Governments as Buyers of Social Innovation

Government Transformation
Traditionally, governments  are always reluctant to adopt innovative ideas especially when they can make radical changes. However, governments gradually realize that it is time to take the first step on the road of innovation. Factors triggered this innovation may include: 1) tighten financial budget in hard economy period; 2) increased citizens' demand of governmental function; 3) limited internal capability of government to deal with social problems.

In recent years, governments, especially in developing countries, are more award of the importance of their service function. Also, driven by their eagerness to improve efficiency, governments start to transform into a multi-functional and less hierarchical organization.

A Win-win Situation
For most startup social enterprises, it is never easy to get sufficient start funding even though they have a legitimate and intelligent business model. Investors from private sector may not be willing to take risks for ideas that cannot make high financial profits. Thus, public sector become the most suitable investors for social innovation. Governments just need to allocate probably a small amount of funding to the innovative projects, but the results would be tremendous. It is a win-win situation. On one hand, governments use public funding to invest on social innovation would bring creative and effective solutions to social problems. On the other hand, social enterprises would get the supports they need to sustain and expand their organization and innovation.

Main Stakeholder in Impact Investment
Governments can simply purchase products from social enterprises by public funding or budgeting. In other situation, governments can implement the social impact bonds or community bonds, which is a more complicated way to have governments participated in social innovation. However, either of the approaches requires completed policies and regulations before governments get involved in social investment.

Concerns
Governments' purchasing of social innovation may motivate the development of social investment markets, but what if the solution cannot bring big social impacts, who should take the responsibility? The investment failure in social market seems would bring more side-effects.