A Social and Solidarity Economy : The Ukrainian Choice [1 ed.] 9781527504332, 9781443895224

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A Social and Solidarity Economy

A Social and Solidarity Economy: The Ukrainian Choice Edited by

Anton S. Filipenko

A Social and Solidarity Economy: The Ukrainian Choice Edited by Anton S. Filipenko This book first published 2017 Cambridge Scholars Publishing Lady Stephenson Library, Newcastle upon Tyne, NE6 2PA, UK British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Copyright © 2017 by Anton S. Filipenko and contributors All rights for this book reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copyright owner. ISBN (10): 1-4438-9522-9 ISBN (13): 978-1-4438-9522-4

TABLE OF CONTENTS

List of Illustrations .................................................................................... vii List of Tables ............................................................................................ viii Foreword ................................................................................................... ix Valeriy V. Kopiyka Preface ........................................................................................................ xi Gisela Notz Acknowledgements .................................................................................. xvi Introduction ............................................................................................. xvii Anton S. Filipenko List of Abbreviations ................................................................................ xxi Chapter One ................................................................................................. 1 Alternative Economic Systems: A National, Solidarity Economy for Ukraine Anton S. Filipenko Chapter Two .............................................................................................. 18 The Solidarity Economy: A Review of the Concept and Results Ɉlena O. Slozko and Ɉleksandr V. Pidchosa Chapter Three ............................................................................................ 35 The Concept of the Solidarity Economy in Ukrainian Thought-Leaders’ Ideas, at the end of the 19th and beginning of the 20th centuries Oleksandr I. Shnyrkov and Liudmyla O. Shvorak Chapter Four .............................................................................................. 44 A Socially-Oriented Development Model of Ukraine Svitlana V. Sidenko

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Table of Contents

Chapter Five .............................................................................................. 61 Social Entrepreneurship in Ukraine: Its Background and Prospects for Development Lyudmyla P. Chernyaha Chapter Six ................................................................................................ 83 Conceptual Approaches to Social Innovation Analysis: The Social Innovation Network Kateryna Yu. Dedelyuk Chapter Seven............................................................................................ 95 The Performance of Ukraine’s National Labour Market in the Context of the Social Economy Roman D. Stakanov Chapter Eight ........................................................................................... 107 Solidarity Finance: Forms and Modern Trends Volodymyr Yu. Shevchenko Chapter Nine............................................................................................ 126 The Regional Dimensions of the Social Solidarity Economy of Ukraine Ihor Ye. Zhurba Chapter Ten ............................................................................................. 144 The Social and Economic Image of a Country in Terms of the Solidarity Economy Oleksii A. Chugaiev Chapter Eleven ........................................................................................ 161 The Role of Global Production Systems in the Development of a Solidarity Economy Marina P. Khmara Chapter Twelve ....................................................................................... 185 The Solidarity Aspects of International Trade Development Anatoliy P. Rumiantsev and Petro P. Yaremovych Bibliography ............................................................................................ 202 List of Contributors ................................................................................. 205

LIST OF ILLUSTRATIONS

4-1 Human Development Index indicators and rankings of Ukraine and new EU member states ................................................ 51 5-1 Pearce’s three systems of the economic model ................................... 64 5-2 Factors influencing the development of social entrepreneurship ........ 80 9-1. The mechanisms that form and create the functioning of local government ........................................................................................ 131 9-2. Implementation mechanism for evaluating the human capital of a local community at the regional level ............................. 133 11-1. Added value in global exports, 2014 .............................................. 166 11-2. Key indices of trade share within GPSs by quartile of total volume of FDI inflow as quota of GDP, 2014 ................................... 167 11-3. Structure of export added-value, average indices by developing countries in 2014 ........................................................ 169

LIST OF TABLES

4-1 Leaders of the Human Development Index; competitive and innovative economic development, 2015 ...................................... 47 5-1 Comparative description of a social enterprise, commercial company and civil organisation........................................ 65 5-2 Characteristics of social enterprises .................................................... 69 5-3 Types of social enterprise development .............................................. 72 5-4 Basic stages of social entrepreneurship development in Ukraine........ 76 8-1 The evolution of associated, solidarity financing .............................. 110 8-2 The main characteristics of cooperative banks and commercial banks with a share capital ........................................ 118 8-3 Penetration of Internet and Internet-banking in selected countries, 2015 ................................................................. 120 10-1 Average indicators of a country’s internal economic image, in clusters, % ...................................................................................... 154 12-1 GDP and the foreign trade of individual countries in 2015 ............. 189 12-2. Socio-demographic indexes of certain countries of the world, 2015 .............................................................................. 190 12-3. The international trade of certain countries, 2015 .......................... 191

FOREWORD

In February 2016, the Institute of International Relations at the Taras Shevchenko National University of Kyiv held an international symposium called, “A Social and Solidarity Economy: The Ukrainian Choice.” This event marked a new direction for research into alternative economic models. The social solidarity economy, characterised by socialisation and solidarism, emerged in the economic development paradigm. World experience conclusively proves that where there is social entrepreneurship, solidarity becomes increasingly common. This is the case across the globe, regardless of a country’s geographical location or level of economic development. The Research Institute for Social Development operates under the auspices of the UN. There is a worldwide network (RIPESS) that brings together public institutions, social movements, and volunteer associations relevant to the scientific research and practical implementation of alternative economic models. Fifteen “world social forums” and dozens of regional events took place between 2001 and 2015. In October 2015, Berlin hosted the European forum on the solidarity economy (“Solikon”). This was attended by about 1,500 participants from European countries, the US, Canada, Brazil, Cuba, the Republic of Korea, and Japan, amongst others. Section IV of the European Union’s Charter of Fundamental Rights features aspects of solidarity and refers to such elements as human dignity, freedom, equality, and solidarity, etc. It should be noted that solidarity is organically inherent to the Ukrainian people and mentality. This defining feature has always helped Ukrainians to survive in times of hardship. Prominent domestic intellectual leaders, Taras Shevchenko, Hryhoriy Skovoroda, Ivan Franko, and Lesia Ukrainka, always called for the defence of unity and for the country to be built on the basis of cohesion and solidarity. Principles of solidarity are of paramount importance when Ukraine is making a historic transition from a planned, centralised economic system to a market, socially-oriented economy. The activities of the Polish trade union, “Solidarity”, are a striking example of solidarity in a post-socialist country. Headed by L. WaáĊsa, it created a radical socio-economic and political transformation that made Poland one of the most successful countries in Central and Eastern Europe.

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Foreword

The crucial historical period that Ukraine is now experiencing requires the implementation of radical political, economic and social reforms. Changes are also needed in the country’s foreign policy. This is with a view to embodying the values of Western civilisation to the fullest extent, in the process of bringing Ukraine closer to the EU and implementing the Ukraine-EU Association Agreement. Valeriy Kopiyka - Doctor of Political Studies, Professor, Director of the Institute of International Relations at Taras Shevchenko National University of Kyiv.

PREFACE GISELA NOTZ, PHD

In the face of increasing globalisation and related crises, there is widespread unemployment, increasing precariousness, exorbitant rents, privatisation, poverty, climate change and armed confrontations. This has led politicians, sociologists and trade unionists to argue about a future beyond the working society. The third sector is made up of a shadow economy consisting of civil work, new volunteering, voluntary services, the strengthening of self-help and a “solidarity economy,” or, “alternative economics” beyond or between the market and the state. This is the “new future model” and it has been used as a panacea against unemployment and the destruction of the environment. However, it often amounts to nothing more than old wine in new bottles. Many efforts do nothing to change social and gender inequality and actually contribute to the formation of new lower social classes, especially among people of different origins. These systems are also based on the old gender contract that regards the home and care work as intrinsic to the role of women. Anyone can be of the opinion that it is an illusion to imagine a concrete utopia. However, it is also possible to believe that it is essential to develop new alternatives to traditional economic concepts and the capitalistpatriarchal society of work that causes social, racial and gender inequalities. We have to find answers and we need them here and now because I do not believe in the afterlife. This book was compiled by authors from Ukraine and puts forward some answers to these questions. The key question that has run through my mind for several decades raises an old, well-known dilemma: Can anyone open a “window to another world” within the existing system? Is it possible to develop self-managed alternatives in the lap of what already exists? Is there a real life in what is wrong?1 This issue is to be resolved by Ukrainian colleagues, whose discussions lie in the scope of claims about the state and organisation of an alternative economy. 1

Gisela Notz: Theorien alternativen Wirtschaftens. Fenster in eine andere Welt, Stuttgart: Schmetterling, theorie org. 2012, 2. Auflage

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What do I understand by an alternative economy? An alternative economy can mean so much more. I stand by the term, even though it is often replaced by “solidarity economy,” because I regard it as an alternative to the existing economic order. An all-encompassing definition cannot be given. This term is an object of discussion. An alternative economy can be defined as alternative economics, the solidarity economy, counter-economics or counter-culture. In any case, an alternative economy marks a transition between the market-centric capitalist economy, public production and service sectors, and the socalled “informal economy”. In this border area we deal with very different economic structures. An alternative economy includes cooperative or selfmanaged companies as well as a wide range of community-oriented projects and non-profit organisations. The hope for a different, better world in which exploitation, oppression, a hierarchy of human dominance, alienated work and patriarchal structures are absent, and self-determined living and working conditions are the norm, has led to a rise in the theories and concepts of alternative economics. These theories are being implemented in self-managed companies and communitarian ways of working and living, along with associated projects and initiatives. Among the actors, there are discussions about how a better way of living can be achieved. The fact is that, in the course of postmodern diversity, our “multi-options-society” — with its colourful fair of alternative projects — has become more and more diverse, and spiritual projects are apparently taking place within the “alternative scene” of a liberate-anarchist movement. Many who are intervening, who are perhaps even conservative or right-wing, complicate the possibility of taking an unequivocal position. The concept of this book, as I understand it, is emancipatory approaches to alternative economics. It is also concerned with the concepts used by company members to work within human, ecologicallycompatible processes with democratic and — as far as possible — selfdetermined organisational forms that are self-managed in collective, nonhierarchical structures conforming to certain standards. These standards allow activities to be performed that create ecologically-compatible and socially useful products or services. Self-managed projects can be understood as being in the following areas: housing, educational, consumer and working projects. There is no typical, ideal, private property, land or building; operating assets and income are neutralized, i.e. they are not personally available. This is also true for cooperatives and municipalities created from free unions of people who organise their

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communal living and working in radically democratic communities, in which all people have the same rights and responsibilities. Until now, there has been no uniform system of theories in terms of the usual understanding of closed models of alternative economies. It is therefore impossible to agree on a common theoretical basis for global alternative economics. This is also clear from the heterogeneous contributions in this book. There are many different historical and current theoretical approaches, and the actors themselves (from their experiences in many countries of the world) have developed approaches that could be worthwhile starting points. It is a pity that representatives of individual “directions” (mainstreams) always claim that their approach is the right one for a world without exploitation and destruction, while others wear rose-tinted glasses to view what actually fits quite well into the concept of the neo-liberal policy. Since the 1970s, an alternative movement has been founded in Germany and other countries. However, this does not mean that many new lifestyles, needs and interests, or living and working opportunities are alternatives in our multi-options society. If people have no reason to find out what an alternative and better world could look like, it’s possible they will be convinced that there is a risk that a new approach could go wrong. Most of the players hope for a life beyond capitalism, or at least to be an autonomous island in the capitalist world. Equal members of collectives try to resolve the problems of individual isolation and a focus on gender roles through new forms of coexistence. Alternative forms of economics can be suited to an expansion of economic thinking as a whole and enable a different way of thinking about and developing an economy for life. It cannot relate only to the state. Even if universal diversity seems to impede international cooperation, international networking is necessary, as discussions at numerous conferences have shown.

Concepts of the alternative economy are not a new invention Theories and projects attributable to alternative economies have existed longer than the concept of a capitalist economy. One should consider, for example, the utopias of the English philosopher Thomas More (1478-1535), the Italian philosopher, poet and politician Tommaso Campanella (1568-1639), the early socialist, entrepreneur and trade unionist Robert Owen (1771-1858), the French company theorist and critic of early capitalism Charles Fourier (1772-1837), or Gustav Landauer’s

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(1870-1919) idea of the “propaganda of the deed.” No model, however, could be easily used within the current framework. The highlight of this history was, without doubt, the alternative and self-managed enterprises of the 1970s in West Germany. An alternative culture with living communities, alternative enterprises and a communitarian life appeared in connection with student, environmental and ecological movements. Consciously or unconsciously, they drew on anarchist and socialist theories of the past. Such questions as “reform or revolution?” and “is there ever a right life in the wrong one?” (Adorno) were re-thought. In spite of the ever-recurring doubts over whether it is possible to build autonomous utopian islands within existing — or at the edge of — patriarchal capitalism, many communities were founded to develop “here and now” experiments of alternative economies. Some of them were developed by people who had received “professional bans” and had no chance of securing their livelihoods in the academic field. Later, these experiments emerged from factory occupation and house-squatting. Cultural projects, bookstores, publishing houses, distributors, and printing houses were the first self-managed projects. Tea rooms, consulting and training facilities, pubs, cabaret, theatres, film groups, and unions of craftsmen followed. Projects with soft energy and environmentallyfriendly, energy-saving, alternative technologies also joined the list of projects. Most of them were “companies with no boss.” Such companies can target the development of responsible working and living cultures in coexistence with the prevailing capitalist-patriarchal economy, before the general conditions exist for revolutionary transformation. Some of the work, in terms of the self-confidence of a union of equal members, continues today.

Can a wrong life be lived rightly? This question is being raised again. Originally, it was posed by the social philosopher, Theodor W. Adorno. In his essay, “Minima Moralia” (1944-1947, California), he wrote that “there is no right life in the wrong one.” But in any case, he argues, it does not matter how people live their lives. He does not advocate resignation and doing nothing as long as the wrong life is changed. If a wrong life cannot be lived rightly, there is also – in his opinion –a “substitute for true life.” He raises the question of whether freely-associated individuals could create “asocialisation” and thus build models of real life. There must be such a life “as one might imagine life would necessarily be conducted among liberated, peaceful human beings who feel themselves in solidarity.” He also argues that it has

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to be assumed that the scope for such action under the increasing pressure of crisis is significantly reduced. Therefore, the following statement is correct: “No emancipation without that of society.”2 Thus, he does not exclude the concept that the “window into another world” can be opened within the existing system, in the here and now.

2

Theodor W. Adorno: Minima Moralia. Reflexionen aus dem beschädigten Leben, in: Rolf Tiedemann (Hg.): Gesammelte Schriften Bd. 4, Frankfurt/M. 1997.

ACKNOWLEDGEMENTS

In order to achieve unity and a thematically-integrated book of twelve contributors, effective communication with the authors has been vital. Communication in this case has meant coordination between authors in terms of the content and requirements of their chapters, end matter, images, tables, etc. This important task has been performed by Kateryna Dedeliuk and Roman Stakanov – both young scholars. They are sui generis volunteers in the creative arena and I am obliged to them for their assistance in producing this necessary and useful work.

INTRODUCTION ANTON S. FILIPENKO

A crucial element of economic theory is microscopic, or microeconomic, diversity. Variability and individual diversity at a microeconomic (microscopic) level drives the evolutionary process. These are the main ingredients of the creative evolutionary processes that generate novelty. “The future is not given, but is created in an unfolding evolutionary process”, said the Belgian physical chemist and Nobel Prize Laureate, I. Prigogine (1917–2003). In this case, the novelty for the Ukrainian economic realm is a national, solidarity economy, as an alternative to the current oligarchic economic and political system. A core insight for new evolutionary synthesis is that nature is creative, and that novelty and genuinely unpredictable outcomes are generated as evolutionary processes unfold over time. The creativity argument has all the more force when we are concerned with social processes that are driven by human choice and inventiveness. It is more accurate to discuss the Ukrainian choice of economic model in the context of Ukrainian history and its national mentality. The concept of a national, solidarity economy has to be more attractive for the Ukrainian people. Nationality and solidarity should represent a philosophy: the spiritual content and background of the economic model. A national and solidarity economy is based on three fundamental principles: national outlook (world view), popular sovereignty and solidarity. Micro-level research dominates the literature on the solidarity economy and reveals active, self-managed family enterprises, as well as cooperative and communal enterprises and developing social businesses. This is very important in terms of microeconomic diversity. The basis of this solidarity is the process of public goods production. At a micro-level, the national, solidarity economy builds from the bottom up. National enterprises, cooperatives, private farms, associations, non-profit organisations, and volunteer associations all constitute the “bottom-up approach.”

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Introduction

The implementation of geo-economic and macro-level principles is much more complicated. Macro-level solidarity principles enable the necessary conditions for the talents and powers of individuals to be realised and established. This includes free access to resources for business development. The national economy at a macro-level is a holistic system. There are newly set rules and adequate institutions for solidarity forms of management. The geo-economic level represents, first of all, fair trade as a trading partnership that is based on dialogue, transparency and respect, and which seeks greater equity in international trade. Thus, the essence of nationality and solidarity ideas in a new economic system is, firstly, the emancipation of citizens’ social and creative energy, so they can have a closer relationship with issues of property, power and control. Secondly, an economic policy should yield improvements in human welfare. Thirdly, a new economic and political philosophy must provide every Ukrainian citizen with a safe guarantee that they will be able to lead a modern way of life with quality education and training, health care, high-paying jobs, personal safety, and social protection under the conditions of freedom and democracy. These issues are mainly highlighted in Chapter 1. In Chapter 2, the social economy through the relationship between the economy and social behaviour is explored. The ways in which the behaviour of producers and consumers depends on public morality, ethics, and other humanitarian philosophical approaches is analysed. The authors believe that, under the conditions of global instability, rising inequality and dwindling natural resources, a new economic platform is needed for the sustainable development of mankind. The economy of solidarity could become such a platform for the future. Analysing the works of Ukrainian thinkers-solidarists, Chapter 3 concludes that Ukrainian solidarism is contained within the mainstream of all-European spiritual principles and is associated with the search for not only a national but also a social ideal. Ukrainian solidarist philosophers have actually criticised the capitalist class system and offered an “ideal” national and social order in line with the ideas of Western “classical” solidarism. The ideas of Ukrainian solidarists reflected the main ideas of solidarists in Europe and supplemented them with visions of changing the old political system, which was unable to lead Ukraine to success. In considering the socially-orientated development model, Chapter 4 states that there are objective reasons for its implementation in Ukraine. The country has been shaping up its market institutions based on the principles of a socially-orientated market economy. Thus, Ukraine will

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have to solve a number of urgent and difficult tasks in order to reach European standards of pay, safety at work, living conditions, health, education, culture, and social security, etc. Chapter 5 considers social entrepreneurship as a subject of particular interest in Ukraine because of its historical background, and proposes a mechanism for the promotion of social businesses at national and regional levels. Chapter 6 is devoted to the place and role of social innovation today. It states that social innovation is a relatively new concept of economic development and is an important part of a solidarity economy. Social innovations can be regarded as dealing with the welfare of individuals and communities. The author of Chapter 7 points out that the social economy is a rather controversial concept that relates to a specific strategy of social and economic policy that has been widely applied, particularly in several European countries. A way of addressing the social problems that exist in today’s economic dynamics, amid the global crisis and regional economic turbulence, is by promoting equal employment conditions and reducing unemployment within a social economy. A solidarity economy has a specific demand for finance because of its ongoing commitments to cooperatives, community and non-profit activities, microbusinesses and private entrepreneurship. This is stressed in Chapter 8, which examines the structure and modern diversification of solidarity access to finance. It identifies the social and human features of banking and looks at social responsibility in financial institutions and their management. As a professor of Khmelnitsky National University, I. Zhurba has devoted his research to the regional aspects of a solidarity economy with specific reference to Ukrainian problems. In Chapter 9, he analyses the socio-economic and social development of countries over the last decade, and proves that there are a number of systemic problems in the economic structure of the world economy and international economic relations. The central issue that he addresses is unpredictable economic crises and social problems. He justifies the failure of many of the theoretical and economic provisions of modern economic science. Chapter 10 examines the various aspects of the internal economic image of a country that has adopted a social and solidarity economy. It analyses the link between the external and internal social and economic images of a country or, in other words, the integration of a bloc, on the one hand, and economic solidarity at various levels on the other hand. The author groups countries into five clusters and provides their detailed

Introduction

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characteristics. The surprising conclusion he comes to is that advanced economies are more pessimistic in comparison with the economies of developing countries that depend on economic growth trends. Chapter 11 highlights the global value chains (GVCs), global production networks (GPNs), and global commodity chains (GCCs) and their relationship to the processes of globalisation and integration. In this context, specific attention is paid to the issue of integrating the national economy of Ukraine into European value chains. It is a vertical level process, which means it is possible and necessary that SSE businesses function effectively on the basis of an established input-output formula and involvement in high-quality value-added chains, such as those in the manufacturing sector, export, distribution, sales, new products and technologies. Rumiantsev and Yaremovych believe that, in the near future, the solidarity economy will be the driving force behind the transition to sustainable economic development. In Chapter 12, they prove its effectiveness in social and economic terms, both at national and international levels. In international economic relations, solidarity, above all, finds its expression in the intensive development of international trade.



LIST OF ABBREVIATIONS

ACP AEDI ANSPE

APEC ATM BRICS CIC CIS DCFTA DIY EACB EEC EU FDI FISE FLO FRS FT GABV GCC GDP GDRC GNI GPN GPS GVC HDI IBE ILO IMF

African, Caribbean and Pacific countries Association of Economic Development of Ivano-Frankivsk La Agencia Nacional para la Superación de la Pobreza Extrema (Social Innovation Centre of National Agency for the eradication of extreme poverty) Asia-Pacific Economic Cooperation Automated Teller Machine acronym for an association of five major emerging national economies: Brazil, Russia, India, China and South Africa Community Interest Companies Commonwealth of Independent States Deep and Comprehensive Free Trade Area Do It Yourself European Association of Cooperative Banks European Economic Community European Union Foreign Direct Investment Fundacja Inicjatyw Spoáeczno-Ekonomicznych (Foundation for Social and Economic Initiatives) Fair Trade Labelling Organisation International Federal Reserve System Fair trade Global Alliance for Banking on Values Global Commodity Chain Gross Domestic Product Global Development Research Center Gross National Income Global Production Network Global Production System Global Value Chain Human Development Index International Business Entities International Labour Organization International Monetary Fund

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INSEAD IOM IPFSD IT JV LLC NAFTA NEM NGO OECD P2P PSI R&D RIPESS

SICP SIX SM SME SN SRC SSE STR TNC UN UNCTAD UNDP UNESCO UNRISD UNSSE USAID USFWC USSR UST VAT WEF

Introduction

Institut Européen d'Administration des Affaires (European Institute for Business Administration) Institute for Organizational Management Investment Policy Framework for Sustainable Development Information Technology Joint Venture Limited Liability Company North American Free Trade Agreement Non-Equity Mode Non-Governmental Organization Organization for Economic Cooperation and Development Person-to-Person Program of Social Investment WNISEF Research and Development Réseau Intercontinental de Promotion de L'économie Sociale Solidaire (Intercontinental Network for the Promotion of the Social Economy) Social Innovation and Civic Participation Social Innovation eXchange Stabilization Model Small and medium-sized enterprises Special Needs Socially Responsible Company Social and Solidarity Economy Short Tandem Repeat Transnational Corporation United Nations United Nations Conference on Trade and Development United Nations Development Programme United Nations Educational, Scientific and Cultural Organization United Nations Research Institute for Social Development United Nations Inter-Agency Task Force on Social and Solidarity Economy United States Agency for International Development United States Federation of Worker Cooperatives Union of Soviet Socialist Republics Unified Social Tax Value Added Tax World Economic Forum

A Social and Solidarity Economy: The Ukrainian Choice

WHO WISE WNISEF WTO

World Health Organization Work Integration Social Enterprise Western Newly Independent States Enterprise Fund World Trade Organization

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CHAPTER ONE ALTERNATIVE ECONOMIC SYSTEMS: A NATIONAL, SOLIDARITY ECONOMY FOR UKRAINE ANTON S. FILIPENKO

1. The Alternative Economy Among the alternatives to the fundamentalism of the modern market, the social and solidarity economic models stand out. The problems of a social, national and solidarity economy have recently been widely discussed in the economic literature and at international conferences (Notz 2012; Satgar 2014; Utting 2015).

Ⱥ. The Social Economy The social model is well-established, proven in practice, and theoretically and methodologically grounded within the ontological and epistemological coordinates of postmodernism. This model was theoretically substantiated by the German scientific school of ordoliberalism and was practically implemented by Chancellor L. Erhard. Continental, northern (Scandinavian), Anglo-Saxon and Mediterranean social models differ in terms of the nature and level of social services. As part of the social economy, Salamon and Anheier classify the economic activities carried out by businesses, cooperatives, associations and companies and state that they are governed by the following principles: the provision of services to members of the company prevail over the yield; autonomous management; democratic decision-making processes; priority given to working people in terms of capital and income distribution (Salamon and Anheier 1997, 30). However, the social model has been criticised recently due to strict cost-cutting drives in EU member states,

2

Chapter One

following the global financial crisis of 2008–2009 and the reduction of social services within the concept of the welfare state.

B. The Social and Solidarity Economy The model of a social and solidarity economy (SSE) is suggested as a certain alternative to the modern social model because it is more peopleand eco-oriented, comprises recognised values, and focuses on cooperation, solidarity, democratic governance, autonomy of the state, and business and market institutions (Uttig, 2015, ɯ-ɯɿ). These kinds of synergies between social and solidarity economies complement each other and create a model that may, on the one hand, be an alternative to capitalism or, on the other hand, become a Trojan horse of liberalism (Uttig 2015, 60). This so-called plastic, sharing economy or mixed model, may evolve into horizontal, vertical and combined (transversal) levels. The horizontal level reflects the activity of micro-enterprises, cooperatives and other similar structures that allow their members to address issues such as overcoming poverty, unemployment, ensuring access to material and financial resources, participation in training, and so on. The vertical level represents the possibility and need for the effective functioning of SSE business entities on the basis of a known input-output formula and involvement in high-quality value-added chains (the manufacturing sector, export, distribution, sales, new products and technologies). We may see that the enterprises of a social and solidarity economy at this level are subject to strict requirements in terms of performance, adaptability and competitiveness. The combined (or transversal) level requires a diversified strategy aimed not only at interactions with production partners but also at establishing relationships with customers and the surrounding residents. World practice shows that there are successful projects of SSE centres within big businesses, something which is also developing in mainstream, postmodern social processes.

C. The Solidarity Economy The solidarity economy does not have a single theoretical and methodological basis, as such. As previously mentioned, it is considered to be a component of a social or sharing economy (Uttig 2015, 143) and is associated with the works of utopian socialists such as Saint-Simone, Fourier, Owen, and Proudhon, among others (Dash 2013). On the other hand, the transformational function of a solidarity economy is emphasised, which arises as a result of the creation of an alternative to capitalist norms

Alternative Economic Systems

3

of production, consumption, and finances etc. (Satgar 2014, 13, 38, 51; Notz 2011, 117–18). Therefore, the key difference between the social and solidarity models is that the first allows for inclusion in the social and economic processes of the wider public, while the second stipulates a transformation of the actual capitalist system through the gradual but steady introduction of alternative economic forms, following a bottom-up approach. A solidarity economy relies on three main tenets, which historically have accompanied exchange and the development of market relations: market principles (when the proposition and demand for goods is balanced by prices); redistribution, which allows for delegating to a central authority power to allocate resources; reciprocity, which correlates with relationships between groups and individuals who respond in kind because they are willing to show a social connection between the participants of the social process. It is worth mentioning that these principles are stated in contemporary economic periodicals on the solidarity economy. However, they were initially shaped in the works of A. Smith, K. Polanyi, and C. Lévi-Strauss.

2. The Social-Economic Choice The first attempts to formalise social choice were made by the French authors, J.-Ch. de Borda (1781) and J. de Condorcet (1785). In a narrow sense, social choice is considered within the framework of the capitalist economic system, resonating to some degree with public choice theory. The Journal of Economic Literature attributes social choice to microeconomics (clubs, committees, and associations), and public choice to its sub-division of “economic models and political processes” (rent, elections, legislative bodies, and constituent behaviour). Public choice focuses on public opinion research and constituent behaviour. Social choice examines society as a whole or its particular components: rights and liberties, public (social) goods, environment, and gender policy etc. The normative aspect of social choice manifests itself as the component of the welfare economy. The main works on the issue were published at the end of the 20th and beginning of the 21st centuries. They include the scientific research of: A. Feldman (1980); P. Patanyak and M. Cells (1983); K. Suzumuri (1983); P. Hammond (1985); D. Starrett (1988); K. Arrow1 (1997); and A. Seinne (2009) etc. The complementarity of public and social choice theories clearly shows itself in Arrow’s general possibility theorem, also known as

 1

K. Arrow’s universalism is manifested in it belonging to two scientific fields: public and social choice.

4

Chapter One

Arrow’s impossibility theorem. The key elements of Arrow’s theorem are: the social welfare function; aggregation methods; axiomatic methods; welfare-evaluation methods; and voting methods. According to the axioms of the theorem, social welfare function must satisfy the following four conditions: 1) The Pareto effectiveness criterion must be valid (if every actor prefers c to b, then society as a whole should prefer c to b); 2) No individual may determine a collective decision (the absence of dictatorship); citizens should not allow their right to vote to be sold (the absence of market environment); 3) Independence, i.e. the choice between two options is independent from possible alternatives (social choice, if there are other alternatives, should only depend on the preference between these alternatives); 4) Unlimitedness of the sphere (the requirement that all logical social preferences be permitted, harmonised, finally formulated and embodied as an understandable individual choice) (Keizer 2015, 109). The impossibility theorem states that one may not fulfil all of these conditions simultaneously. At the same time, in combination with other studies similar in content (the Gibbard–Satterthwaite theorem, the legal theorem of Condorcet, and the median voter theorem, etc.), important scientific and practical results may be achieved in the social choice system. Based on methodological individualism, aggregating individual preferences and choices, and by using elements of formal logic, scholars formulate a series of axioms of societal choice in terms of social welfare functions. This also applies to areas such as the principles of compensation and justice, rights and liberties, birth rate, productivity, natural resources, welfare, poverty, and so on. To some degree, this toolkit may also be used when choosing and defining an economic model.

3. The Economic Choice of Ukraine The economic model of any country may not be chosen arbitrarily. This choice is determined by factors which fall into three major groups: global (civilisational); national-historic; and current interest (related to the current internal and external situation of a country). To what degree and in what way did these factors influence the choice of the economic model of Ukraine and the establishment of the current economic system? It should be noted that in the process of economic (and also political) choice, the main link (axis) was interaction between global and current factors, with national-historic participation often being only symbolic. After gaining independence, which was followed by the bankruptcy of the state-planned economic system, it was logical that the economy should be transformed into an alternative, more efficient one: the market economy, which

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dominated (and still dominates) Western civilisation, as well as many other civilisations. The market principles were formulated in the Washington and the post-Washington consensuses and finally became the basis of market transformations in Ukraine, not through evolutionary, natural processes (as had been the case in many Western countries) but as the consequence of top-to-bottom change. As K. Polanyi mentioned, “the market was brought about by a conscious, often coercive interference of governments, which literally imposed market economy upon society, pursuing by no means economic goals” (Polanyi 2002, 270). Therefore, the combination of global (civilisational) and current (internal and georegional) factors created serious contradictions. First, at the turn of the 21st century, the traditional self-regulating market system started showing evidence of market failure, which became a dominant feature of the modernist era and evolved into other quantitative and qualitative characteristics of the postmodernist age. Secondly, the internal political and economic environment and surrounding geo-regional space: the CIS objectively found itself strongly dependent on the previous, socialistplanned development (path dependence), which was hampering the introduction of structures more effective than those of the past. Thirdly, national-historic, mental and genetic factors of the indigenous nation — which should have been the core foundation of the new post-Soviet political and economic system of Ukraine — were absolutely overlooked. Because of these contradictions, a quasi-market, oligarchic-type economy emerged which was unstable, volatile, susceptible to internal and external shocks, and defined by utterly low productivity and a lack of the internal mechanisms needed for dynamic sustainable development. European and global economic marginalisation, a deep social stratification, rising poverty, and the lumpenisation of the population all determine that there needs to be a radical transformation of the current economic system, in accordance with reality and the requirements of the postmodern era. Here, the key point is the exhaustibility of the liberal economic system, which has dominated recent centuries. The experience of both developed and developing countries shows the intense theoretical search for alternative economic models acceptable for the new state of global society. The intrinsic features of this are, first of all, considerable improvement in the global population’s level of education and the quality of human capital, as well as its ability to self-organise, self-govern and self-improve. Second is the emergence of networking systems in the economy, politics, science, culture and the social sphere. Third is the deepening of globalisation in all aspects of life, and an intensive information-exchange. Fourth is the exacerbation of the inter-civilisational contradictions that encourage the

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search for fundamental anthropological principles and the crystallisation of national identity. These processes directly affect the nature and content of modern economic models in general, and the national one in particular. From a theoretical-methodological basis, the current economic model should be transformed into a sharing solidarity economy, the main features of which are a socialised market based on the development of new types of ownership, and a sense of national character and solidarity.

4. The National, Solidarity Economy The need for domestic alternatives capable of transforming the current economic system can be seen at two main levels: the macro and micro. A national economy should be systemically holistic and encompass primary sectors, units, and organisations (national enterprises, cooperatives, farms, associations, non-profit organisations, and voluntary associations, etc.). A national, solidarity economy rests on three fundamental principles: public world view, popular sovereignty, and solidarity. Nationality is the originality of each nation in terms of its historical, geographic, economic, and political development, as well as other conditions. Nation is the national identity of the people and it manifests itself in their nature. Ethnology is also similar to nationality as the science of life, customs and traditions, and the spiritual creativity of people. “To understand the nation,” as I. Franko wrote, “is to understand people that live in a particular area and get to know their current and past condition, their physical and mental characteristics, their institutions and economic status, their trade relations and intellectual ties with other nations” (Franko 1986, 254). The mechanical introduction of a liberal market economy in Ukraine, based on the principles of the Washington and post-Washington consensuses, without taking into account the full complexities of Ukrainian realities, has resulted in the creation of a political and economic system that is foreign to the historical traditions of the people. The only alternative to the previous model (which will prevent the repetition of the situations of 2004-2005, 2008-2009 and 2013–2014) is the establishment of a fundamentally new economic model – a national, solidarity economy2.

 2 The term “national economy” was first used by a Venetian monk, Giammaria Ortes, in 1774 (Klosinski 2012, 228). In the national linguistic space, people often use the term “national economy”. Let us refer to the opinion of the Italian intellectual A. Gramsci, who noted that “in many languages ‘national’ and ‘public’ are synonyms or near synonyms” (Gramsci 2014, 165).

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“Given the historical traditions, mentality of our people […] obviously, the best model for Ukraine is the creation of national economy, which would include the possibility of self-fulfilment of every citizen of both his/her property rights and labour rights and rights to capital goods” (Filipenko 1994, 19). The main determinants that contributed to the possibility of and need for a national, solidarity economy in Soviet times now serve the following issues: socio-historical (the socio-economic structure of Kievan Rus and Zaporizhian Sich, with no great social stratification in Ukraine for the last 1000 years); intellectual (the public world view in terms of free thinking, individualism, honour, dignity and justice); educational (high levels of education); industrial relations (“employer–employee” relations); and the general informatisation of modern economic life (social networks), etc. Another component of nationality – national sovereignty – means that people are entitled, in full, to all sovereign power in the country: the right to decide their destiny directly or through representative bodies; to participate in the implementation of state policies; and to control the activities of public authorities. This definition focuses on the relationship between the citizens and the state. Instead, the economic aspect of national sovereignty presupposes the availability of economic rights in terms of free access to various resources based on market principles, ownership of property, and participation in the distribution of the product and so on. Thus, the main imperatives that determine the possibility of and need for a national, solidarity economy are distinct contradictions and have deeply negative socio-economic effects on society. This brings about the lumpenisation of a large part of the population, the country’s shift towards a marginal position in the world economy, and human and territorial losses, all generated by the existing model of economy and society. Since its independence, the de facto Malthusian economic model has been established in Ukraine, where there is a decrease in GDP per capita3. In

 The doctrine of social solidarity and its two varieties (“mechanical solidarity” and “organic solidarity”), as important features of the modern era, were formulated by the French sociologist, E. Durkheim (Durkheim 1996, 114, 118, 140, 182.). 3 The Malthusian model (named by G. Clark) is when the GDP per capita of a country does not grow and even declines (Clark 2007, 31). In Ukraine, starting from 1990, there was a decline in GDP per capita from USD 6023, to USD 2115 in 2015. This was not due to population-growth outstripping the GDP, according to the Malthusian theory, but was a result of an anaemic, sluggish, asymmetric economic system. (Maddison 2003, 111; Access: http://www data.worldbank.org/indicator/NY.GDP.PCAP.CD).

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fact, Ukraine has found itself in a Malthusian trap, with the only way out being a transformation of the current economic system. Solidarity as a second fundamental feature of a national economy is associated primarily with E. Durkheim’s definitions of mechanical and organic solidarity, based on the social division of labour. The modern version of solidarity is complemented by such features as fairness, dignity, voluntary cooperation, equality, mutual aid, and personal safety, etc. Overcoming periodic transformational economic and political crises is possible only through the implementation of a large-scale, radical modernisation of Ukraine’s economy and society, based on social solidarity. Speaking at the Second International Conference on Nutrition, on 20 November, 2014, Pope Francis stated that one of the challenges to humanity today was the “lack of solidarity in societies marked by growing individualism and divisions.” Solidarity enables people to “go towards the neighbour” and encourages caring for the common good. The principles of solidarity have deep historical roots. They were proclaimed in various forms by domestic and foreign thinkers and poets. Let us recall the immortal words of Shevchenko: “Love with overflowing heart this expanse of ruin! Break your chains, and live as brothers! [...] Brothers, then, embrace each other, I entreat and pray you!” (Shevchenko 1982, 288, 294). It is difficult to imagine a stronger call for solidarity under contemporary Ukrainian conditions. The philosophical and scientific basis for solidarity is inherent to the works of H. Skovoroda and to his philosophy of heart. This range of problems is reflected in the works of M. Kovalevsky. Various aspects of solidarity were considered by A. Compte, E. Durkheim, H. Spencer, and others. The principle of solidarity was declared after the Second World War. It dealt with international trade and other forms of economic relations. In Berlin in November 2006, a congress was held titled “Solidarity Economy in a Globalised Capitalism.” This was attended by 1,400 participants (Notz 2011, 118). Solidarity is an essential component of the successful implementation of transformation in the former socialist countries. Moreover, solidarity may be civil, social, political, economic, professional, caste, wealth, educational, cultural, linguistic, ethnic, confessional, civilisation, race, gender, regional, or existential, etc. (Mayboroda 2012, 12). The scope of this analysis is, of course, economic solidarity manifested at the micro, macro and geo levels. The literature on the solidarity economy is dominated by research about the micro level, when selfestablished family enterprises, cooperatives, and employee-owned utilities are created and social business is developed. Solidarity entrepreneurship has been experienced not only by poor countries (such as Bangladesh) but

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also by a number of developed countries (e.g. the USA, England, and Canada). Such solidarity rests upon the process of public-goods manufacturing. Currently, there are about 800,000 cooperatives, associations and other forms of solidarity economies, employing 813.5 million people. The assets of these enterprises constitute USD 18.8 trillion while their annual revenues amount to USD 2.4 trillion (see Uttig 2015, 3). Solidarity is manifested in the consolidated joint activities that surround the implementation of common goals and objectives based on the agreed rules and regulations of a public (civil) union, common moral meanings, and norms and values. Emile Durkheim held this form of solidarity in very high regard, stressing that it is “the source of life sui generis. Because it is the heat that warms the hearts and inspires, attracts them to each other, melts the ice of selfishness” (Durkheim 1996, 32). The principles of solidarity at the geo and macro levels are implemented in a more difficult way. At the macro level (i.e. the state level), the principles of solidarity aim, above all, to create the necessary and sufficient conditions for the implementation of essential powers for the individual, including free access to resources for business development. According to opinion polls, about 50% of Ukrainians wish to engage in small and medium-sized businesses. The evidence from developed countries shows that it is this category of citizens that form the basis of the economic and political system of society. A fair judiciary, the protection of property rights and the elimination of corruption etc. promote strong solidarity relations. An important component of solidarity and social protection is the economically-vulnerable population: the disabled, the elderly, and orphans, etc. The principles of solidarity at geo-economical levels were promoted after the Second World War. These related mainly to charity and trade relations between countries and were based on three types of trade: the charity of religious organisations; assistance to refugees and other victims of war; government assistance to developed countries (UN Development Decades, EEC-ACP Lome Conventions, etc.). Provisions on fair trade, equivalent exchange, improved terms of trade between developed and developing countries, and so on, remained of immediate interest as well. The economic structure of a national, solidarity economy (Corneo 2014; Notz 2011; Piketty 2014; Skidelsky 2013; Stiglitz 2012; Yunus & Weber 2010) is focused primarily on the needs and interests of the general public. The cornerstone of a national, solidarity economy should be the democratisation and socialisation of property. This would ensure actual participation in the management of labour groups, minority investors, the establishment of labour cooperative ownership, and real significance for

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municipal property and the property of local communities at all levels. This would effectively address local issues through subsidiarity and the transfer of housing buildings into public management, on the basis of cooperation with specialist housing agencies and the introduction of modern types of land market relations. Ultimately, it comes down to an organic interaction between the state, shareholders and cooperative (shared) property, within which the interests of workers (acting as coowners of employee-owned enterprises), workers-shareholders (joint stock companies) and workers hired by state-owned enterprises are implemented, based on the legislative support of stable social-economic guarantees. The democratisation and socialisation of ownership creates a real basis for the decentralisation of power and control, broader public involvement in solving individual problems, and the establishment of a sound, civil society. Based on the transformation of ownership, a new system of inter-governmental relations can be established between the centre and the regions, and between regions and local communities. The implementation of scientific, technical, industrial, and structural policies is mainly grounded in the use of economic incentives, in order to properly focus the budget funds for services such as defence, security of the state and its citizens, education, science, health, and so on. The main requirements for all types of enterprises, financial and banking institutions, and government institutions at all levels should be transparency, accountability, and accessibility of information to shareholders and the general public. An important component of a national economy is the creation of mechanisms that de-monopolise and de-bureaucratise economic life, minimising corruption and establishing a developed competitive environment, as well as the development of social mobility for citizens.

5. Strategy of Economic Modernisation Overcoming periodic crises of economic and political transformation will only be possible through the implementation of large-scale, radical modernisation in the Ukrainian economy and society. However, when it comes to long-term programs such as modernisation of historic proportions, the starting conditions — along with the intermediate and final goals — mean that mechanisms and major subjects of implementation will always be pre-determined. It is important to prove, first of all, the objective pre-conditions of modernisation; second, to outline the fundamental values that modernisation is aimed at (and under the auspices of which it is made); third, to determine the central link or

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core of the modernisation process; fourth, to highlight areas and industries that should provide actual (instead of declarative) institutional and economic breakthroughs towards achieving modern international standards. Why is modernisation so urgent now? What has led to the need for economic modernisation, as well as modernisation in other spheres of life in Ukraine? First, it is crucial to overcome the difficult economic legacy of the Soviet era, when the economy of Ukraine as part of the single economic system of the former USSR was subject to the fulfilment of tasks given from the centre, with priority given to the development of heavy and defence industries. Other industries were of marginal significance and already lagged far behind the world’s best examples in the technical, technological, and organisational sectors, among others. Secondly, in the years following independence, there was a persistent loss of national position in the technical and technological race. If the advanced countries have developed their production to the 5–6th technological cycles, our producers have been satisfied with sticking to the 3–4th. Third, the current model of economic development, creating certain prerequisites for enhancing business activity, has caused severe and profound social disparities of monumental proportions, exacerbating social inequality and defying norms of social justice, etc. Fourth, compared with the 1990s, Ukraine has lost its position in terms of the main macroeconomic and social indicators (GDP per capita, the Human Development Index, competitiveness ranking, and life expectancy, etc.). These and other important factors have placed the issue of modernising society and the economy on the agenda, as a means to stop the further degradation of the country and its drift to the periphery of the world economy, and to create the conditions for a gradual approach towards approximate parity with the main indices of developed countries. Another feature of the modernisation process arises from the compensation theory.4 In the process of modernisation, Ukraine first needs to compensate for its subjectivity as a member of the international community, of which it was deprived for the previous 700-800 years. Second, there should be compensation for the expectations of the general population, especially young people, from the Orange Revolution (2004) and the Revolution of Dignity (2013–2014). Third, some elderly people, (whose numbers have recently multiplied because of the movement of

 4

“Compensation, as stated in the paper of German author J. Hacke – means restoring a situation (state) through substitution or compensation of positions (results)” (Hacke 2008, 77).

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people from Eastern Ukraine), require compensation for losses allegedly incurred as a result of the collapse of the USSR. The key issue of modernisation is value, in terms of definition and where its objectives are allocated. In broad civilisation terms, liberal values that profess freedom, democracy, a market economic system, civil society, and human and civil rights have dominated the developed capitalist countries through the activities of leading international financial institutions. These principles are integrated into the Constitution of Ukraine and other crucial government documents. However, international experience confirms that liberalism as a political and economic trend of the modern era has been exhausting its historical, creative potential. This has been because of an accumulation of acute socio-economic, political, environmental and other problems under its direct influence, that may not be addressed within a system of liberal coordinates. To this end, modernisation that focuses exclusively on liberal values is doomed from the outset and is therefore futile. It means, according to Mr. Churchill, the end of the beginning. Should values that were declared under the banners of bourgeois revolutions a few centuries ago be cast aside during modernisation? We bet not. But they need to be modernised in accordance with the challenges of the current era. Universal values such as development, social justice, economic equality, human dignity, access to education, and safety prevail nowadays. In addition, every nation and all people have inherited their values as their original genetic code. It is also essential to consider sacred values, especially those of Christian ethics. Thus, one may classify domestic modernisation as liberal-conservative, based on universal civilisation and values. Let us consider the central level of modernisation in Ukraine, i.e. its economy. It might hurt to admit that the economic system founded upon declarative liberal principles in the last 25 years has no future. First, it lacks internal, immanent sources, and factors and mechanisms of sustainable balanced development, as evidenced by the deep economic crisis that struck the economy of Ukraine in 1997–1998 and especially in 2008–2009. The best evidence for the ineffectiveness of the current economic system simply does not exist. Second, it places no limits on deepening social stratification or rises in inequality, social injustice and other negative phenomena. These are medieval attributes that are hardly understood by the wider population, as witnessed by events in North Africa and the Middle East. Third, the domestic economic system reduces the possibility of economic cooperation with the outside world and of obtaining additional resources on this basis to address economic and social

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challenges. This is especially true in terms of cooperation with the European Union and other developed countries. What should modernisation of the economic system look like? First, property relations have to undergo a substantial adjustment. The results of the privatisation of state-owned and municipal enterprises are satisfactory only for their current owners (about 10% of the population of Ukraine). The rights of minority investors (i.e. of the vast majority of the population) have remained absolutely neglected for 25 years. Openness, transparency, accessibility and, most importantly, the possibility of receiving your share of the profits, need to be guaranteed for a minor co-owner of a company. These principles become particularly relevant on the eve of the launch of the land market. The re-privatisation and nationalisation of property is possible under certain conditions. The economic dimensions of modernisation also include: building a vast internal market based on the national division and cooperation of labour; the formation of modern business structures, including ones built on the basis of public-private partnerships that are capable of competing in the international markets; creating real conditions for the development of small and medium-sized businesses; the deployment of advanced network economies; and achieving synergy within the national value chain. Finally, we should mention the industrial and technological priorities of modernisation, which are sometimes considered almost the main component of modernisation. Indeed, the real resources of society are generated in industrial and technological fields. However, without a clear articulation of values and goals, and without modernising the economic system, a simple increase in resources may only intensify social contradictions. For example, countries such as Egypt, Tunisia, Libya, and Syria — overwhelmed by social unrest — have, in recent years, evolved rather steadily and have been positively assessed by the IMF. We propose to take the Stiglitz-Lin concept of new structural economics as a basis and separate two groups of priority modernisation-oriented sectors, which will require appropriate public support, i.e. industry-engines of economic development and industries with comparative, competitive and revealed advantages in international markets. The first group includes energy, engineering, housing, infrastructure, information technologies and so on. The second group consists of rocket-space complexes, aircraft and shipbuilding, the defence industry, agriculture, transit, software, and educational services, etc. The process of establishing an a national, solidarity economy may be carried out in three phases and includes the stabilisation model (2015-

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2016), the transitional model (2017-2018) and the actual model of national, solidarity economy (2019-2024).

6. Conclusions The stabilisation model (SM) is defined by the current state of Ukraine’s economy, which is in need of macro-economic stability and external balance to enter onto the path of economic growth and address urgent social problems. Key SM parameters are calculated with the macroeconomic dynamic general equilibrium model. Stabilisation instruments are derived from internal and external sources. Internal sources are budgetary resources of capital accumulation (20-25% of GDP), income tax for expanding production, accelerated depreciation, and the loans of banking institutions. External sources are loans from the IMF (in terms of production and investment destination), the World Bank, the European Bank for Reconstruction and Development, inter-governmental loans, and borrowing on the international financial markets. The dominant feature of the stabilising economy is a strict regime of saving material, financial, manual (labour), technological and other resources through the introduction of economic incentives and, where necessary, to use administrative measures. Industries with demonstrable comparative advantages will become the engines of economic development that provide robust competitive positions in domestic and foreign markets. These are information and computer manufacturing, agriculture and military-industrial complexes, construction, metallurgy, and chemistry. In the field of foreign economic activity, a strategic manoeuvre lies in a reorientation from the Russian market to the EU markets, and searching for favourable markets in North and South America, Southeast Asia, the Middle East, and Africa. The transitional economic model involves the creation of conditions to transition from the oligarchic model to a model of the national, solidarity economic system. This is achieved through institutional reforms that are primarily related to shifting property relations towards democratisation and socialisation, ensuring the rights of minority investors and the transfer of property into the management of local authorities (local communities). This expands possibilities in terms of the formation of local budgets, levying local taxes and fees, allocating municipal loans, and setting restrictions on property owned by one family, and so on. The main components of a national, solidarity economy model should be: a new institutional structure providing the necessary freedom corridor for economic self-organisation at the macro level, and the formation of

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sharing economy centres at the micro level; democratic (transparent) property relations and their subsequent spread to the widest possible range of actors; modern industrial systems based on mobile small and mediumsized enterprises for the optimisation of big business; dynamic agriculture, the “green” economy and the civilised land market; a balanced financial and monetary system which is independent from external creditors; stimulating innovative mechanisms that seamlessly interact with the world’s innovative regional networks; decentralisation based on the principles of subsidiarity; active foreign economic strategy aligned with the European Union’s strategy and the consolidation of new markets in America, Asia and Africa; a modernised social and humanitarian policy for the new, civil society.

References Chizhevsky, Dmytro. 2005. “Volume I”. In Philosophical Works in Four Volumes, edited by V. Lisovy. Ʉyiv: Smoloskyp. (Ukr.). Clark, Gregory. 2007. A Farewell to Alms: A Brief Economic History of the World. United States: Princeton University Press. Corneo, Giacomo. 2014. Bessere Welt: Hat der Kapitalismus Ausgedient? Eine Reise durch Alternative Wirtschaftssysteme. Wien: Goldegg Verlag. (Germ.). Dash, Anup. 2013. “Towards an Epistemological Foundation for Social and Solidarity Economy.” Paper prepared for the UNRISD Conference “Potential and Limits of Social and Solidarity Economy”, Switzerland, Geneva, May 6–8. Accessed November, 16, 2016. http://www.unrisd.org/80256B42004CCC77/(httpInfoFiles)/45E0B21E 8608AD75C1257B7200341E6D/$file/Dash%20draft%20paper.pdf. Durkheim, Emile. 1996. The Division of Labor in Society. Translated by Aleksandr Hoffmann. Moscow: Kanon. (Rus.). Filipenko, Anton. 1994. “Civilizational Determinants of Ukrainian Economic Model,” Economy of Ukraine 4: 11–19 (Ukr.). Franko, Ivan. 1986. “Latest Trends in Ethnology. Philosophical Works.” In Collected Works in Fifty Volumes, edited by V. Yevdokymenko. Vol. 45. Ʉyiv: Naukova Dumka. (Ukr.). Gramsci, Antonio. 2014. Prison Notebooks. Selection, trans. from Italian. Ʉyiv: Vpered, 241 (Ukr.). Grytsenko, Andrii. 2011. “Methodological Bases of Ukraine Modernization,” Economy of Ukraine 2: 4–12 (Ukr.).

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Hacke, Jens and Jens Alex, 2008. Philosophie der Bürgerlichkeit: Die Liberalkonservative Begründung der Bundesrepublik. Auflage 2. Germany: Vandenhoeck & Ruprecht GmbH & Co KG. (Germ.). Keizer, Piet. 2015. Multidisciplinary Economics. A Methodological Account. Oxford: Oxford University Press. Klosinski, Kazimierz A. 2012. Wprowadzenie do ekonomii w epoce globalizacji in Europa Wschodnia. Edited by H. àaszkiewicz and Irena Wodzianowska. Lublin. (Pol.). Kovalevsky, Maxim. 1997. Sociology. Saint-Petersburg: Aletheia. (Rus.). Maddison, Angus. 2003. The World Economy: Historical Statistics. Paris: Development Centre of the Organisation for Economic Co-operation and Development, 274. Mayboroda, Olexander. 2012. Social Solidarity in Ukraine: Problems and Political Means to Solve Them. The Analytical Report. Kyiv: IPiND named after I.F. Kuras National Academy of Sciences of Ukraine. (Ukr.). Notz, Gisela. 2011. Theorien Alternativen Wirtschaftens Fenster in eine Andere Welt. Stuttgart: Schmetterling Verlag. (Germ.). Piketty, Thomas and Arthur Goldhammer. 2014. Capital in the TwentyFirst Century. Cambridge: The Belknap Press of Harvard University Press. Polanyi, Karl. 2002. The Great Transformation: The Political and Economic Origins of Our Time. Translated by A. Vasil’eva. SaintPetersburg: Aletheia. (Rus.). Salamon, Lester M. and Helmut K. Anheier. 1997. Defining the Nonprofit Sector: A Cross-National Analysis. Manchester: Manchester University Press. Satgar, Vishwas. 2014. The Solidarity Economy Alternative. Emerging Theory and Practice. Scottsville: University of Kwazulu Natal Press. Shevchenko, Taras. 1982. Kobzar. Kyiv: Dnipro. (Ukr.). Skidelsky, Robert and Edward Skidelsky. 2013. How Much is Enough? The Love of Money, and the Case for the Good Life. London: Penguin Book. Stiglitz, Joseph E. 2012. The Price of Inequality: How Today's Divided Society Endangers Our Future. New York: Findaway World. The World Bank. 2016. “GDP per capita”. Accessed November 22, 2016. data.worldbank.org/indicator/NY.GDP.PCAP.CD. Utting, Peter. 2015. Social and Solidarity Economy: Beyond the Fringe? United Kingdom: Zed Books.

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Yunus, Muhammad and Karl Weber. 2010. Building Social Business: The New Kind of Capitalism that Serves Humanity’s Most Pressing Needs. New York: Public Affairs.

CHAPTER TWO THE SOLIDARITY ECONOMY: A REVIEW OF THE CONCEPT AND RESULTS ɈLENA O. SLOZKO AND ɈLEKSANDR V. PIDCHOSA

The economic and social challenges of recent decades have largely confirmed the existence of a range of systemic problems in the relationship between economic and socio-economic development in the contemporary world economic order. This is increasingly highlighted by unexpected economic crises, social problems, and increasing gaps between levels of development across the world. Today’s deepening of poverty, social marginalisation, the challenges of depressed regions, and the development of new forms of solidarity in the field of environmental protection, culture, civil society and education initiatives have become the basis for the social and solidarity economy (SSE). Enterprises and organisations working on the principles of social and economic solidarity are, due to their objectives and principles of activity, able to promote economic development and address many problems. The whole movement arose from such activity and is now expanding. It should be noted that different regions often use different terms to reflect changes in socio-political history. However, they all have similar features and can relate to one idea. For example, in Western Europe and North America, the term “social economy” emerged in the 19th century; its idea was to regain the market for social purposes. Defourny (1990) defines a social economy as one in which public business is conducted based on the values of solidarity, autonomy and citizenship. These activities are carried out by commercial companies, associations, etc. relying on the following principles: (I) democratic decision-making; (II) social purposes; (III) limited capital-income and socialisation benefits. Today, a large variety of organisations and companies provide the foundations of social economies, including social entrepreneurship and services based on public

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cooperation. We would like to explore some of these concepts in more detail.

The Solidarity Economy The term “solidarity economy” is used most often in Latin America, where it refers not only to the imperatives of social and environmental protection, but also to deeper social and systemic transformations. The solidarity economy includes various activities and political and economic aspects that contribute to the democratisation of an economy in general, and a transformation of the economic system. Such practice is aimed at empowering individuals or social groups, both at the micro level of organisation through, for example, democratic self-government, and through broader access to public spaces, where they can be actively involved in developing and building economic independence. The solidarity economy is a project of development, transformation and improvement of the economy, which has to respond to the major challenges of our time, such as poverty, unemployment and climate change.

Embedded Economy Polanyi (1944) identified four categories of principles for ideal economic behaviour: market; redistribution; reciprocity; and household. Together they make up what is called an “embedded economy”. This idea helps us to avoid overlaying the concepts of the economy and market, the market and self-regulating markets, and modern enterprise in its capitalist form. There are various principles of resource-distribution and exchange. As one of these principles, the market is found in certain institutional forms. The solidarity social economy can be seen as a different institutional form which, to some extent, contradicts the principles of the market but still co-exists with it and other institutions such as the government or the public sector, as an “active” ingredient (Piketty 2014).

Share Economy This term is again most often used in Latin America. It is also known as the “national economy” and refers to the embedded strategies undertaken by individuals, families and communities to improve the security of their livelihoods in conditions of vulnerability. This usually applies to workers and producers in the informal sector, as well as organised and legally-

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recognised forms such as cooperatives or social enterprises. As an example, the definition of a national economy in the Ecuadorian constitution refers to six forms or functions: family; interior; autonomous; community; associative; and cooperative. These forms are the shared economy, while the last three (community, associative and cooperative) can be seen as examples of the solidarity economy (Poirier 2016).

The Third Sector A “social economy”, especially in terms of Europe, is often intertwined with the concept of the “third sector”, which is usually defined as an entity which is “non-governmental, and any of its profits are generally reinvested for social, environmental or cultural purposes, and participation is largely voluntary”. In the North American approach, the third sector is seen as a synonym for non-profit organisations. In contrast, the European approach, rather than emphasising profit, focuses on the scope of distribution. In other words, the question centres on who benefits from maximising the revenues. Do individual investors or groups benefit? Is there, above all, a mutual benefit? This approach primarily focuses on cooperatives, associations, foundations and charities. The European approach also recognises that third sector organisations can be associated with politics and the market. Since the 1980s, these organisations have been playing a key role in household and utility services. While funding from governments and other sources for non-governmental organisations (NGOs) has been decreasing, the latter are increasingly turning to forms of social entrepreneurship to create additional sources of income. However, in reality, all of the above concepts are closely intertwined and can take on different meanings according to context and purpose. Overall, however, the solidarity economy is an alternative to capitalism and other authoritarian, state-centric, economic systems. It allows for the involvement of ordinary people through active participation in the shaping of all spheres of life: economic, social, cultural, political and environmental. The development of a solidarity economy is particularly important in a post-industrial society where the “network” nature of relationships (both in cyberspace and in real life) significantly increases the efficiency of its operation, due to the rapid formation of communities and information-exchange within and between different communities. Furthermore, the term “social and solidarity economy” is increasingly used to describe a wide range of organisations that differ from the usual non-commercial entrepreneurship in two main ways. First, they have clear economic and social (and often environmental) goals, meaning that they

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are initially operating under the concept of sustainable development and are maintaining it at a basic level (International Labour Organization 2011). Second, they include various forms of relationships aimed at cooperation. They may adopt the form of cooperatives, associations, nongovernmental organisations engaged in profitable activity, self-managed groups, environmental organisations, associations of workers in the informal sector, and social entrepreneurship, etc. Thus, the solidarity economy can also apply to the whole sector, which includes businesses and organisations of various kinds and types of ownership. They are likely to be united by aspiring to achieve the collective good for their members, in particular, and by aiming to achieve certain ethnic or socio-cultural community goals more generally. They have four main features: 1) Clearly-indicated economic, social and environmental objectives; 2) Relationships of solidarity between workers, producers and consumers; 3) Applied democracy in self-government and the workflow; 4) Use of flat, flexible, network structures instead of clear, rigid, hierarchical ones. Today it is not just a sector-specific trend but a fully-fledged phenomenon in national and global economies, the importance of which should not be ignored. Currently, in addition to the trend for diversification, we can see signs of an increase in the scale of solidarityeconomy structures; no longer are they operating exclusively at the level of communities but are becoming more important in terms of macroeconomic, commercial and socio-economic indicators. The social and solidarity economy is not an illusion but an actual reality: worldwide cooperatives provide jobs for 100 million people. According to the UN Department of Economic and Social Affairs, there are 761,221 cooperatives and associations in the world with 813.5 million members. They employ 6.9 million people and have USD 18.8 trillion in assets and USD 2.4 trillion of gross receipts per year (Fairtrade International 2016). Special attention should be paid to the various types of solidarity economies: • •

Finance: ethical banks, microfinance institutions, and crowdfunding platforms. Production: the re-use of materials, repair and co-production, responsible tourism, and industrial movements.

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• • • •

Co-producers: consumer-producer networks. Collective self-managed work: the re-opening of factories and farms, cooperatives, and co-workings. Solidarity social-services (hospitals, transport, etc.). Energy: renewable energy and alternative sources.

Each of these initiatives have different starting points but they all aim to achieve a collective benefit: cooperation and solidarity. In a narrow sense, solidarity economies cover the activities and entities engaged in the production and exchange of goods and services, thus increasing environmental stability and mutual cooperation. Examples of such organisations are: fair trade; credit unions; workers’ cooperatives; land trusts; and pools of capital etc. These are all elements of a solidarity economy. We now present an overview of the components of its practical implementation for a greater understanding of the concept.

Fair Trade In the system of a solidarity economy, an important role is played by fair trade, which is nothing more than an alternative approach to conventional trade, based on the principle of partnership between all stakeholders, from producers and sellers to businesses and consumers. The goal is to help create better trading conditions for producers in poor countries. Producers receive a fair price and adhere to higher social and environmental standards in their production processes. Fair trade usually focuses on products exported from developing countries: coffee, cocoa, sugar, tea, bananas, cotton, chocolate and gold. In terms of the development of international trade, many experts of commercial areas (especially in countries with a colonial past) have found, interestingly, that when developed countries trade with developing countries it does not bring obvious benefits to the latter. The access that developed countries have to European (and even global) markets has changed the social and economic situation of its populations. Economic theory, while seeking an explanation, tried to combine the “entrepreneurial spirit” of the West with ideas of hidden support and tolerance inherent in the Southeast region. The concepts of the social economy and social entrepreneurship emerged. The initial attempts to establish trade (which was still “alternative” at that time) with the poorest communities in the world were made in the 1940s. The American non-profit organisation “10,000 villages” tried to

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trade with the poorest countries of Africa, Asia and Latin America. This initiative was supported by the British charity organisation, Oxfam. Everything started easily. Handicrafts, with their production backed by Oxfam, grew in popularity due to skilful advertising in the West. Western consumers began to realise that they in fact helped the poor by purchasing these goods. The poor saw the opportunity to live and earn. Embroidered blouses, shirts, towels, napkins, shawls, ponchos, souvenirs and masks suddenly became increasingly popular in the Western world. Soon it was the turn of food products such as tea, coffee, bananas, cocoa, pepper and other seasonings. Vendors of these products, guided by high moral principles, sought to create a system that would help the poor rather than corporations. The movement for fair trade had started. However, the real beginning of fair trade, which was based on fair trade principles and established a recognisable logo, was organised by Dutch firms that traded in coffee and cocoa with Latin America countries. The first such label, Max Havelaar, was launched in 1988 and was led by the Dutch ecumenical development agency, Solidaridad. During the 1990s, this initiative was replicated in markets across Europe and North America: Max Havelaar (Belgium, Switzerland, Denmark, Norway and France), TransFair (Germany, Austria, Luxembourg, Italy, the USA, Canada and Japan), the Fairtrade Mark in the UK and Ireland, Rättvisemärkt in Sweden and Reilu Kauppa in Finland (Fairtrade International 2016). Dutch supporters of fair trade laid the foundations of the ethical principles that are at the heart of fair trade: non-discrimination of producers; transparency in all transactions and prices; the promotion of local capabilities; fair purchase prices; increased awareness of customers; gender equality; decent working conditions; regulated and limited child labour; environmental protection, and trade partnerships. In 1997, the global organisation FLO (Fair-Trade Labelling Organisation International) was created and became the worldwide coordinator of fair trade. This organisation provides fair trade participants’ with certificates and gives special permission to use the trademark. The key issue of fair trade is fair, honest pricing. The FLO has set certain standards for the pricing of the majority of products being traded by fair trade. However, these standards are not a dogma, but rather the canvas under which specific terms are entered into. The “fair price” of coffee, for example, is based on the weighted regional costs that make up 32% of the purchase price, then the ratio is set as follows: trade – up to 24%; import procedures  10%; insurance and warranty payments  10%; processing and transportation  20%; payment for social community  4%. So for instance, if a minimum “fair price” for Arabica coffee is

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around USD 1.26 per lb (453 grams), a community social premium is 10 cents for the same amount of coffee, and a special manufacturer’s premium totals 20 cents in the case of environmental products (Fairtrade International 2016). A special topic of fair trade is social premium, which is a payment transferred from the seller to the community, with its fate decided by the manufacturer. This can be allocated to a local school or cooperative, a church community or a public canteen. Its use varies from one region to the other but it is definitely of use. It is often used to teach new methods of work, in the construction of roads and infrastructure, or for education and health care. Famous fair trade organisations often set their own premiums and allowances aimed at social development. As of 2015, the global fair-trade market increased up to EUR 7.3 billion (a USD 8 billion) and included about 1.6 million workers and small farmers producing certified products. The impact of fair trade on producer countries can be traced to the sales data of products in these markets in recent years. In 2014, consumers worldwide spent 16% more on fair-tradecertified products. These sales concerned about 1.447 million farmers and 204,000 employees in 75 countries. It is also important to note that traditionally, such trade covered a very specific, “colonial” group of products. Today, there are more than 1,200 certified fair-trade organisations, collaborating with 1.6 million farmers and private producers in 75 countries. In 2015, 553,000 tons of bananas, 179,000 tons of coffee, 102,000 tons of cocoa, 11,000 tons of tea and 154,000 tons of sugar were sold on the principles of “fair trade”. All categories (except sugar) showed growth in 2015 (Fairtrade International 2016). Participation in the network of “fair trade” promotes social development in rural areas. Equally important is the particular support for the principles of ecological agriculture, as environmentally-oriented technologies create higher prices. The existence of social payments and premiums ensures cooperation between the poorest farmers. In many regions, the specific products of tropical or subtropical agriculture (coffee, saffron, spices, etc.), when supported by the fair-trade network of organisations and international adaptation programs, may contribute to displacing the cultivation of raw narcotics (Clift 2016). Goods covered by the principles of fair trade can be found in European supermarkets, even among our closest neighbours in Poland, the Czech Republic, and Slovakia. They have a specific logo and text label: Product Fair Trade. Notably, products (tea and coffee) with this label have begun to appear in the Ukrainian market but their range is quite narrow.

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Although packaging and advertising support for “fair trade” products is far behind in terms of brightness, entertainment and aggressiveness, buyers already know their good consumer quality. These products are sold in over 55,000 supermarkets and 2,800 specialist trade outlets in Europe. The spread of “fair trade” principles is promoted by more than 100,000 volunteers. The new trend is most common in Germany, Switzerland, the UK and the Netherlands.

Cooperatives as a New Alternative to Capitalism The term “cooperative” in the solidarity economic system means companies which pursue democratic principles and have workers who are widely involved in management and planning (Miller 2010). The main idea implies that the interaction of workforce and management simplifies manufacturing operations and saves energy that otherwise would be spent on the training and monitoring of human resources. Contrary to stereotypes, European cooperative-sector enterprises are as diverse as other companies, including large industrial structures. Although cooperative transformation is often seen as a way to rescue bankrupt companies (e.g. when a bankrupt owner sells the enterprise to a labour collective, and the latter buys it because people do not want to lose their jobs), in France from 1997 to 2001 (during a period in which solidarity economy ideas were actively popular) more than 8 out of 10 business cooperatives were created “from scratch” and were not related to the private companies that were unprofitable and which were eventually transferred to employees. Moreover, the share of start-ups is higher among cooperatives than in conventional companies. Enterprises that are organised on the basis of labour autonomy and self-government guarantee more stable employment. This is not just because the workers-owners are seeking to protect their livelihoods (i.e. their company). At a time when the company is in crisis, cooperatives, as a rule, tend to be more flexible in matters of job retention, planning longterm adjustments in business activity, and so on. At the same time, traditional private corporations that use hired labour may pay less attention to strategic planning: the easiest way for them to balance the company’s budget is to cut jobs. While cooperatives differ in form, their basic idea, especially in Europe, is that they are both democratic enterprises and public trusts (RIPESS 2013). Workers of a company are often authorised  either by law or decisions of corporations – to reserve a portion of their assets for the long-term preservation of the integrity of the cooperative model. Even

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if the owners want to close their company or go out of business, the indivisible assets will be returned to a new generation of employees or cooperative support organisations in the future. This practice appears to be less common among American cooperatives but is an inherent feature of European cooperative culture (International Labour Organization 2015). However, growing instability in the economy gives impetus to the project of transferring ownership into the hands of workers. This is a way of restoring justice in the management of labour. These cooperatives can increase labour mobility and create more employment opportunities. At the same time, society will receive the benefits of such an ownership structure when the capital is reinvested locally (i.e. not exported from the country or region). The USA has far fewer self-governing enterprises than France and Spain. According to the Federation of Worker Cooperatives (USFWC), there are 300-400 cooperatives in America, employing about 7,000 people and producing more than USD 400 million each year (Loh 2013). In some regions, new cooperatives are established because of specific local-development programs. For example, approximately USD 2.1 million has been invested in a cooperative development program in New York. Last year, California passed new legislation to streamline the creation of cooperatives. Although the cooperative model is not very common in the USA, some cooperatives are engaged in large-scale operations. For example, the cooperative, Home Care Associates (a home-care agency established in the Bronx) employs more than 2,000 workers (Utting et al. 2014). It is also part of the Workers Union, seeking fair planning standards. Other organisations include collective DIY-typography, cafes, and enterprises engaged in the production of renewable energy. All are based on consciousness and the solidarity of workers.

Credit Unions Credit unions are another element of the solidarity economy. They are non-profit money cooperatives where groups of people (i.e. their members) collectively save money and form pools of capital from which they may later draw with fair, low interest rates. Today, there are more than 57,000 credit unions operating in 105 countries worldwide. As of 2015, their share of market development amounted to 8.3% and, in addition, there were USD 1.5 trillion of savings and shares, USD 1.2 trillion of loans, USD 185 billion of reserves and USD 1.8 trillion of assets (World Council of Credit Unions 2015).

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These unions help the 217 million users worldwide, many of whom are deprived of access to financial assistance or have insufficient income to be granted a loan. Unions have also given them the opportunity to open small businesses, build houses for their families and educate their children. In young democracies in particular, they allow citizens to make the first steps towards democratic decision-making. Credit unions are known by different names in other countries. In many African countries, they are known as saving and credit cooperatives, (i.e. the emphasis is put on the priority of retrenchment and saving prior to taking a loan), while in Afghanistan they are known as Islamic investment and financial cooperatives (i.e., they should conform to Islamic practices of lending). Credit unions are organisations controlled by their own members, where each one is entitled to one vote. A credit union’s board consists of elected members who are usually unpaid volunteers. They are given a defined jurisdiction to establish coherent policy at all levels, according to which the credit union operates (GDRC 2016).

Ethical Banking Ethical banks direct savings towards projects with high social and environmental value, such as organic farms, wind power-plants, alternative schools, associations, third-sector cooperatives, etc. They use social and environmental criteria to select the projects that they finance. Other features of most ethical banks are: -

-

-

Transparency: these banks very often publish the full list of projects they finance, so that everyone can see exactly how savings are used and where they are allocated. Active participation of the bank’s shareholders and employees in its activities. It may be possible for the investor, if desired, to receive lower interest rates on deposits, so that the bank can lend money at a lower than average interest rate to those who are particularly disadvantaged. It may be possible for investors to choose specific projects on which their savings and contributions are to be spent. Providing loans to institutions or disadvantaged people who may usually not be considered creditworthy. Financial analysis of projects accompanied by social and environmental assessments.

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The first ethical bank in Europe was the German GLS-Bank, founded in Bochum in 1974 by a group of parents who wanted to build a school for their children. The school was to be governed on the principles of anthroposophy, the philosophy of Rudolf Steiner. Having received no support from the German state and faced with the reluctance of banks to give them credit, they decided to create their own bank and a pool of many small-sized contributions, so that anyone who wanted to could get necessary financial aid for projects that would promote the development of social cohesion. Today, GLS-Bank provides loans to more than 23,000 projects totalling EUR 1.67 billion. It has 32,000 members and 165,000 clients, and 33.8% of loans are allocated to projects in the field of renewable energy. Following the example of GLS-bank, five other banks were established in Europe: • • • • •

Triodos Bank (The Netherlands, 1980). Mercury Bank (Denmark, 1982). Freie Gemeinschaftsbank (Switzerland, 1984). Cultura Sparebank (Norway, 1997) Ekobanken (Sweden, 1998)

Ethical banking has no limits or boundaries. For example, the Swiss bank, BAS (1990), and the Italian Banca Popolare Etica (1999) (Elson 2002) both have significant business scope and originated in social and environmental movements. Banca Etica was created in Padua (Northern Italy) by organisations belonging to the Italian third-sector, who wanted to create a financial entity to meet the needs of that sector. It has over 37,500 members and provides funding for social and environmental projects worth over EUR 831 million (Barkin 2013). Most ethical banks in Europe are part of the Global Alliance for Banking on Values (GABV). According to the research of the GABV, stable ethical banks have a much higher proportion of their assets invested in loans than mainstream banks do. The same study found that the return on assets and the profit margins on the equity of these banks are relatively higher or commensurate with those of conventional banks. Their profitability is also less volatile, and the growth in loans and deposits is leading to higher growth rates in assets and income than in conventional banks.

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Microfinance Organisations There are a lot of funds in the microfinance sector. Microfinance organisations are becoming increasingly popular and are widely appealing to the public. Microfinance links investors who want to invest in activities that aim to achieve strong social benefits, with initiators of projects that do not have sufficient access to traditional sources of financing. Its main function is to help the poorer sections of the population. It is now widely recognised as an essential lever for development that contributes to poverty-reduction. Microfinance is not only providing small, good-faith sums to small businesses and individual entrepreneurs, but also flexible forms of classic loans. This helps to address at least three issues: the growing number of entrepreneurs; increasing tax revenues; the creation of a credit history. Microfinance originated and was established in Bangladesh. This seems logical, given that the main beneficiaries of microcredit are residents of poor, developing countries where it has previously been almost impossible to get out of poverty because loans were only given for short periods of time at high interest rates. The year of microfinance’s creation is considered to be 1976, when a professor of economics (and, subsequently, a banker), Muhammad Yunus, founded the Grameen Bank, which gave credit to those who were traditionally considered to be unsuitable candidates for loans (i.e. the poor). Despite the distrust felt towards such a venture, defaults on loans amounted to only 3%. Today, Grameen Bank has more than 2,000 branches in Bangladesh alone and micro-credits have been used by more than 7 million borrowers already. The UN declared 2005 the year of microfinance and, in 2006, Muhammad Yunus received the Nobel Peace Prize “for efforts to initiate economic and social development from below” (Piketty 2014). There are three types of microfinance: 1. A program to support the poor. Similar to the one created by Yunus, it is based on two principles: the provision of meagre amounts (Yunus provided loans from as little as USD 3); and group loans only. 2. An initiative to fight unemployment through self-employment. This originated in developed countries. 3. A micro-business aid system, which is often commercially motivated. This is a phenomenon that exists in the CIS, Eastern Europe and Latin America.

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Since its creation over 40 years ago, microfinance has been the engine of economic growth and poverty reduction. In 2010, according to the Microcredit Summit Report, 205 million people in more than 80 countries could get credit for business development. Today, microfinance is not just micro loans, it also provides a full range of other financial services and is expanding its borders through various innovations, such as mobile technology. This helps to provide access to banking services for residents of rural areas. Currently, microfinance is already at the stage of formalisation and institutionalisation (i.e. its principles appear and a regulatory framework is created). This is illustrated by some examples. The Smart Campaign policy, the aim of which is the introduction of a number of principles that protect the interests of customers, has been applied over the years. The organisation, MFTransparency, existed for 6 years, allowing MFIs to demonstrate their commitment to transparency in pricing. It published the interest rates of over 400 MFIs in 17 countries. However, the organisation ceased its operations in March of this year. In February 2009, the Microfinance Information Exchange, Inc. (MIX) provided MFIs with an Internet site to procure important information about social action. A working group on social action and the MIX market have developed standards of social indicators for MFIs. Moreover, the tools used by MFIs have been created, such as the Progress out of Poverty Index (a population-poverty index) and the Poverty Assessment Tool (a tool that measures poverty). However, the fact that microfinance has a dual purpose means that it must strike a balance between social and financial performance. The institutionalisation of microfinance institutions (MFIs) and the strong pressure exerted on sponsors sometimes compels these institutions to focus on short-term profitability and to prioritise financial results before creating strong social ties and social capital for the disadvantaged (Quinones 2015).

Some Facts and Figures The extent of the solidarity economy as a phenomenon can be illustrated by the following examples. Across the world, cooperatives provide jobs for about 100 million people. The preliminary results of the global census of cooperatives conducted by the UN Department of Economic and Social Affairs point out that worldwide, there are 761,221 cooperatives and associations composed of 813.5 million people; and 6.9

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million workers with USD 18.8 trillion worth of assets and USD 2.4 trillion annual gross income (Kanbur 2006). Participating societies provide healthcare services and social protection to 170 million people worldwide. In Europe, about two million of the solidarity-economy sector organisations make up approximately 10% of all companies and employ over 11 million people (equivalent to 6% of the working population of the European Union). It is also worth noting that job creation according to these principles is under way: over the last 10 years, France alone created 440,000 new jobs, which corresponds to growth of 23%, whereas in traditional economies similar increases for the same period accounted for 7%. In France, this sector comprises around 222,800 organisations and businesses, employing 2.33 million people and providing 13.8% of private- sector jobs. At the same time in Nepal, 8.5 million forest-users were represented in the largest organisation of the country's civil society (UNRISD 2012). In Brazil, there are over 20,000 companies working in a solidarity economy. This share is about 1.7 million people. In India, the largest food industry marketing corporation, Amul, which operates as a cooperative organisation, has 3.1 million members and an annual turnover of 2.5 billion US dollars. More than 30 million people, mostly women, are organised into more than 2.2 million self-help groups. In Ecuador, the solidarity economy sector provides about 60% of jobs across the country; it makes up 13% of GDP and 5% of public procurement. In Colombia, according to experts, more than 10,000 organisations within the solidarity economy sector create more than 670,000 jobs (UNSSE 2014). In Tanzania, women's membership of financial cooperatives has more than quadrupled since 2005; women now account for a combined share of almost 43%. These figures confirm that the solidarity social economy not only finds broad expression in virtually all sectors of the economy, but goes to the level of global economic relations, especially in the form of international organisations, ethical banks and regional cooperative structures. Therefore, we can conclude that a solidarity economy is the result of the integration of humanistic motives with economic activities. In a solidarity economy, a person stands as the highest value. So, along with a profit, the motive for production and consumption is humanism. Thus, a solidarity economy offers a solution to the problems arising within the formation of a market economy, such as the market strengthening existing socio-economic disparities, the gap in development opportunities for

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different groups of people, predatory competition, and monopolisation, etc. The structures of the first wave of solidarity economies (cooperatives, mutual-aid organisations (or mutual-aid funds) and associative organisations) were fairly widespread in Europe during the second half of the 19th century, and their activities were based on prioritising people over capital. An important factor contributing to the development of practical solidarity economies at the end of the 20th and beginning of the 21st centuries, was civil society’s desire for autonomy and self-determination. The drive to seek a third way — an alternative to capitalist and socialist models — formed within the alternative movements of the 1960s and 1970s (Saguier & Brent 2014). Today, in the modern world, when the “Millennium Development Goals” are still relevant (especially the eradication of poverty and the subsequent social and cultural problems), the ideas of a solidarity economy can develop and acquire specific and more ambitious forms and manifestations. Cooperative enterprises, structures of mutual aid, various community non-profit organisations, additional monetary systems, structures of solidarity financing, practices of responsible production and consumption — which are all elements of solidarity economies — are increasingly widely distributed and, like their predecessors of the 19th century, take the prioritising of people over capital as their foundation, integrating humanistic motives with economic activity. At the same time, in a sense, the practices of a solidarity economy undermine the autonomy of the economic sphere which arises from the formation of a market economy. The distribution of the elements of a solidarity economy highlights the fact that factors different from those maximising consumer and industrial utility direct economic behaviour. Besides, mere intentions are not enough. After all, the processes of forming a solidarity economy in developed and developing countries emerge in different ways. It is certainly the case that the development of countries is uneven. Some countries are members of international organisations that provide assistance. Some countries may experience the transformation of a political regime and move towards democracy and economic liberalisation, while others may remain under authoritarian rule and not rush to build a legal and social state. Each state has its own social policy peculiarities, according to the authority exercising that policy and its economic development.

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References Barkin, David. 2013. “Rethinking the Social and Solidarity Economy in Light of Community Practice.” Paper presented at the UNRISD conference on Potential band Limits of Social and Solidarity Economy, International Labour Organization, Geneva, May 6-8. Clift, Roland and Angela Druckman. 2016. Taking Stock of Industrial Ecology. Springer. Defourny, Jaques. 1990. “Financial Equilibrium And Risk Aversion In French Workers' Cooperatives.” Annals of Public and Cooperative Economics 61(2Ǧ3): 331-351. Elson, Diane. 2002. “Social Policy and Macroeconomic Performance; Integrating “the Economic” and “the Social.” Paper prepared for the UNRISD project, Social Policy in Development Context, Geneva. Fairtrade International. 2016. “Annual report 2016.” Accessed October 19, 2016. http://www.annualreport15-16.fairtrade.net/en/ Global Development Research Center (GDRC). 2016. “Grameen Bank, Bangladesh”. Accessed August 20, 2016. https://www.gdrc.org/icm/grameen-voa.html International Labour Organization. 2015. “Social Solidarity and SouthSouth Cooperation: A compilation of short articles for the “Academy of Social Solidarity Economy: Social Innovation in the World of Work.” Johannesburg. —. 2011. The Reader 2011 “Social and Solidarity Economy: Our Common Road towards Decent Work”. Accessed October 29, 2016. http://www.ilo.org/wcmsp5/groups/public/---ed_emp/---emp_ent/--coop/documents/instructionalmaterial/wcms_166301.pdf. Kanbur, Ravi. 2006. “What’s Social Policy Got to Do With Economic Growth?” Keynote address at the conference “New Frontiers of Social Policy”, The World Bank, Arusha, December 12-15. Loh, D. 2013. “Reflections on Solidarity Economy and Social Enterprise.” In Developments in Solidarity Economy in Asia, edited by Jayasooria Denison. Malaysia: Centre for Social Entrepreneurship. Miller, Ethan. 2010. “Solidarity Economy: Key Concepts and Issue.” In Solidarity Economy: Building Alternatives for People and Planet, edited by Kawano E. et al. Amherst, MA: Centre for Popular Economics. Piketty, Thomas. 2014. Capital in the 21st Century. Cambridge: Harvard Uni. Poirier, Yvon. 2016. Legal and political recognition of social solidarity economy (SEE). An overview on SSE public policies and guidelines.

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International network for the promotion of social solidarity economy (RIPESS). Polanyi, Karl. 1944. The great transformation: Economic and political origins of our time. Rinehart: New York. Quinones, Benjamin. 2015. Social and Solidarity Economy in Asia: A South-South and triangular cooperation perspective. Geneva: International Labour Office. RIPESS. 2013. RIPESS Global vision 2013. Accessed June 26, 2015. http://www.ripess.org/wpcontent/uploads/2013/06/DOC2_global_visio n_base_document_EN.pdf. Saguier, Marcelo and Zoe Brent. 2014. Regional Policy Frameworks of Social and Solidarity Economy in South America. Accessed September 10, 2016. http://repub.eur.nl/pub/78000/ United Nations Inter-Agency Task Force on Social and Solidarity Economy (UNSSE). 2014. Position Paper “Social and Solidarity Economy and the Challenge of Sustainable Development”. Accessed August 13, 2016. http://unsse.org/wp-content/uploads/2014/08/ Position-Paper_TFSSE_Eng1.pdf United Nations Research Institute for Social Development (UNRISD). 2012. Potential and Limits of Social and Solidarity Economy, Project Brief, No. 2. Utting, Peter, Nadine Van Dijk and Matheï Marie-Adélaïde. 2014. Social and Solidarity Economy Is There. Accessed January 20, 2016. http://dprnet.org/file/2015/08/UNRISD-Published-paper.pdf World Council of Credit Unions. 2015. World Council of Credit Unions' annual Statistical Report 2015. Accessed September 2, 2016. http://www.woccu.org/publications/statreport

CHAPTER THREE THE CONCEPT OF THE SOLIDARITY ECONOMY IN UKRAINIAN THOUGHTLEADERS’ IDEAS, AT THE END OF THE 19TH AND BEGINNING OF THE 20TH CENTURIES OLEKSANDR I. SHNYRKOV AND LIUDMYLA O. SHVORAK

The economic and social challenges of recent decades have largely confirmed the existence of a range of endemic problems in economic development and socio-economic relations. More practical evidence, such as unforeseen economic crises and serious social problems, prove the failure of many theoretical and economic provisions of the current economic system. There is currently a deepening of poverty and social marginalisation, but there is also development taking place in depressed regions and new forms of solidarity in the fields of environmental protection, culture and civil society initiatives. Along with education, these combined factors lay the foundations for the dawn of a social and solidarity economy. Enterprises and organisations working on the principles of social and economic solidarity, due to the objectives and principles of activity, are able to promote economic development and address many problems, such as poverty reduction and the Millennium Development Goals. The term “solidarism” derives from the French word solidarisme (fr. solidaire) and means acting together, having common interests and a consensus. Solidarism is a socio-political concept that, as opposed to the thesis of class struggle as the driving force of social development, proclaims the solidarity of its members as the primary determinant of the life of any society. In addition, it serves as a kind of strategy for

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mobilising society during major crises or threats and dramatically increases the possibility of society’s mobilisation and effectiveness, due to the synergistic effect that occurs when various social groups become aware of common interests and exercise concerted action. Solidarism increases the pressure on society’s elite and suggests that there should be serious limitations to their advantages and privileges. Moreover, the responsibilities of the elite are considered to be a priority, while rights and privileges are granted exclusively for the effective implementation of relevant commitments to society. The idea of solidarity is closely related to the doctrine of “ownership obliges”, which depicts private property as a public service. In referring to solidarity, one also justifies the theory and origin of corporatism. The idea of solidarity serves as a basis for the concepts of “social partnership”, and the “association of labour and capital,” etc. Solidarism looms large in the solidarity and political doctrine of clericalism, as well. The idea of solidarity is not new: it has existed in one form or another since antiquity. In the world of philosophical thought, Agrippa Menenius Lanatus was a harbinger of solidarity in ancient Rome through his parable of parts of the body, which he stated should not be at odds with one another (Hai-Nyzhnyk 2011). The notion of “the people” as one living organism can also be found in the works of Plato, who distinguished between the “small man” (individual) and the “big man” (people). However, the idea of the people as a living organism was even more clearly expressed in the much older Indo-Aryan “Laws of Manu”, where the people were represented by a man, and social class (Varna) by his organs. For example, the Roman emperor Marcus Aurelius (reign: 161– 180 BC) wrote: “The same relationship of unity, as that the parts of the body connected to each other possess, intelligent creatures have as well since they though separated from one another, but are designed to keep working together. In this sense, there are people like parts of the body, though separated from each other for the sake of the whole, but they serve a whole”. This concept was well known in Roman law as well. Pierre Leroux pioneered the use of the term “solidarism” in France in 1840. In modern times, French philosophers have seriously focused on this problem. France became the birthplace of the modern doctrine of solidarity. Célestin Charles Alfred Bouglé, in his book Le Solidarisme (1907), laid the foundations for the ideas of solidarism, which he developed from the principles of solidarity. That doctrine was further developed by the lawyer, Léon Bourgeois, and the sociologist, Emile Durkheim (1996). Charles Gide and Charles Rist entered the history of philosophical and political-scientific thought as solidarists. The German

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explorer, Heinrich Pech (amongst others), also significantly contributed to the development of the theory. At the same time, it was not only European researchers who were considering the ideas of solidarism and furthering solidarity economy ideas in their works. Since the mid-19th century, such ideas have started to spread into the works of Ukrainian thinkers. Let us consider this in more detail. Taras Shevchenko (1814-1861) may be considered the first Ukrainian solidarist. The significance of Shevchenko in Ukrainian society and culture is unique. He had enormous skills as a social and political activist and was able to fulfil his tremendous spiritual potential through his art, especially poetry. Scholars see this as the biggest mystery of his phenomenon. The ideas of struggling for national liberation and independence, and the call for decisive action against violence run like a golden thread through the majority of Shevchenko’s works. He shattered the illusions of serfs regarding the concept of the “kind tzar”, and angrily reproached Peter I, Catherine II, and his contemporary ruler, Nikolai I. His creations, such as “The Dream”, “The Caucasus”, “To My Fellow-Countrymen …Living, Dead...”, and other works called for the autocratic feudal regime to be overthrown. All Ukrainians know the famous “Testament”, where the poet urged people to “arise, sundering your chains, bless your freedom with the blood of foemen’s evil veins”. In his works, Shevchenko outlined the shortcomings of the divided society with its spiritually impoverished elite, class selfishness, and lack of responsibility. “Ukraine struggled on, fighting to the limit: she is crucified by those Worse-than-Poles, her children,” Shevchenko stated, concerning the moral foundations of the contemporary people of Ukraine (1999). He held up an idealised Cossack structure as an example to describe the lost ideal of social harmony and national greatness: “There was a time in our Ukraine when cannon roared with glee, time when Zaporozhian men excelled in mastery”. In his book, Kobzar, Shevchenko predicted his countrymen a bright future through common solidarity: “Come, my brothers, and embrace each your humblest brother, make our mother smile again, our poor, tearstained mother!” In almost all of his works, the Great Kobzar called upon Ukrainians to be accomplices: to not divide life and home, and to work together towards a common good. In times of national oppression, Shevchenko offered Ukrainians a change from the existing social situation through the use of force: “uprise and break the chains”. He suggested “a family new and free” as a solidarist ideal. Family and blood relationships

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are the first levels of social solidarity and he wanted to see society and nation as a family. The word “new” means not just being free from foreign oppressors, but establishing kinship and the shared values of Ukraine without any prejudice or interclass exclusion. Shevchenko went down in the history of Ukrainian thought as a thinker who laid the democratic foundations for a profound understanding of the national past of his people. The poet was a man of broad spiritual horizons who, in his time, remained at the height of progressive social thought. Various concepts of solidarism emerged and developed later in Ukrainian philosophical thought. After Shevchenko’s “new, free family” there was the concept of “folk spirit,” introduced by the Ukrainian writer, folklorist, anthropologist, linguist, critic, editor and publisher, P. Kulish (1819–1897). P. Kulish adopted the folk spirit as the basis for society’s development. This materialised through the national economy and was the basis of social and political life and language structure, as revealed through the activity of historical figures. According to Kulish, a folk spirit is the principle, objective, spiritual life of the nation. Kulish investigated the process of human life and society based on the concepts of “outer” and “inner” (1908). “Outer” (social forms of life) should be subject to “inner” (human development). A concentration on the “inner” concept, according P. Kulish, prevented Ukrainians from recognising the historical necessity to build an independent Ukrainian state. So, Kulish essentially specified a dichotomy: “personal–impersonal”. His ideas and concepts had a consciously existential nature. The ideas of T. Shevchenko’s “new family” and P. Kulish’s “folk spirit” reflect initial attempts to change the country’s political system to one which would be fairer to all members of society. It also reflects Ukraine’s aspirations to become a new solidarity country with a desire to participate in social equity through the European solidarity system. Currently, it may be implemented through the mechanisms of the economic and political integration of Ukraine with European countries. Another concept of solidarism, “collectocraty”, was introduced by V. Vynnychenko (1880–1951). The core of his political concept was the idea of statesmanship with its essence was defined as follows: “While humanity is divided into separate national teams, which mostly called government, it is obvious that the best way to preserve its life and develop every nation is a statemenship, i.e. the complex of such institutions of economy, politics, culture that operate on the territory inhabited by national teams, linking it into the compact integrity, ensuring its development today and for the future. The nation without its statemenship is a crippled human collective

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body. Thus, all so-called ‘non-nations’ passionately seek for their state, and due to that individual members take every effort to gain it in a similar fashion and following the receipt of it feel utter hatred to those who stand in their way, i.e. keep their collective in a crippled state” (Vynnychenko 1991). Being a true socialist, V. Vynnychenko completely rejected SovietBolshevik socialism, calling it wild and full of terror, blood, violence and incredible suffering, because “its creators did not think about socialism, but the electoral struggle, discipline, prestige, seizing power. The day of true socialism, socialism of freedom, fun, joy has yet to come”. V. Vynnychenko offered his own version of the creation of socialism, which he called “collectocratisation”. Its essence lay in bringing together: “that is, immediately, without weapons, one has to start transferring private ownership to the means of production into the collective one. It is namely collective one instead of a state one; there is a difference [...] socialisation instead of nationalisation. Better to say collectocraty that is the power is collective. Even easier [...] it should be organization of cooperatives of production, commercial, financial, agricultural, and such other, collectocratisation of the whole national economy.” V. Vynnychenko called upon socialists, communists and radicals to agree to the idea of “intensive cooperatives of economy” and transfer to “collectocratisation” in a few years by adopting legislation and using bloodless methods. Its advantage was that “every worker knows that he works not for the owner, private or public, but for himself [...] and the productivity in collectocraty would be as big, as the whole is bigger than the parts thereof” (Vynnychenko 1991). To implement that peaceful, legal way, V. Vynnychenko offered a set of laws that would contribute. For example, the “Law on Taxation of Large Enterprises with Special Tax on Development of Cooperation Workshops and Factories”, the “Law on the transfer of certain nationalised enterprises into collectocraty’s ownership”, and the “Law on Employee’s Participation in the Profits of Enterprises,” etc. His socialism was seen as sunny, joyful and happy. However, in taking a direct role in its construction in Ukraine, he made a series of errors that were fatal for the state. An important contribution to the field of solidarism is related to the famous Ukrainian philosopher, historian, sociologist and politician, V. Lypynsky (1882–1931). V. Lypynsky wrote many fundamental historical and political books, which finally crystallised his monarchist-conservative state-building concept: Ukraine at the Turning Point, a Remark to the History of Ukrainian state-building in XVII (1920); Religion and Church

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in the History of Ukraine (1925); and Letters to Fellow Grain-Growers (1925). A peculiarity and a positive element of V. Lypynsky’s national conservatism was the idea of political integration as a means of creating an independent national state. Nation, for him, was represented by all citizens of the state. For V. Lypynsky, nationalism came down to Ukrainians being different from other people only in terms of their political integration and therefore being integrated on the grounds of ethnic culture and national identity, uniting all nations into one. A significant contribution that V. Lypynsky made to political science was his typology and analysis of forms of government. According to the scheme, there were three main types of government: “democracy”, “ochlocracy” and “classocracy”. V. Lypynsky considered “classocracy” to be the most acceptable for Ukraine. This was a form of government that struck a balance between authority and freedom; between the forces of conservatism and progress. The basis of such a system should be a legally-oriented “limited by and restrictive by law” constitutional monarchy. A monarch (hetman) should head the state with his/her legitimate power being given as a legacy. Upon suggesting a monarchical system, V. Lypynsky denied democracy as a method of the nation, but did not deny it as a freedom. “Classocracy,” as he saw it, was a harmonious political commonwealth of the husbandman class, along with other classes, as conservative state support. Only this community, according to V. Lypynsky, was able to organise the Ukrainian nation and provide the necessary statesmanship. In general, the ideas of V. Lypynsky did not find broad support. However, many of his conclusions on the establishment of Ukraine as an independent state retained their value, sparking interest for today’s politicians and political scientists. M. Stsiborsky (1897–1941) continued to develop the Ukrainian concept of solidarism. In 1935, he published his work Natiocracy which, according to its author, was intended to give a coherent conceptual explanation of public-political and socio-economic programs of Ukrainian organised nationalism. According to M. Stsiborsky, “natiocracy” was a mode of domination of all social strata in the country, carried out via the authorities. The natiocratic project of Stsiborsky was based on “three pillars”: nationalism, economic solidarism and authoritarianism. Nationalism represented a spiritual unity of individuals built on national feelings. The position that Stsiborsky grounded in “natiocracy” stated that an ideal model on which to

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build the Ukrainian state was the nation’s dominance in socio-economic, political and cultural spheres. Economic solidarism brings a relevant economic system – state syndicalism – to national solidarity. Syndicalism means bringing people together on the basis of their professional and economic specialisations to protect their professional interests. Syndicalism converts certain social groups that are united in syndicates into functional parts of the national public body, in a similar way as the division of labour, by creating a differentiation that also promotes solidarity. In fact, M. Stsiborsky relayed Durkheim’s idea of the relationship between the division of labour and social solidarity (Davydov 2002). In addition, the Ukrainian thinker agreed with Durkheim in understanding the need to create professional groups (syndicates) to introduce new forms of social regulation. Syndicalism of natiocracy was based on the perception of members of society as manufacturers of certain material and spiritual values; the social role of the individual or groups was determined by their production function. Nationalism of the state in the economic sphere, directed inward, has its original theoretical interpretation. According to M. Stsiborsky, one of the prevailing problems for the national state of Ukrainians would be the establishment of their control over the country’s economy, since it had been dominated by ethnic minorities. Theorists proposed to solve this with the partial nationalisation of major industries and the establishment of absolute state control over economic processes in their territories. State control, according to Stsiborsky, had to be extended to the leading sectors of the economy: the military-industrial complexes, heavy industry, transport, and so on. Lower levels of usage and municipalisation would provide control over utilities: power stations, water supply systems, and so on. State regulation would be subject to pricing and certain areas of trade. All other sectors of the economy would be considered to be private initiatives. The practical value of M. Stsiborsky’s natiocratic concept was the attempt to divert the Ukrainian elite (at least its nationalist part) from its perception of Ukraine’s future as only being within “socialism-capitalism” coordinates. Exposing their genetic relationship, M. Stsiborsky argued that the choice between socialism and capitalism was actually “a choice without a choice” (Vikhrov 2016). Ukrainian solidarity contained — in common with mainstream European spiritual principles —the search for not only a national but also a social ideal. The ideas of solidarity were highlighted in the works of V. Vernadsky, in his role as a cosmist philosopher and the author of the doctrine of the noosphere, rather than as a journalist or a member of the

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Cadet Party. To some extent, these ideas were also contained within the works of D. Dontsov, O. Olzhych, O. Teliha, Y. Malanyuk, V. Lypynsky (partly) and a theorist of Ukrainian imperialism, Osyp Hubchak. Osip Boydunyk suggested the idea of Ukrainian solidarism in the book National solidarism (1946). Before that, Yuriy Lypa wrote in his article “Race Solidarism” (1938): “The Ukrainian race is a race of solidarists whose social ideal is a group, not individuality. The most natural place for the Ukrainian is to always stay within a group, and never, outside the group. He or she is best developed within the group. Ukrainian society was, is and will be the image of relations between groups. Therefore, there is no other road to establishment of Ukrainian race except for regulating relations between Ukrainian groups. No improvisation or impromptu history, but only the agreement between groups as a sign of unified nature of the race”. Developing this idea, Y. Lypa added: “There is no other deeper idea now, in times of total war for destruction, than the idea of racial solidarity. Some are trying to ridicule it as liberal idea of ‘consent’ of XIX century. It is not true. XIX will not return as well as its terms. You can and should clean modern Ukrainians from some remnants of this era; however, we must look forward too. Ukrainians will face their eras, probably similar to the XVII or even the VII. Ukrainians are surrounded exclusively by non-Ukrainians, alien or hostile to them. No ancient ideas of the XIX century have power now”. In 1950, at the University of Innsbruck (Austria), a young French scholar and native of Ukraine Volodymyr-Yuriy Danyliv, defended his thesis for the degree of Doctor of State Science. The work could be called a comprehensive generalisation of existing theories of solidarism. In this, he singled out the basic tenets of that doctrine. Immediately following the independence of Ukraine, the scientist (now being elderly) joined the scientific debate about the ideological content of the Ukrainian state. In 2000, his thesis was published in Ukraine as a book entitled, Solidarity and solidarism. The work of this author is now virtually the only comprehensive research into solidarism issued in Ukraine. In analysing the works of these Ukrainian thinkers-solidarists, we may conclude that they have actually criticised the capitalist class system and offered an ideal, national and social order in tune with the ideas of Western “classical” solidarism. Ideas of Ukrainian solidarists reflected the main ideas of solidarists in Europe and supplemented them with their vision of the need to change the old political system, which was unable to lead Ukraine to success. Ukrainian solidarism is contained within the mainstream of all European spiritual principles and is associated with the search for not only a national but also a social ideal.

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References Bouglé, Célestin. 1907. Lesolidarisme. Paris: V. Giard & E. Brière, Libraires-Éditeurs. Davydov, Yuriy, edit. 2002. History of Theoretical Sociology in 4 vol., vol. I. Moscow: Kanon+, DO “Reabilitatsya”(Rus.). Durkheim, Emile. 1996. The Division of Labor in Society. Translated by Aleksander Hoffmann. Moscow: Kanon (Rus.). Hai-Nyzhnyk, Pavlo. 2011. “Solidarism as socio-political conception: an essay of history of development is in Europe and Ukraine”, Gilɟya 44: 5–24. Kulish, Panteleimon. 1908. Works in 6 vol. Lviv (Ukr.) Shevchenko, Taras. 1999. Kobzar. Kyiv: Prosvita, 1999 (Ukr.) Stsiborsky, Mykola. 2016. “Natiocracy.” Ukrainian Life in Sevastopol. Accessed November 22, 2016. http://ukrlife.org/main/evshan/natiocracy.htm. Vikhrov, Maxym. 2016. “Natiocracy of Mykola Stsiborsky and ‘Third Way’ of Ukraine.” Dmytro Dontsov Scientific Ideological Centre. Accessed November 22, 2016. http://dontsov-nic.org.ua/index.php? m=content&d=view&cid=9 (Ukr.). Vynnychenko, Volodymyr. 1991. Testament to Fighters for Liberation. Kyiv: Krynytsya (Ukr.).

CHAPTER FOUR A SOCIALLY-ORIENTATED DEVELOPMENT MODEL OF UKRAINE SVITLANA V. SIDENKO

Current global development is under the influence of the processes of globalisation, the formation of an information society and the transition towards a new paradigm of civilisational development. These aspects cause changes in technology and innovation, as well as bringing about profound social changes. It becomes obvious that the material conditions of human values and consciousness, especially its cultural layer, are a growing influence on the motivations and behaviour of economics. People are the bearers of knowledge and innovation, which are key factors for economic development. Human intelligence, experience, management, values and culture are integral to the social development of the countries and regions of the world. The problems of achieving economic growth and providing innovative development and high performance in international competitiveness determines the priorities for social development in Ukraine. These priorities are fixed in Article 1 of the Constitution of Ukraine, which contains provisions under which the country is a sovereign, independent, democratic, social state ruled by law. The social market model of development in Ukraine has not been chosen by chance. World development from the mid-20th century under the conditions of the rapid development of STR meant that new features were acquired related to the new role of man in the development of science and industry. These new trends resulted in the launch of the theory of “human capital.” Since 1961, US scientists T. Schultz (1961) and G. Becker (1962, 1975), who were later awarded the Nobel Prize for economics, have developed the idea that human capital is a combination of the knowledge and skills of employees, the costs of which may eventually bring tangible profits to the employee himself as well as to his employer. This substantiates the effectiveness of investing in human capital. In other

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words, the basic concept of the theory of human capital is social investment which, under the conditions of the formation of a postindustrial society, is most important within other types of investments because it forms a resource for international competitive advantage through innovation, knowledge, education, and media. Scientists believe that important roles in the formation of human capital are also played by science, information support, culture, and art. Human capital is the basis of technological experience, knowledge and skills. Therefore, under the current conditions it is human capital, rather than resources, technology, or wealth, that is the main driving force of economic growth. These provisions are reflected in the growth model developed by R. Lewis, who received the Nobel Prize for Economics in 1995. World experience shows that the development of human potential, particularly in terms of education, training and creativity, was crucial in ensuring the modernisation of the economy and economic growth and innovation in a number of countries, including Japan, South Korea, Singapore, Malaysia, India and China. In the 1980s, the interest in human development issues particularly increased when, in the post-industrial countries of the West, the foundations were laid for the sustained, self-reproductive development of economies based on the production, use and consumption of knowledge. With the development of a new economy, investment in research and development converts knowledge into the most important factor of production, reducing the relative importance of traditional factors of economic growth – financial capital, labour and natural resources. The key to achieving international competitiveness is releasing the creative potential of the nation. The economy is transformed into a system that operates on the basis of knowledge-exchange, which then plays a dominant and decisive role in the production of the gross domestic product – an important advantage in competition between corporations and markets. Japanese researcher T. Sakayya believes that we are now entering a new stage of civilisation, where the driving force is the value created by knowledge (Sakayya 1999). The ability to create, distribute and use knowledge is the key to the prosperity of a nation. This, in turn, requires high levels of education, the capacity for scientific research, and the intellectual abilities of people being used in the processes of intellectual work. In the early 1990s, this led to the emergence of intellectual capital theory, which was later substantiated by T. Stewart (USA) and L. Edvinson (Sweden) (Stewart 2007, 132). Education, research and creativity in the economy, as sources of innovation and growth-

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mechanisms of economic progress, are the foundation on which to build a successful future that encourages governments and businesses to invest in development. Further studies of human capital became the impetus for the development of the theory of the creative class, which emerged in the late 1980s. The term was introduced and put into scientific circulation in 2000 (Business Week 2000). Studies have shown that for the effective implementation of joint projects and ideas, it is not only necessary to have common goals and values; creativity, creative thinking, moral values, work culture and the need to generate new knowledge and innovation are necessary too. That knowledge, education and creativity, as well as the implementation of talent and the ability to create something new, is necessary in the rapid development of a new economy and is the basis for the development of sectors of the creative economy, based on intellectual activity. In his book, The Creative Economy, J. Howkins explained the emergence of the post-information age, in which information and knowledge are the resources and driving force of (and the main value within) creative acts (Howkins). In the creative economy, intellectual resources are the growing importance of ideas; human creative capital is the basic means of production. These are the main assets of companies. As the source of innovation and economic development, the creative class has clearly expressed a sense of individuality and personal freedom, preferring the moral and spiritual satisfaction of work. In Creative class: people who change the future, American professor, economist and sociologist R. Florida observed that economic growth is much better explained by theories of human capital, and that the creative class and creative community are the same centres of diversity, innovation and economic growth (Florida 2011). Thus, in modern global transformations, the main resource for economic and innovation development is human capital, and countries should direct significant resources towards its development. A UN study shows that there is a close correlation between a country’s economic growth and the state of health and education. The quality of human capital, especially educationally, also affects the country's competitiveness and its innovation development (see Table 4-1). These ratings show that, in the development of human capital, 10 EU leaders simultaneously occupied the first ranking position in terms of economic competitiveness. They are leaders in innovation. Countries with high levels of human development also have the largest number of subscribers to cellular networks and Internet users, and have a high proportion of high-tech exports.

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Summing up the world experience, the World Bank concluded that there is a complex relationship between economic and social development. On the one hand, economic development affects the social sphere – wellbeing, human-resource development, social guarantees and standards. On the other hand, social development affects economics, as employment status, demographic processes, standards of living, the state of education and health, and migration processes affect economic growth and competitiveness. They also point out that without social foundations it is difficult to ensure economic development and virtually impossible to make it sustainable. Before ensuring economic development, it is necessary to ensure social development, because without social development, economic development cannot take root (World Bank 1996). Ɍɚble 4-1. Leaders of the Human Development Index; competitive and innovative economic development, 2015. HDI Norway Australia Switzerland Netherlands USA Germany New Zealand Canada Singapore Denmark

By Global Competitiveness Index Switzerland Singapore USA Finland Germany Japan Hong Kong Netherlands United Kingdom Sweden

By innovation factor Switzerland United Kingdom Sweden Netherlands USA Singapore Denmark Luxembourg Hong Kong Ireland

Source: Human Development Report (2014, 151); The Global Competitiveness Report (2015), World Economic Forum within the framework of the Centre for Global Competitiveness and Performance (2015). Note: compiled by the author.

Currently, Ukraine faces the task of economic growth alongside ensuring international competitiveness and innovation. It is possible to solve these problems only through the production of highly-educated human capital. Among the variety of social models, Ukraine has selected the European social model, which is fixed in the Constitution, so it has to evolve towards the achievements of European social standards. A key component of the European social model is social policies aimed at human development. Under the conditions of the development of

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a new economy, human capital is the main productive force of society, the bearer of knowledge, and the holder of the abilities, skills and intellectual capital values that play a primary role in the socio-economic development of society. That is why European countries have created a sociallyoriented model of social development (or the welfare state), which is characterised by high costs and is based on the insurance of social programs and a high degree of social solidarity. This is implemented by using a vertical system of redistribution, with the provision of decent employment protection and benefits for employees. This reduces poverty and inequality. Within these models, the main purpose of the state is to ensure a high level of welfare for most citizens, providing social protection and ensuring justice by correcting the distribution of income and assets. Practical mechanisms for implementing the concept of the welfare state are the policy of the labour market, access to education and health, and income policy. It should be noted that within the European Union, social factors are taken into account in the development of theoretical and political projects, and are the foundation of European integration. These priorities guide the development and implementation of integration programs. The Treaty of Rome (1957) established a single economic community and declared the common goal of achieving social progress and ensuring high levels of employment, aiming to improve the conditions of life and work. An achievement of the community was the introduction of a common social policy, influenced by the processes taking place in the global economy and changing social policy priorities. Thus, amid increasingly globalised competition, the community identified its new priorities, which were enshrined in the Lisbon Treaty in 2007. These priorities included the goal of social development, to transform the EU into the most innovative, competitive and dynamic economy in the world – a knowledge-based economic area. Investment in human capital led to high ratings in the Human Development Index (calculated by the United Nations), in which the ten leading countries are “old member states of the EU.” The Netherlands, Germany and Denmark were ranked, respectively, 4th, 6th, and 10th. Among the 188 countries that were surveyed, Greece was in 29th position. The implementation of the Lisbon strategy created high education costs. In 2005–2014, these costs amounted to GNI from 4.1% in Greece and 4.3% in Italy, to over 5% in the Netherlands, Germany, France, and Austria, and 8.7% in Denmark (UNDP 2015). These costs, along with other factors, led to these countries being ranked highly in the Global Competitiveness Index. According to 2015–

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2016 data, the top ten includes Germany, the Netherlands, Finland, Sweden and the UK (World Economic Forum 2015). According to the Global Innovation Index, the top ten leading countries in 2015 included the Netherlands, Sweden and the UK (WIPO 2015). All EU countries have high health-care costs, which range from 7.1% of GNI in Luxembourg to 11% in Germany, Belgium, France, and Austria, reaching 12.9% in the Netherlands (UNDP 2015). To ensure the implementation of social policy in the EU, there are high taxes, which range from 36.6% in the UK and 40% in the Czech Republic, to 48.6% in Greece and 51% in Sweden. The level of social inequality as a ratio of the richest 10% of citizens to the poorest 10% is, for example: Finland, 5.6 times; Sweden, 6.2; Greece, 10.2; Spain, 10.3; Italy, 11.6 . The result of an effective system of income, social security and health has been improvements to the lives of citizens of the “old member states”. It is also important that EU countries have effective pension systems. However, depending on the level of social policy and economic development, retirement benefits range from EUR 360 in Greece and EUR 409 in the Czech Republic, to EUR 810 in Germany and EUR 1403 in Sweden. According to Bank Natixis, which published the Natixis Global Retirement Index (which divides a country in terms of the welfare of its pensioners), the best pension systems are in France, Luxembourg, Sweden, Austria, Finland, the Netherlands and Germany. Adopted by the European Council in the spring of 2010, a new strategy for the socio-economic development of the EU – “Europe 2020” – focused on the following key areas: knowledge and innovation; sustainable economy; higher employment; social inclusion; and lifelong learning. Based on the above, the priority for Ukraine is to consistently implement the principles of the social market economy, characterised by developed market relations, high levels of economic development, political democracy, independence of government unions and business associations, guaranteed access to education and health care, and a developed social security system. Developing a strategy to adapt social standards in Ukraine to the terms of the EU, should also take into account that the group is a unique example of operating upon a foundation of member states’ recognition of the system of shared values that were recorded in the Charter of Paris (1990) and the Maastricht Treaty (1992), on the basis of common state and social values. Through this system and these values, European countries are able to bear joint responsibility and solve problems that they face, in terms of progressing globalisation. That value system aims to achieve European

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standards in the social sphere: income level, consumption patterns, welfare, employment, and social programs that provide human-resource development. In 1996, Ukraine joined the European Social Charter, the declared set of European values that ensure European social standards. Assessing the real prospect of Ukraine's integration into the economic and social space of the EU, it is clear that in terms of its socio-economic development, maturity of market economy and democratic institutions, it is significantly behind not only the core of the EU, but also the new member states. In order to progress into the EU economic space, it is necessary to bridge the gap in many ways. Adaptation to the European Union is a difficult and long process, and the result of it depends not only on the output-value of the gap, but also on a number of other conditions: the scale and efficiency of national physical and human capital; government economic and social policy; and the development of market institutions, including the formation of market institutions in the developing social sphere. However, the problem of social development is a priority, because it concerns people – media values, knowledge and experience – and it ultimately determines economic development and competitiveness. These structural reforms and institutional changes should help improve capital efficiency and better utilisation of human, financial and natural resources. This should lead to higher international competitiveness and a higher rate of economic development. To create the foundations on which to build a social model in Ukraine, the current state of social development in the country needs to be assessed. In the most summary measure of social development – the HDI – Ukraine was ranked at 83rd place. A full analysis compares the dynamics of the index in Ukraine to the countries of emerging market economies in the EU since the market reforms of the 1990s. The socio-economic conditions were about the same, but those who were much more advanced in development and in following the necessary conditions gained European Union membership (see Figure 4-1). Ukraine is in the best position it could be in terms of education – citizens spend 11.3 years in education, which is the same as in France, Luxembourg, Hungary, and others. In terms of other aspects of the index – such as GDP per capita – Ukraine, with USD 8215 per capita, is lagging behind significantly, not only in comparison to the most economically powerful EU economies (the Netherlands, Germany, Denmark, Sweden, and Austria, with more than USD 40,000 per capita; and countries with over USD 30,000 per capita such as France, Ireland, the UK, Belgium, Finland, Italy, and Spain), but also in comparison to new EU members

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such as the Czech Republic, Estonia, Lithuania, Poland, Slovakia, and Hungary, where this figure exceeds USD 21,000 (UNDP 2015).

Fig. 4-1. Human Development Index indicators and rankings of Ukraine and new EU member states Note: Created by the author.

The average annual income of a citizen of Ukraine, according to the Swiss analysts Credit Suisse, is less than USD 5,000, which is 10 times less than the world average. In the case of the closest neighbours to the west of Ukraine – Poland – income ranges from USD 25,000 to USD 100,000. According to the annual report, “Index of Social Progress 2014” (2014 Social Progress Index), prepared by the American non-governmental organisation, the Social Progress Imperative, Ukraine is 62nd in the global rankings of social progress. This includes the following categories: covering basic human needs (access to food and health-care, quality public services, levels of personal security); foundations welfare (access to basic education and information technology, wellness, environmental protection); opportunities for development (civil rights and freedoms, the degree of tolerance and gender equality, and access to higher education).

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According to the Global Competitiveness Index, which has been compiled annually since 2004, Ukraine ranked 79th out of 140 countries in 2015, while in 2014 it was at 76th place. However, the strengths in terms of the competitiveness of Ukraine at the moment are the high educational levels of the population (the quality of primary education in Ukraine occupies 49th place), the flexible and efficient labour market (the ratio of salary-productivity = 26th place), its high capacity for innovation (37th place) the quality of its scientific research institutions (68th place), and the availability of its scientists and engineers (53rd place). These are all favourable prerequisites for innovative development (World Economic Forum 2015). Therefore, Ukraine’s priority is the introduction of social reforms that will provide economic growth and international competitiveness. The first priority should be improving the welfare of citizens. Poverty and inequality lead to the depletion and degradation of human capital and there is therefore a need to foster the human and intellectual capital normally associated with the middle classes. This requires urgent reform of the remuneration policy, which is an important factor in ensuring the welfare of citizens. An effective mechanism for the redistribution of wealth and social justice within the European social model is taxes. The average EU tax rate is 44.5%. In the Netherlands, the figure is 55%; in France, Denmark and Germany, 45%; in Italy it is 43%; Austria’s rate is 50%; and Ireland, Slovenia, Portugal and Spain are also in the range of 40-50% on average in the Euro area (43.5%). However, in the Czech Republic the rate is 22% and in Romania it is 16%. In Ukraine, the tax rate is 15-17%. In many EU countries, income-equality legislation has introduced progressive taxation of personal income. Under this system, tax rates increase with the income growth of individuals and businesses, meaning that a family with a higher income pays not only a higher amount of tax but sometimes most of their income. This tax on high income (more than 1 million EUR) may reach 75%. In France, a 75% tax rate on excess profits goes towards social benefits and economic recovery, while in Germany “solidarity tax” exists to support large families (called “maternity capital”). Budget reallocation, mainly through the relatively progressive taxation of higher incomes to fund public investment expenditure on human and social capital, provides tangible social outcomes. EU member states tend to spend a lot of money on programs for education, health and social security, which play an important role in the development of society and ensure principles of social justice. In particular, the average cost of social protection programs now constitutes

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more than 27% of GDP. The financing of social protection in the EU in terms of the expense of central government revenue is about 35%; employers' social contributions are about 38%; social contributions for individuals who are recipients of social assistance amount to 23%; and 4% goes on other commitments. The growth of spending on social programs within the EU helps to maintain social stability and social cohesion by reducing poverty and social polarisation. Household income, among other factors, contributes to the formation of a middle class, which is the foundation of social stability in the modern world and the main component of civil society. In most countries with developed market economies, it covers over 60% of the population. As a major taxpayer, the middle class forms the state and local budgets, determines consumer behaviour and the preferences of the population’s structure and internal markets. Through accumulation and participation in various systems of security, it provides investment potential but also — due to the dominance of social and political organisations — determines the behaviour of the electorate and the moral standards of society through the electoral process, which serves as the bearer of democracy and political freedoms. In Ukraine, the formation of the middle class, which would be responsible for the status of property and personal income criteria in developed countries (defined by income, tenure, availability of individually-owned businesses, higher education and skills, satisfaction with status, and subjective self-identification with the middle class, etc.) is still at an early stage. According to sociological surveys, the proportion of the population that identifies itself with the middle class constitutes 3245% of the population. Thus, Ukraine will have to solve a number of urgent and difficult tasks in order to reach European standards in pay and safety at work, the social security of citizens' living conditions, health, development of education, culture, and social security, etc. Solving these problems can only be achieved through effective market reforms and economic growth. World experience shows that economic growth leads to higher GDP, which makes it possible to increase the income of workers and ensure decent social protection for the most vulnerable. Economic growth has only a positive effect on the state of human resources as it helps to create new jobs and improves productivity and wages, as well as the conditions of public resources, for continued progress in human development. To maintain and develop the required human capital, deliberate state policy on the labour market is needed. First, training and retraining the workforce to meet the requirements of the labour market is important, due

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to the new conditions of international competition. Social assistance should also play a supporting role and be available only to those categories of citizens who really need it for objective reasons – the elderly, the disabled, the unemployed, and families with children. It is obvious that priorities need to change the policies of reform, to combine the implementation of sound economic policies with active state investment in human capital. These changes should properly adjust and supplement the program of Ukraine's integration into the European Union, which should include a substantially strengthened social component. There should be relevant laws adopted by the Verkhovna Rada of Ukraine and developed programs of social development. Finally, there should be practical implementation of the principles of the social market economy, ensuring the social and economic development of society. Socio-economic development crucially depends on the chosen model – the predominance of the production of semi-finished products or innovative development. Unlike raw development models, the innovative model requires the formation of a highly-educated middle class along with income equality. World experience shows that countries that have given priority to technological innovations have also managed to achieve success in socio-economic development. So, by using intellectual capital, a number of countries (especially South-East Asia) have become leaders of innovation. In particular, Malaysia and Thailand are net exporters of information products and services, having quickly learned the innovations of India and China. Regional centres located in Asia are leading the global production of computer electronics. Advances in the innovative development of Southeast Asia are due to significant public investment made in recent decades in education, research and development, as well as social programs, (above all, education and training). Developments in innovation will continue being the defining factor of global economic development that was confirmed at the “Big Twenty” summit. Held in September 2016 in the Chinese city of Hangzhou, this top forum discussed global economic and financial cooperation. The theme of the summit was “Building an innovative, healthy, inclusive and interdependent global economy,” which involves finding new paths for global economic development, more effective global economic and financial governance, and the promotion of international trade and investment and innovation development. When choosing a model of socio-economic development, a country can also benefit from the experience of countries that have succeeded in innovation and technological development while ensuring social welfare. A striking example of the successful combination of technological

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development and the development of the welfare state is Finland, which has become one of the most competitive economies in the world. It has the highest productivity gains in Europe and is a leader in developing innovative industries, having developed the first telecommunication networks and cellular communication. Finland, along with the United States and Singapore, has ranked highest in the Information Society Index, which has been used by the International Data Corporation since 1996. Its most famous brands are mobile telecommunications company Nokia and the operating system Linux, which competes with the world famous operating system, Microsoft. This experience shows the possibility of building an information society (unlike the US and Singapore) in terms of the model of the welfare state. Moreover, these achievements are feasible within a short period of time, as only three generations ago Finland was a very poor country with a predominantly rural economy, dependent on its forest resources and poorly-integrated into the main channels of capital, global markets and technologies. Finland is distinguished by the fact that it was able to combine technological innovation and economic dynamism with achievements in the welfare state, which is one of the best in the world and includes highquality, free public education, universal health care, universal pension insurance and unemployment insurance. It also has the highest proportion of labour unions in the world, as well as high taxes. The national government — as the spokesman of national interest and cultural identity — plays an active role in managing the progress of development (Castells and Himanen 2006). World experience shows that there is not one common model for building an innovative economy: the information society can exist in the form of a variety of social and cultural models, because the basis of each is determined by the values, traditions and culture of every nation. There are various paths to an innovation paradigm, which also depends on the characteristics of each society and every culture, as well as on the projects and policy-decisions of each country. After all, state macro-economic strategies should always be developed by taking into account the country’s historical, political and cultural context. It must also be taken into account that, when choosing a model for socio-economic development (especially when considering the limits of borrowing from foreign experience), that it is worth choosing only the rational aspects that will provide the most effective results on a national basis. With this in mind, we can mention the academician, Yu. M. Pakhomov, who noted that when choosing a model for socio-economic development, it is certainly necessary to take into

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account the mentality, history, traditions and culture of the nation. Without this, any model is unsustainable (Pakhomov 1998). Therefore, given the global experience, Ukraine has to develop its own model of social organisation that can provide welfare in the broadest sense of the term, including not only material goods but also spiritual life. Human development and technological progress can be complementary and mutually-reinforcing processes that promote the rise of society as a whole. In order to promote innovative development in Ukraine, “The Strategy of Innovative Development for 2010–2020 in Conditions of Global Challenges,” has been developed. This is to promote the country's innovative model of economic and social development; improve the efficiency of intellectual potential, and human and natural resources; improve the competitiveness of the national economy; and achieve a stable sustainable development and the welfare of citizens. The Strategy will create opportunities for the successful promotion of Ukraine in terms of the development of the economy and society, based on knowledge (Verkhovna Rada of Ukraine 2010). However, implementation of the Strategy requires concerted systemic changes at all levels of the national innovation system: science, education, business, invention, management, and capabilities. This is needed to provide consistent and effective implementation of its provisions, to achieve an active growing phase of the next cycle of innovation development in the economy, where innovation factors will be crucial in ensuring the growth of the domestic economy. With the development of an information society, education and innovation are very important areas in terms of the long-term development of Ukraine and for its potential and competitiveness in today's global knowledge economy. In this regard, Ukraine has the necessary preconditions: a highly-educated population, a highly skilled labour force, and scientific schools. Thus, in many international rankings, Ukraine has high rates of literacy that are on a par with (or sometimes even ahead of) Japan and South Korea. Ukraine has considerable achievements that contribute to the implementation of scientific and technological priorities, to solve important national economic problems. This is particularly the case in the following scientific fields: nanostructure systems, nanomaterials and nanotechnologies; the fundamentals of hydrogen energy; the fundamentals of molecular and cellular biotechnology; environmental protection; environmental management; biotechnology production of modern medicines (as well as application development in areas such as

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information systems); thermoelectric, optical and radiophysical devices; welding technology; creating thermionic materials; production of single crystals of artificial corundum; synthesis of organic compounds; and polymers, etc. (Halchynsky 2011). Ukraine is also among the world's leading countries engaged in rocket and aircraft development. In particular, the country is among the seven countries with the full cycle of aircraft. The development of research in these areas will result in technological breakthroughs and help the country to take a rightful place in the global economy. It is already the case that, in such an important rating as the Global Innovation Index (which involves Cornell University, a well-known business school INSEAD, and the World Intellectual Property Organization), Ukraine occupies 64th place. For the development of information and communication technologies, social environment is important. This finds expression in the formation of the Networked Readiness Index, which determines the level of information and communication technologies in the world. It consists of four subindexes: the conditions for the development of information and communication technologies; readiness; and the use and impact distributed by components (indicators) that describe the roles of government, business and society in shaping the environment for the development of information and communication technologies. According to the Networked Readiness Index, Ukraine ranked 71st in 2015, out of an index of 143 countries. Ukraine has considerable potential to develop its creative sector. Such a sector is, first of all, formed by information technologies. Ukraine has won first place in having the highest number of IT-specialists in Europe – more than 100,000 Ukrainian programmers work in different companies, including foreign ones. Demand for IT-specialists in the world market continues to grow and it is estimated that by the end of 2020, the number of specialists from Ukraine will exceed 200,000 people. The development of the creative sector will facilitate the participation of Ukraine in “Creative Europe,” the framework of signing the corresponding agreement in November 2015 with the European Union. Participation in the sub-categories of “culture” and “media” provides for organising and conducting educational events, fairs, festivals and activities, and expands the target audience. Participation in the subcategory of “culture” includes such areas as support for cross-border cooperation to facilitate access to the achievements of European culture and creative industry, literary translations, and ensuring the availability of the values and cultural diversity of Europe.

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Eventually, opportunities and rates of technological modernisation in Ukraine will depend on the innovation environment, which includes economic freedom, the conditions for small business development, competitiveness, the availability of venture capital, public attitudes to business success, and the level of contract execution. Therefore, the transition to an innovative model of development is not possible without creating an appropriate legal framework, and its implementation requires close cooperation between the state and civil society. In particular, the formation of social capital is necessary. In the socio-economic development of Ukrainian society, there are paradoxes. On the one hand, the educational levels of the population are high by world standards (the literacy of the adult population is almost 100%, and 85% of the population aged 25–64 years have at least secondary education), but income and living standards are low and there are significant levels of poverty (though skilled and educated workers should normally achieve appropriate financial reward). On the other hand, with the high educational and qualification levels of the population, as well as scientific advances, Ukraine still occupies the lowest ranking positions in international competitiveness. In addition, we must add that there is significant social stratification of the population that contributes not only to different standards and consumption patterns, but different value priorities and goals. In other words, the social capital that is necessary to achieve common goals has not yet been formed. Different value priorities, aspirations and goals, could eventually lead to a lack of social cohesion, which is necessary for progressive movement and growth. Therefore, the development of the concept of social capital is particularly relevant not only for economics, but also for the practice of state-building. The decisive role played by the political elite in the socio-economic transformation and achievements of any society should be noted. This is remarked upon by a large number of researchers. According to the famous Ukrainian scientist, A. S. Halchynskiy, the element that most inhibits European integration into Ukrainian society is lack of tolerance and constructionism in the Ukrainian political elite. However, the qualitative characteristics of European elites are such that the status of the higher strata of society is determined not so much by their hierarchical authority and equity as by their quality of education, accumulated knowledge, intelligence, intellectualism and competence. In Ukraine, the process of elitarisation of the political elite has just begun (Halchynsky 2011). In assessing the prospects for Ukraine, it is hoped that it will make the most of its opportunities to enter the information society, and will develop its own model. Its implementation will be possible on the basis of values

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of high culture and scientific traditions, as well as by harnessing the potential of its highly industrious population.

References Halchynsky, Anatoliy S. 2011. Liberalism. Lessons for Ukraine. Ʉyiv: Lybid: 272–74 (Ukr.). Howkins, John. 2013. The Creative Economy: How People Make Money from Ideas. 2nd edition. Penguin Books Ltd., UK, 304. Becker, Gary S. 1962. “Investment in Human Capital: A Theoretical Analysis.” Journal of Political Economy 70 (October 1962, supplement): 9–49. Becker, Gary S., 1975. Human capital: A theoretical and empirical analysis, with special reference to education, 2nd edition. New York: National Bureau of Economic Research: distributed by Columbia University Press), 268. World Economic Forum. 2015. The Global Competitiveness Report 2015– 2016: Global Competitiveness Index, Competitiveness rankings. Accessed October 20, 2016. http://reports.weforum.org/globalcompetitiveness-index/competitiveness-rankings/ WIPO. 2015. “Global innovation index 2015.” Accessed October 20, 2016. www.wipo.int/econ_stat/ru/economics/gii/ (Rus.). UNDP. 2015. ɇuman Development Report 2015. Work for Human Development (Washington, United Nations Development Programme), 288. Castells, Manuel and Pekka Himanen. 2006. The Information Society and the Welfare State: The Finnish Model, trans. O. Andreeva at al. Kyiv: Vakler, 256 (Ukr.). Florida, Richard., 2011. The Rise of the Creative Class And How It's Transforming Work, Leisure, Community and Everyday Life, trans. A. Konstantinov. Moscow: Klasika–XXI, 432 (Rus.). Verkhovna Rada of Ukraine. 2010. Resolution No. 2632-VI “On recommendations of parliamentary hearings on the topic: The Strategy of Innovative Development of Ukraine for 2010–2020 in Conditions of Global Challenges,” from October 21, 2010. http://zakon3.rada.gov.ua/laws/show/2632-17 (Ukr.). Sakayya, Taichi. 1999. The Value Created by Knowledge, or a History of the Future. The New Post-Industrial Wave in the West. Anthology, ed. V. Inozemtsev. Moscow: Academia, 337–71 (Rus.).

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Business Week. 2000. The Creative Economy. Business Week (Special double issue: The 21st Century Corporation). August 28 : 1–5. Schultz, Theodore W.1961. “Investment in Human Capital”, The American Economic Review, vol. 51, No. 1 (Mar. 1961): 1–17.Stewart, Tomas A. 2007. Intellectual Capital: The New Wealth of Organizations, trans. V. Nozdrina. Moscow: Pokolenie, 368 (Rus.). The World Bank. 1996. Transition (The Newsletter about Transforming Economies), vol. 7, No. 9–10: 9. Pakhomov, Yuriy M. 1997. “Civilisational challenges and modern Ukraine,” Political thought 1 (1997): 165–72 (Ukr.).

CHAPTER FIVE SOCIAL ENTREPRENEURSHIP IN UKRAINE: ITS BACKGROUND AND PROSPECTS FOR DEVELOPMENT LYUDMYLA P. CHERNYAHA

In the last ten years, social and environmental problems in the world have encouraged the search for more effective methods of economic activity. Global financial crises, the overheating of the banking system, and the real-estate market crisis have all revealed the imperfections of market mechanisms in terms of being able to ensure the well-being of citizens. The state is not capable of meeting the actual social needs of unstable economic systems and developing countries. It therefore becomes necessary to develop new methods to address the issue and search for innovative approaches to the problem. On the other hand, the revival of activity in various philanthropic, non-commercial, volunteer, charitable, independent organisations, helps to solve social problems to a certain extent but not completely. During the last few decades, the number of people dissatisfied with state policy and ineffective market mechanisms has been rising swiftly. At the same time, under the conditions of a developed democracy, more people are ready to exercise their rights to freedom of thought and entrepreneurial activity and mobility, to address social problems. Proactive people are more resolved to engaging in social entrepreneurship and are transforming public organisations from the use of consumptive business methods to new, self-sustaining ones. Therefore, at the turn of the 21st century, a new type of commercial activity that also addresses social problems was developed (Svynchuk 2014). At times when the role of government diminishes and is not capable of solving the urgent necessities of mankind, real pioneers of entrepreneurial activity appear, providing the impetus to develop international organisations that cultivate social entrepreneurship. A striking example of

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this is Bill Drayton, the founder of Ashoka, the leading organisation in social entrepreneurship. The growth in the activity of web platforms containing information on the social projects of both non-profit organisations and individual people has also played a huge role in disseminating ideas of social entrepreneurship. In Ukraine, one of the best examples of using crowd-funding mechanisms is the platform “Spilnokosht” (biggggidea.com.ua). Social enterprise is a new approach to doing business. It is based on democratic principles and a social-responsibility approach that uses environmentally-friendly technologies for the sake of society. This type of business is developing under free-market conditions, using basic supply, demand, and competition rules, virtually without any additional benefits from the state (Spreckley 2011, 2). Kateryna Smagliy defines six factors that have caused a rapid growth in the development of social entrepreneurship: (1) a change in the role and importance of government; (2) an increase in the number and social mobility of the middle class; (3) a strengthening of the role of NGOs; (4) the appearance of global leaders in social entrepreneurship areas; (5) a change in rational charity by venture philanthropy; (6) the revolutionary role of the Internet and the appearance of new communication platforms and crowd-funding (Smagliy 2014, 15-26). Currently, social entrepreneurship is developing dynamically in European countries, the USA and Canada, as a way of seeking to solve unemployment problems, ensuring social defence and favouring the idea of sustainable development. According to a preliminary assessment, in the UK over 650,000 people are employed at 60,000 social enterprises, generating £8.4bn for the domestic economy. Such enterprises operate in different economic areas. For example, services for the population, socialaid services or the administration of public buildings (British Council 2016). The variations in the approach, form and manner of social entrepreneurship mean that introducing a single definition is complicated. However, social entrepreneurship is considered to be a business aimed at solving social problems. Incomes derived from social enterprises are directed mainly towards business development, public affairs or solving sensitive social problems. Such an enterprise is not considered to be a charitable organisation because it acts according to all business laws and produces profit. It prevails in such areas as education, environmental protection, fighting poverty, and human rights protection, etc. (Resource Center 2016).

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We can call the cooperative forms of activity that were founded in early 17th century England the first social enterprises. The Diggers organised themselves for the common work of land cultivation with a further equal distribution of wealth. In 1659, the term was described from a scientific perspective by Peter Cornelius in his booklet, “A Way Propounded,” in which he explained democratic and socially-oriented production. Much later, further cooperative forms of organisation began to appear in other farm work and in the operation of mills. The main reason why these methods failed was the means of production and a lack of land ownership, which later resulted in their decline. Robert Owen (1771-1858) urged the working classes to set up groups of producers with common ownership, to run commercial activities that would fulfil the social aims of the community (Spreckley 2011, 2). In 1978, at Beechwood College in Yorkshire (UK), the concept and structure of social enterprise was firmly established and defined: a social enterprise is an enterprise with cooperative ownership and equal rights for all its members. An important element lies in the definition of its “triple bottom line”: being financially viable, creating social wealth, and being environmentally responsible (Spreckley 2011). A classical definition of social entrepreneurship was provided by J.G. Dees (1998), who said that the mission of social entrepreneurship is to create and provide for social value, pursue new opportunities to serve that mission, innovate continuously and act boldly without being limited by resources (Praszkier and Nowak 2012, 9). In his turn, P. Pearce (2003) defined the place of social business as being between charitable/civil organisations and the commercial sector. His diagram distinguishes between the public, private and social systems, called the “third sector” (Doherty 2009). Social entrepreneurship is part of the social sector together with civil, volunteer, charitable unions and family enterprises. Social entrepreneurship is positioned between the commercial sector and civil organisations (Figure 5-1).

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Figure 5-1. Pearce’s three systems of the economic model (Doherty 2009).

Pearce also defined an exceptional role for social entrepreneurship in the development of a solidarity economy as a whole, since its nature has democratic elements and “fair-trade” rules, and its aim is to meet social goals. The peculiarities of social-enterprise activity come from the combination of features from commercial companies and civil organisations. Commercial enterprises work to get an economic result — profit; civil organisations work to meet social goals. The aim of social enterprises is both profit and the fulfilment of social aims (Table 5-1).

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Table 5-1. Comparative description of a social enterprise, commercial company and civil organisation Indices

Social enterprise

Goal of establishment

Profit-making to address social problems Democratic decision-making (one share, one vote). Independent from external funding, on account of economic activity of an organisation. Income is reinvested into the organisation’s activities. Social and economic value. Rules of the law, ethical rules.

Management

Funding

Income allocation

Value creation Responsibility

Reporting

Financial and social reporting.

Commercial company Profit-making

Civil organisation Social mission

Authoritarian (owner, % of the quantity of shares). Independent from external funding, on account of economic activity of an organisation. Income is distributed between owners/ shareholders. Economic value creation. Rules of the law.

Democratic (general meeting, board). Depends on external sources: donors, donations.

Financial reporting.

No profit.

Social value creation. Rules of the law, ethical rules. Financial and social reporting.

Source: drafted by the author

The funding of social enterprises is enabled by their commercial activities, while civil organisations receive grants, donations, and charitable contributions, etc. Because they act in a competitive market environment, social and commercial enterprises have in common with each other the constant need for technical and social innovation to conduct business successfully, regardless of their social mission. Besides the usual financial reporting, social entrepreneurs have to show social results, permanently renewing quantitative and qualitative indices. One of the ways to evaluate the activity of social enterprises is

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through the triple bottom line, which includes economic, social and environmental assessment. Economic assessment is measured through the positive/negative balance from commercial activity; social assessment is measured through the implementation of a social mission and the spreading of social ideas, as well as the number of recipients of the benefit, etc. Environmental assessment is measured through environmentally-friendly approaches, the use of ecological materials, energy-saving programmes, and the reduction of carbon emissions. The basic principles of social business were described by Muhammad Yunus, who is considered to be the father of social entrepreneurship. He distinguished seven principles in his book, Creating a World without Poverty: 1) The business aim of a social enterprise should lie in povertyreduction, or in addressing one or several problems (such as education, health care, access to technologies and environmental problems) that threaten people and society. 2) Financial and economic stability. 3) Investments are paid to investors; dividends are not withdrawn. 4) When investments are paid out, a company’s profit remains in the company to expand its activity, increase the quantity of employees or improve labour conditions. 5) An environmentally-conscious approach. 6) Market wages are paid to employees with better labour conditions. 7) Running the business with joy (Yunus and Jolis 2010). Along with an idea of social business, Professor M. Yunus introduced a new dimension for the market economy: a business model that does not strive for maximum profit, but rather tends to address the most urgent problems of mankind. The Anglo-Saxon approach to social entrepreneurship gives special significance to the role of a person in the social and economic transformation of a community. Moreover, this is the key element in achieving positive results is an innovative approach. Representatives of the Ashoka organisation, the biggest social entrepreneurship network in the world, have defined the criteria for social entrepreneurs: (1) a new idea for solving a pressing social problem; (2) a creative approach; (3) the entrepreneurial personality of a leader; (4) envisioning the broad social impact of an idea; (5) an ethical approach (Praszkier and Nowak 2012, 11).

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Social entrepreneurs are innovators who use innovative ideas and different resources to solve social problems, leading to positive social changes in the future.

Models of Social Enterprises Development In global practice, social entrepreneurship develops in two directions: through the initiative of several people to solve specific problems and needs; or under goal-seeking state support. Some countries do not have any special regulation of such enterprise activities, although a high share of this is reflected in a country’s GDP. In post-Soviet countries there are government programmes to support the development of social entrepreneurship. However, some countries have made little effort to merge these different models of this type of business promotion at both levels. Researchers distinguish four main models of social entrepreneurship: (1) the North European model (Belgium, the Netherlands, Norway and Sweden); (2) the models of the USA, Canada and Japan; (3) the Central European model (Austria, Germany and France); (4) the British model. The North European model has high levels of state support, while the models of the USA, Canada and Japan pay attention to local initiatives and regulation as well as granting goal-seeking aid to charitable organisations and making donations. There is also a subsidy program. Target orientation and business projects are features of the Central European model. Social investments and huge state support dominate in the UK. At the moment, these four models are developing and improving, taking into account the best international practices (Svynchuk 2014). In the USA, social enterprises have started to actively develop as a result of the lack of a full-scale social policy from the government, and the possibilities of self-financing social projects. The main emphasis is on self-finanɫing and innovativeness. Before the rapid development of social entrepreneurship, humanitarian and social assistance was provided by civil and charitable organisations. Currently, 1.2 million such organisations are registered in the USA (Smagliy 2014). Charitable donations, granted by business companies to “third sector” organisations, are tax-exempt, which stimulates support for civil organisations. Even in the early stages of state development, the USA’s government and society felt it was justified to give preference to charitable organisations. However, budget reforms adopted by Ronald Reagan reduced the amount of state subsidy and put civil organisations in the position of having to seek other income.

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Today, it is quite difficult to calculate the quantity of social enterprises in the USA, because they operate under different legal forms and do not always declare themselves as social enterprises, even though they have all the features. Social enterprises work as non-commercial, nongovernmental or charitable organisations, as small and medium-sized businesses, or hybrid organisations with affiliated branches (Spreckley 2010). According to an approximate estimate, the quantity of such enterprises in the USA equals 100,000, which is considerably less than in European countries. As a rule, these are small enterprises in terms of the volume of revenue and quantity of employees; 90% of US social enterprises conduct their activities within the territory of the country; and 10% operate in Africa and Asia, where social problems are more critical (Udodova and Shapoval 2013). Social entrepreneurship is actively developed in Europe (the UK, Poland, Italy and Germany). The UK is the leader in terms of the quantity of social enterprises, due to active state support (Udodova and Shapoval 2013). By the middle of the 20th century, the UK government had defined social entrepreneurship as being an important part of economic and social policy. After that, a number of documents were adopted to support this type of business, and refined methods and specifications were approved (BMG 2013). Social Enterprise UK (the national union for social enterprises) defines a social enterprise as an independent, transparent and financially reporting organisation with an open social or environmental mission, which gets profit from commercial activity and further reinvests the bigger part of it. Social enterprises mainly register as community-interest companies (CIC), although there are approximately eight forms of legalisation (BMG 2013). From the publication of government strategy (2002) aimed at social enterprise development in the UK, additional criteria were proscribed, meaning that to be classified as a social entrepreneurship, the enterprise: (1) must consider itself to be a social enterprise; (2) should not pay out more than 50% of its profits; (3) should not generate more than 75% of its income from grants and donations; (4) should not generate less than 25% of its income from trading; (5) should agree that it is a business with primarily social/environmental objectives, the surpluses of which will be principally reinvested for that purpose in the business or community, rather than mainly being paid to shareholders and owners (BMG 2013). In order to be a social entrepreneurship, organisations have to conform to criteria 1-4. The enterprises conforming to all five criteria are defined as

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having “very good compliance.” Those that conform to fewer criteria are defined as having “good compliance” (BMG 2013). The total quantity of social enterprises, the number of those employed and the amount of annual turnover are the main indices of a country’s social entrepreneurship development. Additional assessment criteria that are annually utilised by the British government include: quantitative and qualitative employment indices; business operation age; activity area; legal status; whether the business is family-run or is one that hires employees; gender issues; the percentage of ethnic minorities involved in the organisation; the number of disabled people involved in the organisation. According to the 2012 Annual Report, the number of enterprises rose from 57,400 to 82,700. In terms of size, these are mainly micro and small enterprises (about 80%), but they are significant players in local markets. Social enterprises provide jobs for over 2 million people, and have a total turnover of £169 billion (BMG 2013). Table 5-2. Characteristics of social enterprises (BMG 2013) Age of organisation 30% up to 4 years 34% from 5-10 years 36% older than 10 years

Quantity of hired employees 52% - 1-9 34% - 10-49 8% - 50-250 18% - 250+

Revenue (Euros) 12% up to 80,000 27% - 80-199,000 27% - 200-499,000 15% 500-999,000 19% 1 million +

The turnover of employees in social enterprises is considerably lower than annual indices in the country as a whole. This is explained by high levels of social responsibility amongst employees. They either reside in a common territory or are engaged in solving the social problems of a community. Additionally, many social enterprises become family businesses (BMG 2013). A notable development in social entrepreneurship can also be observed in Italy. In 1991, the country’s parliament approved the law, “On Activity of Social Co-operatives,” that gives impetus to the development of the movement as a whole. According to this law, the aims of social cooperatives are as follows: to seek a common community interest in addressing social problems; the social integration of community members through the management of social, educational, and health care services; activity in agricultural, industrial and entrepreneurial areas to employ those who are socially vulnerable (Udodova and Shapova 2013).

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The law stipulates two types of social cooperatives: those providing social, educational and health care services (Group A); and those engaged in employment (Group B). The Confederation of Italian Cooperatives was established to unite mainly consumers, credit unions, and national and regional agricultural unions and cooperative federations (Udodova and Shapoval 2013). The governments of Spain, Portugal, Greece, Belgium and France have also formalised the activities of social enterprises into a cooperative form, the main feature of which is the democratic management and distribution of votes for decision-making. The activities of social enterprises are legal in Hungary, the Czech Republic, Slovakia, Slovenia, Lithuania and Poland (Udodova and Shapoval 2013). In Poland, following the adoption of a number of laws on the support of social entrepreneurship, it started to develop as a solution to the problem of unemployment for homeless people and former drug and alcohol addicts. The key term in the law “On Social Cooperatives” (2006) was the definition of a social cooperative as an independent association of people with the aim of providing employment and other social needs based on democratic principles. The principles were as follows: voluntary and open membership; democratic control of management; the economicallybeneficial activity of members; autonomy and independence; education, training and information exchange. The law also envisaged granting certain financial assistance to help start social cooperatives. For example: -

Assistance to the amount of 300% of the average unemployment allowance for the unemployed. Assistance to the amount of 200% of the average salary for people joining a cooperative. Assistance from the European Social Fund and ordinary support to the amount of 1,000 Polish Zloty for 6 months. Income tax exemption for legal entities. Public procurement orders. The option to participate in tenders for the public procurement of state administrations and local authorities. The option of one social cooperative receiving assistance to the amount of £300,000 over three years.

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In Poland today, social cooperatives have actually been the only type of social entrepreneurship introduced into the legal system by a separate legal act. According to Article 2 of the law “On Social Cooperatives,” a social cooperative works in three ways, two of which are obligatory. The first way is economic and lies in the obligatory management of certain enterprise activities. In other words, the founders of a cooperative should conduct and participate in entrepreneurial activity. This component underlines the model of classic entrepreneurship: working for profit. The second way can be attributed to social activities, including the social and professional integration of cooperative members, with the aim of using and improving their professional knowledge and skills to provide them with jobs and, therefore, benefits for the local community. The third way is the participation of members and their families in cultural and educational activities aimed at them. In the Russian Federation, social entrepreneurship is supported by the state and state funds. There is a special research program to identify regional social problems. Recently, a social map of all regions of the Russian Federation has been created, on which all needs, problems and required resources of oblasts are described. The state provides funds for the enterprises that are ready to work in defined directions (Smagliy 2014). Several non-governmental organisations engaged in social entrepreneurship support are worth mentioning: the foundations, “Our Future” and “Research for Change”; the international civil organisation, “Junior Achievements”; the company, “Rusal”; and the international charitable organisation, “Oxfam”. In Russia, as well as in the EU, a special legislative basis has been constructed for the activity of social enterprises, where the terms of tax benefits are stipulated (VAT exemption, income-tax exemption for individuals, lowering insurance premiums from 34% to 20%, and providing financial support) (Smagliy 2014).

Noncommercial or charitable organisations; small and

Forms of incorporation.

History of development, legislative background.

USA Provision of social aid, education, health care, environmental problems, art, and sport. Derive from civil organisations; there is no clear state regulation.

Countries/Criteria Basic types of activity.

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It is considered a fatherland of social entrepreneurship. The first enterprises founded in the 18th century derived from cooperatives. A number of laws have been adopted to regulate their activity. Associations, foundations, cooperatives, and commercial enterprises.

Great Britain Social problems, environmental problems, education, health care, art, and sport.

Table 5-3. Types of social enterprise development

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Cooperatives, civil organisations, and foundations.

Italy Social problems, environmental direction, organic production, education, art. Since 1991, when the “Law on Cooperatives” was adopted.

Poland Overcoming social problems, environmental problems, education, and art. In 2006, the adoption of a number of laws on cooperative activity provided the impetus for their development. A major part is cooperatives and civil organisations.

Weak development. Since 2011, when the “Agency for Strategic Initiatives on New Projects Implementation” was founded. Civil organisations.

Russia Social problems, regional problems.

Payment for goods and services, grants, private capital, private donations, and membership fees.

Payment for goods and services, grants, private capital, private donations, and membership fees. State subsidies, payment for goods and services, grants, and donations.

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State financing, grants, donations, and payment for goods and services.

(Drafted by the author on the basis of Svynchuk A.A. (2014), Kateryna Smagliy (2014), Udodova and Shapoval, 2013).

Funding source.

medium-sized enterprises; hybrid organisations with subsidiary branches. Funds, foundations, payment for goods and services, and private donations.

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Activity Areas One of the most popular types of social enterprises provides assistance to society by solving environmental problems. Basic activities in this area include improving the quality of potable water, and addressing air pollution, soil degradation, deforestation, litter problems and electronic waste, etc. Kateryna Smagliy attributes waste-recycling in Turkey and the USA, the reduction of carbon emissions, energy efficiency and ecological production, mainly to brilliant ecological projects (Smagliy 2014). For example, the company, Copmadam, has started an experimental project in Ayvalik to solve the problem of female unemployment in Turkey while also utilising or re-using waste. Copmadam produces unique handbags and accessories from waste packing in a creative and aesthetic manner. In the USA, the company, Ecoist, produces designer clutch-bags using the special technique borrowed from Mexico. This business provides 40 women with permanent work at a mini-plant in Peru. The other bright example of eco-social entrepreneurship is the company, D.light. The company was founded by Sam Goldman in 2004 after his job at the peace corps in India. Half of the population in India (600 million people) live without electricity and use oil lamps that are dangerous, both for the people and the environment. Sam Goldman, together with Ned Tozun, invented a solar lamp that does not require batteries. This innovation has improved the lives of thousands of people and has significantly reduced carbon emissions (Smagliy 2014). Organic production and vegetarian cuisine can also help to preserve our planet from greenhouse gases. According to recent research, the production of meat influences climate change and is the cause of 18% of greenhouse gases. The biggest social business for organic production is “Whole Foods Markets”, founded in 1980 by four men from Texas, USA. The owners of this business only use “green” energy and do not use plastic packing. In addition, they help other farms to apply organic technologies and assist them in the transition from conventional to organic production (Smagliy 2014). Another excellent example of organic production is the social enterprise, Jardins de Cocagne, in France. This is a network of agricultural-production companies founded for the social and labour rehabilitation of vulnerable population categories. An important aspect of social entrepreneurship is that all enterprises strive to use 100% renewable energy sources, and introduce energyefficient technologies into production and daily life, reducing the use of plastics and preserving plants and trees. In the UK, “Suma Wholefoods” is an excellent example of such an enterprise that demonstrates unique

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democratic management and environmentally-oriented company goals (BMG 2013).

Social Entrepreneurship in Ukraine Social entrepreneurship in Ukraine became a fashionable trend at the beginning of 2000 and drew the attention of a great number of civil society representatives, initiative groups and active people. However, a new impetus for its development was provided by a difficult economic situation, increasing unemployment and making some people temporarily displaced and in need of social assistance. This intensified the volunteer movement (Nazaruk 2013). The application of entrepreneurial approaches to solving social problems allows a decrease in state budget expenses for countries such as Ukraine, while also securing relatively sustainable development for sociallyvulnerable groups. The positive effects of social enterprise activities in Ukraine are as follows: •

• • •

• •

Assistance in overcoming social isolation. In particular, the employment of people with limited physical and mental capabilities, the unemployed, and representatives of risk groups. Discovering new ways to reform state social services. Attracting citizens to participate in social initiatives on a voluntary basis, consolidating communities and solving social problems. The emergence of new types of social services that remain outside common business attention because of small profits, lack of popularity, and lack of proper professional training. A more effective application of regional resources in solving social problems. Decreasing the burden on local budgets to solve social problems (this is urgent under the conditions of a chronic state fiscal deficit) (Resource Center for support of development of social entrepreneurship in Ukraine, 2016).

In Ukraine, the first similar organisations were founded after independence in 1991. The aim of their activities was to create jobs for people with disabilities (the organisations were the “Ukrainian Society of the Blind” and the “Ukrainian Society of the Deaf”) (Table 5.3). Since 2004, international foundations have actively brought out the meaning of the term “social entrepreneurship” and its development in Ukraine. The

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grant program UCAN has started training in establishing social entrepreneurship, and has allocated grants for the development of such initiatives in non-profit organisations (Nazaruk 2013). In 2010, this idea was followed up by the British Council in Ukraine (Table 5.3) and, under its promotion, the consortium “Developing Social Entrepreneurship in Ukraine” was founded and included the “International Renaissance Foundation”, the “East Europe Foundation”, “PricewaterhouseCoopers Ukraine”, and “Erste Bank”. Due to this activity, a number of lecturers were trained from different regions of Ukraine and small credits were also given from Erste Bank to social entrepreneurs (Nazaruk 2013). The consortium also initiated and supported the creation of resource centres for social entrepreneurship in different regions of Ukraine, resulting in the formation of a database to receive general information on how to conduct training and disseminate printed materials, etc. (Nazaruk 2013). In 2013, the “Catalogue of Social Enterprises of Ukraine” was published by the project, “Creation of All-Ukrainian Resource Centre of Social Entrepreneurship Development, ‘Social Initiatives.’” This was carried out by the civil organisation, “Junior Centre for Problems of Social Area Transformation ‘SOCIUM-XXI’”, under the financial support of the “International Renaissance Foundation” and the “East Europe Foundation.” Funds had been provided by ERSTE Stiftung and the US Agency for International Development (USAID) (Nazaruk 2013). Table 5.4. Basic stages of social entrepreneurship development in Ukraine Years 1991 2004 2010

2013 2015

Actions Foundation of Ukrainian Society of the Blind and Ukrainian Society of the Deaf UCAN support (conducting training, granting funds for business start-ups) Through the promotion of the British Council in Ukraine, the consortium “Developing Social Entrepreneurship in Ukraine” was founded. It included the “International Renaissance Foundation”, the “East Europe Foundation”, “PricewaterhouseCoopers Ukraine”, and “Erste Bank”. All-Ukrainian Forum of Social Entrepreneurs; the Catalogue of Social Enterprises of Ukraine Launch of credit programs for social initiatives

Drafted by the author

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The Catalogue included enterprises that were selected in accordance with four basic criteria: an enterprise had to be engaged in commercial activity; it had to have social goals; income had to be reinvested; there had to be democratic management. The direction of Ukrainian enterprise activities is quite different and varies from the employment assistance given to the disadvantaged, taking the form of education and solving environmental problems (wasteprocessing, organic production, and the reprocessing of second-hand clothes, etc.) (Resource Center 2016). A bright example of this is the activity of the “Agency for Economic Development of the City of Voznesensk”, which gives micro grants to housing cooperatives and public works, promoting separate waste collection and providing accounting services. The enterprise reinvests 50% of its profits and spends 50% on social goals. After two months of the program for engagement in separate waste collection, the enterprise collected 14 tons of derived resources and engaged this process across all city schools and in nine housing cooperatives (each with 2-8 apartments), managing to make their accounting conform to the current legislation. The embroidery workshop, “Barvysta” (Zhytomyr), the charitable shops “Dobroslon” and “Laska” (Kyiv), and the small charitable shop, “Blagodar” (Haivoron, Kirovohrad oblast), produce textiles and re-process second-hand clothes. Revenue from this activity is reinvested and used for social goals. The civil organisation, “Hive of Ideas,” works in the field of education for children, carrying out workshops for parents and all those who are interested. The income is spent on visits to orphanages, workshops at festivals and initiatives of all types, as well as assistance to families in great difficulties. The charitable foundation “Children of the Rainbow” was created to provide the optimal psychological and pedagogical environment for the development of children with special needs (SN), including the implementation of early-intervention programs. At first, this was embedded in regular training through the involvement of a special education teacher and other experts, but was followed by the creation of a permanent city pedagogical centre, for children of all ages with special needs. The LLC Medical Rehabilitation Centre, “Health” (Novoazovsk, Donetsk oblast), is engaged in the rehabilitation of disabled people who have challenging outcomes from enduring nervous system pain and pathology of the muscular-skeletal system (Resource Center 2016).

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The civil organisation, “People’s Help,” and the social bakery, “Nuts House” (Lviv), are supporting a centre for the integration of guardianship aimed at helping unprotected residents of Lviv. The social enterprise bakery, “Nuts House” is a business of the Lviv city civil organisation, “People’s Help.” The bakery was founded when the organisers of “People’s Help” understood that women experiencing difficulties during the process of rehabilitation often need basic training in proper healthy eating and cooking. Through the bakery, the “pupils” of “People’s Help” were trained; cookies were baked and sold in Lviv to restaurants and cafes. Vulnerable Lviv residents, unemployment, and the rehabilitation of women in difficulty and the homeless, etc., are basic social problems that are solved by the organisation. Partly on account of the bakery, a hostel has been financed for women in difficulty who are without a place to live, so that they can rehabilitate and work towards achieving an ordinary life. Ten women currently live in the rehabilitation centre in Lviv, which was founded on grant money. However, when they were short of funds, active members looked for alternative sources of profit and created the bakery. At first, the main customers of the bakery were coffee houses that gave away complementary cookies with their coffee and tea. However, gradually the bakery started to expand and enlarged its range. Today, bakers cook over 30 different cookies and 10 types of muffins. The Chervonopromin rural charitable foundation, “Ellada,” works in the agricultural area of the growth and sales of ecologically-clean vegetable goods for educational establishments, as well as providing the population with the services of land treatment. The foundation’s profit is reinvested into expansion and social goals. Green Tours (Zhytomyr) arranges popular tourism activities in Ukraine and organises practice trips on foot (Resource Center 2016). In Ukraine, social enterprises operate under different legal forms: civil organisations; commercial enterprises (LLC, JV); and self-employed individuals. As there are no favourable terms for economic activity, each enterprise chooses the most economically convenient form for its type of activity. At a legislative level, the first attempt to introduce the regulation of social enterprise activity was implemented by Mr. Feldman, the deputy of the “Fatherland” party. He initiated the adoption of the law “On Social Entrepreneurship Activity in Ukraine”, in 2011, but Parliament did not consider it because the bill had not passed through all committee-level readings. Ukrainian activists are debating the approach to legislation on regulating social enterprise activity. The majority do not consider it

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reasonable to create favourable terms and adopt special laws for the regulation of social enterprises. In their opinion, tax exemption will only lead to increased corruption and bribery in this area. Actual businessmen even see the advantage and an open opportunity for action in any legal form. Today’s society is increasingly ready for this new innovative idea of social entrepreneurship. There has been a rise in the number of such enterprises, as well as the support they have received, not only from domestic companies but also from international ones. A permanent activist is the “Foundation of the Ostrosky PrinceBenefactors”, which founded a competition for mini-grants for social enterprises. It regularly provides training in running a social business and attracting finance. This important organisation’s achievement has been its work with rural communities, through which regional problems have been defined, demographic situations analysed and priority directions determined for community development. Later, the foundation financed the implementation of the best projects through the introduction of social business development. The “Zhytomyr Regional Resource Centre for Social Entrepreneurship Development” is a long-term social project designed and implemented by specialists of the non-profit organisation, “Zhytomyr Regional Association of Scientists and Business-Consultants,” in partnership with Pulyn Civil Business Centre and the Zhytomy branch of the higher education institution, the “European University.” The main goal of the project is to create an effective mechanism to support social entrepreneurship in Zhytomyr and the Zhytomyr region (Resource Center 2016). In 2012, the “All-Ukrainian Resource Centre of Social Entrepreneurship Development ‘Social Initiatives’” (Kyiv) began its activity, on the basis of which a web-page (http://www.socialbusiness.in.ua/) was created. The site provides a wealth of information on social enterprise activities, the peculiarities of running a social business, searching for finance, and the best international and national practices of social entrepreneurship. It is in huge demand and includes practical discussions that are useful for business people. In the USA and European countries, economic factors and legal structures have played a significant role in spreading the social entrepreneurship idea. A big element of social problems is that they are not a high-priority condition for the creation of social enterprises. Major factors influencing the development of social entrepreneurship in Ukraine can be divided into the international, national and local. The main international factors are: support from global leaders for social

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businesses led by Ukrainian entrepreneurs; access to information on international credits and programs; the economic situation in the world; and Internet development and crowd-funding platforms.

     

   

    

         Figure 5-2. Factors influencing the development of social entrepreneurship

The national factors are: the investment climate in a country; its legislative background; state support for social entrepreneurship; the advertising and promotion of a healthy and environmentally-friendly way of life; and social entrepreneurship. Local factors are: the mentality of a community; citizens’ education; leaders and innovators; and access to finance. One of the biggest problems for the development of social entrepreneurship in Ukraine is the need for finance in order to start activity. An individual’s own capital, loans, grants, and charitable donations are the main sources of funds. The next step for the development of social entrepreneurship is the establishment of the “Program of Social Investment WNISEF” (or PSI), on the basis of which experts have developed a mechanism of soft lending for social enterprises, implemented together with commercial partner banks. The credit programme of WNISEF — “Social Investments” — provides support to private enterprises in the early stages of their development and during the growth period. The main goal lies in achieving social and environmental influence in Ukraine by providing accessible capital, coaching and tutoring. The program’s aim is to provide entrepreneurs and businesses with opportunities to solve social and environmental problems through financial investments and reliable

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business practices. The programme aims to support different branches of economic and social areas. However, to this end, the main efforts are focused on the following: (1) Rural development and new jobs creation; (2) Expansion of rights and opportunities for the vulnerable, such as people with special needs, orphans, women and children who have experienced violence, and other categories including education and professional development, and specialised training, etc.; (3) Encouragement of and ensuring access to a healthy way of life, paying particular attention to teenagers and young people; (4) Environmental protection; (5) Energy efficiency (Resource Center 2016). International organisations such as the IOM and the UN have also provided training in social entrepreneurship, and have launched a number of programmes to support social entrepreneurship. For example, the UNDP training program, “Development of Entrepreneurial Skills among Temporarily Displaced Persons and the Local Population of Donetsk and Luhansk Regions”, was implemented in Ukraine in 2015 and has received plenty of great feedback. However, not all those interested could take part in training. Therefore, in 2016, the UNDP decided to conduct one more set of training under this programme. As in the previous case, the executing agency of the programme was LLC, “Business Territory.” To ensure successful social entrepreneurship development in Ukraine, national peculiarities and best international practices are needed. The first steps of familiarising Ukrainian society with the social entrepreneurship phenomenon have already been established. Therefore, it only remains to further encourage its development at different levels. Only a comprehensive interaction of international, national and local-level factors will ensure social entrepreneurship development in Ukraine. At an international level, Ukraine should be presented as a potential market for social investment, promoting cooperation with international actors of social entrepreneurship. At state level, besides promoting social entrepreneurship and creating favourable economic and institutional conditions, a map of regional social needs and resources should be drawn up, indicating important economic areas and attracting financial support for such initiatives. At the local level (local communities, and centres for the temporarily displaced or other socially-vulnerable people), stable conditions to promote the idea of social entrepreneurship should be created and mechanisms for attracting funds should be developed.

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References Ashok. 2016. Accessed November 2016. https://www.ashoka.org BMG. “Social Enterprise: market trends.” Report by BMG Research (May 2013). Accessed October 2016. https://www.gov.uk/government/publications/social-enterprise-markettrends. Bob Doherty, George Foster, Chris Mason, John Meehan, Karon Meehan, Neil Rotheroe and Maureen Royce. 2009. Management for Social Enterprise. SAGE. British Council. 2016. “Development of Social Entrepreneurship”. Accessed October 2016. http://www.britishcouncil.org.ua/en/programmes/society/socialenterprise-development. Nazaruk, Vasyl. 2014. “Role of social entrepreneurship in Ukraine.” Diya. Accessed October 2016. https://diyaua.wordpress.com/2014/08/21/sp/ Resource Center. 2016. Social Entrepreneurship in Ukraine. Resource Center for support of development of social entrepreneurship in Ukraine. Accessed November 2016. http://www.socialbusiness.in.ua/ Ryszard Praszkier and Andrzej Nowak. 2012. Social Entrepreneurship: theory and practice. Cambridge University Press. Smagliy, Kateryna. 2014. Each of us created changes: social entrepreneurship and strategic philanthropy. Kyiv: Publishing house “Kyiv-Mohyla Academy.” Spreckley, Freer. 2011. Social Enterprise. Planning toolkit. London: Business Link. Svynchuk, A.A. 2014. “International experience of the development of social enterprises: Lessons for Ukraine.” The strategy of economic development of Ukraine. Accessed September 27, 2016, http://www.sedu.com.ua/archive/34/pdf/7.pdf Udodova V.I., Shapoval V.I. “The research of the experience of the national models of social entrepreneurship.” Bulletin of Karazin National University of Kharkiv 1042 (2013), 105-108. Yunus, Muhammad and Alan Jolis. 2010. Creating a World Without Poverty: Social Business and the Future of Capitalism. Moskow.

CHAPTER SIX CONCEPTUAL APPROACHES TO SOCIAL INNOVATION ANALYSIS: THE SOCIAL INNOVATION NETWORK KATERYNA YU. DEDELIUK

1. The Genesis of the Investigated Problem. Its Place in the Social Solidarity Economy Despite the gradual recovery and general reactivation of the international economy in the post-crisis period, national economies (even in the most highly developed countries) are still not without problems. These include: youth unemployment, ageing populations, an increase in social conflicts, health problems, the environment, and environmental instability. The complexity of these problems raises questions concerning the possibility of achieving long-term stability in the global economy. Under these conditions, countries should strive to achieve not only sustainable and reasonable economic growth, but also overall growth. This involves achieving a social consensus. Such forms of social development may be generated through a combination of two dimensions of innovation: macroeconomics, which forms the basis of national competitiveness; and the social dimension, which accelerates the complex transition to a socially-oriented society. By implementing effective social innovation, the number of problems that hinder the development of modern economic systems can be partially solved and minimised (Murray, Caulier-Grice, Mulgan 2010; Fagerberg, Verspagen 2007). An important factor in the successful and effective implementation of the new paradigm in economic development is to promote those components which are socially innovative. The new innovative paradigm is characterised by opening up the innovation process to the public. Thus, “together with companies, universities and research institutes, citizens and consumers become the subjects of innovative processes [...] and

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innovation is becoming a common social phenomenon that increasingly affects all spheres of life” (Hochgerner, Franz, Howaldt 2011). Academics and practitioners are focusing more and more attention on the study of conceptual approaches to analysing social innovations within the post-industrial paradigm. According to the provisions of the Vienna Declaration of 2011, which was adopted following the conference “Challenges for Social Innovation”, social innovation is defined as an alternative to technology-focused innovation. Due to the growth of the social significance of both technological and economic innovation, we can expect progressive social change, as well as improvements to quality of life. This justifies the need to include social innovation in innovation systems development (Anderson, Curtis, Wittig 2014). Environmental conditions and social needs and problems are the main sources for the creation and implementation of social innovation. As far as these categories are variable and changing, it can be assumed that, in the long run, demand will increase for the production and development of social innovations, according to urgent social challenges.

2. Theory and Methodology In recent years, the development of social innovation on an international scale has contributed to the evolution of conceptual approaches to analysis. Social innovation is often considered to be a quasiconcept which is based on a combination of empirical analysis and research methods. This concept has no clearly-defined characteristics and is thus flexible to transformation and adaptation according to different situations (TEPSIE, Social Innovation Theory and Research, 2014, 10–11; Social Innovation Research in the European Union, 2013, 14–15). We believe that the characteristics of the theoretical and practical aspects of social innovation, from the perspective of the quasi-concept, help to explain the presence of many interpretations and definitions of social innovation. According to the OECD definition, social innovations are interpreted as changes in products, processes, concepts, organisation, or financing, which may affect the welfare of the participants and the relationships between them. Social innovation helps to identify new approaches to solve social problems through the provision of new services, the implementation of new integration processes in the labour market, new competences and jobs that improve quality of life for individuals and communities, as well as the welfare of both consumers and producers (Hewitt, 2008).

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It is important to emphasise the differences between social and economic innovation, because this is not only about the introduction of new products or elements of market use. The idea of social innovation is to meet new social needs that cannot be provided by the market mechanisms which are currently operating. Social innovation is related to the creation of new, advanced methods that take into consideration the interests of the people and society involved in the production processes (Avelino, Wittmayer, Haxeltine, Kemp, O'Riordan, Weaver, Loorbach, Rotmans 2014). While analysing the nature of social innovation, we should differentiate some features that distinguish it from other innovations. The aim of social innovation is to meet social needs, and the result is to provide socially fair effects and improve social welfare (Spear 2011). Social innovation has the following characteristics: novelty, compliance with social needs, the possibility of practical implementation, the involvement and mobilisation of the beneficiaries of social-innovation development and management, an influence on the transformation of social relations (Guide to social innovation 2013). The other difference between social and economic innovations may also be explained by the fact that social innovation is a complex process that introduces new products, processes and applications and therefore has broad and lasting effects on a society (Westley, Antadze 2012, 2). The society is able to develop and “grow” social innovations in various forms (through new practices, technologies, and institutions, for example) and in different areas (not only in scientific or business spheres) (Hochgerner, Howaldt, Swarz 2010, 4). The most common forms of social innovations are: new services and products (new inventions or applications to meet the needs of society); new practices (new services that require new professional qualifications and relationships); new processes (the coproduction of new services); and new rules (a new legal basis), etc. (Guide to social innovation 2013, 15). In practice, we may observe the simultaneous combination of several forms or types of social innovation. So, the introduction of social innovation is designed to solve certain social problems in a more effective way. Primarily, it needs to create some additional value to society in general, not just for certain individuals. While adapting Schumpeters’ theoretical approaches to social innovation, the European Research Network on Social Enterprise presented the following definition of it: a manifestation of a new type of sociallyoriented enterprise, which aims to create new products, organisations and production methods, production factors (like the use of atypical employment, which involves a combination of voluntary and paid work),

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and market relations, all of which improve the welfare levels of the society (Urama Acheampong 2013). An important (but scarcely explored) research area in the framework of social innovation analysis is the question of measuring its effectiveness. It should be emphasised that it is very difficult to define the specific parameters and status of social innovation implementation, especially internationally. Since social innovation has a very close relationship with society and culture, the same innovations can be differently manifested in different countries, societies and organisations (Fedulova 2008, 61). In recent years, considerable progress has been made in methodology to evaluate the effectiveness of technological innovation. Today, the adaptation of existing methodology to take social innovation peculiarities into account is an urgent and vital task. Indicators of social innovation should be added to existing international databases, including the Innovation Union Scoreboard (European Union), Global Innovation Index (INSEAD), and Global Competitiveness Index (WEF). Perhaps it is even more important to consider social innovation indicators when measuring the social and environmental aspects of global economic development. For instance, such indicators may be included in the structure of the OECD Better Life Index, the European System of Social Indicators (GESIS), the Civil Society Index (CIVICUS) and the European Commission (Guide to social innovation 2013, 17).

3. Authors In a broad sense, social innovation is defined as new ideas (products, services and models) that simultaneously meet the needs of society (more effectively than existing alternatives), transform social relations and deepen cooperation. Thus, these innovations not only create benefits for society but also stimulate it into further action (Hubert 2010, 9). Social innovations are a combination and/or new configuration of social practices in certain areas, or social conditions that are specifically defined by certain subjects in order to better meet social needs and address problems (Howaldt & Kopp cited in Anderson, Curtis, Wittig 2014, 17). They provide new answers to pressing social challenges that affect social interactions, and aim to improve the welfare of people (Stiglitz cited in Hubert 2010, 33). The creation of social innovation is therefore the necessity to meet social needs (NESTA cited in Hubert 2010, 37). Sometimes, social innovations are interpreted in a narrow sense: attention is focused on the possibility of solving a particular social problem. The definition submitted by the Social Innovation Centre of

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National Agency for the Eradication of Extreme Poverty (ANSPE, Colombia) can serve as an example of such an approach. They define social innovation as solutions (products, services, methods and management models) that are stable in the long term; they create greater efficiency and improve the quality of life for people living in extreme poverty. It is obviously this definition that is focused on one particular social call with a clearly-targeted orientation. Research into the essence of “social innovation” leads to the possibility of three distinct conceptual approaches: -

-

-

Social innovations as new ideas (in any form – the use of a new or significantly improved product, process, marketing method and/or organisational model, or strategy) that meet social needs and improve public relations through the more efficient use of assets and resources (Tepsie cited in Social Innovation Research in the European Union 2013, 15). Social innovation as the process of ongoing social change and implementation (adoption and implementation of decisions), structurally designed to meet social needs and challenges (Selusi cited in Social Innovation Research in the European Union 2013, 15). Social innovation as a transformer of social behaviour, which manifests in civil society in the form of activism and the development of new technologies, strategies, and ideas, to meet social needs or solve social problems (SPREAD cited in Social Innovation Research in the European Union 2013, 15–16).

4. Economic and Institutional Implementation Mechanisms The production and development of social innovation that aims to address urgent social challenges occurs within the framework of a functioning network. Social innovation networks provide transparent interactions between the structural components through the use of network technologies and open standards. The main structural components of such a network are innovation intermediaries (people or organisations responsible for mobilising the resources to achieve the objectives), and entities that produce and develop social innovations (usually a group or team of people of all ages). The functioning network facilitates ongoing communication and dialogue between those affected by economic and social problems and those who can offer effective technology solutions.

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The social economy innovation network could serve as an alternative to formal organisational structures. While using existing assets and institutions, the system only unites them to solve a particular problem. This mechanism provides a number of advantages that are particularly important within the social economy: the system can expand rapidly, effectively bringing together ideas and people (regardless of social or geographic distance); and it can accelerate the dissemination of information and resources. The social innovation network is therefore flexible and resilient to external shocks (Murray, Caulier-Grice, Mulgan 2010). An efficient social innovation network forms the basis for most successful initiatives. Within its operation, the following gradual stages of social innovation are implemented: identifying and defining the need to implement social innovation; generating and developing ideas according to the defined problems; testing innovations in practice through experimental implementation; and the maintenance and dissemination of innovations in order to influence social change (European Commission policy review 2013, 14). A complex process of innovation production within a social innovation network has four main elements: 1) the identification of new social needs that were previously being attended to in unsatisfactory or inefficient ways; 2) the development of new solutions according to social needs; 3) an evaluation of the effectiveness of new solutions to meet social needs; 4) scaling-up effective social innovation (European Commission policy review 2013, 9). A social innovation network is a social enterprise. On the one hand, it is considered to be a direct product (result) of social innovation and, on the other hand, a structure that implements effective models of social innovation. Social wealth and environmental benefits are integral parts of social enterprise objectives and such companies therefore direct a portion of their profits towards achieving these results (Sprekli, Livelihoods 2011, 4). The World Forum on Social Entrepreneurship, or the “Davos of Social Innovation” (2007, UK), became a starting point for the activity of “companies that are changing the world.” Social enterprise activities can be carried out in the following areas: projects aimed at improving the lives of a group of people; job creation; and corporate investment in social projects. Innovation hubs and offices, public innovation agencies, innovation incubators and accelerators, and laboratories, etc. are also active producers of social innovation. These structures are the intermediaries that bring

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together people, ideas and resources to create and develop social innovation (Murray, Caulier-Grice, Mulgan 2010). The government also supports the development and implementation of social innovation. The state provides for the development of social innovation strategies, the stimulation of special funds to support research laboratories of the ideas generation, and social innovations parks. An important direction of state influence on social innovation development is the use of different approaches when financing social initiatives (e.g. grants, investment-attraction, and creating information networks and exchanges), as well as the introduction of instruments to measure the impact of social innovation on the political, social and economic risks of implementation. Due to an intensification of social innovation in recent years, attention should be given to the formation of skills for social innovation (in education and training spheres), as well as increasing public awareness. A number of countries have already successfully implemented infrastructure projects as part of the social innovation concept. In 2009, the Office of Social Innovation and Civic Participation (SICP) was created in the United States. This institution promotes the development of new models of public-private partnerships in the context of innovation cooperation. Within this office there also exists a social innovation fund with a budget of over USD $50 million, which aims to finance the development of non-commercial programs focused on social impact (White House 2016). In the European Union, the Europe Initiative for Social Innovation was created in 2011. It aims to create a platform for dialogue between social innovators, businesses, community organisations and other stakeholders who are interested in social innovation. In addition, there are a number of other initiatives, such as the Social Innovation eXchange (SIX), which was formed with the purpose of the cross-sectoral exchange of information, with practice and ideas between participants being at a global, as well as at a regional level (Social Innovation eXchange 2016). An analysis of international experience in social innovation development suggests there is close cooperation and support between the participants in a social innovation network. This materialises in the form of cooperation from an actively-involved government, international companies and associations, universities and research institutes, as well as non-governmental organisations. This improves efficiency and scales-up innovation, promoting the deepening of inter-sectoral cooperation. Financial support for the development, implementation and promotion of social innovation, as well as building the necessary institutional

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capacity, is provided in practice through special funds (such as in the EU, where there is the European Social Fund). The activities of such funds in different countries (the SITRA in Finland, the Argengufond in Estonia, the Social Investment Fund Companies in the UK, and the National Institute for Social Innovation in the Netherlands) promote systemic changes by stimulating sustainable and balanced development, and initiating and supporting positive changes in the economy through enhanced innovation (including innovative initiatives with international potential) (OECD; Murray, Caulier-Grice, Mulgan 2010). Among the priority areas is the financial support of these innovative projects, which fall within the fields of: health, food and nutrition, environmental protection, information technology, service economy, and social protection.

5. Theoretical Generalisation. Conclusions. Recommendations for Practical Politics. The term “social innovation” is used to describe a wide range of activities that cover: the development of new products, services and programs; social entrepreneurship; the transformation of social relations and system changes; and new models of local economic development, etc. There is no single universally accepted definition of this category. Social innovation is a very important instrument for the development of a social and solidarity economy. Firstly, these innovations contribute to providing improved services by extending the range of functions of such organisations, according to the actual challenges of society and what it needs. Secondly, they expand the social impact of organisations and influence the transformation of relations between the state and the private sector within the sphere of innovation (thus the level of organisations’ social utility increases). Since the implementation of social innovation is an important competitive advantage in terms of a solidarity economy, it is necessary to improve the mechanisms that stimulate the development of such innovation, at both national and regional levels. Adaptation of a state’s policy (according to the urgent challenges of the new economy) will create effective conditions to encourage the development and implementation of social innovations. It will also stimulate the development of the innovative, socially-oriented infrastructure that will combine and generate ideas from market participants and ensure the formation of a strategic vision for developing innovations that meet the needs of society.

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An algorithm of policy transformation, concerning social innovation development, is based on the following provisions (Guide to social innovation 2013, 20): -

-

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Overcoming market challenges, in terms of the development of suitable financial mechanisms for social innovation, creating social and institutional innovation networks. Solving the problem of measuring and evaluating the impact of social innovation, and forming a paradigm of open social innovation. Capacity-building for social innovation through the enhancement of a wide range of subjects.

The set of measures that are necessary to stimulate social innovation development should be implemented in several stages. The first step is to develop a strategy and action plan to develop social innovation, that will be correlated with national and regional development strategies. However, special attention should be paid to the development of regional strategy, which will outline the promising areas of social innovation according to the capabilities and needs of a particular region. The implementation of the defined strategies and action plans should provide favourable institutional and economic conditions for social innovation, including support for the creation of some new organisations, and assistance with adapting existing institutions’ activities towards intensifying the components of social-innovation (particularly through the creation of special units within the public sector). This can be achieved by using different tools to support business and promote innovation, and by investing in new models of financing at various stages of the innovation process, particularly when it comes to funding pilot projects and projects that are likely to implement and expand social innovation. Strengthening social innovation markets through the mechanisms of public procurement is also an important measure in stimulating innovation and promoting intersectional collaboration. Particular attention should also be paid to establishing the measurement mechanisms that will enable effectiveness to be evaluated. In this regard, a deepening of international scientific cooperation and practical studies on international experience (especially concerning the implementation of social innovation and the infrastructure contained therein) will also be valuable.

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References Anderson, Tara, Curtis, Andrew and Claudia Wittig. 2014. Definition and theory in social innovation. MA thesis. Krems: Danube University. Accessed October 18, 2016. http://www.social-innovationblog.com/wp-content/uploads/2014/05/Definitions-and-Theory-inSocial-Innovation-Final-1.pdf. European Commission. 2013. «Guide to social innovation». Regional and Urban Policy, European commission. Accessed October 22, 2016. http://s3platform.jrc.ec.europa.eu/documents/20182/84453/Guide_to_S ocial_Innovation.pdf/88aac14c-bb15-4232-88f1-24b844900a66. European Union. 2013. «Social Innovation Research in the European Union: Approaches, Findings and Future Directions. Policy Review». Luxembourg: Publications Office of the European Union. Accessed October 18, 2016. doi:10.2777/12639. Fagerberg, Jan and Verspagen, Bart. 2003. “Innovation, growth and economic development: have the conditions for catch-up changed?” Paper presented at the First Globelics Conference: Innovation Systems and Development Strategies for the Third Millennium, Rio, November 2–6. Accessed October 18, 2016. http://www.redesist.ie.ufrj.br/globelics/pdfs/GLOBELICS_0090_Jan% 20Fagerberg.pdf. Fedulova, Lubov. 2008. “Social innovations in the system of socioeconomic relations”. Ukrainian socium. Accessed October 18, 2016. http://www.nbuv.gov.ua/old_jrn/Soc_Gum/usoc/2008_3/60-74.pdf (Ukr.). Flor, Avelino et al. 2014. «Game-changers and Transformative Social Innovation. The Case of the Economic Crisis and the New Economy», TRANSIT working paper. TRANSIT: EU SSH 2013.3.2-1. Accessed October 18, 2016. http://www.transitsocialinnovation.eu/content/original/TRANSIT%20o utputs/91%20Gamechangers_TSI_Avelino_etal_TRANSIT_workingpa per_2014.pdf. Hewitt, Allyson. 2008. Key Elements of Social Innovation. Technology Innovation Management Review. Accessed October 22, 2016. http://timreview.ca/article/185. Hochgerner, Josef, Hans-Werner Franz, Jürgen Howaldt, J. Angela Schindler-Daniels. 2011. Vienna Declaration: The Most Relevant Topics in Social Innovation. Research Paper presented at the Innovating innovation by research – 100 years after Schumpeter, Vienna, September 19-21. Accessed October 22, 2016.

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http://www.net4society.eu/_media/ViennaDeclaration_final_10Nov2011.pdf. Howaldt, Jürgen and Schwarz, Michael. 2016. Social Innovation: Concepts, research fields, and international trends. Dortmund. http://www.ub.edu/emprenedoriasocial/sites/default/files/IMO%20Tren dstudie_ Howaldt_englisch_Final%20ds.pdf. Hubert, Agnes et al. 2010. Empowering People, Driving Change: Social Innovation in the European Union. Brussels: Bureau of European Policy Advisers. http://www.net4society.eu/_media/Social_innovation_europe.pdf. Murray, Robin, Julie Caulier-Grice and Geoff Mulgan. 2010. The Open Book of Social Innovation. NESTA, The Young Foundation. Accessed October 20, 2016. https://www.nesta.org.uk/sites/default/files/the_ open_book_of_social_innovation.pdf. OECD. “LEED Forum on Social Innovations”. Accessed October 20, 2016. http://www.oecd.org/cfe/leed/Forum-Social-Innovations.htm. Social Innovation Exchange. 2016. Accessed October 20, 2016. http://www.socialinnovationexchange.org. Spear, Roger. 2011. «Innovation and Collective Entrepreneurship» Working paper presented at the International Forum on the Social and Solidarity Economy, FIESS. Accessed October 25, 2016. http://base.socioeco.org/docs/fiess_wp_innovation-and-collectiveentrepreneurship_oct.-2011.pdf. Sprekli, Freer. 2011. Local Livelihoods, Course for planning social entrepreneurship. Guide to Social Enterprise Planning». Kyiv: British Council in Ukraine. Accessed October 20, 2016. http://www.britishcouncil.org.ua/sites/default/files/posibnik_z_planuva nnya_socialnogo_pidpriiemstva.pdf (Ukr.). TEPSIE. 2014. «Social Innovation Theory and Research: A Guide for Researchers» TEPSIE. Accessed October 20, 2016, http://www.tepsie.eu/images/documents/research_report_final_web.pdf. Urama, Kevin Ch. and Acheampong, Ernest N. 2016. “Social Innovation Creates Prosperous Societies”. Stanford Social innovation review. Accessed October 20, 2016. http://ssir.org/articles/entry/social_innovation_creates_prosperous_soci eties. Westley, Frances and Antadze, Nino. 2010. “Making a Difference: Strategies for Scaling Social Innovation for Greater Impact.” The Innovation Journal: The Public Sector Innovation Journal. Accessed October 20, 2016. http://www.innovation.cc/scholarly-style/westley 2antadze2make_difference_final.pdf.

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White House. 2016. “Office of Social Innovation and Civic Participation”. Accessed October 20, 2016. https://www.whitehouse.gov/ administration/eop/sicp.

CHAPTER SEVEN THE PERFORMANCE OF UKRAINE’S NATIONAL LABOUR MARKET IN THE CONTEXT OF THE SOCIAL ECONOMY ROMAN D. STAKANOV

The term “social economy” is closely related and sometimes even identical to categories such as the solidarity economy, social innovation, the third sector, non-profit organisations, utility companies, community economic development, and social cooperation. In a broad sense, the social economy also includes emerging financial and investment institutions as well as innovative economic instruments of joint ownership. In some countries, such as Canada, by using pension funds and other mechanisms, unions are able to invest in the social economy as part of the implementation strategy for high-quality job creation, in response to the various needs of the community. The governments of many countries, and some international organisations such as the OECD and UNDP, are implementing a number of social initiatives and note the growing number of institutions that are focused on developing the social economy (Neamtan 2009). The social economy is a very effective method of solving today’s global challenges. Different countries approach the social economy in different ways, depending on their priorities for socio-economic development. The negative manifestations of globalisation, failed attempts to provide traditional forms of welfare, ageing populations in the majority of European countries, growing unemployment in former industrial areas, the growing gap in income between rich and poor countries, and differences between the incomes of workers with different skill levels within countries (and also, in some cases, a relative reduction in the numbers of average welfare families) are the problems presently faced by most European countries, albeit to varying degrees. The mechanisms of the social economy can address these problems by increasing the number

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of new jobs, as well as through social cohesion. In addition, the development of a social economy indirectly contributes to the development of social capital in a country (Branþíková 2008). Social economies have historically played a significant role in settling problems related to economic recessions and further economic recoveries. The first cooperatives emerged in Europe and North America along with the first labour organisations in the late 19th century. Their main objective was to protect workers, due to the negative external effects of industrialisation. Today, according N. Neamtan (2009), the concept of the social economy includes a global movement that not only responds to the negative effects of crises but also offers a wide range of pluralistic approaches (as well as an inclusive economy) within the framework of sustainable development. Moreover, social economies have emerged in a number of countries as integrated systems of social innovation. They have arisen from local and regional development, as well as through the support mechanisms of the new systems of state governance, based on new forms of partnership between government, businesses and workers. Social networks aimed at developing the social economy are established at national, regional and international levels (Neamtan 2009). Nowadays, in industrialised countries, social economy enterprises play an important role in attracting people to the labour market. This reduces the pressure on public finances in relation to the payment of social assistance, and helps to increase the welfare of employed workers. In many developing countries that do not have the capacity to provide basic services in education and health, social and solidarity economies provide the opportunity to generate reasonable economic development strategies, by mobilising society and empowering communities with additional incentives, opportunities and powers. This humanises economic growth (Neamtan 2009). Supporting a social economy may be seen as a meaningful strategy for the economic recovery of a national economy. Governments that support the development of a social economy obtain high rates of economic and social reproduction. In the United Kingdom, social enterprises are supported through a special body known as the Social Enterprise Unit, which operates within the governmental structure, as well as through different economic policy mechanisms, particularly in investment and government procurement. In Belgium, state support for the social economy is primarily aimed at social inclusion via integration through the labour market mechanism, as well as a gradual increase in the number of workers entitled to access the labour

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market. In France, the social economy mechanism operates mainly at the local level and stipulates, above all, the involvement of regional municipal structures. In Italy, the social economy is maintained by providing support to social cooperatives through public procurement procedures, while focusing on social inclusiveness and services at a community level (Neamtan 2009). Some countries of Latin America focus on the economy of solidarity. For example, Brazil established the Solidarity Economy Secretariat, which is in charge of coordinating inter-ministerial support, along with a strong social networking system. It ensures the involvement of a wide range of social movements and maintains relations between regional and municipal policies to support the solidarity economy. Solidarity is a factor that promotes self-management and its success depends largely on the ability and training of people who provide support. However, forms of support may vary and may not necessarily manifest as financial assistance, although they may preclude its use. Socio-economic convergence may mainly be achieved through cooperation and an exchange of experience, training, and ongoing dialogue. Decisions can be made based on the results at different levels, from regional integration associations, to local municipal and communal cooperation. The availability of a highly-functional labour market for the European Union will facilitate achieving one of the key objectives of this association: a socio-economic convergence. An effective domestic labour market directly affects the quality indicators of other commodity and services markets. This generates revenue and supports specific categories of workers, creating an environment in which all stakeholders in the market can cooperate. In view of the above, according to C. Medeleanu (2013), the beginning of social inclusiveness through the mechanisms of the social economy should include the adaptation of institutional environments, public-private partnership development, intensified social dialogue between the different actors of the labour market, an accelerated investment in human capital, and the formalisation of good practice. M. Peters (2007) identifies three key approaches to the implementation of employment policy. The first of these outlines the management of social risks. According to this approach, a change in the structure and scope of employment is influenced by social risks, such as the disappearance of the demand for workers to possess certain types of qualifications, labour intensity, population ageing, and disability. The state uses both financial (including tax leverages) and non-financial instruments to manage such risks. Non-financial instruments in this case may include the introduction

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of government programmes to improve employment in the labour market, lifelong learning, and social work with families. The second approach is the economic or insurance method. This approach assumes that individuals make rational choices, weighing-up their work hours and rest hours in a manner that allows them to maximise their own welfare. Thus, in this case, the focus is on creating financial incentives for development through tax reduction and increasing the minimum wage, while reinforcing the criteria for access to benefits. Finally, the capabilities approach considers the issue of employment on the basis of the terms of opportunities, focusing primarily on qualifications and training. Here, the emphasis is also on the creation of favourable schemes to help with job-searching. The social economy sector receives development incentives as a way of offering innovative solutions to social, economic and environmental issues, and helping disabled people to find positions commensurate with their qualifications, in both the public and private sectors. For example, in the EU, this sector now encompasses 11 million employed people, amounting to 6% of the total number of employed people. This brings us to the conclusion that there is a significant economic impact and that the sector plays a prominent role in shaping supply and demand in the EU’s labour market. In addition to promoting vulnerable workers’ engagement with the labour market, the social economy also creates new social needs. Examples of such needs may be growing demands for childcare, given the greater involvement of women in the labour market (Spear 2008). Within the EU, there has been a gradual opening-up of workintegration programmes to innovative third-sector organisations. This has been dubbed “work integration social enterprise” (WISE). Many such programmes provide paid training, thereby combining elements of both the economic and capabilities approaches. WISE programmes are usually classified according to the modes of integration and the types of subsidies used (permanent or temporary). In Europe, there are four basic mechanisms of such integration: -

Transitional employment; The creation of permanent, self-financed jobs; Integration with permanent subsidies; Socialisation through work.

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Transitional employment simultaneously provides temporary employment and subsidies. The key objective of this model is to provide basic employment to the targeted group of people who are

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in need of support, to help them gain required work experience. They can receive additional training which is tailored towards further opportunities, so they can compete in the labour market in the future. This mechanism is inherent to the EU but its frequency of use and features varies greatly in different countries. The creation of permanent, self-financed jobs. This approach assumes the availability of permanent employment. Initial temporary public subsidies are given in the early stages. Programmes in this category aim to create economicallysustainable jobs for vulnerable groups. Public subsidies are initially used to compensate for the lack of productivity in the target groups involved in the operation of social enterprises. After completing the training stage, the subsidies are cut down or cease completely. Integration with permanent subsidies. This primarily covers employment programs for disadvantaged groups, for whom integration to the labour market would be difficult in the mediumterm. Providing stable jobs that are permanently subsidised by public authorities involves businesses that have moved from the specific sector to the open market. However, despite the acquisition of a specific qualification and professional competence, only a small number of employees are free to compete on the open market and they need constant public support. Socialisation through work. This mechanism aims to socialise its target groups through directing their activities within the labour market’s legal field. The productive activities of these groups are subsidised and their participation in the labour market is not necessarily determined by formal labour contracts; it sometimes stipulates other types of remuneration unrelated to the receipt of funds (such as living in public housing).

Ukraine remains a country with significant levels of inequality. It is well ahead of the EU and the US in terms of income inequality. In 2010, the income of 50% of the poorest taxpayers accounted for 30% of the total labour income in European countries, while accounted for 25% in the US and only 15% in Ukraine (in 2015). The income of 10% of the richest inhabitants of Europe totalled 25% of its total revenues, while it was 35% in the US and 9% in Ukraine. Half of the working population in Ukraine are on a low income as well. The average wage of 50% of the poorest workers amounts to 70% of the national average in Scandinavian countries, and 60% in Europe as a whole, while it is 50% in the US and only 30% in Ukraine (Libanova 2016).

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When considering the possibility of establishing a social economy in Ukraine, one should take into account the experience of Poland, which is closely related in terms of its integration into the European social system. In particular, we highlight the following tasks for establishing a social economy in Ukraine (FISE 2016): -

The economisation of the activity of non-governmental organisations; The creation of more social enterprises; Delegating more resources to local budgets to ensure local development and the development of the social economy; Elaborating and implementing more efficient and numerous financial mechanisms to promote socio-economic development; Penetrating the social economy at a macro level in society.

The phenomenon of social entrepreneurship may be considered fundamental to a social economy, and may become the basis for the development of socially-responsible SMEs in partnership with representatives from local governments. A significant role in the development of social partnerships may be played by migration networks of Ukrainian workers, who may be more interested in the development of social projects at local levels than national development projects. The development of public-private partnership plays an important role in building a social economy in Ukraine. Cooperation between the state and business is possible along three vectors (Pavlova 2011): -

-

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The functional vector. Public-private partnership takes place in industry sectors where business has access to production factors and markets; The industry vector. Cooperation in some industry sectors on the basis of a hybrid form of property; cooperation between stateowned and private companies; and the signing of industry agreements; The regional and municipal vector. This line of public-private partnership allows for the development of particular territorial manufacturing segments, including regional labour markets.

The launch of public-private partnership mechanisms will have positive implications for the development of the labour market and the effectiveness of using labour potential. According to D. Naumov (2011), attracting investment to develop Ukraine’s infrastructure will allow

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approximately 20,000 current jobs to be maintained and create no less than 50,000 new ones. This will have a positive impact on reducing unemployment and ease social tensions in regional labour markets. A significant increase can be achieved in labour-productivity because of the effective modernisation of companies’ capital funds, as well as the introduction of modern, cutting-edge technologies in the management of human resources in state-owned and communal companies. This will, in turn, facilitate increases in wages and suitable levels of social protection for workers, improving working conditions and decreasing the negative impact of occupational safety hazards. In general, this will also decrease the share of such jobs in the national labour market. A significant factor in the development of a local, social, labour market is the build-up of social infrastructure, which can occur as a consequence of increasing the income of local budgets because of rises in individual income taxes (which are basic to local budgets and dependent on local workers’ rates of remuneration). Partnership programmes between local authorities and communities can also be established. The steady, accumulative in-flow of migrant remittances over the last decade emerges as a significant, unused, potential financial resource. Social entrepreneurship in Ukraine is quite often defined as the selfsustaining activities of non-governmental organisations, entrepreneurial businesses or the innovative activities of social enterprises. At the same time, Ukrainian legislation does not define social entrepreneurship and does not allow for an environment in which all strengths of this phenomenon can be used to maximum effect (AEDI 2016). “The socialisation of the Ukrainian labour market is an objective process related to ensuring full productive employment, increasing the effectiveness of labour resources utilisation, improvement of welfare and quality of life of the population” (FISE 2016). Fully-fledged socialisation of the Ukrainian labour market significantly depends on the general effectiveness of economic development in Ukraine. At the same time, the development of a proper national labour market in Ukraine is one of the mandatory elements of building-up a social economy in the country. Taking into account the dualism and interrelatedness of Ukraine’s modern economic-development issues and the quality of human capital, addressing the issue of creating, preserving and implementing human capital is essential to the creation of a socially-oriented economy, and to the establishment of a labour market based on the principles of social justice. The necessity of preparing a high-quality workforce is a fixed condition of creating a socially-oriented labour market, since the high quality of human potential creates the foundations of a highly productive

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and therefore highly-paid labour force. To ensure high-quality labour, it is necessary to create the conditions for high-quality education, practical experience, and innovative activity and mobility for every worker (Ivanova 2016). Financial incentives for workers have a pivotal role to play in ensuring the high quality of a workforce. At the same time, “currently in Ukraine the gap between the wage and cost of workforce recovery is very significant with the tendency to increase further” (Ivanova 2016). As of today, the growth rate of inflation exceeds the increases in nominal wages. The alignment and approximation of prices on goods and services in Ukraine is not followed by an approximation of average wage-levels to average European rates. This is for a number of reasons. First, it can be argued that the lack of a fully-fledged, global labour market and the existence of segmented national and regional labour markets as a consequence, causes the “conservation” of an aggregated national supply and demand. This limits the national and regional labour markets and allows labour to be used ineffectively as a factor of production under the conditions of a deficit of capital. The global tendency, which stipulates the establishment of the global labour market alone, overlaps with national peculiarities and includes a negative investment climate. This has reduced the ability to successfully attract FDIs in Ukraine, because for several years their numbers have been unable to match those of migrant remittances. Second, the monopolisation of a number of markets, as well as the ineffective use of labour, reduces the proper levels of innovative activities in business enterprises. This is driven by a lack of capital and by the will of certain businesses (including those owned by the key financial industrial groups in Ukraine), as well as by the low energy-efficiency that is tied-up with the dependency on imported energy-resources. This causes low rates of production and low labour-productivity in general. This, in turn, creates the basis for even lower rates of labour remuneration in Ukraine. Third, for a long period in Ukraine, the unified social tax (UST) load on labour remuneration was set at a very high rate and exceeded the average rates of Central and Eastern European countries. Being set at a rate that approximated more to the levels of Western countries prevented financial stimulation, especially wage increases. In this context, the reduction of UST to 22% in 2016 can be viewed as a positive step. Wage increases are necessary for creating an effectively-functioning national labour market that will contribute to the development of the national consumption market, and increase levels of economic efficiency

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by increasing the motivation of workers and ensuring high levels of workforce recovery. According to L. Ivanova (2016), the main factors that define the socialisation levels of a labour market are: accelerating economic growth; structural reshaping and modernisation of the economy; the creation of opportunities for effective production-development, scientific and technological progress and informatisation of the economy; government control over the development of the potential of labour; and building entrepreneurial potential. The effectiveness of Ukraine’s integration into the European labour market will be fundamentally important to the development of its labour market. According to I. Petrova (2014), the entering into force of the EU– Ukraine deep and comprehensive free-trade area should provide momentum for the development of the Ukrainian labour market, which will be facilitated by necessary legislation similar to the labour standards of the EU. This should improve the investment climate, grow labour productivity levels and enhance the competitiveness of national workers in foreign markets. At the same time, the introduction of the EU–Ukraine DCFTA poses some risks to the national labour market. For example, there is a possibility of a short-term increase in social risk during the adaptation period, which may bring about limited economic and social losses. Obviously, without completing the macro-economic objectives for economic development and achieving high rates of GDP in Ukraine, it will be difficult to talk about the feasibility of launching a fully-functioning, social labour market in Ukraine. At the same time, gradually achieving objectives in the building of a social economy — including improving the functioning of labour market institutions — may produce both the tangible short-term effect of increasing the general welfare of the Ukrainian population, and lay the foundations for long-term sustainable economic development, which will not be based on market factors such as raw material prices on the global commodity markets.

Conclusions In order to achieve the short- and medium-term goals of creating a social economy, Ukraine ought to establish an environment for the effective functioning of social enterprises, whose main aim should be ensuring the welfare of the local communities in which they are established. Furthermore, social enterprises will be functioning as independent businesses and embracing all the risks of a business

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environment, while being managed by local community members (its shareholders). Trade unions and the public sector (for instance, associations of consumers, disabled people, and clerical charitable organisations, etc.) should take a vital role. The increasing role of trade unions is important in setting fair levels of remuneration, through dialogue with the state and the business community. In the long run, a strategy for building an effective labour market in Ukraine is inseparably tied to its perfect economic performance, which should be developed under a complex long-term economic growth and development strategy. This strategy should focus on the welfare of Ukrainian citizens. Derivatives should secure the opportunity to substantially increase remuneration levels through increasing the effectiveness of every member of the workforce, expanding capital expenditure on training workers, encouraging business initiatives, and developing a considerable population stratum with average levels of income. It is the increase in citizens’ income that will ensure a reliable functioning of social insurance systems, along with their simultaneous restructuring in the long-term, taking into account the ageing populations not only of Ukraine but of the whole of Europe, too. Addressing current problems in employment and fair wages in the medium-term will enable the most dangerous challenges in the long-term to be tolerated (e.g. the loss of significant labour potential as a consequence of the negative demographic and migration situation). If the majority of Europe — in having similar problems to Ukraine — addresses them with the help of worker-immigration, Ukraine will remain a source of labour, primarily for EU member states. Should our country resume its economic growth, its speed will be dramatically reduced by the lack of available labour resources, especially in terms of suitably-qualified people. Prior to the 2008 crisis, Ukraine was already experiencing a shortage of workers in a range of professions. To this day, the demographic and migration situations have only become worse, demonstrating that the complex economic development of Ukraine will not occur without urgently addressing these labour-market problems.

References AEDI. 2016. “Social enterprises in Ukraine,” Association of Economic Development of Ivano-Frankivsk, accessed October 30, 2016, www.southeasteurope.net%2Fdocument.cmt%3Fid%3D197&usg=AFQjCNE_MJjBlt kRBPrfsWgkhseAHjCqzw&sig2=NlYAUabugBNbW22syEl48w.

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Allard, Jenna and Julie Matthaei. 2001. “Guramylay: Growing the Green Economy”. Alliance 21 “Proposal Paper on the Solidarity Economy. Accessed October 30, 2016. https://www.geo.coop%2Fsites%2Fdefaul t%2Ffiles%2FSE%2520Definitions%2520and%2520Themes_SEN_dr aft.doc&usg=AFQjCNHXy5JxE7d6Btif0jKvZ4V95jgXw&sig2=bWxG9yqfjCX7JYhRxHrbpw&bvm=bv.111677986,d. bGg Branþíková, Lucie. 2008. “Social economy in the Czech Republic”. The Social economy from the perspective of active Inclusion, Belgium. Accessed October 30, 2016. http://www.ess-europe.eu/sites/default/ files/publications/files/czechrepublicbe08.pdf. Dumitru, Raluca-Ana-Maria. 2013. “Social economy - a solution to the labor market inclusion”. The yearbook of the GH.ZANE” Institute of Economic Research Vol. 21, Issue 1, 53-60. Accessed October 30, 2016. http://ices.ro/RePEc/zan/ygzier/2013/YGZIER_V22_ISS1_53to60.pdf. FISE. 2016. “Social economy in Poland,” Fundacja Inicjatyw SpoáecznoEkonomicznych. Accessed October 30, 2016, http://www.ekonomiaspoleczna.pl/x/433523. Ivanova, L. V. “Some aspects of socialization of modern labour-market” Electronic Odessa National Economic University Institutional Repository. Accessed October 30, 2016. http://dspace.oneu.edu.ua/jspu i/handle/123456789/4687. Libanova, Ella. 2016. “Ukraine: the depth of inequality,” ZN, UA, October 1. Accessed October 30, 2016, http://gazeta.dt.ua/internal/ukrayinaglibina-nerivnosti-_.html. Medeleanu, Camelia. 2013. “Social economy – a form of inclusion and of reactivating of labor in the context of the current crisis”. Revista de Economie Socială, Issue 2. Accessed October 30, 2016, http://www.ceeol.com/search/article-detail?id=6438. MPES. “What is social economy,” Maáopolski Portal Ekonomii Spoáecznej. Accessed October 30, 2016, http://www.es.malopolska.pl/en/what-is-social-economy/socialeconomy-entities.html. Naumov, D. Y. 2011. “Public Private Partnership as an instrument of state management of the economy of Ukraine, labor market development and employment potential industry” Journal “Ekonomika ta derzhava”, Vol. 2. Accessed October 30, 2016, http://nbuv.gov.ua/UJRN/ecde_2011_2_9.

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Neamtan, Nancy. “Social economy: concepts and challenges” Universitas Forum, Vol. 1, No. 3, December 2009. Accessed October 30, 2016. http://hdrnet.org/450/1/Neamtan.pdf. Pavlova, Hanna. 2011. “Public-private partnership: an analysis of world experience and its development in Ukraine” Derzhava I Rynok, 2011, accessed October 30, 2016. http://www.kbuapa.kharkov.ua/ebook/putp/2011-3/doc/3/02.pdf. Peters, Marjolein. 2007. “Attracting more people to the labour market” European Commission-DG Employment, Social Affairs and Equal Opportunities. Accessed October 30, 2016, http://pdf.mutual-learningemployment.net/pdf/synthesisReports/SynthesisReportSpring2007_EN .pdf. Petrova, Iryna. 2014. “Social consequences of European Integration of Ukraine The labour market” Friedrich-Ebert-Stiftung, May 20. Accessed October 30, 2016. http://library.fes.de/pdf-files/bueros/ukraine/10770.pdf. Spear, Roger. 2008. “The social economy from the perspective of active inclusion: Employment opportunities for people far from the labour market” European Commission DG Employment, Social Affairs and Equal Opportunities. Accessed October 30, 2016, http://web.ensie.org/LinkClick.aspx?fileticket=38525738383876346B3 0303D&tabid=2310&language=fr-FR&stats=false. Trading Economics. 2016a. “India Average Daily Wage Rate,” Accessed October 30, 2016, http://www.tradingeconomics.com/india/wages. —. 2016b. “Ukraine Average Monthly Wages”, Trading Economics Financial Portal. Accessed October 30, 2016. http://www.imf.org/external/pubs/ft/weo/2016/01/weodata/index.aspx. World Bank. 2016. “GDP growth (annual %)”. World Bank national accounts data, and OECD National Accounts data files. Accessed October 30, 2016, http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG.

CHAPTER EIGHT SOLIDARITY FINANCE: FORMS AND MODERN TRENDS VOLODYMYR YU. SHEVCHENKO

Introduction In today's world there are the contradictory processes of integration and diversification, globalisation and regionalisation, standardisation and innovation. One of the most important contemporary manifestations of contradictory processes is the development of associated, common forms of activities in various fields: economics; finance; social relations; local and professional communities; electronic networks; and cross-border projects. Solidarity and associated collective principles, social values, and network systems have also spread into the financial sector. It is a time of increasing diversification, individualisation and accessibility in financial and banking services. The development of global, national and local economies, as well as the economic and social activities of corporations, households and market agents, requires a different kind of additional funding. This funding is primarily to maintain current activities (in the short and medium term) in capital and financial investments, exports and imports, the formation of necessary reserves to cover risk, and the implementation of international infrastructure projects. The financing needs of large corporations, households and small and medium-sized businesses vary in scope and nature when it comes to innovation and social projects. Attracting financing requires access to national and international financial markets, in order to take advantage of the most favourable conditions in terms of cost and coverage of currency and loan size. In a social and solidarity economy, more favourable financing conditions are more important for small and medium-sized businesses than they are for corporations.

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The organisations of a solidarity and social economy — private entrepreneurs, farmers, and small and medium-sized enterprises — should be considered as being the same in the context of raising funds. They have a collectivist basis and a greater social component and focus than large firms. With this in mind, in this study, it is not essential to explain the characteristics of each form, so attention is not focused on these specific differences. Because of their small size (and therefore low profitability and limited solvency), such enterprises are not the most economically-attractive customers for commercial and investment banks. Their activities often do not fully meet the market criteria of efficiency and maximizing profits, because much of their income goes towards social goals. Further, the prices of goods and services are often socially-oriented. At the same time, in the modern world, the importance of small and medium-sized businesses — including solidarity-based associates, networking and social organisations — is increasing. Their social role, especially in terms of employment, intellectualisation and the dissemination of innovation, is growing. A significant boost in this is connected to the rapid development of information and technology, along with an innovative philosophy and general changes to the way business is organised, strengthening its social responsibility. Traditional financial institutions, including commercial banks, are focused on corporate clients, retail businesses, and operations in financial markets. Banks are slow to adapt to the needs of social and solidarity economies. At the same time, the diversification of banking products and tools, as well as developments in the risk-management of banks, means the personalisation of financial services has been a distinctive trend in recent years. In the modern world, it is becoming increasingly important for all of the components of an economy – small businesses, entrepreneurs, households, and the general population, including the poor and the youth – to have access to finance. Such processes are called “access to finance” or “financial inclusion.” This means that the distribution and availability of the entire spectrum of banking and financial services should better contribute to the integration of diverse forms of economic and social activity. All segments of the population have to be included in the broader economic and financial life of the community, including the international community. It is no accident that access to finance is one of the priority tasks for programs of the World Bank, in order to combat poverty. Undoubtedly, this problem is not only about economic value: considerable

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social value comes from the realisation of creative potential, povertyreduction and social cohesion. All of this determines the need to study the following: the evolution of access to finance; the results of the directions taken by cooperative, social solidarity, and other forms of financial services; the interactions between these different forms and the differences between them when compared to traditional forms of banking and financial services.

The Genesis of Solidarity and Collective Funding Principles The historical development of individual, joint, combined, and cooperative forms of activity has naturally encouraged (and been accompanied by) appropriate means of raising funds. For example, in transactions between members of the local community, financial services built on solidarity principles were used in craftsman’s unions (professional guilds) in the Middle Ages and during the the Industrial Revolution. Related professional activities – the division of labour and cooperation, and the coordination of economic and social goals – contributed to the formation of economic relations and trust between members of associations, as well as the use of mutual credit and associated forms of financing. Thus, within professional associations, mutual financial aid (loans) existed between individual members as well as being utilised as a kind of mutual fund. The existence of a large number of feudal states and the role of cities in this period contributed to the creation of a significant number of local (regional) banks that acted in the interests of local communities and relied on established relationships with their customers. Local banks that relied on and served professional associations and farmers used social and cooperative principles in their work. The development of the cooperative movement in the 19th and 20th centuries contributed to the spread of collective forms of banking and financial services. One of the most distinctive in this period was the spread of cooperative banks – such as “Raiffeisen” in Germany and AustriaHungary – including in what is now Western Ukraine. In modern terms, cooperative banks have gained significance in the Netherlands, France, Spain and Latin America. Credit unions are a form of associated financial services that have existed since the 19th century, when they developed in Europe and (especially) North America. They were formed mainly on the basis of collective ownership and social and ethical principles, and provided socially-oriented and privileged financial services mainly to small

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businesses and entrepreneurs, as well as to certain ethnic groups of immigrants and their descendants. As a form of social financing, building societies originated in England in the 19th century. They were institutions structured by the joint ownership of the depositors (primarily workers). They were legally unprofitable and offered preferential mortgage loans to their members. In this manner, they differed from banks that intended to increase profits and the value of shares. At the end of the 20th century, most building societies underwent corporatisation and were converted into or merged with banks. In the modern conditions, cooperative and local banks, credit unions, and microfinance organisations in various countries have found their own market niche: serving cooperatives and farmers, small businesses, private entrepreneurs and households. This is why locally-associated forms of service have developed along with large, international, financial groups. Some cooperative banks are amongst the largest in their countries and are internationally active. Information technology provides the possibility of direct electronic access to consumer and business financial services. It has therefore revolutionised associate and joint financing. Start-ups have become important in the financing of new ideas and advanced technologies. The historical evolution of the forms of associated, solidarity funding can be schematically represented as follows (Table 8-1). Table 8-1. The evolution of associated, solidarity financing Historic period Middle Ages Industrial era Post-industrial era The Information Age

The form of associated financing Association of craftsmen. Cooperative banks; credit unions. Building societies. Microfinance banks.

The main result Mutual and corporate financing. Deposits; preferential loans. Small business loans; financing innovations. Direct access to banking services.

Note: compiled on the basis of the author’s research.

The evolution of associated financing is characterised by increasing diversification and extended access to services. This has contributed to the spread of private entrepreneurship – small and innovative businesses. Thus, the social basis and results of peoples’ involvement have increased.

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The Theory and Methodology of Solidarity Finance In general terms, a social and solidarity economy can be understood as economic activity that, unlike pure market activity, is not only aimed at profit and increasing business value, but is primarily based on collectivist principles and obeys social objectives. Such economic activity is carried out on a cooperative, social, solidarity (mutual) basis, has appropriate ownership and organisation, serves the socio-economic objectives of society, socio-professional groups, and local community groups. Making a profit is not the purpose of activity, but just an indicator of the efficient use of resources and a source of further development. Methodological and theoretical approaches to the analysis of associated, solidarity forms of financing should take into account their complexity and their “integral” character, reflecting the interactions between the collectivist (associated), social, institutional, economic and financial aspects. A theoretical analysis of the principles of solidarity (associated) forms of funding proceeds from the classical economic theory that originated in institutionalism and behavioural sciences. Understanding man as a social being occupies an important place in the writings of Adam Smith and J. Keynes. The social basis for and consequences of economic activities have a significant effect on the financial sector. The evolution of monetary institutions, the distribution of non-banking financial services, and access to finance in the current conditions are the subject of several theoretical research approaches. The theory of financial intermediaries is used to analyse the ways that interactions between institutions carry the supply of and the demand for financial resources. Financial intermediaries will eventually coordinate the interests of institutions, financial markets and consumers. The main functions of financial intermediaries are: -

-

The transformation and consolidation of small deposits in terms of larger loans; attracting small investors and creating the resources for lending to both large and small businesses. At the same time, the social base for depositors is expanding and their contributions are key to their financial stability and a certain social status. The social importance of savings and of the stability of banks is increasing. The transformation of terms, when short-term deposits become a resource for mid- and long-term loans. This attracts funding for the

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general population and private entrepreneurs, for the purposes of financial turnover and business lending. The transformation of currency denominations when deposits are mainly invested in national currencies, so that loans can be provided in foreign currencies. Providing professional information about the market situation and the possibility of funding to investors and consumer services, building trust with financial institutions. The transformation and risk management of the professionalism and awareness of financial institutions, their reserves, and their access to risk-management instruments. This manages the deposit risks of small depositors, as well as of borrowers from small and medium-sized businesses.

Banking and non-banking financial intermediaries compete, allowing investors (including small businesses and private individuals) to choose the best options for investment. Financial institutions also have incentives to try and attract different customers, and to improve quality and individualise services. The theoretical concepts of financial innovations take into account the response of institutions to market and regulatory changes, as well as the resulting risks. Financial innovations are seen as new banking and financial products; technologies and tools that enable diversified services, to meet new and modified consumer needs and provide more efficient access to better risk management. The main financial innovations are: -

New financial and banking products. For example, contactless payment cards and exchange-traded funds, along with other services. New financial services, such as Internet-trading and Internet banking, etc. New financial and banking technologies, such as electronic access systems (“bank-client”) and rating systems for evaluating the creditworthiness of borrowers (credit scoring), etc. New forms of banking and finance, such as electronic financialtrading platforms, online banks, and bank insurance, etc. New non-banking products that replace traditional ones, such as mobile money transfers and e-wallets, etc.

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The social importance of financial innovation lies in it extending access to finance to innovators, social activists, small businesses and the general population. Theoretical approaches of behavioural finance are based on taking into account the psychological motives of market participants, and using noneconomic explanations for their behaviour. Behavioural finance is a specific response to the limitations of classical and neo-classical approaches, including the hypothesis of rational behaviour and the rational expectations of market agents. Classical approaches to the analysis of financial markets – market theories of rational expectations, assets, and credit – are based on the idea that market participants act on the basis of economic rationality, correlate benefits and costs, and take risks into account. Behavioural finance proceeds from the psychological qualities of and motivations for decision-making. The main psychological motivations for the actions of those participating in the financial markets are connected to a dependence on (or an anchoring to) certain events or indicators, a gambling bias towards the financial markets, excessive reaction (overreaction), gregarious behaviour (herding behaviour), trust (confidence), and the assessment of prospects, etc. Psychological qualities that may be regarded as reasons for solidarity and associated forms of financing also include social affiliation, altruism, collectivism, and mutual aid. The principle of cooperation has its universal being in nature and society and is socially and economically essential in organisational and financial areas. Important in the development of cooperation is an understanding of Jean-Jacques Rousseau’s “social contract” as the common function of a number of social individuals. Economic cooperation exists as a form of associated (common) ownership, an organisation of activity, and as an interaction between economic agents connected by the social division of labour. The effect of cooperation is based on mutual ownership and activities that promote common, social and economic goals and rational interaction. The concept of inclusion is based on the values and ideas of all members of society having equal access to work, finance, and economic and social benefits. Access to finance is an important factor in achieving the independence and equality of all members of society, as well as their capacity for economic and social mobility. Examples of individual social exclusion are unemployment, poverty, the limitation of rights, social and economic repression leading to the growth of social apathy and the potential for protest, and social unrest. Financial inclusion is the ability of individuals to use financial services, be financially literate and achieve

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future financial security; these aspects become an essential requirement of the activity of modern institutions.

The Main Structural Elements of Solidarity Finance The content, basic form and role of solidarity (associated) finance must be considered whilst also taking into account the current characteristics of the economic environment, as well as the state and trends of global finance, the global economy, and the characteristics of individual countries. The environmental and evolutionary factors of solidarity (associated) finance are formed at both global and national levels. Global economic and financial trends over the last decade have been contradictory and have significantly affected the status and prospects of banking and financial activities. The world economy is in a state of stagnation in terms of growth and international trade, and has to cope with inflation, excessive external debt, minimum interest rates and the instability of banks in developed countries. This has led to a series of imbalances and risks to certain systemic evolution. Such processes have significantly influenced employment and the social motivation of people, stimulating the existing forms of associated activity and funding, as well as making it necessary to search for new ones. The major international economic processes that influence mediumand long-term processes in the global and national economies and the financial and banking systems, and which affect access to finance, employment levels and social processes, are: -

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Periodic international financial crises. The global financial crisis of 2008–2009; the European debt crisis; and national crises with significant international influence, such as the financial crisis in Greece (2012–2015). The consequences of financial crises are increased external debt and economic stagnation, which adversely affects the banking system and financial stability. The European debt crisis of 2012–2013. There arose a pre-default situation in Greece and the stability of Euro was called into question, which exacerbated the sovereign debt problems of Ireland, Italy, Spain, Cyprus and Latvia. Relative stabilization in Greece and other countries has been achieved through joint programs of the IMF and the EU.

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Banking crises in several European countries. These occurred in Ireland, Spain, and Italy between 2010 and 2015 because of the accumulation of non-performing loans and a loss of liquidity. The accumulation of world debt. The IMF estimates that the total world debt of non-financial corporations (state, households and companies) has reached USD 152 trillion, representing 225% of global GDP, with increased sovereign and corporate debt in developed countries. The level of credit debt in China has reached a critical point (IMF 2016). A long period of historically-low interest rates from the central banks of developed countries. Their policy of “quantitative monetary easing” has caused a decrease in banks’ margins from lending, making them less incentivised to lend to small businesses. Relatively low economic growth and international trade, as well as falling commodity prices. The relative decline in real investment activity in the world and a shift to transactions in the international financial markets. The volatility of exchange rates. This is especially the case in growing economies and developing countries. Contradictions in international and regional integration processes. The possible exit of the UK from the EU.

The consequences of these processesarelower interest-rates on loans, reducing banks’ margins and increasing their costs for additional capitalisation, according to the requirements of Basel III. All of this demotivates banks and financial institutions to provide loans and other forms of financing to those borrowers who present higher risks, such as private entrepreneurs, small and medium-sized firms, and innovative and socially-oriented projects. National environment and access to finance and solidarity (associated) forms of funding are connected to the macroeconomic, microeconomic and structural characteristics of the economies of all countries. A country’s national environment in terms of the spread of associated finance may be characterised by the following parameters: -

The structure of the economy, including a large proportion of services, SMEs, agricultural and informal businesses in the gross domestic product. The growth of employment in small and medium-sized businesses, innovation and information firms, and private companies. These are the main sources of new work for employees.

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Relative stability in rural areas and small towns (up to 50,000 inhabitants). Employment growth in the information and technology sectors. The growth and differentiation of average disposable income and average savings per capita. The dollarization of the economy and the financial sector in growing countries and emerging economies. Significant differences in the spread of banking services in developed and other economies; levels of bank credit to GDP, assets, loans and deposits per capita; the number of bank branches per 100,000 people; the number of ATMs per 100,000 people; the proportion of banking services using the Internet. The slow evolution of the population’s financial education. Differences in the spread of mobile communications and the Internet.

It is advisable that these parameters are comprehensively considered when assessing the financial solidarity of a country. These settings affect access to finance and create demand for socially-oriented financial services from households, farmers, small and medium-sized enterprises, and innovative entrepreneurs. Modern international banking and global financial markets focus primarily on servicing corporate and investment operations. Such activities are not adequate for the needs of expanding access to finance and sustainable socio-economic development. Therefore, along with measures to stabilise the banking system, there should be enhanced regulatory incentives to develop traditional and innovative socially-oriented, associative principles of financing, as well as the expansion of economic agents’ efficient access to national and international capital markets. The concept of “solidarity finance”, in our view, should be used on the same level as the terms “associated financing”, “socially-oriented financing”, and “cooperative bank services.” In this way, the system identifies the key differences between these forms of traditional banking and financial services: 1) A focus on financing does not maximise profit but meets the needs of non-corporate customers to raise funds for socially-oriented, innovative, volunteer projects, and small and medium-sized enterprises. 2) The application of ethical and social norms in banks and financial institutions operating on a solidarity, associated basis.

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3) The use of cooperative, partnership, solidarity principles and methods for providing financing. 4) Providing funding for projects and customers with predictable risk, such as small businesses, farmers, and other innovative entrepreneurs. 5) Additional financial security in employment, which has less dependence on the place of work (e.g. service, cultural, social and educational activities). 6) Solidarity and cooperative forms of solving social issues in the future, such as financial security after retirement. 7) Financing the conditions for economic and social activities for people with disabilities. 8) Financing the conditions for socially-important volunteering, humanitarian and charitable activities. Of course, solidarity, associated finance functions within the existing regulatory environment. Some of its socially-recognised forms have certain privileges and incentives and cannot replace traditional forms and methods. In practice, there is coexistence of and interaction between traditional and solidarity (associated) forms of funding. Such coexistence is essential in developing access to finance because it provides opportunities for a wider range of consumers to use financial services. The main forms of solidarity (associated) financing can be systematised on the basis of institutional affiliation, the content of services, and the availability of technology. Quite arbitrarily, on the basis of their relatively large spread, basic types of solidarity funding can be divided into the following groups: A. Bank-based forms of solidarity, associated finance. Cooperative banks are the most common form of solidarity institutional banking services in Europe. Cooperative banks are based on the principles of mutual responsibility and solidarity. Their work aims to improve access to finance for members, offering better terms than the market. In particular, they provide microfinance for small businesses and entrepreneurs, “green financing” for environmentally-friendly projects, and participate in solving the social problems of local communities.

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Table 8-2. The main characteristics of cooperative banks and commercial banks with a share capital Cooperative banks Property

Joint ownership by the bank’s members.

Capital

Growth through the capitalisation of profits. Solidarity mechanism to support capital and liquidity. Used to increase capital and reserves.

Profit

Management decisions

One member, one vote.

The organisational structure The main objective

Decentralised, joint coordination. The development of regions, members’ activities and social goals.

Commercial banks with a share capital Shareholder ownership – institutional and private investors. Share price is determined by the market; capitalisation changes

Distributed among the shareholders according to their decision. Votes are divided according to the number of ordinary shares. Centralised management of subsidiaries. Revenue and value of shareholder capital.

Note: compiled by the author.

According to the European Association of Cooperative Banks (EACB), there are 4,200 cooperative banks in Europe, with 81 million members and 205 million consumers of services (EACB 2016). The share of cooperative banks can be estimated at 12-14% of the capital and assets of the European banking system (EACB 2015). In some countries (Austria, Italy, France, Germany, and the Netherlands) the share of cooperative banks in their respective national banking systems exceeds 25% (EACB 2015). In some countries, cooperative banks are in the top five, such as Rabobank and Bank Raiffeisen, in the Netherlands and Austria respectively. Such financial institutions, like credit unions, can be seen as being similar to cooperative banks from an institutional and regulatory perspective.

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There are significant differences between cooperative banks commercial banks and other financial institutions, based on corporate ownership. The solidarity basis of cooperative banks has two main factors: 1) The subordination of social objectives and meeting the interests of members with better conditions than those offered by the market; 2) Better financial stability through the capitalisation of income, and using proceeds to replenish stocks and the mutual guarantees of cooperative banks. An important part of ensuring the stable development of cooperative banks is their relative independence from volatile financial markets and external sources of capital, by focusing on stable financial reserves and principles of solidarity and mutual guarantees. Cooperative and local banks maintain good relationships with entrepreneurs and small businesses. Based on this approach, banks lend on the basis of the relationship (relationship lending). This simplifies and reduces the cost of raising credit, unlike the approach used by major commercial banks, which is based on the requirement to provide significant credit scoring. B. Network forms of solidarity, associated finance through access to finance via the Internet and mobile communications. The information technology foundations of network systems for consumers of financial services can be seen as a form of associated finance, because they provide access for all social groups and increase banks’ focus on individualised services. The spread of information technology has led to the expansion of Internet banking and mobile banking services, providing opportunities for direct access to basic services such as money transfers and payment for goods and services. Internet banking customers access online services through the Internet services provided by the banks. These are platforms created by the banks and which operate on the Internet. Typically, they are owned by traditional commercial banks. Mobile banking is the use of mobile phones and smartphones to access commercial banks. The main factors influencing the spread of Internet banking and mobile banking are: 1) Technological incentives. Improving the information and technical possibilities of direct access to banking services, including the distribution of free or cheap Internet access in developed countries; a massive shift of users from mobile phones to smart-phones with more features.

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This is accompanied by significant savings in cost and time in terms of capital expenditure and the number of bank branches required, whilst also providing benefits for consumers (direct “anytime” access, an increased range of services, ease of use, and safety). 2) Behavioural reasons. The tendency of consumers to use Internetbanking based on social and cultural preferences, customs, attitudes, and individual perception. The spread of Internet banking and the access it provides to financial services has occurred in parallel with the general global spread of the Internet. Table 8-3. Penetration of Internet and Internet-banking in selected countries, 2015 Countries in order of penetration of Internet banking Norway Finland Netherlands Denmark Estonia European Union Italy Cyprus Greece USA Ukraine

The spread of Internet banking – people aged 16– 74 years using the Internet for banking transactions % 90 89 85 85 81 46 28 20 14 71 n/a

Internet users per 100 people

96.8 92.7 93.1 96.3 88.4 80.3 65.6 71.7 66.8 74.5 49.3

Source: Data of Eurostat (2015), World Bank (2016). Note: The estimates are based on author’s own calculation; n/a – not available.

In our opinion, the high level of Internet banking in Nordic countries can be explained by the practical problems of physical access to banks in remote regions, together with the high general and financial literacy of the population, who have easy access to the Internet. Some of the data in Table 8-3 also suggest the importance of behavioural motives. After all, despite relatively high levels of Internet penetration in Italy, Cyprus and Greece, the use of Internet banking is significantly below the European average. The level of Internet penetration in Ukraine is considerably below

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the European average, which hinders the informatisation of society, including online access to financial services. Informatisation changes the whole system of access to banking services which, along with improvements to quality, assists in the distribution of financial services. For example, the main ways that consumers access banking services in the USA are as follows (in percentage of total users) (FRS 2016): using branches of banks (84%); using ATMs (75%); online banking (71%); mobile banking (38%); telephone banking (30%). Diversification in access to banking services has a clear tendency to increase the proportion of high-tech consumers. The possibility of consumer choice also brings social cohesion. C. ɋrowd-sourcing as an individually-supported solidarity, associated form of funding. The development of information technology and the Internet enabled the emergence of a type of funding known as crowd-funding or crowdsourcing. This method operates on the basis of placing an electronic request to a special Internet platform in order to finance a specific project, which is usually socially-important. Each request is placed on a platform over the Internet and builds a pool of private investors, from which the platform provides funding for a particular user. ɋrowd-sourcing is a form of solidarity funding (as a pool of individuals) and an alternative to traditional forms of financing (such as bank loans, placement of shares and bonds, and leasing, etc.). Four main types of crowd-sourcing are combined into two groups (Crowdsourcing 2012, 12): 1) Credit-based (lending-based) and equity-based. These take into account the financial aspects of projects and provide adequate concessional lending and equity-participation for a potential borrower. This mainly involves financing for high-tech products and services. 2) Grant-based (donation-based) and reward-based. The purpose of this is mainly to finance socially-oriented projects, as well as to provide appropriate subsidies (donations) and non-economic compensation, depending on the personal predisposition of individuals to social activities and charity.

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Credit-based crowd-funding based on P2P (person-to-person) technology has become the most widespread of these forms. This technology is mainly used by crowd-funding platforms and commercial banks. According to this technology, private investors form a pool of lending for a specific project. For investors, participation in such a pool is a definite replacement of the traditional deposit (and is often on more favourable terms), when interest on the loan is tied to the expected profitability of the project. For banks, this technology makes it possible to enhance the interest of private borrowers (investors) and extend the financing of innovative, small and medium-sized businesses. In Ukraine, P2P technology has been successfully used by “Privatbank” since 2015 and has played an important role in changing the strategies associated with corporate loans for the financing of SMEs, innovation and information start-ups. The structures of the main types of crowd-funding in the world in 2015 were as follows (Massolution Crowdfunding Industry Report 2015): all crowd-funding – USD 34.4 billion; P2P lending – USD 21.1 billion; capital-based – USD 2.85 billion; based on subsidies and compensation – USD 5.5 billion. The predominance of P2P lending can be explained by crowd-funding platforms and banks being responsible for the accuracy of the information about the potential borrower and the project, and the investment projects that require finance appearing as the clear purpose of the use of funds. The distribution of crowd-funding in the world is uneven because of significant differences in the financial markets and information technology. However, there is significant potential for the growth of access to crowd-funding in remote and less-developed regions of industrialised and developing countries. The regional allocation of crowd-funding in the world in 2015 can be characterised by the following data (Massolution Crowdfunding Industry Report 2015): North America – USD 17.2 billion; Asia – USD 10.54 billion; Europe – USD 6.48 billion; South America – USD 85.74 billion; Africa – USD 24.16 billion. Pro-active distribution of crowd-funding in North America and Asia can be attributed to higher levels of Internet access and information and financial literacy, as well as a demand for finance innovation and services. D. Socio-based (patriotic and subsidised) forms of solidarity funding. Socio-based forms of solidarity financing are driven by individual perceptions of social values and personal goals, through individual

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financial donations to socially-important and patriotic projects which are implemented on a non-public basis or through collective contributions to private-public partnerships. A clear trend in social-based funding is the work of volunteers in Ukraine during the deployment of the struggle against Russian aggression in the East in 2014–2015. During this period, the Ukrainian government was not prepared to counter external aggression and the army was abandoned due to the previous government’s misjudged policy of exercising defensive reaction to external threats. The country was in a transitional state of forming a new government after the Revolution of Dignity in 2014. The state had a significant budget deficit as a result of the seizure of Crimea and external aggression, which provoked the economic crisis. During this period, a volunteer movement spontaneously arose, and has become a very important factor in combating aggression and helping to modernise the army. The main methods of financial and material assistance applied by volunteerism have been: -

collecting funds for the army using mobile phones and other means; providing financial assistance to the army through grants from individual citizens (supplies, building materials, vehicles, and medicines, etc.); constructing fortifications by using public subsidies; military equipment being repaired by unpaid volunteers; importing military equipment through voluntary donations (body armour, thermal visions, and communication means, etc.); treating seriously-wounded people abroad through voluntary donations; arranging and creating jobs for internally-displaced people from the eastern regions.

Voluntary activity and its financial component became critical in helping people during this period of external aggression and in rebuilding the defences of the country.

Conclusions Solidarity finances have deep historical roots and social orientations, and continue to develop in various ways. Their present condition has been reached through an evolutionary process that includes both global and

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national factors. Within the system of bank monitoring, it is necessary to shift the emphasis from prudential supervision and regulation of capital, to balancing the financial and social principles of the functioning of banks and other financial institutions. Financial innovation and information technology promote the rapid development of citizens’ direct participation in financing businesses, innovation and social projects. At the same time, it improves access to finance for small businesses, entrepreneurs and all social groups. Financial inclusion is an important factor in overcoming poverty. Therefore, in Ukraine and many other countries, it is advisable to implement programs that develop the information economy through electronic access to finance.

References Board of Governors of the Federal Reserve System. 2016. “Consumers and Mobile Financial Services 2016.” Accessed October 20. https://www.federalreserve.gov/econresdata/consumers-and-mobilefinancial-services-report-201603.pdf. Crowdexpert. 2016. “Massolution Crowdfunding Industry 2015 Report.” Last modified November 20. http://crowdexpert.com/crowdfunding-industry-statistics/. Crowdsourcing. 2012. “Crowdfunding Industry Report. Market Trends, Composition and Crowdfunding Platforms.” Accessed October 20. http://www.crowdfunding.nl/wp-content/uploads/ 2012/05/92834651Massolution-abridged-Crowd-Funding-Industry-Report1.pdf . Eswar Prasad et al. 2003. Effects of Financial Globalization on Developing Countries: Some Empirical Evidence. Washington: International Monetary Fund, 2003. European Association of Co-operative Banks. 2015. Corporate Governance in Co-operative Banks: 14. Brussels: European Association of Co-operative Banks, 2015. —. 2016. “Characteristics of the co-operative banking model.” Last modified November 20. http://www.eacb.coop/en/cooperativebanks/definition-and-characteristics. European Central Bank. 2016. EU banking structures. Frankfurt: European Central Bank, 2016. —. 2016. Financial integration in Europe, 162. Accessed October 20. Frankfurt am Main: European Central Bank, 2016. https://www.ecb.europa.eu/pub/pdf/other/financialintegrationineurope2 01404en.pdf.

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Eurostat. 2016. “Individuals using internet for internet-banking.” Last modified November 20. http://ec.europa.eu/eurostat/tgm/table.do?tab=table&plugin=1&langua ge=en&pcode=tin00099. Fabian Valencia and Luc Laeven. 2012. Systemic Banking Crisis Database: An Update. Washington: International Monetary Fund, 2012. Finance and Private Sector Development Department of World Bank. 2016. “Crowdfunding’s Potential for the Developing World.” Accessed October 20. http://www.infodev.org/infodev-files/wb_ crowdfundingreport-v12.pdf. International Monetary Fund. 2016. Fiscal Monitor: Debt – Use it Wisely: 111. Accessed October 18. Washington: International Monetary Fund, 2016. http://www.imf.org/external/pubs/ft/fm/2016/02/pdf/fm1602.pdf. —. 2016. Global Financial Stability Report. Fostering Stability in a LowGrowth, Low-Rate Era, 132. Accessed October 20. Washington: International Monetary Fund, 2016. https://www.imf.org/external/pubs/ft/gfsr/2016/02/pdf/text.pdf. Statista. 2016. “Online banking penetration in selected European markets in 2015.” Last modified November 20. https://www.statista.com/statistics/222286/online-banking-penetrationin-leading-european-countries/. World Bank. 2016. “Internet-users (per 100 people).” Last modified November 20. http://data.worldbank.org/indicator/IT.NET.USER.P2

CHAPTER NINE THE REGIONAL DIMENSIONS OF THE SOCIAL SOLIDARITY ECONOMY OF UKRAINE IHOR YE. ZHURBA

At the beginning of the 21st century, the socio-economic development of Ukraine and its regions is increasingly associated with man’s needs and opportunities for self-realisation and intellectual potential. The basis of the organisation and ensuring the processes of the social and solidarity economy in the current conditions depends on an interaction between national, regional, community and corporate influences. Developed countries have shown the effectiveness of transferring the management processes of socio-economic development, at both micro and macro levels, from central government to local government community representatives. The place of the functional priorities of government – control and planning – is taken on by the functions of conceptual-strategic and tacticalcoordination processes. It is on this basis that the social solidarity economy has to be formed in the regions of Ukraine (Zhurba 2012, 2016). The theoretical foundations of forming a social, solidarity economy are presented in the works of famous domestic and foreign scholars. These ideas of a social solidarity economy are an integral part of human development and one of the greatest achievements of modern scientific thought, providing full self-realisation of man as the highest value. The theoretical, methodological and practical issues of social and solidarity economies, which are based on the development and provision of human needs, are reflected in the works of foreign scholars including G. Becker (1996), M. Desai (2015), E. Durkheim (1996), K. Knies (1967), A. Comte (2009), A. Lewis, G. Myrdal, A. Marshall, A. Sen, H. Spencer (1993), T. Schulz, and others. These researchers, including Emile Durkheim, appreciated solidarity as a manifested consolidation of joint activities implementing the goals and objectives of the community on the basis of an agreed acceptance of standards and rules of public (civil) union, as well as common moral norms and values (Durkheim 1996; Filipenko 1994, 2016;

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Becker 1993; Desai 2015; Knies 1967; Comte 2009; Spencer 1993; Cook 2013). In Ukraine, the following researchers have previously made a significant contribution to the study of the social solidarity economy: Ye. Slutskyi (1912); M. Tugan-Baranowskyi (1919); M. Kovalevskyi (1997); J. Chizhevskyi (2005); I. Franko (1986). It should be noted that, at the beginning of last century, Ukrainian scientist-economist, E. Slutskyi, was one of the founders of the modern vision of economics as the science of man, and investigated the nature of cooperation, its forms and practical value. In his scientific works, Ye. Slutskyi (1912) was trying to develop his ideas on the theory of consumption into a more general theory – axioms that would embody the unity of nature and social life, the basis of which is creating the conditions for the social and economic selfrealization of man. In his writings, Tugan-Baranowskyi (1919) – who was also a scientist and economist – devoted much attention to cooperation and its socio-economic nature and purpose. Through his investigations he became one of the most prominent theorists of the cooperative movement in Eastern Europe. He created the theory of periodic crises and the dualistic theory of value, which helped him to explain social and economic laws of providing essential commodities at different levels in local communities. Note that a prominent Ukrainian writer, poet, essayist, scholar, public and political figure – I. Franko – in “Progress” and “On Labor”, stated the following about the social solidarity economy: “because to get to know people – means to get to know people living in a particular area and get to know their current and past position, their physical and mental characteristics, their institutions and economic status, their trade relations and intellectual relations with other nations” (Franko 1986, 254). The term “social solidarity economy” was first used in early 19th century France. It is now widely used and refers to the production of goods and services to balance economic growth and encourage social cohesion. Scientific and theoretical principles of a social solidarity economy in Ukraine received recognition in the 1990s. The most thorough scientific work in this area can be considered to be the contribution made by the outstanding Ukrainian scientist and economist, Anton Filipenko (1994, 2016). According to him, the experience of practically implementing the ideas and principles of a social solidarity economy can be considered as an alternative to neo-liberal globalisation processes and a possible path to a society with sustainable development. This scientist explained the concept of a popular, social economy as the basis for a new paradigm of solidarity. He defined the methodological principles, methods, factors, mechanisms and tools to form a social-solidarity and economic development model in

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Europe, and the patterns of achieving various levels of its functioning. We should note that A. Filipenko enriched and systematised the conceptualcategorical apparatus according to a people's social and solidarity economy. As it stands, a significant contribution to the study of the social solidarity economy has been made by Anton Filipenko, along with scientists-economists A. Grytsenko (2011, 11), A. Grishnova, and E. Libanova. They note that social economy organisations in the regions of Ukraine are founded on the principles of the following: priority rights; voluntary and open membership; control exercised by members according to democratic principles; common interests and the interests of individual members of the organisation; the implementation and protection of solidarity and responsibility; the use of revenues to develop activities and meet the interests of the community. Social economy organisations are associations, cooperatives, mutual societies and foundations (Grytsenko 2011, Filipenko 1994, 2016). A social solidarity economy has a wide range of features, which include social security, health care, sports and recreation, environment, and arts and culture, etc. However, problems in the formation of principles for an effective social solidarity economy system have not yet been comprehensively studied. The socio-economic status and social development of countries in the last decade proves that there are a number of systemic problems in the economic structure of the world economy and international economic relations. The presence of unpredictable economic crises and social problems demonstrates the failure of many theoretical and economic provisions of modern economic science. We believe that, as long as the basis of the socio-economic development model is “price”, rather than “value,” achieving a system which solves social problems is impossible. It is an important fact that modern research scientists of the European Union try very hard to adapt and implement the norms of a social and solidarity economy within the existing and working mechanisms of economic regulations. The subject of this study is to establish social and economic solidarity as administrative-territorial reform at a regional level in Ukraine. Based on these conditions, we can consider using the features of mechanisms and tools to eliminate disparities in regional development, create efficient mobilisation potential for natural and economic resources, and implement the principles of subsidiarity. Therefore, we must remember that structural and functional features of region development must be based on the following components: the “subsidiarity-complementarity, synergy-

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convergence” of Ukraine’s regions. By applying this principle, Ukraine’s local regional communities, under conditions of administrative-territorial reform, can establish relationships at different levels of hierarchical subordination between the branches of legislative and executive authorities and local self-government. This combines regional capacity in addressing common social and economic problems. It should be noted that the current exacerbation of poverty and social exclusion, the development of depressed regions of Ukraine, and an attempt to introduce new forms of solidarity in the fields of environmental protection, culture, civil society, and education, encourage the formation of a new stage in the social and solidarity economy. Organisations and businesses that operate on the basis of social and economic solidarity in accordance with the goals and challenges facing them, can promote economic development and address a number of social issues, including the fight against poverty (Grytsenko 2011, 11; Durkheim 1996, 114, 118, 140, 182; Kutuev 2014, 135). Family enterprises, cooperatives, and folk and utility enterprises are gradual self-created, social businesses developing in the united local communities in Ukraine’s regions. The basis of this solidarity is the process of public goods (Zhurba 2012; Filipenko 2016). Strengthening solidarity-relations should promote fair judiciary, the protection of property rights, the elimination of corruption, and so on. An important component of solidarity and social protection is the economically-vulnerable population: the disabled, the elderly, and orphans, etc. (Filipenko 1994, 2016; Chizhevsky 2005, 14; Sylla 2014, 35). If we analyse and compare global trends in social and solidarity economies with modern features of the regional problems of the economy of Ukraine, we can say that firstly, the clan-corruption economic model of Ukraine led to the social and political events of 2013–2016. Secondly, the scientifically unjustified introduction of elements of a liberal market economy based on the principles of the Washington and post-Washington consensus, which do not take into account the Ukrainian mentality and traditions, is not an effective strategy. Thirdly, it is necessary to observe and understand the modern achievements of practicing social and solidarity economies in the world, and introduce them into Ukraine, with appropriate cultural amendments. Given the historical traditions and mentality of Ukrainians – as noted by Anton Filipenko – obviously the best model for Ukraine is the creation of a national, social and solidarity economy that would provide every citizen with the possibility of ownership in the workforce and means of production. These are the

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reasons why it is necessary to form a radically new economic model: a popular, social, solidarity model (Filipenko 1994, 2016). With this in mind, there arises a new conceptual vision and understanding of the place and role of a social solidarity economy in regional development, with new approaches to its operation and development based on the rejection of traditional understandings of social public services, such as those that have been subsidised. Various nongovernmental organisations, foundations and businesses in the regions of Ukraine are working in the social economy with clear orders to obtain the highest profit. This is then directed towards the service, and quality is improved. This is a new model of social economy which, under conditions of administrative-territorial reform, should be introduced in Ukraine’s regions. The main idea of the functioning of a social solidarity economy in Ukraine has been identified as follows. Firstly, all the services provided to the public at a local level should be subject to the social economy, that is, any local government service which is provided to the population must be profitable (it should generate income which, in turn, must be fully or partially aimed at improving the service). Secondly, the social solidarity economy must be based on partnerships between local authorities and civil society, covering small and mediumsized businesses. We should note that organisations within the scope of a social solidarity economy are divided into two types: voluntary organisations (especially in the Donetsk and Luhansk regions) which create and provide services on a voluntary basis; and so-called “social enterprises” which work under the scheme of business organisations to obtain the highest profits from services, but which then reinvest those profits into social services (within the same field) which are needed by the community. Thus, the key features in forming a social and solidarity economy at the regional level in Ukraine are: -

A focus on the social goals of local communities. A disposition to generate and extract profit for the sake of public welfare. Cooperation between authorities and communities. The broad participation of local people in providing the services in common with those provided by local authorities. Voluntary activities in all areas.

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The business activities of the social solidarity economy must be flexible but stable in order to help the community achieve its goals of development. These goals are: -

To encourage the creation of new jobs. To increase the community’s capacity to implement social security and tasks in this area. To support economic growth. To mobilise the community to achieve the common goal of sustainable development and high standards of living.

Under the conditions of the administrative-territorial reform of Ukraine, we need to understand the characteristics of effective implementation of the mechanisms that form and create the functioning of local government (Figure 9-1).

Figure 9-1. The mechanisms that form and create the functioning of local government Source: Zhurba 2012. Note: created by the author.

In our opinion, Figure 9-1 reflects the structural model of local community, which should consist of the following components: local government; science; churches; businesses; the media; and nongovernmental organisations. The points of interaction between these components are bifurcated ones. The parties of communication are

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attractors that correlate with each other. The trends of local community economic development should be based on a knowledge economy, creativity, information, and the achievements of the scientific and technological revolutions and high-tech industries. In this context, the system of economically pairing “economy-price” does not work; the priority should be the social category of “axiology-compliance”. The basis of a social solidarity economy is the human capital of a local community (Zhurba 2012, 2016). We should note that in this context, it is worth paying attention to the experience of Metropolitan Andrey Sheptytskyi, regarding the introduction of social and economic solidarity in Greek-Catholic parishes between 1910 and the 1930s in Western Ukraine. It is effectively being introduced today under the conditions of administrative-territorial reform in local Greek-Catholic parishes (of the Khmelnitskyi, Lviv, Ivano-Frankivsk, Ternopil, and Chernivtsi regions). The Church promotes small-business development among parishioners. Priests and parishioners master the crafts of trade, accounting and cooperation. In the parishes, Sunday schools are created where everyone is taught to manage money, how to keep a family budget, and how to adhere to the rules of Christian virtues in business. The peculiarities of a mutual fund to promote the establishment of a business are also explained. It should be noted that one of the main components for quality in a social solidarity economy at the regional level is human capital. Let us define the mechanism for implementing human capital in a social solidarity economy at the level of a combined territorial community. It consists of two parts: the micro-environment and the macro-environment (see Figure 9-2). .

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Figure 9-2. Implementation mechanism for evaluating the human capital of a local community at the regional level Source: Zhurba 2012. Note: created by the author.

A social solidarity economy enables a local community to be selfsufficient. The competitiveness of regions at the local community level could be achieved in the long-term by intensive reproduction of human capital. There are eleven major factors that influence the development of a social solidarity economy and competitive regions in Ukraine today. These are particularly based on human capital (see Figure 9-2). It is clear that the impact of these factors can only be considered comprehensively. The direct mechanism for evaluating the regional labour market as the system to form local community human capital includes several steps: 1) Analysis of the region’s internal environment – the microenvironment (evaluating the strategic potential or, in other words, the conditions in which to form the human capital of a community). 2) Analysis of the environment – macro-environment (the strategic assessment of climate conditions or, in other words, the functioning

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of that region’s human capital). 3) Analysis of the environment as a whole (an assessment of the strategic position of the region and its competitive advantage). We can define the main micro-environment factors that affect a social solidarity economy at the local community level, as the following: 1. Suppliers of human capital (schools, vocational schools, colleges and universities, institutions that prepare and train high-quality professionals); 2. Intermediaries (employment centres); 3. Holders of human capital; 4. Competitors (holders of human potential); 5. Contact audiences (pensioners and disabled people); 6. Consumers of human capital (companies, etc.). The main factors of a macro-environment have been identified as the following: 1. Natural environment and health; 2. Economic and social environment; 3. Political environment; 4. Technological environment (availability of computing parks in cross-border regions); 5. Cultural environment and education system; 6. Legal environment. From the above, we can see that under administrative-territorial reform at the community level in Ukraine, the basis of a social solidarity economy is formed, based on favourable conditions for people’s lives. In this case, we do not have to talk about environmental, economic or socio-economic efficiency. The commonly-accepted formula for efficiency, changes its shape: the denominator will also include (apart from production costs) the costs of addressing social and environmental problems and the conditions for personal fulfilment (Zhurba 2012). Here we can establish a kind of synergy between the social, economic and environmental components that complement each other and form a model that could become an alternative to the modern economy. This model, as noted by Anton Filipenko, can be named the plastic one, the participation economy, or the mixed one, etc. This model can be used at horizontal, vertical and combined (transversal) levels. The horizontal level is beginning to function regionally in Ukraine, reflecting the activity of micro-enterprises, cooperatives and other similar organisations that enable their members and representatives of local communities to solve the problems of poverty and unemployment while ensuring access to material and financial resources, as well as participation in training, etc. (Filipenko 1994, 2016). In the Khmelnitsky region, through NGOs and local authorities, social entrepreneurship in the form of a package for starting businesses is promoted, and includes people with certain disabilities and able-bodied pensioners. A system of regional business incubators is created for this purpose. In rural areas, a type of mutual solidarity such as “public toloka”

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is being introduced. In the Khmelnitsky region, under the auspices of the First National Agricultural Cooperative and the “Svarog West Group”, there are the following social and solidarity programs: a) Interest-free loans to start independent businesses; b) “Double income from a cow”; c) “White gold”. These programs are based on an axiology (values), which includes honesty and openness, respect for each other, professionalism and continuous development, cooperation, and a careful attitude towards the land. The social and solidarity economy at the regional level actually consists of a countless variety of structures: civil organisations and associations; mutual help societies; cooperatives; foundations and mechanisms of social and professional integration, and others. Their functioning is characterised by several common features: joint administrative and general management; the size of profits for purposes such as social values, solidarity and cooperation; and a ban on gambling company shares. The scientific-theoretical heritage of social and solidarity economies provides specific answers to urgent questions of our time: the pursuit of social justice; the fight against inequality; environmental protection; and more comprehensive accounting of resources (Zhurba 2016; Tugan-Baranowskyi 1919; Filipenko 1994). We should note the important fact that modern research scientists of the European Union try to adapt and implement the norms of social and solidarity economies within the existing and working mechanisms of economic regulations and regulatory acts. Social and economic solidarity refers to various fields and is “full” of synergistic relationships. In order to create a political and legal system for the effective introduction of the principles of a social solidarity economy, the following is necessary: the main institutional role should be played by social and economic solidarity; adequate laws, rules and regulations; a means of assessing the impact of the social solidarity economy; more effective integration of new policies at different government levels; an intensive dialogue between civil organisations and society as a whole (Zhurba 2016). The social solidarity economy may become, in the near future, the driving force behind the transition to sustainable development, especially as in many cases it has proved the effectiveness of its principles and foundations, not only in social terms but also from an economic perspective. It is a fact that developments in the theory and methods of social solidarity economies remain relevant and increasingly prove the necessity of their application in economic practice. The experience of implementing the principles of the social solidarity economy enables an

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optimistic attitude to these developments in domestic practice. It should be noted that the principles of the social and solidarity economy, which are based on the sustainable development index (subindexes: environmental, social, economic, degree of harmonisation, indexes of safety and quality of life), are the basis for the regional development of local communities. This makes it possible to identify the common characteristics of the economic attributes necessary for the process of forming a modern, regional, social solidarity policy in the regions of Ukraine. Systemic coordination and the balancing of environmental, economic and social development at the regional level is a problem which is hugely complex. In particular, the interconnection between social and environmental components results in the need to preserve equal opportunities for today’s and future generations in local communities in terms of natural resources. Interaction between social and economic components requires achieving fairness in the distribution of wealth among people at the community level in Ukraine, and providing targeted assistance to the poorer segments of society. The relationship between the environmental and economic components requires an evaluation of the anthropogenic impact on the environment. Solving these problems is the most important challenge today for Ukraine’s regions. The main criteria that determines the level of sustainable development in a country is the index of sustainable development and the degree of harmonisation. Let us determine the place and role of the index of sustainable development in the formation and functioning of the social solidarity economy. This provides the opportunity to integrate an assessment that considers all three dimensions of sustainable development together, and thus reflects the inseparable relationship between the three spheres of the social, economic, and environmental, along with the social level of the state and its regions. The degree of sustainable development harmonisation reflects a balance between the economic, environmental and social dimensions of sustainable institutional development. Regional development is an active component of Ukraine’s transition towards sustainable development. The sustainable development of Ukraine’s regions means the ability to ensure balanced regional development, self-regulation, and selfimprovement with the most efficient use of the regions’ own and borrowed resources to meet the needs of the population and increasingly overcome the negative social, economic and environmental risks. This requires defining the objectives of the social and economic

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development of local communities and a joint search for ways to achieve them. The main objective is the welfare of regions by providing a single integrated model of economic, social and environmental development that stimulates dynamic socio-economic growth, along with the rational use of natural potential and environmental protection, fulfilling the needs of regional populations and stimulating structural changes in regional economies (Zhurba 2012, 2016; Filipenko 1994, 2016). The main tasks for the regions of Ukraine in transitioning towards sustainable development are: improving the legal framework and development of social infrastructure (education, culture, health, ensuring cost-effective and socially-oriented production, reforms in labour relations, and deciding whose responsibility it is to solve the problem of unemployment); creating a system for monitoring the sustainable development of scientific research; supporting innovation and high-tech sectors of the economy; the economy functioning under the conditions of greening; the creation of a raw materials base; ensuring environmental protection; creating an effective mechanism for the exchange of experience between regional enterprises; improving regional-level governance for implementing decisions on sustainable development; increasing investment-attractiveness through strong decentralisation of strong regions; creating equal conditions for business activities; coordinating the activities of businesses and government enterprises regarding environmental regulations; reducing the resource-capacity of production and using environmental technologies; establishing the limits of regional resource potential; promoting the development of a market economy and thereby increasing living standards; reforming the labour market as per the concerns for the demand for labour; providing state aid in the development of entrepreneurship as an energiser for job creation; promoting small and medium-sized businesses; increasing the competitiveness of domestic goods and industrial products in particular; and increasing the regions’ access to international cooperation. According to the index of sustainable development (2015), the regions of Ukraine can be divided into five main groups: -

The first group, which has the highest index (the city of Kyiv, and the Chernivtsi, Transcarpathian, Ternopil, and Ivano-Frankivsk regions). The second group, which has a high index (the Kyiv, Khmelnitsky, Kharkiv, Lviv, Rivne, and Poltava regions). The third group, which has an average index (the Volyn, Vinnytsia, Zhytomyr, Chernihiv, and Cherkasy regions).

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The fourth group, which has a low index (the Sumy, Zaporizzya, Dnipro, Odesa, and Kherson regions). The fifth group, which has the lowest index (the Mykolaiv, Donetsk, Luhansk and Kirovohrad regions).

Conducting analysis on each group makes no sense, because regions with the same index of sustainable development can vary greatly because of other indicators. According to the environmental component, the Chernivtsi, Volyn, Lviv, Khmelnitsky and Zhytomyr regions are the leaders, while the worst ecological situation is in the Dnipro, Donetsk, Zaporozzya and Luhansk regions. This is not surprising because the five outsiders are industrial regions where the level of air pollution has always been higher than in the western regions. In addition, it should be noted that in the Donetsk and Luhansk regions, anti-terrorist operations are conducted, which has an adverse social, economic and environmental impact. Economically, the leaders are the city of Kyiv, and the Dnipro and Kharkiv regions; and the lowest indicators are observed in the Chernivtsi, Ivano-Frankivsk, Zakarpattia, Donetsk and Luhansk regions. In this case, though, we can see that the economic leaders – the industrial regions – have the worst environmental performance across Ukraine. Kyiv is the economic centre of Ukraine, where there is a concentration of all the central financial institutions. For social development, leading Kyiv are the regions of Khmelnytsky, Kyiv, Chernivtsi and Chernihiv. The Donetsk, Luhansk, Zakarpattia, Kirovohrad and Kherson regions are in last position. We performed a structural analysis on areas that have the best or worst performance in a particular component of the social solidarity economy. The leader in the sustainable development index is Kyiv. The parties have strong economic and social development which ranked first not only in the general index but in all categories, apart from quality of life. Since in this case we explored not just the city but also the capital of the country, the great themes were class inequality, very low rates of crime, low unemployment rates, and a high life expectancy. Environmental performance is average in Ukraine but, on a positive note, the country has the lowest technological risk and environmental burden. The Chernivtsi region is the second city in the index (after Kyiv) for sustainable development. This region ranks first in environmental development. There is a clean environment throughout Ukraine, but this region ranked fourth in terms of social development and has the worst institutional performance. In economic terms, regions take last place, but it should be noted that the regional economic backlog is much less pronounced in the eastern

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provinces than the environmental lag evident in the western leaders. These regions are leaders in terms of sustainability. The special features of the region should include very low class inequality, high levels of personal safety accompanied by low crime rates, relatively low mortality rates, high life expectancy and low pollution. The Kirovohrad region is last on the index in the social category and in sustainable development. It is also last on the index for levels of personal safety. The region is characterised by an average level of environmental contamination, a low economic index measurement, particularly low development rates of business activities, corrupt practices and serious criminal activity, high mortality rates and falling living standards. The Donetsk region is characterised by low levels of sustainability and life. It is in penultimate place for ecological security and social development. This area has very low levels of investment and few business activities, while experiencing one of the highest growth rates for crime and corruption, along with a fairly high level of unemployment in the industrialised region and low environmental security, accompanied by high mortality rates. In terms of economic development, the Dnipro region is second only to the city of Kyiv, but is in first place for environmental pollution, accompanied by the highest mortality rate in Ukraine. The feature of this region is that it has much lower unemployment and corruption rates than the Donetsk and Luhansk regions and, as in any region with a developed economy, experiences very high levels of social inequality. The Khmelnitsky region is characterised by a high level of environmental safety (in fourth place) and social development (second only to Kyiv). In this area, all economic indicators are average, except for the labour market which is quite poorly developed. It has high levels of social development and low levels of institutional development, which is not surprising because Khmelnitsky is one of the smallest cities in Ukraine. The characteristics of the Khmelnitsky region include low unemployment, high class inequality, relatively high corruption and one of the highest crime rates among the western regions, but it has the highest level of social development. The Transcarpathian region is quite similar in its development to Ivano-Frankivsk, as they both have a high index of sustainable development and one of the lowest levels of economic growth. Their environmental pollution and social development are average. These areas are characterised by relatively low crime and mortality rates, as well as low unemployment. The main difference between them is the level of corruption, which is several times higher in the Ivano-Frankivsk region.

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So, as we can see, in all the regions of Ukraine, social and economic solidarity refers to various fields and the “full” synergy between them. In order to create a political and legal system to effectively introduce the principles of a social solidarity economy, the following are necessary: the main institutional role being played by social and economic solidarity; adequate laws, rules and regulations; a means of assessing the impact of the social solidarity economy; a more effective integration of new policies at different government levels; intensive dialogue between civil organisations and society as a whole (Zhurba 2016).

Conclusions In the near future, the social solidarity economy may become the driving force behind the transition to sustainable development, since in many cases it has proved its effectiveness not only in terms of its social principles and foundations but also from an economic perspective. It is a fact that developments in the theories and methods of social solidarity economies remain relevant, increasingly proving the necessity of their application in economic practice and experience, and demonstrating that implementing the principles of the social solidarity economy enables an optimistic attitude to the implementation of these developments in domestic practice. Improving the quality of services provided to the public by local authorities is an important issue for Ukraine, and it requires speedy resolution during the country’s continued formation and development as a democratic and social country experiencing administrative-territorial reform. The experience of developed democratic countries shows that the only real and effective means of improving the current situation is the use of the principles of the social solidarity economy in a renewed sense. The quality of local services can be significantly improved by the services themselves through the wide involvement of local people to set-up provision. This is the broad use of profit and non-profit associations to provide various kinds of services in order to obtain the highest profit, but with the accumulated finance being directed towards the improvement of services. In this context, the experience of the Organization for Economic Cooperation and Development can be very useful for Ukraine. A social solidarity economy is precisely the path that can provide a dramatic improvement in service quality. In this regard, it is important to look at the example of Scotland, who made the first steps towards the legal consolidation of planned reforms. At this stage, Ukraine needs to take such

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action, as follows: 1. To become a full partner of the World Organization for Economic Cooperation and Development and implement the principles of the social and solidarity economy locally. 2. To develop and consolidate the basic regulatory trends and forms for implementing the principles of a social and solidarity economy in Ukraine. 3. To become involved in developing the necessary documents, through the best national experts, scientists and representatives of the OECD. 4. Introduce a broad public discussion of the documents. Implementation of these tasks will help to solve one of the major problems in Ukraine and its regions today and substantially increase the quality of services provided to its population. Consequently, it is impossible to discuss the sustainable development of Ukraine without examining the development of its regions. Ukraine takes a rather low place, compared to other countries, in terms of its environmental and economic performance. After analysing sustainable development in the regions, it is immediately obvious what needs to be changed in order to change the overall situation of the country. The following transformations are necessary: increasing the costs for environmental support of the eastern regions; increasing the economic attractiveness of economically-underdeveloped regions (particularly the central and western regions of Ukraine); implementing effective mechanisms to overcome unemployment, corruption and crime; increasing the investment-attractiveness of the country to attract foreign funds.

References Becker, Gary S. 1996. Human Capital: a Theoretical and Empirical Analysis, with Special Reference to Education, 3rd ed. Chicago, 412. Chicago: The University of Chicago Press. Bridges John H., trans. 2009. A General View of Positivism, 444. Cambridge: Cambridge University Press. Bürgerliche, Knies K. 1967. Ökonomie im modernen Kapitalismus. Berlin. Chizhevsky, Dmytro. 2005. “Volume I”. In Philosophical Works in Four Volumes, edited by V. Lisovy, 402. Ʉyiv: Smoloskyp (Ukr.). Cook, Simon J. 2013. “Race and Nation in Marshall's Histories.” European Journal of the History of Economic Thought 20(6): 940–956.

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Desai, Meghnad. 2015. Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One, 287. New Haven: Yale University Press. Filipenko, Anton. 1994. “Civilizational Determinants of Ukrainian Economic Model.” Economy of Ukraine 4: 11–19 (Ukr.). —. 2016. “National, solidarity economy: conceptual sketch,” Economy of Ukraine 6 (655): 19–28 (Ukr.). Franko, Ivan. 1986. Latest Trends in Ethnology. Philosophical Works. Collected Works in Fifty Volumes, vol. 45, edited by V. Yevdokymenko, 574. Ʉyiv: Naukova Dumka (Ukr.). Grytsenko, Anatoliy. 2011. “Methodological bases of Ukraine Modernisation.” Economy of Ukraine 2: 4–12 (Ukr.). Hacke, Jens and Jens Alex. 2008. Philosophie der Bürgerlichkeit: Die Liberalkonservative Begründung der Bundesrepublik, Auflage 2, 323. Germany: Vandenhoeck & Ruprecht GmbH & Co KG. Hoffmann, Aleksander, trans. 1996. The Division of Labor in Society, 432. Moscow: Kanon (Rus.). Kovalevsky, Maxim. 1997. Sociology, 687. Saint-Petersburg: Aletheia (Rus.). Kutuev, P.T. and others. 2014. The Theory of Social Change: Contemporary Sociological Conceptualization, 219. Kyiv: NPU (Ukr.). Lewis, William Arthur. 2003. The Theory of Economic Growth, 453. London: Taylor and Francis. Mayboroda, Olexander. 2012. Social Solidarity in Ukraine: Problems and Political Means to Solve Them. The Analytical Report, 64. Kyiv: IPiND named after I.F. Kuras National Academy of Sciences of Ukraine (Ukr.). Notz, Gisela. 2011. Theorien Alternativen Wirtschaftens Fenster in eine Andere Welt, 192. Stuttgart: Schmetterling Verlag. Spencer, Herbert. 1993. Spencer: Political Writings, edited by John Offer and Raymond Geuss, 228. Cambridge: Cambridge University Press. Sylla, Ndongo S. 2014. The Fair Trade Scandal: Marketing Poverty to Benefit the Rich, 224. London: Pluto Press. Tugan-Baranowskyi, Mykhailo. 1919. Cooperation, Its Nature and Objective. Kyiv. Yevgen Slutsky, Yevgen. 1912. The Essence of Cooperation and its Forms. Kyiv. Yunus, Muhammad and Karl Weber. 2010. Building Social Business: The New Kind of Capitalism that Serves Humanity’s Most Pressing Needs, 256. New York: Public Affairs.

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Zhurba, Ihor Ye. 2012. Preferred Forms of Cross-border Cooperation Transformation in Terms of Bringing Ukraine Closer to the European Union, 274. Khmelnitsky: KNU (Ukr.). —. 2016. “Social and solidarity economy: experience and prospects.” Paper presented at the International Symposium “Social and Solidarity Economy – Ukrainian Choice”, Kyiv, January 28 (Ukr.).

CHAPTER TEN THE SOCIAL AND ECONOMIC IMAGE OF A COUNTRY IN TERMS OF THE SOLIDARITY ECONOMY OLEKSII A. CHUGAIEV

Economic solidarity can be traced at global, regional and national levels. Solidarity at each of these levels impacts the image of the affected countries or integration blocs. On the other hand, a country’s image can influence the readiness of other countries (politicians or the general public) to act jointly with that country. The social and economic image of a country is based on nationals’ and foreigners’ subjective perceptions of that country’s economic system, its fairness, and the conformity of its aims and policies to the aims of the people. A country’s image comprises its external image (perceptions abroad) and internal image (perceptions of the country’s citizens or residents). In this chapter, we aim to analyse the link between the external and internal social and economic image of a country or integration bloc on the one hand, and economic solidarity at various levels on the other hand.

Global Economic Solidarity The Good Country Index, provided by S. Anholt (The Good Country 2016) assesses the positive and negative contribution of countries to the general wellbeing of humanity. The index considers several aspects: -

Science and technology: international students, journal exports, international publications, Nobel prizes, and patents. Culture: creative goods and services exports, UNESCO dues in arrears, freedom of movement/visa barriers, and the freedom of the press.

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International peace and security: arms exports, dues in arrears to the UN peace-keeping budgets, and several non-economic indicators. World order: charity-giving, birth rate, and non-economic indicators. Planet and climate: the export of hazardous pesticides, CO2 emissions, the consumption of ozone-depleting substances, and the ecological footprint and reforestation. Prosperity and equality: open trading, UN volunteers abroad, fairtrade market size, FDI outflows, and development assistance. Health and wellbeing: food aid, pharmaceutical exports, voluntary excess donations to the WHO, and humanitarian aid donations, etc.

According to the Good Country Index, the leading countries were Ireland, Finland, Switzerland, the Netherlands, New Zealand, Sweden, the United Kingdom, Norway, Denmark, Belgium, France, Canada, Germany, Austria and Australia. The US ranked only 21st; Japan, 25th; Brazil, 49th; India, 81st; Russia, 95th; Ukraine, 99th; and China, 107th (of 125 countries). Many of the indicators that are considered are measured relative to GDP and, therefore, the leading countries are often relatively small economies. This index actually evaluates the reputation of countries through objective statistical indicators of their solidarity policies and behaviours within the global economy and entire humanity. Economic aid is an important component of solidarity. It is a significant factor in the image of advanced European economies. J. Nye (2004) has stated that Europe uses a relatively larger share of its GDP than the US does to provide aid to developing economies. Japan has the best image as a country in helping to develop less advanced economies in the East Asia region (Whitney & Shambaugh 2009, 19). The effect of economic aid can be long-lasting. For example, Russia still benefits from a positive image in several developing countries because of earlier aid provided by the USSR (Chekmaryov 2012). This aspect is considered in two Good Country sub-indices. The leaders of the prosperity and equality sub-index (which includes development aid) were Ireland, Switzerland, Finland, Sweden and Belgium. The US ranked only 53rd; Ukraine, 96th; China, 108th; and Russia, 112th. The leaders of the health and wellbeing sub-index (which includes food and humanitarian aid) were Spain, the Netherlands, Belgium, Canada and Denmark. The US ranked 7th; Russia, 42nd; China, 70th; and Ukraine, 105th (The Good Country 2016).

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The Country Reputation Index, published by the Reputation Institute, is based on online opinion polls and includes these components: -

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Effective government (weighting of 37.1%), including progressive social and economic policies (6.1%), and a favourable environment for business (5.2%). An appealing environment (36%). Advances in the economy (26.9%), including high quality products and services (5.4%), a well-educated and reliable workforce (5.3%), well-known brands (4.7%), and technological advances (4.2%) (Reputation Institute 2016).

In 2016, countries with the best reputations were Sweden, Canada, Switzerland, Australia, Norway, Finland, New Zealand, Denmark and Ireland. Ukraine ranked 50th out of 70 countries (Reputation Institute 2016). Since the leading countries in both the Good Country and Country Reputation indices are often the same, we can conclude that global solidarity actions and policies can improve the worldwide reputation of a country. The image of a country and how much it is trusted in terms of its readiness for solidarity is also an influence. For example, the United Kingdom was the most trusted nation by the US public (78%) and was followed by Japan (62%), France (59%), Israel (56%), India (50%), Russia (33%), China (26%), Saudi Arabia (25%) and Pakistan (10%). American experts from the government, retired military personnel, business and trade, scholars and news media had a similar distribution of trust to these countries. But the UK (98–100%) and Japan (94–100%) enjoyed almost complete trust from the experts. France (77–97%), Israel (63–68%), India (67–85%), Saudi Arabia (46–56%) and China (26–34%) were trusted more by the experts than by the public. Russia (11–28%) and Pakistan (2–13%) were trusted less by American experts (Pew Research Center 2012d). Therefore, we can assume that the US is likely to have common economic targets and to act jointly first of all with the United Kingdom and Japan instead of Russia, China, Saudi Arabia or Pakistan. Another study found that the US trusted economic relations with the EU and Japan more than it did with China (Whitney & Shambaugh 2009, 24, 29). In China, the respondents preferred partnerships with the US and the EU more than they did with Japan and South Korea (Whitney & Shambaugh 2009, 12). In 2012, out of six countries, Russia was the most trusted country (48%) followed by the US (43%), the EU (33%), Pakistan (31%), India (23%) and Iran (21%). The attitude to Japan was more hostile

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(41%) than friendly (30%). In comparison to 2010, the share of the Chinese who considered relations with the US and India as cooperation had decreased but the attitude varied across the groups of respondents. For example, the Chinese who were richer, younger, more educated or who lived in cities had a better attitude to the US (including to the American way of doing business) (Pew Research Center 2012b, 11–13). Readiness for solidarity between countries can exist both at the levels of government policy and the behaviour of the general public. For instance, Awada & Yiannaka (2006, 6, 49) stated that under the horizontal differentiation of goods, consumers do not pay attention to the country of origin as an indicator of quality. But consumers can use the information about origin to buy goods from a certain country because, for example, they want to express support for it through a sense of belonging or because of fond memories of visiting it.

Economic Solidarity and Regional Integration We will further consider this type of solidarity using the EU as an example. This has been an important factor in the image of the EU, which depends on economic growth trends. During the crisis, the issue of solidarity between the member states became very topical. In some cases, the attitude of member states to each other has been rather controversial, which questions the solidarity between them in terms of solving common economic problems. EU power has been decreased by the lack of joint approaches in tackling global economic problems (Erixon n.d.). A widely expressed idea is that the EU should improve its cohesion and converge its policy aims, values and interests in order to better exercise its soft power (Miroshnikov 2013). There are stereotypes about some of the member states. In 2012, eight countries were surveyed (the United Kingdom, Spain, France, Germany, Italy, Greece, Poland and the Czech Republic). Most countries considered Germany to be the most hard-working (only in Greece was the most hardworking nation considered to be Greece). Greece, as well as Italy and Romania, were considered to be the least hard-working. Italy had the image as the most corrupt country, while Germany’s reputation was as the least corrupt (Pew Research Center 2012a, 2). Germany was the most popular country (80–84%) in France, Germany and the Czech Republic. Only in Greece was the attitude to it very different (21%) (Pew Research Center 2012a, 35). Another survey of six European countries in 2011 confirmed a generally positive perception of Germany, especially in France (90%), while in two non-member states

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(Ukraine and Russia) it was good enough too (78%) (Pew Research Centre 2011, 64). France had the best image (74–80%) in Germany, Poland and the Czech Republic, while its worst image (53–54%) was in Italy and Greece. The United Kingdom enjoyed the best image (78–84%) in Poland, the Czech Republic and in its own nation, while in Greece it was the worst (37%). The attitude to Italy did not vary substantially (57–69%). The attitude to Spain was mostly within the range of 69–76%, except in Spain (45%) and Italy (59%). The worst image of Greece (25–30%) was in the Czech Republic, Germany and Italy. It was somewhat better in other countries (34–48%) but definitely positive in Greece (71%). In 2010, the attitude to Greece had been better. Therefore, in recent years Greece was seen as being different to the rest of the member states (Pew Research Center 2012a, 35). However, by looking at other criteria, Germany can be regarded as being different from other member states. Germany’s attitude to the current economic situation and the most topical economic problems was very different from the average EU attitude. In 2013, 75% of respondents in Germany considered that the economy was in a good state (the median indicator in eight surveyed countries was only 9%). 54% said their country benefitted from EU integration (median: 26%); 77 % said that their personal economic situation was good (median: 51%); 60% had good perceptions of the EU (median: 43%); 27% said their economic situation would improve in the next 12 months (median: 15%); 28% were worried about unemployment (median: 78%); 37% were concerned about public debt (median: 71%); and 31% were concerned about inflation (median: 67%) (Pew Research Center 2013b, 8, 15). In Germany, 51% of the population wished that Brussels had more powers to solve economic problems. In other member states, support for the centralisation of power in the EU was much lower (Stokes 2013c). In 2007–13, confidence in the EU institutions in France (together with Germany, France is often considered to be the “core” of the EU) decreased from 62% to 41% (in Germany from 68% to 60%). This led to a heterogeneity of views inside “the EU core”. The French have become even more euro-sceptical than the British. In terms of mind set, France has drifted closer to Southern Europe (Stokes 2013b). But there is some similarity between Germany and the United Kingdom according to some other criteria (e.g. the reputation of management and attitudes to sanctions). Guiso, Sapienza & Zingales (2009) analysed confidence in European managers. German managers were the most trusted, followed by British, French, Spanish and finally

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Italian. Another trend was more confidence in managers of the respondents’ own country. As for the sanctions against Russia, there are three groups of countries: -

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Those that have actually (or potentially) lost out because of the sanctions but nonetheless support them (Germany, the Baltic states, and the United Kingdom). Those that have lost out because of the sanctions and could support their easing (Italy, Spain, Slovakia, Hungary and, partially, Finland). Those that incurred small losses and were likely to support the easing of sanctions (Greece, Bulgaria, and Cyprus) (Sharov 2015).

As a result, the EU’s image in the world worsened due to its economic problems and lack of solidarity. We used the data of the Pew Research Center (2016) to discover that, in 2007–13, positive attitudes towards the EU generally decreased, especially in Spain (by 44 percentage points), France, Italy (at least 20 pp), Canada, the Czech Republic, Poland, Kenya, Egypt, and Mexico (at least 10 pp). No significant improvements were registered in any of the the surveyed countries. But the worsening of the EU’s image took place mainly within its member states; the change in positive attitude negatively correlated with EU membership (-0.63). Also, there was a decrease in the number of people who considered the EU to be the global economic leader and the trend was especially obvious inside the EU itself (correlation -0.40). The EU is currently experiencing a difficult period in terms of its social and economic image but it is possible that this has already reached the bottom. This means, therefore, that overcoming economic difficulties in the future and the external integration potential will probably improve the EU’s image. For example, in 2015, Spain, Portugal, Italy and Ireland improved their reputations because of economic revival (Reputation Institute 2015). According to the Eurobarometer, in May 2015, 41% of Europeans had a positive perception of the EU (19% were negative). The indicator was better than in 2012–13 (30%), but worse than in 2007 (52%). The EU had the best image in Romania, Ireland, Lithuania, Bulgaria, Poland, Luxemburg and Malta (more than 50% positive) and the worst image in Cyprus and Austria. In 2015, Cyprus, Greece and Spain worried the most about the economic situation. The largest support for economic and monetary union was in Estonia, Slovakia and Luxemburg (more than 80%), while the lowest support was in the United Kingdom, the Czech

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Republic and Sweden (lower than 25%) (European Commission 2015, 7, 15, 26).

Economic Solidarity inside a Country Solidarity at this level depends on consumer ethnocentrism (solidarity between domestic consumers and producers) and the social and economic model (solidarity between various groups of the population). Consumer ethnocentrism means that it is more moral to buy domestic goods, although other situations are possible (e.g. if consumers do not discriminate between domestic and foreign goods or if import goods are considered to be a priori more valuable) (Shimp 1987). The absence of consumer ethnocentrism in the importing countries is better for exporting countries. There are several findings related to consumer ethnocentrism. For example, the domestic origin of goods is more important for those people whose income is threatened by foreign competition (Shimp & Sharma 1987). Ehmke (2006, 1, 7, 10) performed a meta-analysis of 13 research works about agricultural markets and discovered that the price premium for domestic origin varied from -55.4% for beef in Germany, to 153% for onions in Niger, averaging 28.6%. Licsandru, Szamosi & Papadopoulos (2013) found that consumers in Romania often preferred domestic goods but usually because they were easier to find. They bought these goods frequently, which was another reason why they preferred them, along with their knowledge of the products, a sense of pride, strong brand names, and a variety of levels of product satisfaction. Its economic model is an important factor in the internal and external image of a country. Its attractiveness depends on its ability to target an audience’s values (tangible and intangible results, economic freedom, fairness, and social responsibility of businesses, etc.). A social and economic model can be a benchmark for other countries. Radikov & Leksyutina (2012) stated that a successful economic model unintentionally advertises the economic achievements of a country. For example, the soft power of the US is largely provided by offering the American dream (based on personal success) to the world (Radikov & Leksyutina 2012). The American economic model is based on relatively little regulation, low taxes, income redistribution and social services provisions, while Americans usually have longer working hours, are less risk-averse and more ready for change (Julius 2005). Todd (2004, 36) claimed that the liberal economic theory and ideology supported by the US is one of the main components of US cultural exports.

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But no country can have absolute soft power because it is not possible to please everybody. It is easier to disseminate one’s ideas in similar societies (Kapitonenko 2010). For instance, liberal economies are more popular in similar countries but can be less popular in countries with different economic models. The American model is not 100% attractive to European countries. After the end of the Cold War, only a quarter of people in the Czech Republic, Poland, Hungary and Bulgaria wished to apply the American economic model, despite two thirds of them appreciating the influence of the US on their countries (Nye 2004). For a long time, the attractiveness of the social and economic model was an element of the regional and global influence of the EU. Despite wages per hour and life expectancy being similar in the US and the EU, living in the latter provides more free time, stability and social security (Julius 2005). The EU has a higher ratio of government expenditure and taxes to GDP, more stringent labour regulations and less income inequality (Nye 2004). Northern Europe has the lowest share of low-waged jobs (6– 8%) among the developed economies, while the US and the United Kingdom have the highest (21–25%) (Kolot & Ilnitskii 2011). The Chinese economic model is attractive because of its stable and fast economic growth but Western economies are still more popular because of their comprehensive social security systems and higher economic development levels (Zaiqi 2009). Despite some geo-economic attractiveness, Russia has difficulties creating its own attractive economic model and the negative aspects of its economic image include corruption, income inequality, a consumerism society in the capital and a propensity for “easy money” (Danilovich & Yarygina 2010). The recent financial crisis has been a major challenge which questioned the fairness of economic models, even in the developed economies. In 2012, more than half of Americans considered that their economic system mostly favoured the rich, but respondents still preferred more equal opportunities rather than a redistribution of income (Stokes 2012). The EU’s image could be affected by an increase in income inequality which, in 2013, 85% in eight surveyed member states felt, while 77% considered that the economic system favoured the rich more than the poor (especially respondents in Greece, Spain and Italy) (Stokes 2013a). According to the Eurobarometer survey in 2014, 32% of respondents stated that social inequality is one of the major challenges for the EU (European Commission 2014, 8, 11). Moreover, in many of the surveyed countries in 2013 the majority of people considered that their national economic system favoured the rich more than the poor. The opposite

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situation was only found in Malaysia, Venezuela and Australia (Pew Research Center 2013a, 8). We can also use the share of positive answers in addressing the question: “Do most people succeed if they work hard?” This can evaluate opinion about the fairness of the social and economic model. In 2012, the share of positive answers was the highest in Pakistan (81%), the US (77%), and Tunisia (73%). The lowest share was in Lebanon (32%), Russia (35%) and Japan (40%). It is interesting that, in China, it was only 45%, and in the EU member states it was between 43% (Greece, Italy) and 57% (the UK) or 56% (Spain) (Pew Research Center 2012c, 15). Following our previous research (Chugaiev 2010), we assume that the internal economic image of a country depends on personal absolute and relative income. Trends in median income per capita can be proxied by adjusting GDP growth according to the change in income inequality. We calculated the adjustment ratio for 74 countries and territories in 1995– 2009. Annual data on income distribution by deciles was used (Euromonitor International 2010). On average, the adjustment turned out to be about 10 times lower than GDP growth. But it varied across the countries. Income inequality tended to decrease where it was high (mostly in Latin America) and to grow in countries where it was low (Northern Europe) or in fast-growing economies (e.g. China). The adjusted GDP growth in China during the 15year period should therefore be corrected 17% downward, while in Brazil it should be corrected 18% upward. However, the adjustment still only has a minor effect on the ranking of countries by economic growth. The adjustment improves the ranking of the US and Germany by two places each, and Brazil by 26 places. Russia goes down by three places, while Japan and Ukraine go down by one place each. The ranking of China and India are not affected. Therefore, with economic growth, the problem of growing social inequality is not very important. But we should note that the main methodological drawback of our study was ignoring the shadow economy. We also see that people pay more attention to social and economic inequalities during economic crisis or stagnation.

Cluster Analysis of Countries by Internal Social and Economic Image As we can see, it is important to improve both the external image of a country and the opinion of its nationals about whether the national economic system is fair and beneficial. In this part, we will group countries together by their internal social and economic images, which

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depend on their social and economic models, development levels, and current and future economic growth. We used data from opinion polls in 46 countries in 2015 (or at least 2014 or 2013), provided by the Pew Research Center. The following proxy-variables were used to evaluate the internal national economic image: -

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Opinion about the current economic situation C (the share of people responding “good” to the question: “Is the country's economic situation good or bad?”). Short-term optimism S (the share of people responding “improve” to: “Do you expect your country's economic situation to improve, remain the same or worsen in the next year?”); Long-term optimism L (the share of people responding “better” to: “When children today grow up, will they be better-off financially than their parents?”).

The correlation of C and S with L was 0.55 and 0.6. But S and L correlate much more strongly (0.85). In Ukraine, the opinion about the current economic situation was the second worst after Greece (C=3%), but people were slightly optimistic about the near future (S=24%) and much more optimistic about the distant future (L=48%, which is close to the average in all 46 countries). The best opinions about the current situation came from China (C=90%); the most short-term optimism came from Nigeria (S=92%); the most long-term optimism could be found in Vietnam (L=91%). The most pessimistic nations were the Czech Republic in the short-term (S=15%) and France in the long-term (L=14%). We used three variables for a k-means cluster analysis of countries. We did not standardise data because the variables were measured in the same units and have similar distributions. We obtained five clusters. An F-test shows that all three variables significantly affected clusterisation at p