The EU budget 2014-2020 and the Social Business Initiative

Commissioned by E!Sharp as part of the series “How to spend the EU budget” and published 9 January 2012, orginal article here.
Photo: Spiegel online.

Lauri Wylie’s 1963 comedy sketch “Dinner for One” has become a cult classic across Europe and it is obligatory TV viewing every New Year’s Eve in Germany. A spoof version of it emerged this year and became an internet hit. It features Chancellor Merkel as Miss Sophie and President Sarkozy as the Butler who has to imitate Sophie’s imaginary friends through the course of a dinner party. The catchphrase of the sketch is provided by the Butler who asks repeatedly whether it will be “The same procedure as last year?”

Indeed, the parody would not have struck a chord with so many people if this was not a very pressing question.

2012 began with sombre messages from nearly all European leaders , warning that things would probably get worse before they get better. In 2011 we witnessed the financial crisis escalate to a point where it became legitimate to ask whether the euro would survive in its current form or even at all. Austerity budgets were implemented or hardened across Europe and it became clear that the financial crisis would not end soon. Hopeless despondency saw the Indignados rise up in Spain, the Greek riot police had to defend the streets of Athens, Occupy Movements camped outside all major European stock exchanges and contagious rioting erupted in Britain.

In all this doom and gloom, people may be forgiven for not immediately spotting the reasons for optimism. There is no silver bullet – that is certain – but the Brussels machinery has been hard at work to provide us with a toolset for shaping a fairer and more prosperous Europe. It is called the Social Business Initiative.

The Social Business Initiative describes a more inclusive way of doing business and provides a vision to underpin the creation of socio-economic prosperity. It reframes the relationships between the State and the mainstream economy, it also reinforces – for the avoidance of doubt – that people should be served by both. It is one of the 12 levers of the Single Market Act and championed by Commissioner Barnier under the full support of President Barroso.

The Social Business Initiative should be commended for being well conceived. It combines ideological principles that underpin the social democratic model of central Europe, plus elements of the German Soziale Marktwirtschaft, the French Économie Solidaire, the Italian Economia Sociale, and the many cooperative movements of Spain and elsewhere. It succeeds in providing a more concrete intellectual framework than the Big Society narrative in Britain and at the same time aligning strongly with it. Most importantly, it is a pan-European initiative that captures the zeitgeist by connecting high level policy with the concerns at the grassroots of society. It is a toolset for empowering organisations that create sustainable and blended value – positive social outcomes as well as fair financial returns.

The Commission is putting its money where its mouth is by setting up a financial instrument of €90 million to improve access to funding for social purpose organisations. It will also introduce an investment priority for these organisations in the 2014-2020 regulations of the ERDF (European Regional Development Fund) and ESF (European Social Fund). This second point should not be underestimated because it opens the door to potentially hundreds of billions of Euros via social investment.

Social investment is a viable but often untapped alternative to grant funding for many social purpose organisations, crucially it is a sustainable form of funding because the money can be recouped and reused to finance other initiatives. The Commission is coming under increasing pressure to use its financial resources ever more judicially – it is not surprising therefore that it is taking social investment seriously.

Improving access to funding for social organisations is the right priority. But €90 million for this purpose, spread across all of Europe, is a drop in the ocean. It must be used wisely and the Commission knows this. The important question is how?

The problem is that there is not yet a sufficiently broad and uniformly competent enabling infrastructure across Europe that can bridge the gap between organisations that seek funding and social investors who are prepared to provide it. The know-how exists in a handful of pockets within all European countries, but there is simply not enough of it. The absence of this know-how is the single biggest obstacle for organisations in accessing the hundreds of billions of euros that will soon become available.

The Commission has correctly identified that it must prioritise building the capacity on the ground. This can be most effectively achieved through knowledgeable and competent financial intermediaries, although there are currently too few of them. Europe needs more intermediaries who understand the intricacies of the local context and who are skilled in both improving the investment readiness of social purpose organisations as well as managing the expectations of social investors.

It will be a tough job to build a thriving and competent layer of financial intermediaries across Europe, but they are the critical links – without which, the Social Business Initiative will not deliver real change. Moreover, without first fostering an enabling infrastructure of capable financial intermediaries, the investment priority assigned to the ERDF and ESF will be wasted, and their hundreds of billions spent as before.

Instead, the prize is to unlock as much of this money as possible – and it is a vast amount – to catalyse a sustainable way of financing social businesses. This is the objective of the Task Force for a European Social Investment Facility. It produced a communiqué that outlines how ERDF and ESF funding could be used to seed a sustainable vehicle for financing social businesses. It also explains how to make this vehicle more potent by attracting substantial sums of private capital alongside the European money. This is how we can recalibrate our fragile socio-economic model.

The Commission has demonstrated through the Social Business Initiative that it has the vision – it must now show that it can put it in place. We simply cannot afford to squander this one-off opportunity, because if we do, the next budget may not be denominated in euros. However, if we implement this vision successfully, then Europe will be an exemplar to the world.

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