The 'non-profit' or 'voluntary' sector is a key terrain for innovation
in welfare systems. Across Europe, users and producers of welfare services
are responding to deteriorating state provision by creating a new type
of organisation. Carlo Borzaga describes these 'stakeholder cooperatives'.
From Soundings issue 4 Autumn 1996
All European governments in the last fifteen years
have faced increasing financial and organisational difficulties in maintaining
and developing their post-war welfare state systems to respond to changing
needs. These difficulties have brought with them three kinds of very widespread
reform. The funding and organising of many services have been decentralised
to local authorities; while at the same time services have been restricted,
and in many cases fewer needs met. Finally there has been a sharp increase
in the number of private organisations producing welfare services. The
European-wide increase in private supply of welfare services has turned
the spotlight on the so-called 'non-profit sector', making it once again
a focus of debate. The growth has been driven partly by explicit government
policies of entrusting private organisations with the production of services
which continue to be financed by the central or local state authorities:
this has produced widespread experimentation with contracting-out and
'quasi-markets'. But private welfare has also been driven directly by
consumers forced to turn to private organisations for the satisfaction
of their needs which are no longer addressed by the European public welfare
This process of privatisation of the supply of welfare services has not
only hugely increased the number of private welfare organisations and
the scale of their workforce; it has also modified their role and nature.
Private non-profit or 'voluntary' organisations Europe-wide have moved
away from the functions of advocacy, self-help, pioneering new services,
and income redistribution from charitable resources, functions which are
typical of contexts defined by well developed public welfare systems,
and they have turned to being direct producers of social services. This
transformation has caused, and is causing, a well-documented trend to
professionalism and managerial ism in these organisations. It is also
producing a less well researched evolution of their organisational forms.
The focus of this paper is on these latter changes, drawing on comparative
The organisational evolution
Organisational innovation among European private welfare providers appears
to be producing a convergence on a new organisational form. Its most marked
characteristic is membership, and involvement in management, by diverse
stakeholders: users and workers, and also in many cases volunteers, benefactors
and representatives of public bodies. These new organisations, which I
call 'stakeholder cooperatives', operate in the welfare systems of almost
all the European countries studied, including Britain, and have emerged
mainly in the 1980s. Economic analysis offers some insights into why this
The economic literature has long identified a key problem with the private
production of welfare services. Consumers of such services often find
it hard to monitor the quality of the service they receive, and the relation
of its quality to the price they pay. This allows a profit-seeking firm
to reduce the quality of the service it supplies, and hence to cut costs,
without altering the price. For this reason, market provision of welfare
services is frequently unsatisfactory.
Economics furthermore suggests that one way to overcome some of these
problems is to constrain the choices and behaviour of firms. These constraints
can be imposed by a public administration, in drafting funding contracts
with the private firms, or they can be voluntarily adopted by the enterprise.
A very common voluntary constraint takes the form of a limitation on the
profit-taking and profit-sharing behaviour of the firm, by creating a
'non-profit' organisation. Another is the involvement with the enterprise's
management of the consumers themselves, or of stakeholders with interests
close to those of the consumers, such as volunteers. In the first case,
since the enterprise cannot distribute profits, it lacks an interest in
increasing them. In the second case, the interests of the consumers are
at least partly guaranteed by those who represent them on the board which
takes the decisions on the quality of services. Across Europe, there have
long been three types of organisation which exhibit one or both of those
* British non-profit organisations (mainly charities), characterised by
a restriction on distributing profits to owners;
* 'associations', bound both by the pursuit of 'idealistic or social purposes'
and by restrictions on distribution of profits;
* cooperative societies, mainly in countries such as Italy and Spain where
cooperatives are recognised to have a 'social' character, with a consequent
curbing of profit sharing.
The main distinction within these three organisational types is between
the first two, which did not start out as producing organisations, and
cooperative societies which have always been producers of goods and services.
But these organisations are now converging, under the impact of increasing
demands for private production of welfare as European welfare systems
The big changes include a more widespread use of the cooperative form
in the production of welfare services and, simultaneously, the modification
of some of its characteristics. In the interests of consumer protection,
attempts are being made to democratise the management, and to increase
consumers' and volunteers' participation as cooperative members. Simultaneously,
we are seeing a reinforcement of the productive character and activities
of charities and associations throughout Europe. This has altered their
organisational framework and brought the increased involvement, alongside
volunteers and consumers, of paid workers and managers.
It is possible, therefore, to identify a general European tendency towards
an organisational form that is a mixture of association and cooperative
society. This new form takes in the strong orientation of associations
towards the interest of the community (their 'idealistic' character),
and also presupposes the participation of consumers and volunteers in
their organisation and management. At the same time, it takes on the productive
character, and the workers' involvement in the organisation and management
of the enterprise, which are peculiar to cooperatives. This evolution
is creating a new type of organisation, which some call 'multi-stakeholder'2,
and I have called 'multi-membership'.3 For my purposes here I will refer
to them by the more explanatory name of ‘stakeholder cooperatives'.
Stakeholder cooperatives have the following characteristics. They produce
various types of welfare service in a manner not unlike that of a profit-seeking
firm, but their goal is explicitly neither profit, nor the economic benefit
solely of their own members. Stakeholder cooperatives have a membership
consisting of diverse stakeholders, especially users and workers, or workers
and volunteers, or all three categories, but also including benefactors
and representatives of public bodies. They aim for a democratic management
process, which ensures participation by the stakeholders in decisions.
And while they do not necessarily adopt a complete prohibition of profits
distribution, they can usually distribute profits only to a limited extent.
Stakeholder cooperatives take on, according to the legal system of different
countries, the legal form either of the association or of the cooperative.
At least in two countries, however, this new form has been clothed in
a new legal garment.
The legal changes
Organisational change puts pressure on existing legal frameworks,
which evolve in response. The Italian social cooperative society represents
an evolution of the traditional cooperative form. The founding Act of
1991 acknowledged a phenomenon that had been developed over the previous
ten years. The main peculiarities of the social cooperative as compared
to the traditional one are the following. The social cooperative must
pursue an express social purpose. A legally acceptable objective however
is to promote 'the general interest of the community in the social integration
of citizens'. The membership of a social cooperative can consist of a
variety of stakeholders, including workers, volunteers, consumers and
public institutions. And the social cooperative must be engaged in the
production of social, health and educational services, or must employ
disadvantaged people as at least 30 per cent of the total workers.
The social cooperative society may share out yearly profits only to a
limited extent: not more than 80 per cent of the total profits and not
more than the equivalent of 10-11 per cent of the subscribed capital may
be distributed. If the cooperative is dissolved, members can be paid off
services' only up to the extent of the subscribed capital, and any remaining
assets must be put to use in the public interest.
The new Belgian form, the 'enterprise a finalite sociale', was established
in April 1995 by an Act which modified the civil code. An enterprise can
be designated a 'company with social objectives', if the company by-laws
include the following: the social objective that the company is to pursue;
a commitment that the members seek no personal profit, directly or indirectly;
that the profit distributed to members be no higher than the maximum interest
rate agreed by the National Cooperative Committee (at present, 7 per cent);
that members' voting capacity be restricted to one tenth of the votes
represented by the shares, or one twentieth of the votes when the workers
also contribute to the capital; and finally that any member of the staff
must become a member within two years of joining, except for those who
do not enjoy full civil rights.
The activities of stakeholder cooperatives
Comparative analysis of the evolution of private organisations producing
welfare services in Europe has shown that stakeholder cooperatives have
developed in two main areas of activity.4 They organise and provide social
services, and more generally services of collective benefit to members,
to communities, or to groups of citizens with particular needs. They also
organise other production activities with the sole purpose of providing
work, income and training for people with employment difficulties.
Stakeholder cooperatives supplying social or collective services take
a distinctly broad view of mutual aid, since their beneficiaries are often
not members, and their membership includes people who gain no personal
benefit from the activities and who offer their services voluntarily.
They produce a huge variety of services, according to the concerns of
the members, the needs of the community, and the nature of type of the
public services available. Their services may range from strictly health
and charitable services (such as care for the handicapped, the elderly,
the non-self-sufficient, etc.) to those with a wider social scope (kindergartens,
education), to cultural and recreational ones, and even to environmental
Comparative research has revealed great variety, and also some national
oddities. The most common service production is for groups of particularly
needy citizens on behalf of public administrations and with their financing.
This is especially common in those countries where reform of the welfare
systems has separated the financing (public) from the production (private)
of services. However, a well-established track record of also producing
services directly for private demand suggests that the current pattern
of specialisation may not be definitive.
Stakeholder cooperatives producing social services for the public interest
operate in many European countries. In some (France and Belgium) they
mainly take the form of an association, although some cooperatives have
been developed. In other countries (Spain, Portugal), where cooperative
legislation is more recent, provision is made for the stakeholder cooperative
form to perform only certain public interest activities, such as helping
the disabled, and education. In still other countries, where cooperatives
are employed to organise social services, the cooperative and associative
forms used are the traditional ones, notably cooperatives for consumption,
work, and production. But there is a clear trend to involving the workers
or the consumers in the management of the company.5
In Italy, where the multi-stakeholder company has been fully recognised
as social cooperative, it has been restricted to the production of only
certain services. Conversely countries in which there has not been an
expansion in cooperatives or French-type associations producing social
services have developed other organisational forms with some of the characteristics
of the stakeholder cooperative. Good examples are the community business
and other small new organisations providing social services in the UK,
and the Social Solidarity Private Organisation (IPSS) m Portugal.
Another kind of stakeholder cooperative uses a range of production activities
as a means of creating long or short term job opportunities for the disadvantaged.
These have found it easiest to operate as associations or, more often,
as cooperatives. In comparison to traditional cooperatives, and more like
associations, these stakeholder cooperative place more emphasis on social
objectives, restricting themselves to the task of creating work for their
disadvantaged members. But the fact that, to meet these ends, they produce
goods and services and must respond to the market, means they acquire
a more entrepreneurial form. This type of organisation is even more likely
to have a complex and multiple membership than those providing social
services, since their beneficiaries are employed as workers, and hence
it comes more naturally to admit them as members than consumers of services.
Comparative research has shown that this latter type of stakeholder co¬operative
operates in almost all the European countries, and that they developed
mainly during the 1980s. Interestingly, they have grown quite independently
of the pre-existing cooperative tradition or of other cooperative form
operating in the sector of the social services. Their growth has been
driven by the difficulty of integrating disabled workers into the labour
market. The system of obligatory quotas and protected jobs in public and
semi-public companies, common in European countries, worked satisfactorily
during the 1950s and 1960s but failed in the 1970s. The growth of unemployment
turned employment policies towards the new unemployed. There was less
pressure on companies to take on disabled workers, and the protected work
structures lost their original significance and risked becoming isolated
ghettos, instead of helping the social reintegration of the disabled.
In reaction, new production enterprises emerged, especially at the local
level, which aimed to guarantee integration and stable jobs. By combining
disabled and able-bodied workers, these organisations sought to achieve
production levels that would ensure adequate remuneration for their workers
and ward off the risk of isolation.
These initiatives then strengthened and spread in two main directions.
Some organisations have substituted for the original intention of finding
the disabled secure jobs in the company a temporary status aimed at rebuilding
their working capacity and preparing them for new jobs in the open labour
market. In addition, the target group has gradually expanded from the
disabled to other workers with re-integration problems, such as ex-prisoners,
and other socially marginalised people, including the long-tem unemployed.
Thus the stakeholder cooperatives focusing on reintegration into work
have steadily grown into an important instrument of employment policy
mid-way between training and full-time work. They provide on-the-job training
for people for whom standard training schemes would be impracticable,
by employing them in work activities designed to provide training. This
model of intervention is still largely experimental, sometimes created
unreflectively, with scant formal structure for the training activities
and for the passage between training and work.6 However, it has a potential
which employment ministries could consider more closely.
Research conducted to date on the various forms of stakeholder cooperative
has mainly concentrated on more measurable aspects of their work. Qualitative
analysis - especially of a comparative type - of the performances of these
organisations is still rare. Some limited attempts have been made in Italian
research on local samples of social cooperatives, and these have yielded
some interesting results. Comparison between a sample of (single-stakeholder)
worker cooperatives and of (multi-stakeholder) social cooperatives operating
in the same sector (the maintenance of public facilities) in the municipality
of Turin, shows that the latter have accumulated ten times more funded
reserves than the former, and achieved almost double the rate of capitalisation,
although the capital initially invested by the members was substantially
Another research study on 119 cooperatives working in the welfare services
sector in Emilia Romagna concluded that those cooperatives which also
have users and volunteers among their membership are less dependent on
public financing, are more concerned to satisfy private demand, are more
dynamic, and readier to develop new services, especially ones catering
to needs not satisfied by other public or private suppliers.8
There is now sufficient research to confirm that the transformation of
European welfare systems has given birth to new organisational forms in
the private production of welfare services. These forms are not simply
characterised by a constraint on the distribution of profits - a constraint
which hardly seems sufficient in any case to protect consumers - but they
combine this non-profit form with the direct involvement in the enterprise's
management of a majority of diverse stakeholders. The potential of these
new organisations, and particularly the implications of their providing
directly for the private demand of services, remains to be explored. This
article is just a first step in identifying their existence, their increasing
reach, and the extent to which they have already been adopted by the legal
system of some European countries.
1. This article draws on continuing research on the emergence of new forms
of social enterprise in Europe, funded by the European Commission.
2. VA. Pestoff, 'Renewing Public Services and Developing the Welfare Society
through Multi-membership Cooperatives', Journal of Rural Cooperation,
Vol.XXIII No.2, 1996.
3. C. Borzaga, 'Social cooperatives and work integration in Italy', forthcoming
in Annales de I'Economie Publique, Sociale et Cooperative.
4. C.G.M. (1995), Social enterprise: a chance for Europe, mimeo, Bruxelles.
6 E, Vidal I., (1994), Delivering Welfare, Centre d'lniciatives de l'Economia
5. Pestoff, op. cit.
6. Borzaga, op. cit.
7. M. Marocchi, 'Le cooperative di servizi nella provincia di Torino',
in Istituto Italiano di Studi Cooperativi 'L. Luzzati', I! contributo
delle nuove forme di cooperazione allo sviluppo dell'economia italiana.
II ruolo delle cooperative sociali, Rome, mimeo 1995.
8. S. Stanzani, 'Effetti di reciprocity nel terzo settore. Dimensioni,
operativi e criteri di effkacia della cooperazione sociale emiliano romagnola',