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The current situation of social enterprises and the nonprofit sector in Hungary: a brief overview

 

Social enterprises combining social aims with economic activities are becoming more and more widespread across the world. The role of social enterprises is particularly relevant in the United States and Western Europe, but there is a growing interest towards such initiatives in other regions – such as Central and Eastern Europe including Hungary – as well. The present post aims at providing a brief overview of the situation of social enterprises in Hungary, focusing especially on their place in and relation to the nonprofit sector.

Regarding a definition appropriate to Hungary, different schools of thought are present, there is no univocally accepted official approach. Some authors emphasize the importance of democratic decision making processes and the collective character of the organizations – thus being closer to the EMES tradition (see Petheő. 2009 or Csoba et al., 2007), while other authors stress the role of innovation as such and thus are more connected to the social innovation school (see Tóth et al., 2011 or Esse, 2013). However, according to G. Fekete et al. (2014) the definition most accepted by authorities and experts is that of the European Commission, which – besides social aims and economic activities – highlights the importance of both democratic decision making and social innovation. According to the definition: “a social enterprise is an operator in the social economy whose main objective is to have a social impact rather than make a profit for their owners or shareholders. It operates by providing goods and services for the market in an entrepreneurial and innovative fashion and uses its profits primarily to achieve social objectives. It is managed in an open and responsible manner and, in particular, involve employees, consumers and stakeholders affected by its commercial activities” (European Commission 2011, p. 2).

Concerning the number of social enterprises in Hungary, there are different estimations, and there is an overall lack of statistics. Petheő (2009) states that there are around 500-600 organizations to be regarded social enterprises. In the SELUSI research from 2010 however, only 104 social enterprises participated (see Tóth et al, 2011). Most recently, G. Fekete et al (2014) estimated that there are around 3360 social enterprises in Hungary.

The legal form of social enterprises in Hungary can vary from nonprofit to for-profit. Still, though there are several examples of social enterprises having for-profit legal forms, the phenomenon – similarly to other European countries – can primarily be linked to the nonprofit (or third) sector in Hungary. According to G. Fekete et al. (2014) mostly non-profit companies with social aims, NGOs (associations or foundations) with economic activities, social cooperatives and traditional cooperatives can be regarded as social enterprises.

The development of the nonprofit sector – the sector to which social enterprises have most ties to – was to a great part influenced by the change in the role of the State after the transition and also the impact of joining the European Union. The shift in the size of the sector is summed up by the Hungarian Central Statistical Office – CSO (2012) as the following: the number of organizations increased from 1993 until 1997, then stopped for a while and later started to grow again, reaching 65.000 in 2008. In addition, social cooperatives – that are also important, though not regarded to be part of the non-profit sector in CSO statistics – were legally recognized in 2006.

The financial situation of nonprofit organizations has for a long time been characterized by excessive dependence on State and EU resources and the decreasing size of such resources. In addition, the lack of local, corporate and individual donors and the small number of other possible resources also make the operation of the majority of Hungarian NGOs quite vulnerable. Moreover, according to Tóth et al. (2011) the unpredictability of the funding systems, the delay of payments and the bureaucratic procedures of reporting also weakens the sustainability of the organizations.

Recently, the situation of the nonprofit sector seems to have reached a critical turning point. The Hungarian Central Statistical Office (2013) reported that for the first time in 2012, three important indicators of the size and the economic and social weight of the sector (the number of organizations, the number of employees, and overall income in real terms) showed lower values than the previous year. In 2013, according to the CSO (2014) this decrease continued, though only regarding service providing nonprofit companies.

There are various reasons for the current state of the nonprofit sector. According to a report by USAID (2013) on the sustainability of civil society organizations, a number of social, economic and political factors have been affecting these organizations in a negative way, such as the weakened rule of law, fragile economic environment, deteriorating standards of living, higher proportion of people living in deep poverty, etc. As a result, the last two years saw a decrease in all dimensions of sustainability: legal environment, organizational capacity, financial viability, advocacy, service provision, infrastructure and public image (see USAID, 2013 and 2014).

Due to the financial problems and the vulnerability described, more and more organizations seek to diversify their resources to ensure the sustainability of their operation. One way to do so can be starting social entrepreneurial activities. Still, Tóth et al (2011) states that the model of social enterprises for the relevant stakeholders is not widespread yet – though it seems to have been on the increase for the last few years.

This increase can also be seen when looking at financial opportunities: social enterprises and similar initiatives so far have been funded by programs particularly aiming at social cooperatives and the social economy (e.g. certain grants by the EU Structural Funds). Besides State and EU funding, today in Hungary a limited number of actors work on the development of social enterprises, support infrastructure to a certain extent is available. For instance, NESsT and Citibank has a joint development program, which provides business training and funding for social enterprises starting out, while Ashoka is also present in our country, providing an opportunity similar to the previous program. In addition, the Kreáter Social Agency offers young people under 30 a three-month-long training internship program and the Foundation for Development of Democratic Rights (DemNet) is in charge of the EU Erasmus Program for Social Entrepreneurs in Hungary.

To sum up, though the phenomenon of social entrepreneurship is not widespread yet, it becoming more and more relevant in Hungary. Also, the support of the social economy and social enterprises is expected to play an increasingly important role in the future, especially as part of the Europe 2020 strategy. As of right now, a number of social enterprises already exist, operate, and have proven to have relevant social impact, but are often characterized by problems in their daily existence that are similar those experienced by nonprofit organizations without entrepreneurial activities due to the fact that – as Tóth et al (2011) argues – the present economic situation, funding infrastructure and legal environment is not favourable towards the establishment of social enterprises.

The most important challenges social enterprises face according to G. Fekete et al (2014:ii) are: “(1) the low level of awareness and understanding of the concept of ‘social enterprise’; (2) at policy level, the major barrier is the lack of a high-level national strategy for social enterprises, preferably one that would survive government changes; (3) the sector lacks supporting infrastructure (platforms); (4) low viability of business models of existing social enterprises, also due to overreliance on the grants”. In order to foster the development of social enterprises – which might lead to increasing the sustainability of the nonprofit sector in general – addressing these challenges in the near future is necessary.

References

Csoba, J., Frey, M., G. Fekete, É., Lévai M. and Soltész A. (2007) Szociális gazdaság kézikönyv (Social Economy Manual). Budapest: OFA.

Esse, B., Lukács, Á., Molnár, K. and Varga, J. (2013) Társadalmiféle vállalkozók?(Social-type entrepreneurs?) Budapest: Helyi Mérték Alapítvány.

European Commission (2011) Social Business Initiative. Creating a favourable climate for social enterprises, key stakeholders in the social economy and innovation. COM(2011) 682/2.

G. Fekete, É., Vicze M. and Hámori, G. (2014) A map of social enterprises and their eco-systems in Europe – Country Report: Hungary. Brussels: European Commission.

Hungarian Central Statistical Office – CSO (2012) A nonprofit szektor legfontosabb jellemzői, 2011 (The most important characteristics of the nonprofit sector, 2011). Statisztikai tükör. 2012/104. p.1-4.

Hungarian Central Statistical Office – CSO (2013) A nonprofit szektor legfontosabb jellemzői, 2012 (The most important characteristics of the nonprofit sector, 2012). Statisztikai tükör. 2013/119. p.1-4.

Hungarian Central Statistical Office – CSO (2014) A nonprofit szektor legfontosabb jellemzői, 2013 (The most important characteristics of the nonprofit sector, 2013). Statisztikai tükör 2014/142. p.1-4.

Petheő, A. I. (2009) A vállalati társadalmi felelősségvállaláson túl: a szociális vállalkozás (Beyond corporate social responsibility: the social enterprise). Phd thesis. Budapest: Budapesti Corvinus Egyetem.

Tóth, L., Varga, É. and Varga, P. (2011) A társadalmi vállalkozások helyzete Magyarországon (The situation of social enterprises in Hungary). Budapest: NESsT.

United States Agency for International Development, Bureau for Europe and Eurasia, Office of Democracy, Governance and Social Transition (USAID) (2014): 2013 CSO Sustainability Index for Central and Eastern Europe and Eurasia. Washington: USAID.

United States Agency for International Development, Bureau for Europe and Eurasia, Office of Democracy, Governance and Social Transition (USAID) (2013): 2012 CSO Sustainability Index for Central and Eastern Europe and Eurasia. Washington: USAID.


juli

Julianna Kiss has MAs in English language and literature, communication studies and sociology. She is currently completing her PhD in social policy at ELTE and is working for the Autonomia Foundation, an NGO focusing on strengthening civil society and supporting excluded groups, mostly in the field of Roma integration. She has conducted researches in the field of social inclusion, Roma integration and corporate social responsibility. As of right now, her main research focus is social enterprises and the nonprofit sector.

You can contact her at kissjuli@gmail.com

About emesphdnetwork

EMES is a research network of established university research centres and individual researchers whose goal is to gradually build up a European corpus of theoretical and empirical knowledge, pluralistic in disciplines and methodology, around “Third Sector” issues.

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