ETCO PROJECT
Social Entrepreneurship
and Its Implications for Hungary
János Palotás – Foundation of Knowledge
Introduction
The concept of social entrepreneurship is relatively new in the European Union. It is very
complex and it is interpreted differently in various sources.
Its importance is indicated by the fact that more than 11 million people amounting to
4.5 per cent of the economically active population in the EU are involved in social
businesses. Their performance accounts for 10 per cent of the combined GDP in the EU
(according to the report of the European Commission, 2014). These figures shed light to
the importance of the underlying issue of social problems.
In the European Union social problems related to such issues as unemployment, social
exclusion and housing, family benefits, increasing income inequality, pensions, health care
and others have been exposed.
Introduction
Social entrepreneurship is one of the brightest phenomena representing a new vector of
socioeconomic development and promises to solve or at least lease these problems;
therefore, it can be involved in some of the state’s functions.
Therefore, defining the term social entrepreneurship is particularly important.
Defining entrepreneurships and their types
What is the entrepreneurship, because the term entrepreneurship is not a clear concept
either?
Below presents some approaches to the definition of entrepreneurship in economic theory
in different time periods.
Defining entrepreneurships and their types
Entrepreneurship is a kind of activity which combines the following: 1) initiative in
connecting the factors of production 2) taking major decisions in the production process
3) innovation 4) riskiness.
McConnell, Brue, “Economics” (McConnell and Campbell R., 1963)
Entrepreneur is an innovator who combines the factors of production in novel way, this
person is: initiative, authoritative, foreseeing, risk-taker.
Joseph Schumpeter, “The Theory of Economic Development” (Schumpeter, 1934)
Defining entrepreneurships and their types
Entrepreneur is a person who fights for some cause (for his own expense, risk and in his
favor) to make some product.
Jean-Baptiste Say, A Treatise on Political Economy (Jean-Baptiste Say, 1803)
Entrepreneurship is the pursuit of opportunity beyond resources controlled.
Professor Howard Stevenson (Eisenmann, 2013)
Defining entrepreneurships and their types
Entrepreneurship is the phenomena associated with entrepreneurial activity.
Entrepreneurial activity is the enterprising human action in pursuit of the generation of
value, through the creation or expansion of economic activity, by identifying and exploiting
new products, processes or markets.
OECD–Eurostat entrepreneurship definitions (Ahmad and Seymour, 2008)
Defining entrepreneurships and their types
As you can see the most important traits are as follows: being innovative, proactive,
opportunity aware, value creator, showing initiative, self-motivated, hazardous. Thus,
entrepreneurship is an independent, innovative, proactive, hazardous, systematic activity
to achieve economic and social goals and receive profits.
The next integral part of understanding the term of entrepreneurship is to explore its
classification. Peter J. Boettke defines two types of entrepreneurship: arbitrage
(discovering the price gaps that exists and acting on that margin to close the gap: buy low
– sell high) and innovative (discovering new trading opportunities, discovering lower cost
or new technologies).
Defining entrepreneurships and their types
Steve Blank included in his classification not only the aim of the enterprise’s activity, but
also its size.
Therefore, he mentioned four types of entrepreneurships: 1) small businesses, 2) scalable
start-ups, 3) large companies and 4) social entrepreneurs.
Defining entrepreneurships and their types
Defining entrepreneurships and their types
Some definitions:
Social entrepreneurs are the agents of society changing, creators of innovation, challenging
the “status quo” and changing the world for the better.
Social entrepreneurs are individuals with innovative solutions to society’s most pressing
social problems. They are ambitious and persistent, tackling major social issues and
offering new ideas for wide-scale change.
Defining entrepreneurships and their types
In the definition of the European Commission, the social enterprise “...uses its profits to
achieve its primary objective instead of distributing profits and has in place predefined
procedures and rules for any circumstances in which profits are distributed to shareholders
and owners”.
Thus, another feature of the social enterprise is that it uses its profit for the company’s own
social goals. In addition, the social entrepreneur “delivers a social value to the less
privileged, all through an entrepreneurially oriented entity that is financially independent,
self-sufficient, or sustainable”.
Defining entrepreneurships and their types
Moreover, the concept of social entrepreneurship is similar to that of corporate social �responsibility (CSR) that is very popular nowadays. The European Commission (2015)
defines CSR as “the responsibility of enterprises for their impact on society”.
Therefore, CSR as well as social business involves the active role of the enterprise in �solving important social problems, but at the same time “CSR programs are the �philanthropic programs of companies. CSR is part of a corporation, which is a profit-�maximizing company. A social business is a company by itself, which is dedicated to �social impact-maximization.
A common way of practicing CSR is by donating money for social causes”.
Social enterprise’ boundaries
Very often social entrepreneurship is associated with other similar social activities such as
philanthropy, voluntary activity, charity and other socially oriented practice, but its social
activist “might only become a social entrepreneur if he or she further develops his or her
activism into a sustainable solution that will allow them to address the issues at hand in a
scalable and impactful manner”.
In addition, not to be confused with similar types of activities: philanthropists, activists,
companies with foundations, or socially responsible organizations – these are not social
entrepreneurships.
The researchers also believe that distinguish social entrepreneurship must be distinguished
from social service provision and social activism, because they differ significantly, first of all,
by nature of action and outcome.
Social enterprise’ boundaries
Of course, they have many similar characteristics, but “instead of taking direct action, as
the social entrepreneur would, the social activist attempts to create change through indirect
action, by influencing others – governments, NGOs, consumers, workers, etc. – to take
action”.
Others try to distinguish social entrepreneurship from social service provision – when
“a courageous and committed individual identifies an unfortunate stable equilibrium…
and sets up a program to address it”. The main difference between these two types is the
outcome: the social service provision is not likely to lead to a new superior equilibrium.
Social enterprise’ boundaries
The perception of and the approach to social enterprises differ slightly in the US and in
Europe primarily because of the historical reasons.
The American approach is divided into two schools: the first one is called “social
innovation”, the second one is labelled as “earned income”, and refers to the venture
with bright commercial activities in support of its goals.
According to the European concept, the pioneering model of the social enterprise is “social
cooperative” that appeared in Italy, and later spread to the other European countries.
Social enterprise’ boundaries
In the USA the concept of social entrepreneurship is
According to the European approach, social entrepreneurship is essential element of the �social economy; it is more focused on achieving the social objectives of the society. It
depends to a large extent on the individual countries (with their social security systems),
thus the list of the comprehensive activities of these enterprises (mainly services) is clearly
defined. In addition, the democratic management of social enterprises, too, is in the focus.
Social enterprise’ boundaries
Furthermore, American social entrepreneurships are actively supported and promoted by
appropriate private funds, whereas European ones are maintained by the national
governments or the institutions of the European Union. In general, the legal framework of
social entrepreneurship in both the US and Europe is poor; active debates are under way
on its interpretation.
These approaches are studied by scientists, under which the following attributes of social �enterprise “of an ideal type” were derived:
Social enterprise’ boundaries
1. a continuous activity producing goods and/or selling services;
2. a high degree of autonomy;
3. a significant level of economic risk;
4. a minimum amount of paid work;
5. an explicit aim to benefit the community;
6. an initiative launched by a group of citizens;
7. a decision-making power not based on capital ownership;
8. a participatory nature, which involves various parties affected by the activity;
9. a limited profit distribution.
Social enterprise’ boundaries
There are many disagreements on the boundaries of social entrepreneurships’ notion
among the scientists. For example many scientists simply avoid the issue of boundaries,
whereas others consider the social enterprise as a traditional business with social mission
(when the return is used “in the interests of customers”, but not by company leaders), and
others accept only a non-profit nature of social entrepreneurships.
The scientists note that social enterprise permanently evolves and develops and in its
development it takes up commercial, non-profit, public and hybrid types.
Social enterprise’ boundaries
Social enterprises are somewhere between non-profit and for-profit ones, and both forms
can be financed by a public body (wholly or mainly).
The European approach to defining social entrepreneurship is closely linked to the concept
of cooperative: businesses “owned and run by and for their members. Whether the
members are the customers, employees or residents, they have an equal say in what the
business does and a share in the profits”, therefore, by their nature cooperatives presume
at least a partial distribution of profits among their members.
Social enterprise’ boundaries
Public enterprise is “a corporation established, or a group of individuals appointed to act
together, for the specific purpose of meeting needs in the general interest, not having an
industrial or commercial character, and
in the case of a group of individuals, more than half of those individuals, are appointed by
another contracting authority”.
In addition, the interpretation of the concept of social enterprise can be represented via
Euler and Venn diagrams, and in this case, the social enterprise in the broadest
interpretation will be located somewhere in the red zone (the darkest area) according to
the following picture.
Social enterprise’ boundaries
Social enterprise’ boundaries
As we can depict from the diagram above, the spectrum of social enterprises includes
different types of businesses and their combinations. They can function as non-profit or
for-profit enterprises. Sometimes social enterprise (both for-profit and non-profit) can be
public or financed by a public body (“wholly or mainly”) or combine all the above mentioned
forms.
The Survey of the Hungarian Literature
Hungary, there is no legal definition of social entrepreneurship and its non-profit or for-profit
form. It is absent among business organizations and in legal documents, but the most
powerful international NGO in Hungary in the field of promotion and start-ups of social
enterprises NESsT* defines social entrepreneurship as “a business that is created to
address or solve a critical social problem in a financially sustainable (and potentially
profitable) way”.
Furthermore, the international research project SEFORIS aiming “to better understand the
role of social enterprises” in European Union and particularly Hungary explains social
entrepreneurships as a “force for more inclusive and innovative societies”.
The Survey of the Hungarian Literature
The representative of the main research institution of social entrepreneurship in Hungary
Petheő Attila of Budapest Corvinus University mentioned that social enterprise is, “on the
one hand the highly developed organisational form in which the enterprise is walking the
thin line between profit maximisation and the often irritable realisation of lessening societal
stress, on the other hand it is the tool which may bridge the gap between the lack of
emotion in the economy and the wish for the welfare of the public.” According to the
research of Petheő Attila, the social enterprise in Hungary is a not-for-profit organization
that narrows the spectrum of social enterprises.
The Survey of the Hungarian Literature
He used the definition of the CONSCISE Project throughout his thesis: social enterprises
are
The Survey of the Hungarian Literature
In addition, there are some recent works concerning social economy in Hungary. For
instance, Éva G. Fekete, defines six spheres of social business in Hungary:
The Survey of the Hungarian Literature
The term “social enterprise” is in Hungary “very often directly connected to the provision of
traditionally defined social services”. However, there is still insufficient research on the
concept and boundaries of the social entrepreneurships phenomena in Hungary because
of the lack tools and resources.
Furthermore, there is a need in legal strengthening of social entrepreneurship in Hungary,
but it is quite a challenge, because these businesses can be atypical, hybrid, combining
private and public functions. In addition, since this concept is quite new to the community,
businesses and the public (social policy makers) are not well informed in this area, so they
cannot take an active part in a legislative activity. In this context we set up two hypotheses.
The Survey of the Hungarian Literature
Hypothesis 1: The non-profit sector is a core determinant of social entrepreneurship in
Hungary.
Hypothesis 2: Social entrepreneurship in Hungary reflects only a small spectrum of the
general social entrepreneurships phenomena.
The boundaries of social entrepreneurship in Hungary
First of all we should note that there is a problem to define this concept, because of the
absence of a common point of view about the criteria of social entrepreneurship.
However, Hungarian social enterprises have some bright and specific features, such as
innovative activity (comparatively higher than in traditional Hungarian enterprises) and the
social direction (to address major social problems), such as poverty and social exclusion,
the exclusion of disadvantaged groups from the labour market, aging population, labour
market (youth unemployment and too early exit of +55 year olds), discrimination against
Roma, homelessness.
The boundaries of social entrepreneurship in Hungary
For instance, according to the survey, Hungarian social ventures include the following
eight social sectors:
The rest is predominantly active in economic, social, and community development;
research; and, hospitals and rehabilitation.
The boundaries of social entrepreneurship in Hungary
It makes sense to determine the types of social enterprises (depending on financial return)
in Hungary and try to place this information on previously defined spectrum of social
enterprises.
The social enterprises in Hungary can choose their legal form of functioning such as
non-profit (association, non-profit business association etc.) or for-profit (social cooperative)
form, but in the first case they cannot carry out business activities fully, while getting some
discounts or exemptions from taxes or customs, and business activities are regulated by
various legal norms that are unclear sometimes. Therefore, most social enterprises in
Hungary are non-profit ones, although the most visible and bright companies in the field of
social entrepreneurship are social cooperatives that mostly offer employment opportunities.
Spectrum of social enterprises in Hungary
Non-Profit Sector
“Foundations are organisations with endowments established to pursue durable public
purposes… Unlike associations, foundations do not have members”. A foundation is a legal
person established by a founder or founders for the continuous realization of a long-term
purpose, as determined in the founding statute (Act V/2013 Section 3:378). The founder
must provide sufficient assets to achieve the foundation’s purposes (Council on
Foundations, 2015).
Financial return cannot be distributed; it is used for social goals.
Spectrum of social enterprises in Hungary
It is a legal entity established for the continuous realization of the common, permanent aim
of the members as stated in the articles of association, and having a registered
membership [Act V/2013 Section 3:63(1)]. At least ten natural persons, legal persons,
and/or organizations without legal personality are required to form an association
(Act V/2013 Section 3:64). An association cannot be formed for the purpose of economic
activity, though it may conduct economic activity that is directly related to the realization of
the organization’s purpose [Act V/2013 Section 3:63(2)-(3)] (Council on Foundations, 2015).
Financial return cannot be distributed, it is used for social goals, not for members.
Spectrum of social enterprises in Hungary
Spectrum of social enterprises in Hungary
For-Profit Sector
It is an organization with legal entity which is established with the members’ sharenote
equity predetermined by the founding document and operating according the principles of
open membership and variable capital; the objective of the organization is to promote
meeting the economic and other societal (cultural, educational, social and health care)
needs of the members” (Directive 2003/72/EC). Cooperatives includes (HCSO, 2015):
Social cooperative, School cooperative, Agricultural cooperative, Savings and loan
association, Savings and credit cooperative, Employment cooperative, Other cooperative.
Social cooperatives offer their underprivileged members employment and other solutions
improving their social conditions. Employment can also include work-serving public interest.
Spectrum of social enterprises in Hungary
Unemployed persons and students can be members, as long as they personally contribute
to the cooperative’s activities and comply with conditions contained in various employment
related laws (unemployed persons and students) in finding job decisions and employment.
Financial return cannot be distributed; it is used for its own activity.
Spectrum of social enterprises in Hungary
Therefore, the boundaries of social enterprises spectrum in Hungary depend mostly on the
type of profit’s distribution and the social goals of the particular enterprise. If we look at
social entrepreneurship in Hungary only through its legal form, then the spectrum of social
enterprises appears quite narrow and precise: it includes various non-profit organizations
on one hand (with clearly visible social mission), and for profit (social) cooperatives from
the other one.
However, the definition of social enterprise in Hungary is much more complicated than that,
due to its history of development (including cooperatives), the participation of the state,
changes in legislation, peculiarities of the functioning of the non-profit organizations etc. In
addition, social enterprises in Hungary are closely related to the social economy, thus they
should be considered in conjunction with other “actors” such as the government, the
promoting and supporting organisations, the target groups etc.
Spectrum of social enterprises in Hungary
For instance, social economy in Hungary consists of two types of organisations:
In addition, there are two main features of the social economy in Hungary:
Therefore, social enterprises in Hungary are closely related to the social economy: they are
its important subjects, but most of them are state-owned (established by the local
government or the state, or they are significantly supported by the state to exist).
Spectrum of social enterprises in Hungary
Besides municipal governments are very important subjects of social entrepreneurships in
Hungary, as in the remote and less developed regions they sometimes constitute the only
effective solution of social problems (social enterprises are most needed in those regions).
In practice, many social enterprises need additional financing, grants, foundations,
government grants and so on. In general, these enterprises are “between the state and the
market, in order to fulfil their social mission, they perform business activity, and they are
self-financing”.
Comparison of the Social Entrepreneurship in
Hungarian and International Literature
Below some characteristics of social entrepreneurship in Hungarian and international
literature are compared. Therefore, in Hungary the notion of social entrepreneurship is
newer and narrower than that inherent in the international literature; and it is associated
with providing social services and the non-profit sector of the economy, whereas in the
international literature it includes various sectors and forms of activity.
Comparison of the Social Entrepreneurship in
Hungarian and International Literature
Definition
In Hungarian literature In the International literature
Social enterprise is the “highly developed organisational form in which the enterprise is walking the thin line between profit maximisation and the often irritable realisation of lessening societal stress, on the other hand it is the tool, which may bridge the gap between the lack of emotion in the economy and the wish for the welfare of the public”. | “Social entrepreneurs are individuals with innovative solutions to society’s most pressing social problems. They are ambitious and persistent, tackling major social issues and offering new ideas for wide-scale change”. |
Comparison of the Social Entrepreneurship in
Hungarian and International Literature
Legal form
Non-profit sector includes foundations and associations, other non-profits, for-profit sector: social cooperatives. Most Hungarian social enterprises are non-profit organizations. | Social enterprises can exist in different legal forms, but except non-sustainable philanthropy, voluntary activity, charity and other socially oriented practice. |
Comparison of the Social Entrepreneurship in
Hungarian and International Literature
Size
Half of the social enterprises in Hungary are small (1-10 employees) and only 12% has revenues above €1 million. | It includes small, medium and large enterprises. |
Comparison of the Social Entrepreneurship in
Hungarian and International Literature
Sector of activity
Core spheres of its activity are: poverty and social exclusion, the exclusion of disadvantaged groups from the labour market, aging population, labour market (youth unemployment and too early exit of +55 year olds), discrimination against Romas, homelessness. | Core spheres of its activity are: “education, health, welfare reform, human rights, workers’ rights, environment, economic development, agriculture, etc.”. |
Comparison of the Social Entrepreneurship in
Hungarian and International Literature
Sources of funding
Main sources are:
| It includes: sale, economic activities, social investors, grants, loans, donations, awards, government agencies, friends, micro-financing and others. |
Comparison of the Social Entrepreneurship in
Hungarian and International Literature
Type of profit’s distribution
Financial return cannot be distributed; it is used for social goals or to support its own activity. | Mostly financial return cannot be distributed; it is used for social goals or to support its own activity. Sometimes this enterprise can be financially driven. |
Conclusion
Social entrepreneurship is a new and promising notion: it is called for solving the major
social problems of the society; therefore, many scientists investigate this sphere: its
development, nature, concept, boundaries, classification, and characteristics. It is obvious
that social entrepreneurship is inseparably related with entrepreneurship and its principles,
psychological characteristics with the entrepreneur. Moreover, social entrepreneurship can
be defined as a form of entrepreneurship: while the other types of entrepreneurship aim to
venture growth maximization and economic prosperity, social entrepreneurship has
primarily social objectives.
But, there is no single approach to the definition of social enterprise/entrepreneurship
among academics and in society, on the contrary – there are even contradictory notions.
The common features of most definitions are the philanthropic social (or environmental)
orientation, financial stability and innovation component.
Conclusion
The American approach is more focused on the term “entrepreneurship” as commercial �activities and examines the social enterprise as a part of a market economy. According to �the European approach, social entrepreneurship is essential element of the social �economy; it is more focused on achieving the social objectives of the society. In general, �the legal framework of social entrepreneurship in both the US and Europe is poor; active �debates are under way on its interpretation.
The corporate social responsibility (CSR) is a very important subject nowadays, as almost
every big corporation tries to declare that it is socially responsible. The concept of social
entrepreneurship is similar to that of corporate social responsibility (CSR) that is very
popular, but nevertheless the profit is the main goal of a business organization’s activity.
Conclusion
At the same time according to some international organizations, social entrepreneurship
should not be strayed with other similar social activities such as philanthropy, voluntary
activity, charity and other socially oriented practice, because its social activism should
develop sustainable solution on a long-term basis.
Another problem is that according to some scientists, the social enterprise reflects only
non-profit social initiative, and others treat it as an ordinary for-profit business that
additionally performs social mission. This causes difficulty in further research and
evaluation of social entrepreneurships. However, in order to determine the boundaries
between for-profit and non-profit social enterprises it is also possible to use an alternative
approach that is based on the characteristics of social enterprises regardless of their
financial independence, philanthropist level and focus on financial return.
Conclusion
Therefore, the spectrum of social enterprises includes different types of businesses and
their combinations. They can function as non-profit or for-profit enterprises. Sometimes
social enterprise (both for-profit and non-profit) can be public or financed by a public body
(“wholly or mainly”) or combine all the above mentioned forms.
In Hungary there is no legal definition of this concept, but the notion of corporate social
responsibility is quite well-known: “a business that is created to address or solve a critical
social problem in a financially sustainable (and potentially profitable) way”. The social
enterprise is a not-for-profit organization that narrows the spectrum of social enterprises.
Conclusion
However, the definition of social enterprise in Hungary is very complicated, due to its history
of development, the participation of the state, changes in legislation, peculiarities of the
functioning of the non-profit organizations etc. In addition, social enterprises in Hungary are
closely related to the social economy, thus they should be considered in conjunction with
other “actors” such as the government, the promoting and supporting organisations,
the target groups etc.
Most social enterprises in Hungary are non-profit and state-owned ones. The non-profit
sector includes foundations and associations, other non-profits, while the for-profit sector
mostly consists of social cooperatives: the most visible and bright companies in the field of
social entrepreneurship.
Conclusion
It is also important to mention that social entrepreneurship in Hungary is in the early stage
of its development and is designed to solve the most pressing social issues of society,
mainly related to the low level of employment.
SOURCE
Tetiana Buchko: Social Entrepreneurship and Its Implications for Hungary
VIDEOS
The Rise of Social Enterprises and the Social Entrepreneurs (9:18)
https://www.youtube.com/watch?v=Re0h-vHyyiw
Social Entrepreneurship (Why to use?) /
Social Entrepreneurship Business Model (8:16)
https://www.youtube.com/watch?v=mHiyJaDVAWc
The Social Entrepreneur (2:23)
https://www.youtube.com/watch?v=urBvSI0WZX4
Social enterprise: a new business model for Europe (3:15)
https://www.youtube.com/watch?v=ueiQntEY36A
Foundation of Knowledge
Thank you very much
for your attention!