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Social innovation in local development:

Finnish national context

Demographic changes are putting pressure on rural and remote municipalities in Finland – aging populations and outward migration of young people is affecting both the ability to maintain adequate levels of services provision and the economic vitality of communities as a whole. Innovation in the public sector, including partnerships between public, private and third sector actors, is increasingly seen a tool through which these challenges can be addressed.  As such, public sector innovation is central to understanding SI and TSI in the Finnish context.

Funding and governance of Finnish services

In the publication Local Public Finances and Municipal Reform in Finland the OECD reports that Finland is one of the most decentralised countries of the developed world. In the other Nordic countries, some responsibility for public services is transferred up to the regional level while, in the absence of a similar kind of regional government, Finnish municipalities have traditionally provided and arranged a larger share of public services. Municipalities also have a high degree of fiscal autonomy. They collect income tax and property tax and can freely set the income tax level. They receive transfers from the state based on population needs in order to ensure equal service provision across the country. Since the early 2000s, there have been several attempts to amalgamate municipalities with varying degrees of success (see our full National Contexts report for more on this).

At the time of writing, Finnish municipalities were responsible for services such as education, preventive, basic and specialised health and dental care, social welfare services for the elderly, people with disabilities and children, land use planning, water and energy, waste collection and local infrastructure. It is likely that some of these responsibilities will change in the not too distant future as the Finnish Government is preparing for a reform which will see responsibility for the majority of social welfare and health care services shift from municipal governments to 15 new social welfare and health care regions. This introduction of a new regional level of elected government implies a major change in the Finnish governance system.  The reform is also likely to increase the role of private and third sector actors as the current proposition includes the freedom for service users to choose to have these services delivered by public, private or third sector providers.  Currently, some services are contracted out to large, “professional”, third-sector organisations however, up until now, it has still been relatively rare for municipalities to purchase social welfare, health care and education services from private sector actors.

Key issues in remote and sparsely populated areas 

The challenges rural municipalities face in meeting their public service responsibilities are discussed widely in Finland and have provided the backdrop to some of the most significant governance reforms of recent years. As in the other Nordic countries, rural municipalities, particularly those in eastern and northern Finland, are experiencing outmigration of the population to urban areas and an increase in the old age dependency ratio. Ageing and outmigration result in a decrease in both tax revenues and competent labour supply while at the same time increasing demand for, among other things, aged care services. This intensifies the pressure on service provision budgets that are, in many cases, already stretched to their limits.

Social innovation in Finland

The challenges described above have inspired increased interest in new and innovative methods of service provision – often including non-public actors. These initiatives are central to the Finnish SI context and include innovations that increase the efficiency of municipal service provision as well as service-related innovations made by actors outside the public sector. The importance of social innovations being “user-based” or “user-driven” is also central in the Finnish SI discourse. According to a report from the Nordic Council of Ministers in 2015, social entrepreneurship has been slowly increasing in Finland in recent years. Despite this, our research found that, particularly in rural context, it is more of an emerging topic in need of further research that clarifies both the concept itself and its social impact.

Social innovation in local development

Over the past several years, SI has increasingly become part of the national rural policy agenda. A senior researcher from the Finnish National Institute for Health and Welfare interviewed for this project described it as an important tool for retaining welfare services in rural areas and as a way to boost economic vitality and create jobs. Discussions about SI in a rural context focus mainly on generating innovation in the public sector and increasing partnerships between public, private and third sector actors. In practice however, there are some major challenges involved in organising these types of partnerships. It is important to acknowledge that the context of diminishing public sector resources that fuels the interest in SI also present challenges to its implementation. Insecurity with respect to both funding and governance structures along with limited incentives to promote innovation make it difficult for local actors to develop, support or nurture new ideas alongside their day-to-day activities. Third sector organisations are considered to be of particular importance in generating SI rural Finland, where the municipalities face major challenges in service provision, but where there is limited incentive for private companies to provide services because of challenges such as long distances.

Download the full National Contexts report including a complete listing of sources cited


Page last updated September 2016.