Social entrepreneurship in Slovakia in the context of the current development potential of social economy

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Addressing social, economic and societal challenges is becoming a common feature of the ongoing discussions on social entrepreneurship. In view of the current developments in the labour market, with particular emphasis on the number and structure of disadvantaged groups of the population, social enterprises represent one of the key elements in the area of inclusive growth. Particular attention is paid to social enterprises for labour integration. Through the employment and social inclusion of disadvantaged or vulnerable people, social enterprises for labour integration contribute to overall social cohesion and inclusion. 

The adoption of Act No. 112/2018 Coll. On Social Economy and Social Enterprises in 2018 created a comprehensive regulation of the social economy sector, which introduced a long-absent system of financial assistance to support the activities of the social economy. A clear set of rules and instruments thus creates a legislative framework for the entire social economy sector in Slovakia, within which it facilitates not only the creation but also the development of social enterprises.

The Act in question amended a number of other important laws such as the Income Tax Act, the Value Added Tax Act, the Public Procurement Act, the Commercial Code, and others. On the positive side, the law contains a number of measures to prevent abuse of the social enterprise status (e.g. wage ceilings, disclosure of ultimate owners, limited transactions with related companies, ceilings on interest, restrictions on transfers of assets, prohibition of duplication of support).

This law is also significant because it defines basic terms such as social economy, social economy entity, social enterprise, social impact enterprise, registered social enterprise, and others. For this reason, the concept of social enterprise has its legal embodiment in the law effective from 1 May 2018, compared to the legislation of neighbouring countries. Due to the fragmented legal regulation of social entrepreneurship in several laws, neighbouring countries (Czech Republic, Poland, Hungary and Austria) are striving to enact the legal concept of social enterprise as well as to enact legal forms of social enterprises.

Social enterprises contribute to strengthening regional and local development in the country by addressing these challenges on the one hand and by bringing social innovation on the other hand. Many social enterprises through sustainable business concepts, not only in Slovakia but also abroad, have valuable experience in creating positive social impact and addressing local social and environmental issues.

The results from the interviews conducted with selected registered social enterprises showed that the success of a sustainable approach cannot be achieved without striking a balance between financial sustainability and maximising social impact. The registration of social enterprises is helpful in the stabilisation process, which also allows them to be formally integrated into the social economy sector. However, striking a balance between financial stability and achieving a positive social impact cannot be done without social enterprises being proactive in finding their own financial resources as well.

In the same way, the quality of middle management is one of the other elements for the successful development of social enterprises. It is defined by a high level of human capital in terms of the social, emotional and moral endowment of individuals.

On the basis of the adopted law, social enterprises also offer a special space for the integration and social inclusion of disadvantaged persons with disabilities. This opens up new opportunities for the potential target group to enter the open labour market. Another identified prerequisite for the development of the social economy sector as a whole is the relatively high allocation of financial resources from the EU as well as the state budget of the Slovak Republic for the support of social enterprises. The growing awareness of social enterprises in society as innovative and potentially sustainable contributors to job creation and development is another of the identified prerequisites.

On the one hand, the development of the social economy sector, as well as the very existence of social enterprises, represents an opportunity to integrate marginalised groups into the labour market and strengthen overall social inclusion. On the other hand, it is also an opportunity for business development through the creation of new entities as well as the transformation of existing entities into social enterprises.

One of the key factors on which the fulfilment of the aforementioned prerequisites will depend is the introduction of all statutory instruments to support social enterprises into application practice. The question for the future also remains some constraint, focusing on the moral consideration of the nature of the core business of the social enterprise, which in some cases may present an ethical conflict in the pursuit of positive social impact.

Among the identified challenges in the development of the social economy sector is the linking of social investors with social enterprises, which can be an essential element in obtaining financial resources for sustainable social enterprise concepts. At the same time, there is a need for more dynamic support in the area of education and training in the field of social entrepreneurship, which would allow for a continuous assessment of the needs of social enterprises in their different organisational forms. In this way, more effective integration across localities would be possible. By sharing knowledge and interacting with other social enterprises, there is room for learning new practical as well as business skills.

It will be important for public policy to continue to make progress in adopting support measures for social enterprises that will increase the effectiveness of the enterprises themselves in delivering inclusive growth. At the same time, it is necessary to stimulate through support measures the establishment and development of social economy entities and to eliminate obstacles that would hinder the expected development of the social economy sector in the conditions of the Slovak Republic.