Three ways in which the Romanian social economy is failing

Three ways in which the Romanian social economy is failing Ramona Cantaragiu [email protected] The Bucharest University of Economic Studies Shahrazad Hadad [email protected] The Bucharest University of Economic Studies Abstract In this article we provide a critique of the social economy by focusing on the Romanian context. As an impressive amount of resources is directed towards the social economy, proportional to the amount of hope that this will prove the savior of the vulnerable groups and the destroyer of social exclusions, it is high time we started asking questions such as: are we really going in the right direction? What happens when you change the rules of the economy to make it more social? Is there really a way to improve the market mechanism to solve social problems? The first area of discussion concerns the fundamental principles on which the social economy is built: promoting the social inclusion for vulnerable groups while at the same time discriminating and isolating them; then we discuss the principles of organization which are not homogeneously obeyed by all social economy actors and the avoidance of talks about entrepreneurial profits but its dependence on the profit’s very existence; and the last section presents the outcomes of the coercive legal framework which has failed to foster true social inclusion, and rather created mechanisms for fraud and profits. Concluding, we advocate the need to rethink the necessity of building new laws, especially laws which coerce social actors into certain behaviors rather than focusing on easing the access to certain social actors to the market economy. Keywords: social economy, Romania, social entrepreneurship, social inclusion, critique, social enterprise 1. Introduction The social economy is based on the belief that the market mechanisms of capitalism can be molded into a new shape, a new sector of the economy, which will solve the problem of social exclusion for many vulnerable groups. In Romania the interest for the social economy is as high as ever at this moment, as there are multiple institutes (e.g. the Social Economy Institute, the Network of Social Economy Incubators, CERES - the Centre of Resources for the Social Economy) involved in research and consulting social actors interested in developing social enterprises; a law for the social economy has been recently drafted and is now waiting the vote of the Parliament; in 2007, NESsT opened a branch in Bucharest and has inspired others to set up social business incubators; researchers are writing books on the subject of social economy (e.g. Cotoi and Mateescu (2013), Lambru (2013), Larionescu (2013) etc.); private companies and public universities are offering accredited courses for social entrepreneurs (K Consulting Management and Coordination, Babes-Boylai University in Cluj, The Bucharest University of Economic Studies, National School of Politic Sciences and Public Administration in Bucharest). This vested interest in the Romanian social economy has given rise to countless initiatives and endeavours in the field, most of them sustained through structural funds, more precisely the European Social Fund. There are also an increasing numbers of sheltered units in which at least 30% of the workforce belongs to vulnerable groups and of non-governmental organizations and foundations. Other actors of the social economy such as the mutualities and cooperatives are experiencing stagnation or slight decreases of their activities, but in general it is believed that the sector as a whole is experiencing a growth that will bring a new era of social justice. Thus, it is high time we started asking questions such as: are we really going in the right direction? What happens when you change the rules of the economy to make it more social? Is there really a way to improve the market mechanism to solve social problems? This article offers a tentative set of answers to these questions using the example of the Romanian social economy. 2. Claim one - Purpose of existence We live in a world which we do not control, but which controls us, which is not directed toward us and adapted to us, but toward which we must constantly direct and adapt ourselves in order to become socially included actors. But what does social inclusion stand for? As defined by the World Bank social inclusion is the process of improving the terms for individuals and groups to take part in society, of empowering the poor and the marginalized to take advantage of the burgeoning global opportunities. It gives them a voice in decisions which affect their lives so that they have a meaningful participation in economic, social, political, and cultural life (Horsell, 2006). We share the opinion of Fredericks (2010) who suggested that belongingness as experienced in everyday relations constructs the kinds of sentiments on which societies of exclusion (and inclusion) are based. Now we ask what type of social inclusion do you obtain when we create a special sector of the economy for vulnerable groups? And when we force companies to work with the actors of this special sector of the economy through regulations – whereas one of the fundamental principles of this social economy is voluntary participation? We believe this results in a forced social inclusion which may take care of the economic aspects of social exclusion (unemployment, poverty), but not of the social aspects such as discrimination and stigmatization. In this manner we assist the creation of a, metaphorically speaking, gated o u it that ill represe t a spa e of so ial i lusio a d e lusio at the sa e ti e containing individuals who have now been removed from the broader society. Furthermore, simply naming those who are at social exclusion risks is a type of discrimination and it places the one naming them under a solid question mark (Allman, 2013). Now, this makes one wonder if it should be called a social economy at all. It is discriminatory in itself the fact that the status of persons belonging to a vulnerable group has to be ascertained by a specialized organism that uses special criteria to determine whether a human being is at risk or not. We know from the experience of other countries and even from Romania, that individuals have at their disposal a lot of leeway when it comes to the manner in which they present their identity, and secondly that assigning a label to someone might cause more social harm than help leading to the individuals being systematically excluded from particular activities only because they possess a particular characteristic or they are members of a certain group. Moving forward, we question if we are not building into our definition of the social economy the means of perpetuating social exclusion. The point that the social economy advocates is that once these individuals gain a steady job, they will automatically be accepted into society, and their state of vulnerability and lack of agency will disappear which will lead to the dissolution of the social economy as a sector. However, there is no mention in the legislation as to how the employees have to be treated and how much they should be paid for their work leading to them being paid, in most of the cases, with the minimum wage in Romania. Moreover, by requiring that at any time 30% of the employees belong to vulnerable groups (in the case of social inclusion enterprises) we either see the inclusion into such a group as permanent, or we require a very high personnel turnover, which is most probably going to damage the sustainability of the enterprise. We also need a constant input of employees from vulnerable groups, which is not in line with the desire to diminish the numbers of people in such groups. Thus, the effect of creating an economy addressed to vulnerable groups might lead to such a perverse effect as increasing the number of citizens in that group, or keeping a large number of people in that particular state. 3. Claim two - Principles of organization Social economy is said to place the individual and the social objectives above profit and to be based on the principles of solidarity and social responsibility. Moreover, in this economy the members have to democratically control the activities of the organization. However, there are various references made to profit, and in some cases profit is the only way to attain the status of a social economy actor as in the case of the social inclusion business which is required by law to use the profit to create new employment places for people belonging to vulnerable groups or, in the case of the general principle which states that part of the profit has to be allocated to reaching the objectives concerning sustainable development and the provision of services in the general interest of the community, making the case that once again, the engine of every activity should be represented by money. In this manner we can spot how, from a microeconomic point of view, capital is treated unwisely by ranking second in decision making and in profit distribution making social enterprises unattractive to investors (except, maybe, social investors who claim to be more interested in the social impact) enhancing their financial problems. There are two types of social economy actors: those that employ vulnerable people and those that provide services and goods for vulnerable people or the society as a whole. There are instances in which actors blur these lines of demarcation, but each type is regulated differently by the current legislation. In the economy of the vulnerable people there are two types of organizations: the social enterprise and the social inclusion enterprise which is simply a special type of social enterprise that uses its profits to create new work places and is required to hire individuals from vulnerable groups. In the second group, we find the already existing juridical forms: cooperatives, mutualities, non-governmental organizations and other associative forms. Each entity belonging to the social economy as it is imagined at the moment embodies only a fraction of the guiding principles (e.g. cooperatives are democratically organized, but they do not necessarily pursue a social purpose explicitly, NGOs are providers of social services, but are not democracies etc.). This means that not all social economy actors are created equally, and that there is the propensity to favor some more than the others, which is clear if we look at the way in which funds are funneled into the social economy towards NGOs rather than cooperatives or other forms, or the way in which the legislative framework advantages social inclusion enterprises. In this respect, a unitary funding scheme may balance the chances of the social economy actors. 4. Claim three – Legal framework The Romanian social economy was born in the context of a culture of intensive auditing and with a bureaucratic burden that makes it resemble a planned economy which cannot be subject to adaptive change. For starters, the projects financed through the Social European Fund require extensive reporting. There are teams of experts that evaluate these projects (based on eight criteria of which none of them directly relate to sustainability), and not the market, and as per sustainability, if we are talking about projects spanning over three years we can rule that out from the beginning despite the fact that sustainability is mainstream to HRD OP. And again, the beneficiaries are held responsible for their actions in front of the evaluators not in front of the market as should be the case. If a beneficiary finally obtains such funds, they come with the burden of bureaucracy, and in some cases, with the incompetence of the public sector employees. Social economy has given birth to a new type of entities called sheltered units in which at least 30% of the employees belong to vulnerable groups. At the same time, by law, in companies that have more than 50 employees the percentage of hired persons with disabilities is required to be of least 4%. The companies that do not want to apply the provision, have two legal options: to purchase products or services made by people with disabilities employed by authorized protected/sheltered units on a partnership basis - employers must buy these products in equivalence to the total amount of debts to the state budget in relation to the percentage of 50% of the national minimum gross salary, multiplied by the number of jobs available for people with disabilities; or monthly payments made to the state budget of the amount representing 50% of national minimum gross salary times the number of jobs unfilled by people with disabilities. If the companies do not comply with the two listed alternatives, they can be fined in amount of 15.000- 20.000 lei (approximately 4-5,000 EURO) by labour inspectors. However, a coercive legislation framework sometimes breads monsters, which is what most authors believe to have happened in this particular setting. Achitei (2013) has detailed the scenario: a company that has over 100 employees, instead of hiring 4 persons with disabilities, sets up a sheltered unit where it creates only two jobs of which only one is destined for persons with disabilities, meeting in this manner the minimum percentage of 30% hired disabled persons. That person is eventually paid with the minimum salary, works one hour a day and it is even better if the person does not come to work. This way, the mother company buys whatever it needs from the sheltered unit, even more, it sells its products to companies that have over 50 employees and do not want to pay the money to the state budget. In support of this scenario, we may add the fact that according to statistics, sheltered units hire on average 1 up to 2 persons disabled persons. 5. Conclusions Why do we need to add more complexity over an already functional system by setting up social enterprises, were asso iatio s, fou datio s, ooperati es, utualities, “ME’s a d so o , not enough? The social economy has been built on the foundation of third sector which was blended with other forms of juridical entities. Cooperatives used to belong to the classical economy, their impact is rather low at national level, they do not benefit from any governmental support, they themselves being marginalised and disadvantaged entities, how can one expect cooperatives to help vulnerable groups if they cannot help themselves? It is rather ridiculous to expect them to flourish when 1 out of 3 NGOs receives financial support from the local authorities and cooperatives are completely neglected despite them providing a significant number of jobs especially in rural areas (Arpinte et al., 2010). We are of the opinion that the craftsmen cooperatives do not need any complexity added to their modus operandi, they should be allowed to focus on producing and selling, not on giving account of their actions being social or not. The same thing happens with the credit cooperatives or mutual aid organisations which simply do not get any financial support from the state not to mention that they are associated with our socialist past while the NGOs are new and of capitalist flavour. Adding to the list of drawbacks of the social economy is the fact that its definition simply disregards any link to the abilities and the competences that the persons in the vulnerable groups might get from being involved in this activity. These abilities should be developed and used such as for the social inclusion into the labour market not to be done in a forced manner, but to be driven by the resources that the vulnerable groups have to offer. Now, let us consider the example when companies come to hire persons with physical impairments. The first barriers appear when the person wants to leave the house: buildings with no elevators or too small to fit a wheelchair, no ramps or too abrupt ones, broken pavements or with high kerbs, thresholds everywhere and so on, therefore if you want to hire such a person you need to adapt your buildings by creating appropriate infrastructure – i a stud o du ted the Moti atio foundation started in 2012 due to finalize in 2014, out of 1,042 buildings (institutions related to culture, state, public, entertainment, sport and tourism) that were evaluated 23% of them are accessible, 27% moderately accessible and 50% inaccessible) (http://chenar.ro/situatia-oamenilor-cu-dizabilitati-in-romania-saucum-poti-sa-urci-scarile-pe-roti). By doing the maths, we can very easily deduce that hiring persons with physical or mental impairments may pose problems from the start, so the easier way to deal with this obligation will be for the employer either to pay money to the state budget or to acquire products from sheltered units. We may add to all these arguments the fact that according to statistics, sheltered units hire on average 1 up to 2 persons disabled persons. From this example we draw the conclusion that the state should allocate money in order to make buildings more accessible for vulnerable groups and not impose these improvements to be made on the expense of the social actor. Acknowledgement This work was cofinanced from the European Social Fund through Sectoral Operational Programme Human Resources Development 2007, proje t u er PO“DRU/ 9/ . /“/ Perfor a e a d e elle e i do toral a d postdo toral resear h i Ro a ia e o o i s s ie e do ai . References Achitei, A. 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