Designing institutions for a new demographic reality

In short

Sitra, the Finnish Innovation Fund, and the Institutional Architecture Lab (TIAL) have partnered to explore how institutional innovation can help Finland navigate the challenges of demographic transition.

Societies around the world are undergoing profound demographic shifts that are reshaping the population pyramid. While these transitions bring urgent challenges, from shrinking workforces to rising care needs, they also present a unique opportunity to rethink how our institutions are designed and governed. Recognising both the urgency and the potential for innovation, Sitra, the Finnish Innovation Fund, is funding the Institutional Architecture Lab (TIAL) as part of a collaborative initiative to explore how institutional innovation can help Finland navigate the challenges of demographic transition. This collaboration combines Sitra’s expertise in foresight and societal innovation with TIAL’s focus on reimagining institutional frameworks to address complex, cross-sectoral issues. Drawing on both domestic experimentation and international examples, we aim to inspire new models of governance that are more adaptable, inclusive, and capable of addressing the evolving needs of populations now and in the future.

Pressure points of demographic change

Demographic transition is primarily driven by two factors: declining fertility rates and increasing life expectancies. These demographic shifts are creating multiple interconnected pressures:

Changing social dynamics: declining local populations weaken traditional social networks and shift patterns of social engagement.
Workforce pressures: a steadily ageing and shrinking labour force poses critical challenges for economic productivity and labour market stability.
Governance constraints: as economic activity diminishes, local tax revenues decline, limiting governmental resources precisely when increased demand for social services emerges due to an ageing population.

Given the far-reaching and cross-sectoral nature of demographic change, addressing these challenges requires institutions that can both anticipate and adapt to complex, interconnected challenges while also taking concrete action to shape preferred futures.

Have we lost our ability to imagine?

In an uncertain and constantly evolving world, one of the most important traits any society, institution, or organisation can possess is adaptability. Yet, there is a tendency to double down on familiar structures. As Professor Geoff Mulgan notes, institutions significantly shape not just our actions, but our way of thinking. They guide collective action and frame our approaches to solving complex problems. However, public institutions have remained largely static, defaulting to outdated models that served us well in the past but are no longer suited to current realities. This inertia risks leaving societies poorly equipped to manage long-horizon issues like demographic change.

To manage this, we need to turn our gaze forward and ask ourselves: what kind of future do we want to create? For this, we need a collective imagination that allows us to question, dream, and reimagine what could be.

For instance, not so long ago, Finland was a post-conflict developing country. During its rapid transformation, Finland showed the value of future-oriented thinking and harnessed its ability to reimagine institutions and deliberately work toward a desirable future. Somewhere along the way, we have let that ability fade.

Rethinking our institutions

Institutional innovation is one way to approach the challenge of demographic transition and find that power of collective imagination. It involves deliberately designing and redesigning governance structures, policies, and practices to enhance adaptability, resilience, and cross-sectoral collaboration in response to complex societal challenges.

In response to the changing demographics, countries around the world are experimenting with new institutional models that go beyond traditional structures to enable adaptability, coordination, and long-term thinking. For example, Singapore’s Inter-Ministerial Committee on Ageing brings together multiple ministries to create integrated strategies for an ageing population. At the same time, New Zealand’s Social Investment Agency uses data-driven insights to fund programmes based on long-term social outcomes rather than short-term outputs. In Wales, the Well-being of Future Generations Act institutionalised future-oriented governance by mandating that public bodies account for the impacts of today’s decisions on future generations. As these examples illustrate, with the right institutional arrangements, countries can respond to demographic challenges in ways that build resilience and unlock new opportunities.

To better support its partners in driving change and accelerating the development of societal innovations in response to demographic transition in Finland, Sitra, in close collaboration with TIAL, is organising an event in Helsinki on 5 May 2025. The event will bring together key stakeholders working on different aspects of demographic change to explore how institutional design and innovation can help Finland adapt to its new demographic reality. This work is part of a broader project focused on demographic change in Finland, through which Sitra continues to explore how institutional innovation can best support these efforts.

Arvind Kumar, TIAL

Emma Honkala, Sitra