2 Public sector innovation

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2.1 Norway needs an innovative public sector

Public sector innovation means implementing something new that generates added value for people and society. It can be a new or significantly changed service, product, process, organisation or method of communication that helps us to think in new ways about how Norway can address major public tasks and develop the public sector. Innovation can in this way contribute to long-term and sustainable efficiency.

Norway is a good country to live in. The public sector enjoys a high level of trust in the population, and is the very core of a welfare society characterised by responsible exercise of authority and good services. In the time ahead, Norway will face challenges that threaten the sustainability of today’s welfare society. The petroleum industry will continue to be important for many decades to come, but it will contribute far less to the economic room for manoeuvre Norway has become accustomed to. The elderly population is increasing, and there will be fewer people in active employment. The extent of global warming and negative environmental changes must be limited. At the same time, the population will continue to have high expectations of the public sector, and Norway is committed to doing its part towards achieving the Sustainable Development Goals by 2030.

In addition to these well-known challenges, Norway and the rest of the world are facing a global crisis in spring 2020 as a result of the COVID-19 pandemic. This is having major financial, economic and societal consequences at present, and it is likely to affect Norway and the rest of the world for a long time to come.

In 2019, public expenditure amounted to close to 59 per cent of mainland GDP, and around a third of those in employment worked in the public sector. To address the challenges ahead, the public sector needs to make smarter, more targeted and systematic efforts to foster innovation. An innovative approach opens possibilities for new ways of thinking and will be among the Government’s main strategies for becoming more sustainable. The potential benefits of innovation are substantial, for example through the use of innovative public procurements, digitalisation, and innovation that prevents exclusion and health challenges.

The public sector both drives innovation in society and the research and business sectors, and innovates within its own areas of responsibility. This white paper primarily concerns the public sector as innovator, but the roles of innovator and driving force also complement one another. Public sector innovation can, for instance, play a significant role by triggering value creation opportunities in the private sector.

The Government will take steps to ensure that the public sector can reap the full potential of innovation and, as such, facilitate expedient use of resources and greater overall value creation.

2.2 Government policy for public sector innovation

This white paper presents the current trends, status, needs for change and the Government’s policy for further work on public sector innovation.

Public sector innovation is one of the Government’s main strategies for addressing the challenges facing society in the years to come.

2.2.1 One goal and three principles for public sector innovation

The Government’s goal is an efficient public sector that provides good services for its citizens, enjoys a high level of trust in the population and finds new solutions to societal challenges in cooperation with citizens, business and industry, research environments and civil society.

To achieve this goal, the Government has developed three principles to promote public sector innovation. The principles are inspired by the OECD’s Declaration on Public Sector Innovation,1 which Norway has endorsed, and input from the process of preparing this white paper.

The Government’s principles for public sector innovation:

• Politicians and public authorities need to grant freedom of action and provide incentives for innovation.

• Leaders must develop a culture of and competence in innovation, where people have the courage to think differently and learn from mistakes and successes.

• Public agencies must seek new forms of collaboration.

2.2.2 Ten main concepts

The Government will achieve the goal of public sector innovation through the following ten main concepts:

• 1. Framework conditions for innovation

  Framework conditions, such as governance principles and practices, financing, laws and regulations, forms of organisation and requirements for official studies, affect the way public agencies pursue their social missions. The Government will endeavour to ensure that the framework conditions provide sufficient freedom of action and motivation for innovation, and contribute to expedient use of resources and greater overall value creation.

• 2. Policy instruments for innovation

  A number of funding agencies and policy instruments have been established to support public agencies’ work on innovation. The Government will develop a more holistic and user-oriented policy instrument system for public sector innovation. This will in part be achieved by establishing a council for public sector innovation compromising key representatives of both supply and demand.

• 3. Digitalisation and new technology

  The Government wants the public sector to utilise the innovation opportunities offered by digitalisation and new technology. The Government will endeavour to create one digital public sector across different levels of the public administration, utilise the opportunities presented by artificial intelligence to work in new ways, and facilitate data-driven innovation.

• 4. Culture of innovation

  Innovation must play a bigger role in the public sector’s work. This means that leaders must facilitate a culture characterised by inquisitiveness and openness to new ideas, and the courage to learn from mistakes and successes. The Government will develop competence-raising measures and tools that can assist public sector managers in their work on facilitating innovation in their own organisations.

• 5. Competence in innovation

  Digital competence, assessment competence, design competence and competence in the use of different work methods and techniques can help to foster innovation. The Government believes that knowledge and lifelong learning are key aspects of a better and more efficient public sector, and will enhance collaboration between the higher education sector and the labour market.

• 6. Trials and testing

  Trials and experimentation entail testing new solutions, technologies or statutory regulation. The Government will establish regulatory sandboxes2 in several areas, and consider how the public sector can use trials and testing more systematically to lower the threshold for introducing innovative solutions and ensuring that the results of successful trials become lasting solutions.

• 7. Innovation collaboration

  Public sector innovation requires frequent collaboration across different levels of the public administration, sectors, business and industry, civil society and education and research environments – and with citizens. This can introduce new perspectives and ideas to the development of the public sector. The Government will systematise and diffuse lessons learned from different forms of collaboration on innovative solutions.

• 8. Innovative procurements and industry partnerships

  The public and private sectors must work together to address major societal challenges and develop better and more innovative solutions. The Government will continue with its innovative procurement instruments and improve guidelines with a view to increasing public sector innovation. Start-ups and other small businesses may have innovative solutions to public needs. The Government will therefore establish a program for collaboration between the public sector and start-ups.

• 9. Collaboration with research environments

  Research and collaboration with research environments can contribute to innovation and learning, more radical innovation projects in the public sector and the diffusion of successful innovations. The Government will encourage greater collaboration between public agencies and research environments with a view to achieving better and more efficient services and measures, and make research more accessible by encouraging research dissemination, more open data and more knowledge summaries.

• 10. Realise value and diffuse innovation

  Innovation is not a goal in itself – it has to create value for society and the population. The Government will consider how the diffusion of lessons learned from innovation processes and results can best be facilitated and take steps to ensure that the benefits of innovation are highlighted and realised in the form of better services and budget savings.

2.3 Challenges and opportunities in the decades ahead

Demographic changes, less economic room for manoeuvre, climate and environmental challenges and achieving the Sustainable Development Goals (SDGs) are well-known challenges Norway and the public sector will face in the next few decades. Moreover, the COVID-19 pandemic has demonstrated how quickly framework conditions can change in a globally connected world. Since it is too early to determine the ramifications of the pandemic, this chapter will address development trends that are relatively unequivocal.

2.3.1 Demographic change

The age composition of the population will change significantly going forward. There will be a dramatic increase in the number of elderly people. At the national level, both the proportion and number of over-80s will more than double towards 2040. At the same time, the increase in people of working age will be low, particularly in less central parts of the country (Figure 2.2).

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The age distribution in the population has been obtained from the main alternative in Statistics Norway’s population projection (2018a). The number of people in employment has been calculated using the projected population of different age groups and the same proportion of people in employment as in 2017 for the 20–24, 25–39, 40–54, 55–66 and 67–74 age groups.

Source Statistics Norway’s population projections (the main alternative) and register-based employment. Calculations: Ministry of Local Government and Modernisation

The circumstances of the elderly will be very different from those in previous generations. They will have higher education, better housing and a better financial situation. Better health can lessen, but not eliminate, the increased need for health and care services.3 Statistics Norway has estimated that Norway could have a shortage of 28,000 nurses and 17,000 healthcare workers in 2035.4 Urban areas will need to handle an increase in care needs due to the large increase in the elderly population, while less central areas will have fewer people in active employment to cover the care needs of the elderly.

To address the demographic changes, the public sector must make more efficient use of the resources available. Innovation, not least related to the use of new technology, can provide new solutions that enable the elderly to live at home longer, thus allowing health and care personnel to dedicate their time and expertise to those who need them the most. At the same time, it is difficult to estimate how technological developments will contribute.

The low growth in the number of people of working age seen in many places in the country will lead to more competition for labour, between both sectors and regions. Some municipalities already lack the necessary capacity and competence to provide good, equitable services to their inhabitants.5

2.3.2 Less economic room for manoeuvre

Over the past two decades, Norway has seen growth in its budgets and greater room for manoeuvre in its financial policy than most other countries. Several factors will contribute to a more challenging budget situation in the next decade. Challenges that have long been described as long-term are now more imminent. Oil and gas production has been estimated to increase somewhat over the next few years and will be able to maintain the current level until the end of the decade, but, in general, the period of strong growth in petroleum revenue spending in the Norwegian economy has come to an end.6 At the same time, the growth in expenditure on large rule-based schemes will continue to rise, as will demand for health and care services.

Innovation and new technology can potentially contribute to more efficient spending. It is nonetheless highly likely that there will be significantly less freedom of action in the next decade than in the previous one. A strong fall in petroleum prices and a strong increase in the use of fund capital over public sector budgets due to measures implemented in connection with the COVID-19 outbreak have led to further pressure on public finances, the consequences of which will be seen in the years ahead. The consequences of the COVID-19 pandemic may also further reduce the economic room for manoeuvre due to lower revenues and higher expenses. This will be further elucidated by an expert group appointed by the Government to conduct an economic assessment of, among other things, the infection control measures introduced to combat COVID-19.

2.3.3 Climate and environmental challenges

A number of reports published in recent years have underlined the severity of the climate and environmental challenges the world is currently facing and shown that developments in many places are taking place more rapidly than previously assumed.7 At the same time, a transition to a greener society can still reduce net emissions of greenhouse gases towards zero. The Government has increased Norway’s climate targets for 2030 and now aims to reduce greenhouse gas emissions by at least 50 per cent and up to 55 per cent compared with the 1990 level.8 Norway will be a low-emission society by 2050.

The public sector plays an important role in Norway’s green transition. Climate change and biodiversity loss must be seen in conjunction with one another. Climate and environmental challenges are complex and interdisciplinary, and research and innovation are therefore necessary in order to develop whole-system solutions.

2.3.4 The Sustainable Development Goals

In 2015, the UN member states adopted the 2030 Agenda for Sustainable Development, which comprises 17 goals and 169 targets for economic, social and environmental sustainability.

The SDGs encompass all countries and affect all segments of society. They emphasise cooperation, mutual partnership and the interdependency between the goals. Norway has a great responsibility for helping to achieve the goals by 2030. The Government has decided that the SDGs will be the main political track for addressing the most pressing national and global challenges of our time.9

The Government believes that innovation and digitalisation are preconditions for achieving the goals by 2030. Cooperation between the public sector, business and industry, academia and civil society is also crucial in this context. Many municipalities, counties and public agencies are well under way with their efforts to systematically follow up the SDGs. There is great variation, however.

The Government has enhanced the national follow-up of the SDGs to give them a greater role in governing national policy development. This responsibility has been assigned to the Minister of Local Government and Modernisation. It provides an opportunity to see work on the SDGs in conjunction with public sector innovation efforts. In the course of spring 2021, the Government will present an action plan for the SDGs in Norway in the form of a white paper.

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Source The UN

2.4 Inclusive work process

The Government has aimed for a transparent, inclusive process in its work on the white paper. The Ministry of Local Government and Modernisation has therefore employed methods that facilitate co-creation and new ways of thinking. By taking time to look at and understand how different actors experience public sector innovation, it has been possible to better understand the needs and identify new opportunities.

In general, the input received concerned obstacles in the public sector’s framework conditions, the public sector’s need for a culture of innovation, the public sector’s need to cooperate on innovation, both internally and with other actors, and the importance of municipalities and agencies learning from each other and diffusing beneficial innovations. A great deal of input was also received about the difficulties of reaping the benefits of innovation and the importance of the public sector using innovation to address major societal challenges. This insight tallies well with the OECD’s findings and research findings on what impedes and promotes public sector innovation in general.

Activities undertaken during the process of preparing the report

• Exploration and dialogue meeting: In order to identify factors that potentially impede and promote public sector innovation, the Ministry has conducted interviews, visits, questionnaire surveys, work meetings, knowledge summaries and dialogue meetings.10

• Predictions and scenarios: To develop a policy that will withstand the test of time, scenarios have been developed for the public sector in 2040. This work culminated in a report11 that has been used in strategic discussions by several public agencies12 and an exhibition.13

• Culture of innovation: The characteristics of a culture of innovation (Figure 7.2, section 7.3) were developed to discuss and promote an innovation culture.

• Innovation policy in the Nordic countries: To gain inspiration from the other Nordic countries, the Ministry of Local Government and Modernisation, the Norwegian Digitalisation Agency and the Norwegian Association of Local and Regional Authorities (KS) ordered a compilation of the Nordic countries’ public sector innovation strategies14 (section 5.1).

• Mapping of collaboration models: To gain deeper insight into how cooperation can take place in practice, the Ministry of Local Government and Modernisation and the Research Council of Norway have mapped models for cooperation on innovation currently used in the public sector.15

• Workshop in cooperation with OECD–OPSI: OECD’s Observatory of Public Sector Innovation (OPSI) has mapped the status of public sector innovation in Norway at the overarching level, including through interviews and a workshop.16