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Social enterprises: an Eastern European experience

By Jo Lucas and Arman Vardanyan

This paper looks at some of the lessons learnt in Albania, Armenia and Ukraine during the process of creating new structures and opportunities for employment specifically for people with disability for the last five years. Local non-governmental organizations with the support of the international donor community run a range of community based services and were trying to diversify their income base. Social enterprises as an innovative commercially sustainable approach appeared to be one of the best solutions.


When the former communist block collapsed two of the apparently unavoidable consequences were the rise in unemployment and the drastic reduction in the value of state benefits. In parallel the system of 'looking after' people who were considered to be unable to work in institutions began to crumble, both because there was no money to run them and people realised that this was no longer an imperative-different options could be developed. Thus people with any kind of disability, needing or wanting to work were trebly disadvantaged -

Some of the most significant differences are the social and economic context the non-governmental organizations are working in and the impact of communism. Albania, Armenia and Ukraine as other countries of this part of the world experienced major upheaval in the early 90s and the consequent hyper inflation and instability.

The economies of all have improved radically since then and they feel more stable and safe, and a 'middle-class' and entrepreneurial attitudes are now developing. The centralised market of the soviet system prevented entrepreneurialism and innovation and created a dependency on the state that is slowly withering away. The extended family is still strong - a household income is usually genuinely that. From observation over the last 12 years it would seem that on the whole women are responding more creatively than men to these changes.

The economies of these three countries are still essentially based on cash, and to a decreasing extent barter and exchange. Thus there is no system of credits or loans, no expectation of local authority grants, and there is a growing dissatisfaction among local non-governmental organizations (NGOs) with being dependant on international donors and their changing demands and expectations.

Over last decade enormous amount of money was spent by international donor community to support emerging NGO sector in these countries. Meanwhile, over the years the frustration was growing with understanding the fact that the next day of donor withdrawal the whole NGO sector might collapse. Attempts to gain governmental and/or local government support, which were more or less successful in Central and Eastern Europe, in the Balkans and Soviet countries practically failed. There is no history of authorities contracting out services to the third sector and a very limited notion of grants for services. Some local authorities in Ukraine are seeing the value of NGOs and offering them contracts to run specific services but this is still very unusual. Mainly, the authorities remain mainly unresponsive. The level of corruption becomes another serious obstacle. Wherever there was a state/local budget contract opportunity, so called GONGOs were created by authorities in order to control the money flow. Different fundraising techniques and approaches, which were successful in Western countries proved to be mainly ineffective because of lack of charity tradition among general population. Thus, entrepreneurial activities become alternative for local community NGOs in their attempts for securing diversified sustainable local income sources. As an acceptable framework for the entrepreneurial activities more and more community NGOs started to establish social enterprises.

The UK Department of Trade & Industry defines social enterprise as "a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners". Social enterprises are diverse. They include the full range of different legal structures, such as companies limited by guarantee, industrial and provident societies, companies limited by shares, unincorporated and registered charities.
Social enterprise can be set up by a NGO. Selling products or services is a strategy that many social enterprises use to expand organisational capacity and financial sustainability of mother NGO. Social enterprise can be established independently, but still they are designed to respond to a social need or to create a positive social change. Their focus is not the generation of private profit but making changes, offering alternatives through using good business practice, employing people who would not otherwise be employed and so on. A social enterprise may have social goals-challenging stigma for example, or simply be socially owned by the community. Social enterprise is a business with a double bottom line - it is assessed both on its capacity to create profit and make social change.

Social enterprises as a response to poverty

Poverty, recently appeared problem, which post Soviet societies faced, mainly affects disadvantaged groups of the population. The economic infrastructure is still weak and despite the governments declared double digit economic growth, the vast majority of the population does not feel positive changes in their daily lives. Many people are living in abject poverty, though a few are phenomenally rich, and the banks are becoming just about reliable. While some of the international companies are introducing the idea of Corporate Social Responsibility to their national subsidiaries and partners this is not taking off quickly. Community NGOs still seemed to be the only actors which offer support structures for large groups of population. In this respect, the social enterprises can become a locomotive of social changes, making the financial basis of community NGOs sustainable. They can make the income base of these NGOs diversified and independent. Development of social enterprises can be used as an "exit strategy" for international donor community in post Soviet countries. Despite all efforts over the last years the small and medium enterprise sector was not sufficiently developed in region. Social enterprises can help to fill that niche as well.

Facing the market

Most of the people working in the non-governmental in these countries live in a world of short term project funding, of trying to create activities that are creative and fulfilling. Developing business ideas has to be a very different process. One of the biggest problems seems to be making the transition from running a social service to an enterprise, to thinking about markets and customers not about rehabilitation and therapy. For many people the skills of running services are newly, and often quite hard - won and they simply do not have the energy to take on another whole set of skills. This given the somewhat anti-business culture is not surprising.

Many of the jokes running around these countries feature new businessmen. The punch line of the joke is always about astonishing extravagance. There is a real reluctance to be seen to be joining this group or to involve them in the development of ideas. The idea that people from business might be interested in joining a board and contributing to an NGO is still novel, there is no history, as there is in the West, of people in business wanting to give back to their community. The expectation, usually born out of reality, is that business people are interested only in their own pocket. Their generosity will reach their extended families but no further. Colleagues in Albania are an exception to this where they are developing a good relationship with a local company and developing ideas for producing and bottling soap. This openness might be explained by the fact that the businessman involved has a physical disability himself.

Stigma, a basis for social exclusion

The successful and sustainable social enterprise challenges social exclusions or social stereotypes. Stigma is still alive and well in the West even though there is an anti-discriminatory legislation, to some extent an understanding that people should not be excluded because of a label. In these countries with a much more recent history of locking people with disabilities up and throwing away the key the suggestion that people can and should work is still received with scepticism. Under the soviet welfare system people were categorised into a number of groups - some of whom of were simply not allowed to work. There are the same kinds of disincentives built into the benefit system which make it difficult for people to break out of, even though most of the benefits are set at levels that now fall below the poverty line. Despite more than 10 years of social and economic developments this kind of detail has yet to change. People are therefore left to survive with an income that does not cover daily living requirements and having to makes choices between food and heating and buying medication.

Given the high levels of unemployment, still a relatively new experience as everybody had a job under the old system and the fact that previously people who could not contribute to the workers state were 'looked after' in a closed institution even suggesting employment seems to some to be almost heretical. Employers struggling to make a business work under a system of punitive and ever changing taxation, mafia control of many market sectors and insidious corruption, simply do not feel they have the capacity to think about making their workplaces accessible to or accepting of people with disabilities.

Projects or enterprises

The team at Alternativa , a grassroots NGO in Albania, have been running some great projects for more than 10 years and have created a really good environment in the centre where people with disability can get involved in a number of activities -candle making, bike repairing and selling, making candle holders, as well as computer and language classes and the ordinary social events. The former were designed to offer meaningful activity and generate a bit of income-they were never meant to be self sustaining businesses. Having worked with the dynamics of changing a project into a business the view is now that it will make more sense to develop a new idea with a small number of committed people. The candle programme works well as an income generating and therapeutic activity so why change it?

In Ukraine Friends Union, the first self help group in Kyiv, established in 1997 create the Social Development Support Agency to implement a wider sphere of activities as well as offer support to Friends Union. SDSA and Friends Union have established a number of small projects and the beginnings of enterprises in Kyiv. They have been running a day centre for several years and have recently acquired and renovated their own premises. The team also support the development of other self help groups across Ukraine. Faced with a similar dilemma, as in Albania, some individuals have moved away from the larger group and are experimenting with developing their own little enterprises - making and selling candles and growing plants and making dried flower souvenirs. They may never run a huge factory but they will succeed in earning some additional income for themselves and need no longer be reliant on others.

The carpet workshop in Armenia was created as an opportunity for people who had left psychiatric hospital to create beautiful Armenian rugs. The Mental Health Foundation of Armenia opened the carpet making workshop in 1999 as one of a range of activities including a day centre and offering placements for trainee social workers. With the help of a small grant this happened and they overcame numerous obstacles in trying to set it up-not being able to find working space until a reluctant factory owner was persuaded to offer some space he no longer used. However it was always a project never a business. Project team fairly quickly came to realise there was a problem here but by then a place where people loved working and got huge amounts of satisfaction from was created. When an attempt to introduce a more serious working atmosphere people did not want to take part, they were enjoying what they had and saw little reason to change it. A new aim of producing carpets more economically by asking people to work at home did not meet the workers needs for the psychological and social side of the project. While they enjoyed the money they had been given money was clearly not their primary motivator.

The critical question which needs to be resolved is "what is the primary function of the enterprise" and "what should be the relationship between the social enterprise and the parent NGO". Is it to create an income stream for the parent NGO or is it to create sustainable employment opportunities for people from the NGO target group? Much of the international funding for social enterprise assumes that this is a tool for creating a sustainable income stream for NGOs which are otherwise completely dependant on international donors for grants'.

The need for a champion

At a recent workshop for people interested in social enterprise from 8 different countries of central and eastern Europe the final comment of many of the participants was 'We need to find our 'Frank''. 'Frank' had featured in a couple of the workshops as an illustration of a founder of a successful social firm - a charismatic individual who combined the necessary skills to set a new business up with the stubbornness to make it work. Without such an individual, willing to take risks and commit their own time and energy to making the idea happen, no enterprise will ever get off the ground -be it one with a social aim or not. In cultures where people have little experience of creating businesses and they are worn out by trying to right social injustices, finding a champion is even more necessary.

The social entrepreneur is a practical visionary, open to opportunities, willing to break the mould, seeking to empower others not promote themselves. Social entrepreneurs in any walk of life are the people who cause change - they know a good idea when they see one and bring together the people and the resources to make it happen. They hold a balance of social, technical, economic and political understandings. The backdrop of a high minded belief in the worth (value) of the activity frees the social entrepreneur to be as hard headed as necessary. They take the role of catalysts and spot gaps in the social fabric and use their creativity and enterprise to bridge them in sustainable ways. Social entrepreneurs strive to improve people's lives by making better use of under utilised resources. They have the imagination to see how things could be changed for the better and the persistence and courage to make it happen. The real difference between an entrepreneur and a social entrepreneur is their motivation - to see people change or to drive a very expensive car.

All of the NGOs mentioned here - and dozens of other in similar countries - have been established by individuals with insight, vision and determination, they all have their champions, but they were developing organisations in a world they understand -what we would call social welfare. The business world is quite a different matter. There is an evident need to encourage NGO leaders in taking the advantages of creating the social enterprises. Social enterprises can become the innovative commercially sustainable approach, which can make NGO sector self-financing.

In conclusion

There are a lot more people in the non-governmental sector in the region who are interested in creating real work opportunities and plenty of people who realise it is not for them. The task therefore is to find the innovative solutions and support local community NGOs in creating social enterprises, which can provide NGO sector with sustainable and independent income base. A small number already have set up own small enterprises and are self sufficient. This has got to be a major improvement in countries where people living on benefit have to choose between paying for food and paying for medication. And this process needs a serious international support.

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