Digital innovation – what does it really mean?

Digital economy ministerialMinisters, the business community, civil society, labour and the Internet technical community will gather in Cancún, Mexico on 21-23 June for an OECD Ministerial Meeting on the Digital Economy: Innovation, Growth and Social Prosperity. Today’s post is by Paul Chaffey, State Secretary in the Norwegian Ministry of Local Government and Modernisation.

Some weeks ago the last video rental store in Oslo closed down. In 1990 there were 3500 such stores in Norway. Today there are only a few left. How could that happen?

Digital distribution has taken over many value chains in the last ten years. As we know, the marginal cost of such distribution is near zero. Thus, music, films, news stories, maps, encyclopaedias, books, charts, etc. may be made available for millions of people at almost no cost at all.

Digitalisation of goods and services destroys established business models and disrupts existing value chains. New value chains emerge. This is often called disruptive innovation. Digital technology influences the way we organise various economic sectors in a very profound way already. And this is only the beginning. More and more business models and value chains will be disrupted. Examples are plenty – the Nordic music streaming service Spotify pushed down CD sales almost overnight; Netflix is on the way to pushing out linear television from our homes; Facebook is in the process of taking over the media business; and Uber poses a serious challenge to the taxi business in many countries.

The music industry story is a case in point that illustrates that the denial of the looming technology development is not a very good strategy to adopt in a long term. Even if we know that employment in the CD-producing and distributing industry will decrease, we must realise the enormous possibilities new digital technologies afford us to develop whole new industries and to create new employment opportunities. That’s why all CEOs and public sector managers should acquire strategic ICT-knowledge – to be able to monitor and follow up on this development. Digital technology is a great driver for change and it creates the opportunities for new and improved business processes, new products and new services all the time. If you do not follow, you will be eliminated.

Understand value creation potential

It is crucially important to understand the drivers for this development and the paradigm shift that has happened the last few years when it comes to availability of new digital service platforms. The potential for value creation that springs from this development is twofold:

  • Ability to solve great societal challenges by harnessing digital innovation.
  • The added value that smart digital applications represent in a commercial. environmental and social context, including new employment opportunities.

The potential for value creation lies at the crossroads of new technology, new business models and the knowledge and competences of the workforce. It is up to our political will to make it happen.

A good starting point

Norway has a good starting point to succeed with value creation based on digital innovation:

  • We have a highly educated population with high participation in the labour market.
  • We have a highly productive and adaptable work force with employees thriving in their workplace, taking responsibility and accepting responsibility.
  • We adapt to using new technologies very quickly, both as private persons and businesses.
  • We have a digital infrastructure of high quality and high penetration – both mobile and fixed.

Let me mention some examples of Norwegian digital innovation agility. The municipal commuting company in Oslo – Ruter – has developed an app to buy all kinds of tickets for local transport. No cards or card machines are needed any more – you can buy your ticket (with all kinds of duration) anytime, anywhere.

Our tax authority has totally digitised tax returns – as a citizen, you actually do not need to do anything to hand in your tax return. It will be posted on the government website Altinn where you may view it, and you may change it – but if you do not have any remarks, you just do nothing. Most of Norwegian population are now “digital taxpayers”.

The last example concerns a new app for state employees to hand in their travel expense reimbursement claims. This may be done entirely on your smartphone – you just snap a picture of all paper receipts and upload it to the government website. This was made possible by changing the government regulations to drop the requirement for physical paper receipts to be enclosed to your reimbursement claim.

ICT and digitalisation, a crucial factor for innovation and productivity growth

Innovative use of digital technologies increases the competitiveness of our businesses and contributes to society’s total productivity. It is the foundation of our future welfare as a nation. Thus we as a government must create favourable conditions for digital innovation to thrive. We need to adapt our regulations, remove obstacles to digitalisation and secure a first class digital infrastructure offering communication services of high quality. We also need to ensure that the availability of digital competences and skills meets the demand in both the private and public sector.

Digitalising the public sector to reap benefits – care technologies

Digitalising the public sector is a high priority for the Norwegian government. State agencies and municipalities offer more and more digital services and the use of these has significantly increased over the last few years. Within our health and care sector, we are aiming for a country-wide rollout of digital care services in our municipalities. Care technologies represent a relatively new business segment with great potential for saving costs for care services and affording home-tailored, safe solutions for elderly and chronically ill citizens at the same time.

Taking a wider view, this technology may have a revolutionary impact on the whole health and care sector, by preventing quality decline that would inevitably come when the demographics kick in.

Today, a large portion of care workers’ time goes to looking for information from various sources, travelling from place to another place, collating and handing over information to others, instead of doing their actual job. Efficient use of digital care technologies could provide real time support for various tasks and enable seamless communication between various entities involved in patient and elderly care.

We have conducted a series of highly successful pilots about care technology use in various municipalities in Norway. These projects demonstrated a great potential for cost savings and better quality of care. What we learned from them is summarized below.

  • Successful implementation of assistive technologies and remote care largely depends on the involvement of the users – citizens – at an early stage, and careful consideration of their capability of and interest in benefitting from the technology.
  • Close cooperation between the health and care services and the technology providers is essential to optimize the functionality of devices and services to meet the needs of both care workers and the citizens.
  • Benefits of care technology rollout will materialize over time. However, the introduction of new technology requires implementation of change management in the public sector. Service design may be an important methodology to lean on here.
  • National coordinated approaches are needed to scale the use of care technologies to the whole of the public sector and create conditions for a thriving care technology market.

This is digital innovation in practice – and we need to make it happen to be able to care for an increasingly old population. This is also a unique opportunity for our ICT-businesses to develop solutions for a global market.

I am looking forward to discussing digital innovation at the forthcoming Cancun Ministerial on digital economy.

Useful links

Effekter av teknologiske endringer på norsk nærings- og arbeidsliv

Kronikk: Når digitaliseringen kommer og tar oss

Årskonferansen 2016: Remix – det nye arbeidslivet

OECD work on Innovation in science, technology and industry

OECD Digital Economy Outlook 2015

The doctor will see you now (if you turn on the video) Mark Pearson on OECD Insights


The facts about Greece

gov glanceBill Below, OECD Directorate for Public Governance and Territorial Development

Government at a Glance 2015, to be published on Monday, offers a dashboard of key indicators to help analyze international comparisons of public sector performance. Given the timing of the release, it seems appropriate to focus this powerful tool on Greece to gain a balanced understanding of Greece’s challenges—and strengths.

Budget balance. While a large number of OECD countries were running primary fiscal deficits, Greece ran a budget surplus of 0.4% of GDP in 2014. If interest payments on the public debt are taken into account, Greece recorded an overall budget deficit of 3.5% of GDP in 2014.

Public spending. Public expenditures dropped considerably since 2009 both in per capita terms and as a share of GDP. In 2014, the Greek government spent annually USD 12,942 per capita (on a purchasing power parity basis) which is about USD 3,700 below the level of per capita public spending in 2009 (USD 16,643). As a share of GDP, general government spending decreased by 4.7 percentage points between 2009 and 2014, from 54.0% of GDP to 49.3%, among the highest decrease over the period.

Public debt. According to the Systems of National Accounts definition, government debt reached 181% of GDP in 2014. This is much higher than the OECD average of 109% of GDP for the latest year available.

Old age pensions accounted for 14.4% of GDP in 2013 or about three quarters of social protection spending which is the highest share among OECD countries.

Structure of government expenditures by selected function: social protection, 2013

Social protection

Sources: OECD National Accounts Statistics (database); Eurostat Government finance statistics (database). Data for the OECD non-European countries (apart from Japan) and for Turkey are not available. Iceland and Spain: 2012

Public sector employment. Between 2009 and 2013, public sector employment decreased by 2.4 percentage points from 19.9% to 17.5% of the total labour force. This is the highest decrease in public sector employment across OECD countries for which data are available. Recent public employment reforms include recruitment freezes, non- or partial replacement of retiring staff, pay freezes and reduction or elimination of allowances in the public sector.

Public procurement. Greece has among the lowest public procurement expenditure in relation to GDP (9.8%). Beyond value for money, countries can use procurement to achieve environmental sustainability, support SMEs and innovation in goods and services. However, more needs to be done to monitor the performance and results of public procurement against the intended objectives, for instance in the area of environmental sustainability.

Citizen satisfaction. Measured through perception-based surveys, satisfaction with institutions and services is low and decreasing, especially for healthcare. In addition, citizen satisfaction with the education system (45%) is below OECD levels (67% in 2014) and confidence in the judicial system has decreased since 2007 to 44% in 2014 which is below the OECD average (54%).

Healthcare needs. More than 16% of low-income individuals reported having some unmet care needs for financial or other reasons in 2013. This is among the highest share across OECD countries.

Government at a Glance 2015 identifies progress and persisting challenges in public sector reform and highlights areas where public sector efficiency might be further improved. It helps countries measure their own achievements in a comparative perspective, showing trends across countries and over time. With this information, countries can benchmark their actions and achievements and better explore the link between governance practices and performance.

For journalists, analysts and the greater public, Government at a Glance 2015 provides an objective, comparative view on the progress of countries as they strive to deliver prosperity, inclusiveness, fairness, well-being and accountability.

Useful links

Government at a Glance 2015 will be published on Monday, July 6. Visit the web site here.

Discover the Government at a Glance 2015 “Every Page Tells a Story” campaign

An innovative public sector?

Click for details of the forum on public sector innovation

Today’s post is by Hannah Kitchen, Policy Analyst in the Observatory of Public Sector Innovation (OPSI), of the OECD Public Governance and Territorial Development Directorate.

Last week over three hundred people from the public, private and civil society sectors descended on the OECD in Paris. Why? To discuss an innovative public sector. For some of you that might sound like an oxymoron, but over two days stereotypes were left at the door as participants shared stories and learnt about innovation in the public sector.

The conference on Innovating the Public Sector: from Ideas to Impact showcased the public sector at its best. Innovators from around the world stood on stage to give short, dynamic talks about what they were doing at home. There were talks about evidence and innovation in the United States; about police using social media in Iceland; and one about reducing visa applications in Turkey to three minutes online.

Participants also rolled up their sleeves to experiment with innovative approaches for policy making. They tried out design for public services, by mapping their own journey to the OECD and considering how it could be improved. They heard from policy makers from Chile to the United Kingdom, who shared their stories about how they are using innovation labs to build experimental, practical spaces to trial new ways of working and share what works.

Despite all this enthusiasm, the overwhelming consensus was that innovation in the public sector is still no easy feat. It’s difficult to get support from above, it’s difficult to have the time and space to come up with innovative solutions, it’s difficult to find the resources for unproven approaches, and it’s difficult rally others.

Over the past couple of years the OECD has been working with countries to develop the Observatory of Public Sector Innovation, to help them make the most of innovation. The Observatory puts the experiences of innovators from across the world at everyone’s finger tips. Want to know how the Icelandic police actually made social media work for them; or a Finnish hospital used service design to develop a better, more user friendly hospital? The Observatory contains hundreds of examples from across the OECD about how public services are developing more effective, innovative services.

It shows how countries are innovating across the whole policy making process. They are opening up policy making, so that a broader range of actors can shape policies. One way that they are doing this is by making the most of technological developments. Austria for example, is designing new strategies by crowdsourcing comments, advice and ideas from the public demonstrating how governments can involve a wider range of perspectives to source innovative ideas.

The Observatory also demonstrates that innovation is as much about the journey as the results at the end. That means rethinking how to design new services and embracing experimental approaches, prototyping, and trial and error. Public organisations need more agility, more testing and more experimenting on a small scale before investing large sums to roll out a new policy or service. In the United Kingdom for example, the use of randomised control trials is providing real evidence on the results of policy interventions on a small scale, providing a clear evidence base for action. In Australia, the Concept Lab allows the government to trial and fully evaluate potential improvements to services for families, the unemployed, care givers and parents under actual workplace conditions prior to wider roll-out.

Perhaps most importantly, the Observatory also highlights how innovation is resulting in better solutions for citizens, by responding to citizens’ needs, moving the services to them. In France, unoccupied rooms in housing are being used so that the elderly can share flats with others, at once reducing their social isolation and making use of existing underexploited resources. In Sweden, parents can now access information about their child benefits directly from their phone through an app, which also includes up-to-date information for all citizens on their old age pensions.

The Observatory is also an innovation in itself. It was built with an agile, staged approach. Users in countries were involved throughout, testing and retesting prototypes to ensure that it delivers on user needs and to enhance the user experience. More importantly it is a direct interface with innovators themselves – from local schools and hospitals to central government offices – anyone working in the public sector with a story to tell about innovation can use the Observatory to reach an international audience. Through its interactive features users can make their views heard by voting in regular polls, discuss with other users to learn about their experiences, ask questions, and even create their own groups for collaborative projects.

It is just at the beginning of its story. Over the coming months and years we hope that many more people across the public service and beyond will use the Observatory to interact with others and share their examples of innovation.

Have a glimpse of Observatory by watching this video:

EU public procurement: Opening markets by example, and if that doesn’t work…

Today’s post is from Karel De Gucht, EU Trade Commissioner  and Michel Barnier, EU Commissioner responsible for internal market and services

How do you open markets world wide, to the benefit of European consumers, companies and jobs? Europe’s answer to that question is equally short: we lead by example. We are the world’s largest single market, and our foreign trade policy is actively focused on further liberalising trade through both multilateral and bilateral negotiations. But what happens if others don’t follow our example? What incentives do our partners have to open their markets to our businesses when their own businesses have full access to ours? As negotiators, that’s a question to which there are no short and simple answers.

 Take public procurement, a sector of major economic importance. In the EU, purchases by government correspond to around 19% of GDP and companies whose business directly depends on procurement represent over 30 million jobs. It is also a booming sector in emerging economies and one in which European companies are very competitive.

The European public procurement sector is the most open in the world. Outside contractors are able, welcome even, to compete on our market, subject to the same conditions as European companies. Between the EU’s 27 member states procurement markets are also liberalised. And rightly so: this has driven down prices, increased the competitiveness of our companies and offered more value for money to authorities and tax payers across Europe.

And yet, we are far ahead of other countries in this approach. Other economies, though they enjoy access to the EU market, are far more reluctant to open their own markets to the EU. While some €352 billion of European public procurement is included in the WTO agreement on government procurement (GPA) and therefore open to bidders from member countries of the GPA, the value of American procurement offered to foreign bidders is just €178 billion, for Japan that figure is only €27 billion. China and India have not yet committed any part of their fast growing procurement markets and currently, EU business wins only a fraction of the Chinese and Indian procurement contracts.

Whatever the overall economic merits and flaws of this situation, this is increasingly hard to explain to our businesses, who see foreign competitors actively engaging on our markets while they are barred from doing the same elsewhere.

This undermines the legitimacy of our open markets. It hampers the pro-active trade policy we want to pursue.

At the end of last year, the EU was at the forefront of efforts to renegotiate the WTO Government Procurement Agreement. We were happy to come to a new deal among the 15 WTO members that are party to the agreement to improve the disciplines for this key sector of the economy and expand the market access coverage with up to 100 billion euros a year. There can be no doubt about our free market credentials. But we cannot accept that imbalances grow ever larger between those that push for market opening and those that refuse to do so to.

For that reason, we have devised an instrument that will, if approved by EU Member States and the European Parliament, allow us to tackle imbalances in international public procurement markets. Through this procedure, contracting authorities in Member States may exclude bidders for large contracts who use goods and services mainly originating in a non-EU country that upholds a high degree of closedness of their procurement markets. They will need a green light from the European Commission to do so, which will only be given if these goods and services are not subject to any agreement the EU has signed up to, or part of serious negotiations on such an agreement.

And we have built in a threshold below which third country bidders cannot be discriminated against so that the new regime puts pressure on foreign companies and governments without leading to unnecessary bureaucracy. In case of serious and repeated discrimination, the Commission may start consultations with the government in question and, if that government continues to bar European companies from its market, the Commission may close a certain sector of the procurement market of the EU as a whole. Naturally, if the EU has taken a legal commitment to the third country in the WTO GPA or a free trade agreement to keep its market open, it will fully honour its commitments.

The measure is designed to be used as a carrot, rather than as a stick, but we should not be afraid to brandish it if need be. In this way we are confident to strengthen our negotiating position when discussing access to third country public procurement markets. Only in this way can we make foreign companies aware that they cannot continue to enjoy the benefits and the opportunities offered by our open markets while their home governments continue to close theirs . Our proposal will also clarify the rules of access to the EU’s public procurement market, and in doing so bring more legal certainty for both international suppliers and public entities that need goods or services. It will confirm that the EU market is basically open, and that we want to keep it that way.

But the door of free trade has to open both ways – otherwise public demands to shut it altogether will gather strength.

Useful links

OECD statistics on international trade in services

OECD work on integrity in public procurement

Chapter 3 of OECD Insights: International Trade discusses trade in services

Ineffective, Inconsistent and Dangerous: The OECD-backed fiscal consolidation plans to deal with the looming sovereign debt crisis

Click on the logo to go to the TUAC site

Today’s post is contributed by Pierre Habbard of the Trade Union Advisory Committee to the OECD (TUAC)

In 2010 in the wake of the recession, the policy consensus at the OECD – alongside the IMF, the European Commission and many G20 Finance Ministries – shifted away from support for stimulating global demand to near-term fiscal consolidation. Their priority became reducing sovereign debt through unprecedented budget austerity programmes, the costs of which will be borne almost entirely by workers and their families: cuts in public services and in social protection, regressive tax reforms, and downward wage flexibility. At the same time, the much needed re-regulation and downsizing of the financial sector, which triggered the crisis in the first place, was either scaled back or postponed until “better days”.

This policy response is ineffective, inconsistent, and ultimately dangerous.

It is ineffective because the fiscal consolidation programmes that are advocated ignore the causes of the crisis: the combination of rising inequality, excessive leveraging and de-regulation of the financial sector. To bring government debt back to pre-crisis levels, public budgets should contract by -9.5% on average in the near future, and remain in surplus afterwards.

Considering the enormity of the social crisis spreading across OECD economies, the cuts in public services and in social protection that are foreseen, as well as, concomitantly, the regressive tax reforms which the OECD is pushing for will hit households and the lower income people front on. The OECD concedes that the massive public expenditure cuts it is advocating “may have adverse consequences for equity outcomes” – but its response to this concern appears thin, to say the least, and this, in spite of its recent work in that field.

It is suggested that social protection and unemployment benefits be “revisited in terms of their effectiveness in reaching envisaged policy goals”. The OECD lives with the hope that while the inputs will effectively be cut down, the output levels (including quality of public services) could be maintained thanks to “efficiency gains”, better “targeted” services and restructuring: “doing more with less”, we are told. Trade union experience with public sector restructuring would rather point to the opposite effect: “doing much less with less”. Any restructuring involves substantial upfront costs. Importantly, the notion that social protection could be better targeted in times of social crisis appears rather illusory with unemployment at 10% and under-employment at 20%, rising poverty and social deprivation.

It is inconsistent because, as OECD experts are well aware, the most effective way to deal with the unsustainable rise in sovereign debt is to put an end to the unhealthy relationship between private sector finance and government balance sheets. If public budgets have become more vulnerable following the crisis, it certainly is not due to any badly managed or inefficient public services or social protection, or badly designed tax systems; rather, the fault lies with the unwillingness of policymakers to take decisive action on banking and broader financial regulation, which leads to growing exposure of governments to any future financial crises.

The key threat to sovereign debt sustainability in the short term lies not in fiscal policy, but in government exposure to contingent liabilities created by multiple guarantees on banks’ liabilities as a result of the crisis and by financial institutions that are too big to fail. The on-going debate on the possibility of a ‘hair cut’ or debt restructuring for the most crisis-hit countries exemplifies that dilemma. Governments must put an end to this intertwining without delay. The OECD experts know that and have been calling, as at least implicitly, for splitting the large banks to shield commercial and retail activities – that serve the real economy – from the volatile investment banking activities.

On revenue side, the obvious “under-taxation” of the financial sector barely appears in the main recommendations by the OECD. The generalisation of Financial Stability Contribution (FSC) type insurance mechanisms together with the creation of a Financial Transaction Tax and the IMF suggested Financial Activity Tax would help redress the current under-taxation of the financial sector. Here the OECD is lagging behind. On that it is no small irony to compare the OECD’s insistence on broadening VAT with its total silence on the massive VAT exemptions which benefit the financial sector across OECD countries. Together with the current G20–Financial Stability Board “action plan” (Basel III, consolidation of the supervisory framework, regulation of the derivatives markets), these measures could help reduce governments exposure to the private banking sector. But the needed speed of reform simply is not there. 

And it is dangerous because the fiscal consolidation packages currently being introduced threaten to have long-lasting consequences in terms of income and welfare distribution. Trade unions are well placed to know through their membership that social cohesion is breaking down across OECD societies; they are first-hand witnesses of rising populism within the working class. The political dimension of the crisis, the need to bring back some redistributive justice in the economy, is not factored in the OECD–IMF response. To the contrary, their response fuels the risk of weakening democratic institutions if key elements of fiscal policy are transferred away from democratically elected bodies through the constitutionalisation of fiscal rules and the empowerment of “independent” experts in the fiscal consolidation process.

Useful links

TUAC Discussion paper The International Policy Response to the Post-Crisis Rise in Sovereign Debt – A trade union critique, April 2010

OECD work on public debt management

Contracting out in fragile states

Click to see the Handbook

Following on Monday’s presentation of the World Development Report, this post is from Richard Batley emeritus professor and Claire Mcloughlin a research fellow in the International Development Department of the University of Birmingham. They have worked on questions of service delivery, including the preparation of a Handbook on Contracting Out Government Functions and Services in Post-Conflict and Fragile Situations with the OECD’s Partnership for Democratic Governance.

 In its World Development Report released earlier this week, the World Bank says that international aid and development co-operation need to focus more on breaking the cycle between conflict and poverty. The report argues that an emphasis on supporting service delivery and strengthening national institutions in post-conflict states can improve people’s security and help maintain the government’s legitimacy in difficult circumstances.

However, in these post-conflict situations, populations may be displaced, infrastructure absent or impaired, the rule of law minimal, and government’s own capacity weak. Donors, international NGOs and local informal service providers are often the first to intervene to satisfy basic demands, frequently bypassing government.

This presents deep dilemmas. The OECD Partnership for Democratic Governance (PDG) has identified the building of ‘effective, legitimate and resilient states’ as the central objective of international engagement in fragile situations. As far as possible, states would therefore provide their own core functions and essential services to the population. Others argue that getting services to the population is more important than who provides them.

Is there a compromise solution where government contracts private providers and NGOs to manage functions and services on its behalf, or does this further postpone the development of state capacity? Is contracting out more than just a way out of difficult choices, and in fact a positive way of combining state and market roles?

The PDG doesn’t take an ideological stance for or against the contracting of non-state service providers, but rather a pragmatic one: in fragile situations, at least in the short term, there is unlikely to be sufficient capacity within the public sector for delivering the bulk of essential services and functions. Governments have to decide whether, what and how they can contract out to external providers. They may prefer to provide their own services and functions but contracting out accepts the need for external providers while putting government in the driving seat – setting the policy framework and coordinating provision.

Almost everything that is done by government could be contracted out to the private sector or other non-governmental organisations. However, for good reasons, there is greatest reluctance where the function defines a state’s sovereignty (such as diplomacy, security and defence) or affects policies that are at the heart of the political process.

Even here, advice and support may be contracted – for example to train the military or to advise on budget design. Governments may also closely guard aspects of their core internal administration, such as financial management and legal services. However, temporary support for public procurement, customs, tax collection, accounting and auditing has been contracted, for example, in Afghanistan, Angola, Liberia, Mozambique and Southern Sudan.

The sphere that raises fewest doubts is the delivery of functions and services to citizens. This intrudes least into the state’s own internal administration and offers the greatest opportunity for exploiting competition between rival contractors. There are widespread examples of the contracting out of health care and other social services, infrastructure (roads, water and sanitation, telecommunications), agricultural extension, and some aspects of security services (maintenance of police stations, prisons and court houses). The cases of Liberia and Haiti are highlighted in the short documentary film produced by the PDG presented below.

There are no standard blueprints for contracting out government services in situations of fragility. Government policy-makers and field practitioners have to weigh up the pros and cons of contracting out and navigate the processes of procurement and implementation once the decision is taken.

A key prerequisite for successful contracting in fragile states is the development of governments’ capacity to assess the options and to manage them, whether the ultimate intention is to continue contracting out or eventually to provide services directly.

Useful links

The Partnership for Democratic Governance was set up in 2007 to examine how core policy functions could be strengthened in fragile states or those recovering from conflict.

OECD work on conflict and fragility and on governance and development

OECD aid statisticsAidflows visualiser and Query Wizard

Annual Bank Conference on Development Economics (ABCDE), hosted at the OECD in Paris, 30 May-1 June