Promoting innovation in the public sector

How can we make more public-sector organizations innovators, and fast followers of innovations made elsewhere?

That turns out to be a hard and interesting question, or so I learned when my old friend (and former boss) Jerry Mechling had a layover in LA on his way from the Kennedy School, where he runs a program on information technology, to Seoul, where he was giving a talk. Here’s how the problem sets up:

Innovation is risky. (As another friend in the IT business remarked last week in discussing London’s apparently successful road-use-pricing scheme, “The default option for a big IT innovation is that it fails.”) Even when it succeeds rather than failing, it means that the people involved (1) have to work very hard for a while and (2) have to change their routines.

Organizations are naturally conservative, in two related senses: averse to change, and intolerant of risk. That means they need incentives if they are to innovate. Since settlers benefit from following pioneers, innovation tends to have external benefits, which means that the level of innovation generated by supoptimizing decentralized decision-making may be below the desirable level.

Indeed, even if we ignore the organizational-behavior factors that limit innovation, it’s not even clear that innovation is often a good gamble from an organizational viewpoint. An organization willing to change can avoid much of the risk while getting most of the gain by looking for innovations elsewhere and quickly adopting the ones that work. (The jargon distinguishes between “leaders” and “fast followers.”)

Competitive enterprise creates some incentives for innovation — first-mover advantage, sometimes protected by patent or copyright — and strong incentives for fast following. Moreover, some private-sector employees have strong personal career incentives (and pride of craft) that leads them to want to be at the cutting edge of whatever they’re doing. (Corporate managers sometimes need to restrain the enthusiasm of their technical employees for spending stockholder money on neat gadgets.)

But most public-sector agencies can’t gain “market share” by innovating successfully. That means that, from the perspective of their taxpayers, they should only rarely take the risks associated with innovation. (Tell a public sector manager or elected official about a good idea, and the first question you get back is “Where has it been done successfully?”) Moreover, as organizations they have relatively little to lose from being very slow followers, or even ignoring proven innovations entirely; their customers mostly can’t take their business elsewhere.

So we have two problems: How to get some public agencies to innovate, and how to get the rest to follow quickly when an innovation works. The external benefits of innovation justify the practice of giving grants-in-aid for innovative practice, but the disincentives to innovation help explain why those grants are often used to maintain existing operations rather than as intended.

But developing an appetite for fast following seems to be at least as important, and at least as hard, as encouraging innovation itself. To some extent, that means subsidizing successful innovators to evangelize. But although that will tend to reduce the costs of following fast for agencies inclined to do so, it won’t do much to create demand.

Well, I think I see the problem, but I don’t see anything that looks like a solution. Maybe you do. If so, please let me know.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: Markarkleiman-at-gmail.com

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  1. Promoting Innovation In the Public Sector

    Mark Kleiman has some a question about how to promote innovation in the public sector. Gee, I wish I knew the answer:Competitive enterprise creates some incentives for innovation — first-mover advantage, sometimes protected by patent or copyright — a…

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