IVA's President: The Government as the Lead Customer

Dear Friends of IVA,

Public procurement accounts for nearly one-fifth of Sweden’s economy, amounting to approximately 1,200 billion Swedish kronor per year. EU-wide, the corresponding share is 14 percent. Given its scale and the nature of the purchases, public procurement could serve as a powerful driver of technological development, innovation, and, consequently, growth in Sweden and Europe.

In November 2025, the European Commission’s expert group on innovation procurement presented its final report, noting that the EU uses procurement as a driver of innovation to a significantly lesser extent than other leading economies. Of all public procurement spending in the EU, innovation procurement accounts for only 10.54 percent. The expert group believes that EU countries are only realizing half their potential – and should be aiming for at least 20 percent.

Two brand-new reports from the Commission confirm this picture. In practice, it is hard to effectively leverage public procurement as a driver of innovation.

The new reports show how the various member states rank based on national policies, investment, and actual outcomes. Finland tops the list (as a “strong performer”). Sweden (as a “modest performer”) ranks 9th out of 27.

The two components of innovation procurement – where the public sector both funds R&D and acts as the first customer – are indispensable parts of the innovation chain. The European Commission’s reports have delved deeply into the issue of the state as the first customer, and this is where we find an explanation for Sweden’s somewhat mediocre ranking. Sweden ranks at the bottom, as the “lowest performer,” when it comes to signing purchase contracts. Is Sweden a good research funder but a poor customer?

According to the OECD, small- and medium-sized enterprises are particularly innovation-driven, and their greatest need is precisely that first contract – a first customer. This is where the government can play an important role. But as some startups in the defense sector have told me: they don’t expect their first customer to be Sweden – but more likely some other country. The Swedish public sector performs well when it comes to support for developing pre-commercial solutions. The problem seems to lie in purchasing them.

I believe this may be partly cultural: the fear among individual civil servants of making mistakes. Civil servants are closely scrutinized by managers, auditors, courts, and even the media. If the responsible civil servant were to choose a new, untested solution that ended up failing, this would lead to criticism – with potentially serious consequences for that decision-maker.

The Commission’s report refers to this phenomenon as “conservative procurers.” I think this is an unfair description. Individual officials are not the issue. The real problem lies in a punitive culture and inflexible regulatory frameworks.

How can we encourage procuring entities to dare to use their power of the purse to help drive technological development – and recognize the opportunities therein? The government could play a key role as an anchor customer for small- and medium-sized enterprises and encourage them to scale up. We’ve actually done this before. The development partnership between ASEA and Vattenfall laid the foundation for Sweden’s modern power grid and the export of power technology, while Ericsson and Televerket teamed up to develop the AXE digital switching system, the foundational architecture for telecoms systems worldwide.

I believe Sweden needs to prioritize and systematize the link in the innovation chain where the public sector acts as first customer. In a country like Sweden, which has relatively high public consumption, this would be a particularly significant step.

I also believe that we need a political signal. I have written about this before when I proposed the need for the administrative reform, “Axel Oxenstierna 2.0.” Sweden has a large public sector. 1,200 billion kronor could go a long way.

There are many reasons why Sweden is repeatedly ranked as one of the world’s most innovative countries, but it’s not thanks to the public sector being a demanding customer.

Thank you for being part of IVA!

/Professor Sylvia Schwaag Serger, President of IVA