Social Business and Social Exclusion in Transition ... · PDF fileSocial Business and Social...

Social Business and Social Exclusionin Transition Countries:The Case of Albania

Prof. Dr. Genc Ruli,President, Institute forContemporary Studies

Artan Hoxha,Director, Institute forContemporary Studies

Social Business and Social Exclusion in Transition Countries: The Case of Albania

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Table of Contents

1. Executive summary

2. The dead weight of low expectations: Abasic introduction to social exclusionduring transition

3. YAPS: A social business model

4. Investing in social business

5. Turning it around: Primary outcomes forsocially excluded youth

6. Breaking down barriers and building corpo-rate social responsibility: Externalities

7. Partnerships: Contributions and rewardsfor stakeholders

8. Concluding Comments and Recommenda-tions

9. Footnotes

Annexes

1. Social Protection Benefits and Poverty inAlbania

2. Comparing Alternatives

3. Social business input and output diagram

The Institute of Contemporary Studies is an Albanian non-governmental research institute focused on economic, politicaland social research. ICS maintains a special emphasis of research in support of public policy development. Recently theInstitute has been one of two research organizations in Albania to be selected by the the World Bank and AlbanianGovernment to prepare the Growth and Poverty Reduction Strategy. The Institute is based in Tirana and was founded in1995 by the current president who previously served as Minister of Finance.


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Executive Summary

The radical nature and rapid pace of change informer communist countries has unleashed both posi-tive and negative pressures, particularly in the fieldsof economic growth and social development. The earlypromise of liberalization has evaded the most vulner-able young people. An eroding safety net and an un-der resourced public sector has left them even moreexposed to vulnerability and the condition of “mul-tiple social disadvantage” that leads to social exclu-sion.

Young people from institutional care, the Romaminority and those with disability make up at least5% of the youth population in the transition countriesof Eastern Europe and the former Soviet states. In Al-bania, the rapid emergence of rural to urban migra-tion has produced another under class. In the contextof globalization, many transition countries, includingAlbania, have been poorly placed to harness the ben-efits of an emerging free market for their most vulner-able youth, and have thus fallen short of fulfilling theircommitment to the Convention on the Rights of theChild.

The purpose of this paper is to examine the poten-tial of a “social business” approach to challenging someof the root causes of social exclusion and poverty inAlbania, through empowering excluded youth withtraining, employment and the opportunity to contrib-ute to social well-being.

A brief outline of social exclusion in Albania is in-cluded. This is followed by a descriptive account of theprocess of setting up a social business project in Tiranaand the primary and secondary (or external) impactsof the venture. A section is also included which looksat the role of different actors in establishing and sup-porting social business. Annex 1 and 2 provide supple-

mentary information and analysis of existing socialprotection benefits and compare alternative socialpolicies for addressing poverty in Albania.

While by no means a panacea for the multiple so-cial disadvantage that so often characterizes social ex-clusion, the social business model described in this pa-per offers an innovative approach to transformingpassive welfare recipients in active citizens. This isdone by engaging a range of non-traditional social ac-tors such as the private sector, finance ministries andothers into a dynamic coalition for the protection, de-velopment and participation of youth. As such, socialbusiness has been adopted by the Albanian govern-ment as a key strategic approach for reducing socialexclusion in its Growth and Poverty Reduction Strat-egy (GPRS).

The paper concludes that further efforts to challengethe root causes of social exclusion through expandedsocial business ventures could be promoted throughthe development of a Global Initiative and Fund. Suchan initiative would be aimed at pooling the know-how,technical resources and financing of a broad coalitionof actors, including the private sector, to furtherstrengthen and expand Albania’s experience of socialbusiness in other transition countries. If governmentscreate an enabling environment and forward-think-ing entrepreneurs engage in the creation of socialwealth, social business may unleash the potential of anew generation of young entrepreneurs who can serveas a force for change and stability. Such a partnershipwould strengthen local efforts to harness the forces ofglobalization for more equitable social developmentand assist with realization of broader regional aspira-tions such as the Balkan Stability Pact.


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The dead weight of lowexpectation: An introduction tosocial exclusion during transition

The School of Reserves on the outskirts of centralTirana is a grim place. The ghostly ruins of a formervocational school for a long since defunct industry ofthe former communist era now houses many of thecity’s young teenagers who have left institutional care.Without the love and support of a family these youngpeople are left to fend for themselves. Yet, poorlystaffed and heavily institutionalized children’s homeshave left them ill-prepared for building a career, do-mestic care, maintaining their health or building thekind of human relationships that can create thewarmth which generates happiness. The low moralethis creates is further compounded by the discrimina-tion the youngsters feel they suffer in the jobs marketand from society as a whole.

Across the former Soviet Union and Central andEastern Europe over one million (more than 1% of theentire youth and child population) are institutional-ized, and the numbers are rising1 . The changes thatswept communism aside often took with them theegalitarian principles and social safety net that cush-ioned the blow for young people leaving state care.

A similar situation exists for young disabled people.The radical pace of change and shifting set of oppor-

tunities that have emerged for youth in education andemployment, have often left behind young people withdisability. While regional figures are still being collatedon registered youth with disability, indicators fromWestern European countries would suggest that upto 3 % of young people in the region could be classi-fied as living with a disability.

According to a recent country profile on Albaniafrom the U.S. State Department, Roma are the mostneglected minority group in Albania, suffering fromhigh illiteracy, poor health conditions, marked eco-nomic disadvantage and widespread societal disadvan-tage.2 Another area of growing concern in Albania isthe rise of migrant communities living in sub-standardsettlements on the edge of urban areas, without ac-cess to water or sanitation. Young people born intothese conditions also often suffer from multiple socialdisadvantage.

These significant minorities of youth within Alba-nia and other transition countries are most vulnerableto social exclusion or multiple social disadvantage.They lack access to basic standards of housing, diet,education, health, human relationships and protectionfrom crime and exploitation.3 Beyond straight forwardeconomic poverty, the use of the term social exclusionrecognizes that the human rights of the individual canbe further threatened by the forced passivity of wel-fare, the inability to fulfill their basic potential and to

Figure 1: The vicious circle of social exclusion


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build the kind of human relationships that lead to ac-tive citizenship. The costs of social exclusion and dis-criminatory attitudes toward the socially excluded canoften lead to a vicious circle of “ the dead weight oflow expectations, the crushing belief that things can-not get better” amongst young people leaving care,youth with disability, Roma and other disadvantagedyouth4.

Amongst other social strategies, Western govern-ments often attempt to challenge the root causes ofsocial exclusion by initiating active labour market Poli-cies. These policies have primarily focused on tack-ling unemployment in geographically deprived areas(inner cities or post-industrial settle-ments) or amongst ethnic groups who areunderrepresented in the workplace. Strat-egies have included small business startup grants, positive discrimination in pub-lic sector employment, vocational trainingand assistance in job searching.

Active labour market policies in transi-tional countries have been extremely lim-ited. In late 2000 statistics revealed thatinvestment in active labour market poli-cies had only been practiced in nine countries in theEastern Europe and Commonwealth of IndependentStates (CIS) region (primarily the wealthiest countriesout of the 27 which make up the region) and amountedto an average of less than 0.6% of GDP.5 Good activelabour market policies can often have positive eco-nomic, as well as social outcomes. Whether the fail-ure to deploy such policies relates to absence of re-sources or appropriate policies and knowledge is be-yond the remit of this paper, although we expect it is acombination of both.

In Albania, a coalition of private and public sectoractors, under the leadership of UNICEF, have devel-oped a social business approach to reducing social ex-clusion. The Youth Albanian Parcel Service (YAPS) isa classic social business in the sense that it uses wealthcreation to achieve social goals. Funds and expertisehave been generated by the private sector to develop acourier service that exclusively recruits socially ex-cluded youth.

YAPS: A social business model

The last section briefly dealt with the entrenchedsocial exclusion that affects at least 5% of young peopleacross the Eastern Europe and CIS region and the rela-tive absence of active labour market policies and othermeasures to challenge root causes of social exclusion.

These issues brought together a group of private and

public sector actors in Albania during 2000 which es-tablished a foundation, with UNICEF guidance andsupport, aimed at building social business solutionsto social exclusion problems. The First Lady chairedthe foundation that includes key national and multi-national business leaders. A Tirana based NGO withspecialization in vocational training was also draftedin to provide expertise-and later premises and initialmanagement services.

Following the production of a business plan byUNICEF and market research by KPMG, the founda-tion decided to launch a social business in the field ofdomestic parcel and mail courier services. The busi-

ness component of the venture en-visaged quality domestic mail andparcel delivery services delivered atcompetitive rates. The social compo-nent envisaged recruitment andtraining of young victims of sociallyexclusion, as those described in theprevious section plus migrant youththat represent additional strata of so-cial exclusion within Albania. Prof-its generated by the young people

would be ploughed back into expanding and develop-ing social business opportunities for a wider band ofyouth. This virtuous circle would enable the youngpeople, not only to turn their own lives around, but atthe same time to become agents of social cohesion. 6

The role of the foundation in supporting the socialbusiness would include three strategic components:

1. Technical Assistance: The foundation memberswould pool resources to provide services such as: le-gal advice (Boga law firm), business plan, market re-search and auditing (KPMG), marketing (ADA group),Public Relations (Bardha group).

2. Material Assistance: Raising of initial start upcosts and provision of in-kind contributions, such asinsurance (INSIG), banking (American Bank of Alba-nia) or radio equipment (Coca-Cola).

3. Business Mentoring: Using business manage-ment expertise to guide, teach, listen to ideas and be-friend the young people managing the social businessthrough the phases of recruitment, start-up andlaunch and through the first two or three years of busi-ness. Vodaphone and Dorint International have re-cently joined the foundation.

It was projected that the provision of technical andmaterial assistance would significantly reduce recur-rent costs in the early stages of the business thereforesecuring an early break-even point for YAPS.

Although the scale of the social business set upwould be dependent upon available funds, after muchdiscussion the members of the foundation decided to

The costs ofdiscriminatoryattitudes towardsocially excludedcan often lead tothe crushing beliefthat things cannotget better


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try and establish the Youth Albanian Parcel Service asa highly visible, small enterprise employing upwardsof 30 people. A key reason for this was a third socialaim; to impact as widely as possible with positive im-ages of socially excluded youth to attempt todeconstruct the stigma and discrimination they facein society. This issue is dealt with more completely insection 6 on externalities.

Investing in social business

UNICEF and the foundation managed to raise overUS $ 300,000 in funds with the primary donor beingBanca Intesa, a leading commercial bank in neighbor-ing Italy. A KPMG market survey of 114 leading banks,firms and institutions in Tirana revealed extensivedemand for courier services. Indeed no domestic cou-rier services were available at the time of the survey.7

Simultaneous to the market survey, an independentconsultant was hired to conduct a detailed feasibilitystudy and business plan. Within the business plan, acash flow forecast projected post tax profits movingfrom US $ 17,005 per annum to US $ 27,716 per an-num within the first three years of trade. The cash flowforecast was based upon an examination of both mar-ket demand and the capacity that the contribution

from Banca Intesa would enable YAPS to have. Thesecalculations foresaw the delivery of parcels growingfrom 69,873 deliveries per annum over the first threeyears of trade to 232,910.8

A cash flow forecast is not a scientific announce-ment of a given outcome, but rather a set of naviga-tional indicators that can in-form the strategic directionof a venture. But using thethorough research that hadbeen carried out by bothsurveys, UNICEF and thefounders concluded thatthey could invest the moneyin the establishment ofYAPS in Albania with a highprobability that even a con-siderably more modest success than predicted wouldhave the desired impact of employing a significantnumber of socially excluded youth.

A total of US $ 308, 679 was directly invested in theestablishment of YAPS. This covered the cost of re-cruitment, training, construction of a purpose-builtpremises (1/3 of total cost), procurement of equip-ment, market research, marketing, initial wages andmanagement services. The availability of a relativelylarge sum of funding enabled a smooth and rapid set

Market researchprojections foundthat even partialsuccess of YAPSwould supportemployment of anumber of ex-cluded youth

Figure 2 : The social business virtuous circle


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up process together with the capacity to provide highquality services from the outset. However, with sub-stantially lower start up funds YAPS could still havebeen established, albeit in a smaller capacity. In thecase of Albania, unlike Azerbaijan and other transi-tion countries, there is a shortage of available publicbuildings and the government was therefore unableto donate one to YAPS.

A six-month recruitment, selection and trainingprocess reduced an initial number of 73 candidates ofsocially excluded youth down to 32 who were eventu-ally taken onto the payroll. Efforts were made to en-sure that all original candidates gained basic employ-ment skills and a sense of improved self-esteemthrough the recruitment process, even if they were notamong the 32 selected. Selectors cited one of the mostdifficult elements of selection was balancing socialcompassion with the need to choose candidates whocould make the business work.

A hard-nosed critic may suggest that an investmentthat runs close to US $ 10,000 in creating a job for anindividual in a country with a per capita annual in-come of less than $1,000 is not cost-effective. How-ever, unlike many active labour policies fundedthrough public finances, YAPS has built in mecha-nisms that generate on-going profit and thereforepresent strong prospects for delivering mid-termsustainability with wages eventually being paid for bycommercial profits. This projected sustainabilitymeans that the initial investment in the creation of anindividual job needs to be viewed at least over the firstthree years of that job’s existence, thus costing US$3,215 per created job per year. That figure reduces dra-matically if the staffing levels increase in line with theexpansion of capacity foreseen in the feasibility studyin the first three years of trading.

An additional argument, which will be dealt with insection five, is that the placement of an individual,socially excluded youth in a YAPS job is not the finaloutcome of the project. It was assessedthat the creation of a job and provisionof training would, in many cases, serveas a launching pad for young people tomove onto higher education or jobs thatwere more suited to their individual in-terests. As a leading statesmen saidabout inner city deprivation in the USA:“It is no good telling young people topull themselves up by the bootstraps ifyoung people don’t have any boots.”9

UNICEF and the foundation membersforesaw the role of YAPS as simply giving young peoplethe boots so they could access a wider range of oppor-tunities. Thus, new young people are employed while

previous staff maintain a foothold in the job marketalong with an acquired role as an active citizen. Thismeans that the rate of beneficiaries is even greaterwhen weighed against the initial investment.

Finally, any cost/benefit analysis cannot take intoaccount the other immeasurable variables that will beexpanded on later in this paper. For example if, in themost conservative estimate a person with disability isengaged in a post that costs US $ 3,215 per annum forthe first three years, it is certainly a higher investmentthan state disability benefits that can range from US$ 372 to 1344 per annum. But aside from overcomingpoverty, we also need to find a method to measure thepersonal impact of enabling the young person to be-come an active contributor to society.

In the final analysis, social business ventures carrysimilar risks to both business ventures and public sec-tor projects. They cannot guarantee a profit or theycannot ensure sustainability beyond the life cycle ofpublic funding. However, even a moderate level of suc-cess and profitability of YAPS should certainly deliveran adequate set of returns to render the venture aworthwhile investment. Not least given the fact thatthe money invested would not have otherwise beenavailable for social investments.

Turning it around: The primaryimpact of social business

The last section covered the investment and pro-jected profitability of a social business model. Thissection will look in a little more detail at the outcomesfor the primary beneficiary: the person employed bythat model.

The introductory section outlined social exclusionas being caused by multiple social disadvantage.10 Mul-tiple social disadvantage, in the case of young peoplerecruited by YAPS, broadly includes; poor education,

housing and access to health services,isolation from human relations, unem-ployment, negative social stigma andprejudice, poor diet and often a lack oflove and human support. The over-whelming impact of multiple social dis-advantage often places socially excludedyouth into a cycle of passivity, hopeless-ness and risk taking behaviour (See fig-ure 1, Vicious circle).

A social business model which pro-vides training and employment for the

excluded cannot challenge multiple social disadvan-tage for the individual in the short term. It cannot ad-dress poor housing, educational neglect and poor ac-

A key aim was toimpact as widelyas possible withpositive images ofsocially excludedyouth in order todeconstruct thestigma and dis-crimination theyface


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cess to health services, for example. It may certainlypay wages to a young person which may, theoretically,enable them better access to services; however, a youngperson who is not used to saving money or who is notable to budget or cook properly will not be able to fullymaximize the potential which a new job offers in termsof overcoming multiple social disadvantage.

Provision of training followed by employment in afield for which they have been trained, however, doesenable the young person to build self-esteem and breakthe cycle of passivity and hopelessness which perpetu-ates their social exclusion. In empoweringmarginalized youth to build their own livelihood strat-egies by using their labour, YAPS offers the opportu-nity for the young people to begin to reclaim somedegree of control over the direction their lives take.

In the closing ceremony of the initial pre-selectionprocess - during which 73 youngsters had had reason-ing tests, interviews and group projects - many of theyoung people described how the process itself had beenof benefit in terms of simply challenging them and in-creasing their sense of self worth. The YAPS recruit-ment and training process tore down a wall of self-perception that they were out of range of even the mostbasic employment and educational opportunities. In-deed, young people commented that the experiencehad forced them to ask themselves; “ why not...whyshouldn’t I try and do something with my life .”

The initial impact of YAPS therefore is to break thecycle of passivity and hopelessness in the lives of agiven number of individuals and provide an hithertounavailable opportunity to shift from passive to ac-tive members of society.11 However, it is not a pana-cea and like most social developmentprojects or business ventures it needsto work in tandem with a range ofother services to comprehensivelyconfront multiple social disadvantage.This may include, for example socialservice practitioners investing in a ho-listic approach to young people leav-ing institutional care or educational-ists making further and higher edu-cation accessible to disabled. The nextsection will argue that a mid term im-pact of YAPS may be to accelerate some of thesechanges.

While not launching a multi-front assault on all el-ements of social exclusion, YAPS certainly providesmuch more than a job with a salary. It also helps theyoung person to fulfill a number of critical needs whichmay be overlooked by economists or social develop-ment practitioners. These are: “the need to makechoices, to exercise judgment, to contribute something

of oneself to the world and to have social function andpurpose”12

Another impact of YAPSis to build a bridge betweenthe marginalized youngsterand the world of commerce,work and industry. It is an-ticipated that this will ex-pose them to a broaderrange of opportunitieswhich may be more in tunewith either their individualaptitudes or aspirations.This can include pursuit ofhigher and further education or moving over to an-other position. In this sense the YAPS job is not al-ways an end in itself, but serves as a launching pad forhelping young people to realize their potential.

YAPS also serves to challenge the vulnerability ofthe socially excluded youth in two ways. Firstly, by im-proving the self-esteem of the young person and help-ing them visualize a longer-term future, they are lesslikely to engage in risk taking behavior. YAPS also pro-vides a protective and vigilant community of colleaguesand managers who have a vested interest in the healthand well being of the young person. During the de-cade of transition, young people without families havebeen most susceptible to exploitation; indeed, femalecare leavers often take on male styles of dress to pre-vent themselves falling prey to traffickers. Building abridge between themselves and the wider communitycan reduce such risks.

So in conclusion, this section argues that social busi-nesses such as YAPS are not a panaceafor the individual socially excludedyouth. However, in addition to provid-ing the young person with an income,they also reverse passivity, build self-es-teem and self-value and reduce vulner-ability. As such, social businesses are aworthy investment toward preventingchronic and costly marginalization andrisk.

Breaking down barriers and buildingcorporate social responsibility: Ex-ternalities

In designing and realizing the launch of YAPS, thestakeholders anticipated a much wider set of benefitsthan the impact on a specific number of young recruits.In this section these external or secondary impacts arereviewed.

The initial impactis to break thecycle of hopeless-ness for thosewho have noopportunity toshift from passiveto active membersof society

YAPS workersmake choices,exercize judgementand make tangiblesocial contributions- needs often over-looked by othersocial programmes.


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marginalized youth also did much to break down nega-tive stereotypes at the level of society.14 As describedabove the “ attitudes which disable ”, at best lead to acharitable sympathetic approach which renders thatsubject a helpless and passive actor. At worst they leadto direct discrimination and even hatred.

A major incentive for launching YAPS as a highlyvisible, small to medium sized enterprise was the de-sire to make a dramatic impact upon negative percep-tions about socially excluded youth at the level of boththe individual youth and society as a whole. The in-volvement of many successful Albanian personalitiesin the foundation has strengthened that capacity ofYAPS to do this.

Secondly, a key component of this model is thatprofits are ploughed back into developing further op-portunities for young people by expanding social busi-ness opportunities or investing in other social con-cerns. As stated earlier, the young employees of YAPSwill have a say in where the profits should go, thussimultaneously further increasing their image in soci-ety as active citizens and building their own self es-teem. A high profile YAPS may also serve as a launch-ing pad for improved public debate, and eventuallypublic policy on social exclusion. Indeed in Albania,the government has highlighted the potential of so-cial business to address social exclusion in its Growthand Poverty Reduction Strategy15.

Another external impact of YAPS is the emergenceof a new social role for the private sector actors whohave become involved in the foundation. Businessmenand women who became involved in the foundationexplain that a major attraction for them was that YAPSdid not ask them to be passive donors to a static chari-

table cause, but rather to pro-vide resources and know howin the area they knew best:wealth creation.

The emergence of private/public and UN partnership inpursuit of social business alsoholds the potential to affect theway business people see theirrole in society. Throughout thepast decade of transition Alba-nia has witnessed a shift fromabsolute collectivism to an al-

most brutal individualism with low levels of socialcapital. The freedom of economic initiative withoutcontrolling mechanisms has given birth to an almostpredatory business culture in which no role for thebusinessman as a social actor has emerged. As Alba-nia stabilizes, and the private sector continues to growas the most dynamic engine of the economy, more

The last section argued that YAPS could not holis-tically tackle multiple social disadvantage through sim-ply engaging young people in employment. However,there are two external impacts that can contribute to

this.Firstly, YAPS aims to

promote positive imagesof socially excludedyouth and create strongrole models that evenyounger generations canaspire to. The stigma ofsocial exclusion is adouble-sided coin. Onthe one side is the nega-tive view through which

society views the socially excluded youth and on theother is the subsequent low self-esteem that he or shefeels.

A leading Indian disability rights activist explainsthis double-sided negative imaging thus: “ Primarilyit is a social problem, because what stops the indi-vidual disabled person from contributing is the atti-tude of the non-disabled people towards him or her.It is attitudes which disable. These attitudes disableto the extent that disabled people do not have self-worth, they lack confidence, they believe that they aregood for nothing, and therefore become consumersrather than contributors to society.” 13

Social business such as YAPS sweep aside the in-ternal self-prejudice by recruiting, training and put-ting young people to work and ultimately saying “ webelieve that you can do this...we need what you haveto offer.” By setting targets for the young person toachieve in a working environment and en-abling him or her to use their own abilitiesto achieve them, YAPS is breaking downthe negative self imaging that so com-pounds the social exclusion that theseyouth feel. This element will be furtherstrengthened if young people are able toeventually access higher education andother areas of the jobs market by buildingon their YAPS experience.

In the case of YAPS Albania, this holdsthe potential to go beyond the individualsemployed and reach a much broader rangeof socially excluded youth, including younger genera-tions of school age children. If negative self-percep-tions can be challenged earlier in the life cycle of thesocially excluded child it may also encourage them tofight harder to make a mark at school.

A similar YAPS project in Azerbaijan argued thatthe social impact of positive and productive images of

“It is attitudes whichdisable...disabledpeople do not haveself-worth, theybelieve that they aregood for nothing,and therefore be-come consumersrather than contribu-tors to society.”

As the private sectorcontinues to be themost dynamic engineof growth, moreefforts will be neededto redefine the iden-tity of the businessactor and build up therole of corporatesocial responsibility.


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stringent efforts will be needed to redefine the iden-tity of the business actor in society and build corpo-rate social responsibility.

There are inherent benefits for both society and theprivate sector in deploying the resources of businessactors to deal with social exclusion and building so-cial capital. Social capital “is the capability that arisesfrom the prevalence of trust in a society, or in certainparts of it”16 . When rival business actors join forces totackle social exclusion they are building social capitalwithin the business community and also within soci-ety at large by promoting a positive rolemodel of the business actor as a socialactor. An increased social role for busi-ness actors should complement othergovernment and community based ef-forts to build social capital in a regionstill recovering from decades of enforcedcommunitarianism.

An additional external benefit is alimited reduction in the welfare budgetof the government as young people areweaned off cash benefits. This may serve as incentivefor government to offer tax concessions to social busi-ness projects. Furthermore, long term savings for bothgovernment and society may be achieved by minimiz-ing some of the costs of social exclusion which includecrime, drug abuse, trafficking, political extremism andHIV/AIDS17. Social business promotes investment inthe socially excluded, rather than subsidising their so-cial exclusion (See Annexes 1 and 2).

This section has sought to argue that external ben-efits of this social business model include thedeconstruction of the heavy social stigma of excludedyouth, the ability to raise funds for and public aware-

ness of social exclusion, the promotion of positive en-gagement of business actors and their ability to buildsocial capital and a long term reduction of the welfareburden.

Partnerships: Contributions andrewards for different stakeholders

Throughout the previous sections a range of stake-holders have been mentioned including government,

NGOs, the UN/UNICEF, civil societyand in particular the private sector. Thissection will introduce their respectiveincentives for becoming involved in asocial business model (See Figure 3 andAnnex 3).

The State: The state is a naturalstakeholder in social business. It is re-sponsible for the success of the transi-tion from a communist socio-economicstructure to a liberal democracy. It has

a legislative and policy role because it establishes theconditions of the economic system and has to encour-age the development of markets and competition. Thestate has a social role because it protects the most vul-nerable citizens from the impact of transition and pov-erty and, more broadly it has a role in shaping theshared values and ethics of its constituency as theyadapt to a changing world.

These three roles are inextricably linked as they re-flect the new political, social and economic order inwhich we live, and secondly because they determine anew, post-communist relationship between citizensand the state.

Social businesscan minimizesome costs ofsocial exclusion:crime, drug abuse,trafficking, politi-cal extremism andHIV/AIDS.

Figure 3 : Social business resource flows18


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In order to build an enabling environment for so-cial business government could deliver the followingtax exemptions and other concessions: VAT on ser-vices or goods; exemption from small business tax;income tax on employees; (This is critical in the earlystages, particularly for youth with disability who maybe abandoning benefits to receive performance relatedpay); tax concessions for both donors/businesses andrecipients of cash and services provided in support ofsocial business.

In addition, governments may be able to providepremises for social business operations. In return gov-ernments benefit from a reduced burden on basic wel-fare payments and the more acute costs of the fall outfrom social exclusion of youth at risk, eg; imprison-ment, conflict, violence, post-drug rehabilitation, etc.The difference between social business and other busi-ness, from a government perspective, therefore, is so-cial business is an instrument for greatly enhancingthe impact public funds and social investments withan improved outcome for its most vulnerable citizens(See annexes 1 & 2).

Another role of the state could be inthe provision of education/vocationaltraining, etc., in support of initial em-ployment of disadvantaged youth. Along-range goal of ventures such asYAPS may also be enabling employeesto eventually attend university and pro-ceed on their own career path whilesocial businesses recruit new genera-tions of disadvantaged youth for em-ployment. The government could besupportive of this process and at the same time ben-efit from the impact of positive role models of univer-sity educated care leavers or disabled youth uponyounger generations of similarly disadvantaged youth.

The state may also be able to provide cash assis-tance from social welfare budgets toward social busi-ness.

A key step to achieving all of the above would bethe development of a specific law on social businesswhich would outline the package of concessions andassistance available to new social business ventures.

A further role of government would be in monitor-ing the outcome of the social business venture in termsof tackling social exclusion and also appropriate useof resources.

Local Government: Local government shares, atthe micro level, the same concerns and goals as na-tional government in a transitional context. Thereforelocal authorities are also natural partners for socialbusiness. At the local level, the public sector contri-bution may include provision of premises as well as

training and service support. An enthusiastic Mayormay also be a key ally in promoting the advocacy ele-ment of YAPS - particularly the marrying of privateand public sector to empower disadvantaged citizens.

Private Sector: As expressed earlier, the privatesector has not become a major social actor in the tran-sition societies of the former communist world. Socialbusiness in Albania, however, has served to reversethis trend at least at the national level. Some ofAlbania’s pre-eminent business leaders have rallied be-hind YAPS.

In addition to bringing first rate business acumento guide and shape the launching of YAPS, the busi-ness leaders also brought major resources in terms ofbanking services, legal support, insurance and tech-nical and material support to ensure the establishmentof YAPS. The start up costs were also provided as agrant to UNICEF by a major Italian bank - funds thatwould otherwise be unavailable for any kind of socialexpenditure.

There is a philosophical debate about the incentivesof private sector actors in social actions.This is beyond the remit of this paper.However, the experience in Albania hasshown that business leaders are muchmore interested in engaging in social ac-tions when their skills and expertise areutilized and when they can see tangiblesocial and business outcomes. Thus, so-cial business provides the opportunity toshift from the traditional role of the busi-nessman, passively providing charityfunds to a hospital wing or an orphan-

age, to them coming on board at exactly the pointwhere they are able to have the strongest impact: cre-ating wealth.

NGOs: In the case of Albania, the Tirana based vo-cational training NGO Don Bosco Development Cen-tre is partner with UNICEF in the day to day manage-ment of the set up of YAPS and also provided landupon which YAPS premises were built. It has also con-tinued to serve as a supportive body - for both the em-ployees and management of YAPS. One of the key ben-efits from the Don Bosco perspective was that YAPStook their traditional role of vocational training onestep further by providing jobs to young people whohitherto had no hope of a job or a future. They werethus able to see the tangible benefits of young peoplegaining a restored sense of dignity and purpose and ameans of livelihood.

Social business provides NGOs with the opportu-nity to access additional resources to achieve theirgoals of social action and empowerment. Equally theirexperiences are crucial in developing methodologies

The UN andUNICEF...idealsuper-partesentities to provideethical frameworkfor mobilising theprivate sector,civil society andthe state to worktogether


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The Global Social Business InitiativeA key recommendation of this report is tobuild on the added value of Trans-national

social business opportunities and carve out asocial niche within the globalization process

that is shaping our region so much. Thissocial niche could offer the public alterna-tives views of globalization, by illustrating

how there are opportunities to be seized thatcan empower the poor and disadvantaged.

This could also be achieved through thedevelopment of a Global Initiative and Fund

aimed at pooling the know-how, technicalresources and financing of a broad coalition

of actors, including the private sector, tobuild trans-national social business ventures.

for reaching out to and eventually integrating disad-vantaged youth.

UN and UNICEF: In Albania the process was verymuch driven by the United Nations Children’s Fund.As one of the most respected agencies of the UnitedNations, UNICEF was well positioned to negotiate witha range of potential stakeholders to become involvedin social business. The UN and its agencies seek to pro-mote global ethics of human rights and social devel-opment with governments and civil society actors. ForUNICEF, whose role is to ensure the application of theConvention on the Rights of the Child (CRC), this ismanifested through a commitment to child and youthfocused social development and empowerment of themost vulnerable young people and children.

State parties, such as Albania, with limited finan-cial and human resources, are ill prepared to fully meettheir commitment to all articles of the Convention ofthe Rights of the Child, including articles 20 and 23which deal with the most vulnerable sections of soci-ety, young people deprived of parental care and youngpeople with disability.

In this era of rapid globalisation, the UN andUNICEF, represent ideal super-partes entities that canprovide the best ethical framework for mobilising newpartners, such as the private sector, civil society andthe state, to work together as stakeholders in fulfill-ment of the CRC. Such a brokerage role is compatiblewith the current UN/Private sector partnership policyknown as the Global Compact, which aims to buildcorporate social responsibility on human rights andother key issues. 19

Social business has provided UNICEF with an op-portunity to broaden both the range of actors used andthe methodology deployed in pursuit of their objec-tives. By providing a means for liberating disadvan-taged youth from a subdued and passive role as wel-

fare recipient to positive role models of human poten-tial they are breaking down discrimination and pro-viding hope for new generations of similarly disadvan-taged youth. This right-based approach holds the po-tential to have a significant impact on social policy incountries which are reshaping their welfare systemsto meet the demands of post communist transition andthe erosion of the safety net which it has unleashed.

Conclusions and Recommendations

This paper outlines an innovative approach to en-gaging the energies and resources of a diverse rangeof actors in the pursuit of social cohesion and socialwealth. The paper by no means argues that social busi-ness in itself is a panacea for the erosion of a socialsafety net in transition societies. However, it providesthe potential to restore dignity, purpose and a meansof livelihood to the most vulnerable young citizens:parentless and disabled youth, young migrants andethnic minorities. Furthermore, it also delivers a rangeof social impacts, not least stimulating thought on howgovernments and civil society can tackle social exclu-sion and forge stability in dramatically changing soci-eties.

Social business also enables stakeholders to becomeengaged where they are most useful and where therewards are greatest. They are able to see tangible re-sults. Business leaders, whose role as social actors isall too often limited to the passive and philanthropicdonors, are invited to bring business expertise andserve as mentors of youth. Governments and NGOsare able to work toward tangible accomplishments fortheir most vulnerable beneficiaries and disadvantagedyouth can demonstrate their potential and challengethe negative stereotypes that keep them excluded. Ul-timately the taxpayer is afforded some relief from thecost of welfare and care for a section of society.

In former Socialist countries, where the erosion ofthe social safety net, family breakdown and diminish-ing state budgets have created a vacuum, innovativeresponses are needed to tackle multiple social disad-vantage. Social business is an innovative approach thatcontributes to unleashing the human potential of ourmost disaffected youth, which can offer multiple spin-off benefits and opportunities. One such opportunityis placing of social business and its empowering out-comes at the heart of social policies (such as GPRS),which are being developed to meet the challenges of anew era (See Figure 1,Virtous Circle). Another is theemergence of a new generation of forward lookingbusiness leaders and young entrepreneurs who can bea source for stability in Albania and the neighboring


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transition countries of South East Europe.An added value also exists in the potential for the

trans-national nature of social business. The emer-gence of a network of vulnerable youth, steered awayfrom social exclusion and its most negative outcomes,working together-across borders-to carve out liveli-hoods, would surely serve as a force for stability in theregion. Furthermore, foundation members and busi-ness leaders, such as those who have supported YAPSin Albania, have the potential to form part of an ethi-cal business community that can also work towardpoverty reduction and stability measures.

A key recommendation of this report is to build onthe added value of trans-national social business op-portunities and carve out a social responsibility nichewithin the globalization process that has so much in-fluence on emerging economies. This niche could of-fer the public alternative views of globalization, by il-lustrating opportunities to be seized that can alsoempower the poor and disadvantaged. This could beachieved partially through the development of a Glo-bal Initiative and Fund aimed at pooling the know-how, technical resources and financing of a broad coa-lition of actors, including the private sector, to buildsocial business at the country level. The Global Ini-tiative and Fund could reflect the same three key rolesof the YAPS foundation in Albania, eg., mentoring,technical assistance and material assistance by goingto scale and developing cross border strategies for ad-dressing social exclusion.

Tackling social exclusion is also a force for stabil-ity. We would therefore recommend that such a Glo-bal Initiative could initially build on the presence ofYAPS in Albania by expanding the services into otherareas of the Balkans. This would tie in strongly withthe aspirations of the Balkan Stability Pact and alsoensure maximum benefits from the inter-connected-ness of trade within the area. It could serve to build anetwork of formerly disadvantaged youth who havegrown into agents for stability and growth. This ex-pansion could be the first step on the road to buildinga bigger social business network throughout the for-merly socialist countries of Europe and Central Asia.

While we have argued that social business ap-proaches are a force for addressing social exclusion intransition states of this region, they can also be tai-lored to fit into a range of different social and economiccontexts, including developed western economies.

We have listed below some key observations andrecommendations regarding social business and so-cial exclusion. Socially excluded youth transformedfrom passive and subdued roles into young citizenswith a restored sense of dignity and purpose, as wellas means of livelihood.

• A full-scale assault on the negative stereotypesthat pervade many societies and hold the most dis-advantaged youth back from realizing their full po-tential.• Youth can be steered away from ethnic extrem-ism, crime and social exclusion and become agentsfor stability and development by working togetherto carve out future livelihoods.• Engaging the private sector at the point wherethey are most useful and feel most rewarded; thecreation of wealth. Thus also helping them shiftfrom what is, at best, a passive philanthropic roleto an active and engaged role in supporting devel-opment and stability in their own societies.• Government and other stakeholders, includingNGOs and the UN are able to pursue goals of pov-erty reduction, tackling social exclusion and forg-ing stability while simultaneously calling on abroader coalition of youth entrepreneurs and busi-ness leaders who can contribute with their ownresources.• The social business approach demonstrates toGovernment one model of a public/private sectorpartnership complementary to traditional welfarepolicies. This is particularly relevant in our regionwhere the safety net is being eroded through di-minishing state budgets and weakening familystructures.• Added value, in business and social terms, existin the potentially trans-national nature of socialbusiness in the region. Emerging networks of youngentrepreneurs and business leaders can contributeto the building of an ethical and human face of glo-balization in the region.• A Global Initiative where stakeholders can pooltheir resources, know how and financing in sup-port of country level and trans-national social busi-ness ventures.


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Footnotes

1 Page 19, “After the Fall,” The Monee Project, IDRC,Florence, November 1999

2 Page 10, Albania Country report on Human Rights2000, US State Department

3 http://www.cabinet-office.gov.uk/seu, British Govern-ment Social Exclusion Unit 2001

4 Page 10, Quote from Tony Blair , “Did Things GetBetter ,” Polly Toynbee & David Walker, 2001

5 Table 4.14, “Young People in Changing Societies,”Monee Regional Monitoring Report, 2000

6 “Globalization with a Human Face,” RL/alba001,UNICEF Albania, 2001

7 Page 6, KPMG Questionnaire, November 2000

8 Page 16 to 19, YAPS Feasibility Study and BusinessPlan, Stefano Mariotti, December 2000

9 Secretary of State Colin Powell, speech during the USRepublican Party Convention, 1996

10http://www.cabinet-office.gov.uk/seu, British Govern-ment Social Exclusion Unit, 2001

11 Globalization with a Human Face, RL/alba001,UNICEF Albania, 2001

12Page 213, Disability, Liberation and Development,Peter Coleridge, Oxfam, 1996

13 Page 16, Interview with B. Venkatesh, Coleridge, 1996

14 Page 75, Monee 7 Report, IDRC, Florence, 2000

15 The Growth and Poverty Reduction Strategy Paper hasbeen produced by the Albanian government in consulta-tion with IMF and the World Bank. Development of sucha poverty reduction strategy is a key pre-condition placedon IDA countries for drawing down conccessional loans.

16 Page 26, Francis Fukuyama, “Trust : Social Virtuesand the Creation of Prosperity,” Penguin, 1996

17 SDA Bocconi Graduate School of Business Studies,social business case study, Milan, Italy, 2001

18 Chapters 7,8,9 “Generation in Jeopardy: Children inCentral and Eastern Europe and the former SovietUnion,” M.E. Sharpe/UNICEF, 1999

19 http://www.unglobalcompact.org/gc/unweb.nsf, 2000


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ANNEX 1: Social protection benefits and poverty in Albania

The Albanian social protection system was established after 1991 and has three major components:

a) Social Insurance/National contributions: Contributions for unemployment, pension schemes, etc.

b) Social Protection: Cash benefits for those defined as poor as a result of means testing.

c) Social Care: Specific residential and outreach services for young people deprived of parental care,people with disability and abandoned elderly.

In principle, social protection benefits are designed to provide cash assistance and services to the poor.Target groups include: poor families with no income or an income below basic subsistence levels, aban-doned children and youth who are in social care or who have left social care institutions, people with dis-abilities and abandoned elderly people.

In practice, scarce resources mean that government is unable to meet all of the commitments that theyhave in policy for poor people.

Different schemes of social protection (for which 20 percent of the state budget has been allocated) havehad the following results: a weak impact on poverty reduction, degradation of human capital and desegrega-tion of structures of social capital of Albanian society. From the economic and social point of view, ananalysis of the costs point out some critical issues:

• The social assistance benefit does not allow the recipients to meet basic social andeconomic needs.

To argue this issue, we use the following table data:

Table 1

A recently produced national survey of living conditions (The National Institute of Statistics ) concludedthat a person living on less than one dollar a day is considered to be in absolute poverty, while a personliving on less than two dollars a days is considered to be poor. Clearly cash benefits, as described in the tableabove, do not enable recipients to overcome poverty.

Table 2

• There is no chance for social reintegration through social protection schemes

Despite the protection provided by the current legislation for categories of poor, disabled and orphans, itshould be emphasized that their specific needs are not taken into account. The system does not provide awide range of services.

With regard to employment, all three categories have difficulty competing for scarce jobs, particularlyorphans and the disabled. According to the report on living conditions, more than 50% of households whosehead is unemployed fall below the poverty level. The report also revealed a correlation between educationlevels and poverty. Almost 35 % of families educated only to primary level are poor while only 25% offamilies with secondary education are poor. Disabled and abandoned young people were found to be mostisolated from the jobs market and thus more vulnerable to poverty.

Protected categories Type Benefit Deviation from

monthly daily ($) $1/day $2/dayPoor Cash 642 0,15 -0,85 -1,85

Disabled Cash 4,913 0,71 -0,29 -1,29Orphans Cash 2,470 0,32 -0,68 -1,68Disabled and Orphans Services 15,000 3 2 1

Form Beneficiaries Average payment in lek

Per month Per yearPoor Cash 650,000 642 417,300,000Disabled Cash 28,000 4,913 137,564,000Orphans Cash 1,000 2,470 2,470,000


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Social protection benefits do not provide technical or material support to these especially vulnerablegroups for vocational training or searching the labour market. Social protection benefits to not help them tobreak out a cycle of poverty.

• There are limited possibilities for the government to increase the amount of socialprotection benefit

Despite the relatively high rates of growth (apparently from the periods 1991-1992 and 1997), only by1999could Albania reach the level of production of 1989. The Albanian economy also has a high level of informality.The informal economy is estimated to be more than 50% of GDP (Bank of Albania, Annual Report 1999, page23). The considerably high fiscal deficit and the fragility of the currency exchange rate leave a high risk ofinternal economic imbalances and especially price instability. On the other hand the government budget isfacing a large, increasing internal debt (from 25.1% in 1995 to 34% of GDP in 1999).

Under these circumstances, the allocation of 20 percent of the total state budget for social protection con-stitutes a heavy burden for the state. On the other hand, analyzing its achievements, it is concluded that thescheme is unable to leverage economic growth for poverty reduction efforts.

• The effectiveness of the scheme is low

The crucial principle on which the social protection scheme is created and operates is “alleviation of thenegative outcomes of transition”. As it was theoretically argued above, the implementation of such a principlewould necessarily lead to the inclusion of a large number of beneficiaries. It would have been more reasonableto offer higher payments to a limited number of beneficiaries. Nevertheless, even if this was applied, the prob-lem would not be solved. The critical issue of the scheme consists of the way in which the benefit is offered: the“passive” form, independent of any contribution, or the “active” benefit conditioned by the participation in acertain activity which produces certain public goods or services.

During the application of the first form (as it is done in practice), the social protection expenditures containelements of an ineffective cost. If the second form would apply, the expenditures would represent an invest-ment, (either short or long-term), and in this case would be cost efficient because it would be materialized intofinancial or social capital.

•The system faces a double social cost

The cycle of poverty, which shackles a significant minority of the population, constitutes a direct social costto the government and the public. The increase in the number of socially troublesome phenomena, which areenhanced by poverty and social exclusion of individuals, is also a cost for the whole society. The social cost ismore serious when we consider the fact that about 30% of population of the vulnerable categories consist ofchildren, i.e., not only the present but also the future is at risk.

A survey conducted in 1999 by the Centre for Economic and Social Research, points out the role of socialprotection in social exclusion. Analyzing its results, we conclude that the level of income from social protec-tion, the period of benefit, the relationship with labor market, the age and the level of education do have thegreatest impact on social exclusion. The general conclusion of the survey is summarized under the statementthat the current system of social protection fails to avoid social exclusion, because it can not meet basic socialneeds.

After the analysis of the cost of the social protection scheme, it is concluded that the most critical problemsconsist of:

· the absolute amount of benefit from social protection does not create opportunities for the recipients tobe reintegrated to society

· the system itself although relatively spending a lot, does not take into consideration the basic socialneeds of the marginalized categories

For this reason the actual policy of social protection is defined as a policy of “alleviation of social inequali-ties”, which unfortunately is not sufficient to promote the social development of Albanian society.


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Annex 2: Comparing Alternatives

While by no means wishing to make a mathematical equation, the tables below are used to facilitate acomparative analysis of alternative government investments for reducing social exclusion.

Referring to Annex 1, we argued that passive scheme of social protection is different from active scheme.The passive scheme appears to be a curative method, whereas the active model places more emphasis on therole of prevention, and further more, sees costs as investments. It should be mentioned that it is not possibleto apply a pure “curative” or a pure “preventive” model. In practice both methods are mutually reinforcing,complementing each other. Curative methods differ from country to country, but broadly comprise cashassistance and services for social groups in need. Let us consider the provision of cash assistance “alternative1” and provision of cash and services “alternative 2”. It should be stated that both ways represent a “curative”method of addressing social problems.

The cost of social protection is comprised of economic and social expenditures. Economic cost representsall government expenditures for provision of social services to people in need and tax expenditures of privatebusiness. It should be emphasized that tax expenditures of private business are included here, because it isthe most important financial source for government to cover social expenditures. Social cost represents thecost that society and marginalised individuals pay. If social phenomena are not prevented, society pays ahigher price, because many individuals will be involved in criminality, drug addiction, etc. The individualsthemselves also pay a price, because they are excluded from the society. The alternatives below attempt toexplore the costs and benefits of the different alternatives.

Alternative 1: Traditional method of social protection - Curative method, Provision ofcash assistance

Total Cost = Economic + Social Cost• Economic Cost = Cost of government + cost of private business

• Cost of government=Public Expenditures for subsidies• Cost of private business=Tax of Private business

• Social Cost = Cost of society + Cost of marginalized individuals• Cost of society Cost that society pays due to existence of critical social issues like

criminality, drug abuse, alcoholic, disease, thus cost of diminishing social capital• Cost of marginalized individuals Cost that individuals pay because of absolutely

deprivation and exclusion.

In alternative 1: Government covers all expenditures for cash assistance, which from a social point of viewis a “ loss” because it doesn’t produce a “return” of social reintegration. Private business contributes, but itnever benefits because the money goes to subsidize individuals in need. Society pays the price of incapabilityto alleviate the critical social situations and recover marginalized individuals. Vulnerable individuals arekept in a cycle of poverty and remain socially excluded. All costs represent “ a loss” because there is no“return” as long as marginalized individuals remain under curative method.

Alternative 2: Traditional way of social protection - Curative method, Provision ofassistance in cash and services

Total Cost = Economic + Social Cost• Economic Cost = Cost of government and cost of private business

• Cost of government public expenditures for subsidies + cost of a new job place + costof education + cost of training and retraining – Social Revenue from reintegration.Clearly, economic cost is higher than in alternative 1. However, from a social point ofview, there is a feed back from people who benefit from social services, due to anincrease in their well being.

• Cost of private business tax of private business, which is higher than in Alternative 1since it is projected that when national wellbeing is high, the redistribution of wealthis also high and private contributions are high as well.

• Social Cost = Cost of society + Cost of marginalized individuals


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Cost of alternative 2 is lower than in alternative 1, although it still has a negative value (loss is higherthan benefit). It depends on the concrete results of the reintegration process, which are higher than in thefirst case. Cost of individuals represent a “revenue” since benefit is higher than expenditure. More individu-als become reintegrated. Comparing only alternative 1 and 2, it is true that the alternative 2 has someadvantages, because there are some possibilities for reintegration. Alternative 3 brings in a new approach: acombination between social protection and social business, which means, a balance between curative andpreventive models.

Alternative 3: New approach of social protection – Prevention method, Social protec-tion goes hand in hand with Social Business

Total Cost = Economic + Social Cost• Economic Cost = Cost of government and cost of private business

• Cost of government = public expenditures for subsidies + cost of a new job place+costof education+cost of training and retraining +Cost of Social Business – Revenue fromSocial Business. Clearly, the economic cost is lower than in alternative 2.

• Cost of private business =Tax of Private business + Cost of Social Business – Revenuefrom Social Business.

In total, it is lower than in alternative 2 since there are some revenues from the business.

• Social Cost = Cost of society Cost of marginalized individuals• The cost to society is almost zero due to the possibilities for reintegration.• Cost of individuals could be named “ benefit of individuals.” It has a positive value

and increases continuously as long as social business develops.


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Annex 3: Social business input and output diagram

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