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In the public sector

In the past, governments were often pioneers of social innovation. The great municipal reforms of the 19th century created a new social infrastructure, as did the welfare reforms of the late 19th and 20th centuries. More recently some of the most important technological innovations were associated with public organisations – from the Internet (DARPA) to the World Wide Web (CERN). But there are many structural features of government that inhibit risk taking and innovation. There are barriers (from cost based budgeting and departmental structures, to audit and accountability processes, as well as a lack of career rewards) and few enabling conditions such as the dedicated budgets, teams, and processes found in business or science. These conditions too often squeeze out new ideas and impose standardised solutions rather than allowing many flowers to bloom.

The result is not necessarily a lack of innovation in government. Government at every level has been the site of almost constant change – particularly in the last 30 years. The problem is that the public innovation process (centred on political manifestos and commitments) is by its nature centralised and episodic, a problem compounded by the structural limitations to innovation on the front line of service delivery. One response to this has been to reduce the scope of the state and parcel various activities and services out to contractors from the market and third sector – such as prisons, healthcare, adult education and so on. But this trend has had its own problems.

If the state is to fully realise its potential as a critical force for the kind of social innovation required in the current period of transition, then there are profound structural issues that need to be addressed around how the state raises and allocates its funds, and how it is accountable for them. In this section we look at some of the devices that have been used to make public bureaucracies more creative and innovative. Some of the thinking here is set out in more detail in a series of publications on public innovation that have been published by the Young Foundation and NESTA. We begin with some of the high level issues and then move onto more specific tools.

Strategic issues

Innovation in the public sector always risks being a marginal add-on: small scale in terms of funds, commitment of people and political capital. But serious innovation is closely tied into strategy. It is seen as a way to achieve outcomes more effectively, and to target issues that matter.

Budgets for innovation

The generation and adoption of innovation within the public sector depends on how money and accountability are organised: how public budgets are developed and agreed, and which structures of taxation and financial accountability promote rather than hinder innovation.

The public sector has some well-established tools for financing innovation beyond its borders, particularly through R&D funding for science and technology. But there are also many tools for encouraging staff to innovate, from managers to frontline workers.

Devolving power and money

Representative democracy took its current forms in the 19th century, with parliaments and assemblies, parties, regular elections and in some countries manifestos and platforms. These models have become inadequate with the growing complexity of government – and representative democracy is increasingly being joined to participatory tools for engaging the public continuously in debate and decisions.

New forms of taxation

Taxation is often experienced as a forced levy in contrast to market exchange, but there has been a growth of experiments in the financing of collective goods, and the legitimation of tax, which encourage the kind of innovations that command public support. This is particularly the case in the environmental field, where charges on the basis of the ‘polluter pays’ encourage innovation in pollution or materials reduction (as with producer responsibility schemes), with a transfer of funds to those who have innovated (as in the UK Landfill Allowance Trading Scheme).

Vouchers, credits and direct payments

Most public finance is undertaken in national currencies. Public procurement and wages are paid in the relevant currency, and taxes are similarly raised in that form. But there have been a growing number of experiments with forms of payments which include tokens, or incentives in kind, or which consolidate citizen’s public sector rights and obligations in personal public accounts, transferring public means of payment to them.

Public investment

Financing public investment is complicated by the common difficulty in quantifying the effects of an investment, or capturing returns that are multi-dimensional and diffuse. This particularly applies to preventative investment. Private funding can be used where there are clear streams of revenue resulting from the investment, with the public funding element covering the wider social impact elements of an investment, and reducing risk.

Tax breaks for social innovators

Favourable tax treatment is a means to incentivise innovation, not through the provision of investment funds but by lowering the cost of innovation and improving prospective post tax rates of return.

Legislation and regulation

Governments shape the conditions in which social entrepreneurs, businesses, non-profits and others operate. In too many cases good ideas clash with existing rules and regulations. However, new regulatory and legal frameworks (such as new standards, new legal forms and new planning requirements) can unleash creative forces and support social innovation.

Incentives for innovation

Whether or not innovation becomes embedded within an organisation or department depends also on whether there is a culture which is supportive of new ideas. This requires clear signals from leadership that they want to see experimentation, backed up by incentives and structures of support that enable this to take place, as well as organisational cultures that support interaction across organisational boundaries (and time for engagement and cross-pollination) and protected time for reflection.

Innovation from the workforce

The close involvement of the workforce in innovation has been a feature of Toyota methods of work organisation that has spread to manufacturing and service industries over the past 25 years. Similar practices are now being introduced into some spheres of public service (notably in health care) as well as closer engagement with trade unions in the improvement of service quality.

Cross sector collaborations

An important area of public sector innovation has been to encourage collaboration between public service workers and civil society, and make the boundaries between them more fluid.