If we are to avoid making serious mistakes in articulating how best to achieve creativity and innovation in the public sector then it is essential to make clear why the innovation imperative for government is significantly different from that in the private sector. We should avoid approaching public sector innovation as a form of downgraded private sector innovation game that overlooks critical differences between the two sectors. Instead, we should define a robust account of the distinctive and vitally important nature of public sector innovation and actively promote this narrative. A focus on the ways in which governments must handle the uncertainties and risks that markets cannot cope with provides a key element in this evolving policy narrative.

This perspective could help those who work in the public sector to better articulate why innovation in policy and service delivery (and particularly the former) involves balancing the costs and consequences of not attempting to innovate with the costs and consequences of misjudged attempts to innovate. Too little public sector innovation is a problem. However, innovation for innovation’s sake, in an attempt to emulate private sector norms without due regard for what makes the public sector different with regard to the unintended consequences of risk taking, can also be a problem.

It would therefore help if public sector and private sector innovators had access to a better-developed framework for relating risks and uncertainties to both ‘rewards’ (upside considerations) and ‘punishments’ (downside considerations)—rather than simply framing things in terms of a simplistic risk–reward relationship.

There are important trade-offs between the rewards and the punishments faced when seeking to achieve private sector innovation. Innovation exploits the risk–reward relationship, whilst failures to innovate can be punished through business failure (though as consumer preferences for older vintages of technology over newer vintages, such as handmade bespoke clothing, illustrate, this is by no means inevitable).

In the public sector, these trade-offs still exist but, thanks to the nature and extent of the unintended consequences, there is arguably far more emphasis on the punishments that arise through misjudged attempts to innovate (particularly via the ballot box and through litigation).

There is also the inter-generational equity issue to consider. The private sector applies relatively high discount rates when valuing possible future states of the world—that is, it avoids worrying about the very long term. It is the prerogative of governments to concern themselves with being fairer to future generations (balancing the needs of current generations against the needs of generations to come). These low discount-rate objectives can amplify the consequences of misjudged attempts to innovate. It is also inherent in governments’ role that they must deal with the long-term consequences of damaging failures in private sector innovation (such as chemically induced birth defects inherited by future generations). Either way, the public sector must handle the punishments created by misjudged innovations and the damaging unintended consequences of past innovations.

This means that governments require superior methods for evaluating uncertainties and risks—the consequences of slavishly emulating private sector practices are far too severe. Now that innovation is becoming an explicit part of the public sector reform agenda perhaps the time has come for the public sector to define the nature and extent of its distinctive and vital role in the evolution of modern innovative societies better than it does at present. We can start by ceasing to talk about the ‘management of risk’ quite so much and start to spend a lot more time talking about the ‘management of uncertainty’.^[22]

In a cooperative federalism context, who bears primary responsibility for managing risk is something that can be wrangled over endlessly. The challenge of managing uncertainty is different: it encourages a more collective approach based upon mutual interest and less scope for ‘passing the buck’, or, as Keynes^[23] observed, ‘The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelop our future’.