This regional agency was founded to provide services to small- and medium-sized enterprises:business information, counselling, training. The goal was economic development which shouldcontribute to the creation of new jobs. The founders of the centre are the municipalities of Užice,the government of Serbia, the regional chamber of commerce, two banks, one NGO and the asso-ciation of entrepreneurs. According to the law, founders (with the exception of the government)were obliged to pay a founding investment (US$ 750 each) within two years, but some have notdone so to date.

The centre’s activities have significantly changed since it began. In the period when the centrereceived EAR financial support, services were mainly free of charge, while the main target groupwas potential small entrepreneurs who were unable to pay for the expert services required toembark on entrepreneurship. Under the new conditions, when funds from donations stoppedcoming, the centre channelled its activities towards a target group that is able to pay, primarilysmall enterprises, craft shops and medium-sized enterprises. In keeping with this target group, theservices have also changed. Services of direct business consultancy are most frequent, while train-ing is less frequent. In addition, the centre continuously offers services of distributing businessinformation. A club of entrepreneurs meets at the centre, based on an annual contract, and itsmembers pay membership fees. Membership fees cover primarily business information and cer-tain basic advice, while other services are charged separately.

Target groups not able to pay for the services offered still receive such services free of charge.Special programmes have been created for this group. With the support of donor funds, a pro-gramme is delivered to approximately 60 beneficiaries from vulnerable groups (refugees and thefinancially endangered), who received funds from HELP to start production, and have formedsmall businesses. These beneficiaries receive all the centre’s services, as do permanent users.

Funds at the disposal of the centre can be classified as follows: 15-20 percent comes from centraland local government, 20 percent from clients, and 60 percent from donations. If any funds are leftover, they are invested in additional training for the unemployed. As regards self-sustainability, theidea is to get part of the funds from local government, until the economy grows stronger, sincethis is the only way to avoid transforming the centre into a market-oriented consulting agency,and for it to remain a development agency catering to the needs of the local community.

182 These funds are transferred to regional agencies via the Republic Agency.


tion of documentation for loans). A consistent partof services is provided to vulnerable groups (per-sons with disabilities, refugees, IDPs, women).

The Law on the Republic Agency also defines theorganizational structure of the national agency,as well as the regulations according to whichagencies are registered as legal entities. Theorgans of the national agency are the manage-ment board, the supervisory board and the direc-tor. The president, members of the managementboard, the supervisory board and the director arenominated and removed by the government ofthe Republic of Serbia. The activities of the

national agency are supervised by the superviso-ry board which consists of elected representa-tives of the employees and representatives ofsmall- and medium-sized enterprises.

Business incubators

A business incubator is an economic develop-ment tool designed to accelerate the growth andsuccess of entrepreneurial companies throughan array of business support and services. A busi-ness incubator's main goal is to produce success-ful firms that will leave the programme financial-ly viable and freestanding.183 A business incuba-

Box 26. Korak Business Incubator

The incubator is located in the premises of a once-significant manufacturing company on the out-skirts of Belgrade. Owners of the incubator are the municipality (51 percent) and a private compa-ny (49 percent). The motive to initiate this incubator originated from an analysis of the resources ofthe factory, and the needs of the workers of DMB facing the process of privatization. The analysis ofpreconditions showed that the incubator could be formed while the factory was being privatized.

The process of registration was rather slow. A form was sought which would be appropriate for thelocal partner, i.e. local government. Finally, the limited company was selected as the legal form forestablishing the incubator. After registration of the enterprise, second-level registration was done,in accordance with the Law on Innovative Activities which regulates incubators. The statute laiddown that profit should be reinvested in accordance with the incubator’s mission and goals andin the public interest, which can be stated as follows: local economic development, re-employ-ment and structural change of the industry, while respecting local resources.

The beneficiaries of the incubator are workers from DMB with a business idea, as well as entrepre-neurs from the local community. They are selected according to the following criteria: the pro-gramme must be independent, and must not hinder privatization (must not pose a threat to thefuture owner of the enterprise), and the business plan must be sustainable. The incubator offers thefollowing services to its beneficiaries: premises, consultancy and mentoring during work, supportwhen entering the domestic or foreign markets, marketing, and access to financial institutions.

The idea of this incubator is to adapt its services to a large extent to the requirements of individ-ual beneficiaries. An individual work plan is prepared for each enterprise in the incubator, which isalso stipulated in the contract for using the incubator. Activities of firms in the incubator are mon-itored based on a system of coefficients used to evaluate the business plan and ideas, the numberof employees in individual enterprises, the value of equipment taken from the factory and the peri-od within which the future owner of the factory will be able to charge rent for use of the equip-ment. The same system is also used to eliminate potential beneficiaries.

Specific characteristics of the Korak incubator are: connections with the ministry and support fromthe government via the national investment plan, as well as from the first ever partnershipbetween a private firm and the local community. S

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183 Definition taken from the ENTRANSE programme, supported by the government of the Republic of Serbia and the Ministry of Economy.


tor is an efficient instrument to support thedevelopment of small- and medium-sized enter-prises. It offers the resources required to increasethe beneficiary enterprises’ chances of survival orupgrading. Resources may include premises,training, accounting, equipment, marketing,computer networking and business consultancy.

As in the case of the Agencies for SME develop-ment, business incubators provide economicand professional support to vulnerable groups.

The incubator approach emphasizes recognizingand resolving the obstacles and problems facedby new businesses. In addition to direct workwith beneficiaries, the goal of an incubator is towork with the external environment, i.e. to createa stimulating business environment for the devel-opment of entrepreneurship. The most commongoals of incubation programmes are creatingjobs in a community,184 enhancing a community’sentrepreneurial climate, retaining businesses in acommunity, building or accelerating growth in alocal industry and diversifying local economies.

The foundation of business incubators in Serbiais important, because it accelerates and efficient-ly assists numerous enterprises simultaneously.In Serbia, in recent years, there are many unusedbusiness premises left over from economic com-plexes, as well as numerous workers who havebecome redundant in the process of enterpriserestructuring, and numerous young people whowait for long periods of time for their first job.Incubators appear in response to this state ofaffairs, and are initiated by various players.

The government of the Republic of Serbia adopt-ed an action plan for supporting small- andmedium-sized enterprises, and a strategy for thedevelopment of small- and medium-sized enter-prises and entrepreneurship, which define theframework for the development of incubators.To date, all initiatives have benefited from donorparticipation and support, as well as partnershipwith local authorities.

With the aim of emphasizing the potential ofincubators for social enterprises, in this docu-ment, we present an entirely different example,initiated by local government and private enter-

prise, without any donor funds, but with supportfrom the government and ministries. An exam-ple is given in Box 26.

The Economic and Environmental Departmentof the OSCE has initiated and supported incuba-tors throughout Serbia. ‘Timočki klub’, an NGOfrom Knjaževac, has initiated the formation of anassociation of business incubators in Serbia. Theassociation is to be a non-profit organization,which would improve the position of businessincubators, upgrade their efficiency through anexchange of experiences and resources, andaccelerate their development.

2.3. SWOT analysis of social enterprise development in Serbia

This part of the study stems from the endeavourto systematize the findings on the conditions forsocial enterprise through a SWOT analysis. Unlikethe previous national report, the SWOT analysishas been carried out for different organizationalforms. The analysis units are four chosen forms inwhich the social economy appears, while thetopic of the analysis is the potential of socialenterprises to generate new jobs.

The third sector in Serbia has a great potential forsocial enterprise development, but it does notemploy many people at the moment, and ismore oriented towards indirect employmentthrough educational programmes, encouragingentrepreneurship and relevant development ofthe local community. However, experiences withsocial enterprises within NGOs are variable and itis difficult to draw universal conclusions fromthem. One of the major problems for directemployment is the reluctance of NGOs toengage in economic activities in a more inten-sive manner, in order not to jeopardize their pri-mary social goals by an exaggerated focus onmarket activities. On the other hand, opportuni-ties to develop new services are opening upbefore these organizations, such as the opportu-nities in social welfare. Direct access of NGOs toresources from donations is getting more andmore limited, which encourages them to under-

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184 In Germany, there are over 200 business incubators which support 3,700 small- and medium-sized enterprises, generating 28,000 jobs.


take entrepreneurial activities in order to achievesustainability. However, an excessively fast with-drawal of donations and the absence of externalsupport would jeopardize the potential of NGOsin Serbia in the field of social enterprise.

Cooperatives are an extremely favourable frame-work for generating a large number of jobs. Theysucceed in dealing with a number of market fail-ures and promote social integration. However,

owing to an excessively negative attitude on thepart of many towards cooperatives based ontheir experiences gained during the socialistperiod, there is a very strong resistance towardsthis organizational form. Contrary to other formsof cooperatives, social cooperatives are justbeginning to appear, and it cannot be expectedthat they will enable more serious job creation inthe near future. It is important to note that thereare no organized activities directed towards pro-

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Voluntary organizations


Sensitivity to the needs of disadvantagedgroups

Awareness of the need to achieve economicsustainability

Diversity of goals, activities, orientationtowards various marginalized groups

Extensive experience in finding concrete orga-nizational and legal solutions for the directemployment or promotion of employment ofdisadvantaged groups

Work in accordance with the principles ofsocial enterprise

Organizational dynamism, flexibility, innovation

Commitment and qualifications of humanresources and their excessive preparedness tolearn (adoption of new programmes, meth-ods, etc.)

Poor orientation towards economic activities,especially among the numerous ‘old’ associa-tions of persons with disabilities which mainlyrely on the state

Limited growth potential due to the dominantorientation towards social goals of founders

Small scale of employment

Massive presence of unpaid work

Inadequate qualifications and lack of experi-ence in managing economic activities

Non-continuous inflow of resources

Absence of long-term planning

Not being acquainted with the terms of socialentrepreneurship and social enterprise


Gradual withdrawal of donations

Development of cooperation with local stake-holders (authorities, for-profit sector) and thestate

Inclusion of third sector organizations in socialservices market

Adoption of knowledge and experience fromother countries

Unfavourable legal framework (limitation ofcommercial activities, and who can befounders)

Inconsistent interpretation of tax regulations(in gaining profit and payment of taxes)

Too fast withdrawal of donations (sustainabili-ty is still fragile)

Insufficiently active role of the state in creat-ing favourable conditions for NGOs and pro-viding support


moting cooperatives as a framework throughwhich to reduce unemployment.

Excessive protection of these enterprises by thestate led, in the socialist period, to an inadequateorientation towards the market. Although char-acterized by a favourable legal framework, whichis soon to be improved, the potential to employpersons with disabilities is not taken advantageof and these enterprises mainly generate operat-ing losses. Due to the bad image of these enter-prises the for-profit sector is not interested inestablishing them.

As with NGOs, it is difficult to draw general con-clusions on limited-liability companies and joint-stock companies, as the motives of theirfounders vary. Some of them were established toorganize economic activity and employ themembers of their target group directly, while

others were established with the aim of encour-aging employment and local development, andthe enterprise was the only accessible organiza-tional form. Such a form of social enterprise car-ries the largest potential for employment, andwith adequate measures of support throughstatutory regulations (enacting laws on socialenterprises) and popularization of the concept, itcould generate the largest number of jobs.

As well as the findings related to individual formsof social enterprises, it is important to note cer-tain general conditions that support or hinderthe development of social enterprises.

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Cooperatives


Strong entrepreneurial orientation in new andtransformed cooperatives

Favourable financial conditions on foundation

Pooling resources (financial, material andhuman)

Democracy in decision-making

Solidarity

Inefficient, non-professional management

Obsolete or inadequate equipment

Inadequate human resources in terms of theireducation and motivation (primarily amongthe members of unreformed cooperatives)

A large number of cooperatives in which own-ership transformation has not been done –from state property to cooperative property


Adoption of foreign models and knowledge

Logistic support by foreign donors

Modernization and development of the agri-cultural sector as an important strategic orien-tation of the state

Awareness present in certain disadvantagedgroups of the advantages of employmentthrough cooperatives

Obsolete, imprecise law

Prejudices, negative attitude towards cooper-atives due to the experiences from the social-ist period

Ineffective popularization of the concept ofcooperatives

Slow ownership transformation, primarilyamong agricultural cooperatives

Unstable market

Corruption


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Enterprises for the vocational training and employment of persons with disabilities


Significant opportunities for direct employ-ment and economic integration of personswith disabilities

Activity of enterprises adapted to workingabilities of persons with disabilities

Poor management of enterprises and too fre-quent changes of management

Poor level of training and lack of motivation ofemployees

Technological obsolescence

Activities that generate operating losses

Physical conditions for work not adapted topersons with disabilities

Not fulfilling legal obligation to employ pro-fessionals for work with individuals with dis-abilities


Direct financial support by the state andthrough various funds

New and modern solutions stipulated by reg-ulations to be adopted soon

Tax concessions

Concessions stipulated by law in establishingsuch a form of enterprise and employing per-sons with disabilities

Inadequate monitoring by competent ministry

Slow process of ownership transformation ofenterprises

Inadequate cooperation with local authorities(non-existent or characterised by extremedependence on local authorities)

Inadequately informed entrepreneurs aboutwhat is needed to form such an enterpriseand about employing persons with disabilitiesis concerned


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Spin-off enterprises, agencies for development of SMEs, business incubators


Strong entrepreneurial orientation

Great opportunities for direct and indirectemployment

Flexibility in adjusting to the market (findingmarket niches)

Social, not economic motivation to improveactivities of founders (social goals)

Competitiveness

Profit is not oriented towards the communityor a target group in accordance with the law,but in accordance with the Articles ofAssociation

Limited autonomy in spin-off enterprises andSMEs agency

Collision of interests (central-local, profit gen-erating-social, etc.) in the case of multiplefounders


Partnership and cooperation with localauthorities and for-profit and civil sectors

Positive image

Opportunity to use various financial sources

Promoting the framework for socially respon-sible business

Lack of tax concessions

Corruption

Laws regulating the conditions and rules ofdoing business very often not obeyed

For-profit sector unprepared to found enter-prises with social mission

Low market demand


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Favourable conditions for social enterprise development

Negative conditions and constraints to social enterprise development

presence of various initiatives for socialenterprise development

development of socially responsible busi-ness

increase of institutional sensitivity to theneeds of disadvantaged categories (activelabour market measures, laws regulatingemployment, insurance, ban on discrimina-tion against disadvantaged categories)

networking of organizations, which enablespooling of resources, better lobbying andadvocacy

adoption of experiences through donationprogrammes, learning from internationalorganizations

weak economy

poor employment potential

excessive pressure from numerous disad-vantaged groups

uncompleted transformation of legal frame-work, overlapping and discord among cer-tain laws

lack of laws on social enterprises

undefined concept of social enterprise

low awareness of the importance of socialenterprises among all stakeholders, includ-ing potential beneficiaries

new solidarity still not developed (in certaingroups expectations from the state areunrealistic)

relying on donation sources still too exces-sive

laws regulating the conditions and rules ofdoing business, discharging financial liabili-ties towards the state, employees, etc. notobeyed

corruption



Main conclusions

The socio-economic situation in Serbia is charac-terized by a combination of common transition-al problems and path-dependent ones. The post-ponement of market reforms and the interna-tional sanctions that started at the beginning ofthe 1990s additionally aggravated the process ofeconomic decline and the increase in unemploy-ment. At the same time, the process of politicalreforms and democratization were unfoldingmore slowly than in the countries that were mak-ing a successful post-socialist transition. Theresult of these trends was a delay in general leg-islative reform, and a peculiar development ofthe third sector in Serbia. The circumstancesdescribed to a large extent determined the pres-ent socio-economic situation in Serbia, mostlycharacterized by poverty, high unemployment,low entrepreneurial spirit, and an inadequatelegal framework.

The institutional framework for the social econo-my, and particularly for social enterprises, hasnot been defined and established in Serbia.There is no single institution or ministry dealingwith this issue in a holistic way.

The main structural characteristics of Serbia’ssociety and economy that are relevant for socialenterprise development can be summarized inthe following manner:

a. Features of the third sector. During the1990s, the third sector was designed and sup-ported to a significant extent by donor pro-grammes, focused on democratization andhuman rights issues. The minority of NGOs wereengaged in activities aimed at vulnerable groups(Roma, IDPs, refugees, persons with disabilities,women, the poor), and the development ofsocial services and local development. The maincharacteristics of the third sector are: low poten-tial for employment, unstable local financialresources, and underdeveloped income-gener-ating activities. However, these aspects of thethird sector are improving in a gradual and con-tinuous manner.

b. Labour market. The Serbian labour market ischaracterized by one of the highest unemploy-ment rates in Europe, a high share of long-termunemployment, a high unemployment rateamong the young and persons with only a pri-mary or secondary education. Women, redun-dant middle-age workers, and the young who arelooking for their first job are the most prevalentamong the unemployed. Marginalized groupssuch as Roma, IDPs, refugees and people with dis-abilities have a particularly unfavourable positionon the labour market. Pressure on the labourmarket from job seekers is extremely strong,since slow economic growth has not generated asufficient number of new jobs. The promotion ofsocial enterprises is particularly important inSerbia. It is unlikely that in the near future eco-nomic growth and labour-market reforms willspontaneously enable the economic and socialintegration of marginalized groups throughemployment or self-employment. Specific meas-ures and types of organizations are needed tointegrate marginalized groups and improve theirsocial position.

c. Markets for goods and services. There arefavourable market niches for the potentialengagement of social enterprises. One exampleis the social service sector, which is currentlybeing reformed. There are many state funds(central and local) available to support services,which are provided by a growing number ofNGOs. Unlike the social-service sector, condi-tions are less supportive in other potential mar-kets such as culture and community work.

d. Social capital. The maintenance of traditionaltypes of social capital and the lack of generalizedtrust and solidarity prevent the development ofcertain forms of social enterprises. This is notice-able in the areas in which favourable market con-ditions (such as healthy food production) arepresent, but the evolution towards cooperativesocial enterprise still does not occur, owing tounfavourable social capital characterized by dis-trust, unwillingness to act collectively and thelike. Additionally, in the profit-oriented sectorthe awareness of the benefits of directing profitto humanitarian and developmental goals is stillnot developed.

e. Legal framework. For certain legal forms, amodern legal framework for social enterprises,adjusted to European standards, already exists.

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The Serbian public administration is often char-acterized by the attitude that enacting laws isthe beginning and the end of the process.However, experience shows that enacting lawsshould be followed by adequate activities in thearea of finance, capacity building in the adminis-tration implementing the laws, as well as amongother relevant stakeholders (Government of theRepublic of Serbia, 2002:56).185

Data obtained on the basis of qualitative researchcarried out for the purposes of this study, as wellas on the basis of the analyses available from sec-ondary sources, limit the prospects of arriving atgeneral conclusions. Such research cannot deter-mine the size of the social economy, the numberof employees, its share in GDP, its growth, itspotential for further market growth or its employ-ment potential.

Qualitative analysis provides an insight into thestructure of the sector, its internal organization,the way individuals organize themselves, and theway organizations function in the given institu-tional and legal environment. These data need tobe updated with the findings on the scale, dynam-ics and development of the sector. Besides, thelimited scale of development and underdevel-oped institutional framework for social enterprisehave not allowed wider insights into the attitudesand orientations of the representatives of variousrelevant state institutions, or the representativesof the for-profit sector. Only by combining qualita-tive and quantitative data can we get a better pic-ture of the social economy in Serbia.

Measures to strengthen social enterprises

Social enterprises in Serbia currently exist in theform of non-integrated initiatives that solve prob-lems of unemployment and social disintegrationon a small scale. Since the economic transitionhas not yet been completed, and the marginal-ized population is large, social enterprises couldplay a more important role in generating newjobs and filling gaps in service delivery than theycurrently do. In order to achieve this, it is neces-sary to bring together non-integrated initiativesinto a consistent framework. It is therefore neces-

sary to mobilize key stakeholders, to raise aware-ness of the potential and importance of socialenterprises among policy-makers, the public sec-tor, marginalized groups and the for-profit sector,to establish and harmonize adequate legal solu-tions and to reinforce relevant institutions.

The first group of recommendations is related tothe measures that need to be implemented atvarious levels in order to support social enter-prises. They should be directed towards the fol-lowing objectives:

Raising awareness of the importance andpotential of social enterprises among keystakeholders;

Developing an adequate institutional frame-work and capacity building;

Improving the legal framework.

Raising awareness of the importance and potentialof social enterprises among key stakeholders

These measures should focus on the followingstakeholders: Ministry of Labour and Social Policy,Ministry of Economy, Ministry of Finance, Ministryof Agriculture, representatives of local authori-ties, trade unions, National Employment Agency,Association of Employers, Agency for SME andEntrepreneurship Development, DevelopmentFund of the Republic of Serbia, Social InnovationFund, and representatives of the third sector. Inaddition, awareness-raising should also be direct-ed towards the wider population. The proposedmeasures include:

Mobilization and networking of national stake-holders so that they recognize their position,role and responsibility in developing socialenterprises;

Accepting the knowledge and experiences ofcountries which already have relatively devel-oped forms of social enterprises;

Getting acquainted with the models of devel-opment of social enterprises in the countries inthe region with similar experiences;

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185 For example, as previously emphasized, according to the law on social protection, local authorities are obliged to found community-based social services.However, owing to the lack of financial resources or lack of political interest, they often do not establish such services. There are no budgetary or controllingmechanisms to make local governments fulfil that obligation.


Training stakeholders (including third-sector,for-profit and public-agency representatives);

Informing the public on a regular basis onactivities in the field of social enterprises.

Developing an adequate institutional frameworkand capacity building

Measures at this level are oriented towardsestablishing appropriate institutional mecha-nisms and developing the necessary resources.The proposed measures include:

Establishing a lead body (which can be aninter-ministerial body, or an agency newlyestablished for this purpose) to assist andcoordinate the development of social enter-prises;

Developing a strategy and action plan for thedevelopment of social enterprises and moni-toring its implementation;

Updating databases on the third sector andcooperatives, and making these data availableto the general public;

Strengthening regional agencies for SMEs andthe Social Innovation Fund, and their partici-pation as the agents of social enterprise devel-opment in local communities;

Establishing/strengthening public fundingresources for the development of social enter-prises at local and regional levels;

Promoting policy consistency between the cen-tral and local public agencies;

Decreasing the market risk of social enterprises(purchasing of products and services of socialenterprises by local authorities, other compa-nies etc.).

Improving the legal framework

These measures include:

Drafting and enacting the law on social enter-prises;

Enacting new laws on associations of citizens,cooperatives and enterprises for the vocation-

al training and employment of persons withdisabilities;

Harmonizing the laws regulating variousaspects of social enterprises;

Creating a more favourable taxation frame-work.

Possible areas and forms of intervention for international actors and development practitioners

Social enterprise in Serbia should be based onlocal interests and initiatives. However, in orderto establish an integrated framework for socialenterprises, and found a larger number of them,the support and assistance of international insti-tutions and organizations are still needed.

The potential role of international actors anddevelopment practitioners in supporting socialenterprise development could be developed intwo directions that can be combined:

Support to national institutions in developing anational framework for social enterprises in orderto take the initiative and establish ownership of theprocess.

Support to existing and prospective social enter-prise initiatives.

For that it would be necessary to conduct addi-tional research to identify clusters of organiza-tions, market niches and opportunities. This lineof intervention could be composed of two sub-directions:

Establishing a new system of support throughnewly established bodies, agencies, trainingand capacity development;

Relying on existing institutions that providesupport, such as SIF, SME development agen-cies, the Fund for Development.

Support to national institutions in developing anational framework

Promoting social enterprise among various stake-holders. The promotion programme could be

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implemented through the following activities:– round tables, conferences, workshops– general and specialized training– study visits– promoting examples of good practice

to the wider public;

Providing support to the lead body for strategydevelopment through expertise in the start-upphase, the development of the strategy and itsimplementation;

Organizing research into social-economy activi-ties and the potential of the third sector and coop-eratives. In order to define precise measures andactions for increasing the employment poten-tial of each form of social enterprise, it is neces-sary to carry out quantitative research.

Developing training programmes in partnershipwith the agencies for SME development. Know -ledge and experiences gathered in the field inthe region, and in the countries in which socialenterprises are developed, should be built intotraining modules and materials to be usedwith entrepreneurs and representatives of thethird sector.

Developing indicators, monitoring and evaluat-ing the process of social enterprise development.Indicators and milestones could be developedby a ‘strategic’ group comprising some UNDPrepresentatives and inter-ministry group rep-resentatives, with external support.

Piloting supporting schemes for social enterprisedevelopment. Initiation of the programme orfund for the development of social enterprisewithin the Ministry of Economy or the introduc-tion of a new component in the work of theSocial Innovation Fund and supporting start-up initiatives/projects for social enterprises.

Possible local partners with UNDP are: Ministry ofLabour and Social Policy, Ministry of Economy,Ministry of Finance, Ministry of Agriculture, Fundfor Development of the Republic of Serbia,Economic Council, Council for Gender Equality,Team of the Deputy Prime Minister for theImplementation of the Poverty Reduction Stra -tegy, National Employment Service, local govern-ment, local economic councils, the StandingConference of Towns and Municipalities, tradeunions, associations of employers, chambers of

commerce, agencies for SME development, SocialInnovation Fund, thirdsector representatives.

Potential donors for the development of socialenterprises are the organizations that havealready funded the projects in this field in Serbiaas well as others interested in the field.

Support to existing and prospective social enterprise actors

While the framework is being developed, somesocial enterprises will find ways to develop andacquire markets, while others will still be trying.They should not be left alone until the work onthe framework is finished, since the needs of vul-nerable groups will not be on hold and thehands-on work will bring a policy input to theprocess of developing the framework (which will,most definitely, last for a while). Therefore, it isstrongly recommended to engage in fieldwork inorder to support the development of a vibrantand responsive sector.

Therefore, the second line of activities could focuson (a) establishing new or (b) strengthening exist-ing support schemes for social enterprises. Thefirst option would consist of creating newly estab-lished bodies or agencies, delivering training andperforming capacity development, while the sec-ond one would rely on existing institutions thatprovide support (SIF, SME development agencies,and the Fund for Development).

Establishing new support schemes for socialenterprises. Social enterprises need advisoryand funding support. Newly established insti-tutions would benefit from being able to focuson specific groups, to learn and adapt to theevolving needs and to adopt a multi-sectorapproach, combining support from the field ofeconomy/business, social protection, employ-ment, etc.

Strengthening existing institutions to providesupport to social enterprises. In Serbia thereare currently a number of institutions that pro-vide services that could be regarded as sup-port services. However, none of them focusesexplicitly on social enterprises. Among themare the SME development agencies, theNational Fund for Development, the SocialInnovation Fund, the MoLSP Fund forOrganizations of Persons with Disabilities,

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some social enterprises and their networks etc.Some of those agents provide funding, otherstechnical expertise, and their work could befocused or upgraded in order to target poten-tial or existing social enterprises and providethem with tailored support.

In deciding on the policy – new support systemor upgrading/mainstreaming existing support –numerous factors should be considered. Amongthem are costs and benefits, capacities of exist-ing services, demand for services (financial andadvisory), etc. These two strategies could becombined as well, depending on local circum-stances, availability of existing structures andtheir ability to respond to the needs of socialenterprises as well as the demand side. Demandfor services and support as well as a favourablecost-benefit analysis are solid grounds for thedevelopment of supporting institutions.

The following issues are important in the furtherelaboration of support to social enterprises:

Content of support. Broadly speaking, thisresearch reveals that social enterprises wouldbenefit from business advice and fundingopportunities. The same is true for futuresocial entrepreneurs.

Target groups. This analysis, as well as otherexperiences, reveals that it is essential toinvolve the private sector in the developmentof the social economy. It should therefore beconsidered a target group for these interven-tions, and not only a target for raising aware-ness and securing operational support (fund-ing, markets etc.).

Labelling. Presently, numerous initiatives docover some of the social economy issues/areas.Not all of them need to be explicitly integratedinto a single strategy under the label of socialeconomy development. It is far more importantto develop microfinance institutions, socialservices, cooperatives, etc. than to put themunder a single framework or umbrella organi-zation/strategy.

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3. Promoting the Role of SocialEnterprises in Ukraine

3.1. The background for socialenterprises in Ukraine

3.1a Transformation of the welfare system and main features of the labour market

The Ukrainian welfare system – an overview

During the Soviet period a comprehensive state-funded social welfare system was introduced. In1991, with the progressive devolution of central-ized Soviet power, followed by Ukraine's declara-tion of independence, a number of changeswere made in the system. These included thecreation of three extra-budgetary funds – thePension Fund, the Social Insurance Fund and theEmployment Fund – which were to administermost of Ukraine's social-security activities, whilean extensive programme of family allowancesand compensation for price increases was to bedirectly financed by the state budget.

Social insuranceAccording to Article 46 of the Ukrainian Consti -tution, citizens have a right to social protection,which includes:

an allowance in case of full, partial or tempo-rary inability to work

allowances for the loss of the main breadwinner

benefits for involuntary unemployment

old-age pension

other cases provided for by legislation

These rights are implemented through a systemof mandatory social insurance. Ukrainian legisla-tion provides for four types of mandatory statesocial insurance: a) insurance against unemploy-ment; b) insurance against temporary inability towork, and birth and funeral expenses; c) insur-

ance against accidents in the workplace andoccupational diseases, which lead to invalidityand the inability to work; d) pension insurance.The four types of mandatory state insurance areadministrated by the respective State Funds, towhich both employers and employees con-tribute.

Labour-integration programmesThe state is interested in returning unemployedpersons to the labour market as soon as possible.This is done through a range of measures usedsimultaneously or separately as follows:

The state (namely the State EmploymentService, hereafter referred to as ES) subsidizesemployers who create additional jobs, andemploy persons registered at the ES as unem-ployed, on the condition that they offer atleast a two-year work contract;

The ES offers financial grants and professionaltraining to unemployed people who wish tocreate their own businesses;

The ES offers professional training free ofcharge to those who seek employment;

The ES maintains a database of job vacancies,which unemployed persons may use with thehelp of ES workers or on their own;

The ES offers professional orientation consul-tations to unemployed persons;

The ES offers unemployed people the possibil-ity to take seasonal jobs – or jobs which do notrequire specific skills and qualifications (usual-ly with the local authorities, state organs orstate-owned institutions);

The ES offers employment opportunities for dis-abled persons.

Social assistanceThe following categories of citizens are entitledsocial assistance to which they do not need tocontribute: a) disabled persons; b) war veterans; c)families that have incomes lower than the estab-lished subsistence level. All of these categoriesreceive assistance in the form of a cash allowanceand flat rent and utilities subsidies.

Main vulnerable groups in Ukraine

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In Ukraine, the segments of the population thatare called ‘vulnerable’ (in an employment context,they may be called disadvantaged workers186) are:

a) young people (with or without a completeeducation): They are generally considered tohave limitations in practical knowledge and workexperience that make them unattractive toemployers. No strong policies exist to supporttheir integration into the labour market. TheUkrainian education system is still, in manyrespects, old fashioned and does not provideyoung people with sufficient practical knowl-edge and understanding of the market sectorswhere demand is the highest. The knowledgethat they receive is mainly ‘academic’. There area number of ‘sub-groups’ of young people whoare particularly disadvantaged: rural youth,youth in mono-industrial communities and for-mer prisoners. All these face severe work integra-tion constraints (cf. section III.2.3 for a moredetailed analysis of their problems);

b) disabled people: This group may have physi-cal or mental handicaps which many employersview as reducing their work effectiveness.Without sufficient incentives to hire people withdisabilities, employers tend to ‘ignore’ them;

c) young mothers with children (including sin-gle mothers): They are not only limited in theirability to take on work (owing to family responsi-bilities), but they also tend to lose skills overtime, hence employers’ reluctance to hire them;

d) some ethnic groups, with strong cultural orreligious characteristics, may be perceived nega-tively by potential employers (due to racism orfear of the influence of such groups on the cor-porate culture). This issue is highly relevant in theAutonomous Republic of Crimea;

e) older people (over 50 years of age): Employersmay view them as too old to adapt and lacking thenew skills (such as how to use a computer ) neces-sary in the evolving labour market;

f) women: Employers see hiring women as pro-hibitively expensive (for example, because of theexpense associated with maternity leave).Women are often discriminated against, despitenational programmes to promote gender equal-ity in the labour market;

g) rural workers: Their limited range of skills andpoor mobility make them difficult to employ inother industries or locations. Rural workers sufferthe most from long-term unemployment andlow wages.

h) persons released from medical institutionsor prisons: These persons are stigmatized andtheir work reintegration is extremely difficult.The most vulnerable are young ex-convicts.

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186 As in this study conducted by EMES and supported by UNDP. 187 Article five of the Ukrainian Law ‘On population employment’, guarantees additional measures of social protection by reserving at least 5 percent of jobs

in enterprises and organizations to the following population segments:1) women who have children under six years of age;2) single mothers who have disabled children or children under 14 years of age; 3) young people who have finished or discontinued their education in secondary schools;4) persons who have finished or discontinued their education in vocational educational institutions;5) persons who are retired from military service for a fixed period or alternative (non-military) service and who are being given their first job;6) children (orphans) who are left without guardians;7) persons who are 15 years old and who, with the consent of one parent, are taken on for specialized jobs;8) persons of pre-pension age (men who are 58 years of age; women who are 53 years of age);9) those released from rehabiliation institutions;10) those released from penitentiary institutions.

In principle, city and regional employment services make decisions on job placement in close cooperation with the management of enterprises and organ-izations. These decisions are submitted to local government bodies for ratification.

Project survey results

According to the project survey results,regional respondents agree on who the keyvulnerable groups are. In decreasing order ofimportance, they cite: young people, dis-abled people, families with many children,single mothers, rural populations and vic-tims of the Chernobyl disaster (in the case ofthe Zhitomirskaia Oblast). Respondents fromthe Autonomous Republic of Crimea addanother segment: ethnic groups. Surveyrespondents at the national level (ministries,international organizations, parliament)identify a number of other groups not namedby the regional respondents such as orphansand ex-convicts.


Except for rural workers, these population seg-ments are named in the Law of Ukraine ‘on pop-ulation employment’ (Article 5) as being guaran-teed additional measures of social protection inthe form of job quotas.187

Main features of the Ukrainian labour market

Labour demand

Since 2000, the Ukrainian economy has beengrowing at an annual rate of about 8 percent. Ingeneral, the enterprise restructuring processwhich has taken place in Ukraine over the last 10years has benefited those already in the labourmarket, to the disadvantage of those looking foremployment. According to labour market spe-cialists, few firms have engaged in ‘strategicrestructuring’ (when firms use part of their profitsto increase production and employment).

From 2002 to 2005, the number of private enter-prises rose by 15 percent while the number ofpeople working in those enterprises fell by 8 per-

cent. The small enterprise sector (Figure 4) expe-rienced a similar increase in the number of enter-prises (16 percent between 2002 and 2005), buta decrease of 4 percent in the number ofemployed personnel since 2003. In 2005, thissector comprised nearly 300,000 small enterpris-es officially employing about 2 million people.The total value generated by this sector was UAH178 million in 2005, representing 5.5 percent188 ofthe total production volume of all enterprises.

Labour market specialists189 note that over thelast two or three years there has been an increasein labour demand, which is partly due to anexpansion of informal or semi-formal forms ofemployment.190 According to their estimates,these forms of employment created nearly 60percent of all new jobs during 2003 and 2004.Hiring rates in the informal sector were viewedto be five times higher than in the formal sector.However, jobs created in this sector are oftenunsecure. Job creation has been highest forunskilled, blue-collar workers. This contrasts sig-nificantly with the experience of other transition

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188 In 2002, the production volume of small enterprises as a share of the total production volume was 6.7 percent.189 World Bank report, Ukraine Job Study – Fostering productivity and job creation Volume 1: overview – November 2005.190 Most new forms of employment are currently (in the best of cases) subject to a semi-formal remuneration system, according to which an employee gets an

official salary, incurring for the employer social costs amounting to 38% of the declared salary, plus an unofficial payment (cash in an envelope) which some-times even exceeds the size of the official salary.

Figure 4 – Small Enterprises and Employment (2002-2005)

Source: Ukraine State Committee of Statistics


economies. Experts suggest that the dominanceof demand for less-skilled manual labour indi-cates that the Ukrainian labour market is at anearly stage of transition.

Labour supply

Economic activity rates

The key labour supply trends from 2000 to 2005are shown in the following Table:

Over the last six years (2000 to 2005), the totalnumber of people 15 to 70 years of age (agerange taken into consideration for the calcula-tion of economic activity191 levels) decreased by 1percent. Against this background, the total num-ber of people engaged in economic activitydecreased by 2.4 percent to reach 62.2 percent in

2005 (compared with 63.2 percent in 2000). Forthe regions under analysis, this index increasedin the following way:

The growth of the economically active popula-tion, especially in Zhitomirskaia Oblast, suggestsa sharper reduction in both the total number ofpeople and the number who are economicallyinactive.

During the period analysed one can observe asignificant growth in the economic activity levelof the rural population in all the analysed regionsand in Ukraine as a whole. On the other hand, thelevel of economic activity of the urban popula-tion has decreased in all the regions except in theAutonomous Republic of Crimea where it chan -ged insignificantly (62.4 percent in 2001 and 62.8percent in 2005).

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Table 18 – Key Labour Market Trends – 2000 to 2005 (thousands)

1000 people 2000 2001 2002 2003 2004 2005

Total population 36149.2 36022.1 35899.4 35858.9 35825.3 35840.5aged 15 to 70

Economically 22830.8 22426.5 22231.9 22171.3 22202.4 22280.8active population

- women 11155.3 10986.8 10935.5 10915.9 10912.0 10813.8

- men 11675.5 11439.7 11296.4 11255.4 11290.4 11467.0

Employed people 20175 19971.5 20091.2 20163.0 20295.7 20680.0

- women 9856.9 9794.8 9901.3 9963.6 10006.9 10075.5

- men 10318.1 10176.7 10189.9 10199.7 10288.8 10604.5

Unemployed 2655.8 2455.0 2140.7 2008.0 1906.7 1600.8(ILO method)

- women 1298.4 1192.0 1034.2 952.3 905.1 738.3

- men 1357.4 1263.0 1106.5 1055.7 1001.6 862.5

Economically 13318.4 13595.6 13667.5 13687.6 13622.9 13559.7inactive population

Source: State Committee of Statistics of Ukraine and data from the Ministry of Labour & Social Policy

191 Economic activity is calculated as the sum of people in employment and those in real (as opposed to registered) unemployment. It covers people 15 to 70years of age.


The levels of economic activity of the male andfemale populations changed in the regions in dif-ferent ways. In the Donetsk Oblast the level ofeconomic activity of both men and womendecreased. In the other two oblasts and theAutonomous Republic of Crimea, this indexincreased for both men and women. In Ukraineas a whole the level of economic activity of menincreased from 67.3 percent to 67.9 percent,while that of women decreased from 57.7 per-cent to 57.0 percent.

Employment

Employment increased by 2.5 percent between2000 and 2005 to reach a level of 57.7 percent ofthe total population between 15 and 70 years ofage (in 2005). This level is higher than that ofPoland, equal to that of Hungary and Slovakia,and lower than that of Estonia, Latvia, and theCzech Republic. However, it is much lower thanthe Lisbon target employment rate 70 percent.

This increase in the employment rate occurred inboth urban and rural areas. In urban areas this wasdue to an increase in jobs in the formal economy,while in rural areas it was due to increased workopportunities in the informal sector. In 2005,according to the Household Budget Survey con-ducted by the State Committee of Statistics ofUkraine, the informal economic sector hired everysecond rural man (either in private farming or inretail trade, repair works or transport services).Terms of employment were agreed orally with theemployer without any official documentation.

The level of male employment in all regionsanalysed during the whole period is higher thanthat of women. This is because traditionally therehave been more working places for men than forwomen. It is especially typical for mining regionssuch as the Donetsk and Lugansk oblasts.

Unemployment

In 2005 total unemployment in Ukraine (calculat-ed according to ILO methodology192) reached 7.2percent of the economically active population,having decreased by 40 percent between 2000and 2005 and 16 percent between 2004 and 2005.

According to ILO methodology, three quarters ofthe unemployed in 2005 in Ukraine as a wholewere urban citizens (1.2 million people or 7.8 per-cent of the total urban population), whereas inrural areas a total of 400,900 were unemployed,representing 5.7 percent of the total rural popu-lation.

Over the 2001-2004 period both the total numberand the level of unemployment among womendecreased in the regions analyzed and in Ukraineas a whole (according to ILO methodology).

In the same period, there has been a generaldecrease in long-term unemployment in Ukraine.According to ILO methodology, unemploymentis considered to be long-term if it lasts 12 monthsor longer. The average duration of registeredunemployment in Ukraine decreased from 12months in 2001 to 9 months in 2004.

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Table 19 – Regional Trends in Economic Activity Levels

Region 2000 2005

Donetsk Oblast 62.4% 62.6%

Lugansk Oblast 57.3% 60.1%

Zhitomirskaia Oblast 58.7% 64.2%

Autonomous Republic of Crimea 60.4% 62.2%

Source: Regional Departments of Statistics

192 In order to get a more precise picture of the scale of real unemployment in Ukraine (as opposed to registered unemployment), the ILO proposed to calculatereal unemployment as the difference between the number of economically active people and the number of people in employment. The level of real unem-ployment is calculated as a proportion of total economic activity.


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In all the regions analysed and in Ukraine as awhole, the level of registered unemploymentdecreased from 5.1 percent to 4.4 percent between2001 and 2005. It is higher among women thanamong men.

The main reasons for unemployment, both regis-tered and according to the ILO methodology, are:

dismissal at own request

dismissal for economic reasons

impossibility of finding job after graduation(for young people)

Comparative analysis of unemployment levels inthe four regions surveyed

Out of the four regions analysed, the ZhitomirskaiaOblast was the most hit by unemployment. In 2005the level of unemployment (ILO methodology)amounted to 9.8 percent and that of registeredunemployment to 6.0 percent, which were thehighest figures among the regions analysed (in thewhole of Ukraine, the levels were, for the sameperiod, 7.2 percent and 4.4 percent respectively).The urban male population is the most affected.This can be attributed to the following factors:

1) The region, which suffered greatly from theChernobyl disaster, is largely agricultural.Since the liquidation of the collective farms,the creation of new agricultural structures hasbeen taking place slowly. Practically all the for-mer employees of collective farms are regis-tered with the state employment services;

2) Incomes in the agricultural industry are lowand often unofficial. That is why the rural pop-ulation registers with the state employmentservices in order to get an additional incomein the form of unemployment benefits.

The Lugansk Oblast has the next highest unem-ployment level (ILO methodology). In 2005 itreached 7.8 percent (against a Ukrainian averageof 7.2 percent), whereas the level of registeredunemployed reached only 3.2 percent. In thisregion, the female rural population is the mostaffected by unemployment (both according toILO methodology and to the level of registeredunemployment).

According to statistical data for 2005, in theregions analysed the largest number of peoplewho did not believe they would find a job camefrom the Lugansk Oblast.

The principal causes of this situation are:

1) Closure of mines since 1996, which has led toa significant reduction in jobs. This wasaccompanied by government measuresextending the period during which the regis-tered unemployed could receive unemploy-ment benefits from one to two years;

2) Traditional shortage of jobs for women in min-ing regions;

3) Dissolution of collective farms (in the northernpart of the Oblast) – as a result, an insignificantnumber of jobs created (especially for wagelabour) and low level of incomes in rural areas.

Against a general Ukrainian trend of decreasingunemployment during the last five years, thelevel of unemployment (ILO method) in theAutonomous Republic of Crimea increased from5.1 percent in 2002 to 6.9 percent in 2004. Thelevel of unemployment of the urban populationis generally higher than that of the rural popula-tion. In contrast, registered unemployment inrural areas was in 2004 significantly higher thanin urban areas (7.1 percent and 3.2 percentrespectively). Unemployment levels for men andwomen were similar.

In the Donetsk region unemployment levels(both ILO method and registered unemploy-ment) are lower than the Ukrainian average. Oneshould note the higher level of registered femaleunemployment in 2004 as against the level ofregistered male unemployment (1.9 percent formen, 4.9 percent for women), whereas unem-ployment levels calculated on the basis of theILO method are higher for men than for womenfor the same period.

The generally positive trends in the Ukrainianlabour market during the last five years could beattributed to the implementation of a number ofgovernmental policy measures directed both atconsolidating the economy as a whole and atstrengthening the labour market regulatorymechanisms and developing active measures ofemployment promotion.


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The particular labourmarket situation of vulnera-ble groups

There is a scarcity of statistical information onspecific vulnerable groups in Ukraine and theirwork integration problems at the national andregional level. For groups such as peoplereleased from medical or penitentiary institu-tions, and for people near retirement age, nodata are available. The following analysis cantherefore cover only those vulnerable groups forwhich statistical or other information exists.

Young people in the labour market

In Ukraine, the total number of young peopleaged between 15 and 34 increased very slightlybetween 2003 and 2006 (+0.3 percent). Duringthat period the number of those between 15 to19 years of age fell significantly, somewhat com-pensated for by an increase in the number ofyoung people between 20 and 24 years of age (-8 percent and +7 percent respectively). As of 1January 2006 the population of those between15 and 34 years of age totalled 14 million.

In 2005 the employment level for this particulargroup (15 to 34 years of age) reached 57.7 per-cent. The highest level of employment wasachieved by young men from 30 to 39 years ofage.193 The lowest level of youth employment wasrecorded for young women between 15 and 24years of age (30.4 percent). Over the last five yearsemployment of young men increased, whereasyoung women’s employment fell by 0.4 percent.

Youth unemployment trends are causing con-cern. According to official data, the level of unem-ployment (ILO method) of young people in 2005was 7.2 percent (1.8 times higher than the level ofregistered youth unemployment). The key reasongiven for youth unemployment is the absence ofwork experience and professional skills.

As mentioned earlier, there are three youth ‘sub-groups’ who are suffering particularly hard fromlabour-integration issues:

a) Rural youth. Traditionally this group is poorlyeducated. Their families are generally less afflu-

ent than other (urban) families and as a result,these young people have limited access tovocational training or higher education. Thismakes them unable to compete in the labourmarket with other groups in their age range.

b) Mono-industrial community youth (in theDonbas area). These young people havereceived poor-quality vocational educationand lack economic prospects in thesedepressed towns where the majority of eco-nomic activities have stopped (due to closuresof mines and other large companies). Miningcommunities, with their strong ‘working clan’mentality, pose difficult challenges for youngpeople in developing socially and economi-cally, and expose them to such problems asalcoholism, drugs and crime. There are no offi-cial statistics as to the number of young peo-ple employed in ‘illegal’ mines where condi-tions of work are extremely difficult and dan-gerous and the equipment is home-made.

c) The most disadvantaged youth group is thatof former young prisoners. There is a nearcomplete absence of NGOs and other supportstructures that would provide the necessaryservices for the integration of young peopleinto the labour market. In particular, servicesin the area of education and career and jobadvice are lacking. The total absence of statis-tics, government structures, and NGOs to sup-port this group is a strong indication of thelack of national and regional policies and clearstrategies to help this group.

Unemployment problems negatively impactyoung people, leading to the emergence of anti-social behaviour such as drug and alcohol abuse,and criminality. The level of youth criminalityincreased 1.5 times over the last five years.

The provision of jobs to young people is gov-erned by Chapter 13 of the Labour Code. The lawon ‘changes to several laws relating to the provi-sion of jobs for young people’ no. 2429-IV of 1March 2002 stipulates that in enterprisesemploying more than 35 people at least 3 per-cent of the total number of employees should beyoung people. For young people who did not

193 Ukrainian statistics do not provide a breakdown of economic activity, employment and unemployment data for those groups between 30-34 and 35-39years of age.


complete their education, this quota is increasedto 5 percent and is imposed on enterprisesemploying 20 people or more.

A law on ‘the provision of a first job to young peo-ple having graduated from higher educationestablishments and technical colleges’ providessubsidies to employers. This law is meant toencourage employers to recruit young peoplewith specializations. This law had been intendedto enter into force on 1 January 2006. However, itdid not go into force because the governmentcould not ensure its implementation. The Cabinetof Ministers has not yet identified how to pay thesubsidies to employers. The New Budget (2006)has not earmarked any financing for this law.

Many people – especially the young – lackknowledge about what kind of skills the labourmarket needs. As a result, young people are notprovided with sufficient information aboutlabour-market demand to make a more enlight-ened choice as regards their education.

Experts indicate that educational institutions arenot preparing students adequately for the jobmarket. This is why government policy to stimu-late youth employment has not achieved betterresults. These experts further suggest that thestate does not regulate these educational institu-tions adequately. A large number of higher edu-cational establishments are more interested inenrolling students than in providing skills thatare competitive on the job market.

Women in the labour market

Ukraine presents an ambiguous picture when itcomes to enabling women to enter and stay inthe labour market.194 Ukrainian legislation pro-vides equal opportunities for men and women towork and receive an equal salary (for the samework requiring equivalent skills and experiencelevels). But the reality is different. Over the lastfive years employment trends show that thelevel of female employment is lower than ofmale employment (53.1 percent and 62.8 per-cent, respectively, in 2005). Salary levels forwomen are on average 30 percent below malewages (according to 2005 statistics). Salary differ-ences are more pronounced in the private sector

and in rural communities. The Ukrainian labourmarket is, de facto, divided into two: one for menand another for women. Statistics show thatwomen are predominant in the wholesale, retailand real estate trades, in education and health-care, as well as in the financial, legal, and socialservice sectors. According to expert opinion, themain difference between them is the fact thatthe ‘women’s labour market’ has a lower statusand consequently lower wages than the men’s.

The right to stay at home for both men andwomen is still not used by men, which leads tothe fact that women face discrimination at theworkplace because of their need to take materni-ty leave. Indeed, Ukrainian legislation currentlyobliges employers to pay a sum equivalent toUS$ 1,680 over the 12 months of maternity leave.The employer should also provide mothers thepossibility to return to their job after a three-yearchild-rearing break. This is viewed by employersat large as costly and leads them to choose theiremployees in a discriminatory way (preferencemay be given first to men and second to womenover the age of 35).

According to labour market experts, highly edu-cated women have difficulties fulfilling theirpotential, as the market economy has not yetbeen able to take advantage of their skills. In2004 the level of unemployment for women whohave completed higher education was slightlyhigher than for men.

Women with children find it difficult to enter thelabour market. There are no official statistics onthis phenomenon. It can be explained by the factthat the childcare infrastructure which, during theSoviet time, was well developed and affordable,has collapsed and has not yet been replaced. Ingeneral, women with young children, who wish towork, rely mainly on their own mothers, sisters,grandmothers or friends to take care of their chil-dren. Professional nannies are difficult to find andcostly. Ukraine has no developed network of pub-lic or private childcare centres.

Finally, men are clearly predominant in manage-ment and executive levels in all areas of theeconomy. According to data from the BasicProtection Survey (which was conducted in

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194 Gender issues in Ukraine – Challenges and opportunities, UNDP, 2003.


2002), in industry women’s share of top manage-ment positions was 20.2 percent, while in agri-culture it was only 9.5 percent. The highest shareof women managers is found in the non-produc-tive sectors.

Disabled people

The number of disabled people who asked forassistance to find employment over the period2001-2004 grew in Ukraine from 6,959 people peryear to 8,266 people a year (+19 percent). Thenumber of disabled people who visited the stateemployment services during the year increasedby 22.4 percent in Donetsk Oblast and by 13.1percent in Lugansk Oblast, while remainingunchanged (320 persons a year) in ZhitomirskaiaOblast. In the Autonomous Republic of Crimea, itdecreased by 8.8 percent.

The employment of disabled people registered bythe State Employment Services fell between 2002and 2004, except in the Crimean AutonomousRepublic. The Zhitomirskaia Oblast registereddecreasing employment rates among disabledpeople between 2002 and 2004 (59.8 percent195 in2002 down to 50.6 percent in 2004). Thisdecrease took place despite the implementationof the general state programme on shelteredjobs for disabled people and also that of specialprogrammes for the social and economic sup-port of disabled people in zones affected by theChernobyl disaster. These special programmesinclude specific employment assistance.

The Donetsk and Lugansk oblasts show adecrease in the effectiveness of employmentassistance to disabled people. In Lugansk Oblast,in 2001, 50.2 percent of disabled people wereemployed, whereas in 2004 only 38.9 percentwere employed. In Donetsk Oblast, as few as 22.4percent were employed in 2004. This situationcan be explained by less success in allocatingsheltered jobs to disabled people. Over the peri-od 2002 to 2004, no sheltered jobs were allocat-ed to disabled people in either the Donetsk orthe Lugansk Oblasts. As a result, only a limitednumber of employment opportunities wereavailable for this group in the form of ‘standard’jobs or vacant positions for disabled people.

In the Autonomous Republic of Crimea on thecontrary, the employment level of disabled peo-ple, after a fall between 2001 and 2003, startedincreasing from 2003 to reach a level of 53.9 per-cent in 2004.

Deported ethnic communities

The main ethnic group repatriated to its formerplace of living is the Crimean Tatars in theAutonomous Republic of Crimea. No specific eth-nic groups exist in the other analysed regions.

By the beginning of 1999 the number of residentCrimean Tatars registered in the AutonomousRepublic of Crimea reached 253,100. To this fig-ure, one should add 5,000 repatriates who hadno time or could not register for various reasons.Finally, by 2003 about 5,000 Crimean Tatarsreturned to Sevastopol. Therefore in total in 2005Crimean Tatars amount to 263,100 people (or 13percent of the Republic’s population). Given thedifficult social and economic situation of theRepublic and the particular difficulties the repa-triated population encounters in settling inCrimea, it is expected that annually 2,500 to4,000 Tatars will return over the next three years.The migration rate of this ethic group will beinfluenced by the effectiveness of the repatria-tion programmes in place in the Republic andthe ability of the government to deal with latentethnic conflicts.

The state and regional (employment service) sta-tistics do not provide specific labourmarket fig-ures on ethnic groups. Therefore an analysis ofthe work integration of this specific group of thepopulation is impossible. Anecdotal evidenceshows however that this group faces serious eco-nomic integration constraints. The Service ofNationality Affairs of the Government of theAutonomous Republic of Crimea deals with theproblems of Crimean Tatars. In particular, thisoffice addresses their well-being in their specialsettlements, the issues they face in terms ofsocial and economic integration, and the domes-tic problems that exist in their communities.

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195 of the total number of disabled people registered in employment offices.


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3.1b Main characteristics of the third sector in Ukraine

As mentioned earlier, there is at national andregional level a scarcity of statistical and trendinformation on this sector. This section has there-fore been compiled by drawing on a number ofkey documents referred to in the introductionand listed in the references section as well as onthe results of the surveys that the project carriedout at the end of August 2006 in Zhitomirskaia,Donetsk, and Lugansk Oblasts, as well as in theAutonomous Republic of Crimea.

Size of the sector

At the end of 2005, the Ukrainian not-for-profitsector comprised a total of 123,560 organiza-tions. Table 20 below provides details of the legalstatus of these organizations:

Table 21 presents data for the years 2004 and 2005on organizations which are of particular interest to

our study: non-governmental organizations, chari-table organizations, associations, credit unions andcooperatives. In 2005, there were 85,811 suchorganizations compared to 79,151 in 2004, whichrepresents an overall increase of about 8 percentfor the whole of Ukraine as well as for the analysedregions.

Such statistical data on organizations operatingin the third sector is available from two differentsources: the State Committee of Statistics ofUkraine and the Ministry of Justice. The informa-tion provided by the two sources differs. TheState Committee of Statistics provides data on allforms of organizations and enterprises in Ukraine,from which it is possible to compile numbers ofnon-governmental organizations operating on anon-profit basis. According to the data providedby the Ministry of Justice of Ukraine, the totalnumber of registered NGOs and charitable organ-izations was lower than the figure stated by theState Committee of Statistics and amounted to52,080 in 2005.

Table 20 – Size of the Not-for-Profit Sector and Types of Organizations

Non-governmental organizations 46,682

Religious organizations 18,617

Trade unions 15,639

Political parties 13,976

Charitable organizations 9,590

Consumer organizations 5,656

Citizens’ unions (religious organizations, trade unions) 4,369

Unions of flat owners 4,159

Associations 2,751

Consumer cooperatives 860

Credit unions 737

Unions of consumer organizations 524

Total 123,560

Source: State Committee of Statistics of Ukrain


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In general, the number of NGOs and charity fundshas increased by about 10 percent per year.Credit unions have increased by a magnitude of69 percent over the last two years.

The 2004 presidential elections are said to haveled to a significant consolidation of the third sec-tor and that would explain the high percentageincrease in the period leading up to these elec-tions (as shown in Lugansk Oblast). According tosome experts, during the pre-election period,NGOs were actively creating coalitions andattracting volunteers (to monitor elections, pro-mote transparency, increase public awarenessand develop links between citizens and govern-ment institutions). However, one should note thefollowing:

a) NGOs with the capacity to form coalitions andpartnerships were and are mainly those thathave the experience of working with foreigndonor organizations;

b) there are almost no NGOs (except creditunions) that were supported exclusively by local-ly funded training programmes and local financ-

Enter -prises ofCitizens’Unions

Coope -ratives

Organi -zationsofCitizen’sUnions

Asso -ciations

CreditUnions

NGOs CharityFunds

Total

Table 21 – Voluntary sector in Ukraine and in Analysed Regions (2004 and 2005)

2004

Ukraine 4247 19504 206 2679 435 43152 8928 79151

AR Crimea 224 1135 51 79 15 2391 443 4338

Donetsk 211 2028 21 193 30 3781 412 6676

Lugansk 112 453 4 83 22 1744 289 2707

Zhitomirskaia 185 386 37 21 18 853 151 1651

2005

Ukraine 4369 21112 570 2751 737 46682 9590 85811

AR Crimea 228 1290 54 83 20 2548 460 4683

Donetsk 222 2101 29 193 61 4056 455 7117

Lugansk 114 455 26 91 42 1920 314 2962

Zhitomirskaia 184 396 38 19 17 934 165 1753


The project survey at national level providesthe following information about the sector:

As noted by the majority of experts inter-viewed, the NGO sector has developedimmensely during the last five years. Themain reasons for this were: a) the lack ofinterference by state bodies in the work ofNGOs, combined with some modest encour-agement; b) foreign donors’ unceasing sup-port; and c) positive changes in the commu-nity’s attitude towards NGO activities. Thesometimes ineffective interaction betweenNGOs, the community, state bodies anddonors were mentioned as negative factors.

Recognizing that the government is now moreattentive to the development of the NGO sec-tor, experts claim that the government hasbeen providing more grants to NGOs, andbecoming more involved in social problem-solving, not only as performers but also asnational- and regional-level consultants.


ing. The absence of a national NGO developmentstrategy, supported by the legislative and gov-ernment structures at national level, makes thissector intellectually and financially dependenton foreign donors.

In the Lugansk Oblast, according to a survey car-ried out in 2002 by the DFID project ‘Socio-eco-nomic regeneration of the Donbas’, NGOs hadincreased by 14 percent between 1991 and 1994,21.5 percent between 1995 and 1998, and 54.4percent between 1998 and 2002.

Legal environment

The main laws regulating the voluntary sector are:

the Constitution of Ukraine: Article 36 indicatesthat Ukrainian citizens have the right to freelyunite into political parties and public organiza-tions (NGOs) to implement and protect theirrights and freedoms and to satisfy their politi-cal, social, cultural, and other interests;

the Law on Citizen’s Unions adopted in 1992;

the Civil Code of Ukraine no. 435-IV of 16. 01.2003 (further CCU) is the main legislative actcodifying the norms which regulate civil andlegal relations of a property and non-propertycharacter, based on legal equality, freewill andmaterial independence of their participants.Chapters 7 and 8 of the CCU give definitions of:legal entity, organizational and legal forms oflegal entities, notions of non-entrepreneurialsociety;

the Economic Code of Ukraine which providesdefinitions of not-for-profit and non-commer-cial activities.

The NGO legal environment is said not to havesignificantly improved over the past few years.196

According to expert opinion, there are still seri-ous legal inconsistencies and examples of poorimplementation. Several laws, such as the Lawon Public Associations, are inconsistent with thenew Civil Code, causing confusion and making itmore difficult to implement the new rules.Despite fewer administrative impediments, theprocess for registering NGOs continues to be

complex, and many organizations are said to beunregistered. Though considered progressive,the 2004 Law on Registration of Legal Entitieshas created many challenges for new NGOs.Specifically, the law requires that all NGOs regis-ter with the Ministry of Justice and the regionalauthorities. Despite these difficulties, the periodtaken to register an association is now down toone month for national and international organ-izations, and four days for local organizations.

NGOs are subject to a considerable tax privilege ifthey have, according to their statutes, a not-for-profit character. The majority of Ukrainian NGOshave this status. Certain kinds of entrepreneurialactivities (such as training, provision of advice)can be carried out, legally, by a not-for-profitorganization if they are conducted as statutoryactivities, i.e. activities registered in their founda-tion statutes. However, in practice, carrying outsuch activities requires complicated accountancyand very often leads to undesirable difficultieswith the fiscal authorities. As a result, paymentsfor statutory services are often received through asystem of charitable contributions or through pri-vate entrepreneurs as the legitimate subject oftrade. At the same time, passive income (forinstance from bank interest) is consistent with thenot-for-profit status of an NGO.

In 2005, the Government restored all tax benefitsand incentives, and tax authorities have allowedcompanies to deduct between 2 and 5 percentof their taxable income for donations to NGOs.Other incentives, such as the deduction of up to10 percent of an individual’s taxable income fordonations to organizations that employ disabledpersons, are no longer available.

Regulations on social services remain insuffi-cient. Government funding for procurement ofsocial services and grant programmes has yet tobe deployed. Local funding for services, howev-er, has diversified and organizations have gener-ated more income by improving their marketingstrategies.

Finally, Ukrainian legislation limits the amount ofcredit and loan opportunities for NGOs. The lat-ter are not allowed to be the recipients orgrantors of interest credits, and can receive an

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196 The 2005 NGO Sustainability Index, USAID.


interest-free loan only if it is granted on a ‘noterm’ condition.

Target groups and service provision

According to a study carried out by the Coun -terpart Creative Centre197 (hereafter CCC) onNGOs in Ukraine (for the period 2002 to 2005),198

the main target groups of NGOs are: youth (45percent of respondents), organization members(30 percent), children (25 percent), students (23percent), women (16 percent), and disabled peo-ple (13 percent). The data obtained in 2003 and2005 do not show a significant difference.

NGOs provide a wide range of services as shownin Table 22 below:

According to the CCC survey, advocacy and lob-bying have recently taken on much more impor-tance compared to 2002 (when only 16 percentof respondents quoted this activity). On the

other hand, the same percentage of people, in2002 and 2005, quoted provision of social servic-es (26 percent).

A large proportion of services are provided freeof charge, while a smaller proportion is offeredfor a fee. Organizations advertise their services tothe general public and sponsors through thewritten press, radio/TV (a small proportion ofNGOs use this medium), social fairs and theirown Internet sites.

Advocacy

Organizations are increasingly able to collaboratewith the national and local government. The moredeveloped organizations are capable of identify-ing key decision-makers and have close relation-ships with members of parliament. A large num-ber of NGOs lobbied for legal reform at the local,regional, and national levels. Despite improve-ments, however, NGOs often do not consult with

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Table 22 - Range of Services Provided by NGOs

% of respondents

Advocacy and lobbying 44

Education, training and consultation 39

Information dissemination 38

Educational activities 32

Social service delivery 26

Research and analysis 26

Legal assistance 22

Charity 16

Developing policy recommendations 14

Rehabilitation 12

Administration of grant programmes 8

Other 6

Source: CCC – CSOs in Ukraine: The State and Dynamics – 2002-2005

197 Set up in Ukraine by Counterpart International Inc. in March 1996.198 The study is based on a survey conducted among 610 NGOs and charitable organizations throughout Ukraine.


the public on issues they are addressing, takingthe need for their activities for granted.

Income and financial viability

In UCAN’s199 most recent report on the sector’sfinancial viability, some NGOs reported a dou-bling in domestic funding. In 2004, the NationalTax Administration reported that the total oflocal donations to charitable foundations andassociations was approximately US$ 530 million.This figure does not, however, account for volun-teer contributions, in-kind donations or incomesfrom subsidiary organizations. UCAN and theCivil Society Institute estimate that local supportfor NGOs throughout Ukraine could possibly beas much as US$ 1 billion.

The main sources of NGO funding are (by decreas-ing order of importance):

membership fees international grants individual donationsbusiness contributions government contributions domestic grantsfunds from subsidiary companies other sources

The typical budget composition of an NGO is asfollows:

All information sources concur to say that NGOs’financing sources are still undiversified: grants toNGOs come mainly from the international donorcommunity. Local affiliates of international organ-izations such as the International RenaissanceFoundation, Freedom House-Ukraine, and ISAR-Ednannya provide NGOs with grants regularly.

According to the CCC survey, a third of NGOsclaimed that they receive funding from the gov-ernment. Half of them received less than US$1,000. In-kind contributions from the govern-mental structures were received by a quarter ofNGOs (of a value of no more than US$ 500).

Nearly half of NGOs receive contributions fromlocal businesses of no more than $500 (either incash or in kind).

Annual budgets of NGOs range from US$ 500 toUS$ 20,000 and are broadly broken down as follows:

30 percent – US$ 50020 percent – US$ 500 to US$ 1,00020 percent – US$ 1,000 to US$ 5,00030 percent – US$ 5,000+

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Figure 5 – Typical Budget of an NGO

Source: CCC survey: CSOs in Ukraine: The State and Dynamics – 2002-2005

199 UCAN means Ukraine Citizen Action Network. It is a five-year project supporting Ukraine's growing civil society. UCAN is funded by the United States Agencyfor International Development and implemented by the Institute for Sustainable Communities (ISC).

International grants

business contributions

incomes from subsidiary firms

Domestic grants

other

government contributions

Membership fees

Individual donations


Financial planning is said to have improved with-in these organizations. However financial over-sight is informal and conducted by NGO leaders.NGOs appear to conduct audits only if requiredby donors or tax officials. They seldom maketheir financial statements public, even to theirmembers. According to UCAN, a large number oforganizations create subsidiary businesses thatcharge for their services and classify the incomegenerated as donations.

External relations

Nearly all NGOs interviewed by CCC in 2002-2005confirmed that they have established partner-ships or at least good working relationships withgovernmental structures. According to mostNGOs, this collaborative mode of working wasinitiated by both parties. This collaboration doesnot, however, necessarily translate into concretejoint projects. The level of implementation ofsuch joint projects during 2005 was consideredas low, as a third of NGOs recognized that theywere not involved in such projects. During thatyear, only a quarter of NGOs worked in partner-ship with governmental structures on three ormore projects. NGO representatives note thatthe key constraints for a good collaboration orpartnership with governmental structures wereat that time the lack of understanding (by thegovernmental structures) of the usefulness ofsuch collaboration and a general lack of informa-tion on NGOs’ activities.

According to the CCC research, all NGOs activelycollaborate with other non-governmental organ-izations, especially at regional or local levels.Collaboration among NGOs of different levels(for instance a regional NGO with an internation-al NGO) is claimed to be more difficult to achieveowing to the scanty information available aboutthese organizations. The most popular forms ofcollaboration are dissemination of information,consultations, service provision, and projectimplementation. In general, NGOs recognize thatthe level of inter-NGO collaboration is still notsufficient. This is attributed to a lack of profes-sionalism of some NGOs and to the ambitions ofleaders (who see other NGOs as competitors forfunds).

Partnerships between NGOs and businesses areweak: nearly one third of NGOs do not collabo-rate with businesses at all, a quarter have estab-

lished links with more than five businesses, 20percent with 3 to 5, and 22 percent collaborateonly with one business. NGOs interviewed recog-nized that the main reason for establishing rela-tions with business is to obtain funding or mate-rial (in-kind) assistance. This level of collabora-tion is judged insufficient, mainly due to a lack ofinformation that businesses have about NGOs’activities. One should note that there is still ageneral tendency on the part of the businesscommunity to consider the work carried out byNGOs as unprofessional and of a rather poorquality. This attitude is bolstered by the govern-ment’s failure to see the need for close coopera-tion between the private and third sectors.

One should finally note current initiatives takingplace at a regional level (in Donetsk Oblast) todevelop more effective partnerships betweenNGOs and governmental structures:

a) An Oblast Grant Scheme. A group of NGOs andNGO development ‘champions’ in the Oblast’sgoverning structures designed a frameworkand mechanisms for a system for distributinggrants among NGOs. This system is still onpaper, at this stage, but will be further devel-oped once the Donetsk Oblast authoritiesfinally adopt a regional strategy for third-sec-tor development. There is a strong desireamong the newly elected Oblast Councilmembers to design such a strategy with thesupport of professional consultants;

b) work on the development of a coordinationcommittee of the Oblast’s NGOs has started,aimed at building a bridge between the NGOleaders and the Oblast authorities to designand implement joint projects.

Organizational capacity and employment generation

According to the CCC survey of CSOs, 57 percentof organizations interviewed have permanent(paid) staff. This level has been maintained overthe last three years. Some 85 percent of theNGOs that have permanent (paid) staff maintaina level of full-time employment of three persons.Some 66 percent of organizations interviewedclaimed that they encourage the professionaldevelopment of their staff by allotting funds fortheir participation in conferences, round tablesor educational and training courses.

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From 2002 to 2005, 77 percent of organizationsalso used the services of volunteers (unpaid full-time or part-time persons). The most commonnumber of volunteers in one NGO is five to eight.On average a volunteer spends eight workinghours a week in the organization. In some organ-izations, they work for only two or three hoursper week. In 31 percent of the organizations sur-veyed, the number of volunteers had increased.In 35 percent, it remained the same and in 10percent it decreased.

Among the people who come forward as volun-teers 56 percent NGOs reported students as theirmain category, followed by programme benefici-aries (30 percent of respondents), unemployedpeople (15 percent), elderly people (11 percent)and housewives (11 percent). Noteworthy is theincrease in the percentage of NGOs that attractservice beneficiaries to volunteering.

Experts note, however, that so far NGOs have notyet realized the potential of the community anddo not attract the public sufficiently into theiractivities. They tend to focus only on those mem-bers of the community who are the easiest toattract and motivate.

UCAN conducted in 2002-2005 an NGO organiza-tional systems study which showed that the orga-nizational capacity of these organizations hadgenerally improved. More organizations, espe-cially those funded by international donors,engage in strategic planning, conduct audits, andare improving management capacity. The major-ity hold regular staff meetings, while some arepromoting the leadership and independence oftheir staff. Numerous organizations, however,limit strategic planning to specific projects oractivities; and while NGOs exercise participatoryleadership, management remains concentrated

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Unwilling or unable to comment on current (and existing) forms of partnership between NGOs andother structures, the project’s survey respondents in the Donbas area expressed the idea that thereshould be partnership relations between the NGOs themselves. This may suggest that the currentlevel of cooperation between these structures is perceived to be low. The majority of respondentsindicate that there should be stronger partnership relations between NGOs and government, asso-ciated with financial support to help them operate more effectively. The same opinion was expressedconcerning the need for partnership between NGOs and business structures.

In the Crimean Autonomous Republic, the same pattern of responses was found (no comments onthe current cooperation level). The suggestion was made that a special body should be organized tocoordinate all NGO development. While recognizing that NGOs and government partnerships exist,many respondents said that some form of social contract should be created, by which NGOs couldbe legitimately asked to fulfil contracts on behalf of the state structures focused on the implementa-tion of specific social projects. The Crimean respondents, as in the Donbas area, see an important rolefor governmental structures in supporting civil society organizations financially. As regards partner-ships between NGOs and businesses it was pointed out that these should be two-way relationships,but with constant financial support from the business side.

In Zhitomirskaia Oblast, NGO experts indicated their experience of partnership with other localNGOs, national structures and private enterprises, against a background of lack of experience andinteractions with social enterprises. Here also, NGOs would like to receive financial support from pri-vate enterprises and to continue teamwork project implementation with state bodies and otherNGOs. The majority of experts in this region point out that the government now has a more atten-tive attitude to NGO sector development. This is expressed in the budget allocation to NGOs and inthe fact that NGOs have a greater involvement in local problem solving.

At the national level, the experts interviewed expressed similar views. However, they stressed that,despite the existence of partnerships between the NGO sector and other organizations and struc-tures, the system of interaction is still ineffective.


in a few staff members. Many organizations arevery informal and fail to clearly define the rolesand responsibilities of both their paid and volun-teer staff. Few have formal administrative rulesthat govern their employees or organizationalprocedures. According to this study, the technicalcapabilities of these organizations are now moreaccessible, as organizations increasingly cooper-ate with businesses that provide them with mod-ern equipment. Regional NGOs are now able topurchase office space using bank loans.

Employment generation potential of non-governmental organizations and charitable organizations

It emerges from the above analysis that the levelof employment generation by NGOs is still low(equivalent to that of a micro or small enterprise)and has not changed significantly since 2002.There is moreover no evidence that NGOs arespecifically attracting representatives of vulnera-ble groups as paid members of their staff. Thelatter are most likely to be drawn into the activi-ties of NGOs as volunteers.

The employment generation capacity of an NGOis for the time being very much linked to its abil-ity to fundraise. Other (more stable) types ofincome, such as those which could come fromthe fulfilment of ‘social contracts’, are not a pos-sibility yet, since the legislation on social con-tracts has not been adopted.

In the current legislative context, Ukrainian NGOshave to work as non-commercial not-for-profitorganizations. Only a few manage to createincome sufficient for their sustainability withoutinvolving commercial partners. The task of creat-ing jobs or working for the benefit of vulnerablegroups of people forces NGOs to look for moreeffective and efficient functioning models whichinvolve businesses or private entrepreneurs assubjects responsible for commercial activities.

3.1c Main problems and challenges facing the Third Sector

Organizations of the third sector in Ukraine arecurrently facing a number of key challenges.Among these challenges, the need to identifyand obtain continuous financial support comesfirst. Such a challenge remains real, at the presenttime, for a large number of NGOs and is verymuch linked to the potential for these organiza-tions to develop strong analytical and fundraisingskills. Given the fact that such types of organiza-tions operate with moderately paid staff or volun-teers, the likelihood of them developing suchskills in-house appears remote. The almost exclu-sive reliance of NGOs on international donororganizations’ funding is unhealthy. The privatesector is only just starting to show some inclina-tion to financing NGOs, but until the law on taxa-tion in relation to charity donations by business-es is amended, little will change. Local authoritieswhich could sub-contract NGOs to provide spe-cific social or community services are constrainedby tight funding in this sphere and under-devel-oped legislation on social contracting.200

The key external challenge faced by these organ-izations is the fact that the legislation on NGOs’activities and on taxation is not sufficientlydeveloped. Progress on moving the current leg-islation towards a more finished state in relation

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The majority of respondents of the projectsurvey conducted at the national level nega-tively assessed the suitability of NGOs for cre-ating employment opportunities, in particularfor vulnerable groups. This was attributable totheir perceptions that the effectiveness ofthese organizations is weak in the sphere ofemployment service delivery and also to theirbelief that NGOs do not have the capacities tobe an important source of employment. Inorder to ensure the effective job placement ofvulnerable groups, the experts interviewedstrongly believe that there should be a realpartnership between NGOs, government andbusiness structures.

This opinion was shared by the regionalrespondents. In Zhitomirskaia Oblast, the res -pon dents pointed to the State EmploymentCentre as an optimal structure for placing vul-nerable groups in jobs.

200 Social contracting: see social contracts – footnote no. 23.


to the third sector’s activities is sluggish. Thepolitical instability caused by the recent parlia-mentary elections (September 2007) is currentlyputting an additional brake on this process.

The NGO sector in Ukraine has still to build strongrelationships with the private sector and localauthorities. The challenge is to be heard andunderstood but also, importantly, to present clearinformation on their activities and results to theircommunities. Some NGOs have been successfulin doing so but their number remains small.

3.2 Social enterprise developmenttrends in Ukraine

3.2a Concepts and definitions

In the context of this study, EMES’s criteria ofsocial enterprises201 are taken as relevant bench-marks to measure the development of the socialenterprise sector in Ukraine. There is in Ukraine aconceptual ‘black hole’ of what social enterprisesreally are. The term ‘social enterprise’ was firstintroduced into the Ukrainian context by Coun -terpart International in the late 1990s when itlaunched its Social Enterprise Programme. Thisinitiative has later been supported and devel-oped by other international organizations,notably USAID, UCAN and DFID. Outside the parl-ance of international grant-givers, the term ‘socialenterprise’ is rarely used, although Ukraine has along tradition of workmen’s cooperative associa-tions for the disabled.202

Contemporary Ukrainian legislation, while pro-viding certain grounds for social enterprisedevelopment, does not refer to social enterpriseexplicitly. Similarly, mass media very rarelyemploy the term, although, according to expertopinion, many NGOs in Ukraine carry out sociallyentrepreneurial activities (i.e. activities aimed atimproving their sustainability, and many organi-zations of vulnerable groups work to create jobsfor the members of these groups). In this situa-tion, different understandings of social enter-prise have emerged.

The Eurasia Foundation distinguishes, in a some-what controversial manner, four functional mod-els of social enterprises currently operating inUkraine:

the NGO purist model: it emphasizes the entre-preneurial activities of NGOs themselvesaimed at improving their sustainability, with-out involving businesses or private entrepre-neurs as subjects responsible for commercialactivities;

the cooperation model of commercial enter-prises and NGOs: this kind of social enterprisecarries out its activities through close partner-ship with businesses;

the NGO working with private entrepreneurs:NGOs exercise entrepreneurial activitiesthrough private entrepreneurs and in particu-lar through their own members if they are reg-istered as private entrepreneurs;

the complex model of cooperation betweenenterprise(s), NGO(s) and private entrepre-neurs. This model emerges in NGOs when theylead several successful projects simultaneous-ly, each in partnership with subjects responsi-ble for entrepreneurial activities.

There are three important conclusions to bedrawn at this stage on the issue of accurately defin-ing social enterprises in the Ukrainian context:

perceptions: despite the general low awareness ofsocial enterprises among the experts interviewedby the project, social enterprises are currently seenas having a dual aim: to create jobs (especially forthose groups of the population experiencing workintegration problems) and to contribute to thethird sector’s financial sustainability and social mis-sions (through profit redistribution);

reality: social enterprises currently exist in theform of commercial enterprises attached to aCSO/NGO. It is clear that they are conceived anddeveloped outside the concept of communityand related only to NGO development. They are,

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201 Study on Promoting the Role of Social Enterprises in CEE and the CIS – EMES, April 2006.202 In Ukraine, cooperatives of the disabled were and are set up mainly as profit-making production organizations to address the economic and social needs of

their members (disabled people). The profits of these organizations are distributed among these members. No mechanisms exist for the community to con-trol the activities of such a cooperative. The majority of such organizations exist for blind, deaf and dumb and physically disabled people.


de facto, projects that can be delivered any-where regardless of whether they can be embed-ded or not into local contexts;

evolving concept: a Ukrainian social enterpriseconcept has not emerged yet. It is only when socialenterprises start developing and capturing theattention and imagination of communities that aclear concept will emerge. The authors of this pub-lication would therefore propose to Ukraine’sregional and local communities and decision-mak-ers that they adopt the EMES concept of socialenterprise. This would let a Ukrainian concept ofsocial enterprise develop naturally.

3.2b Current legislative framework

As noted earlier, Ukrainian legislation does notprovide a definition of social enterprise and doesnot include any specific normative acts regulat-ing the activities of such enterprises. Howeverthere are elements of Ukrainian law which pro-vide norms defining the possibilities and limits ofcommercial activities of non-government organ-izations:

Articles 85 and 86 of the Civil Code of Ukraine(hereafter CCU) regulate the activities of non-entrepreneurial organizations set up with orwithout the goal of making a profit whichwould later on be redistributed among itsshareholders, if those activities correspond tothe goals in pursuance of which the organiza-tion was created and facilitate their implemen-tation.

Articles 168-169 of the CCU specify that thegovernment and territorial communities cancreate public legal entities (state, communalenterprises) and private legal entities (entre-preneurial organizations etc.) under the condi-tions laid down by the Constitution of Ukraineand the law.

Enterprises of citizens’ unions can be formed inaccordance with Article 112 of the CCU andwith Article 20 of the Law on Citizens’ Unionsfor the realization of economic activities withthe purpose of fulfilling their statutory goals.Non-governmental organizations of disabledpeople, set up according to the Law onPrinciples of Social Protection of Disabled peo-ple in Ukraine can have commercial and non-commercial activities.

Articles 52-54 of the Commercial Code ofUkraine specify that subjects of the state andcommunal sector of the economy can carryout non-commercial economic activities in thespheres where entrepreneurship is forbiddenby law. This concerns particularly:

– State enterprises, created on the basis of Article76 of the Commercial Code of Ukraine (CCU),and operating in the spheres of the national

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203 Territorial centres are centres funded by the state budget to deal with the delivery of social services to lonely elderly people (childless pensioners) and invalids.The local offices for the social protection of the population are state structures whose purpose is to provide social benefit payments and social benefits tohouseholds qualifying for this (income-based) support.


The results of the surveys carried out by theproject indicate a varying level of awarenessof social enterprises. Whereas in Donetsk andLugansk Oblasts, the majority of respondentsare aware of such an enterprise and can offersome definition of it (‘a social enterprise is anenterprise which redistributes all or part of itsprofits to finance measures to solve the prob-lems of its community’), in the AutonomousRepublic of Crimea more than 70 percent ofpeople interviewed (representatives of theregional or local authorities and NGOs) wereunable to define what social enterprises are.The most common definitions that could begiven by a small number of intervieweeswere: (a) a social enterprise is an enterprisethat offers job opportunities to representa-tives of vulnerable groups, and (b) it is a com-mercial enterprise that invests all or part of itsprofits in its community. In ZhitomirskaiaOblast, NGO representatives indicated that intheir areas the main social enterprises are ter-ritorial centres and the local offices for thesocial protection of the population.203

At the national level, in the opinion of experts,social enterprises are defined by their abilityto provide a wide range of social services andto redistribute a significant part of their profitsto finance the needs of the community atlarge or specific target groups.


economy where the majority (more than 50percent) of their production (work, services) isof public interest and cannot, by nature, bedelivered on a profit basis;

– Communal non-commercial enterprises204 creat-ed in accordance with Article 78 of the CCU. Theorgan, managing the communal non-commer-cial enterprise is composed by representativesof a territorial community, and fulfils its func-tions, presupposed by law.

An important element contained in Ukrainianlaw is that the state, territorial centres and thepublic have the opportunity to control the statu-tory social activities of communal (non-commer-cial) enterprises and the way enterprises’ profitscan be used for socially significant goals.

According to the opinion of legal experts, therehave been recent changes introduced in the leg-islative environment of the third sector whichcould be seen as promoting the development ofthis sector. In particular:

The Civil and Commercial Codes both nowgive the regulatory definition of ‘non-entre-preneurial society’ and state that the charac-teristics of the legal status of a non-entrepre-neurial organization are established by law.There was no such common law regulating theactivity of similar societies in earlier Codes.205

At present a bill ‘On non-entrepreneurial soci-eties’ (no. 909 dated 25.05.2006) has been sub-mitted to parliament and is meant to deter-mine the legal status and conditions for creat-ing non-entrepreneurial societies. This lawrepresents in essence the codification ofnorms regulating all existing non-profit organ-izations, including NGOs.

the Law on Citizens’ Unions allows NGOs to es -tablish commercial enterprises whose incomeis reinvested in the NGO;

the Law on Social Services defines the mainorganizational and legal foundations for pro-viding social services206 and is the base for thenew draft of the Law on Social Labour no. 0958dated 25 May 2006 which is now being consid-ered in the Ukrainian parliament. If this law isadopted, regulative definitions will be given tosuch concepts as ‘social sphere’, ‘social labour’and ‘subjects of social labour’.

Despite these positive elements and develop-ments, there are still some important legal con-straints on the development of the social enter-prise sector in Ukraine. In particular:

– the absence of a special law on or at least alegal definition of a ‘social enterprise’, its orga-nizational and legal forms, the aims and tasks,spheres of activity, procedure of creation andfunctioning etc.

– the absence of legally stipulated state supportthat would meet the current operational require-ments of a social enterprise: for instance, relieffrom state taxes and duties, provision of soft(preferential) bank credit, advantageous rights totake part in tenders (only NGOs for disabled peo-ple currently enjoy some state support in theform of tax privileges).

The majority of the project’s survey respondents (atthe regional level) indicated the need to improvethe legislative base regulating the activities of non-governmental organizations and to develop andadopt a specific law on social enterprises. This viewis shared by the government organization expertsinterviewed by the project. However, the views onthe necessity for a separate law on social enterpris-es are not shared by representatives of internation-al organizations. Proposed alternatives included: toamend the civil code and tax code. In general, themajority of respondents highlighted the need tointroduce tax privileges to stimulate the develop-ment of social enterprises.

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204 The majority of communal enterprises in Ukraine are organizations working on a for-profit (commercial) basis. Their activities include: water management,electricity management, waste management, etc., i.e. all activities that are linked to the provision of communal services. The decision to set up a communalenterprise is under the control of the local members of parliament and through them that of citizens. There are no concrete examples of communal enter-prises working on a non-commercial basis, although the law envisages this legal form.

205 Non-entrepreneurial societies are entitled to gain non-taxable income in the form of: funds or property which are received free of charge or as irrevocablefinancial aid or else voluntary contributions; passive revenues – interest, dividends, insurance indemnities and payments as well as royalties; subsidies orgrants received from the state or local budgets, state target funds or as a result of charitable activities including humanitarian relief or technical assistance,which are provided to such not-for-profit organizations according to terms of international agreements with the consent of the Verkhovna Rada of Ukraine,funds or property received as a result of the primary activity.

206 Social services represent a wide range of services provided to assist persons suffering from social, economic or medical hardships who are not able to over-come them, using means and funds available to them.


3.2c Typologies and dimensional aspects

Number of social enterprises in Ukraine

The notion of social enterprises exists and is usedbut so far on a limited scale. Research carried outby the Eurasia Foundation in 2004 indicates thatabout 50 subjects of social entrepreneurship exist-ed at that time.

Project survey results show that according torespondents at the national level there are cur-rently about 200 social enterprises operating inUkraine.

Social enterprises are concentrated in Kiev,Kharkiv, Odessa, Donetsk Oblast, Lviv Oblast,Zhitomirskaia Oblast, and Kherson Oblast. Theseare target regions for a number of internationaldonor projects focused on the third sector (andsocial enterprises).

Legal forms

According to the Eurasia Foundation, socialenterprises are either enterprises (30 percent),NGOs (60 percent) or a combination of enter-prise and NGO (10 percent). The foundation’sresearch indicates that about 60% of organiza-tions can be qualified as cooperation units (NGO+ enterprise).

Commercial activities

According to research conducted by the EurasiaFoundation in 2004, the key commercial activi-ties of social enterprises included:

providing legal, marketing, management, finan-cial and public-relations advice;

carrying out sociological research, translationand printing, and information services;

providing computer classes, design services, cre-ating computer programs for people with im -paired vision;

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Box 27. Zhitomirskaia Oblast – Kovcheg Café

Mercy Charitable Foundation is a Christian faith-based non-governmental organization (NGO)founded in 1997 by Natalya Prokhorenko to provide humanitarian assistance to the most vulnera-ble people in the Zhitomir region, one of the poorest areas of Ukraine. Zhitomir’s unemploymentrate has resulted in a high incidence of substance abuse, homelessness and depression among itspopulation. Zhitomir also lies within the ‘Chernobyl zone’ affected by the disaster of 1986. Canceris prevalent among the residents – 2001 was the first year since 1986 that the birth rate was high-er than the mortality rate in the region.

In April 2000, Mercy set up a social enterprise in the form of a café (Kovcheg Café). It is located cen-trally in Zhitomir and has a well equipped kitchen and a large dining area. It prepares and servesfree meals for the homeless and sells low-priced but good-quality meals to other members of thecommunity. Mercy, as an NGO, renders counselling services to addicts, helps young people to quitsmoking and teaches them to avoid drugs and alcohol by engaging in sports and other activities.It was decided that the café should perpetuate the behaviour of the NGO and it therefore does notserve alcohol and has a no-smoking policy. With the exception of McDonald’s, Mercy’s café is theonly place where people can enjoy a meal in a smoke- and alcohol-free environment. The demandfor a family-style restaurant removed from boisterous drunks and unhealthy air was wholly under-estimated.

With the café’s first-year profits, Mercy expanded its operations to include a dinner service andincreased dining space. Mercy has plans to open another café across town, with a vision of fran-chising the concept all over Ukraine. Since launching Kovcheg Café, Mercy has started three moresocial enterprises: thrift shops that sell second-hand goods donated by the public and collectedthough churches.


selling stationery, household equipment, news-papers and foodstuff for children;

making furniture and clothes;

running cafés, stationery shops, hairdressingsalons, etc.

Notably, the research conducted by the EurasiaFoundation suggests that social enterprisesfocus on job creation for people with mental andphysical disabilities, as well as for homeless andunemployed people in rural areas. It is not clear,however, whether this activity is meant to ‘sup-port the integration of vulnerable groups intothe labour market’ (an activity that is rendered asa social service) or whether it is meant as a serv-ice to develop the skills of these groups.

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Project survey results indicate that social enterprises can take different legal forms, includingNGOs, enterprises established by NGOs, commercial enterprises and private entrepreneurs.Experts pointed out, however, that the legal status does not have any important impact on theeffectiveness of social enterprises.

At the regional level the following information was collected:

In the Donbas area, according to respondents, the main legal form of social enterprise is the‘enterprise of the citizens’ union’. However, it is worth noting that representatives of NGOs whotook part in this survey were not aware of this legal form. Interestingly, a small number of busi-ness representatives interviewed consider their enterprises to be ‘social enterprises’ becausethey help to realize social aims, they are governed by the community, and because all the prof-its are reinvested into the social enterprise. Furthermore, 80 percent of their employees are peo-ple with disabilities. The main aim of these enterprises is to earn a profit from their activities. Itshould be noted that the businesses interviewed in the context of this survey had been set upas ‘standard’ businesses (their founders are ‘pure’ entrepreneurs) and appear, for reasons unex-plained in the survey, to have evolved in a specific direction focused on social needs.

In Zhitomirskaia Oblast, according to half of the respondents, social enterprises can assume thefollowing legal forms: non-governmental organizations, enterprises of citizen’s unions, cooper-atives, and private enterprises. The other half were unable to comment.

In the Autonomous Republic of Crimea, interviewees were not aware of social enterprises. Only30 percent of respondents could define the legal forms of regional/local/municipal social enter-prises. Their answers included cooperatives, citizen’s union associations, privately owned enter-prises and NGOs.


The project survey at the national level indi-cates that social enterprises should carry outcommercial activities such as integrating vul-nerable groups into the labour force and pro-viding social services. At present, according toexperts, social enterprises are offering a widerange of social and educational services or aremanufacturing goods for vulnerable groups.


3.2d Main sectors of activity and recipients

Social enterprises as employers

There is no precise information available aboutthe number and kind of jobs created by socialenterprises in Ukraine. Counterpart International’scase studies207 indicate that in 2002 job creation(within social enterprises themselves) amountedto between 5 and 15 (permanent or contract jobs)

per enterprise, remunerated at or slightly belowthe market wage. (Some examples include Kov -cheg Café in Zhitomir, Alisa Society for theDisabled in Kiev, Creative Workshop in Kherson.)Research by the Eurasia Foundation providesdetails of known social enterprises across thecoun try but does not analyse the job creationimpact that they have had. Types of jobs offeredby social enterprises range from enterprise man-ager to waiter, including sales persons, trainersand teachers, software programmers, etc.

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207 Counterpart International: Cases Studies of Social Enterprises, September 2002 – Sutia Kim Alter.

Box 28 – The Social Enterprises of the Alisa Society

‘Alisa’– Alice in English – is the namesake of Lewis Carroll’s Alice in Wonderland. The Alisa Society embodiesthe courage and imagination of Carroll’s main character and represents a ‘wonderland’ of possibility for peo-ple with disabilities.

The NGO was conceived in 1991 at the time of perestroika when its founder, herself disabled, saw an oppor-tunity to help people with physical disabilities. She observed that disabled people were being marginalized.They were not being fully integrated into the workforce or educational institutions, and they had limitedaccess to public services.

Initially, the Alisa Society sought to clothe and feed this population, but quickly learned that humanitarianefforts created dependence on handouts. The rapidly deteriorating economic environment and diminishingstate support exacerbated clients’ needs, and as a result, the founder decided to refocus the organization’sactivities on economic development.

In 1997 the Alisa Society changed course and reformulated its mission as the ‘social and economic rehabilita-tion of people with disabilities.’ The idea was to offer vocational training programmes with the intention oftraining people with disabilities to integrate them into the workforce. However, the country’s dire economicsituation also affected the Alisa Society’s ability to raise funds and cover its operating costs. This setback gal-vanized the NGO to launch three private companies to underwrite the organization's operating costs.

The NGO started to recruit disabled people with business ideas who wanted to start and run a social enter-prise. Three of Alisa’s clients took the challenge of starting a business based on their ideas and credentials.Each received basic business training and a small amount of start-up capital before taking their ideas to mar-ket. Alisa’s first enterprises are in computer training and software; appliance manufacturing and sales; andarchitectural design. Today, two of the three original businesses are successful and continue to be operatedby their founders. The third entrepreneur closed the appliance business due to high production costs andslim margins, but then opened an advertising and design firm.

Since 1997, the Alisa Society has established six successful social enterprises of its own: the Alisa StationeryShop; Café Posadena; Etit, a trading company; Instorm, an architecture firm; Monostat, an advertisingagency; and a sports training facility that teaches martial arts to children. All of Alisa’s social enterprises arerun by disabled entrepreneurs and staffed by disabled people, except the sports facility, which relies on non-disabled people to teach its courses. The businesses’ main objective is to teach skills, create jobs, and traindisabled people. The second objective is to generate funds to subsidize the non-profit activities.


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In the majority of cases, social enterprises tend toemploy the clients of their social activities. Thusthe Kovcheg Café recruited unemployed peoplewith low incomes. The Alisa Society for theDisabled began to recruit disabled people whowanted to start and run a social enterprise. Threeof Alisa’s clients started a business based on theirideas and credentials. Each received basic busi-ness training and a small amount of start-up cap-ital before taking their ideas to market. The AlisaSociety joined forces with other NGOs to createthe Social and Vocational Rehabilitation Centre,a for-profit organization that runs several busi-nesses that help people with disabilities obtainvocational skills, such as sewing, carpentry ormeat processing. This Centre employed in 2002over 350 people with disabilities, who represent90 percent of its total workforce.

Some social enterprises offer work integration tostudents (part-time or temporary work), whichenables these enterprises to minimize their per-sonnel costs while providing work opportunitiesto young people.

Social aspects of social enterprises

All case studies provided by Eurasia Foundationand Counterpart Alliance emphasize that socialenterprises are created to ensure the financial sus-tainability of their founding entities – the NGOs.Profits made by social enterprises are channelledback to the NGOs to allow them to fulfil theirsocial mission.

Counterpart Alliance’s case studies suggest thatin 2002 social enterprises redistributed on aver-age $10,000 per year to their NGOs. The key tar-gets of these profit redistributions were:

disabled peoplechildren with learning disabilitieshomeless children

youth with incomplete educationwomen with young childrenunemployed womenorphans

Redistributed profits were used to provide a widerange of social services to vulnerable groups. Forinstance:

selling medical supplies to the disabled at lowerpricesproviding free meals to the homeless and peo-ple with low incomesrehabilitating women, victims of violence oroppressionproviding vocational training and rehabilita-tion to former drug addicts and alcoholics


The project survey was unable to generateany information on the scale of job creationand modes of job integration offered by socialenterprises in Ukraine as the great majority ofrespondents had no knowledge of concretesocial enterprises.

Box 29. Kharkiv, Creative Workshop ofPeace Beauty Culture Association

The Peace Beauty Culture Association (PBC) isan NGO established in 1996 to invest in thesocial and cultural education of young peo-ple as a means to contribute to the develop-ment of Ukrainian society. In 2001 it foundedthe Creative Workshop to produce and sellexclusive clothes for children and young peo-ple, using natural fibres decorated with tradi-tional Ukrainian art in contemporary designs.Profits are used to promote national pride,culture and the arts through theatre eventsand schools, while training youth in sustain-able job skills.

Most of the Creative Workshop's clothes aredebuted at the ‘S’ Theatre, which is attachedto the NGO. The rationale for pursuing thisbusiness over other more lucrative opportu-nities was to ensure that the mission of thesocial enterprise and the NGO be inter-twined. A second advantage is that theCreative Workshop leveraged Peace BeautyCulture's existing human, material and finan-cial resources and turned them into produc-tive assets. The founders of The CreativeWorkshop showcase their endeavour to edu-cate other NGOs about the benefits of social-ly oriented businesses.


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The profits are not only redistributed to thefounder of the social enterprise – the NGO – butalso can be used to set up other social enterpris-es to ensure the financial sustainability of theNGO and its social programmes. For example, in2002 the Alisa Society was running no fewer thansix social enterprises.

Key success factors

According to experts from the Eurasia Foundationand Counterpart Alliance, the key factors that de -ter mine the success of social enterprises are:

the presence of a champion who understandsthe purposes and goals of social enterprises;the commitment of the individuals involved,the quality of the leadership, the discipline of,and trust within, the team;the willingness and ability to take risks andteach others to do the same;

the commitment to transparency;good business planning and a commitment todeveloping quality products or services;strong relationships with community stake-holders, the involvement of private entrepre-neurs, partnerships with other NGOs and gov-ernmental structures.

3.2e Potential of social enterprises in Ukraine

The embryonic activities of social enterprises inUkraine have tended to focus on services for thecommunity at large or for specific vulnerablegroups. As highlighted in 2.3.3, social enterprisescurrently provide a wide range of commercialservices: they offer computer classes, createcomputer programmes for people with impairedvision, sell stationery, household equipment,

The majority of project survey respondents agree that social enterprises have the potential to fur-ther develop in Ukraine.

At the national level, experts noted that the number of social enterprises needs to be increased.According to these experts, the government should be given this responsibility. A wide publicinformation campaign together with specific organizational, legislative, and financial initiatives,was cited as the most important method to further stimulate social enterprise development. Moreconcretely, some respondents cited the need to reduce VAT rates on goods or services producedby social enterprises and the need to develop an effective microcredit programme for this type ofenterprise.

At the regional level, experts expressed the following opinions:

in the Donbas area and the Autonomous Republic of Crimea, respondents stressed the necessi-ty to increase the number of social enterprises. They believe responsibility for this lies with leg-islative bodies. Several respondents, however, indicated that this responsibility also lies withNGOs themselves. According to experts, in order to stimulate this sector efforts should be madeto adapt the legal framework (in particular the law on social enterprises) and to disseminate thepositive experiences of social enterprises and models of partnership with local authorities andbusinesses.

in Zhitomirskaia Oblast, experts also agreed on the need to expand the social enterprise sector.They also see the need to develop coordinating committees to develop this sector. These com-mittees would include representatives of local administrations, businesses, and the community.In addition, national experts cited the need to launch effective public information campaignsand to make legislative changes, mainly concerning tax incentives. All experts are in favour of aspecial law on social enterprises.

Survey respondents tended to see the main niche for this new sector in the provision of thosesocial services that the state, business and the traditional NGO sector do not currently offer.


second-hand clothes, newspapers, foodstuffs forchildren, make furniture and clothing, run cafes,stationery shops, hairdressing salons, bus routeslinking villages in remote areas (offering cheapor free transportation services to elderly people),etc. It is likely that these types of enterprises willcontinue operating in these areas in the future,especially since they require relatively littleinvestment at the outset.

3.2f Organizations supporting the development of social enterprises in Ukraine

The key organizations that have been support-ing the development of social entrepreneurshipin Ukraine over the last five years are:

Counterpart International which in September2002 completed a Counterpart Alliance forPartnership Social Enterprise Programme. Thisprogramme provided training, loans and tech-nical assistance to 45 NGOs to support the start-up and development of new business ventures;

Eurasia Foundation, privately managed withsupport from the US Agency for InternationalDevelopment and other sponsors, implementsprogrammes to support the development ofcivil society and private enterprise in Ukraine.In 2004, it commissioned a research study ofsocial enterprise in Ukraine;208

the Ukrainian Citizen Action Network (UCAN), afour-year project supporting Ukraine’s growingcivil society. Funded by USAID and implement-ed by the Institute for Sustainable Communities(ISC), this programme helps Ukrainians takeresponsibility for determining the kind of socie-ty they live in by increasing citizen participationin all aspects of public life. UCAN providesgrants, training and networking opportunities;

DFID Ukraine, through its project ‘Socio-Eco -nomic Regeneration of the Donbas’, providessupport (small grants and technical assistance)to NGOs and businesses wishing to set upsocial enterprises (Lugansk Oblast). The ap -proach of this project is interesting in as much

as it started working on improving the localenvironment for businesses (in six pilot areas:Severodonetsk, Krasnadon, Perevalskiy andKremenskoye raions in the Lugansk Oblast,and Torez and Telmanovskiy raions in theDonetsk Oblast), and went on to help theselocal communities to develop their own capac-ities and ‘weight’ in the decision-making pro -cess, before starting considering the economicand social contributions that social enterprisescan make to these communities. The projecthas just helped set up one social enterprise(the Social Bus) in Telmanovskiy raion (Do -netsk Oblast), the development of which willbe monitored and captured for experiencesharing. It is anticipated that this social enter-prise will become fully operational and prof-itable within a year if provided with suitabletraining and consultancy.

Within another project ‘Democratizing Ukraine’,DFID provides support to communities and com-munity-based organizations in strengtheningthe democratic voice in selected sites and pro-moting the interests of vulnerable groups andindividuals. One direction of its Small-Grantscheme is the development of social enterpriseconcepts in local communities (Donetsk and LvivOblasts);

the Canadian International Development Agency(CIDA) finances a Community EconomicDevelopment (CED) Project, started in 2004 andto be ended in 2007;

the European Union (TACIS) has a number ofprojects focused on the development of thethird sector, but no project specifically focusedon social enterprise development.

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208 Research into Social Enterprise in Ukraine by Jo Lucas, Geoff Cox, Olga Vasylchenko, Andrei Vasylchenko.


3.3. SWOT analysis of social enterprise development in Ukraine

Key problems

The main problems emerging from the analysisabove can be placed in three categories:

legislative and regulatory

Ukraine does not have a legislation directly pro-moting the development of social enterprise.There are controversial views among the expertsinterviewed by the project as to the need for adedicated law ‘On Social Enterprises’. In any case,all experts interviewed expressed the view thatthe current legislation concerning the activitiesof third sector organizations, although not con-straining the setting up of social enterprises,requires substantial improvements.

The issue of the provision of tax incentives forsocial enterprises (and other types of organiza-tions, whether for the third sector or the privatesector) as employers of vulnerable groups of thepopulation should also be addressed. The lack oflegislation concerning social contracts209 is a keyissue, flagged by all experts, which should beaddressed urgently by the legislators. This issuenot only hampers the third sector’s activities ingeneral, but could constitute a constraint to thedevelopment of the social enterprise sector.

Despite the activities of a small number of inter-national organizations to help develop the socialenterprise sector in Ukraine, and despite the evi-dence that exists not only in Ukraine but in coun-tries of the European Union concerning the largepotential that such enterprises have in terms ofemployment generation and their contributionto the missions and goals of the third sector, theUkrainian government and legislators at thenational and regional level do not seem to haveyet ‘appreciated’ this potential. A lobbying forcefor the development of this sector is lacking.

conditions and capacities to set up and managesocial enterprises

The registration of social enterprises, per se, shouldnow constitute less of a problem, as long as thesocial enterprise is considered a small business,given the legislation in place for the small businesssector (simplified and shorter registration system).This said, if, as suggested by the above analysis,NGOs start creating a bigger number of sub-sidiaries (social enterprises), the registrationprocess of NGOs themselves, as well as their liqui-dation, should be significantly simplified.

The difficulty in accessing start-up and develop-ment funds (credit and, to an extent, grants) isconsidered by all experts to be a key constraint onthe development of social enterprises. A specifi-cally tailored credit scheme taking into accountthe issue of collateral and providing a repaymentholiday period should be introduced. Whereascredits could be provided to new social enterpris-es to finance their equipment or working capitalneeds, grant schemes could be developed tofocus on the improvement of the social enterpriseenvironment (for instance, access to information,know-how transfer, market surveys, etc.).

The above analysis clearly highlights the lack ofawareness of experts regarding social enterpris-es, their goals and activities. This is an issue thatneeds to be addressed through well-designedpublic information campaigns. There is a need toclearly explain at the community level the pur-pose and role that such enterprises could play inits locality. Communities have needs that are notfulfilled. Taking into consideration the communi-ties with whom the DFID project (Socio-econom-ic Regeneration of the Donbas) worked inLugansk Oblast, they are ready to find ways toaddress these needs. There is an ‘unused’ socialcapital which exists in these communities whichcould/should be encouraged to experiment withthis model. What comes out of the above is thatcommunities need to be ‘prepared’. To launchsuch a model on an ‘unprepared’ communitymight lead to less positive (or no) results.

The problem of skills and competencies for set-ting up and running such types of small busi-nesses is an important one and is referred to byall experts. The extent to which, for instance, asocial enterprise can attract a good (and quali-fied) manager, who is however likely to be

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209 Social contracts are contracts given and funded by local authorities to organizations of the third sector to provide, more appropriately and cost-effectively, aspecific range of social, educational and other services to their communities.


offered a lower rate of pay than in a convention-al commercial organization, is questionable. Ifsocial enterprises recruit their staff among theirown target groups (vulnerable groups), such acategory of people will require good quality andadapted business training and support to fit intotheir position and be able to work effectively.This leads on to the more general issue of thelack of adequate business support structures inUkraine, that can provide good quality informa-tion and advice, effective business training, assis-tance in drawing up good business plans, etc.

Finally, the issue of market niche210 identificationfor such enterprises is an important one. This isnot only linked to the competence of the man-agers of the social enterprise to identify such aniche and evaluate its prospects, but also to thecosts possibly involved in carrying out effectivemarket surveys (see above on access to finance).

partnerships between social enterprises, NGOs,local government structures, and commercialbusinesses

De facto, partnerships exist between social enter-prises and NGOs since the latter are, in all cases,the founders of the social enterprises. The Eurasia

Foundation and Counterpart International re -search has highlighted, however, that partner-ships between social enterprises and local gov-ernment structures are still weak. The project’ssurvey respondents indicated that partnershipsbetween local government and social enterprises(and NGOs) would automatically be developed ifthe legislation regulating social contracts wereput in place.

Partnerships between social enterprises andmedium-to-large businesses do not appear toexist at this stage. This could however be a possi-bility which could be realized through a financ-ing arrangement between an existing (medi-um/large) and successful business ‘investing’ in asocial enterprise (a ‘godfather’ or mentorarrangement). This business could provide notonly financing but also support to business plan-ning, market positioning etc.

Cause and effect and SWOT analyses

On the basis of the above problem analysis, thefollowing cause and effect and SWOT analysescan be drawn up, which will help clearly identifythe main strategic goals for the development ofthe social enterprise sector in Ukraine.

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210 in relation to both public and private markets.


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Cause & effect analysis

Effects Potential foremployment gen-eration for vulner-able groups of thepopulation is lim-ited. Skillsamongst thesetarget groups areundeveloped.

The NGO sectorcan only count onfinancing from thegovernment andinternationalorganizations.The former is verylimited, the sec-ond depends onfund-raising abili-ties of the NGOand might, intime, cease.

Local communi-ties are not trig-gered to take partin the Decision-making process(social and eco-nomic)

The market gaps,primarily linked tothe social needs ofa community, arecurrently neitherfilled in by theState, nor byNGOs nor by thebusiness commu-nity at large.

Key problem: the sector of social enterprises in Ukraine is under

Main causes

Lack of anenabling legisla-tive and regulato-ry framework forthe NGO sectorand that of socialenterprises

Lack of effective business support struc-tures and strong partnerships with theprivate sector

The third sector isnot yet fully devel-oped to generateand manage inno-vative communityprojects (such associal enterprises)

Root causes

There are nonational andregional champi-ons (lobbyingforce) for SEdevelopment inthe legislativeorgans

The system of crediting small businessesis not user friendly. NGOs are con-strained in their ability to access credits. The issue of collateral isan important one.

Internationaldonor agencieshave not so farcoordinatedactions to raiseawareness andunderstanding ofthis new sector.The concept ofsocial enterprise ispracticallyunknown

The Ukrainian leg-islation on thethird sector is stillincomplete in par-ticular as far as thefollowing is con-cerned: tax incen-tives, NGO and SEregistration, socialcontracting, redis-tribution of profits

Business support services (information,advice, training) are, still, of a mediocrequality. There are no local networks of effective businesscentres. Medium and large companiesare not drawn into this support process

The NGO sectorhas limitedresources for itsself developmentand is adverse torisks


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SWOT Analysis


Social capital exists at community level

Local communities are more organized (selfhelp groups, initiative groups), less passive

Some Oblasts in Ukraine have had positiveexperience of social enterprises activities

Other Oblasts, which have not had this experi-ence, are willing and prepared to develop thissector

Strong legislative leaders (possible champi-ons) in some Oblasts (Donbass area)

Bigger recognition of NGOs value among gov-ernmental structures

Strong restrictions for NGOs to access credits(for SE set - ups)

Lack of a legislative base which would regu-late the social enterprise sector

Lack of fiscal incentives

Weak business support structures

Low awareness of the concept of social enter-prises

Low level knowledge of the legislation byNGO leaders

Fear of risks taking

Lack of business management skills

The system of ‘social contracts’ is not activated

Partnerships between third sector organiza-tions, local authorities and local businesses areinsufficiently developed


Simplified registration and taxation system forsmall businesses

Untapped niche market for social enterprises

Emerging philanthropic behaviors from thebusiness community

Experience of other countries, in particular EUcountries and the USA

Current business environment is not‘enabling’ in Ukraine

High dependency of the third sector on inter-national funding

A number of donor organizations will leaveUkraine and cease to support the NGO sector

Uncoordinated actions from internationaldonors

Lack of political will and government supportto develop this sector

Legislation on the third sector is incomplete



Strategic recommendations

On the basis of the above analysis, a series of strate-gic recommendations are made, and summarizedin the diagram below:

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Main goal: within the next five years, to lay down sound foundations for the development of adynamic social enterprises sector in Ukraine able to contribute to employment generation (in par-ticular of vulnerable groups of the population) and provide a sustainable financing base for theNGO sector development and social goals implementation.

Priority Goal no 1: Todevelop an enabling legisla-tive and regulatory frame-work for legislative and reg-ulatory framework for theNGO sector and that ofsocial enterprises

Priority Goal no 3: To cre-ate conditions for the NGOsector to develop and man-age innovative communitydevelopment projects (inparticular social enterprises)

Priority Goal no 2: Todevelop effective businesssupport structures for socialenterprises and the thirdsector in general and pro-mote the development ofstrong partnerships withthe private sector

Operational goal no 1.1:To create conditions for thedevelopment of a lobbyingforce (cham pions) at nat -ional and regional levels

Operational goal no 3.1:To raise public awareness ofthe role of social enterprisesat national and regional lev-els among organizations ofthe third sector and thepopulation at large

Operational goal no 2.1:To develop a system ofcredit and financial sup-port adapted to the needsof social enterprises.

Operational goal no 1.2:To make the Ukrainian leg-islation more apt at facili-tating the development ofthe Social Enterprises andNGO sector

Operational goal no 3.2:To enhance the resourcesof the NGO sector for itsself development andmotivation to engage intomore risky and innovativeprojects

Operational goal no 2.2:To promote conditions forthe creation of regionalbusiness support servicestargeted to the needs ofthe third sector organiza-tions and social enterprises(resource centers)

Operational goal no 2.3:To create conditions formedium and large compa-nies to become part of thebusiness support system forNGOs and social enterprises


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Detailed recommendations

The achievement of this main goal is foreseenover a five-year period. Given the current develop-ment trends observed in the Ukrainian third sec-tor and evidence of changes in civil servants’ men-tality towards these types of organizations, thistime-frame seems realistic. The main assumptionsmade here are that the democratic principlesendorsed by the Ukrainian president will continueto be implemented and that political stability willprevail. The main goal will be achieved throughthree Priority Goals which have equal importanceand should be implemented in parallel.

Key indicators for monitoring the main goalimplementation results will be (at a minimum):

number of social enterprises in Ukraine creat-ed over the reference period

number of social enterprises active and gener-ating profits

number of people employed in social enter-prises over the reference period (with a break-down between the main vulnerable groups)

volumes of financial contribution and trends inthe third sector’s social projects

In order to enable this priority goal to be success-fully implemented, national and regional mem-bers of parliament should form a strong force tolobby in favour of the development of the socialenterprise sector (operational goal no. 1.1).Parliamentarians should be made aware of thepotential of such enterprises, by being provided

with demonstration examples from Europe or theUnited States. The responsibility for this intensiveand clearly focused information campaign shouldlie with international donor agencies, and in par-ticular on UNDP which will act as the main coordi-nator of these actions. In addition, once Ukraine’ssenior leaders are committed to the principles ofsocial enterprises, they will have to clearly statethis commitment and policy direction in theirpublic discourses.

On the other hand, Ukrainian legislation needs tobe improved (operational goal no. 1.2) so as tocontribute to the development of social enter-prises and the third sector in general. The issue ofhaving a special law on social enterprises (asemphasized by all the project’s regional respon-dents) should be considered but should not beregarded as a ‘must’ at this stage of develop-ment. It is more important to ensure that all rele-vant laws do not contradict each other and con-tain specific ‘enabling’ elements (such as, possi-bly, tax incentives, simpler registration proce-dures, norms for profit redistribution, access tocredit, etc.). It should be the initiative of the par-liament and the government to set up specialcommissions and working groups at the nationaland regional level (which will necessarily includerepresentatives of the third sector) to developconcrete proposals for legislative development.The international donors’ community (led byUNDP) should engage in these processes as con-sultants.

The key monitoring indicators for this prioritygoal implementation will include:

senior leaders in national and regional par -liaments and government should publiclyacknowledge the potential of social enterpris-es and the third sector in general for employ-ment generation

necessary amendments to the relevant lawsare prepared and adopted during the refer-ence period (with clear implementation mech-anisms)

at least one national and six regional champi-ons of social enterprise should emerge (at aregional level, in the Oblasts of Lviv, Donetsk,

Main Goal: within the next five years, to laydown sound foundations for the developmentof a dynamic social enterprise sector in Ukraineable to contribute to employment generationand provide a sustainable financing base forthe development of the NGO sector and theimplementation of social goals.

Priority Goal no. 1: To develop an enablinglegislative and regulatory framework for theNGO sector and that of social enterprises.


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Lugansk, Zhitomirskaia, Kharkiv and Kherson,as well as the Autonomous Republic of Crimea).

This priority goal will be implemented by tack-ling three different but equally important prob-lems: the first one, as seen earlier, is the need todevelop a system of credit and financial supportadapted to the needs of social enterprises andNGOs (operational goal no. 2.1). The needs ofthese organizations should be reviewed anddetailed. Credit policies (including policies oninterest rates, collateral, repayment periods andholidays, etc.) of banks, credit unions, and inter-national donors for this particular type of enter-prises should be considered and developed, tak-ing into account their respective possibilities andlimitations. In this context, a particular roleshould be envisaged for credit unions as creditproviders for social enterprises. The role of grantsprovided by donor organizations should also bereviewed. Grants reinforce dependency. Thistype of financing might not be the best suitedfor social enterprises. Eurasia Foundation sug-gests that grant giving could be used as part of‘strategies for reducing risk’ and should targetresearch needs and capacity development (forinstance: business planning, risk evaluation andmanagement courses). Credits force social enter-prises to think through the level of investmentrequired to maximize both social and financialreturns. The responsibility for implementing thisoperational goal should be jointly shared byinternational donors’ organizations (led byUNDP) and representatives of the third sector.

The second problem is the need to develop aneffective business support service structure ableto respond to the special requirements of socialenterprises and organizations of the third sector(operational goal no. 2.2). The project’s surveyrespondents have suggested the setting up ofresource centres which could provide not onlyinformation and advice, but also training, businessplanning, marketing, and advertising services. Thevalue of regional or local resource centres shouldbe considered carefully. International donors (in

particular TACIS) have in recent years invested insuch types of structures and their effectivenessshould be reviewed before proceeding further.Instead, the advantages of further developing(and enhancing the capabilities of) a network ofexisting business centres serving ‘standard’ smallbusinesses could also be considered. The respon-sibility for implementing this operational goalshould, here again, be jointly shared by the inter-national donors’ community (led by UNDP) andrepresentatives of the third sector.

Finally, the role that medium- and large-sized busi-ness could play as both a financing source and a‘mentor’ needs to be investigated and developed(operational goal no. 2.3). There is evidence inUkraine that larger business is now adopting amore socially responsible attitude than before. Inimplementing this operational goal, the work ofthe DFID project on Economic and SocialRegeneration in the Donbas on business socialresponsibility should be taken into account. In anycase, high quality awareness campaigns to coverthe business community in selected regions ofUkraine should be envisaged. Responsibility forimplementation will fall onto the internationaldonor community (led by UNDP).

The key monitoring indicators for this prioritygoal implementation will include:

number and size of credits obtained to set upsocial enterprises, and their trends, over the ref-erence period (broken down by credit sources)

percentage of social enterprises positivelyassessing access to credit (and trends)

percentage of social enterprises positivelyassessing business support structures (andtrends)

percentage of social enterprises receiving men-torship programmes from larger businesses

percentage of social enterprises positivelyassessing the mentorship programmes

Priority Goal no. 2: To develop effective busi-ness support structures for social enterprisesand the third sector in general and to pro-mote the development of strong partnershipswith the private sector

Priority Goal no. 3: To create conditionsfor the third sector to develop and manageinnovative community development projects(in particular social enterprises)


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The necessary conditions for NGOs to be moreinnovative not only in terms of social service deliv-ery but also in terms of diversifying their financingsources are twofold. On the one hand they need toraise their awareness of the key concepts and rolethat social enterprises might play in society, includ-ing with respect to employment generation for vul-nerable groups of the population (operational goalno. 3.1). On the other hand, they need to tackletheir ‘non-business’ risk-adverse and dependencementality (operational goal no. 3.2). Both opera-tional goals emerged clearly from the results of theproject’s survey in the regions and are supportedby the findings of Eurasia Foundation’s and Count -erpart International’s researches. There is still a sig-nificant lack of information among NGOs aboutnew concepts and innovations in the social econo-my. This is caused by their limited resources toaccess such information, but, one could also sayperhaps by their lack of ‘curiosity’ or even fear ofbeing diverted from their main goals. The conser-vatism of NGOs in Ukraine is still very much latentand as a consequence it prevents them from envis-aging the creation of more ‘risky’ structures such associal enterprises. Well-targeted public informationcampaigns on social enterprise models in Europeand elsewhere, possibly ‘internship programmes’in one or several European social enterprises, andtraining programmes focused on key entrepre-neurship principles and challenges should be setup and delivered for NGO leaders. These are crucialfor their effective self-development and their abili-ty to set up and manage social enterprises.

The responsibility for fulfilling this priority goallies with the international donor community ledby UNDP.

The key monitoring indicators that will be usedto assess the goal’s results will include:

percentage of NGO representatives aware ofthe social enterprise concept (and trends overthe reference period)

percentage of NGOs equipped with internetfacilities (and trends)

percentage of NGO leaders trained in entre-preneurship principles (and trends)

percentage of trained NGO leaders who havecreated and managed a social enterprise (andtrends)


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1. Preliminary conclusions

The analysis carried out so far brings to lightwide differences in the way that social enterpris-es are treated in different countries. However,they are becoming gradually recognized, andparticularly in the new member countries. Thestudy conducted across the old EU membercountries indicates that:

the economic dimension of social enterprisesdoes not necessarily mean that they achieveeconomic sustainability only throughresources generated by commercial activities.Indeed, social enterprises’ financial viabilitydepends on their members’ efforts to secureadequate resources to support the enterprise’smission, but these resources have a hybridcharacter. Moreover, the resource mix variesfrom one type of social enterprise to the other,in accordance with their specific social mis-sion. However, one of the most visible effectsof the institutionalization of social enterprisesin the different EU countries is that it incitesthem to position themselves, most of the time,in the market economy. Regardless of thegiven resource mix of social enterprises, therole of voluntary resources tends to be under-estimated. This type of approach puts socialenterprises in ‘boxes’, overlooking one of thefundamental characteristics of these organiza-tions: namely, the fact that they are located inan intermediate space between the market,the state and civil society. In the mobilizationof resources, purchases motivated by socialcriteria constitute an important way for publicbodies to support social enterprises. The evo-lution of European legislation and the possibil-ity of taking social dimensions into account inpublic procurement are currently being debat-ed at the European level. The directive on thecoordination of procedures for the award ofpublic contracts, published in 2004, explicitlyallows social and environmental criteria; how-ever, European legislation still appears unclearon this issue and allows for different interpre-tations. The latitude that national legislationimplementing the new European directives

will leave or not to the diversity of nationalpractices in this matter is also an importantissue for the future development and sustain-ability of social enterprises;

umbrella structures play a key role in the devel-opment of social enterprises. These consortia,federations and other second-level organiza-tions play a vital role in a number of differentways. First, they foster the sharing of resourcesderived from a variety of sources in a territory.They can negotiate contracts with privateenterprises and public bodies, for example, asjust mentioned, in public procurement with asocial dimension. Umbrella organizations coulddevelop special know-how in negotiating thistype of contract on behalf of social enterprises.Secondly, the history of the field shows thatthese umbrella organizations interact with pub-lic bodies to create specific public schemes. Inother words, public schemes are not the resultof top-down processes only, but are createdjointly by representatives of social enterprisesand those of public bodies. Umbrella organiza-tions ensure a lobbying of public bodies, withthe aim of bringing the latter to recognize thecomplex set of goals of social enterprises.Finally, these intermediate organizations areused to exchange best practices, not only at thenational level (within an umbrella organizationor between umbrella organizations) but alsoamong different countries. Creating bridgesbetween cooperative movements could be avaluable way whereby international actors anddevelopment practitioners could favour theexchange of good practices and experiencesamong social enterprises.

In general, in all the CEE and the CIS:

third sector organizations’ political recognitionand institutionalization are still modest;

the perception of the role of social enterprisesas being marginal continues to prevail, cou-pled with a general mistrust towards econom-ic activities carried out by third sector organi-zations;

PART III. GENERAL RECOMMENDATIONS ON HOW TO SUPPORT SOCIAL ENTERPRISES


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the legacy of the past continues to have a strongand continuous impact on the development ofthe various forms of third sector organizations;

existing legal frameworks are still not adequatefor the effective functioning, fundraising andsustainability of third sector organizations;

policies aiming to reform and strengthencooperatives are still insufficient or totally lack-ing – even donors’ programmes exclude coop-eratives;

cooperatives are underestimated and the recog-nition of the potential of associations and foun-dations as producers of goods and services is stilllacking.

More specifically:

a legal and political environment more favour -able to the development of social enterprisesis to be noticed in the new EU member coun-tries, although this environment remains char-acterized by severe legal inconsistencies anddeficiencies that hamper the development ofsocial enterprises;

in the Balkans and CIS countries, the politicaland legal environment is not conducive to thedevelopment of social enterprises. Third sectororganizations are not allowed to engage ineconomic activities and are still heavily dis-criminated against, donor-driven and political-ly oppressed (through harassment and strictregulations that heavily restrict their sphere ofaction and prevent their development intosocial enterprises). Where not deliberativelyaiming to penalize third sector organizations,severe inconsistencies in the legal frameworksfurther hamper their action. This is the case, forinstance, in Ukraine, where a large number ofregulations set forth procedures that are inconflict with the law itself.


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Figure 6 - Social Enterprises in CEE and CIS Countries with Respect to the EMES Ideal-Type of Social Enterprise

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2. Assessing the potential for social enterprise development in CEE and CIS countries

In an attempt to gauge some aspects of the poten-tial of social enterprises in the countries underanalysis, three analyses were completed.

The first one, a SWOT (Strengths, Weaknesses,Opportunities and Threats) analysis, aimed toidentify both the main bottlenecks that preventsocial-enterprise development in the region andthe still unrealized potential of social enterprises(see Figure 7).


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Figure 7 - SWOT Analysis of Social Enterprise Development in CEE and CIS Countries


Strong pre-Soviet tradition of charitable organizationsand cooperatives (all countries)

High level of education of third sector leaders (all countries)

Interest of the researchers involved in the social enter-prise topic (all countries)

Capacity for creation of grassroots initiatives (self-help andreligious groups) to satisfy unmet needs (all countries)

In rural areas, strong social capital and local links

Modest recognition of third sector organizations asgoods producers and service providers

Ascription of a mainly advocacy role to third sectororganizations (especially Balkans and non-Baltic formerSoviet Union countries)

Low networking capacity among the various families ofthe third sector (associations, cooperatives, foundations)and within families (all countries)

Incapacity/low capacity of third sector organizations to guar-antee the supply of services in a continuous and stable way

Inadequate legal frameworks (especially in the Balkansand non-Baltic former Soviet Union countries)

Inconsistency of the legal and fiscal systems (all countries)

Lack of fiscal exemptions for social enterprises (most ofthe countries) and of tax reliefs for donors


High unexpressed potential of productive non-profitorganizations (all countries, albeit to various extents)

European integration (ESF/policy recommendations ofthe EU enhancing the role of social economy organiza-tions in addressing problems of social exclusion andunemployment)

Promotion of cooperative societies in Europe (EuropeanCommission's Communication of 2004)

Emerging philanthropy (especially in new member coun-tries)

Untapped stocks of different categories of social capitalin organized civil society as well as in informal networks

High potential of third sector organizations as employ-ment tools (all countries, especially relevant issue in theBalkans)

Existence of cooperatives/companies for the disabled (allcountries)

Re-emergence of cooperatives in specific sectors, includ-ing housing (Estonia) and credit (Lithuania, Poland)

Egalitarian feeling and tradition of solidarity – a positivelegacy from the Communist and pre-Communist eras –manifest in the general public

High dependency of local organizations upon westerndonors

Financial weakness of third sector organizations

Mistrust towards economic activities carried out by third sector organizations

Mistrust towards cooperatives

EU over-regulation and rigidity of EU Structural Funds

Low stocks of social capital (especially Balkans and for-mer Soviet union countries)

High administrative centralization (especially in theBalkans and non-Baltic former Soviet Union countries)

Corruption (especially in the Balkans and non-Baltic for-mer Soviet Union countries)

Neo-liberal paradigm – espoused by the media, elitesand politicians – dismissive of collec-tive/egalitarian/solidarity values

Incapacity of foreign donors to boost locally situateddevelopment processes

Authoritarian regimes (Belarus) that suffocate third-sec-tor development

Suspicion towards local organizations funded by foreigndonors (Belarus, Russia, Serbia)


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The second analysis carried out aimed to under-stand the main barriers to the development ofsocial enterprises; such analysis is necessary todesign adequate policies for social enterprises.Barriers against social enterprise developmentare grouped into the following categories:

Table 23 - Barriers to the Development of Social Enterprises

EXTERNAL BARRIERS INTERNAL BARRIERS

General barriers

Political barriers- overestimation of the role of the mar-

ket in replacing the state - political underestimation of social

enterprises as economic and welfareactors (mainly advocacy role)

- corruption

Environmental barriers- mismatch between growing demand

for services and existing or developingsocial policies

- high dependency of social enterprisesupon donors

Institutional barriers- unfavourable legal environment- lack of appropriate legislation on con-

tracting-out procedures- low decentralization at the administra-

tive level

Managerial barriers- lack of a labour supply possessing the

managerial and professional skillsneeded to manage social enterprises

Co-ordination/competition-linked barriers- lack of coordination among social

enterprises and third sector organiza-tions

Cultural barriers- insufficient awareness of the relevance

of social enterprises as serviceproviders

Specific barriers

Cultural barriers- lack of a ‘social enterprise’ culture in

society as a whole

Institutional barriers- lack of adequate legal frameworks- bureaucratic barriers imposed by pub-

lic bodies

Competition-linked barriers- competition by the informal economy

(when institutional and legal barriersjeopardize the formalization of eco-nomic entities)

Cultural barriers- lack of a social enterprise culture with-

in social enterprises

Managerial barriers- lack of managerial skills and compe-

tences of social enterprise leaders- prevalence of an authoritative mana-

gerial approach- difficulties in finding financial

resources

Co-ordination/competition-linked barriers- lack of a system of second-level social

enterprises (for organizational, techni-cal and financial support)


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The third analysis that was completed concernedthe evolutionary path followed by third sectororganizations in the countries under study, withan eye to facilitating the identification of rele-vant developmental trends. The data collected inthis framework are summarized in the followingtable. As in prior parts of the study, the countrieshave been grouped as follows: new EU memberstates, Balkan countries and former Soviet Unioncountries.

Country Favourable conditions/Potentialfor social enterprise development

Negative conditions/Constraintson social enterprise development

BULGARIA Law on social assistance and service provisionof 2003 enhanced the development of service-providing NGOs and enforced partnershipsamong state and local authorities and NGOs

High education level of some of the workersemployed in the third sector

Informal pressure to change the law regulat-ing NGOs towards increased economic free-dom for the latter

Intensive financial support from internationaldonors

NGOs are beneficiaries of EU Structural Funds.

In order to produce market goods and servic-es, NGOs have to establish companies

High dependency on financial streams, carry-ing out of activities on a project basis, andstrong rivalry within the sector

Weakness of NGOs' networking capacity

Absence of sustainability

Scarcity of bottom-up initiatives

Exclusion of cooperatives from donors’ pro-grammes

Withdrawal of international donors

Suppression of tax exemptions owing to highcorruption levels

Need for independent monitoring and socialimpact assessment

CZECHREPUBLIC

Existence of a specific legal framework forsocial enterprises – the Public BenefitCompany (PBC) – which are service-providingorganizations committed to the supply ofservices aimed at the public interest

Possibility for associations and PBCs to con-duct economic activities if these are defined intheir statutes

Economic activities (which have to be of publicbenefit) are theoretically subject to tax rebate

In rural areas, strong social capital and local links

Prominence of many small and stable munici-palities/villages that could be interested insupporting social enterprises

Additional funding stream through EUStructural Funds

Associations do not normally producegoods/services for the market

PBCs are still heavily dependent on grants

Unclear tax rules

Mistrust of cooperatives

Withdrawal of donors (for instance US founda-tions)

Lack of capital accumulation

Discrimination against locally rooted organi-zations in public procurement procedures

Rigidity of EU Structural Funds, which penal-izes small organizations

Table 24 - Challenges to and Constraints on Social Enterprise Development in the New EUMember States


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ESTONIA Enormous number of registered non-profitorganizations, including housing associations,which are single-stakeholder organizationsaiming to promote the interests of members

Approval, by the Estonian Parliament, of theConcept of Development of Estonian CivilSociety (EKAK)

Relevant social function played by housingcooperatives

Third sector organizations are allowed to carryout economic activity

Possibility, for third sector organizations, tolegally compete for government contracts andprocurement procedures at the local and cen-tral levels

Interest in venture philanthropy is increasing,and corporations have become more strategicin planning their community investments

Associations and societal organizations typi-cally lack resources to remain viable (fundingis usually still allocated on a ‘project-to-proj-ect’ basis)

Low government recognition of the possiblevalue of the social services rendered

Contracting-out practices are still scarce

LITHUANIA A specific law on social enterprise (2004)allowed the rescue of 30 companies for thedisabled, inherited from Communist times

Contracting-out of services to third sectororganizations envisaged

Emergence of new local donors

Lack of by-laws prevented the setting up ofnew social enterprises according to the 2004law

Requirement for a turnover similar to that of asmall- or medium-sized enterprise hampersthe bottom-up development of new socialenterprises

EU Structural Funds serve first and foremostgovernmental institutions

POLAND Recognition of social enterprises in the form ofsocial cooperatives

New law on social cooperatives (2006)

Associations, foundations and public benefitorganizations are allowed to carry out eco-nomic activities but the legal system is incon-sistent and ambiguous

For public benefit organizations, economicactivity implies a remuneration for the produc-tion of goods and services that is higher thanthe costs of goods/services

Associations, foundations and public benefitorganizations are subject to tax exemptions

The biggest source of revenues of foundationsand associations is public subsidies

Foreign donors gave a specific impetus tothird-sector development

Earned income from economic activities isincreasing

Corporate donations are increasing

Economic activities allowed up to the levelcovering the costs of goods/services

No tax incentives based on legal forms

The largest organizations received most of thepublic funding (‘oligarchization’ of third sectororganizations)

Only 4% of organizations benefited from for-eign donations

Persistence of a bias against cooperatives


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SLOVENIA Associations are allowed to carry out econom-ic activities/act on the open market and pursueactivities consistent with the public interest

Existence of specific legal framework forincome-generating non-profit organizations(Private Not-for-profit Institute)

Extensive tradition of vocational training andemployment programmes for people with dis-abilities

Tax system offers reliefs for donations to third-sector organizations

Legislation which envisages the possibility ofcontracting-out services to social enterprises

State and municipalities support the third sec-tor by annual subventions

Indirect source of state funding by lotterymeans in favour of organizations of disabledand humanitarian.

New law proposal on balanced regional devel-opment explicitly requires RegionalDevelopment Councils to define the role ofthird sector organizations in regional develop-ment programmes

Draft of Development Strategy of Sloveniaintroduces new focus on the development ofsocial enterprises

Social enterprises are not yet considered asserious partners by local authorities

Laws and regulations mutually inconsistent

Tax reliefs for donors – individuals and compa-nies – are relatively low and do not represent asufficient financial stimulus

Absence of an adequate support system topromote the development of social enterprises

Amount and method of funding consideredinappropriate by one half of the organizations

Access to financial resources selectively limit-ed only to some organizations.


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MACEDONIA The law of 1998 is up for amendment; theintention is to establish a clearer distinctionbetween public benefit and private benefitgroups, with only the former being eligible forgovernment funding

A government office for cooperation withassociations, an NGO-Parliament liaison officeand a government working group have beenset up

Changes have been introduced in the law onsocial protection that enable associations toact as contractors for services

Significant presence of foreign (governmentaland non-governmental) donors (confirmed bythe existence of a specific form of associationsfor foreigners)

Very incipient involvement of governmentand business

Social enterprises are outlawed: organizationswishing to carry out economic activities needto do it though a separate joint stock compa-ny or limited liability company

Prevalence of emergency and relief aid overlong-term structural aid

SERBIA Self-help and religious groups are active in thedelivery of innovative services at the local level

Third sector organizations have started toattract the attention of government and tradeunions as tools for generating employment

A new law will most likely be enacted, with aview to improving administrative practices forthird sector organizations, inter alia throughthe introduction of a low-threshold registra-tion process and of tax deductions aimed atfostering corporate and charitable giving

Fundamental role of donors in the start-upphase; foreign donations are the main sourceof funding

Full potential of the third sector as partner notyet fully exploited by public authorities

Lack of legal and financial recognition

Self-help groups are often forced to set upcooperatives when engaged in the productionof services

The legal surrounding is not appropriate forsuccessful functioning, fundraising and sus-tainability of self-help groups

Table 25 - Challenges to and constraints on Social Enterprise Development in the Balkan countries


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BELARUS Associations for the disabled created duringthe Soviet times continue to receive govern-mental support

Churches of various confessions provide sup-port to their religious organizations

State’s suffocation of third-sector institutions

Procedural framework for third sector organiza-tions has become more complicated since 1996

Financial aid has come across obstacles

Most aspects of third sector organizations’activities have become subject to licensing

Time-, money- and effort-consuming registra-tion is prescribed for public associations

Since 2005, Belarusian public associations arepractically not allowed to run entrepreneurialactivities, which were previously admitted aslong as they aimed to achieve the goalsdefined in the organizations’ charters

Third sector organizations are increasinglypoliticized

Only organizations listed as being loyal to theregime are recipients of domestic governmen-tal support

The severe conditions under which publicassociations operate provoke negative reac-tions inside the third sector

KAZAKHSTAN In rural areas, the level of trust among commu-nities and grassroots initiatives is quite high

Existence of self-help groups, as well as agricul-tural and water-users’ cooperatives in rural areas

International donors promoted the develop-ment of agricultural and credit cooperatives

The carrying out of economic activities bynon-profit organizations is allowed

A ‘social business corporation’ (SEC) modelwas presented in the annual President’sMessage (2006)

Strong governmental control over third sectororganizations’ activities through the requestfor time-consuming financial reporting

When engaged in economic activities, non-profit organizations are treated as ordinarybusiness structures

RUSSIA Public and religious associations are legallyrecognized as welfare actors

Public associations have the right to take partin the elaboration of decisions taken by stateorgans and local government bodies

Third sector organizations are allowed to carryout economic activity

Importance of consumer cooperatives in ruralareas

A Law on Autonomous Non-Profit Organizationsis being developed in the State Duma

Restrictions on third sector organizations’activities: unfavourable fiscal law and negativeattitude of international donors towardsorganizations engaged in economic activities

The time-consuming and demanding reportsrecently introduced by the law result in highermanagerial costs for third sector organiza-tions.

Governmental mistrust towards domesticdonors results in a lack of Russian donors

Table 26 - Challenges to and Constraints on Social Enterprise Development in the CISCountries


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UKRAINE Since the Orange revolution the third sectorhas enjoyed more freedom and been subjectto less harassment

Delivery of public services by third sectororganizations is allowed by law

The law on social services allows third sectororganizations to receive compensation for theservices supplied

Promising improvements have been intro-duced by the 2004 Civil Code

The third sector is not yet fully recognized bythe general public, government and for-profitenterprises

The registration process for unions of citizensis more time-consuming than that for for-prof-it companies

Unnecessary requirements in the Law onSocial Services can be seen as discriminatoryagainst third sector organizations

Lack of resources for third sector organizationsand limited access to available ones

Practically, the only way whereby unions ofcitizens can generate income through eco-nomic activity is through commercial firms


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3. Characteristics of an optimal policy and legal framework for socialenterprise development

Prerequisites for a full exploitation of the impor-tant social, economic and employment-genera-tion roles of social enterprises include a numberof basic policy and legal measures which areimportant for creating an appropriate environ-ment for social enterprise development.

In broad terms, the first important requirement isto create a legal context that does not disadvan-tage social enterprises in comparison with busi-ness organizations – this means a legal frameworkthat is not over-restrictive or over-regulated, butallows flexible entrepreneurial activity.211 In orderto avoid criticism of unfair competition, the meas-ures implemented to facilitate the entrepreneurialactivities of social enterprises vis-à-vis unsubsi-dized SMEs should be based on the merit charac-ter of the products and/or services delivered, andan overall evaluation of externalities for the com-munity. Secondly, the social dimension of theactivities carried out by social enterprises shouldbe supported through fiscal measures. Thirdly, theinstitutional context should be adapted to ensurethat social enterprises can have access to equiva-lent (financial, products and services) markets asSMEs, despite the different goals pursued and dif-ferent modes of operation. In particular, access topublic procurement markets should be developed(these first three types of measures are dealt within points A, B, and C below). Fourthly, the institu-tional context in which social enterprises operateshould be supported so that self-regulatory feder-al bodies can represent the interests of the sector,and financial and business support bodies can bedeveloped to increase the capacity and effective-ness of social enterprises. Such self-regulating fed-eral structures might also take on the task of taking

measures to reduce corruption (this fourth type ofmeasure is the subject of point D).

The following appear as the most important issues(since they are outside the scope of this study, onlya short summary is provided for each point):

A. Legally recognizing the various organiza-tional forms appropriate for social enterpris-es. The existence of institutional structures ade-quate for social enterprises should be ensured;these structures ought to be flexible enough, asrigid frameworks have been shown to hamperthe development of social enterprises.212

In addition:

A.1. Social enterprises ought to be legally boundto the pursuit of their statutory goal;

A.2. The statutory goal should aim to promotethe general interest;213

A.3. An adequate governance model presuppos-es the involvement of the stakeholders affectedby the organization, including beneficiaries,workers and volunteers;

A.4. The organization ought to comply – at leastto some extent – with the non-distribution con-straint;214

A.5. Limitations on economic activities should bereduced.

B. Establishing fiscal exemptions for socialenterprises. These measures may vary accord-ing to national preferences, but could include:

B.1. Fiscal and social security deductions for thedisadvantaged workers employed (temporarilyor permanently);

B.2. Reduction of indirect taxes wherever marketincome is insufficient to support the social activity;

211 It is worth emphasizing that although many third sector organizations enjoy tax-exempt status (or at least a less burdensome fiscal status), social enterprises are notalways granted this status despite the internalization of externalities that they bear.

212 This is the case with the French legislation on the cooperative society of collective interest (SCIC), but also of the Lithuanian legal framework for social enterprises.213 Adequate social audits should be devised in order to make sure that this is really the case, i.e. that the social enterprise is really producing goods/services that are of

public interest.214 Social enterprises are not profit-maximizing organizations, although some of them can distribute profits to a certain extent.215 As for indirect taxes, this measure should be applied only in the cases where market income would be insufficient to support the social activity.


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B.3. Granting of aid to social enterprise develop-ment through tax reductions215 on donationsreceived and/or consumers’ purchases.

It is worth mentioning that, when dealing withsocial enterprises that produce goods for themarket in the EU context, advantages should bedesigned in such a way as to avoid unfair compe-tition, as defined and prohibited by the EU com-petition law.

C. Implementing favourable modalities ofinteraction with public agencies, especially inthe production of general interest services.

This implies:

C.1. Establishing consistent and coherent poli-cies towards social enterprises at all levels ofgovernment and with all public bodies;

C.2. Ensuring that social enterprises have accessto business-support services, so that businessand management skills can be improved;

C.3. Ensuring that social enterprises have accessto procurement markets similar to those accessi-ble to SMEs;

C.4. Allowing social enterprises to enjoy inde-pendence of operation;

C.5. Allowing a certain degree of competitive-ness, with a view to strengthening efficiency;

C.6. Recognizing the social importance of theactivities carried out;

C.7. Giving consideration to government fundingschemes to support the development of socialenterprises where they serve government poli-cies (e.g. low-interest loans for creating ruralenterprises).

D. Supporting the development of an institu-tional context favourable to social enterprise.

D.1. Developing self-regulatory federal bodies rep-resenting the interests of the sector and assumingthe task of taking measures to ensure the trans-parency of how foreign donations are used;

D.2. Developing financial and business supportbodies to increase the capacity and effectivenessof social enterprises;

D.3. Establishing best practices in matters ofbusiness and governance;

D.4. Promoting the image of social enterprises.


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4. Recommendations fornational governments

Making realistic recommendations, with the samedegree of relevance for all the targeted nationalgovernments, is not possible. Indeed, recommen-dations should always take into account the exist-ing context, national legislation, and role alreadyplayed by the third sector at the national level.

However, despite the specificity of the nationalcontexts, it is important to underline the generalfeatures that national policies should follow,with respect to:

a) the legal and fiscal framework:

national policies should nurture a new andenabling legislative framework and fiscal meas-ures allowing a full recovery of the third sectorand development of social enterprises (cooper-atives and other types of social enterprises);

national policies should implement measureswhereby opportunistic behaviours could belimited. To this end, advantages should beassociated with the social goal pursued (i.e.the services supplied) rather than with thenon-profit legal status;

b) interaction with public agencies:

national policies should promote welfare plu-ralism, welfare partnerships, the co-produc-tion of services and local development part-nerships with social enterprise actors;

national policies should ensure that socialenterprises are dealt with in relevant policy doc-uments and that they are taken into account inthe framework of measures related to the afore-mentioned socio-economic activities;

national policies should allow state and localauthorities to grant compensation for the pro-duction and delivery of goods and services bysocial enterprises that are of public interest;

c) the institutional context for social enterprises:

national policies should promote administra-tive decentralization as well as policy consis-tency and coherence between levels;

national policies should support the start-upstage of social enterprises;

national policies should support, both organi-zationally and financially, grassroots third sec-tor organizations;

national policies should support capacity-build-ing for social enterprises, sustain their growthand foster networking among them (consortia,financing bodies, education/training etc.),preferably through a joint venture betweenlocal government and social enterprises.


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5. Recommendations for international actors and development practitioners

A specific strength of international organizationsis their ability to provide credit and help which canin turn increase the recognition of realities that arenot yet fully recognized in national contexts. Inter -national organizations can inter alia increase theawareness of national authorities and allow thefull expression of the potential of private initia-tives to contribute to the public good.

Many CEE and CIS countries are not yet in a situa-tion to acknowledge the potential of third sectororganizations. The insufficient exploitation of thepotential of third sector organizations is evi-denced, for instance, by the employment share ofthe latter in the countries from the region; thisfigure remains markedly lower than in mostdeveloped countries, where third sector organi-zations currently account for 5 to 15 percent oftotal employment.216

Possible ways for international actors and devel-opment practitioners to sustain the developmentof social enterprises in the countries under studyare the following:

1. Taking the leading role in supporting the politicalrecognition of the socio-economic value of thirdsector organizations by:

a. increasing the awareness, among national andlocal authorities, of the importance of third sec-tor organizations in welfare systems. Within thelatter, third sector organizations can act asproviders of services of general interest and aseffective tools of work integration for disadvan-taged people – and not simply as sheltered-employment tools for people affected by physi-cal disabilities. For this purpose, the notion ofthe ‘disadvantaged worker’ should be(re)defined in a broader way in the countries ofthe region, so as to include the various types ofdisadvantages that may affect a worker and to

make it consistent with the definition used atthe EU level.217 In addition, third sector organiza-tions can act as local development tools, includ-ing through local development pacts and localemployment policies (this goal can be achievedthrough seminars and training programmes);

b. increasing the awareness, among national andlocal authorities, of the importance of third sec-tor organizations for the creation of social capital;

c. increasing the awareness, among third sectororganizations, of their potential role in differ-ent sectors (such as welfare provision, workintegration and local development). This canbe achieved through seminars and trainingprogrammes addressed to policy-makers andthird-sector volunteers and workers;

d. enabling the re-emergence of historical continu-ity by facilitating research and publications onthe pre-Soviet third sector/cooperative history.218

2. Promoting appropriate support for a betterunderstanding of social enterprises and growthof the latter in the region by:

a. developing an institutional context allowingcapacity-building within social enterprises:

setting up a standing conference on the pro-motion of cooperation between local govern-ment and third sector/social enterprises in theregion;

setting up development agencies specificallydesigned to support social enterprises: consor-tia, incubators, national federal bodies repre-senting their interests;

developing a number of instruments to supportthe development of social enterprises, includ-ing: ‘seed money’, small grants, feasibility-studygrants, low-interest loans schemes, social-enter-prise funds aiming to sustain local innovativethird sector organizations in each of the sub-regions, and microfinance initiatives;

216 EMES Working Paper series, num. 08/02 (2008).217 See the entry ‘disadvantaged worker’ in the Glossary (Appendix 1).218 Knowledge of cooperative traditions is very limited in the general public. A better knowledge of this subject ("it worked here in the past and our forebears knew

how to do it") would generate more self-confidence, which in turn would lead to a greater willingness to participate in the creation of social enterprises.


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b. developing good business and governancepractices:

developing managerial skills of social entrepre-neurs and local development leaders (throughtraining/university courses);

organizing regular regional and sub-regionalpanels for social enterprise managers/workers,public officials, local media, business commu-nities;

facilitating research projects on social enter-prises, especially in the countries outside theEU, and promoting best practice exchanges;

promoting networking activities among thevarious components of the third sector (coop-eratives, associations etc.).

3. At the international level:

a. building bridges with international organiza-tions – i.e. the ILO, the OECD, the World Bank –and international NGOs to create an awarenessof the role and potential of social enterprises;

b. establishing models of good practices for NGOintervention (establishing links with civil-societyorganizations, avoiding corrupt organizations,helping to create infrastructure – loan funds);

c. helping to start up new social enterprises;

d. supporting established social enterprises;

e. building capacity within the social-enterprisesector (consortia);

Box 30. Italian Consortium CGM and Polish ZLSP

CGM is an Italian national-level consortium with 73 local consortia and about 1,200 social coopera-tives in membership. Its strategic role is to promote social cooperation and support the action oflocal networks through qualified services. CGM also acts as a social policy actor at the national level.

The goal of the project Work without Borders was twofold: first, to match the demand for specializednurses in the northern regions of Italy and with the supply of Polish nurses; secondly, to promoteexchanges between Italian and Polish cooperative organizations, through the transfer of goodpractices from Italian to Polish partners that are members of the ZLSP umbrella organization andthat operate in the social and health care sector.

In particular, training, consultancy and tutoring activities have been offered to managers of Polishcooperatives. The selected managers were provided with new tools to analyse the local market andplan a supply strategy, both for the consortium and for individual cooperatives at the local level,and to develop and consolidate managerial systems (marketing, planning etc.) capable of support-ing the growth and consolidation of single entrepreneurial units and a support network.

In addition, the project aimed to favour the exchange of views on Polish cooperative experiencesand Italian social enterprises, by improving:

the specificities of social enterprises;

the capacity to organize and manage services for disadvantaged people in an entrepreneurial way;

the systemic vision of social enterprises (internal and external factors);

the capacity to position local entrepreneurial action in the framework of public policies for thethird sector and the evolution of local welfare systems.

The methodology adopted has been that of the ‘twin-practice’; each Italian consortium or cooper-ative ‘adopted’ a Polish cooperative or cooperative group.


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f. building bridges between national cooperativemovements in the EU-15 and the cooperativemovements of CEE and CIS countries. Indeed, EUcooperative movements are often keen todevelop projects abroad, but they lack in mostcases the required skills and contacts. There arevaluable examples of fruitful cooperation proj-ects promoted by the Raiffeisen movement, theDesjardins movement and by the Italian Con -sortium of Social Cooperatives CGM in Poland(see Box 29). New research in this field couldallow the most valuable cooperation projectsdeveloped so far to be mapped and replicated;

g. creating learning networks with the aim ofsharing best practices.

6. Closing remarks

The added value of social enterprises stems fromtheir capacity to deal with crucial economic andsocial problems at the local level that are over-looked or simply not dealt with by public agen-cies and traditional for-profit providers (e.g. inac-cessibility of basic services of public interest andhigh unemployment rates among certain vulner-able groups of the population). Against thisbackground, the role of social enterprises is con-sidered of utmost importance for the transfor-mation of the economic and welfare systems ofthe countries of the region. As such, social enter-prises are essential in the evolution of the formersocialist and communist systems towards a mod-ern structure in which public agencies and socialenterprises provide welfare functions in an inclu-sive and innovative way.

As emphasized by this research, social-enterprisedevelopment depends upon the availability of anumber of enabling conditions, including ade-quate legal and fiscal frameworks, supportingpublic policies at the national level, and properinstitutional contexts. Hence, the need to raisethe awareness of relevant institutional actors(public agencies at all levels, the internationaldonor community, traditional for-profit enter-prises, and traditional third sector organizations)of the potential of social enterprises in comple-menting the economic and social roles alreadydisplayed by public, for-profit, and third-sectoractors, thanks to their capacity of combining thepursuit of an explicit social goal through a partic-ipatory arrangement of economic activities.


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Macedonian Centre for InternationalCooperation (MCIC) (2005), ‘Procenka na grag-janskoto opstestvo vo Republika Makedonija(2004-2005)’, working version of a forthcomingreport produced within the international CIVI-CUS Civil Society Index, Skopje.

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Münkner, H. (1998), Cooperatives in theTransformation Process, in Cooperatives in Centraland Eastern Europe, Self-help in StructuralChange, Edition Sigma: Berlin.

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Russian Federation (1995), Federal Law onCharitable Activities and PhilanthropicOrganizations.

Russian Federation (1995), Federal Law on Non-Profit Organizations.

Russian Federation (1995), Federal Law on PublicAssociation.

Russian Federation (1995), Federal Law on TradeUnions, their Rights and Guarantees of Activities.

Russian Federation (1996), Federal Law onMuseum Foundation of the Russian Federationand museums in the Russian Federation.

Russian Federation (1997), Federal Law onFreedom of Conscience and Religious Associations.

Russian Federation (1998), Federal Law on Non-Governmental Pensionary Foundations.

Russian Federation (1998), Federal Law on Non-Profit Gardening, Market-Gardening and SummerResidents’ Associations of Citizens.

Russian Federation (2000), Federal Law onGeneral Principles of Organization of Communities

of aboriginal small peoples of North, Siberia, andFar East of the Russian Federation.

Russian Federation (2001), Federal Law onPolitical Parties.

Russian Federation (2002), Federal Law onEmployers’ Associations.

Russian Federation Civil Code (1994), Part I, Sec.I, Sub-sec. 2, Ch. 4, paragraph 5.

Salamon, L.M. and Associates (1999), Global CivilSociety, Dimension of the Nonprofit Sector, TheJohns Hopkins Centre for Civil Society Studies:Baltimore, MD.

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Spear, R., Defourny, J., Favreau, L., Laville, J.L.(2001), Tackling Social Exclusion in Europe,Ashgate: Aldershot.

Statistical Office Slovenia, Database 2002, 2003,2004.

Sugden, R., Wilson, J.R..(2000), Perspectives onDevelopment. A strategic decision makingapproach, The University of Birmingham,Department of Commerce.

Taylor, M. (2004), The Welfare Mix in the UnitedKingdom in Evers, A. and Laville, J.L. (eds.), TheThird Sector in Europe, Cheltenham, UK andNorthampton MA, USA, Edward Elgar.

Toepler, S., Salamon, L. (1999), The NonprofitSector in Central Europe: An Empirical Overview,Draft prepared for the 1999 Symposium ‘TenYears after: Civil Society and the Third Sector inCentral and Eastern Europe’, Charles University,Prague, The Czech Republic, October 15-16.

Tonkachiova, E., Smolianko, O., Chadeeva, O.,Vidruk, A. (2004), Right to Association, Minsk.

UNDP Macedonia, Skopje (1999), NationalHuman Development Report, Civil Society inTransition.


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UNDP Kazakhstan, Almaty (2002), NonGovernmental Organizations of Kazakhstan: Past,Present, Future.

USAID (2003), Assessment of the Civil SocietySector in Macedonia, Skopje.

USAID (2005), The 2004 NGO Sustainability Indexfor Central and Eastern Europe and Eurasia,Washington DC.

Vladimirov, J. (2003), The AgriculturalCooperatives, Sofia.

VOLUNTAS (2000), International Journal ofVoluntary and Non-Profit Organizations, Vol.11,No.2, June 2000.

Weisbrod, B.A. (1998), To Profit or Not to Profit,Cambridge University Press, Cambridge.

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Zimmer A., Priller E. (2004), Future of Civil Society,Making Central European Non-profitOrganizations Work, Vs Verlag FürSozialwissenschaften.

Zogumennov (2001), Belarus in need of a dia-logue, Civicus Index on Civil Society.

Белая И., Зинкевич С., Корж В., Чернов В.(2006), Что сделала молодежь длястроительства гражданского общества вРеспублике Беларусь. Потенциал на будущее/Belaya I., Zinkevich S., Korzh V., Chernov V. Chtosdelala molodiozh dlia stroitelstva grazhdansko-go obshchestva v Respublike Belarus. Potentsialna budushchee/ Youth Contribution to theDevelopment of Civil Society in the Republic ofBelarus. Potential for the Future, Minsk.

Websites

Associations, foundations and other NGOs, Lithuania:www.nisc.lt

Cooperatives, Lithuania:www.lvks.lt/

Credit unions, Lithuania:www.lku.lt

Eesti Mittetulundusühingute ja SihtastutusteLiit, Estonian Civil Society: www.ngo.ee

Lithuanian Development Agency for Small- andMedium-Sized Enterprises (2005): www.smeda.lt

Local community groups, Lithuania:www.bendruomenes.lt

Non-Governmental Organization Informationand Support Centre, Lithuania:www.nisc.lt

Small- and medium-sized enterprises, Lithuania:www.svv.lt

Trade unions, Lithuania: www.ldf.lt, www.solidarumas.lt

USAID, Europe and Eurasia, The NGOSustainability Index:http://www.usaid.gov/locations/europe_eurasia/dem_gov/ngoindex/


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References (Poland)

Bibliography

Borzaga, C. and Defourny, J. (2001), The emergence of social enterprise, New York/London: Routledge.

EMES (2006), Study on Promoting the Role of Social Enterprises in CEE and the CIS. InitialOverview Study, EMES –UNDP (draft report).

Frączak, P. (2006), ‘The history of social economyin Poland’, ‘In search of the Polish Model of SocialEconomy’ project Inception Report, Warsaw: eS.

Gumkowska, M. (2006), Volunteerism,Philanthropy and 1% in Poland 2005, Warsaw:Klon/Jawor.

Gumkowska, M. and Herbst, J. (2007),Volunteerism, Philanthropy and 1% in Poland2006, Warsaw: Klon/Jawor.

Gumkowska, M. and Herbst, J. (2006), ‘Basic factson the NGO sector in Poland 2006’, Warsaw:Klon/Jawor.

Herbst, J. (2006), ‘The state of social economy inPoland’, ‘In search of the Polish Model of SocialEconomy’ project Inception Report, Warsaw: eS.

Krysiak, I. (2006), Information on the cooperativesector in Poland. Unpublished report preparedfor the BISE Bank.

Kochanowicz, J. (1992), ‘Economie sociale enPologne’, Revue des Etudes Coopératives,Mutualistes et Associatives, no. 41.

Leś, E. (1994), Voluntary Sector in Central andEastern Europe. From small circles of freedom tocivil society, Washington D.C.: Civicus.

Salamon, L. (1987), ‘Of Market Failure, VoluntaryFailure and Third-Party Government - NonprofitRelations in the Modern Welfare State’, Journalof Voluntary Action Research, 16:1.UNDP (2005), In care of work, Warsaw: CASE,UNDP.

National level policy documents

National Cohesion Strategy (National StrategicFramework of Reference 2007-2013, supportingeconomic growth and employment)

Sectoral Operational Programme of HumanResources Development for 2004-2006

The Integrated Operational Programme for Regional Development

The Strategy for Development of Civil Societyin Poland

Legal acts

Act on Social Cooperatives of April 27, 2006 DzU 2006, nr 94, poz. 651.

Act on the Promotion of Employment and on Institutions of the Labour Market of April 20,2004, DzU 2004, nr 99, poz. 1001.

The Cooperative Law - Act of September 16,1982. DzU 2003, nr 188, poz. 1848.

Act on Public Benefit and Volunteerism, of April 24, 2003, Dz.U. 2003 nr 96 poz. 873.


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Arandarenko, M. (ed.) (2006), Map of LabourMarket in Serbia, Belgrade: Centre for AdvancedEconomic Studies.

Babović, M. (2005), ‘Economic Strategies ofHouseholds in the Post-socialist Transformationof Serbia’, in Milic, A. (ed.), Transformation andStrategies, Institute for Sociological Research,Belgrade, 2005: 153-171.

Bolčić, S. (2005), ‘Post-Socialist Transformationand New Work Orientations: Serbia 1990-2003’,in Milić, A, ed. Transformation and Strategies.Belgrade: Institute for Sociological Research at Faculty of Philosophy, Belgrade University.

Borzaga C. and Spear R. (2004), Trends andChallenges for Cooperatives and Social Enterprisesin Developed and Transition Countries, Trento:Edizioni31.

Cvejić, S. (2002), ‘Informal Economy in Post-Socialist Transformation: Gray Economy inSerbia in the 90s’, in Bolčić, S., A. Milić, (eds.),Serbia at the End of Millennium, Belgrade:Institute for Sociological Research.

Cvejić, S. (2004), ‘Civic Movement, Social Capitaland Institutional Transformation in Post-Socialist Serbia’, Sociology, 2004, No. 4.

Cvejić, S. (2006), ‘Structural Effects of Poverty in Serbia’ Tomanović, S. ed. Society in transfor-mation, Belgrade: Institute for SociologicalResearch at Faculty of Philosophy, BelgradeUniversity.

Galera, G. (2004), ‘The Evolution of theCooperative Form: an International Perspective’,in Carlo Borzaga and Roger Spear (eds.), Trendsand Challenges for Cooperatives and SocialEnterprises in Developed and Transition Countries,Trento: Edizioni31.

Lazić, M. (2000), ‘Serbia: The AdaptiveReconstruction of Elites’, in J. Highley, and G.Lengyel: Elites After State Socialism. Theories and

Analysis. Lanham: Rowman & LittlefieldPublishers, Inc.

Lazić, M. (2005), Changes and Resistances.Belgrade: Filip Višnjić.

Lazić, M. and S. Cvejić (2006), ‘Social and ValueDimensions of Transition’, Economic Annals, VolLI, special issue, pp. 95-109.

Milić, A. (ed.) (2005), Transformation andStrategies. Belgrade: Institute for SociologicalResearch at Faculty of Philosophy, BelgradeUniversity.

Matković, G. (2006), Decentralization of SocialWelfare in Serbia. Belgrade: UNDP and CLDS.

NGO Policy Group (2001), Third Sector in Serbia.Belgrade: Centre for Development of Non-ProfitSector.

SeConS – Development Initiative Group (2008),Mapping of Social Enterprises in Serbia, UNDP:Belgrade.

Stojanovic, B. (2006), ‘Labour Market in Serbia:1990-2005’ Sociological Review No. 1, Belgrade.

Tauzs, C. (ed.) (2003), The Impact ofDecentralization on Social Policy, Budapest: OSI.

Tobis, D. (2000), Moving from ResidentialInstitutions to Community-Based Social Services inCentral and Eastern Europe and Former SovietUnion, Washington D.C.: The World Bank.

Reports

Assessment of the Employment Policy Prioritiesof the Republic of Serbia, Government of Serbiaand UNDP, October 2003.

Country Review of Employment Policy in theStability Pact Countries of South-EasternEurope, National Report-Serbia, April 2006.

Government of Serbia (2006), Strategy forImprovement of Position of Persons withDisabilities, draft.


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Government of Serbia (2005), Social ProtectionDevelopment Strategy.

Government of Serbia (2004), NationalEmployment Strategy.

Government of Serbia (2003), Poverty ReductionStrategy Paper.

Government of Serbia (2002), Challenges ofreform: study on state administration of theRepublic of Serbia, Belgrade.

Group 484 (2005), Human Rights of Refugees,Internally Displaced Persons, Returnees, AsylumSeekers and Victims of Trafficking in Serbia andMontenegro, report.

Krstić, G. et al. (1998), Analysis of the GreyEconomy in the FRY with Estimates of itsVolume for 1997 and Recommendations for itsLegalisation, Economic Institute.

Lišanin, M. (2005), ‘Reforma sistema socijalnezastite sa aspekta finansiranja’, prezentacija na konferenciji Reforma socijalnepolitike: sa reci na dela, Beograd, 2005.

Ministry of Labour, Employment and SocialPolicy (2006), Monitoring report – VocationalEnterprises for Handicapped.

OECD (2005), Background Report: The SocialEconomy as a Tool of Social Innovation and LocalDevelopment, the Social Economy in Central Eastand South East Europe: Emerging Trends of SocialInnovation and Local Development, 22-24September, Trento, Italy.

Planet Rating (2005), Agroinvest Serbia andMontenegro.

Republic Development Bureau (2005), Reporton Development of Serbia in 2005, Belgrade.Roma and Right to Health Care in Serbia (2005),Minority Rights Centre, Belgrade.

Social Policy Reform Project (2005),Development Strategy of Social Protection: keyissues of financing, Belgrade.

Statistical Office of Republic of Serbia (2003),Statistical Yearbook.

Statistical Office of Republic of Serbia (2004),Labour Force Survey.

Statistical Office of Republic of Serbia (2005),Statistical Yearbook.

UNDP (2006a), National Vulnerability Report forSerbia.

UNDP (2006b), Women’s Position on the LabourMarket in Serbia, draft.

UNDP-BRC (2006c), Study on Promoting theRole of Social Enterprises in CEE and the CISInitial Overview Study – EMES EuropeanResearch Network – April.

Laws and Regulations

The Law on the Agency for the Development of Small and Medium Sized Enterprises, OfficialGazette of the Republic of Serbia no. 65/2001.

The Law on Privatisation, Official Gazette of theRepublic of Serbia no. 38/01, 18/03, 45/05.

The Law on Social Protection, Official Gazette of the Republic of Serbia no. 36/91, 79/91,33/93, 53/93, 67/93, 46/94, 48/94, 52/96, 29/01,84/04, 115/05.

The Law on Investment Funds, Official Gazetteof the Republic of Serbia no. 46/06.

The Law on Foreign Investments, OfficialGazette of the Republic of Serbia no. 46/06.

The Law on Incorporation of Economic Agents,Official Gazette of the Republic of Serbia no55/04 and 61/05.

The Law on Enterprises for Vocational Trainingand Employment of Persons with Disabilities,Official Gazette of the Republic of Serbia, 1996.

The Company Law, Official Gazette of theRepublic of Serbia no. 125/2004.

The Law on Social and Economic Council,Official Gazette of the Republic of Serbia no.125/04.


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The Law on Financing Local Self-Governance,Official Gazette of the Republic of Serbia no.62/06.

The Labour Law, Official Gazette of the Republicof Serbia no. 24/05 and 61/05.

Law on Employment and UnemploymentInsurance, Official Gazette of the Republic of Serbia no. 71/03 and 84/04.

The Law on Compulsory Social InsuranceContributions, Official Gazette of the Republic of Serbia, no. 84/04, 61/05 and 62/06.

The Law on Personal Income Tax, OfficialGazette of the Republic of Serbia, no. 24/01,80/02, 135/04 and 62/06.The Law on Refugees, Official Gazette of theRepublic of Serbia, no. 18/92.

The Law on Preventing Discrimination ofPersons with Disabilities, Official Gazette of theRepublic of Serbia, no. 33/06.

The Law on Cooperatives, Official Gazette of theRepublic of Serbia, no. 57/89, 46/95.

The Law on Social Organizations andAssociations of Citizens of the Republic ofSerbia, Official Gazette of the Republic of Serbia,nos. 24/82, 39/83, 17/84, 50/84, 45/85, 12/89and 53/93, 67/93, 48/94 and 101/2005.

The Law on Associations of Citizens, SocialOrganizations and Political Organizations in theSocialist Federal Republic of Yugoslavia, OfficialGazette of the Social Federal Republic ofYugoslavia, no. 42/90 and Official Gazette of theFederal Republic of Yugoslavia, no. 24/94, 28/96,73/2000.

The Law on Churches and ReligiousCommunities, Official Gazette of the Republic ofSerbia no. 36/06.

Statute of the Agency for the Development ofSmall and Medium Sized Enterprises.

Websites

National institutionshttp://www.srbija.sr.gov.yu/http://www.mpriv.sr.gov.yu/http://www.pks.co.yu/http://www.apr.sr.gov.yu/http://www.mspue.co.yu/http://webrzs.statserb.sr.gov.yu/axd/index.php

Statistical datahttp://epp.eurostat.cec.eu.int/portal/page?_pageid=1090,30070682,1090_33076576&_dad=portal&_schema=PORTALhttp://webrzs.statserb.sr.gov.yu/axd/index.php

Associations, foundations and other NGOshttp://www.directory.crnps.org.yuhttp://www.sssro.org.yuhttp://www.lastavica-catering.co.yuhttp://www.lastavica.org.yuhttp://www.agromreza.org.yu/http://www.awin.org.yu/http://www.teledom.org.yu/http://www.teledomtemerin.org.yu/http://www.zssrbije.co.yu/frameset.htmhttp://www.nadobromputu.com/http://www.hendicepkv.org.yu/projekatHC.htmhttp://www.sme.sr.gov.yu/mrezas.htm

Microfinance organizationshttp://www.fondzarazvoj.sr.gov.yu/prg_kor_za_mikro_kredit.pdfhttp://www.microfins.org.yuhttp://www.mixmarket.org

Voluntary organizations with a religious affiliationhttp://www.covekoljublje.orghttp://www.caritas.org.yu

Donor organization projectshttp://www.unhcr.org.yuhttp://www.adfusa.org/countries_yugoslavia.htmhttp://serbia-montene-gro.usaid.gov/code/navigate.php?Id=4http://www.oecd.org/http://www.worldbank.org/http://www.ebrd.org/http://www.help-serbia.org.yu/eng/about.phphttp://www.entranse.org/Incubators.aspx?incubator=1


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References (Ukraine)

Bibliography219

General

Ukraine, Millennium Development Goals2000+5, Ministry of Economy of Ukraine.

On social enterprises

EMES European Research Network (2006), Studyon Promoting the Role of Social Enterprises in CEEand the CIS, Liege/Bratislava: EMES/UNDP-BRC.

Research into Social Enterprise in Ukraine, JoLucas, Geof Cox, Olga Vasylchenko, AndriyVasylchenko, Eurasia Foundation, 2004.

Social Enterprise: Some Tentative Reflections onUtility of the Model in Ukraine, Olga Sandakova,April 2005.

Case studies in social enterprise. CounterpartInternational Inc, September 2002.

CAP Newsletter No. 10, Counterpart AlliancePartnership (CAP), V. Zhurakovskiy, V.Geraschenko, V. Yakimets and M. Flammer.

Work integration social enterprises in theEuropean Union: An overview of existing mod-els, Catherine Davister, Jacques Defourny andOlivier Gregoire, EMES European ResearchNetwork, 2004.

Social Enterprise: a Strategy for Success,Department of Trade and Industry, UK, 2002.

On civil society and the third sector

Csanády, D. (2003), Civil organizations in Europe.

CIVICUS CSI report, Counterpart Creative Centre, 2005.

Counterpart Alliance Partnership (2006), CivilSociety Organizations in Ukraine. The State andDynamics, 2002-2005, KIT, Kyiv.

USAID (2005), The 2005 NGO SustainabilityIndex.

А. Vinnikov (2005), ‘Administration of Non-for-Profit Organizations. Methodological Recommendations’, Kiev.

Specially compiled statistical information on the size of the Third Sector and the numberof NGOs and charity funds in Ukraine and in the four regions analysed, Ministry of Justiceof Ukraine and the Ukraine State Committee of Statistics.

Results of a Survey carried out in 2002 by the DFID Project ‘Socio-economic regenerationof the Donbas’.

On relevant legislation concerning the third sector

Constitution of Ukraine as of 28.06.1996

Civil Code of Ukraine no. 435 as of 16.01.2003

Economic Code of Ukraine no. 436-VI as of16.01.2003

The laws of Ukraine:

‘On company profit tax’ (in the wording as of22.05.97 no. 283/97- ВР)

‘On added value tax’ as of 3.04.97 no. 168/97 – ВР

‘Foundations of legislation of Ukraine on cul-ture’ no. 2117-XII as of 14.02.92

‘On freedom of conscience and religious organi-zations’ as of 23.04.91 no. 987-XII

‘On education’ as of 23.05.91 no. 1060-XII

‘On pensions’ as of 5.11.91 no. 987-XII

‘On citizens’ unions’ as of 16.06.92 no. 2460-XII

219 All regulative acts are given with amendments and changes on 01.08.2006.


‘On charity and charity organizations’ as of16.09.97 no. 531/97- ВР

‘On professional creative workers and creativeunions’ as of 07.10.97 no. 554/97 – ВР

‘On humanitarian aid’ as of 22.10.99 no. 1192 – XIV

‘On condominiums’ as of 29.11 2001 no. 2866 – III

‘On credit unions’ as of 20.12.2001 no. 2908 – III4

‘On political parties’ as of 05.04.2001 no. 2363 – III

‘On foundations of social protection of the dis-abled in Ukraine’ no. 875 as of 21.03. 1991

‘On social services’ no. 966 as of 19.06.2003.

Provision on register of non-profit organizationsand establishments, approved by the State TaxAdministration order dated 11.07.97 no. 232and registered in the Ministry of Justice ofUkraine on 06.08.97 under no. 291/2095.

Order for determining the attribute structure fornon-profit organizations, approved by the StateTax Administration order dated 03.07.2000 no.355 and registered in the Ministry of Justice ofUkraine on 27.07.2000 under no. 451/4672.

Order for compiling the report on funds spend-ing for non-profit organizations and establish-ments, approved by the State TaxAdministration order dated 11.07.97 no. 233and registered in the Ministry of Justice ofUkraine on 06.08.97 under no. 290/2094.

П(С)БУ 5 ‘Owner’s Equity Report’, approved bythe Ministry of Finance order dated 31.03.99 no.87 and registered in the Ministry of Justice ofUkraine on 21.06.99 under no. 399/3692.

П(С)БУ 15 ‘Revenues’, approved by the Ministryof Finance order dated 29.11.99 no. 290 andregistered in the Ministry of Justice of Ukraineon 14.12.99 under no. 860/4153.

П(С)БУ 16 ‘Expenses’, approved by the Ministryof Finance order dated 31.12.99 no. 318 andregistered in the Ministry of Justice of Ukraineon 19.01.00 under no. 27/4248.

‘On non-entrepreneurial societies’ (no. 909dated 25.05.2006).

‘On social labour’ (in the original language theLaw is called ‘Про соціальну роботу’) no. 0958dated 25.05.2006.

The information source for the drafts of the laws ofUkraine is the computer programme ‘Regulative acts ofUkraine’, in its version 9.3.2., the copyright in whichbelongs to ‘Informtechnoligia’, Kiev, Ukraine

On youth employment

General statistical data on youth economicactivity, employment and unemployment levelsfor Ukraine as a whole

Specially compiled statistical information on theeconomic activity, employment and unemploy-ment levels of young people (up to 39),Departments of Statistics of the CrimeanAutonomous Republic and the Zhitomirskaia,Lugansk and Donetsk Oblasts.

Gender and Youth Assessment Report,Canadian Urban Institute, CanadianInternational Development Agency, July 2005.

Law of Ukraine on ‘amendments to several lawsof Ukraine concerning the provision of employ-ment opportunities for young people’ no. 2429-IV dated 1.3.2005.

On gender issues and the place of women in the labour market

Ukrainian Action Plan for 2001-2005 onImprovement of the situation of women andPromotion of gender equality in the society.

Gender issues in Ukraine, UNDP, 2003.

Women’s economic empowerment in Ukraine,Winrock International, 2004.

Convention for the Liquidation of all Forms ofDiscrimination Against Women, UN, 2000.

Gender statistics for monitoring of reachingequality of women and men, Vlasenko N.S.,Vinogradova L.D., Kalachova I.V., Institute of the

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State and Law of VM Koretskiy NAS Ukraine,Kiev, 2000.

Gender aspects in management, Bosak I.L.

Reasons for low representation of women inelective agencies of Russia and Ukraine in the1990s, Andreenkova A.V.

Materials of the parliamentary hearings aboutthe situation of women in Ukraine: reality andperspectives, 2004.

Concept of a state programme confirming gen-der equality in Ukrainian society, according to aResolution of the Cabinet of Ministers of5.07.2006 no. 384-r.

Law of Ukraine ‘on the promotion of equalrights and possibilities for men and women’

Decree of the president on ‘the improvement ofthe work of central and local administrativestructures for the provision of equal rights andpossibilities of men and women’ dated26.7.2005.

Internet resources: Ukraine State Committee ofStatistics – http://www.ukrstat.gov.ua/.

On SME and private-sector development

The new wave of reform – On track to success.Analysis of policy development in January-June2005 and further recommendations, Blue

Ribbon Commission.

Ukraine Poverty Assessment: Poverty andInequality in a Growing Economy, EdmundoMurrugarra (lead author), World Bank,December 2005.

Doing business in Ukraine, World Bank, 2005.

Statistical data, Ukraine State Committee ofStatistics.

On labour market and labour policies(with a focus on socially excluded groups in Crimean Autonomous Republic and Zhitomirskaia, Donetsk, Lugansk Oblasts)

Specially compiled data on economic activity,employment and unemployment (ILO and reg-istered) levels for Ukraine and the four regionsreviewed, Ukraine State Committee of Statistics.

Balance of Oblasts or Autonomous Republic of Crimea (AR Crimea) labour forces, MainDepartment of Labour and Social Protection of the Population, Oblast Employment Centres,Ministry of Labour & Social Policy of theRepublic of Crimea.

Report of AR Crimea and Oblasts Main StatisticalDepartment on household survey results con-cerning unemployment level according to theInternational Labour Organization (ILO)methodology.

Statistical Yearbooks and operational depart-mental statistics, Ministry of Labour and SocialProtection.

Operative departmental reporting of AR Crimea,Oblasts, Cities and Raions Employment Centres.

Ukraine Jobs Study. Fostering Productivity andJob Creation, World Bank, 30 November 2005.

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List of Boxes, Figures and Tables (Part I)

Box 1. Main Legal Frameworks Covered by Third Sector Organizations. . . . . . . . . . . . . . . . . . . . . . . 17

Box 2. Social Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Box 3. Social Enterprises Supplying Social Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Box 4. Examples of Work Integration Social Enterprises (WISEs) Classified According

to the Type of Integration They Provide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Box 5. Macedonia: Humanitarian and philanthropic association of Roma (Mesecina) . . . . . . . . . . . . 39

Box 6. The evolution of unemployment: The case of Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Box 7. Serbia: Lastavica Association and Lastavica Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Box 8. Ukraine: Association Peace. Beauty. Culture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Box 9. Poland: Social Cooperative ACTUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Box 10. Poland: Support Centres for Social Cooperatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Box 11. Czech Republic: Rural Social Cooperative Hostetin Apple-Juice Plant . . . . . . . . . . . . . . . . . . . 54

Box 12. Czech Republic: Zahradky Arts and Crafts Workshop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Box 13. Slovenia: ŠENT - Slovenian Association for Mental Health . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Box 14. Bulgaria: Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Figure 1. The Representation of Social Enterprises in the Economy . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Table 1. Laws Regulating Social Enterprise in Italy and the UK and the EMES definition . . . . . . . . . . 23

Table 2. Size of the Third Sector in New EU Member States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Table 3. Size of the Third Sector in Balkan Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Table 4. Size of the Third Sector in the CIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Table 5. Unemployment Rates in Bulgaria, the Czech Republic,

Poland and Serbia (1995-2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

List of Boxes, Figures and Tables (Part II - Poland)

Figure 2. The Rural-Urban Differentiation of PSEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

Figure 3. Distribution of PSEs and NGOs According to Their Income Level (2005). . . . . . . . . . . . . . . 91

Table 6. The Third Sector in Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

Table 7. Distribution of Polish NGOs and PSEs According to Their Number of Workers. . . . . . . . . . . 90

Table 8. Sources of Income of PSEs and NGOs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

Table 9. NGOs’ and PSEs' Fields of Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

Table 10. The Third Sector as an Employer for Vulnerable Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

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List of Boxes, Figures and Tables (Part II - Serbia)

Box 15. Massage Saloon of the Belgrade Association of Blind Persons. . . . . . . . . . . . . . . . . . . . . . . 117

Box 16. Programmes for economic support of disadvantaged women in the NGO ‘Lastavica’ . . . . . . 118

Box 17. Mikrofins – NGO for micro-loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

Box 18. Agromreža – A Network for Rural Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

Box 19. Temerin Telecottage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

Box 20. Paradiso Agricultural Cooperative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123

Box 21. Women's Educational Cooperative in Užice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

Box 22. Vivere Social Cooperative in Kragujevac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

Box 23. The Djepeto Enterprise for the Rehabilitation

and Employment of Persons with Disabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

Box 24. Catering-Lastavica Spin-off Enterprise. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

Box 25. Zlatibor Regional Centre for Development of SMEs and Entrepreneurship. . . . . . . . . . . . . . . 130

Box 26. Korak Business Incubator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Table 11. Indicators for the Labour Market Situation in Serbia and the EU (2006) . . . . . . . . . . . . . . 106

Table 12. Employment in Specific Branches of the Economy, 2004, in percent . . . . . . . . . . . . . . . . 108

Table 13. Poverty indicators in Serbia in 2002-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

Table 14. Regional Distribution of Serbian NGOs According to Year of Establishment, in percent . . . . 109

Table 15. Mapping Outcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

Table 16. Review of Different Legal Forms for Social Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

Table 17. Associations of Citizens According to Main Goal/Mission (2007) . . . . . . . . . . . . . . . . . . . 116

List of Boxes, Figures and Tables (Part II - Ukraine)

Box 27. Zhitomirskaia Oblast – Kovcheg Café . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163

Box 28. The Social Enterprises of the Alisa Society . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

Box 29. Kharkiv, Creative Workshop of Peace Beauty Culture Association . . . . . . . . . . . . . . . . . . . . 166

Figure 4. Small Enterprises and Employment – 2002 to 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

Figure 5. Typical Budget Composition of an NGO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156

Table 18. Key Labour Market Trends – 2000 to 2005 (thousands). . . . . . . . . . . . . . . . . . . . . . . . . . . 146

Table 19. Regional Trends in Economic Activity Levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147

Table 20. Size of the Not-for-Profit Sector and Types of Organizations . . . . . . . . . . . . . . . . . . . . . . 152

Table 21. Voluntary Sector in Ukraine and in analysed regions (2004 and 2005) . . . . . . . . . . . . . . . 153

Table 22. Range of services provided by NGOs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155

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List of Boxes, Figures and Tables (Part III)

Box 30. Italian Consorzio CGM and Polish ZLSP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193

Figure 6. Social Enterprises in CEE and CIS Countries with Respect

to EMES Ideal-type Social Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

Figure 7. SWOT Analysis of Social Enterprise Development in CEE and CIS Countries . . . . . . . . . . . 181

Table 23. Barriers to the Development of Social Enterprises. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

Table 24. Challenges to and Constraints on Social Enterprise

Development in New EU Member States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

Table 25. Challenges to and Constraints on Social Enterprise

Development in the Balkan Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

Table 26. Challenges to and Constraints on Social Enterprise Development in CIS Countries . . . . . . 187

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Appendix 1 – Glossary of terms

Cooperative

According to the definition of the InternationalCooperative Alliance218 of 1995, the term coopera-tive means an ‘autonomous association of personsunited voluntarily to meet their common econom-ic, social and cultural needs and aspirationsthrough a jointly owned and democratically con-trolled enterprise’. This definition was also adopt-ed in ILO Recommendation 193 of 2002, para. 2.

Credit Union

Credit unions are member-owned, voluntary,self-help democratic institutions that providefinancial services to their members. They arebased on the Raiffeisen model of financial organ-ization owned and operated by its members on anot-for-profit basis. They are financial, coopera-tive institutions and their cooperative creden-tials encompass a number of attributes includingopen an voluntary membership, within the limitsof a common bond defined by the members (e.g.employment, church of community), and demo-cratic management and control. Limited returnson share capital are also indispensable features.Credit unions especially developed in the UnitedStates and Canada.219

Foundation

Foundations are philanthropic organizations,organized and operated primarily as a perma-nent collection of endowed funds, the earning ofwhich are used for the benefit of a specific groupof people or of the community at large. The mainclassification is between grant-making founda-tions and operating foundations. The latter pro-vide social, health, and educational services.

General interest

It refers to the benefit of the public in general or ofan unspecified group of beneficiaries. Counterpartis self-interest.

Third sector

This term is mainly used in the scientific litera-ture to overcome the differences between themany national models. It refers to organizationsother than the public owned (the ‘State’) and theprivate for-profit ones (the ‘market’). This termemphasizes the intermediary nature of thebelonging organizations.

Non-governmental organizations (NGOs)

The definition ‘non-governmental organization’typically refers to organizations that are inde-pendent of governments. This expression cameinto use with the establishment of the UnitedNations in 1945 with provisions in Article 71 ofChapter 10 of the United Nations Charter for aconsultative role for organizations that neitherare governments nor member states. It is a verygeneral term, used to refer to both transnationaland local organizations. In some countries it isused as a synonym of association, often to referto organizations that specifically operate in thefield of international cooperation.

Disadvantaged workers

There are two main definitions of disadvantagedworkers. The first one is more specific and dependsupon the specific socio-economic context it refersto. The second one is more general. According tothe Commission Regulation No 2204/2002 of 12December 2002 (on the application of Articles 87and 88 of the EC Treaty of State aid forEmployment), ‘disadvantaged worker’ means anyperson who has difficulty in entering the labourmarket without assistance, namely a person meet-ing at least one of the following criteria:

any person who is under 25 or it is within twoyears after completing full-time education andwho has not previously obtained his or her firstregular paid job;any migrant worker who moves or has movedwithin the community or becomes resident inthe community to take up work;any person who is member of an ethnic minor-ity within a Member State and who requiresdevelopment of his or her linguistic, vocation-al training or work experience profile toenhance prospects of gaining access to stableemployment;

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any person who wishes to enter or to re-enterworking life and who has been absent fromboth work and from education for at least twoyears; and particularly any person who gaveup work on account of the difficulty of recon-ciling his or her working life and family life;any person living as a single adult looking aftera child or children;any person who has not attained an upper sec-ondary educational qualification or its equiva-lent, who does not have a job or who is losinghis or her job;any person older that 50, who does not have ajob or who is losing his or her job;any long-term unemployed person, i.e. anyperson who has been unemployed for 12 ofthe previous 16 months, or six of the previouseight months in the case of persons under 25;any person recognized to be or to have beenan addict in accordance with national law;any person who has not obtained his or herfirst regular paid job since beginning a periodof imprisonment or other penal measure;any woman in a NUTS II geographical areawhere average unemployment has exceeded100 percent of the Community average for atleast two calendar years and where femaleunemployment has exceeded 150 percent ofthe male unemployment rate in the area con-cerned for at least two of the past three calen-dar years;‘disabled worker’ means any person either:

a) recognized as disabled under national law; orb) having a recognized, serious, physical, mental

or psychological impairment.

Non-profit

The most known definition is provided by theJohns Hopkins University. According to this defi-nition, the sector includes organizations that are:voluntary, formal, private, self-governing, andwhich do not distribute profits. The term ‘non-profit’ refers to the organizations that have tocomply with a non-distribution constraint. Theterm not-for-profit is more general and refers tothe goal pursued (which is other than profit).

Social economy

The term first appeared in France at the beginningof the 19th century. This approach indicates thatthe major goal of this type of organization is toserve members of the community rather than toseek profit. Moreover, the social economy relies ondemocratic decision-making processes, which rep-resent a structural procedure to control the pursuitof the organization’s goals. Among the organiza-tions belonging to the social economy one canfind associations, cooperatives and mutual organi-zations and, more recently, also foundations.

Voluntary sector

This definition also fits in the non-profit approach.The term is mainly used in the United Kingdomand connotes the reliance on volunteer boards ofdirectors to govern the activities of organizationscommitted to pursuing goals of public interest.

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218 See: http://www.ica.coop/.219 Worldwide representation by the World Council of Credit Unions (WOCCU). See: http://www.woccu.org/.


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Law Ministry in Charge Date of enactment

Goal

1. Company Law Ministry of Economy November 2004 Reduces the level offoundation capital

2. Business RegistrationLaw

Ministry of Economy April 2004 Simplifies the procedureof company formation

3. Law on ForeignInvestments

Ministry of InternationalEconomic Relations

January 2002 Provides national treat-ment to foreigninvestors and the rightto transfer profits abroad

4. Law on Social andEconomic Council

Ministry of Labour andSocial Affairs

November 2004 Regulates formation,incorporation, field ofcompetencies, methodsof work, financing andother issues significantfor the work of the Socialand Economic Council

5. Law on Financing LocalSelf-governance

Ministry of PublicAdministration and Self-Government

Law to be adopted soon Regulates provision offunds to municipalities,towns and the city ofBelgrade to performtheir primary activitiesand entrusted tasks

6. Law on InvestmentFunds

Ministry of Finance May 2006 Regulates the types,establishment and oper-ation of investmentfunds

7. Labour Law Ministry of Labour andSocial Affairs

March 2005 Prohibits direct or indi-rect discriminationagainst persons seekingemployment, as well asemployed persons, onthe basis of any personalfeature

8. Law on Employment and UnemploymentInsurance


January 2003 Regulates the activities ofemployment, the meas-ures of active employ-ment policy, rights andobligations of personsseeking employment

9. Law on CompulsorySocial Insurance contributions


January 2003 Stipulates the amount ofcontribution for compul-sory social insurance(retirement and disabili-ty insurance, healthinsurance and unem-ployment insurance)

10. Law on PersonalIncome Tax

Ministry of Finance January 2001Amend ments to beenacted soon

Exemptions and contri-bution reductions

Appendix 2 – Matrix of laws relating to social enterprises in Serbia


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Law Ministry in Charge Date of enactment

Goal

11. Amendments to the Lawon Refugees

Ministry of Finance Law to be enacted soon Expands support torefugees (to integratethem into society)

12. Law on PreventingDiscrimination againstPersons with Disabilities

Ministry of PublicAdministration and Self-Government

Law to be enacted soon Regulates the generalregime of the prohibitionof discrimination on thebasis of disability, specialcases of discriminationagainst persons with dis-abilities, procedures toprotect persons exposedto discrimination

13. New NGO Law Ministry of PublicAdministration and Self-Government

Law to be enacted soon Regulates the process offounding and the legalstatus of associations,registration and deregis-tration, membership andbodies, changes in sta-tus, cessation of work, aswell as other issuesimportant to the work ofassociations

14. New Law onCooperatives

Ministry of Economy Law to be enacted soon Regulates the operationof cooperatives andlegal successorship ofthe property of coopera-tives which have ceasedto operate


Social Enterprise: A new model for poverty reduction and employment generationAn examination of the concept and practice in Europe and the Commonwealth of Independent States

Social Enterprise: A

new m

odel for poverty reduction and employm

ent generation

POV

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TIO

NUNDP Regional Centrefor Europe and the CISGrösslingova 35811 09 BratislavaSlovak RepublicTel: +421 2 5933 7111Fax: +421 2 5933 7450http://europeandcis.undp.org ISBN: 978-92-9504-278-0

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