05/16/2013 02:37 pm ET Updated Jul 16, 2013

The New Era of Public Innovation: Part II

A new era of public innovation started in earnest at the Schwab Foundation Social Innovation Summit last month in Lima, Peru.

As part one of this article explained, public officials from across Latin America are ready and willing to collaborate with the private sector on new ideas for addressing poverty and view "social inclusion" as an economic imperative. A new World Economic Forum and Schwab Foundation report, co-authored by InSight at Pacific Community Ventures and the Initiative for Responsible Investment at Harvard University, Breaking the Binary, will help governments weigh their options.

The discussion in Lima also clarified a few key tenets of public innovation.

First, public innovation must be grounded in evidence of what the community needs. Enterprising solutions will only be sustainable if we respond to what works. That often means that policy will be very focused, comprising "millions of micros" in the words of Colombia's Director, Department for Social Prosperity, Bruce MacMaster.

Second, empowerment is at the heart of public innovation -- of recipient communities, and of the government officials reinventing and often relinquishing or sharing control of public service delivery. Locally-driven solutions are also likely to be holistic, incorporating elements of health, education, housing, basic infrastructure and other interconnected needs.

And finally, public innovation is outcomes-oriented and agnostic about the means by which social impacts are delivered. Public innovation is not code for privatization. Rather, the best ideas and most appropriate resources and capabilities from the public, private and non-profit sectors must be strategically leveraged and coordinated.

A Global Movement

The Social Innovation Summit was held alongside the World Economic Forum on Latin America, which provided for a regional focus. Yet the ideas that emerged on public innovation are consistent with important developments elsewhere.

The experience in the U.S. is illustrative. Despite the creation by government of an entire infrastructure of community finance, and tens of billions of dollars of related tax credits, the proportion of the U.S. population living in extreme poverty increased from 3.7 percent in 1973 to 6.7 percent in 2010. This is according to Alan Berube from the Brookings Institution, writing for Investing in What Works for America's Communities, an ambitious initiative of the Federal Reserve Bank of San Francisco (SF Fed) and Low Income Investment Fund.

In synthesizing the many contributions to Investing in What Works, senior editor and director of the SF Fed's Center for Community Development Investments, David Erickson, calls for unique, integrated, and dynamic solutions in each low-income neighborhood, representing more of a "process than a single idea or program".

This is a useful analog to the Social Innovation Summit. The breakthrough moment in Lima was not the announcement of critical new policy initiatives like Peru's social innovation fund. Rather, it was the signaling effect resulting from the clearly articulated convictions of every public official present -- an overarching vision that aligns the region's governments with the "process" of social inclusion at hand.

No government exemplifies this vision more than the UK, which is the focus of two case studies in Breaking the Binary and has chosen to use its Presidency of the G8 to focus on social impact investing as an issue of critical global concern.

The UK was represented in Lima by the Cabinet Office Head of Social Investment, Kieron Boyle. Reflecting on "why" social innovation had emerged as an important priority for the UK government, he called out three drivers: growth in the social investment market of 38 percent annually, supporting social enterprise as an economic engine (39 percent of social enterprises employ people in the most deprived areas of the UK, compared to just 13 percent of mainstream enterprises); the importance of social innovation as a testing ground for replicable policy strategies; and reform of the public service to focus on preventative, early intervention.

Each country and market has its own drivers of social innovation. The only difference in the UK is the extent to which the government has embraced and leveraged them. The Schwab Foundation - together with PCV InSight, the IRI, and the network they have created, the Impact Investing Policy Collaborative - has now laid the groundwork for others to follow.