To prevent tax rates from rising as ageing puts new pressures on services such as health and elderly care, significant efficiency gains in the provision of municipal social services are needed. But production of many social services is dominated by the public sector and is suffering from falling productivity levels. The government is hoping to improve productivity through municipal mergers, deepened municipal cooperation and improved service delivery methods. However, the evidence from municipal mergers and co-operation in the past decades shows that efficiency gains are not guaranteed automatically. That is why much emphasis has to be put on other policies. This chapter discusses the role that more competition can play in promoting productivity growth and innovation in the social services sector. There is much more that the public authorities should do to facilitate the introduction of new methods for the delivery of social services, by levelling the playing field for greater private sector involvement and competition, while at the same time guaranteeing service quality and funding. Such a strategy should raise productivity, permit slower growth in local government expenditure, and encourage diversification in the provision of publicly-funded services. As Finland’s lower-tech industries continue to shrink as a share of total value added, this sector also offers opportunities for economic diversification.