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TEDGlobal 2013

Toby Eccles: Invest in social change

June 12, 2013

Here's a stat worth knowing: In the UK, 63% of men who finish short-term prison sentences are back inside within a year for another crime. Helping them stay outside involves job training, classes, therapy. And it would pay off handsomely -- but the government can't find the funds. Toby Eccles shares an imaginative idea for how to change that: the Social Impact Bond. It's an unusual bond that helps fund initiatives with a social goal through private money -- with the government paying back the investors (with interest) if the initiatives work.

Toby Eccles - Social investment visionary
Toby Eccles has created a radical financial instrument that helps private investors contribute to solving thorny public problems. Full bio

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Double-click the English subtitles below to play the video.
I'm here today to talk about social change,
00:12
not a new therapy or a new intervention
00:15
or a new way of working with kids
or something like that,
00:19
but a new business model for social change,
00:21
a new way of tackling the problem.
00:24
In Britain, 63 percent of all men
00:27
who come out of short sentences from prison
00:31
re-offend again within a year.
00:34
Now how many previous offenses
00:37
do you think they have on average
00:40
managed to commit?
00:42
Forty-three.
00:44
And how many previous times
do you think they've been in prison?
00:47
Seven.
00:50
So we went to talk to the Ministry of Justice,
00:51
and we said to the Ministry of Justice,
00:54
what's it worth to you
00:56
if fewer of these guys re-offend?
00:59
It's got to be worth something, right?
01:01
I mean, there's prison costs,
01:03
there's police costs, there's court costs,
01:05
all these things that you're spending money on
01:08
to deal with these guys. What's it worth?
01:11
Now, of course, we care about the social value.
01:13
Social Finance, the organization I helped set up,
01:16
cares about social stuff.
01:20
But we wanted to make the economic case,
01:22
because if we could make the economic case,
01:25
then the value of doing this
would be completely compelling.
01:27
And if we can agree on both a value
01:30
and a way of measuring whether we've been
01:33
successful at reducing that re-offending,
01:35
then we can do something
01:37
we think rather interesting.
01:39
The idea is called the social impact bond.
01:42
Now, the social impact bond is simply saying,
01:46
if we can get the government to agree,
01:48
that we can create a contract where
01:50
they only pay if it worked.
01:53
So that means that they can try out new stuff
01:56
without the embarrassment
01:59
of having to pay if it didn't work,
02:01
which for still quite a lot of bits of government,
02:03
that's a serious issue.
02:04
Now, many of you may have noticed
02:06
there's a problem at this point,
02:07
and that is that it takes a long time to measure
02:09
whether those outcomes have happened.
02:11
So we have to raise some money.
02:14
We use the contract to raise money
02:17
from socially motivated investors.
02:19
Socially motivated investors:
02:22
there's an interesting idea, right?
02:24
But actually, there's a lot of people who,
02:26
if they're given the chance,
02:29
would love to invest in something
02:30
that does social good.
02:32
And here's the opportunity.
02:35
Do you want to also help government find
02:37
whether there's a better economic model,
02:39
not just leaving these guys to come out of prison
02:41
and waiting till they re-offend
and putting them back in again,
02:44
but actually working with them
02:47
to move to a different path
02:48
to end up with fewer crimes
02:50
and fewer victims?
02:52
So we find some investors,
02:54
and they pay for a set of services,
02:57
and if those services are successful,
02:59
then they improve outcomes,
03:01
and with those measured reductions in re-offending,
03:04
government saves money,
03:07
and with those savings,
03:08
they can pay outcomes.
03:09
And the investors do not just get their money back,
03:12
but they make a return.
03:14
So in March 2010, we signed
03:16
the first social impact bond
03:18
with the Ministry of Justice
03:20
around Peterborough Prison.
03:22
It was to work with 3,000 offenders
03:24
split into three cohorts of 1,000 each.
03:27
Now, each of those cohorts
03:30
would get measured over the two years
03:32
that they were coming out of prison.
03:34
They've got to have a year to commit their crimes,
03:35
six months to get through the court system,
03:37
and then they would be compared to a group
03:40
taken from the police national computer,
03:42
as similar as possible,
03:44
and we would get paid
03:46
providing we achieved a hurdle rate
of 10-percent reduction,
03:48
for every conviction event that didn't happen.
03:50
So we get paid for crimes saved.
03:54
Now if we achieved that 10-percent reduction
03:57
across all three cohorts,
04:01
then the investors get a seven and a half percent
04:03
annualized return on their investment,
04:06
and if we do better than that,
04:08
they can get up to 13 percent
04:10
annualized return on their investment,
04:12
which is okay.
04:14
So everyone wins here, right?
04:16
The Ministry of Justice can try out a new program
04:19
and they only pay if it works.
04:22
Investors get two opportunities:
04:25
for the first time, they can invest in social change.
04:27
Also, they make a reasonable return,
04:30
and they also know that
04:32
first investors in these kinds of things,
04:34
they're going to have to believers.
04:37
They're going to have to care in the social program,
04:38
but if this builds a track record
04:40
over five or 10 years,
04:42
then you can widen that investor community
04:44
as more people have confidence in the product.
04:46
The service providers, well, for the first time,
04:48
they've got an opportunity to provide services
04:50
and grow the evidence for what they're doing
04:53
in a really constructive way and learn
04:56
and demonstrate the value of what they're doing
04:58
over five or six years, not just one or two
05:00
as often happens at the moment.
05:02
Society wins: fewer crimes, fewer victims.
05:04
Now, the offenders, they also benefit.
05:07
Instead of just coming out of the prison
05:10
with 46 pounds in their pocket,
05:11
half of them not knowing where they're spending
05:13
their first night out of jail,
05:15
actually, someone meets them in prison,
05:17
learns about their issues,
05:20
meets them at the gate,
05:22
takes them through to somewhere to stay,
05:24
connects them to benefits,
connects them to employment,
05:26
drug rehabilitation, mental health,
05:29
whatever's needed.
05:31
So let's think of another example:
05:33
working with children in care.
05:35
Social impact bonds work great
05:37
for any area where there is at the moment
05:39
very expensive provision that produces
05:42
poor outcomes for people.
05:44
So children in the state care
05:46
tend to do very badly.
05:47
Only 13 percent achieve a reasonable level
05:50
of five GCSEs at 16,
05:54
against 58 percent of the wider population.
05:57
More troublingly, 27 percent of offenders in prison
05:59
have spent some time in care.
06:03
And even more worryingly,
06:05
and this is a Home Office statistic,
06:06
70 percent of prostitutes
06:08
have spent some time in care.
06:10
The state is not a great parent.
06:12
But there are great programs
06:15
for adolescents who are on the edge of care,
06:18
and 30 percent of kids going into care
06:21
are adolescents.
06:23
So we set up a program with Essex County Council
06:25
to test out intensive family therapeutic support
06:27
for those families with adolescents
06:31
on the edge of the care system.
06:34
Essex only pays in the event
06:36
that it's saving them care costs.
06:38
Investors have put in 3.1 million pounds.
06:41
That program started last month.
06:44
Others, around homelessness in London,
06:46
around youth and employment and education
06:49
elsewhere in the country.
06:52
There are now 13 social impact bonds in Britain,
06:54
and amazing levels of interest in this idea
06:57
all over the world.
07:00
So David Cameron's put 20 million pounds
07:01
into a social outcomes fund to support this idea.
07:04
Obama has suggested 300 million dollars
07:07
in the U.S. budget for these kinds of ideas
07:10
and structures to move it forward,
07:14
and a lot of other countries
07:16
are demonstrating considerable interest.
07:17
So what's caused this excitement?
07:19
Why is this so different for people?
07:21
Well, the first piece, which we've talked about,
07:24
is innovation.
07:26
It enables testing of new ideas
07:28
in a way that's less difficult for everybody.
07:31
The second piece it brings is rigor.
07:34
By working to outcomes, people really have to test
07:37
and bring data into the situation
that one's dealing with.
07:40
So taking Peterborough as an example,
07:44
we add case management
07:47
across all of the different organizations
that we're working with
07:49
so they know
07:52
what actually has been done with different prisoners,
07:53
and at the same time they learn
07:55
from the Ministry of Justice, and we learn,
07:57
because we pushed for the data,
07:59
what actually happens, whether
they get re-arrested or not.
08:01
And we learn and adapt the program accordingly.
08:03
And this leads to the third element, which is new,
08:07
and that's flexibility.
08:10
Because normal contracting for things,
08:12
when you're spending government money,
08:15
you're spending our money, tax money,
08:17
and the people who are in charge
of that are very aware of it
08:19
so the temptation is to control
exactly how you spend it.
08:22
Now any entrepreneur in the room knows
08:26
that version 1.0, the business plan,
08:29
is not the one that generally works.
08:31
So when you're trying to do something like this,
08:34
you need the flexibility to adapt the program.
08:36
And again, in Peterborough, we started off
08:39
with a program, but we also collected data,
08:42
and over the period of time,
08:46
we nuanced and changed that program
08:48
to add a range of other elements,
08:50
so that the service adapts
08:53
and we meet the needs of the long term
08:54
as well as the short term:
08:57
greater engagement from the prisoners,
08:59
longer-term engagement as well.
09:02
The last element is partnership.
09:05
There is, at the moment, a stale
debate going on very often:
09:07
state's better, public sector's better,
09:10
private sector's better, social sector's better,
09:13
for a lot of these programs.
09:16
Actually, for creating social change,
09:18
we need to bring in the expertise
09:20
from all of those parties
09:21
in order to make this work.
09:23
And this creates a structure
09:25
through which they can combine.
09:27
So where does this leave us?
09:29
This leaves us with a way
09:31
that people can invest in social change.
09:33
We've met thousands, possibly millions of people,
09:36
who want the opportunity to invest in social change.
09:39
We've met champions all over the public sector
09:41
keen to make these kinds of differences.
09:44
With this kind of model,
09:46
we can help bring them together.
09:48
Thank you.
09:50
(Applause)
09:52

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Toby Eccles - Social investment visionary
Toby Eccles has created a radical financial instrument that helps private investors contribute to solving thorny public problems.

Why you should listen

All too often, an ex-inmate walks out of prison with the exact same problems he or she walked in with: lack of skills, lack of support, no job. And they end up re-offending and back in jail. It's an expensive problem to fix, but it's a much more expensive one to ignore. A director at Social Finance in London, Toby Eccles explores the arbitrage between those two options.

In 2010, his pioneering Social Impact Bond allowed private investors to support a UK program targeting ex-prisoners who served short sentences (the limited government funding only goes to ex-inmates who served long terms). The £5m scheme, funded by 17 investors, supports training and support for 1,000 ex-inmates; if they re-offend less than a control group, the government will pay investors back, plus interest, through the savings accrued by achieving the program's targets.

More such bonds are now being tried across the world, including in New York City and Massachusetts (both addressing recidivism), and extended to new fields such as development. Eccles founded Social Finance in 2007, and he oversees all of the firm's social impact bond work, where, he says: "We are incentivised to work with the complicated and with those willing to change." "We are incentivised to work with the complicated and with those willing to change."

The original video is available on TED.com
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