Matthew Gatehouse, co-author of Nesta's new report State of Innovation: Welsh Public Services and the Challenge of Change reflects on some of the challenges facing a nation struggling to marry a rich history of social innovation with the 21st century issues facing its public services.

Wales is a small nation with a big public sector, accounting for more than two-thirds of economic output to the west of Offa's Dyke. This dependence is compounded by low private sector productivity in a region that has struggled to find an alternative to the heavy industry and manufacturing that had dominated its economy since the advent of the industrial revolution.

In writing State of Innovation' for the Wales Public Services 2025 programme, myself and Adam Price were looking for solutions with the potential to disrupt public services in the way that the MP3 format has disrupted the music industry.

Despite a rich history of social innovation there seems to be an underlying feeling that public services in Wales are not that good at delivering the radically different solutions that that we have come to expect from sectors like insurance, retail and technology. They may lack the profit motive that causes companies like Samsung or Dyson to continually invest in research and development - yet people working in councils, the NHS and blue light services are facing challenges on a scale unknown in our lifetimes:

• With nearly a fifth of the Welsh population aged over 65, a higher proportion than the UK as a whole, and life expectancy continuing to rise, health and social care will consume an increasing proportion of national income.
• Despite high levels of investment, Wales suffers from worse heath than most parts of the UK - nearly 27% of economic inactivity is due to long term sickness.
• Wales is particularly vulnerable to the impact of welfare reform
• The private sector in Wales lags behind the rest of the UK with gross value added (GVA) which is 75% of the UK average.
• Rising global demand for fuel and materials costs will place huge pressures on the resources available to meet our everyday needs, driving up costs and increasing the numbers of people struggling to heat their homes and put fuel in their car.
• In a society where people bank on-line; compare the market for insurance quotes; shop 24 hours a day and stream high definition television programmes on demand, people have changing expectations of how they should be able to interact with public services

These things alone should be enough to galvanise the sector into a search for radically different solutions. They are compounded by an austerity programme that means we can no longer rely on economic growth and taxation to fund the current model of services.

The prompts for innovation are clear. Our report will argue that we need to act now to assess these challenges and harness the enthusiasm and capability of isolated practitioners, operating at the margins of public services into long term system wide impact.