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Christian Bason

Is the public sector more innovative than we think?

By November 21st 2013

This article was previously published in the Danish weekly Mandag Morgen.

Drawing its inspiration from Italian professor Mariana Mazzucato, a new and interesting notion is beginning to spread: The public sector is better at certain things than the private sector. One such thing is innovation.

Italian-American academic Mariana Mazzucato is currently something of a darling among media such as the BBC, the Financial Times, and The Economist and even Mandag Morgen here in Denmark. In her new book, “The Entrepreneurial State”, she argues that the role of the public sector in fostering innovation is underestimated.

According to Mazzucato, the particular strength of the public sector is its ability to invest for the long-term in technologies and research programmes that are so high-risk that privately owned companies are neither able nor willing to get involved in them.

Take for example a number of technologies found in Apple’s iPhone, which would not exist without the public sector: the Internet, WiFi-connectivity, mp3-files, voice management and even the touch screen are all the result of public-sector investments in research and development. Similarly, smart, state-funded research into new drugs has been absolutely crucial to the pharmaceutical industry, claims Mazzucato.

The image of a public sector that is confident, proactive and innovative seems out of sync with the horror stories from recent years about European governments on the verge of bankruptcy, overly-bureaucratic structures or the recent government meltdown triggered by the U.S. Congress.

But should the public sector really stand proud and regain its self-confidence? Does it truly leave the private sector trailing behind when it comes to innovation?

Public sector innovation success stories

I am currently chairing an expert group set up by the European Commission, which counts among others Marianna Mazzucato as a member. Our group is drawing up recommendations for improved public sector innovation in Europe. In connection with our work, I have become aware that we may be on the brink of a significant shift in our understanding of the public sector’s role in society.

For illustration, let me propose a couple of examples:

Better at creating the growth markets of the future

These days it is generally accepted that the public sector is able to play a unique role by making long-term investments in technologies that can help solve some of the major challenges facing society, in areas such as climate, energy, environment and health.

In a Danish context, the government Growth Teams, which are public-private committees charged with identifying new opportunities for innovation and growth in selected economic sectors, can be seen as an expression of this. Similarly, the European Unions new and ambitious Horizon 2020 research programme has budgeted just under 32 billion euros to tackle such ”societal challenges”. To put it bluntly, it could be said that the public sector as strategic investor creates the markets of the future. This is also the provocative point being made by Mazzucato. In this sense, the state is more innovative than industry.

More innovative innovation processes

If you want to learn how to organise and manage radical innovation, Google is not the place to look. Instead, you should take a look at DARPA (Defense Advanced Research Projects Agency), which belongs to the American Department of Defense.

In the cover article of a recent issue of Harvard Business Review, two former DARPA directors talk about how the organisation not only invented the Internet, but is generally responsible for what is probably the most impressive and consistent series of ground-breaking technologies the world has ever seen.

With over 200 innovation programmes and a budget of three billion U.S. dollars, DARPA is no small organisation, but nevertheless manages to be extremely efficient and non-bureaucratic. The administrative staff consists of just 120 people, with approximately a hundred additional project managers. The rest of the organisation is structured around flexible project teams made up of the best scientists and experts, which are dissolved again as soon as a project is completed. Add to this a high degree of institutional independence and exceedingly high levels of ambition in relation to tackling some of the toughest challenges in the world and you have the recipe for a public innovation success that is admired in the private sector.

Better at digital service

Recent years have seen numerous stories about how private companies are ceasing to outsource manufacturing to low-wage countries and bringing it back in-house, either partially or in full. The same is happening in the public sector, particularly on the digital arena. Tasks that were previously bought in from highly paid external IT-consultants are increasingly being resolved in-house, as digital services become a core public task.

Currently one of the most widely exposed examples of this is the website Gov.uk, which provides British citizens with online access to public services. A couple of years ago the UK government  decided to cease collaborations with a range of the state’s external IT-suppliers and to return development tasks to a small in-house design team. The task of this team was to create an entirely new digital platform that revolutionises the way in which citizens interact with the state.

According to Francis Maude, the minister responsible for it, Gov.uk was “planned, written, structured and designed around the needs of users and not what the state wants them to do”.
In practice, this has meant was that a beta version of the site was user-tested in public and then shut down again, only to reopen in an improved version. The website is estimated to save the British taxpayer the equivalent of half a billion Danish Kroner annually, and recently won the prestigious British Design of the Year Award, giving Gov.uk the moniker “The Paul Smith of websites”.

Innovation for the long haul

What do these three examples show? As I see it, it’s not really about whether the public sector is more innovative than the private sector. It would after all most likely take another Steve Jobs to make technologies as user-friendly, attractive and profitable as the iPhone. DARPA may well be an innovator, but private firms can be up to par. Just think of IBM, which has produced five Nobel Prize winners. And Gov.uk is very much inspired by the design principles employed by the likes of Amazon and Google.

Nonetheless, we can still learn something about how the public sector can play a major driving role for innovation. First, it requires that we dare to invest public resources in the technologies and solutions that have the potential to decisively shape our future in the long run. While private companies chase their next quarterly financial statement, the public sector has the opportunity of being able to think 10, 20 or 30 years ahead.

Second, the public sector can be just as pioneering as the private sector when it comes to organising innovation. The degree of complexity that characterises many public issues means that organisation, incentives and processes often need to be more sophisticated than in the private sector.

Finally, the public sector must be prepared to in-source the tasks and competencies that are critical for their core activities, which includes the increasingly important but also costly digital realm. There’s still bound to be room for private digital providers. If they’re smart enough, that is.

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