Social economy in Europe: New frontiers for a sustainable future

November 2024

In an era marked by economic uncertainty, environmental challenges, and social inequality, the social economy has emerged as a vital force for positive change across Europe. It represents a sector that prioritises people over profit, addressing unmet societal needs through innovative, democratic, and solidarity-driven initiatives.

The social economy has increasingly gained recognition as a crucial component of Europe’s socio-economic landscape. At the same time, there are still very diverse understandings and ongoing discussions on how to further strengthen it.

What is the social economy?

The social economy is a socio-economic ecosystem that encompasses a wide variety of organisations driven by values of solidarity, inclusiveness, and democracy. Unlike profit-driven businesses, social economy entities aim to benefit their members or society at large by pursuing social, environmental, or community-oriented goals.

According to the European Commission’s Social Economy Action Plan (SEAP), these entities are typically cooperatives, mutual benefit societies, associations, foundations, and social enterprises, which all operate based on the principles of collective action, democratic governance, and reinvestment of surpluses for the common good. A newer addition to this framework is the concept of social enterprises, which cut across these traditional forms but also extend to private companies that aim for a social purpose alongside economic viability. Unlike conventional businesses, profits in social economy entities are largely reinvested into their social or environmental missions.

Today, the social economy sector includes more than 4.3 million entities across the EU, employing over 11.5 million people, or about 6.3% of the total employed population. These organisations operate in a variety of sectors, from healthcare and education to renewable energy and cultural industries. Their key characteristic is that they seek to balance economic activity with social and environmental responsibility, offering innovative solutions to some of Europe’s most pressing challenges.

Why is the social economy important?

The social economy’s importance lies in its ability to address societal challenges that traditional markets and governments often fail to meet. Its focus on the well-being of communities, social inclusion, and sustainable development makes it an essential pillar in Europe’s efforts to achieve the Sustainable Development Goals (SDGs) and the objectives of the European Green Deal.

• Promoting social inclusion. Social economy entities play a crucial role in integrating disadvantaged groups, including the unemployed, people with disabilities, and those at risk of social exclusion. Work integration social enterprises, for example, offer employment opportunities and training for individuals facing barriers in the labour market. The sector is also heavily involved in providing social services, such as healthcare and education, particularly in regions underserved by public institutions.

• Supporting sustainable development. The social economy is well-positioned to lead Europe’s transition to a green and sustainable economy. By fostering local economic activities, such as community energy cooperatives, organic farming, and circular economy initiatives, social economy organisations help reduce carbon footprints, promote renewable energy use, and contribute to environmental conservation. The social economy is particularly strong in sectors like agri-food, energy, and cultural industries, which are pivotal for sustainable development.

• Strengthening democratic participation. At the core of the social economy is democratic governance. Members of cooperatives, associations, and mutuals have a direct say in decision-making processes, ensuring that these organisations operate transparently and in alignment with the needs of their communities. This inclusive approach fosters civic engagement, empowers citizens, and strengthens the fabric of democracy across Europe.

Different understandings of social economy in EU member states

While the social economy is recognised across Europe, its legal frameworks, institutional support, and visibility vary significantly between member states. Countries such as Spain, France, Belgium, and Portugal have a long tradition of acknowledging the social economy through laws and policies. In these countries, the concept of the social economy is well integrated into public discourse, and there is significant support from the government to foster its growth. For example, Spain passed a law in 2011 to formalise the recognition of social economy entities, while Portugal followed with its own law in 2013.

In contrast, in countries such as Austria, Germany, and Italy, the concept is less uniformly applied, with a stronger division between cooperatives and associations. In central and eastern European countries, such as Latvia, Lithuania, and Hungary, cooperatives are still seen in some cases as remnants of the socialist past, and thus there is less focus on integrating them into the broader social economy ecosystem.

Another challenge is the varying understanding of the role of social enterprises. Some countries, like Ireland and Italy, have robust legal frameworks for social enterprises, while in others, such as Denmark and Sweden, the concept of social enterprise remains underdeveloped, overshadowed by ideas like social innovation or corporate social responsibility.

What needs to be done to further the social economy in Europe?

While the social economy already plays a significant role across the EU, several steps are needed to further its development and maximise its potential:

• Improve recognition and legal frameworks. There is a need for clearer and more harmonised legal frameworks across member states. In many countries, the social economy is still poorly understood or recognised, which hinders the growth of organisations in the sector. The EU’s Social Economy Action Plan and recent Council recommendations provide important momentum, but national governments need to adopt laws and policies that offer better support for cooperatives, associations, mutuals, and social enterprises.

• Enhance access to finance. One of the major barriers to the expansion of the social economy is limited access to finance. Social economy organisations often struggle to secure funding because traditional financial institutions may perceive them as riskier investments due to their non-profit or low-profit nature. Public authorities and private investors should develop tailored financial instruments, such as social impact bonds, guarantees, and grants, to support these entities. Additionally, fostering partnerships with ethical banks and impact investors can help unlock new sources of funding.

• Boost data collection and visibility. There is a lack of comprehensive, reliable data on the social economy in many EU countries. Improving statistical data collection on the sector is essential for developing evidence-based policies and enhancing the visibility of the social economy’s contributions. National statistical offices should collaborate with EU institutions and social economy networks to create robust databases that capture the full socio-economic impact of these organisations.

• Foster capacity building and innovation. To remain resilient and competitive, social economy organisations must innovate and adapt to new challenges, such as digital transformation and the green transition. Capacity-building initiatives, such as training programmes, knowledge-sharing platforms, and digital tools, should be made available to social economy entities to help them scale up their impact. Public authorities, universities, and civil society organisations can play a vital role in providing these resources.

The social economy is an integral part of Europe’s socio-economic fabric, contributing to both economic stability and social well-being. However, despite its significance, the social economy is still under-recognised and under-supported in many parts of the EU. By fostering a shared understanding, improving data collection, and offering targeted support, Europe can further harness the potential of its social economy to build more resilient, inclusive, and sustainable societies.

The Benchmarking the Socio-Economic Performance of the EU Social Economy (Öffnet in neuem Fenster) report – which provides the background to the above findings – is a vital step towards achieving the vision of a stronger social economy in the EU. It provides valuable insights into the state of the social economy across the EU, highlighting both the achievements and challenges faced by the sector. By collecting data on the size, employment, and economic contributions of social economy entities, the report offers a comprehensive overview of the sector’s socio-economic significance. It also provides actionable recommendations aimed at improving the overall visibility and recognition of the social economy. From adopting shared definitions of social economy across member states to supporting the digital transition of social enterprises, these recommendations are crucial for future growth.

The report is available here (Öffnet in neuem Fenster).

by Kai Böhme