Social investment
Speech by the Rt Hon Iain Duncan Smith MP, Secretary of State for Work and Pensions.
Introduction
It’s a pleasure to be here tonight, and a particular pleasure to be at the Mansion House.
It is here that my speech really begins.
Back in 1739, when the first stones in this building’s foundations were being laid, a rather momentous occasion was taking place just two miles west of here at Somerset House.
There, an assorted group of aristocrats, merchant bankers, artists and other ‘men of standing’ had gathered for a celebration.
The reason?
They had just been granted a Royal Charter by King George II to build the Foundling Hospital, set up to look after ‘the education and maintenance of exposed and deserted young children’.
But this wasn’t just any old hospital - it was a hospital that helped lay the foundations for the great wave of philanthropic activity that took place during the 18th and 19th Century.
Self-made men and women, led in this case by Thomas Coram, were pouring their money back into a society in which they saw overwhelming levels of social breakdown.
Social breakdown
The work that Coram and his contemporaries did was entirely laudable - but I should stress that I’m not just here tonight to talk about philanthropy.
Nor am I here to harp back to an imagined ‘golden era’.
The construction of the Foundling Hospital was both a symbol of a positive trend at the time - a rise in giving - and an overwhelmingly negative one - a rise in the level of street children and in overall levels of social breakdown.
I simply seek to make a point about what this philanthropic movement represented - namely the commitment of those at the top of society to putting their wealth back in to supporting those at the bottom.
I feel we may have lost our way a little since then.
Coram’s ambition was to change lives - the problem at the time was a lack of money.
Today our problem is more a lack of ambition.
We have been content to sustain people and not to change their lives, allowing social breakdown to fester and thrive in our poorest communities.
Waste of potential
This isn’t just a mark on our consciences.
It is also a criminal waste of potential.
I’ve frequently said that many young people in our country who are out of work, on the dole, or in some of our toughest street gangs are harbouring a range of skills that could rival some of our top-paid professionals.
They are just completely misdirected.
I’m talking about the young people who are mathematical whizzes when it comes to calculating their benefit claims.
I’m talking about the young people who are able to pull apart and unblock stolen mobile phones, or fix up old bikes and mopeds.
And I’m talking about young people who organise and lead highly complex gangs and drugs cartels.
These kids aren’t stupid.
They have just never had the opportunities that many of us were able to take for granted.
It all started badly for too many of them - dysfunctional families…
…underperforming schools…
…intimidating street gangs…
…and then too often into the arms of a welfare system that acts as a crutch, rather than a springboard for change.
Unlocking human capital
Meanwhile, at the top end of society, we find some of our most successful and well rewarded professionals pouring - rightly - their skills into wealth creation…
…but too often they are detached from what is going on at the bottom.
In many cases…
…although not far away in miles from some of our most serious social problems…
…they do not have to see them, or do not believe they could be part of the solution for change.
The task seems too great, the gap between top and bottom too wide.
So the obvious question is: how do we bring these two groups together, using one set of skills to unlock the other?
Social investment
The answer to this challenge, I believe, lies with social investment, which is why we’re here tonight.
Social investment could be the tool for unlocking human capital at both ends of society, without being forced to rely on the generosity of a few wealthy individuals.
I want to see a process by which the wealth creators in our society can be tied back into projects which yield BOTH a social return for the community AND a financial return for them.
Why is this different from charity?
Because you get the rigour and discipline that comes from someone risking their money on an investment…
…money that could otherwise be reaping a return elsewhere.
If our top businessmen and women are putting their cash and the cash of their companies into these investments you can guarantee they will be keeping an eagle eye on them, bringing their expertise and asking all the right questions.
That makes then whole process both more effective, and more sustainable.
When you give money charitably it is an act of selfless giving.
You give money - wonderfully - because you think it is right.
But when you invest, this is an act of hard-headed calculation.
And once this area is opened up there’s no reason it shouldn’t become a mass market - there’s no reason that people shouldn’t be investing their savings in social investment ISAs or pension funds with a social return element.
Growing market
So what chance this new golden age?
The Social investment market is still in its infancy.
It is worth around £190m today, a number that pales in comparison with the £3.6 billion annual outlay on philanthropic grant funding.
But the market also has serious potential.
Ronald Cohen, known to many as the father of venture capital - has commented that
enterprise and impact investing…look like the wave of the future.
Indeed, in his view:
Impact [social investment] capital is the new venture capital”.
The challenge is how we get to that position from where we are now.
Government
In recent months I have made a number of calls to the market to get involved in this agenda…
…and that’s why I congratulate Broadway for launching their Property Fund today.
But Government has to get the financial and regulatory conditions right, and we’re very much in listening mode.
One of the things we’ve heard from a number of organisations is that before they can invest substantial funds in social returns they need to have a better understanding of what those returns might be - and how certain they are to accrue.
A number in particular have supported the idea of an Early Intervention Foundation, which would provide expert advice on early intervention as well as building the evidence base on social returns.
I recently made a speech where I promised I would provide more details on this Foundation shortly - we are about to do just that.
There are also a number of innovative projects going on across Government - from payment by results through the Work Programme…
…through to full-blown social investment projects like the Peterborough Social Impact Bond…
…my Department’s Innovation Fund…
…and the Cabinet Office’s local authority pilots.
At the same time, we are seeing a major new source of investment funds coming on stream via Big Society Capital.
There are already some really interesting projects here, including the setting up of the world’s first ‘Social Stock Exchange’ for social enterprises, which will be located right here in London.
Conclusion
To me it feels like we’re at a tipping point with this agenda.
There is good work going on everywhere we look…
…but it’s now a question of how we piece it together and build a crescendo.
Shortly we will be publishing a new Social Justice strategy, setting out our ambition to use new and innovative delivery mechanisms…
…including social investment…
…to change the lives of our most disadvantaged individuals and families.
Our ambition is for the UK be a world leader in this field.
I want to build a new legacy for this nation, not just as a country of great givers…
…but as a country of savvy social investors…
This is - I believe - the best way we can start the tough but necessary process of reconnecting the top and bottom of society…
…by bringing together the city with the inner city, and…
…through that…
…helping mend our social fabric.