Social Firms: 'Too much subsidisation kills entrepreneurial spirit' 

Sally Reynolds is the founder of Social Firms UK. She was speaking to Jan Vitásek of EurActiv.cz. 

To read a shortened version of this interview, please click here. 

In many European countries the term 'social firm' is not commonly used. What does it mean to you? 

Let me will start by explaining the term “social enterprise” because I think it helps to put social firms in context. A social enterprise is any business that trades for social or environmental purposes. The key is that they reinvest their profits back into their social or environmental objective. 

A social firm is one particular type of social enterprise and it has a very distinct social purpose which is to create paid employment people with severe disadvantages or disabilities and who would otherwise struggle to access the labour market. 

The definition is different in every country, but in Europe 30% of a social firm’s workforce should fall into this category. That number is a European-wide compromise. For the UK, the figure is 25%. 

The key is that a good proportion of their workforce are people who otherwise would not be able to work. It is complementary to other systems, it is complementary to placing people in open markets, and it is complementary to self-employment. 

Are there any typical fields where these firms usually operate?

There are traditionally popular fields such as catering, cleaning, gardening, horticulture and possibly also industrial services, such as packing or distribution. Those have been the most popular ones over the last 10 years. 

But we are increasingly trying to encourage firms to enter new markets. Essentially, there should be no reason why social firms could not operate in any business sector. The success factor is around people. The firms should get such a profit margin that would help them to cover employees’ support costs that these businesses have to pay for. 

And these businesses quite often also go for a niche market that would not be satisfying for other firms. 

Do you have any estimate of how many social firms can be found at the moment in the whole EU, or in your country? 

It is always difficult to gauge when not everybody is talking about the same thing but from what I learned from various country reports, we are probably looking at about some 2,000 social firms across Europe. In the UK, we have 170 of them. Germany and Italy, on the other hand, are way ahead of the rest. They started earlier, and they have certain laws and acts which have helped to grow the sector. 

Where do you see the main obstacle for disabled or disadvantaged people to entering the job market? 

Who are the people typically searching for job within a social firm? If we talk about people with mental health problems, private sector employers are usually very scared of taking on individuals who have any history of mental illness – even in the UK where there has been a lot of work and lot of campaigning, and efforts to get rid of the stigma related to mental health problems. Sixty percent of employers still say they would not employ people like this. 

As for typical employees, social firms are more popular with the people with mental health problems. The majority of social firms in the UK have created jobs for these people. As far as people with physical disabilities are concerned, it is probably fair to say, that with the right adaptations they can be employed in the open labour market. That is the group for whom social firms are less relevant. 

The other big tranche of unemployed people are people with learning disabilities. So the most popular employees in social firms tend to have mental health issues and learning disabilities. However, the group of disadvantaged also encompasses former prisoners, homeless people, drug addicts, substance abuses. A lot of these groups have mental health problems as well. So they have a double barrier to the labour market. In Italy, they have created work for people from severely disadvantaged backgrounds. 

On the whole, social firms understand the issues and needs of their employees, and they juggle the business with those needs all the time. They are very difficult and challenging businesses to run and they are not protected by anything. Because they are on the market, they fail or succeed. But it all comes down to financial controls, managers, spotting market opportunities, monitoring when the market is dying and moving into other market – just like any other business. 

Besides the barriers in people's minds, are there any institutional barriers as well? 

Definitely. I know some social firms that would not say they are social firms in their marketing literature. It would jeopardize their ability to get customers because of the prejudice that people have against disabled people and people with mental health problems. 

But the situation is different than it was ten years ago. In Europe, every country is different and some countries still struggle with prejudice and stigma because of institutionalization and the way society operates. I think, in general, because of the economic crisis, and because the traditional business model has shown that it is not the best solution for everybody, there is more will to put money back into the local community and to make money go further when you buy a product or service. 

We are using that argument in the UK by telling people that if the buy from social firms, they help to create jobs. And as long as the quality and products are absolutely second to none and they are competitive, there is no good reason why people would not use them. If the quality was not there, that business would not survive. And that is only fair – that is business. 

A good business helps us to overcome stigma that might otherwise be there. It is actually helping to give out a positive message.

How can legislation help to enhance employment opportunities for people with disabilities? 

I have done an analysis of the different types of interventions across Europe and there is a broad range. Finland has a salary subsidy, the Czech Republic has salary subsidy and a quota system, Germany has a quota system and they use money from that to create social firms. It is different everywhere. In the UK, we have got absolutely nothing. 

However, there is a danger that too much subsidization kills the entrepreneurial flare. And I think that flare is vital to the sustainability of those businesses. If they get too complacent with subsidies, they are not really businesses. 

I think what we need is support and encouragement to develop social firms at national level but also to enable purchasing from social firms – to promote the fact that these are businesses, but businesses with social objectives. We need public procurement to include social so that individual social firms can access big procurement opportunities without feeling they are sidelined. 

We need a different approach to investment based on the argument of social return on investment. We need investment of five to ten years where real growth can be achieved, real jobs can be created and then we can measure the return. 

What can be done at European level? 

I think social firms deserve more attention. We need more education about social firms, more publicity, and we also need to encourage national governments with their existing interventions or with new interventions to help the sector to grow so that we can meet each other’s objectives. 

What is your take on the European Commission’s Microfinance Initiative? 

Fundamentally, any initiative that helps employment is a good thing. But for people with disabilities you need more than just money. Our experience over the years has been that good mentoring and support is essential in order to get the best value for public money and for the individuals involved.