European social market economy: new aspects for business and entrepreneurship

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European approach to social market economy’s perspectives encompasses a variety of businesses and organisations: e.g. SMEs and cooperatives, mutual benefit societies and non-profit associations and foundations. A common denominator in all of them is that their activity is constantly addressing people and society’s interests to produce positive impact on local communities and pursuing social causes. As a practical example, the minimum wage agenda is mentioned. 

The social market economy’s approach in Europe is going to provide a background for perspective recovery and resilience growth in the member states. As to the business models associated with such an economy’s system, they aimed at reinvesting most of the profits back into the organisation and dedicate it for present social needs, while having a participatory and democratic form of management.
Social economy is generally anchored at local level and facilitates socio-economic cohesion by promoting “social values”, such as solidarity, participation and cooperation. Thus, social economy business models can be traced in a large variety of economic sectors and are often linked to manufacturing and industrial fields. Presently, there are 2.8 million social economy enterprises, representing 10 percent of all businesses in the EU, employing over 13.6 million people; thus, over 6 percent of the EU’s employees are engaged in social economy enterprises. Besides the paid workforce, social economy companies mobilise volunteers, which is equivalent to 5.5 million full-time workers at present. The share of the social economy in paid employment varies greatly – between about 0.6 and 10 percent among the EU-27 states.

It is important to specify the main characteristics of the social market economy:
• Membership – up to 160 million people in Europe are members of social economy enterprises (mostly retail, banking and agricultural cooperatives, as well as mutual societies offering services complementary to social security regimes)
• Objectives – social economy enterprises contribute to the EU’s employment, social cohesion, regional and rural development, environmental protection, consumer protection, agricultural, third countries development, and social security policies
• Size – social economy entities are mostly micro, small, and medium-sized enterprises.
The European Union institutions strive to create a level playing field in which social economy enterprises can compete effectively and fairly with other corporate entities, without regulatory discrimination and purposeful engagement. To promote a highly competitive social market economy, the Commission has already presented targeted initiatives in the following web-links: – social business initiative (COM(2011) 682 final); – social innovation policy making; – single market act 1 and 2; – small business act; – the flagship initiative in: the Innovation Union, and the Commission Communication from 1989 on ‘business in the social economy sector: Europe’s frontier-free market’. Already in 2003, the EU adopted a statute for a European cooperative.

Social economy in the European Single Market
Presently, it is the Commission’s DG Internal Market, Industry, Entrepreneurship and SMEs which promotes, in particular, the development of social economy enterprises and organisations via the so-called Single Market Program; the latter is also focused on supporting the development of social economy by implementing the European action plan on social economy adopted in 2021 (more on the plan, see below).
The program is mainly focusing on the following actions:
1. Promoting access to markets with socially responsible public procurement: social procurement and boosting affordable housing in Europe;
2. Reinforcing business support via the EU’s European Enterprise Network, including social economy actors in the EU cluster policy and reinforcing their management experience through Erasmus for Young Entrepreneurs;
3. Developing networks and partnerships via social innovation competition, European Social Economy Regions and Social Economy Missions;
4. Boosting skills and professionalisation: EU “pact for skills and skills alliances” through Erasmus+ program.
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In December 2021, the European Commission adopted a new action plan on the social economy worth €4.2 billion. With the action plan, the Commission put forward concrete measures to help mobilise the full potential of the social economy, building on the results of the 2011 Social Business Initiative and the 2016 Start-up and Scale-up Initiative.
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The program includes the following actions:
• make the internal market work better with such measures as, e.g. improved market surveillance, problem-solving support to citizens and business, and enhanced competition policy;
• boost the competitiveness of businesses, in particular the SME;
• develop effective European standards and international financial and non-financial reporting and auditing standards;
• provide higher protection to consumers,
• maintain a high level of food safety, and
• produce and disseminate high-quality statistics.

As is seen, the key aspects of the action plan are those of improving conditions for the social economy among EU-27, including improved access to finance and national markets. But, the post-pandemic period made the process of sustainable and resilient socio-economic growth model even more important. Thus, the action plan insisted to enhance social investment, support social economy actors and social enterprises to start-up, scale-up, innovate and create additional jobs. As mentioned above, the Commission approved a series of initiatives in three main directions: a) creating the right framework conditions for the social economy to thrive, b) opening up opportunities and support to capacity building, and c) enhancing recognition of the social economy and its potential.
Access to funding and improved access to finance were still important in Social Business Initiative, SBI and the Commission commissioned some initiatives through a new European Competence Centre for Social Innovation.
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Social enterprises, SE
Over a decade ago, in 2011, the European Commission published the Social Business Initiative (SBI) which established a Union’s action plan with concrete measures to establish a favourable environment for social enterprises (SE). The SBI has primarily helped to increase the visibility, recognition and understanding of SE; it facilitated the availability of information on SE, and to implement mutual learning, research, and visibility measures related to SE and social economy in EU programs. The SBI and its follow-up activities have made it easier for SE to access public and private funding.
The European action plan on social economy was accompanied by two additional documents:
a) The first provides an analysis of challenges and opportunities for the social economy in Europe and a summary of the consultations conducted and evidence gathered since the action plan was announced at the beginning of 2021.
b) The second, (i.e. scenarios towards co-creation of a transition pathway for a more resilient, sustainable and digital Proximity and Social Economy industrial ecosystem), outlines scenarios for the digital and green transition of the industrial system. It also indicates what actions and joint commitments are needed to accompany this transition. The action plan also presents funding opportunities available to support the social economy.

Minimum wage as a social endeavor
In October 2020, the Commission proposed a directive to ensure that workers in the EU are protected by adequate minimum wages allowing for a decent living wherever they work. When set at adequate levels, minimum wages do not only have a positive social impact but also bring wider economic benefits as they reduce wage inequality, help sustain domestic demand and strengthen incentives to work. Adequate minimum wages can also help reduce the gender pay gap, since more women than men earn a minimum wage; the draft also helps protect employers that pay decent wages to workers by ensuring fair competition.
The current pandemic crisis has particularly hit sectors with a higher share of low-wage workers such as cleaning, retail, health and long-term care and residential care. Ensuring a decent living for workers and reducing in-work poverty is not only important during the crisis but also essential for a sustainable and inclusive economic recovery.
There is a solid legal background for the draft: the right to adequate minimum wages is included in the Principle 6 of the European Pillar of Social Rights (principle 6), which was jointly proclaimed by the European Parliament, the Council (on behalf of all EU states) and the European Commission in Gothenburg in November 2017. Besides, the EU basic Treaties include approaches to working conditions, i.e. article 153 (1, b) of the Treaty on the Functioning of the EU (TFEU), and a two-stage consultation of social partners carried out in accordance with Article 154 TFEU. After the approval by the European Parliament and the Council, the states will have two years to transpose the directive into national law.
More information in the following web-links: = Commission proposal for an EU Directive on adequate minimum wages in the EU; = Staff Working Document and Impact Assessment accompanying the Commission proposal; = Questions and Answers: Adequate minimum wages; = Factsheet: Adequate minimum wages.

The proposal for adequate minimum wages is an important part of the social market economy in Europe, as an indication of respect for the dignity of work. It is still quite often that for some people existing employment doesn’t allow for a decent living; therefore, all workers should have access to adequate minimum wages and decent living standards. However, the general plan for minimum wages shall respect national traditions and the freedom of social partners.
It means that improving working and living conditions will not only protect workers, but also require that employers pay decent wages and create the basis for a fair, inclusive and resilient recovery. It is also vital to ensure that the low-wage workers could benefit from the economic recovery: they can earn a decent living wherever they work. Besides, social partners have a crucial role to play in negotiating wages nationally.
According to Commission, almost ten percent of European workers are living in poverty; at the same time, minimum wages’ process is trying to catch up with other wages which have seen growth in recent decades, leaving minimum wages lagging behind. Collective bargaining should be the gold standard across all EU-27, ensuring adequate minimum wages.

A framework for minimum wages is in full respect with the European social market economy’s principle, as minimum wages exist in all EU states: in 21 countries there is a statutory minimum wages and in 6 states (Denmark, Italy, Cyprus, Austria, Finland and Sweden) minimum wage protection is provided exclusively by collective agreements. Yet, the Commission acknowledges, in the majority of states, workers are affected by insufficient adequacy and/or gaps in the coverage of minimum wage protection. However, the directive fully respects the subsidiary principle: it sets a framework for minimum standards, respecting and reflecting the member states’ competences and social partners’ autonomy and contractual freedom in the field of wages; it does not oblige the states to introduce statutory minimum wages, nor does it set a common minimum wage level.
Countries with high collective bargaining coverage tend to have a lower share of low-wage workers, lower wage inequality and higher minimum wages; therefore, the new draft aims at promoting collective bargaining on wages in all EU states. Countries with statutory minimum wages should put in place the conditions for “adequate levels” in minimum wages, which include clear criteria for wage setting with a timely updates. These states should ensure proportionate and justified minimum wage variations/deductions with active involvement of social partners.
Finally, improved enforcement and monitoring of the minimum wage protection established in all EU states is essential: a) for workers to benefit from actual access to minimum wage protection, and b) for businesses to be protected against unfair competition.
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