The National Research Council in The Innovation Policy Era: Changing Hierarchies, Networks, and Markets 9781442681804

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THE NATIONAL RESEARCH COUNCIL IN THE INNOVATION POLICY ERA

Changing Hierarchies, Networks, and Markets

IPAC

IAPC

The Institute of Public Administration of Canada Series in Public Management and Governance Editor: Peter Aucoin This series is sponsored by the Institute of Public Administration of Canada as part of its commitment to encourage research on issues in Canadian public administration, public sector management, and public policy. It also seeks to foster wider knowledge and understanding among practitioners, academics, and the general public. Networks of Knowledge: Collaborative Innovation in International Learning Janice Stein, Richard Stren, Joy Fitzgibbon, and Melissa MacLean The National Research Council in the Innovative Policy Era: Changing Hierarchies, Networks, and Markets G. Bruce Doern and Richard Levesque Beyond Service: State Workers, Public Policy, and the Prospects for Democratic Administration Greg McElligott

The National Research Council in the Innovation Policy Era Changing Hierarchies, Networks, and Markets

G. Bruce Doern and Richard Levesque

IPAC -

IAPC

UNIVERSITY OF TORONTO PRESS Toronto Buffalo London

www.utppublishing.com University of Toronto Press Incorporated 2002 Toronto Buffalo London Printed in Canada ISBN: 0-8020-3536-1 (cloth)

Printed on acid-free paper

National Library of Canada Cataloguing in Publication Data Doern, G. Bruce, 1942The National Research Council in the innovation policy era : changing hierarchies, networks, and markets (The Institute of Public Administration of Canada series in public management and governance) Includes bibliographical references and index. ISBN 0-8020-3536-1 1. National Research Council Canada - History. I. Levesque, Richard, 1970- II. Institute of Public Administration of Canada. III. Title. IV. Series: Institute of Public Administration of Canada series in public management and governance. T177.C2D63 2002

352.7'45

C2001-903028-2

The University of Toronto Press acknowledges the financial assistance to its publishing program of the Canada Council for the Arts and the Ontario Arts Council. University of Toronto Press acknowledges the financial support for its publishing activities of the Government of Canada through the Book Publishing Industry Development Program (BPIDP).

Contents

Preface vii Abbreviations

ix

Introduction 3 Part I Macro Framework Issues, Historical Context, and Institutional Change 1 Fostering Change: Innovation and Institutions as a Dual Analytical Framework 15 2 The NRC in Historical Context 35 3 The NRC in the Past Decade: A Closer Look at Institutional Change 57 Part II NRC Institutes and Programs: Institutional Change at the Mezzo and Micro Levels of Innovation 4 The Biotechnology Research Institute 77 5 The Institute for Research in Construction 91 6 The Herzberg Institute of Astrophysics 104

vi Contents

7 The Industrial Research Assistance Program: Advice, Networks, and Money 116 8 National and Local Innovation Systems and the NRC's Competitor-Partner Institutions 133 Conclusions 150 References 165 Index 177

Preface

This book emerged out of research informed mainly by the disciplines of political science and public administration, and hence is centred on policy and institutional change. But we hope it will also be of interest and relevance to a broader readership of scientists and others concerned about science and government both in Canada and around the world. The National Research Council of Canada (NRC) is an important national body. As co-authors, we brought different but complementary perspectives to our study of it: one of us was looking at the NRC for the first time, and the other was intellectually revisiting the NRC after a hiatus of thirty years (Doern, 1972). The work was also stimulated and influenced by graduate courses we were teaching at the Carleton Research Unit on Innovation, Science and Environment (CRUISE), in the Doctoral Program in Public Policy at the School of Public Policy and Administration, Carleton University, and in the Politics Department, University of Exeter. For this book we interviewed more than forty people, including current and former NRC staff and various others in government, business, and academe who are knowledgeable about the NRC and/or about science and technology (S&T) and innovation policy. We conducted these interviews during 1999 and 2000. They were given to us on our undertaking that no person we interviewed would be quoted or directly attributed. The purpose of these interviews was to complement our primary sources and to enhance our understanding of the subtleties and dynamics of institutional change at the NRC and in the federal government.

viii Preface

Many thanks are due to all these participants, who gave unstintingly of their time. Several of them also commented on draft chapters. Thanks are especially owed to Jack Smith at NRC, whose support and encouragement went well beyond the call of duty. The highly constructive comments of two anonymous reviewers of the manuscript are also gratefully acknowledged. The monies to research this book came from a variety of sources, including the Social Science and Humanities Research Council of Canada, CRUISE, the Politics Department of the University of Exeter, the National Research Council of Canada, and Industry Canada. We also gratefully acknowledge the permission of the Institute of Public Administration of Canada to use material in Chapter 3 previously published in the journal Canadian Public Administration. G. Bruce Doern and Richard Levesque April 2001

Abbreviations

ACOA AECL BRI CAUT CBS CCEU CCMC CFI CIHR CISTI CSA CSTA CTN HAC HIA IMTI IRAP IRC ITAs MRC NABST NCE NPM NRC NRCan

Atlantic Canada Opportunities Agency Atomic Energy of Canada Ltd Biotechnology Research Institute Canadian Association of University Teachers Canadian Biotechnology Strategy Cabinet Committee on the Economic Union Canada Construction Materials Centre Canadian Foundation of Innovation Canadian Institutes of Health Research Canadian Institute for Scientific and Technical Information Canadian Space Agency Council of Science and Technology Advisors Canadian Technology Network Honorary Advisory Council on Scientific and Industrial Research Herzberg Institute of Astrophysics Integrated Manufacturing Technology Institute Industrial Research Assistance Program Institute for Research in Construction Industrial Technology Advisors Medical Research Council of Canada National Advisory Board on Science and Technology National Centres of Excellence new public management National Research Council of Canada Natural Resources Canada

x Abbrevations

NSERC OECD

National Science and Engineering Research Council of Canada Organization for Economic Cooperation and Development FBI Plant Biotechnology Institute PIPS Professional Institute of the Public Service of Canada SBDAs science-based departments and agencies SMEs small and medium-sized enterprises SSHRCC Social Sciences and Humanities Research Council of Canada TIS Technical Information Service (NRC) TRIUMF Tri-University Meson Facility WEDC Western Economic Development Canada

THE NATIONAL RESEARCHCOUNCIL IN THE INNOVATION POLICY ERA

Changing Hierarchies, Networks, and Markets

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Introduction

In this book we review and examine the dynamic but difficult institutional transformation of the National Research Council of Canada (NRC) in the past decade, in the context of diverse views of innovation policy. In this biography of an institution, we take three approaches. We review how the NRC has evolved through 'the Perron years' and 'the Carty era/ labels that reflect the two presidents who have held office in the last decade, Pierre Perron and Arthur Carty. We also review how the NRC has evolved in functional terms by looking at how its granting and spending mandates, research performance activities, and technology transfer and informational roles have been emphasized, or shed or taken away, or reconfigured. Finally, we examine the NRC's history chronologically, especially in relation to how it was influenced by the differing agendas of Brian Mulroney's Progressive Conservative government (1984 to 1993) and Jean Chretien's Liberals (1993 to the present). Crucially, in Part I of the book we also look at the NRC from a macro or corporate-level perspective, and in Part II from the mezzo-level vantage point of four selected NRC institutes and programs. In addition, we look at what some of the NRC's competitors and cooperating partners have been doing; these include research granting bodies, universities, and business. Though we focus in this book on the past decade, we do not ignore the longer history of the NRC, which was founded in 1916. Even for the more recent era, we do not confine our analysis strictly to the 1990s: we also examine lead-in developments in the 1980s when necessary and useful. The NRC is one of Canada's oldest and most important national sci-

4 The NRC in the Innovation Policy Era

ence and innovation institutions. Its history is interwoven with the evolution of Canada's economic and industrial development and with the fostering of science at Canada's universities and within the Government of Canada. Its longer-term history has been reasonably well examined from various perspectives by historians, scientists, and political scientists (Thistle, 1965; Doern, 1970, 1972; King, 1989; Jarrel and Gingras, 1991; Phillipson, 1991; Mayer, 1999). However, its institutional transformation in the last decade of the twentieth century has been largely ignored. None of the relevant fields of literature that might shed light on it - science and technology policy, innovation and the management of science, governance and public administration, and the like - have paid much attention. This, even though in the past few years public policy has focused more sharply than ever before on the innovation and knowledge economy (Conference Board of Canada, 1999; Auditor General of Canada, 1999; Lipsey and Carlaw, 1998). All of this in a climate of controversy relating to issues such as biotechnology, the regulation of blood supplies, and the decline of fish stocks issues that revolve to a large extent around the capacities of the state to do science (Doern and Reed, 2000). Since it was founded in 1916, the NRC has always had to pay attention to how it fulfils its mandate. In this, it has been no different from many other government departments and agencies. Throughout its history, it has been given different jobs and been allowed different tools with which to do those jobs. The opposite would have been surprising - that is, that the NRC would still be using the same methods to foster scientific research in Canada as it did at its birth or during the era following the Second World War The question of governance will thus be central in this book. Governance deals fundamentally with how organizations are steered through the demands of policy change and institutional choice. In recent years, policy change has in particular centred on the emergence of an innovation policy paradigm to supplant earlier policy rationales. Institutional choice refers to decisions about whether hierarchies, networks, or markets are best suited - as institutional structures - to attain the goals pursued by an organization. Accordingly, some appreciation of the nature of hierarchies, networks, and markets is essential if we are to understand the organizational changes that NRC has undergone as a governmental science body. As biographers of the NRC, our objective is not to advocate the best mix of networks, markets, and hierarchies for it. Rather, we seek to identify the main policy and institutional concepts that have influ-

Introduction 5

enced debates about the NRC We will show that the so-called new public management (NPM) or 'reinvented government' and the innovation policy paradigm have done a great deal to drive organizational change at the NRC. In the past decade the NRC has had to absorb significant budgetary and personnel cuts even while transforming itself into a facilitator of innovation in the Canadian economy, in which knowledge-based industries are becoming increasingly important. In this era of an innovation policy, it has had to reconfigure itself in terms of its own institutional mix of hierarchies, networks, and markets. The NRC is a federal statutory government agency with a wide but quite clear remit to develop science and technology in Canada. It is also a corporate body with multiple stakeholders, clients, and communities it must satisfy. Its principal statute, the National Research Council Act, mandates it to 'undertake, assist, or promote scientific and industrial research in different fields of importance to Canada' (Canada, 1999: 5). It is also mandated, in part under the Weights and Measures Act, to 'investigate standards and methods of measurement; and to work on the standardization and certification of scientific and technical apparatus and instruments and materials used or useable by Canadian industries' (1999: 5). It also has responsibility for 'operating and administering any astronomical observatories established or maintained by the Government of Canada.' The NRC Act further empowers the NRC to make grants and contributions for research (including international activities) and to run a national science library. The NRC is governed by a twenty-two member council and in 19992000 had a budget of about $522 million. Its approximately 3,200 employees and sixteen institutes are described as functioning within three 'business lines': research and technology innovation, which includes most of the institutes such as biotechnology; aerospace, and manufacturing technologies, which are located across the country; support for innovation and the national science and technology infrastructure, which focuses on the Industrial Research Assistance Program (IRAP) and the Canadian Institute for Scientific and Technical Information (CISTI); and program management. The first two business lines are headed by a vice-president. The current president of the NRC is Arthur Carty, now serving his second five-year term. It is important to stress from the outset that the NRC describes itself both as the leading federal player in the field of science and innovation, and as a transformed innovative institution. At the same time,

6 The NRC in the Innovation Policy Era

like any organization, it has strong and proud traditions and inertial features that anchor it in positive ways but that can at the same time impede necessary change. The NRC's 3,200 employees interact with, influence, and are influenced by a diverse set of stakeholders, partners, and policy communities. Most of its relationships are with governments and the business and university communities. But this is oversimplifying, and does not do justice to the myriad networks within and among these basic realms. The governmental realm includes the Cabinet and Parliament, the central agencies, Industry Canada, other federal science-based departments and agencies, the public service unions, the research granting councils such as NSERC and the MRC, and the many provincial and local governments (each of which has its own agencies and research personnel). The business realm involves large firms and small with various links to the NRC - for example, they have representatives on the NRC Governing Council and on NRC advisory boards; they are business partners in contracted and co-funded projects; they provide, and host, seconded staff; they receive IRAP grants and technical advice; and by the tens of thousands, they use information provided by or through CISTI. The university realm is less tied to the NRC since its granting council role was taken from it in 1978, but still has various intense links with the NRC, increasingly through the same web described above for business. Linkage occurs through funding for big science, IRAP technology advisors based in universities and colleges, publication by the NRC of scientific journals, and the presence of post-doctorate fellows and 'women in science' scholarship winners working at and with NRC. In all of the above three realms, one can add the word international and extend the linkages for each realm and among realms exponentially and globally. Main Arguments In this multilevel analysis of the governance of the NRC, we advance five key themes. The first is that the NRC has changed considerably in the past decade, in a way that reflects the diverse and contested meanings of the innovation policy paradigm that first emerged during the Mulroney era and continued to develop in the Chretien era. This innovation policy mantra grew out of the emphasis on liberalized trade and hard competitiveness (combined with managerial change) in the Muloney era, and then evolved in the Chretien era into selective support

Introduction 7

for the concept of national innovation systems, which often conflicted with those of local and regional innovation systems. The second theme is that innovation policy is still very much contested in political and institutional terms, because at least four conceptions of innovation are competing for analytical and political attention: (1) innovation as a form of Schumpeterian market technology-centred 'destructive competition'; (2) innovation as continuous adaptation and change in market-centred products and processes; (3) innovation as the product of a partnered, cooperating 'national system of innovation' (as opposed to a 'regional system of innovation'); and (4) innovation as a layperson's (i.e., voter's) synonym for gradual improvement in related issues such as jobs, and in the human functioning of public and private organizations. In some respects the NRC's evolution reflects all four conceptions. Certainly the NRC has been influenced by Ottawa's recent approach to microeconomic policy, which has shifted its focus away from industrial policy, and raised innovation as the keystone of its policy. The third theme advanced is that as these newer policy and strategic rubrics were imposed, partially accepted, and adapted, the NRC had to confront and change - and also defend and support - its own traditions as a complex government science agency that still values research, both for its own sake and as a public good. Because the NRC is a department of the Government of Canada, its internal processes of change could not help but involve all of its characteristics as an organization: namely, it is an organization of scientists, it is a politically controlled agency, it is a national institution, and it is a regionally dispersed institution of many and varied institutes. A fourth theme is that the NRC's role in Canadian S&T has shrunk since the Second World War, and will probably shrink even more, proportionately, at least when it comes to stand-alone research. At the same time, it is fundamental to the innovation policy paradigm that no one can 'stand alone/ or do it all, and that all the macro players are now networked and are even growing more like one another. Universities and governments have been forced to act more like businesses and now see themselves as embedded in complex innovation systems. Businesses, especially SMEs, need the public goods supplied by their partners, but they also have to take on actual or quasi governance tasks. And all players in national and local innovation systems have no choice but to be simultaneously global. The NRC long ago proved itself able to shed whole functions, and in

8 The NRC in the Innovation Policy Era

the past decade it has spun off companies and firms based on research, innovations, and products generated by its own people, either on their own or in concert with researchers in private industry. In the future, some of its institutes may well follow a similar course, by 'spinning off toward new, university-centred governance models; others may well form closer ties with industries and local clusters. And of course, in still other situations, the entire language of institute 'spin off may turn out to make no sense, in that the Internet has made it possible to create and operate virtual research and innovation institutes. A fifth and final theme we advance is that the NRC has little alternative but to actively go more public when it comes to defining its role as a national institution. It is more intricately networked now than it ever was in the past, and as a result more sectors than ever have opinions about the NRC, both supportive and critical. But in an even broader sense, Canadian democracy in the twenty-first century is going to demand that the NRC be more accountable to the public, and the NRC will have to adjust to this. It is going to have to 'sell' itself; it can no longer take for granted its political legitimacy and public acceptability. This is not because the NRC has somehow failed in the last decade. Quite the contrary - we argue that the NRC has adapted remarkably well to difficult circumstances. Political support has become more important simply because so many interests, sectors, and regions aare making competing claims for public funds and ministerial attention. Our overall sense is that the NRC is going to have to devote much more of its time to lining up support and proving its relevance in all the key political arenas that will have a hand in shaping its future and resource capacity. A Policy and Institutional Approach This book seeks to show how the NRC's governance has been transformed; but its larger purpose is to provide a useful, middle-level way of understanding Canada's national science institutions, and the institutional policies and politics that result from interactions between NRC and its partner and competitor institutions. In particular, we examine how the NRC has evolved under the new paradigm of innovation policy. We also examine the NRC in relation to three basic modes of organization - hierarchies, networks, and markets - and how it is reconfiguring itself, or is being compelled to reconfigure itself, in the context of these modes of organization. But

Introduction 9

because the NRC is also a science agency, a departmental corporation owned by the federal government, a de facto holding company of sixteen institutes, and an agency linked closely to firms and markets, and to universities and communities of scientists, we need to take a complex and subtle approach to studying its evolution. Accordingly, we also need to relate its evolution to the effects of new public management or 'reinvented government' (itself a form of innovation) on government as a whole. We are specialists in public administration and policy institutions, so inevitably, our approach will involve examining and assessing the NRC as a complex public and governmental body functioning within a fast-changing policy, political-economic, and global context. One way to visualize this approach is to see it as residing midway between how a historian would examine the NRC, on the one hand, and how an economist or even a management consultant would, on the other. A full-blown history would typically look at an even longer period and would base its analysis on documents, memos, and archival material; a full-blown economic analysis would undoubtedly focus on more specific measurable criteria of success or failure, with scarcely any mention of politics or personalities. This book is neither a full-blown history nor a precise performance evaluation of the NRC. However, in this book we do provide a sense of historical scope, and seek to assess and comment on why and how the NRC has changed and what impact these changes may have on its near-term future. Public agencies need to be understood as living, breathing entities about which things can be learned regarding where progress has been made and where reform has fallen short. The nature of innovation policy and the nature of innovating institutions compel the kind of analysis we seek to provide. Structure and Organization The book has two parts. Part I deals with macro issues and with the historical context of policy and institutional change around and within the NRC. Part II takes a mezzo- and, at times, micro-level focus in that it examines selected NRC institutes and programs and also analyses the NRC's position vis-a-vis other institutions and agencies, including research granting bodies, universities, the business sector, and new bodies such as the Canadian Foundation for Innovation (CFI) and the Canadian Institutes of Health Research (CIHR).

10 The NRC in the Innovation Policy Era

The macro and historical aspects in Part I proceed in three steps. In Chapter 1 we discuss the innovation policy paradigm and the nature of institutional analysis. We also examine the key political influences on the Mulroney and Chretien governments. In Chapter 2 we step back to look at the longer-term history of the NRC, largely through an account of its changing functions. In Chapter 3 we take a closer look at the changes of the past decade - that is, the Perron and Carty eras. With respect to Part II, we were constrained by the fact that the NRC has sixteen institutes and three technology centres. We knew we could not deal with them all, yet we found it extremely difficult to select 'representative' institutes for analysis. Our selection criteria included the following: (1) Was the institute a national one or regionally oriented? (2) Did the institute emerge out of earlier, science discipline-based divisions (e.g., biology, physics), or was it part of a 'new tech' discipline like biotechnology? (3) Did the institute focus on older industries or newer ones? (4) Was the institute's focus unique? The three institutes examined in Chapters 4, 5, and 6 (Biotechnology, Research in Construction, and Astrophysics, respectively) reflect these criteria, albeit imperfectly. We discuss some of the other institutes in other chapters in Part I and in Chapter 8. Chapter 7 examines IRAP because it represents a different part of the NRC's mandate. In each of Chapters 4, 5, and 6 (on the institutes), we cover the following for each institute or realm: its origins or historical context; key or unique features of the institution and its economic sector; key features in its evolution into an innovation institute; the nature of its networks; its finances and staff capacity; and its progress and problems as an innovating institution. The structure for Chapter 7 on IRAP is similar, except that it reflects the key notion that IRAP mixes spending with advisory services, and that unlike the institutes it does not operate laboratories. Chapter 8 draws out key aspects of national and local innovation systems. It also traces the emergence of recent institutional models of science and innovation at the federal level in the form of bodies such as the CFI and CIHR - models that have gained political and institutional favour, partially at the expense of the NRC, but whose presence also creates opportunities for the NRC. The chapter also looks at universities and federal granting councils such as the NSERC, again both as competitors and as collaborators; and finally at business in the context

Introduction 11

of the new economy and its institutional links to the NRC and its implicit and explicit thinking about innovating institutions. Chapter 9 then offers overall conclusions in relation to the five key themes highlighted above, and about the nature of NRC as a reconfigured mix of hierarchy, networks, and markets. It also offers concluding views about NRC's future prospects and challenges in the innovation policy era.

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PART ONE

Macro Framework Issues, Historical Context, and Institutional Change

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1 Fostering Change: Innovation and Institutions as a Dual Analytical Framework

Before examining change in the governance of the NRC and in the political-economic environment within which it operates, we must first establish a two-part framework for analysis. One part is needed to help explain the emergence of the innovation policy paradigm. The other is needed to examine the nature of institutions - in particular, governmental institutions. At the dawn of the new millennium, the NRC sees itself as a governmental science agency that is central to Canada's national and local systems of innovation, and that functions inside the parameters of Canada's overall science and innovation policy. But what precisely is innovation policy, and how has it come to be the favoured policy mantra of the present era? The NRC also sees itself as an innovating institution. By this it means two things: first, that it contributes to the actual products and processes of innovation in firms; and second, that it is a governmental body that knows how to change continuously. In other words, it is a learning or knowledge organization, not a rigid bureaucracy. But what are the key attributes of functioning institutions that enable them to get things done, especially in this era of globalization, in which the three basic ways of organizing - hierarchies, markets, and networks - are being rebalanced and reconfigured in the broader public and private sectors. Over the past decade, the interplay between these central concepts innovation policy and innovating institutions - has been highly complex. The NRC has responded to these ideas and sought to advance and influence them. In this chapter we trace these key concepts as the central framework for analysis. (Table 1.1 captures the essence of the framework.) We begin this chapter by considering the nature of inno-

16 Macro Framework Issues TABLE 1.1 The dual analytical framework 'at a glance' The Innovation Paradigm and Concepts of Innovation • Innovation as a form of Schumpeterian market technology-centred 'destructive competition' • Innovation as market-centred continuous product and process adaptation and change • Innovation as the product of a partnership-based national and local system of innovation • Innovation as a layperson or voter concept and synonym for gradual improvement and acceptable change in areas such as jobs and the human face of public and private organizations The Nature of Institutional Analysis • Hierarchies, networks, and markets (and their reconfiguration within and outside of NRC) • Changes in the context of how science bureaucracies function • The influence of the New Public Management or 'reinvention of government' ethos

vation policy and how it has emerged within the broader paradigm of national systems of innovation. In the second section of the chapter we examine emerging new approaches to analysing institutions, in part as they pertain to the notion of reinventing government (the so-called new public management). We then trace these ideas and pressures as they have manifested themselves in the policies of the two governments longest in power over the past two decades, the Mulroney Conservatives (1984 to 1993) and the Chretien Liberals (1993 to the present). The Emergence of the Innovation Policy Paradigm The emergence of the innovation policy paradigm was neither straightforward nor inevitable. In tracing its development, we will consider three factors: the decline of traditional industrial policy; challenges to traditional ideas of R&D; and the rise of free market economics and the knowledge-based economy (or simply the new economy) (Leadbeater, 1999; Kelly, 1998). The Decline of Traditional Industrial Policy

In the period we cover in this book, the innovation paradigm became

Fostering Change: Innovation and Institutions 17

the predominant discourse in microeconomic policy. But in order for this new paradigm to emerge, another had to be pushed out. The NRC was changing at a time when traditional industrial policy was experiencing a decline. Traditional industrial policy focused on different policy focal points and policy instruments. Immediately after Confederation, John A. Macdonald made the tariff the keystone of his National Policy, with the goal of building up industry in central Canada (Harris 1993; Eden and Molot 1993). At the time, and for long afterwards, there was no liberalized trade regime such as the General Agreement on Tariffs and Trade (GATT). Beginning in the late 1940s and well into the 1960s, Ottawa supported a more liberal international trade regime, even while developing programs for particular industrial sectors, an obvious example being the 'managed trade' package known as the Auto Pact. At the time, tariffs were high but declining, subsidies were moderate, and the budget pie was bigger that it is now. In the 1970s and early 1980s, tariffs came down further, and some new, non-tariff barriers were erected (e.g., import quotas, voluntary export restraint agreements), and federal industrial policy was cast much more explicitly in terms of regions and sectors (Savoie, 1986). As tariff protection declined, regional subsidies and grants to industries increased, at least for as long as federal money was available. Meanwhile, the provinces, in attempts to create regionally vital industries in the name of province building, played the spending version of the industrial policy game in their own ways (Tupper, 1986). Industrial policy in this period was also characterized by debates on foreign ownership and on whether foreign investment needed to be screened. Many worked on foreign ownership as a painless approach to innovating and to keeping up with the rest of the world. There were also occasional debates about Canada's S&T policies and about how support for R&D fitted as an element of industrial policy. But during this period, policymakers were far more likely to be concerned about the volume of R&D spending as a percentage of GNP, and the nature of that spending, than they were about rates of patent applications and approvals or rates of diffusion of foreign technology (Conference Board of Canada, 1999; de la Mothe, 2000; Gualtieri, 1994; Doern, 1972). Or attention focused on the relative generosity of Canada's tax breaks for R&D. It is only recently that intellectual property, and other regulatory aspects of R&D and 'pre-competitive' R&D, have begun to receive the attention they deserve.

18 Macro Framework Issues

In the mid to late 1980s, while the Mulroney government was negotiating the Canada-U.S. Free Trade Agreement, federal industrial and trade policy assumed its current basic form. The federal Department of Industry, Science and Technology Canada (ISTC) was established in 1987 with the mandate to focus on international, technology-based competitiveness. The Mulroney government also announced that its new flagship department for the microeconomy was to concentrate on careful analysis and on disseminating knowledge rather than on subsidizing weaker industries or trying to pick winners (Doern, 1995). Within the government, it was also to act as an advocate for industrial competitiveness - in short, it would be a more aggressive horizontal agency. This focus on a non-subsidizing 'knowledge role' was strengthened even more in the 1993 reorganization that produced what is now Industry Canada (Doern, 1995). This period also saw a new focus on business framework laws. Laws on competition, intellectual property, corporate governance, and the like have always been a part of domestic policy. However, the new focus - in the wake of the NAFTA and GATT-WTO agreements of the 1990s - is on how to harmonize international regimes in these areas and link them to traditional trade policy (Doern, 1995; Hart, 1994). If traditional industrial policy was increasingly less desirable or feasible, exactly what was to replace it? Innovation policy has in some sense supplanted traditional industrial policy, but the term is not always easy to grasp, or easy to package and sell to various economic and political interests. While the Mulroney government certainly spoke of competitiveness and innovation, it was the Chretien government that made innovation the central concept in its micro-economic policy in the policy paper Building a More Innovative Economy (Industry Canada, 1994; Doern, 1995a). This document reflected the need for a knowledge role, but it was also very eclectic about just what this role was to be, and about what was meant by the term continuous innovation. As it evolved out of free trade, the globalization of production, the computer-driven revolution in communications, and capital and financial mobility, the dominant view inherent in innovation policies came to be that market liberalization was the best policy for governments to follow. But this raised important questions about how this overall policy would affect a wide range of specific stakeholders, institutions, and policy fields. There were also quite practical concerns relating to which of the new economy would be seen by different ministers as politically

Fostering Change: Innovation and Institutions 19

and economically interesting. In this respect, there is little doubt that between 1993 and 2000, Industry Canada's minister, John Manley, was most interested in the Information Highway and e-commerce. The telecommunications revolution became his favourite topic for speeches, announcements, and new programs such as School-Net and Community Access. By the late 1990s his Commitment to 'connecting Canadians' had found its way into several Speeches from the Throne as a key policy theme of the Chretien era. Telecommunications was linked over and over to job creation; in turn, this informed the average voter's understanding of what innovation actually meant. S&T Policy: Challenging the Idea of the R&D Spectrum

The NRC also functions within the ambit of S&T policy. Yet another development that made room for an innovation policy paradigm was the partial breakdown of the earlier postwar model of scientific activity (Guston, 2000; Gibbons et al, 1994; Crow, 1994). The broad presumption of this model was that basic or pure research drove R&D, which in turn led to innovative products. But for at least the past fifteen years this presumption has been challenged by concrete evidence. Indeed, it is now clear that the path between science and innovation sometimes runs the other way. Certainly, the links between science, R&D, and product innovation are far more complex than this old model suggests. The new linkages between industry and universities are based partly on this new understanding of how R&D and innovative activity actually work together. According to Etzkowitz and Leydesdorff (1997), a 'triple-helix' of university-industry-government relations has now developed. This development has inspired legitimate opposition centred on what the repercussions are for the independence of researchers, and for science and research as a public good (Tait and Williams, 1999; Lee, 1996). The central question being raised is whether there is any room left in universities or in governmental labs for science based on the public interest (Tudiver, 1999; de la Mothe, 2000). The role of science in regulation (and in risk-benefit management) is also linked here because of changes in the sources of scientific information and linkages of key new industries to systems of regulation by the state (Doern and Reed, 2000). It is suggested that the older model and era of science-based regulation was anchored around traditional sources such as epidemiological investigations, toxicological studies, and clinical trials. But more recently, and in the context of the risk-

20 Macro Framework Issues

benefit management model, other sources and types of scientific information have come into greater use, including biological markers; molecular epidemiology; new toxicological assays; in vitro assays; genetics; structure activity analysis; surveillance; and population health surveys. Almost inevitably, these sources and techniques also break down the traditional boundaries of competence among traditionally defined scientific disciplines and can show up in generational differences among the backgrounds of scientists in government and outside it. This evolution also leads to a far wider sharing, dependence and exchange of scientific and professional information and knowledge among experts in Canada and internationally. During the period of the NRC's history we are examining here, the federal S&T sector was also engaged in other, quite pragmatic battles over recognition and funding. These too were part of the shifting sands of the NRC's environment, reflected in the periodic debates and pronouncements about S&T policy. This is a tortuous story because in most respects, despite some recent improvement, S&T policy has not been in the past two decades a major issue for most ministers in the federal government (Dufour and de la Mothe, 1993; de la Mo the, 1994; Doern, 1972). S&T debates have tended to be peripheral, or elements of other policy concerns. Nonetheless, in one respect, federal S&T policy has been quite clear. It has sought to have more R&D done by the private sector, to encourage value-added innovation, and to raise the total ratio of R&D to gross domestic product (GDP). In sum, it has sought to reverse the old approach to R&D in Canada. Historically, Canadian R&D was done in government labs and paid for by taxpayers - an approach that was the opposite of that of our main competitor countries. It made sense to reverse this pattern, and in recent years Canada has done so, with some success (Conference Board of Canada, 1999). But this change in science policy has had its dark side. Over the years this pro-market policy has encouraged governments to progressively underplay - indeed, often not even mention - the science in policy aspects of science policy (Salter, 1988; Meisel, 1998; de la Mothe, 1994). This term of course refers to the government's own underlying scientific activities and capacities to understand the future and then to develop appropriate policies and regulations. Some of this reduction in Canada's 'reserve capacity' for science was manifested in relatively behind-the-scenes debates between government labs and the central budget cutters and macro science policymakers, but it rarely surfaced

Fostering Change: Innovation and Institutions 21

in any sustained way as a significant pan-Canadian public issue. This state of affairs abruptly ended in the summer of 1997 as the media began spotlighting a number of science-based stories - the decline of the fisheries, health regulation, tainted blood, the safety of atomic reactors, and so on. Science budgets, and the number of scientists supporting federal policy and regulatory functions, have been cut in the past fifteen years as a whole. However, between 1997 and 2001 the budgets for some scientific activities actually grew (e.g., some granting councils that had suffered cuts had some money restored, or at least were promised more stable funding; see Chapter 8). Thus, while ministers have not 'gutted' Canada's science establishments, for most of the past decade they have treated this aspect of the science portfolio with, at best, benign neglect. Our conclusion must be that they are not at all sure about the place of science in government. Judging from the 1993-4 Program Review (Swimmer, 1996), ministers don't seem to appreciate the fact that the overall area of health, safety, and environmental regulation - the area that largely coincides with science-based regulation - is precisely the area that citizens see as having a crucial role for governments. Innovation as Market-Centred Processes

There are at least four conceptions of innovation competing for analytical attention and thus influencing how the federal government or the NRC might express and communicate the innovation policy paradigm. These were listed in Table 1.1. Schumpeterian innovation refers to the analytical insights of Joseph Schumpeter, who challenged the basic tenets of classical economics with his idea that capitalism and markets are engaged in a process of creative destruction (Freeman and Soete, 1997; Best, 1990; de la Mothe and Paquet, 1996) This behaviour is observable around longer cycles of change when new technologies and production processes (almost invariably involving both product and process) are being aggressively exploited. This view of innovation is of considerable importance in the current era because of the prevailing view that the past decade has been, and the next ones will be, centred around such new technologies as biotechnology and information technologies ('A Survey of Innovation in Industry,' 1999; Kelly, 1998). The Schumpeterian notion of innovation compels us to ask whether

22 Macro Framework Issues

there are any Canadian firms capable of radical innovation, and of catching and exploiting such waves of change - or in danger of being obliterated by them. However, as Lipsey and Carlaw point out (1998), 'taking Schumpeter seriously' on policy matters is no easy task. It requires a 'structural' rather than a neoclassical approach to thinking about and implementing policies for innovation and technology. As we will discuss in Chapter 7, their assessment of the NRC's IRAP program is fairly positive; in their view, that program meets the structuralist test in the sense that it is cognizant of how innovation can be encouraged in practical ways and avoids some of the political sins of other, more targeted versions of industrial policy. A second notion of market-based innovation focuses on equilibrium markets, in which innovation is steadier and more incremental than in Schumpeter's scheme of things. It sees innovation as very much centred in individual firms. Various analyses in the 1980s and 1990s saw this form of innovation as accompanied by the emergence of a 'new competition' - competition centred much more on what Best (1990) referred to as 'entrepreneurial firms.' These firms, while market based and always sensitive to improvements in methods, products, and processes, are inherently more flexible, social, and cooperative entities. These analyses - of everything from Japanese production to small Italian firms and regional cooperative ventures - suggested that the importance of entrepreneurial firms was rising relative to the massproduction industrial firms that have dominated the last seventy or so years of capitalism (Albert, 1993). Much of this thinking critized mainstream neoclassical economics for failing to appreciate (a) the role of cooperation among many firms and institutions in the overall innovation process, and (b) the organizational requirements of innovation. It also raised new questions about the role of strategic alliances among firms - alliances that included cooperation in R&D. Some saw such alliances as a threat to competition; others saw them as a manifestation of the socioeconomic nature of innovation. While these debates were being conducted, the ground was shifting out from under the postwar economy, which was dominated by the trading of goods. How did the new realities of the knowledge-based economy (or simply the new economy) affect how the economy functioned? Economists have many different answers to this question (Gera and Mang, 1998). Some economists caution against the idea that growth is now more knowledge based than in the past (Howitt, 1996).

Fostering Change: Innovation and Institutions 23

They point out that new, dominant technologies and methods (textiles, agriculture, autos) have often been analysed as crucial determinants of growth. But many economists are now re-examining growth theory, with a focus on endogenous growth. This is because earlier, simpler aggregate growth theory treated knowledge and technology as if they were 'just another good, capable of being accumulated like capital and aggregated with the same precision (or lack of precision) as capital' (Howitt, 1996: 9). Endogenous growth theory considers whether knowledge, because it is so intangible and so highly mobile, is different from physical goods, and whether it must therefore be thought about differently, especially when it comes to information that either markets or governments could access. It implies that there is a new form of knowledgebased competition (Thurow, 1999; Leadbeater, 1999; Best, 1990). The notion of innovation being generated and fostered by an even larger national system of innovation thus arose from several strands of the above analyses and debates, which eventually permeated economic and science policy departments in most OECD governments in the 1990s. As de la Mothe has stressed, 'an "innovation system" approach allows us to move towards more accurate depictions of how knowledge actually leads to growth, underpins our economic and social union, and how institutions adapt to rapidly changing circumstances. This embraces the reality that no institution - firm, research lab or government agency - can "know it all" or "do it all"' (de la Mothe, 2000). Innovation systems are an analytical conception based on key institutions developing partnerships and cooperation of many kinds: through funding, through the exchange of information and knowledge, and through decision-making processes that are kept as close as possible to those who are most able to respond with decisions. At the national level, they increase the freedom of movement for policies and departments that are perceived as part of them. For example, laws, policies, and departments in areas as diverse as competition (antitrust), intellectual property, and the environment find themselves swept into consideration in ways that they were not as recently as the mid-1980s. The same with related human capital and education policies and institutions. This is both the strength and the weakness of national systems of innovation. On the one hand it is sensible to argue that 'everything is related to everything else.' On the other hand, it is difficult to commu-

24 Macro Framework Issues nicate clearly what national systems of innovation are meant precisely to do, because they seem to touch on everything and therefore perhaps on 'nothing.' It is useful to mention in the same breath as national systems of innovation, the concepts of regional and local systems of innovation (Edquist, 1997; Acs, 2000; de la Mothe and Paquet, 1998; Roy, 1999; Paquet and Roy, 1995). The latter refer to local clusters of institutions (universities, firms, city and local governments, and special regional funding authorities) that form interactive partnerships to create 'bottom up' growth and development. This world of actual or hoped for Silicon Valleys is often seen as the antithesis of national industrial policy - and of traditional, linear R&D spectrum models - and also of national innovation systems. These local systems are similar to national systems of innovation in the sense that they are based on concerted interaction among key institutions. Another similarity is that both types of systems are ultimately 'spatial' in nature, in the sense that they reflect territorial boundaries. Examples in this regard are high-tech 'neighbourhoods' such as Kanata, Kitchener-Waterloo, and Mississauga. But in other key respects, local innovation systems are in conflict with national innovation systems. This is largely because by their nature, local or regional learning clusters are more dynamic (i.e., they generate more knowledge 'heat') (Acs, 2000; OECD, 1998). Local systems of innovation have been an important reference point for the NRC in the past decade. In this key respect, the NRC has been well ahead of its parent department, Industry Canada, which in practical and rhetorical terms has focused much more sharply on national innovation systems and free trade competitiveness. As we show in later chapters, the NRC and its institutes are aligning themselves more and more with local and regional partnerships (Regional Innovation Forum, 1998). For reasons that will be more apparent as our analysis proceeds, the NRC has had to cater to both national and local systems of innovation. Ultimately, the various notions of innovation must be linked to how average citizens see innovation. Citizens (i.e., voters) often perceive innovation as a synonym for gradual change and improvement. In the economic literature on innovation, this broader and more political view of innovation is not even mentioned. This is because in economic and industrial circles, innovation is equated more with new products or services, or with the other notions referred to earlier. But in a

Fostering Change: Innovation and Institutions 25

political-institutional analysis such as the present book, the layperson's concept of innovation warrants mention because it can affect how the innovation message is received. For example, in a practical sense it is hard to be 'against' innovation, especially if it is presented as gradual improvement. This notion has a soft, reassuring quality to it and is easy to communicate and sell. But if innovation is cast in harder, quasiSchumpeterian terms, or is linked with even harsher-sounding concepts such as competitiveness, productivity, and job losses, the politics of innovation moves - especially for politicians - to another realm where the weather is far stormier. In the innovation policy era, politicians may want to link the NRC and other governmental players to job creation, educational opportunity, e-commerce, and digitally 'connected Canadians/ and hence to a more populist innovation agenda. This latter view of innovation must be considered, because although the NRC is a science and innovation institution, it is also quintessentially a governmental and political institution. In this sense, all of the notions of innovation - including those of average voters and citizens are competing for attention and are a part of NRC's Realpolitik. Institutional Analysis and Governance The second element of our framework centres on the changing nature of institutional analysis. We proceed here in three stages. First, we look at how institutions (public and private) are being examined in terms of three basic modes of organization: hierarchies, networks, and markets. Then we look briefly at how science bureaucracies have been changing. Finally, we examine the so-called new public management (NPM) agenda of change that has affected government, including Canada's federal government and the NRC as its science agency. Institutions as Hierarchies, Markets, and Networks

Institutions can be viewed in many ways and are studied by many academic disciplines. At the broadest level they can be seen as entrenched systems of behaviour centred around strong values and systems of norms and rules. They can be cast as historically dependent and filled with inertial forces, or they can be seen as 'systems of incentives' in the sense that if one can 'get the incentives right' one can change institutions. Increasingly, however, a three-part typology of institutions has come to the fore (Williamson, 1975; 1985; Peters, 1999; Ostrom, 1990).

26 Macro Framework Issues

Hierarchies are the classic bureaucracies. These so-called Weberian bureaucracies emphasize organization: there is a hierarchy of office holders and of superior-subordinate relations; officials are salaried and hold permanent positions based on qualifications and competence; and there is heavy reliance on paper communication to ensure accountability (Hood, 1998; Pollitt and Bouckaert, 2000). Weber described bureaucratic institutions as efficient, not, however, in some economic allocative sense of efficiency, but rather in comparison with earlier forms of organization that were structured on less rational concepts. They were intended to produce reliable and predictable behaviour - a highly valued capacity especially when linked (as it came to be) with responsible elected government, in particular with Britishstyle systems of government such as Canada has. Hierarchies have been criticized for many reasons over the last five decades, yet they remain crucial. In contrast, markets in their pure form are modes of exchange within which goods and services are traded voluntarily. They are greatly facilitated by broadly accepted mediums of exchange such as money. Within them, contracts can be developed and enforced (Thompson et al., 1991). Markets are not innately hierarchical, nor are they coercive. They are, however, dependent on the state maintaining laws and policies to regulate the marketplace and to supply crucial public goods (Lane, 1995). Finally, networks involve exchanges of information and support based mainly on trust (Rhodes, 1997; Thompson et al. 1991). One can think of a network as an informal organization or group-based organization within which there are conventions governing trust-based exchanges. Along these lines, a network must develop rules about how to treat opportunistic behaviour that occurs after some agreement or exchange has occurred (Breton and Wintrobe, 1990; Hood, 1998; Lane, 1995). In a very basic sense, all three of these institutional forms can be found in both the public sector (government) and the private sector (corporations and firms), and also in the voluntary or third sector (charities, etc.). But in practice, hierarchies as Weberian bureaucracies are associated most closely with governments. Markets are the essence of the private sector, although of course firms - especially big firms are hierarchies too. Networks have the least obvious home base, but it is not difficult to see that they are central to the third sector and are part of all organizations in all sectors.

Fostering Change: Innovation and Institutions 27

All of the above is in some sense familiar ground to anyone who has lived or worked for long in any organization. But thinking about these forms, and about changes in institutional modes, has been aided by transaction cost analysis and its accompanying calculus of how and why particular modes are chosen over others (Williamson, 1975). These analyses focus on explicit and implicit contracting and on how the costs of contracting can be overcome. Transaction costs include both the procurement costs of inputs and the costs of exchange. A series of 'make' or 'buy' choices is thereby developed; these in turn imply a choice (or series of choices) between hierarchies, markets, and networks (MacDonald, 2000). Initially, transaction cost frameworks were applied mainly to understanding firms, but they are being applied more and more often to any sector that faces choices of make or buy. And these analyses have increasingly found their way into attempts to understand choices in government - not only in service delivery but also in how organizations structure their choices for obtaining inputs for policymaking (MacDonald, 2000). We will be examining the NRC in relation to this mix of hierarchy, networks, and markets. The NRC has to be looked at as a hierarchy itself, of course, but it is very much lodged within an even more complex hierarchy of hierarchies (e.g., within the Industry Canada departmental portfolio, and within the larger Government of Canada). We also have to appreciate how the NRC functions and has changed as a budgetary system, as a system of personnel management, and as a set of procedural rules and policies about the integrity and performance of research and innovation. This is the realm that Guston (2000) usefully refers to as the 'social contract for science.' The extent to which the NRC has evolved from an Ottawa-centred institution (its wartime roots) into a more regionally dispersed entity affects the hierarchy question. It also affects how politicians perceive the NRC (i.e., as a national institution or as something else). We will be examining the NRC in terms of reconfigured networks. The NRC was an organization of networks long before it was institutionally fashionable, and long before networks became a focal point of institutional thinking and managerial reform. These networks are reflected in its earlier, discipline-based divisions, in its peer review processes, and in its system of associate committees. But the nature of these networks has changed in various important ways to the point where we really must speak of complex 'networks of networks.'

28 Macro Framework Issues

The influence of markets - including, for our purposes, quasimarkets - is also a crucial part of our analysis. Early in the century the NRC was seen as a virtual substitute for markets in matters of R&D, and more recent developments have been built on this: spin-off companies, regional innovation systems, local business-university clusters, and the growing presence of businesspeople as 'guests' at NRC labs and institutes. This brief profile of hierarchies, markets, and networks is important as a basic entry point for understanding institutions at the millenium. But this discussion is not in itself enough for us to analyze the evolution of the NRC. We must also specifically consider two closely parallel topics: the nature of science bureaucracies, and the nature of 'reinvented government.' The Nature of Science Bureaucracies

'Science bureaucracy' is in one sense an oxymoron. By nature, science and scientists are the antithesis of hierarchies and bureaucrats. Merton's basic framework on the sociology of science is still immensely useful for capturing the core norms of science and understanding why science is so readily perceived as the opposite of bureaucracy. The principles of communalism, universalism, disinterestedness, originality, and organized scepticism are central to the social system of science as represented by research scientists and basic researchers (Merton, 1973, Storer, 1966; Grove, 1990). Implicit in all this is the core notion that science is above all about evidence and measurement and the ability to distinguish good evidence from bad evidence (Gribbin, 1998). While science has deeply entrenched rules and conventions, scientific activity by its very nature is closer to a network than to any bureaucracy or market. Obviously, however, science's rules and conventions must be tweaked to accommodate the broader institutional settings in which scientists find themselves working: in business, government, universities, and interest-group associations. In each of these realms, in different ways, scientist-practitioners find themselves embedded in complex bureaucracies and hierarchies. In all of these settings there are constant tensions between science as an institution and hierarchies as an organizational form. Front-line science practitioners seek maximum freedom from rules and deadlines so that they can conduct research in a collegial and net-

Fostering Change: Innovation and Institutions 29

worked manner. Good science also must be 'patient' - it cannot be done 'on demand' (Doern, 2000). Science managers must find ways to acquire the resources they need and to ensure that outsiders (further up the hierarchy or outside the organization) do not disrupt, distort, or interfere with the essential integrity of the networked research enterprise (Guston, 2000). This view is strongest in universities - the home base of basic research - but it has also emerged in the postwar context of some government research labs, where this ethos is sometimes captured by the phrase that NRC was 'a university without students.' One analysis of U.S. national laboratories found that in the new economic context, existing labs were 'limited by design' (Crow and Bozeman, 1998). In private corporations, the norms of science must also be protected from the excesses of the free market and from excessive corporate bureaucracy. R&D in private industry clearly must be in tune with profit goals - indeed, with the idea that knowledge can be 'owned' but even here, concessions to the differences between corporate and science culture must be made. Perhaps these concessions are most evident in the tendency of some big R&D and innovative firms to organize their research enterprises as 'campuses.' But science and scientists do not change simply because they are a part of various kinds of bureaucracies and hierarchies. The nature of scientific discipline is also changing, and this in turn is changing how scientists see themselves and how others see them. Besides the older disciplines of physics, engineering, chemistry, and biology, we are now seeing a proliferation of newer disciplines, subdisciplines, and interdisciplinary fields. To see this, we need only compare a typical university calendar from the late 1970s with one from 2000, or compare the names of branches of science-based regulatory bodies over a similar period. Or we can scan the titles of the newer scientific journals. Often, 'established' or 'prestigious' journals find themselves being challenged by newer journals for emerging subdisciplines. This pressure for differentiation and stratification is partly a result of the growth in the sheer numbers of the world's scientists, but more is happening than that. This increase in specialization both reflects innovation and is a cause of it. Specialization is also present in the pressure that subgroups of scientists are exerting to gain recognition and selfregulating status. Inevitably, disciplines and subdisciplines construct their own discourses and languages, both to communicate new kinds of knowledge and to separate themselves from other cognate disci-

30 Macro Framework Issues

plines (and the broader public). Disciplines and subdisciplines are very much a form of networked institutional activity, and all of this quite dynamic activity is aided and enhanced by the exponential growth of the Internet and information technology. We end this discussion of science bureaucracies by stressing the crucial point that the public and private (and partnered) paymasters of modern research are insisting on promises that research will be productive and will meet standards of integrity (Guston, 2000). This is leading to the formation of what Guston refers to as 'boundary organizations/ In Canadian terms, these boundary organizations include not only newer bodies such the CFI and CIHR, but also some of the NRC's own institutes - a point to which we will return, especially in Chapter 8. The New Public Management Agenda and Reinvented Government

The rise of the new public management and/or 'reinvented' government is clearly another important source of institutional change affecting the NRC. NPM is seen very much in relation to the decline of traditional hierarchical and bureaucratic government (Aucoin, 1997; Doern, 1994; Ferley et al., 1996). NPM is partly the product of debates about the role of government and the nature of bureaucracy, but it is also increasingly entwined with the implications of governing through, and with, the new information technologies (Bellamy and Taylor, 1998). The NPM and reinvention ethos essentially supports the role of the state but argues that public service bureaucracies must focus much more on customers and on quality of service, and less on top-level policy development. Such structures need, in short, to look 'down and out' rather than 'up and in/ Also, concepts of accountability must be changed to focus more on performance and results and less on bureaucratic lines of authority (Barberis, 1998). In response to such ideas, many public service agencies have been changed. The United Kingdom, Australia, and New Zealand have all altered their governance structures quite systematically in this regard; the Canadian federal government has adopted a more selective approach under the rubric of encouraging 'alternative service delivery' (i.e., alternatives to traditional bureaucracy) (Pollitt and Bouckaert, 2000). In the context of this book, alternative service delivery includes decisions to create organizations such as the CFI and CIHR, which have important degrees of arm's-length independence from govern-

Fostering Change: Innovation and Institutions 31

ment and politicians, in contrast to the NRC, which is still basically a 'departmental corporation' (Ford and Zussman, 1997). Such choices redesign hierarchies; the entities thereby created are closer to markets or to fostering new forms of networking. These ideas have also affected the functioning of science-based regulatory bodies and research labs, in Canada and elsewhere. Funding is now through user fees; regulations are now negotiated; guidelines and voluntary codes are becoming commonplace (Doern and Reed, 2000). A final overall point about NPM and similar ideas is that, though they are much more prevalent than in the past, they have not fully replaced the idea of traditional public administration or traditional regulation and bureaucracy. The federal government and its agencies such as NRC still exhibit many crucial features of the older hierarchies, in part because the older practices still meet some of the needs of parliamentary democracy. In short, what exists now is a hybrid of old and new public management, laced with the new modes of communication unleashed by the Internet, which in turn has created new networks and broken down old networks. Political Imperatives under the Conservative and Liberal Eras Any interpretative look at the NRC's evolution must touch on some of the issues raised by the dual framework we have sketched in this chapter. Conceptions of what innovation means and of how one visualizes institutions are important at a general level and will underpin the analysis that follows. But the NRC has also been deeply affected by the political environment of the past two decades. Some of these influences have been direct (e.g., changes in federal science policy); some have been more indirect, in the sense that federal politics affected the economy, which in turn affected the NRC's operating climate. The Mulroney Conservatives, who governed from 1984 to 1993, influenced the NRC in several important ways. The centrepiece of the first Mulroney government was the Canada-U.S. Free Trade Agreement and free trade policy in general. Free trade is not typically seen as an R&D or S&T policy, and it was not sold on that basis (Doern and Tomlin, 1996; Hart, 1994). But with hindsight it may in effect have been the Tories' key science and innovation policy. This is because it broke the hold of industrial policy habits and confronted Canadian business with new realities regarding what it might take to compete in the global economy.

32 Macro Framework Issues

Compared to previous, mainly Liberal governments, the Mulroney government had far stronger representation from western Canada and from small business interests. This helped forge Tory concerns about fighting the huge fiscal deficit, but it also brought demands for more businesslike government and a suspicion of Ottawa-centred institutions. These features directly and indirectly brought new, sceptical views to bear; they also put new institutions and reviews in place. For example, the 1984-5 Task Force on Program Review included a very hands-on look at various science programs. The Conservatives also established the National Advisory Board on Science and Technology (NABST), which had heavier than usual business representation. The various studies by NABST pressed hard to make the government's laboratories more commercially oriented, and also beat the competitiveness drum in the immediate post-free trade era (Dufour and de la Mothe, 1993). The discourse of 'competitiveness' policy eventually softened into the more inclusive language of innovation policy. The Conservatives also abolished the Science Council of Canada, which they had seen as being too interventionist in some of its reports. In the mid-1980s, Conservative policies began to affect the budgets of all agencies, including the NRC; but in general, the Conservatives did not make much of a dent in the total size of the federal deficit (Swimmer, 1996). Nor did they really pay much attention to the NRC until their second term in office, which began after the 'free trade election' of 1988. One possible reason for this lack of attention was that throughout the Tory years in office, Industry Canada (or its predecessor departments) had a parade of ministers - 'on average one per year - and thus no minister ever actually took a hard look at the NRC. That being said, Conservative views about the NRC had developed to the point where it felt that the NRC, like other Ottawa-centred federal agencies, needed a new kind of leadership. Pierre Perron was seen as a person who could supply such leadership. He had been lifted out of a senior position at Energy, Mines and Resources, where in the earlier Tory years he had been instrumental in steering EMR away from the interventionism of the National Energy Program - a Trudeau-era Liberal policy that the Conservatives had vehemently opposed and that under Mulroney they rapidly wound up in the 1984-6 period (Toner, 1986; Doern and Toner, 1984). With respect to the Chretien Liberal government, the particular policy and political influences on the NRC have been similarly direct and indirect. We can usefully start again with free trade. The Liberals

Fostering Change: Innovation and Institutions 33

opposed the free trade agreement in the 1988 election, yet under Chretien they have been, if anything, even more ardent free traders than the Conservatives. Again, this is important for the NRC, because it has entrenched free trade in the business climate along with the view that Canadian firms have no choice but to innovate. The Liberals launched their own program review in 1994-5, and its consequences were felt for the next five years. The Liberals really did cut spending and the deficit, and this affected all government agencies, including the NRC. Furthermore, these program cuts involved the systematic introduction of user fees and alternative service delivery, reflecting the concept of NPM referred to earlier. As we will see in Chapters 2 and 3, the Liberals' program review resulted in a second wave of cuts to the NRC that its new leaders, under Arthur Carty, had not anticipated. Also important in the Chretien era has been the fact that since 1994, the Liberals have embraced the idea of innovation in the knowledge-based economy as their preferred policy umbrella for dealing with the Canadian microeconomy. This emerged in 1994 policy papers on the microeconomy, but it was also part of the Liberals' 1993 election platform (the first Red Book) (Industry Canada, 1994; Liberal Party of Canada, 1993). At the same time, however, the Liberals seem to have been more sympathetic to key national institutions like the NRC. It is also well worth noting that the industry minister, to whom the NRC reported between 1993 and late 2000, was John Manley, who had been elected from a riding in the Ottawa area. The federal industry portfolio had not had the same minister for seven consecutive years since the heyday of C.D. Howe in the Second World War and postwar period. Manley's appointee (blessed by the Cabinet) to succeed Pierre Perron as president of the NRC was Arthur Carty; this appointment was seen at first as putting someone in place who was sympathetic to the NRC not only as a historic entity but also as a national institution whose relevance ought to be renewed and strengthened. It is interesting that Carty came from the University of Waterloo, an academic institution that long before most universities in Canada saw itself and structured itself as an innovating, market-oriented knowledge institution. We will focus on the eras of Perron and Carty in Chapter 3. Here we are only hinting at the impact these two men had, by describing the circumstances in which they were appointed. Our real point here is that

34 Macro Framework Issues

in order to understand how the NRC has changed in the past two decades, one must keep one eye on the politics at play in those years. Conclusions In this chapter we have introduced a two-part framework and context for examining NRC as an innovating institution, and pointed out some of the basic political imperatives that conditioned the NRC in the Mulroney and Chretien eras. We have analysed the innovation paradigm in two contexts: the decline of traditional industrial policy, and criticisms of traditional S&T policy. The innovation paradigm has gained ascendancy in policy discourse. Yet there is no consensus as to what this paradigm actually signifies. To some it means Schumpeterian creative destruction; to others, ongoing product and process change within and among firms in the knowledge economy; to others, national and local-regional systems of innovation; and to others, a means of fostering job creation and acceptable change. The second element of the framework is in some respects more indirect, in that it centres on how institutions have come to be analysed and viewed. The central thrust of the institutional part of the framework is the suggestion that the NRC and other bodies must be examined in relation to changes in how hierarchies, networks, and markets have been employed as basic ways of organizing complex tasks. We will discuss this in more depth throughout the book. In this chapter we have also noted that two other features of institutions are important in assessing the NRC of the 1990s. First, the NRC must be located in the more specific context of how science bureaucracies have changed; second, the NRC has been influenced by the ethos of NPM and reinvented government. The NRC has been heavily influenced by the political imperatives confronting the Mulroney and Chretien governments, which for their part have been (and still are) heavily affected by debates about the role of government institutions in the innovation era. These debates found their most concrete expression in the political storms surrounding free trade and deficit reduction. There was never a 'storm' over what to do with the NRC, but the debate was conducted across similar lines.

2 The NRC in Historical Context

In Chapter 1 we supplied a framework centred on the conception of innovation policy and institutions, and discussed some of the immediate political imperatives of the Mulroney and Chretien governments. But we did not talk about the longer history of the NRC or its traditions, culture, and achievements. In this chapter we consider the NRC in this longer historical context, drawing on earlier published histories to show how it has adapted over the years. Some historians have presented the NRC as evolving through three stages: its formative years from 1917 to 1939; its golden years from 1939 to 1969; and its 'fall from grace years' from 1970 to the early 1990s (Phillipson 1991; Jarrel and Gingras, 1991). These changes can be measured or presented roughly in terms of changes in budgets, staff, and reputation. This chapter covers all the years since 1916, when the NRC was established, but it does not present a straight chronological, let alone 'rise and fall (and rise)' story line. Though key periods will emerge, we have organized the history that follows to convey more about the NRC's core institutional functions. Aided by Table 2.1, we present the NRC's historical evolution in terms of the following roles: policy advisor and de facto policymaker; research granting body and provider of incentives for industry; research performer; technology transfer and information institution; and intellectual property and research ethics manager. The NRC's past functions are important to consider, because they offer us different perspectives on how it has evolved in terms of hierarchies, markets, and networks. In this chapter we examine the overlap between changing functions and dominant institutional images. We

TABLE 2.1 The NRC's changing functions Function

Main time period

Nature and key aspects

Policy adviser

1916 to late 1960s (statutory) 1970s to present (de facto)

Statutory role as main federal science policy adviser Role assumed by successive policy advisory bodies such as Science Council of Canada, NABST, and CSTA Still has de facto policy advisory role about own policies and due to the scope of its expertise

Granting and funding

Began in 1916 Granting function ended in 1978 Other funding (e.g., big science projects) continues Industrial Research Assistance Program (IRAP) begins in 1962 and continues

Granting crucial to supporting science and scientists at Canadian universities Granting function taken from NRC and given to NSERC due to view that NRC had conflict of interest as performer and granting body IRAP roots go to late 1940s but established in 1962 to strengthen NRC's industrial research support mandate.

Research performer

Laboratories authorized in 1928 Major growth during Second World War and postwar period centred in Ottawa area Budgetary and staff cuts in late 1980s and into 1990s New institutes established or reorganized, with more based in regions than in the past

Its key science-discipline centred divisions often portrayed as a 'university without students,' especially in 1950s and 1960s Criticism in 1960s by Glassco Commission and Lamontagne Report for failure to support industrial research sufficiently; too much in-house research

TABLE 2.1 (concluded) Function

Main time period

Nature and key aspects

(Research performer)

Some key research areas spun out into separate agencies (e.g., atomic energy; space research)

Shift from divisions to institutes in last decade, with institutes focused on technology clusters and governed by more business-centred advisory boards Pressure to have regionally based institutes influenced by both normal regional politics but also 'local systems of innovation' paradigm

Technology transfer and information

National Science Library founded in 1927 as statutory task Technical Information Service founded in 1957 Became Canadian Institute for Scientific and Technical Information (CISTI) formed in 1974 Publishes 15 research journals Current vice-president of NRC for technology transfer exists with responsibility for CISTI and IRAP

Gradual transformation from 'library' to broader technical information function; Had to shift from more passive library role to more active, customer-centred information services Strong influence of Internet-based revolution, including some competitor suppliers of some aspects of technology transfer and information Broadening notion of what technology transfer is (e.g., through educating scientists and through I RAP)

Intellectual property and research ethics manager

Little explicit roles or mention in early history Explicit emergence in 1990s of policies and guidelines (NRC and government-wide)

Always a concern about proper standards and peer review in conduct of research Rise of intellectual property concerns (especially patents) due to innovation paradigm; the new knowledge-based economy and greater partnered funding with business Concerns about animal rights and ethical issues such as biotechnology and human genome

38

Macro Framework Issues

also analyse the NRC of the 1980s and 1990s, especially regarding its budgetary and personnel changes. The NRC as Policy Adviser In organizational terms, the historical nucleus of the NRC is the Honorary Advisory Council on Scientific and Industrial Research (HAC). The HAC was established in 1916 by a Cabinet order-in-council. One year later, in 1917, Parliament passed an Act - the Research Council Act - that clarified the role of the HAC by establishing it as an advisory council to the newly created Privy Council Committee on Scientific and Industrial Research (the first statutory Cabinet committee) headed by the Minister of Trade and Commerce. As its name suggests, the HAC's original function was to advise the Canadian government on science matters (Enros, 1991; Doern, 1972). More precisely, the NRC was to link the government to the scientific resources available in Canada by co-ordinating these resources whenever the government needed them. The very first mission of the HAC was to aid the Canadian government in its war effort during the First World War. But as Jarrel and Gingras report, 'when the Armistice was signed in November 1918, there was no scientific war effort in place [in Canada]' (Jarrel and Gingras, 1991: 1-2). The NRC admitted that it had contributed little to the war effort, and blamed this on the serious shortage of scientific manpower and infrastructures in the country. Its explanation was buttressed by a survey it conducted in 1917, which concluded that Canada was ill equipped to carry out scientific research. Had the NRC (as the HAC) been strictly confined to its role as adviser and coordinator of scientific resources, we probably would not be interested in its history today. Before 1928, when the NRC's laboratories were authorized, the HAC had only one permanent member on its staff: its secretary. Before 1928, the presidency of the HAC was a part-time appointment (Doern, 1972; Thistle, 1965)! Judging from the resources deployed, it is clear that the federal government was not doing much to obtain scientific advice. After 1932 the Privy Council Committee on Scientific and Industrial Research convened only once a year, and even then on a strictly ritual basis (Doern, 1972). The NRC's policy advisory role changed markedly during and after the Second World War. Once its laboratories were established (see below), its prestige grew and it became without a doubt the govern-

The NRC in Historical Context 39

ment's main adviser on science policy. This pre-eminent policy role was strengthened by the leadership and prestige of key players such as E.W.R. Steacie, the president of the NRC from 1952 to 1962 (King, 1989). It is well worth noting that for key parts of this period, the NRC was championed by powerful Liberal cabinet ministers such as C.D. Howe. In the 1960s, under the Diefenbaker Conservatives and later the Pearson Liberals, dissatisfaction with science policy and with the old postwar consensus increased. The Glassco Commission and later the Lamontagne Committee tabled critical reports (Doern, 1970, 1971, 1973). In 1966 the federal government stripped the NRC of its monopoly in S&T policy advice and transferred much of that role to a new agency, the Science Council of Canada (SCC). The NRC no longer had a large advisory role in science policy, and so stopped describing itself as having one. As we noted in Chapter 1, in 1992 the Mulroney Conservatives abolished the SCC and replaced it with the National Advisory Board on Science and Technology (NABST). In the 1990s, science policy was centred in Industry Canada, where an assistant deputy minister in charge of policy played a lead role in coordinating federal science policy advice, both for Industry Canada and (interdepartmentally) for all federal science-based departments. Various science policy reviews were conducted in the 1990s, increasingly in terms of the innovation paradigm. This was certainly the case in the 1994-5 S&T review and in the program review process (de la Mothe, 1994, 2000; Lindquist and Barker, 2000). Yet another burst of S&T review occurred between 1998 and 2000, fuelled by events such as the collapse of the cod stock in Atlantic Canada, and by crises such as the one over tainted blood, and by general global concerns about how biotechnology should be regulated (Powell and Leiss, 1997; Doern and Reed, 2000). One of the clusters of renewed science policy work is centred in the Science ADMs Committee, whose three working groups focus on the following: wealth creation; science capacity (i.e., the capacity of government labs to carry out their mandates); and the precautionary principle. The group on wealth creation (headed by the NRC) was also asked by the government to link its work to that of Industry Canada on Canada's productivity growth, which was failing to keep pace with that of the United States. In an overall sense, this group of initiatives required the science-based departments and agencies (SBDAs) to 'make a case' for Canadian government science.

40 Macro Framework Issues

A second cluster of policy work has been centred on the Council of Science and Technology Advisors (CSTA). The CSTA was formed in May 1998 in response to concerns about science and science advice in the federal government. It comprises representatives from various S&T external advisory boards, which report to ministers of SBDAs. The CSTA provides the Cabinet Committee on Economic Union (CCEU) with outside expert advice on internal federal government S&T issues requiring strategic attention. This capsule history of policy advice suggests that the NRC no longer has a lead role in science policy, but it does not suggest that the NRC can abandon the policy role it still does have. Its survival will depend on its capacity to plan and run its own affairs, and to tread its way through (and influence) an S&T policy process that is ever changing and at times even random and quixotic. We return to these issues of policy capacity in later chapters. The NRC as a Granting and Funding Agency The NRC has for much of its history been a granting and funding agency. As a result, its identity and network linkages have been influenced by how and why it hands out funds to researchers and industries. The granting role typically refers to money handed out as grants to scientists through a peer review process; the funding role refers to money and incentives for industry, or to contributions to larger projects (often labelled as 'big science'). In this chapter we focus on three things: early forms of support; the rise of the granting function until 1978, when it was taken from the NRC; and the establishment of industrial incentives through the Industrial Research Assistance Program (IRAP). The legislation that established the NRC gave it the authority to distribute funds to support scientific endeavours in Canada. In its early years, the NRC tended to support basic rather than applied research. While the NRC had been established for mainly utilitarian reasons - as a menas for science to assist industry - its original policies reflected the realization that Canada had to begin by developing scientists (Doern, 1972: 39). Thus, the NRC at first allocated its funds with the objective of developing a scientific community, and universities and academic scientists were privileged when it came to NRC grant money. In the 1960s this emphasis on building the academic scientific community was criticized by the Glassco Report and the Lamontagne Committee,

The NRC in Historical Context 41

which castigated the NRC for its lack of concern for applied and industrial research. In the wake of those reports, the NRC and its political overseers began steering the NRC toward more industrial projects. In 1978 the NRC's granting function was taken over by a new and separate entity, the Natural Sciences and Engineering Council (NSERC), whose mandate it was to manage university research grants and scholarship programs in science and engineering. This was no small amputation, since 'at the end of NRC's administration of the programme, nearly $100 million was being expended annually on grants and scholarships' (Jarrel and Gingras, 1991: 4). As the NRC's 1990-1 Annual Report puts it: The focus on industrial research and development at NRC increased following the creation of the Natural Sciences and Engineering Research Council' (NRC, 1991, Annex A). Obviously, this change was made so that the NRC could focus more sharply on its industrial granting activities through programs such as IRAR However, this amputation did not mean an end to all NRC funding directed to non-industrial activities. The NRC is still involved in funding facilities such as telescopes, the Tri-University Meson Facility (TRIUMF), which is an accelerator, the Sudbury Neutrino Observatory, and other, smaller projects of a similar nature. TRIUMF usually grabs the larger share of the money dedicated to these more 'fundamental' projects; in an average year it receives $30 million. The NRC manages TRIUMF on behalf of the university and federal partners involved, and administers the federal contribution. Table 2.2 presents the breakdown between IRAP funds and funds for 'big science.' The data show that IRAP has gotten the lion's share of the money that has been directed outside the NRC since NSERC was created. But big science still gets between 35 and 40 per cent of NRC allocations. The same table shows that in constant terms these contributions have remained quite stable despite the budget cuts of the early 1990s, to the NRC's overall budget as well as that of IRAP (see more below). Between 1986 and 1996, the NRC's contributions to fundamental projects have never been less than 44 million (1996) or more than $53 million (1990). This trend seems to be countercyclical to the rest of the NRC's budget, which reached its low in 1990 and its highs in the late 1990s. Overall it can be said that the NRC has demonstrated a clear commitment to funding big science, even when its budget is especially tight. The politics of big science are at play in this: the federal government was unwilling to cut TRIUMF because it had already cut the B.C.-

42 Macro Framework Issues TABLE 2.2 NRC grants to non-industrial projects, 1986-96

Year 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

Total grants and contributions ($)

IRAP's part ($)

108630 119384 117074 115687 114837 114852 117525 117379 131 555 128047 129378

66843 69043 75645 72632 64455 69274 67616 68327 76117 79603 82805

Fundamental projects in current terms ($) 41 787 50341

41 429 43055 50382 45578 49909 49052 55438 48444 46573

Fundamental projects in constant terms ($) (1992 = 100) 52 103.49 60 360.91 47 839.49 47 679.96 53 597.87 46 272.08 49 909.00 47949.17 53718.99 46 357.89 43 854.05

Source: NRC's Annual Reports from 1986-7 to 1996-7. Constant dollar figures have been computed using the Implicit Price Index obtained from Statistics Canada, matrix label D-15594.

based KAON project. The funds for TRIUMF actually originated in the Western Economic Development Agency, and were transferred to the NRC so that it could then fund TRIUMF. It is important to note that although the NRC no longer has a peer review granting function, it must still maintain good relationships with NSERC, since NSERC is now adjusting its granting practices to focus more on industry and innovation (see Chapter 8). Also of growing importance, especially with health and biotechnology industries growing in importance in the Canadian and global economies, are the NRC's relations with the Medical Research Council of Canada (MRC). This trend can only accelerate now that new, arms'-length Canadian Institutes of Health Research (CIHR) institutes have been announced (see Chapter 8). A final point about the shedding of the granting function is that in the 1980s and 1990s the NRC lost considerable day-to-day contact with the academic research community as it related to granting activities, though not to other, institute-centred activities. In particular, many younger academic scientists were far more likely to know something about NSERC and the MRC than about the NRC. The NRC's political

The NRC in Historical Context 43

constitutency and scientific networks and relationships were clearly changing. As the NRC's academic granting function ended, its industrial assistance activity increased and took hold. This shift marked a return to the institution's original mandate: industrial assistance activity through IRAP is ultimately rooted in the NRC's Second World War and postwar reconstruction roles. We examine IRAP more closely in Chapter 7. For the purposes of this chapter we focus on how it was formed in 1962 and on how its expenditure history relates to the NRC's broader budgetary evolution. IRAP was proposed in 1961 by E.W.R. Steacie in part to counter criticisms that the NRC was insufficiently engaged with industry. As Phillipson notes, this program broke new ground with respect to public policy toward business since it was 'the basic precedent in Canada for making public grants to private industry ... a revolution in political ideology since 1946, when such grants to private industry were unthinkable' (1991: 183). It should perhaps be added that Canadian business did not have to 'think' about grants and subsidies in part because it still enjoyed high tariff protection. But in the early 1960s the Kennedy Round of GAIT negotiations was underway, and tariffs were soon to be lowered. Soon enough, governments would turn to subsidies as a substitute. The NRC's 1990-1 Annual Report noted: 'IRAP co-exists with 88 other federal and provincial innovation programs' (NRC, 1991: 38). Yet despite this competition, IRAP is alive and well today. In the late 1990s, IRAP was the second-biggest item in the NRC's budget, with expenditures of roughly $98 million - roughly 21 per cent of total expenditures (NRC, 1998). At the start of the 1990s, IRAP was described as 'a national network that helps Canadian enterprises, mostly small and medium sized firms, develop and apply technology for both their economic benefit and that of Canada ... It fulfils its role by offering on-the-spot advice and financial support to assist companies introducing innovative products and processes. To this end, IRAP utilizes the expertise of approximately 250 technology advisers, 80% of whom come from provincial research organisations, universities, specialised centres, industry associations and engineering firms' (NRC, 1991: 38). IRAP delivered its services through its industrial technology advisers (ITAs), who interestingly were not employed mainly by the NRC. The assistance supplied could be cash, or it could be technical assistance

44 Macro Framework Issues

delivered to a large number of small or medium-sized firms (see Chapter 7). The establishment of IRAP has been key to changes in the NRC. In the following discussion, we use IRAP as a comparator to see what has happened to the NRC's total budget since the deficit-fighting years that began in the mid-1980s. The largest part of the NRC's budget goes to salaries, equipment, and operations at its various laboratories and institutes (which we comment on historically in the next section). Even so, a comparison with IRAP is instructive regarding overall trends. This comparison is made in both current and constant dollars. Table 2.3 shows that between 1986 and 1998, the NRC's total budget increased by 20 per cent while IRAP's particular envelope increased by 53 per cent. In constant terms the difference was even more drastic, since the two envelopes moved in different directions: the NRC's total budget decreased in real terms by 12 per cent while IRAP's increased by 12.4 per cent. But this does not mean that IRAP was exempted from cuts. A close examination of Table 2.3 reveals that in the late 1980s and early 1990s, IRAP's budget was cut and then frozen for several years. More precisely, in 1988 IRAP's budget was roughly $76 million in constant terms. After that year, IRAP took a big cut that brought its budget down to roughly $64 million by 1990 - a 15 per cent decrease. Not until five years later did IRAP's budget return to its 1988 levels in nominal terms. But of course, by 1995 those $76 million had lost close to 16 per cent of their purchasing power relative to 1988. This loss in purchasing power matched exactly the loss in purchasing power suffered by the NRC as a whole over the same period. This indicates that initially, IRAP was hit with cuts just as severe as were suffered by the NRC as a whole. IRAP's healthier budget in recent years relative to that of the NRC as a whole is explained by the fact that it has been privileged in recent years in terms of reinvestment. For example, from 1993 to 1994, IRAP's budget grew by 10 per cent in real terms, while the overall budget of the NRC grew by only 2 per cent. Another point worth making concerns how, during the deficitfighting years, IRAP allocated the cuts made to it between its own two components: its assistance program, and its funding program. Table 2.2 reveals that the funding part of its program took the brunt of the cuts. In this respect, from a high of $62 million in current terms in 1988, the funding part of the program went down to $52 million five years later, also in current terms. This was a loss of 16 per cent in current terms and of 30 per cent in constant terms. Over the same period, the

Table 2.3 I RAP versus total NRC budgetary changes, 1986-98

Year 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

I RAP'S assistance program (current $)

IRAP's assistance program (constant $) (1992 = 100)

IRAP's funding program (current $)

IRAP's funding program (constant $) (1992 = 100)

12026 11 991 13 102 15089 16065 15799 15654 16149 17749 18975 20882

14 995.01 14377.70 15 129.33 16 709.86 17090.43 16 039.59 15654.00 15785.92 17 198.64 18 157.89 19662.90

54817 57052 62543 57543 48390 53475 51 962 52178 58368 60628 61 923

68 350.37 68 407.67 72 220.55 63 724.25 51 478.72 54 289.34 51 962.00 51 004.89 56 558.14 58017.22 58 307.91

IRAP's total expenses (constant $)

I RAP'S total expenses (constant $) (1992 = 100)

NRC's total budget (current $)

NRC'S total budget (constant $) (1992 = 100)

66843 69043 75645 72632 64455 69274 67616 68327 76 117 79603 82805 97929 102305

83 345.39 82 785.37 87 349.88 80434.11 68569.15 70 328.93 67616.00 66 790.81 73 756.78 76 175.12 77 970.81 90591.12 93 685.90

437 090 448 327 484 974 437 761 455 424 431 973 452618 467 452 482 974 454 035 455 420 477 235 523 503

545 000.0 537 562.4 560 016.2 484 785.2 484 493.6 438551.3 452 618.0 456 942.3 467 998.1 434 483.3 428 832.4 441 475.5 479 398.4

Source: NRC's Annual Report from 1986-7 to 1998. Constant dollar figures have been computed using the implicit price index obtained from Statistics Canada, matrix label D-15594.

46

Macro Framework Issues

assistance program part of the budget kept its purchasing power; in current terms, its budget stayed at the same level - roughly $15 million. The end of the cuts in the mid-1990s was a breath of fresh air for the funding part of IRAP - its budget increased by 19 per cent in real terms between 1992 and 1996, to almost its 1988 value of $62 million in real terms. Thus, at the end of the cuts cycle, the purchasing power of the funding program of IRAP was effectively restored. The assistance program continued to gain ground in real terms; by 1996 its value was $19.5 million - an all-time high in the table. No wonder, then, that the percentage of IRAP's total budget dedicated to technical assistance grew from 18 per cent in 1986 to 25 per cent in 1996. These initial data on overall NRC expenditures and IRAP spending are instructive, but by no means do they tell the whole story. The temptation is to think that IRAP concentrates on industry, whereas spending on laboratories reflects the NRC's traditional big science focus. This needs two qualifications, which later sections and chapters will discuss in more depth. The first is that the NRC laboratories have been evolving into institutes; the second is that money is spent in the labs far differently than it used to be. Lab spending is more personnel intensive and involves capital equipment. It faces heavier problems of sunk capital and potentially inflexible human resources. In the short and medium term, it is far easier to change how money is handed out than it is to change research infrastructures and human capital. The NRC as Researcher: From Divisions to Institutes Laboratories are crucial to the NRC's function. At first, the Canadian government was quite reluctant to allow the NRC to launch itself in the field of scientific research. A bill that would have allowed the NRC to establish its own laboratories was defeated in the Senate in 1921. But the project resurfaced and was finally accepted in 1928. According to Phillipson, Ottawa finally decided to establish its own laboratories because Ontario had just done so, and the federal government did not want to be seen doing less science than its largest province (1991:179). The beginnings of the laboratories were quite modest, since they opened in 1932 during the worst of the Depression. The Depression and its fiscal crisis prompted the federal government to 'abolish all vacant posts throughout the public service, before the NRC Laboratories were half manned' (Phillipson, 1991: 179). But this situation was only temporary, and after the Second World War began, the NRC's lab-

The NRC in Historical Context 47

oratories took off. The staff of the NRC grew from 300 in 1939 to nearly 3,000 (about the same as its current staff complement) by the time the war ended in 1945. The NRC's wartime research focused on fields such as radar technology, wartime food, war gases, and experimental aircraft. After the Anglo-French atomic project was transferred in 1943, the NRC also conducted atomic research (Phillipson, 1991; Thistle, 1965; Doern, 1972). After the war, in 1947, military research was transferred to a separate agency, the Defence Research Board. Nevertheless, 'the NRC was authorised to maintain the staff (3000) and budget ($6 million) it had grown in war time' (Phillipson, 1991:181). According to Jarrel and Gingras, as a result of the rapid growth of the NRC's budget and staff, and the transfer of most military research to another agency, the NRC evolved in the postwar era 'into [a] large university without students. Like the modern Canadian University, the NRC undertook both pure and applied research, but there is no doubt that much of its agenda was internally generated' (1991: 8). This fact was central to criticims levelled at the NRC in the middle and late 1960s by the Glassco and Lamontagne reports, which argued that the NRC's laboratories were not paying enough attention to the needs of Canadian industry. In response, Ottawa adjusted the NRC's governance structure to allow more space for members of the business community to influence its decision making at the highest levels: One method of persuasion [to re-orient the NRC toward the needs of the private sector] was to re-orient the Council through its appointments. In 1960, the Honorary Advisory Council consisted of President Steacie, three of his vicepresidents, the retired president, C.J. Mackenzie, fourteen university members, one member representing labour and one from industry! By 1975, W.G. Schneider presided over a council with four vice-presidents and a secretary from the NRC, eight university members and nine from the private sector. By 1985, the new order was thoroughly evident: Larkin Kerwin's council had seven NRC officers, four university members, one government member and twelve from the private sector. (Jarrel and Gingras, 1991:11)

By appointing more people from the business sector, the federal government was attempting to steer the NRC toward scientific research activities that were more relevant to the needs of Canadian industry. In 1990 the NRC on its own initiative undertook to link its in-house laboratories more closely to industry's needs by creating a new organi-

48 Macro Framework Issues

zational structure: the advisory boards. In its 1990-1 Annual Report, the NRC gave its reasons for this change: For decades, the NRC has used a variety of external advisory groups and associate committees to support the planning and assessment of its research activities. In September 1990, Council decided on a more systematic approach to external feedback on the plans and priorities of Institutes and Programs. Advisory Boards were created for each NRC Institute or major program and are composed of scientists, engineers and business leaders from across and outside Canada. These Boards provide a systematic approach for involving the NRC's stakeholders in planning and managing its activities. This development responds to past concern about feedback and involvement of partners and clients in government programs and also provides for increased accountability. (NRC, 1991: 22)

These advisory boards were the successors of the associate committees that the NRC had relied on for years, but served a quite different purpose. The associate committees had been temporary committees established to study and produce recommendations concerning particular scientific problems. For example, They were flexible means to react quickly to new situations. The Associate Committee on Tuberculosis in the inter-war years and the wartime committee for Medical Research, for example, not only served to solve urgent practical problems but also raised the question of an appropriate structure for funding medical research' (Jarrel and Gingras, 1991: 5). The new advisory boards are rather more permanent, and each is attached to a different institute or program of the NRC rather than to a specific scientific problem. The advisory boards have increased the influence of the business sector on the NRC. In 1996, six of the sixteen chairs of these boards were from the academic community, and eight were business leaders. In 1992, ten had been business leaders, while six had been academics (NRC, 1993: 50). Clearly, the NRC has been trying to change its programs and institutes to reflect the needs of the business sector. Before looking more closely at the dynamics of turning the laboratories into institutes, it will be useful to look at the financial situation of the laboratories in recent years. Table 2.4 shows how the operating expenses of the NRC rose and fell between 1983 and 1998 in both current and constant 1992 dollars. This is the best indicator of the outlays made on behalf of the laboratories. The table shows that in constant dollars, the NRC budget for laboratories eroded by roughly $40 million

The NRC in Historical Context 49 TABLE 2.4 Operating expenses of the NRC, 1983-98 (000 $)

Year

Operating expenses (current $)

Operating expenses (constant $) (1992 = 100)

NRC total budget (current $)

NRC total budget (constant $) (1992 = 100)

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

199996 224 090 224 539 240 201 237 022 244 608 259116 283 003 249 534 268 181 276 065 268 520 262 562 258 257 268 569 285184

280 893.3 301 601.6 291 230.9 299 502.5 284199.0 282 457.3 286 950.2 301 067.0 253 334.0 268181.0 269 858.3 260193.8 251 255.5 243179.8 248 445.0 261 157.5

406 888 434 660 434 660 437 090 448 327 484 974 437 761 455 424 431 973 452618 467 452 482 974 454 035 455 420 477 235 523 503

571 471.9 585 006.7 563 761 .3 545 000.0 537 562.4 560016.2 484 785.2 484 493.6 438551.3 452618.0 456 942.3 467 998.1 434 483.3 428 832.4 441 475.5 479 398.4

Source: Operating expenses taken from NRC Annual Reports, 1983-4 to 1998. The constant figures were obtained by deflating the nominal values with the implicit price index taken from Statistics Canada, matrix Label D-15594.

(about 13 per cent of its budget). This erosion took place mainly between 1990 and 1996, over which time operating expenses in constant dollars fell from $300 million to $243 million. The budget for the laboratories declined a little more sharply than the budget for the NRC as a whole, which over the same period shrank by 11.5 per cent, but not as sharply as the funding budget for IRAP, which was cut by 20 per cent between 1989 and 1994. In relative terms, then, the laboratories were not the main victim of cuts to the NRC. But it must be noted that while the laboratories took milder cuts than IRAP in the early 1990s, they have not enjoyed massive reinjections of new funds in more recent years, as IRAP has. In the two most recent years for which funding data are available, the labs received budget increases of 2 per cent (1997) and 5 per cent (1998); in the same two years respectively, IRAP enjoyed increases of 17 per cent and 18 per cent. Even though the NRC suffered major budget cuts in the late 1980s

50 Macro Framework Issues

and early 1990s, those cuts as financial aggregates (as distinct from personnel cuts and other cultural changes discussed below) did not have much effect on how the NRC carried out its mandate. This is seen in the fact that the NRC has not closed down any of its institutions or programs to cope with financial restraints. Rather, it has spread the cuts so as to maintain all of its programs and institutes, albeit with fewer financial resources. It has also increased its revenues from about $7 million to $70 million (see Chapter 3). Now that the cuts are over and budgets are growing again in both nominal and real terms, the NRC is privileging mainly the envelopes that had suffered the most during the deficit-fighting years, such as IRAP. Thus, the NRC seems to be on course to re-establish its resource base. Another key financial and cultural change was that many of the institutes were now required to raise their own funding through partnerships with industry. The target was set to double the percentage of such funding in the 1990s. The point was to increase budgets, but also and more importantly to ensure that the work of the institutes would be of practical interest to the business community (see Chapter 3). With regard to personnel changes and cuts, the NRC responded to fiscal restraint in much the same manner as other parts of the federal government. In 1990-1 a series of golden handshakes induced about 140 scientists and other staff to leave the NRC. There is little doubt that initially, the cuts damaged staff morale, and raised insecurities, not the least because of the cultural change that was an inevitable result of the new focus on industryand innovation. Chapter 3 discusses this aspect of change in greater detail. Overall, however, the NRC has been quite stable in the postwar decades in terms of human resources. It still employs roughly 3,000 people, and their age profile has not changed greatly (in contrast to most public service agencies, whose staff are getting older). Around 40 per cent of the NRC's professional staff have engineering degrees, and 60 per cent have science degrees. The turnover rate of staff is remarkably low, despite the turbulence of the 1990s. But all of this relates to aggregates. Between 800 and 1,200 of the NRC's 3,200 staff (the most recent figure) are now part-time. The parttime component, which grew the 1990s, includes about 150 NSERC post-doctoral fellows, about 150 research associates, and 75 women from the federal Women in Science program. This contingent probably explains why the average age profile has not changed much. Another change is that on entry, the NRC staff now have PhDs; in earlier

The NRC in Historical Context 51

decades a master's was often the qualification. Finally, three-quarters of the NRC's staff used to be based in Ottawa; nowadays, only twothirds are. This reflects some movement of staff, and also the development of institutes in other regional/local innovation centres. The biggest structural and cultural change in the laboratories is that they have moved away from a scientific discipline-based structure toward a multidisciplinary, technology cluster-style structure. The institute structure was established in 1990, though the NRC had begun moving toward it in the 1980s. In earlier decades, the NRC's divisions were based on the various, discrete science disciplines (chemistry, physics, mechanical engineering); the 'university without students' image of the NRC was partly based on this. But by the mid-1980s, halfway though the Larkin Kerwin presidency, the NRC's organization chart was already exhibiting some institute-like clusters in areas such as biotechnology and industrial materials (NRC, 1986: 2). Without doubt, however, the sea change in the NRC's structure occurred in 1990-1, when all research units became instihutes and the advisory boards were attached to them. In particular, several older divisions were reorganized to create five new institutes 'focussed on areas of strategic importance: molecular sciences, national measurement standards, environmental chemistry, microstructural sciences and information technology' (NRC, 1991: 9). There were also now four institutes deemed to be within the biotechnology cluster, and reporting to their own vice-president. We will say more about the institutes in Chapter 3 and in Part II of this study. Suffice it to say at this stage that the transformations from academic discipline-based divisions to multidisciplinary institutes focused on clusters of science and new technologies was far more than symbolic. The NRC as a research performer has indeed changed, but in precisely what directions remains an open question. The NRC as a Technology Transfer and Information Agency The more clearly one visualizes the NRC as a technology transfer and information agency, the more easily one sees the potential for analytical overlap with other NRC functions - functions we have so far treated separately. This blurring of functions has been both fostered and accentuated by the rise of the Internet; indeed, Internet communications is now the keystone of the knowledge economy (Bellamy and Taylor, 1998; Leadbeater, 1999). It is also central to the NRC's efforts to

52 Macro Framework Issues communicate information about itself, and to market itself in a world where its 'market niche' is changing. To illustrate all of this, we again consider the NRC's historic role as a granting body. So far we have discussed this role largely under the rubric of spending, mainly for universities. But in contemporary terms, it would be quite correct to regard a great deal of granting activity as a huge and valuable form of technology transfer. This is because it is now widely recognized that one of the better ways to transfer technology is by developing human capital. Functional overlap is also evident in any discussion of IRAP. Here, consider that in the mid-1980s IRAP was one of several units at the NRC that reported to a vice-president for technology transfer (NRC, 1986: 7). And of course, the NRC's labs are engaging more and more in broad forms of technology transfer. The NRC's first foray into information and S&T transfer was the National Science Library, founded in 1927. The library's mission was to make available to researchers scientific information published in Canada and abroad. With the same goal in mind, in 1957 the NRC established the Technical Information Service; in 1974 this service linked itself to the library and renamed itself the Canada Institute for Scientific and Technical Information (CISTI). This institute distinguishes itself from the library by concentrating on delivering scientific information to remote users. The NRC's Annual Reports do not consistently provide the budgets of either the National Science Library or CISTI, so we cannot say precisely what happened to them during the deficit years. We do know that CISTI's budget for 1998 was around $36 million - roughly 7 per cent of the NRC's total budget. Interestingly, in the 1998 budget CISTI was shown to have one of the NRC's highest ratios of revenues to expenditures: revenues of almost $15 million to expenditures of $36 million. In other words, 40 per cent of its budget was generated internally. In contrast, the laboratories for the same year grossed only $50 million of revenues against expenditures of $285 million. In other words, the laboratories' revenues were only 17 per cent of expenditures. The NRC is also a significant publisher. This is began in 1929 with the Canadian Journal of Research. Today the NRC publishes over fifteen research journals, including the Canadian Journal of Botany, the Canadian Journal of Chemistry, and the Canadian Journal of Civil Engineering. These journals are now funded on a full cost recovery basis. In the 1980s and 1990s, CISTI went through a form of double-

The NRC in Historical Context 53

transformation as an innovating institution. On the one hand, it had to adapt to new information and computer technologies and to ever more sophisticated demands by new and old users; at the same time, it had to become less of a traditional bureaucracy. There is little doubt that CISTI, like the NRC as a whole, had to respond to various important developments within the federal government and in the knowledgebased economy. Regarding the federal government and its various science departments, CISTI had to place more emphasis on one-stop service delivery, both electronic and physical (Doern, 1995a). And in a wider, even more crucial sense, the same Internet and information economy was constantly creating new firms capable of offering analytical and information services to support innovation. In some respects, these firms were direct competitors to CISTI and the NRC, and were changing the market for all kinds of innovation and information products and services. The NRC as an Intellectual Property and Research Ethics Manager Until very recently, there was almost no mention of either intellectual property (IP) issues or research ethics in the NRC's Annual Reports and official publications. This does not mean that they were ever unimportant. The NRC's staff did patent inventions, and the NRC earned royalty and licensing income. And of course the very notion of peer review (i.e., the publication of research and the critical discussion of research experiments and tests) was centred on concerns about scientific ethics and integrity. But in the period we are examining in this book, the NRC had to become much more explicitly a manager of intellectual property and of research ethics. This is because in a very real sense, IP and ethical issues are becoming more crucial to the NRC's very legitimacy as a public institution. Lapses of judgment in controversial situations, or a failure to have relevant policies in place, could easily and quickly damage the NRC as a public agency. In this new era of partnered funding and innovation-centred links with industry, the NRC has had to become much more deliberate in its IP strategies and practices. Furthermore, it has been asked to serve as a source of IP expertise to the rest of the federal government's S&T departments and laboratories. To this end, the NRC has established an Intellectual Property Services Office (IPSO) 'to effectively promote and maximize technology transfer to the private sector and also foster sup-

54 Macro Framework Issues

port of industry competitiveness, while responsibly managing its intellectual property' (NRG, 1996). In effect, the IPSO is the federal government's own patent and trademark agent. This reflects the fact that IP is now a vital part of Canadian micro-economic policy (Baldwin, 1997; Doern and Sharput, 2000). In some respects, the low profile of IP up until even the mid-1980s is easily understood. As we noted in Chapter 1, for most of its history Canada's economy was based on natural resources and national economic policy was structured around the tariff. Despite the emergence after the Second World War of an industrial and manufacturing economy characterized by extensive foreign ownership, issues of R&D and science policy were not extensively debated until the mid to late 1960s (Doern, 1972; McFetridge, 1985). In the government's economic policy toolbox, IP was buried at the bottom, to be ignored while more reliable or promising means were found to ensure Canada's prosperity. The exception to this general rule was pharmaceutical patents, which were first debated in the late 1960s. The debate over pharmapatents has been striking for its durability. Unlike other IP issues, pharmapatents have been regularly debated. However, this debate has not impinged on the wider discussion of IP, for two reasons. First, pharmapatents have traditionally been dealt with as a special case by lawmakers and regulators. Second, the pharmapatent debate in the 1960s was dominated by the intrusion of health issues into traditional IP discourse. Although the same issues are at play as in IP debates (the diffusion of technology, balanced against the need to encourage and reward innovation), pharmapatent debates have been complicated by even broader issues such as the need to balance industrial versus health priorities. Every debate over pharmapatents has been a response to previous debates and has established the ground rules for future ones. It is a very short step from pharmapatents to biotechnology. This latter sector has become ever more important both outside the NRC and within it (Canada, 1998). The NRC's role as a manager of change now extends beyond IP issues to research ethics. This is unavoidable because of the very nature of biotechnology and human health research and product development. As one result, media vigilance and interest group protests are going to be affecting the NRC in ways they never have before. One of the first explicit references to all this can be found in the 1994-5 NRC Annual Report, in which the NRC drew particular attention to the work of its Human Subjects Research Ethics Committee

The NRC in Historical Context 55

and its Animal Care Policy Committee (NRC, 1995: 4). This more focused attention was part of a broader review by all the federal granting councils, which was carried out in concert with the universities. In all of these IP and ethics related managerial challenges and changes, the NRC has not been alone in confronting the dilemmas of the innovation economy. As Chapter 8 will show, universities have also had to rethink their IP strategies in the new climate of joint funding with the private sector and diverse kinds of internal faculty pressure (ARA Consulting and Brochu, 1998). This chapter has hardly exhausted the main elements of the NRC's history. For example, note should also be taken of the NRC as an incubator of spin-off agencies and companies. Since the Second World War, the Defence Research Board, Atomic Energy of Canada Ltd, the Medical Research Council, and the Canadian Space Agency have all been spun out of the NRC's incubator. This was usually for reasons and pressures specific to each case, and wasn't part of any longstanding or explicit innovation strategy. However, these spin-offs do seem to reflect a general view that the NRC should never get too much bigger than it has been for most of the past five decades. As for spin-off companies, the NRC points to several over the years, and the current president has emphasized the desirability of spin-off private firms. We return to this point in Chapter 3. At this stage in the analysis it is sufficient to say that such an entrepreneurial ethos involves trade-offs: the NRC loses (in the spin-off) some its most creative personnel even while these people are creating wealth and innovation for themselves and for the economy as a whole. Conclusions This chapter has provided an overview of the NRC's history. Instead of presenting a chronological history, we have scanned the years since 1916 by looking at the functions that the NRC has acquired, reconfigured, shed, or lost over the past eight-and-a-half decades. It is no longer the federal government's chief science policy advisor, but it is still very much a science policy maker through the choices it makes as to how to use its laboratories. It lost its granting function to the NSERC in 1978, but it still funds some key 'big science' projects. The NRC's links with universities have changed, and often been weakened, since it lost its granting function. But its links to industry have been greatly strengthened, partly through IRAP but also through the transforma-

56 Macro Framework Issues

tion of its labs into institutes. The NRC's internal politics centre mainly on resource allocation, with IRAP and the institutes arguing over which of them best serves the industrial and innovation firms in the private sector. With respect to the NRC as a research performer, the deficit-fighting era was certainly traumatic, but arguably the more significant change has been cultural. The shift from discipline-based divisions (i.e., 'universities without students') to institutes organized as S&T clusters has been important. So also has been the establishment of businessdominated advisory boards to oversee the institutes. The NRC has always been and still is an agency of technology transfer and information provision. In the Internet era, this function provides an opportunity for the NRC and a threat. It is an opportunity because the economy's need for technical and scientific information can only grow; it is a threat because many new firms are entering the information business and are pre-empting many governmental knowledge providers, forcing the latter to become more nimble and, in a word, innovative. Finally, in this chapter we have drawn attention to the NRC's growing role as manager of intellectual property and research ethics. While it has always played this role, both aspects are now much more explicitly central to the knowledge economy and thus to the NRC's evolution as an innovation-oriented national institution. Chronological histories have their own weaknesses; so, we admit, do function-by-function histories such as the one we have provided in this chapter. This is because there are in real terms important overlaps in just how we should treat certain activities - indeed, in how the NRC has grouped or talked about them. For example, technology transfer functions are in one sense grouped with CISTI and IRAP, but obviously they could be seen much more broadly. Ultimately, these overlaps are linked to how the three institutional modes - hierarchies, markets, and networks - have affected the NRC's development, and how they will continue to do so in the first decade of the new millenium. We rejoin that discussion in Chapter 3 and in the institute chapters in Part II of the book.

3 The NRC in the Past Decade: A Closer Look at Institutional Change

In the preceding chapters we pointed out some of the broad parameters of change in the NRC; now we take a closer look at key features of institutional change in the turbulent past decade. Inevitably this means going 'inside' the NRC by focusing on several key features of organizational analysis. Thus, in this chapter we consider the following issues: leadership and leadership change; the content of the NRC's visions and five-year plans, and the processes it used to develop them; the role of the council, the executive structure, and key political relationships; the reform of the institutes and related funding issues; and overall change in the culture of the NRC as it sought to change from within and was pressured from without by business, the government, academic science, and the imperatives of a global economy. Leadership and Leadership Change Any organization is quite naturally associated with its leader's priorities and style, and strengths and weaknesses, so it is important to look at the NRC in the past decade in terms of its two presidents, Pierre Perron and Arthur Carty. The Perron era (1989 to 1994) and the Carty era (1994 to the present) represent two distinct curves along the road to the innovation paradigm. Crucially, they also represent different styles of leadership and management. And as always, leadership functions and leadership views always get caught up in predecessor-successor dynamics, whereby the virtues of incumbents are weighed against the sins of predecessors, and vice versa. This dynamic extends of course backwards to earlier periods; thus, we can compare Perron to Larkin

58 Macro Framework Issues

Kerwin, the NRC's president during the 1980s, and even to NRC legends like E.W.R. Steacie. As we noted in Chapter 1, Perron and Carty were the appointees of Conservative and Liberal governments respectively, and thus represented a form of 'positional politics/ in the sense that the nature of the changes the governments wanted were embodied in the characteristics of the individuals being appointed. But in another sense, governments cannot know exactly what their appointees will do, or control or even approve of all that they do. The Perron Era

Current and former NRC staff whom we interviewed were of basically the same opinion about Pierre Perron. While some NRC personnel disagreed with his vision for the NRC, all agreed that he did have a vision. Which was, that the NRC would have to change radically if it was to survive and thrive, and if it was to be a national institution that contributed demonstrable added value to the Canadian economy, especially now that the latter had to compete in a very different and sharply more competitive global economy. Many of Perron's colleagues observed early on that he saw the NRC as having changed its structure in the 1980s but not its culture. The research divisions were still strongly independent; they were also insufficiently attuned to the NRC as a corporate entity and to the changes in its environment that were already becoming apparent. Perron had a very hands-on, Cartesian management style. He was interested in detail, partly because it was his style but also because he believed that the NRC had never really been managed in a way that focused on performance as such. At meetings, he often asked, 'Why does the NRC exist?' And he was impatient with replies that basically said, 'to do research.' Perron had been a member of the NRC associate committees in the 1980s, and so he had learned to loathe leisurely management. His hard, performance-oriented management instincts had been forged first in his extensive experience in Quebec research institute management and then at Energy, Mines and Resources, where he had been brought in by the Mulroney Conservatives to reign in the highly interventionist National Energy Program. From his first days at the NRC, he conveyed that the labs would have to make choices. Such a performance-oriented approach meant that the NRC would have to form a better sense of costs at the activity level. Also, the divisions were to be turned into institutes to which business-led advisory

The NRC in the Past Decade 59

boards would be attached. This would profoundly change the NRC's structure and culture. Perron was often seen as an imperious leader who did not like to be challenged. He was decidedly unpopular with some staff, who preferred the historic NRC ethos, and with the public service unions, especially the Professional Institute of the Public Service of Canada (PIPS). At the same time, many NRC staff give him great credit for making changes that had to be made, and even more for staying the course when it would have been easy to buckle under the pressure. There is little doubt that Perron led from the front. Paradoxically, to make the NRC more innovative it had to be made more bureaucratic, not in the sense of adding more hierarchy but in the sense that performanceoriented activity required new forms of informational and analytical proceduralism. The Carty Era

When Arthur Carty became the NRC's president in 1994, he brought with him priorities and a style of leadership and management that were intended to mark a break from the Perron era. There were of course important continuities, in that the strong market and businessoriented directions were maintained; but in terms of national and local-regional innovation systems, Carty made it clear to colleagues that he wanted to move away from the 'command and control' era of the early 1990s toward a more participative style of management. Carty also wanted to refer more explicitly to entrepreneurship; thus he began to encourage the creation of NRC spin-off companies. Carty is seen by many colleagues as less 'bottom line' performance oriented than Perron and as much more likely than Perron ever was to regard research as inherently valuable. There are always questions of degree, but the appointment of Carty by the Liberal government was meant to lead to changes along just these lines. In general terms, the style that Carty brought to the NRC was in large part a product of his experience at the University of Waterloo, arguably Canada's most entrepreneurial university. Another area of substantive difference was in the NRC's relations with the international science community. The NRC had always seen itself as Canada's national leader in science relations with the world. Except during wartime, these relations were historically quite laissezfaire, in that they take place through normal scientific exchange among

60 Macro Framework Issues

scientists - through the international web of journals, research, conferences and person-to-person communication. It was also evident through cooperation on 'big science' projects, which typically were international in nature or funded by several governments. In the Perron era, the NRC was decidedly cautious and even sceptical about new international ventures unless an industrial payoff was likely. Some of this caution reflected budget cuts and the new focus on internal restructuring. When it came to the international arena, Perron's main interest was in meetings of G-7 science forums, where he sought both to encourage international best practices management to drive home the changes he was making at the NRC. Carty brought a personal interest in international developments that was different from both historic patterns and Perron's caution. The Carty era has seen international initiatives from the president, especially regarding Singapore and other East Asian economies, which in the mid-1990s were booming. Carty saw the development of such links as important in themselves, and made a point of joining some of the mid-1990s Team Canada trade missions. Within the NRC, views on these international initiatives were decidedly mixed. Some agreed that the NRC needed a stronger international profile, but others saw the initiatives as insufficiently planned. They often involved sudden requests by the president for seed money or other funding - money that came out of institute budgets. Yet Carty did not have to justify his international spending the way the institutes had to justify their own. Many in the NRC perceive Carty as a weaker and less determined manager than Perron, and that under him the NRC is less focused as an institution. He has managed, perhaps because of this, to establish better personal relations with the NRC unions, although some tensions did exist early on, when a second round of budget and personnel cuts was made that Carty had not expected. Carty has also brought more attention to the communication activities of the NRC and to the practical problems of how to garner support for the NRC from its relevant publics. Carrying on from Perron, he has placed considerable emphasis on the local presence of the NRC in the regions where the NRC institutes are based. This reflects Carty's interest, since his Waterloo days, in local-regional systems of innovation. It is also an applied tactical strategy, in that the NRC has been reluctant in the past to market itself politically and in other ways. Leadership is a crucial variable, and is key to understanding how the

The NRC in the Past Decade 61

NRC has been transformed in the past decade. But leadership must be linked to other organizational features and processes, such as visions and five-year plans. Visions and Five-Year Plans The NRC's two visions and five-year plans in the past decade are summarized in Table 3.1. The Perron era plan, The Competitive Edge, was the 1990-5 plan; the NRC Vision to 2001 document was the plan for the Carty era until the millennium. (A new plan was being devised at the time of writing.) The five-year plans and visions for the NRC must be considered partly in the context the history of such plans in the federal government as a whole (Doern and Phidd, 1992). In many respects these began in 1979-80, when the federal government's new system of budgetary envelopes required departments and agencies to submit five-year, longer-range planning documents. These were often broad and meandering papers that were closer to wish lists. Not surprisingly, they were often upset and mangled by periodic federal policy reviews and budget-cutting episodes. By the mid-1990s, planning documents were also being influenced by the new budgetary and managerial discourse in the federal government - a discourse tied to budget reform and the new public management. Thus by the mid-1990s most federal departments were developing plans and performance targets linked to business lines (and hence views of customers and clients), but with possibly different responsibility centres for budgetary allocation and control. As a result, all federal agencies, including science agencies, have become more like matrices than simple or clear-cut hierarchies. The NRC had developed five-year plans in the 1980s in the Larkin Kerwin era. Space does not allow us to discuss those plans in depth, but it is worth noting their titles and their basic nature. The first was called An Urgent Investment, the second A Practical Perspective. Thus both reflected the nature of the NRC's budget cuts as well as its basic 'hunkered down' posture in the late 1980s, when the Mulroney Conservatives were in power. Also, these documents were more about 'thoughts and themes' than about hard plans, targets, and commitments, though some specific commitments were included. Before we look at the Perron and Carty plans, it is useful to look at how they were devised. The Perron document did not involve much consultation. There was some, but the process was largely for the president and by the president. Although it was circulated to senior staff, to

62 Macro Framework Issues

all intents and purposes only a very few people determined its key themes and content, so it reflected Perron's style as discussed earlier. The Carty plan was certainly also devised to capture Carty's agenda, but it was based on wider consultation and comment. Inevitably, the two plans surveyed in Table 3.1 must be approached in terms of how they were written and what they were intended to accomplish. They were meant to communicate the leader's agenda to the organization and its relevant publics. They resembled 'thoughts and themes' more than devices for guiding resource allocation. And they were partly a means for the NRC to show that it was reading the political and economic 'tea leaves' correctly. In this vein, they were written to reflect the government's priorities and to express them in the language preferred by the government in power. The Perron plan focused more sharply on the competitiveness paradigm and discourse favoured by the Mulroney Conservatives in the early 1990s. It also focused far more on change within the NRC. It was also much more detailed, and more fucused on the financial aspects of structural change, and it set the specific goal of doubling by 2000 the total financial investment in R&D through joint ventures with private industry. It made necessary reference to research, but emphasized relevant, world-class research. It spoke much more specifically about responding to client needs. The Carty plan picked up on the development of national innovation systems. In doing so it spoke in the preferred language of the Liberal government. Precisely because the Perron era had produced internal change, the Carty plan could and did focus more extensively on outside opportunities. It was also much more inclined to speak favourably of federal leadership and to stress entrepreneurship. It was far less detailed, and made fewer references to budgets. Also, it offered many more examples of the NRC's achievements, which were gradually becoming important to the agency's communication strategies. Both plans had other aspects that have not discussed here but will discuss later in this chapter and in Part II. The Council, the NRC's Senior Executive, and Key Government Links We now make some observations about the council, the NRC's senior executive structure, and the NRC's key relationships with the government - especially the Minister of Industry. This will suggest how the

The NRC in the Past Decade 63 TABLE 3.1 A comparison of the NRC's five year plans The competitive edge 1990 to 1995

NRC vision to 2001 1996 to 2001

Structure or main headings The National Challenge • The need for change • The competitiveness challenge

The Challenge • The national need: Innovation • A powerful national resource

Corporate Values and Objectives • To double by 2000 the total financial investment in R&D that NRC stimulates and jointly sponsors with others • World class research • Research that is relevant • National competitiveness

NRC's Vision • Linking science and technology to an innovative economy • Renewed commitment to excellence and relevance • Collaboration and focus on key technologies • National leadership in the system of innovation • Entrepreneurial and innovative organization

Action Strategies Preparing for the Twenty-First Century

Measuring Progress Key Traits • Harder-nosed focus on competitiveness paradigm • Greater focus on internal change • More detailed plan, with action focus on budgetary stability; revenue raising, and structural change • Necessary reference to both research and relevant research • More explicit reference to need for responsiveness to client needs

NRC's Core Competences • Adoption of systems of innovation paradigm • Greater focus on external opportunity • Greater use of entrepreneurship ethos • Stronger overt mention of national leadership • Less detailed plan and more focus on vision themes; almost no reference to budgets • More specific examples of NRC achievements given

NRC has been influenced from outside, and how the NRC sees its key political and policy relationships. In Chapter 2 we noted the key changes in the overall composition of the twenty-two-member council - in particular, the strong trend in the 1980s toward greater business representation and away from academic representation. At the start of the 1990s the council was already busi-

64 Macro Framework Issues

ness oriented. In appointing council members - a function of the Minister of Industry and the Prime Minister's Office - the question was how to recruit people from industry or other sectors who were senior enough to have clout but not so senior that they would have little time to attend meetings and contribute substantially to strategic debates about the NRC The council, led by the NRC's president, is responsible for overall policy matters and for approving the NRC's five-year plans and annual budgets. It can also be an indirect conduit for the government's views, in that some appointees are political appointees supportive of the government's agenda. A council member may have biases regarding certain aspects of the NRC's role if, as can happen, that member's own company or university is a beneficiary of the NRC funding (e.g., for a big-science project or an IRAP grant). The council, like any similar governing collectivity such as a corporation's board of directors or a university's board of governors, is ultimately quite an unwieldy and disparate entity. What it actually does often turns on how the president chooses to use it. At present the council has an executive committee to facilitate working relations with the council as a whole, which meets only a few times each year. Not surprisingly, Perron and Carty assigned the council different roles, and there are long-standing differences among NRC staff regarding just what its role is or ought to be. In the Perron years, with Perron's active encouragement, the council functioned more like a handson board of directors. Perron sought support for changing the NRC's strategic direction and for challenging its senior management, and he got it. In some respects Perron saw the council as a gathering of 'science MPs,' each representing over a million Canadians, whose job was to ensure that the NRC delivered a value-added service to the Canadian economy and society. Perron also did much to mobilize the council's substructure. Its associate committees, which had long been a key mechanism for the council's oversight function, were used to foster the 'competitive edge' agenda. At the same time, key council members pushed hard for Perron's main structural change - the new institute advisory boards. In the Perron era the council also came out strongly for more careful auditing and evaluation systems, to support the performance orientation of the early 1990s. Singly or in small groups, council members occasionally suggested initiatives or pressed for important changes, and influenced the process by which clusters of research programs were reconfigured into institutes.

The NRC in the Past Decade 65

Apparently, Carty has not felt the need to mobilize the council the way Perron did. Carty tends to utilize the council more as a sounding board. This shift probably makes sense, considering that in the mid1990s he wanted to focus more on consolidating the NRC than on changing its internal operations. Perhaps the council as a whole felt the same way and the president and the council were reading each other's signals sympathetically and accurately. Overall, then, Carty has used the council more as an advisory panel than as a means for challenging the agency's senior management. The council-president relationship is, of course, only one part of the NRC's executive structure. At present there is also a senior executive committee consisting of the president, the two program vice-presidents, and the council's executive secretary. The executive composition of the NRC has changed in obvious ways since the 1980s. Perron's very first act as president was to eliminate six of the NRC's nine vicepresidents. As a result, the NRC became less top-heavy. The same step also increased the influence and power - though not necessarily the capacity - of the president and of the remaining vice-presidents. Undoubtedly, this contraction helped focus energy on the NRC's strategic direction; at the same time, however, the vice-presidents who remained found it harder to carry out their oversight role (i.e., to know whether implementation was in fact occurring in their newly established institutes). Presumably, the vice-presidents were expected to rely on performance reviews, evaluations, and audits to ensure that plans became practice; but with budget cuts, performance evaluations were often sacrificed. Typically, the institutes demanded that scarce dollars be spent on actual research and innovation rather than on evaluating whether and to what extent the 'doing' was being 'done.' How well the NRC executive structures and key players manage their key political relationships ultimately depends on various complicated linkages, including personal relationships. This study cannot do justice to how these have played out, but a few points and examples are worthy of note. The most central one is that there has been a fairly competitive relationship between Industry Canada and the NRC. This arises from the fact that the NRC reports to Parliament through the Minister of Industry, and is one of several arm's-length agencies that are part of the Industry portfolio but not actually inside the Department of Industry. For much of his tenure, Carty for tactical reasons focused on his personal relationship with John Manley. As noted in Chapter 1,

66 Macro Framework Issues

Manley was the NRC's minister until late 2000 (when Brian Tobin took his place) and was, moreover, a minister with an Ottawa electoral riding. Relationships with other key ministers, such as central agency ministers (Treasury Board, Privy Council Office, Finance) and their senior officials, were not as easy for Carty to cultivate - a weakness that may help explain why the NRC was not really successful in getting new resources in 1998-9 or 1999-2000, when federal surpluses created the potential for new money, including new S&T money, which eventually went mainly to new, arm's-length health institutes. Relations with Industry Canada are also complicated by the fact that other parts of the department compete with the NRC for resources. Even though new coordinating machinery has been put in place, genuine turf battles have arisen over just who makes policy, and who makes decisions that directly or indirectly affect the NRC. In other respects, of course, the key political relationships are multidimensional and are conducted at several levels. As we have seen, the NRC under both Perron and Carty has been strongly aware of, and in key ways has broadly agreed with, the microeconomic paradigms that are now guiding and expressing microeconomic and S&T policy. Indeed, NRC staff led some of the S&T policy review groups in the mid-1990s. Moreover, the changes that Perron made to the NRC were applauded by the National Advisory Board on Science and Technology (NABST) (NRC, 1995a). The NRC has also had to learn to pay careful attention to the views of MPs. In the mid to late 1980s, many key Conservative MPs were convinced that the NRC was a political organization sympathetic to Liberal governments. These views were partly a result of decisions in the early 1980s to locate new or changed institutes in Montreal and Winnipeg after direct pressure from ministers. The NRC's senior managers now realize better that they must cultivate the support of parliamentarians through direct approaches. As mentioned in Chapter 2, the NRC's adoption of local and regional models of innovation - a policy that is well ahead of Industry Canada's support for these models - is partly due to this strategic concern about Parliament. The Reform of the Institutes and Related Finances We have already noted several key points about the reform of the NRC's institutes: the change from discipline-based divisions to interdisciplinary institutes clustered around key technologies; the

The NRC in the Past Decade 67

appointment of business-oriented advisory boards; the fact that some institutes historically were seen in some political quarters as a form of distributive politics located at the behest of some Cabinet ministers; and the more recent desire to see institutes as the hubs of local and regional systems of innovation. We also noted earlier that the sixteen institutes present a daunting problem of complexity. The regional and local economies they are based in are highly diverse. Some of the institutes reflect the old science disciplines, while others - the newer ones - are much more multidisciplinary, in effect are 'cluster' institutes. Some deal with newer industries than others, with a strong effect on the innovation challenges they face. All of this points out that each institute faces its own unique challenges when it comes to managing change. Perron was convinced early on that the divisions he had inherited were too independent and insufficiently committed to an NRC-wide agenda and identity. So one of his very first priorities was to reform the leadership of the institutes by establishing advisory boards, which would submit annual reports to the council's executive committee. He also increased the accountability of the institutes by calling on them to report on performance and revenue targets and to submit business plans. The NRC's 1990-5 long-range plan also envisioned the institutes as responding much more expeditiously to client needs - a stance very much in keeping with the new public management ethos that was ascendant in the federal government as a whole. Thus the plan saw client needs being met through advisory boards and through: • research and development projects designed and carried out to meet client needs; • testing, analysis, verification, and calibration services; • collaborative research projects in which several partners share financing, facilities, equipment, expertise or advice; • co-funded projects jointly controlled and managed by the NRC and a partner; • major scientific and engineering facilities and installations; • opportunities for company researchers to work at the NRC with the NRC specialists. (NRC, 1990:15) But the pivotal change under Perron was that revenue targets were raised. Perron brought in experts from Germany and elsewhere to talk

68 Macro Framework Issues

about how 'real' innovating institutes function. For example, an idealized innovating organization might consist of mixes of activity and funding cast as near term, collaborative, and strategic. Under such a model, an innovating institute might focus 10 to 15 per cent of its activity on near-term, customer-driven research and testing services; 50 per cent on co-funded collaborative work with clients, and perhaps 30 per cent on strategic, forecast-oriented work. At the time these models were being discussed, the NRC was already in effect a holding company, and the institutes were already conducting various kinds of business activity. Efforts were thus made to link revenue and funding configurations to the institutes' existing realities. For example, an institute with extensive facilities might have a higher revenue target because it was inherently in the testing and service business. By the early 1990s it was clear that although a performance orientation was the key to reform, Perron was using revenue targets as the main surrogates for performance. In his opening letter to the minister that accompanied the NRC's Annual Reports, he italicized the goal of doubling levered revenues between 1990 and 2000. By the mid-1990s these revenues were increasing along the target path, but by the end of the 1990s, they were still quite a small percentage of the NRC's overall budget. The actual percentage may not, however, be the point. What may be more important is whether the establishing of targets changed habits and behaviours within the institutes. Resistance to the targets would harden if they were seen as unfair by the different institutes, each of which faced a unique situation, or if senior NRC management was perceived as unrealistic about what could be achieved. We will show in Part II that both supportive and inertial behaviour arose within each institute as it responded to signals from the top, from its advisory board, and from the scientists and engineers it employed, some of whom were inevitably more entrepreneurial than others. In the Carty era the institute structure has been extended, but under a somewhat more laissez-faire approach. The reins seem to have been loosened in that the institutes are being audited less often. However, this may not continue under the next five-year plan (2001-6). A kind of loosening is also implicit in the logic of conceiving some institutes as hubs or players in local-regional innovation systems. After all, such systems of innovation are bottom-up, networked, and perhaps in a profound sense not easily evaluated.

The NRC in the Past Decade 69 Human Resources, Cultural Change, and Tradition Finally in this closer look at the NRC in the past decade, we examine the human resource dimension, overall cultural change, and the continuing struggle between inertia, tradition, and change. In the final analysis the NRC's capacity resides in its 3,000 employees, most of whom are highly qualified scientists and engineers. Worth noting is that they are represented in collective bargaining, mainly by the Professional Institute of the Public Service of Canada (PIPS). The key point to make about the NRC's human resources is that in the early 1990s there was considerable turbulence as a result of personnel cuts. As we mentioned in Chapter 2, some 140 professionals left in 1990-1 including six vice-presidents, whose positions had been eliminated. There is little doubt that Perron wanted cultural change, and considered it a good thing that some 'old style' scientists and science managers were deciding to leave. 'Old style' in the context at hand can mean many things. It can encompass people who stoutly disagree with the new regime, those who have run out of steam as active researchers, and those who see accepting a buy-out as economically or personally sensible. As was happening throughout the Federal Public Service at this time, many organizations were changing the old guard in the name of many sins and virtues. Less well known to outsiders is the fact that Perron brought to the NRC its first real human resource (HR) management system. If the NRC historically was laissez-faire about its 'research for the sake of research' ethos, it was arguably even more laissez-faire about personnel and career systems. Perron felt that the agency had no recognizable HR management system, and set out to establish one. The goal of professionalism in HR management was pursued aggressively, partly through the development of a new manual that stressed individual performance evaluation, but also through promised opportunities for professional development and renewal. Many of these initiatives were strongly resisted. At the beginning of the 1990s there were hardly any HR professionals in the institutes. However, by the end of the decade the institutes had accepted the need for them, and indeed were paying for HR advice from the centre and employing their own HR personnel. The views of some NRC employees about their organization in this period can be gleaned from a 1994 survey conducted by PIPS. This survey encompassed several federal departments, and, in the case of

70 Macro Framework Issues

the NRC was conducted outside Perron's purview. This reflects the fact that PIPS had been a very public critic of the NRC. Nonetheless, PIPS went ahead with the survey, and presented its results in the fall of 1994 to the new president, Arthur Carty. The main summary results of the survey were as follows: • Respondents enthusiastically supported the general quality of their work environment.They were very satisfied with the opportunities provided for expressing their initiative and with the authority they have been afforded in their positions. The majority felt that expectations regarding the nature of their work had been met. Unfortunately, more than half also felt that their jobs were too stressful and that salary expectations were not met. • Respondents felt that management has been active in supporting employment equitywithin each institute. • An overwhelming majority of respondents stated that conference and seminar attendance was essential to the performance of their duties. Although the majority of respondents were also generally approving of the opportunities afforded them by the NRC to attend these, about one third found these opportunities to be lacking or unfairly distributed. • While respondents strongly endorsed the managerial performance of their immediatesupervisors, they also perceived the managerial performance of middle and upper management to be lacking in those areas surveyed. There is a general feeling among employees that management is indifferent to the well-being of their employees. Only a scant majority of respondents felt they understand the NRC's mandate, even less felt their day-to-day work addresses this mandate. Respondents agreed that the NRC is much more bureaucratic, conservative and authoritarian than it should be. A significant majority of respondents felt that morale is very low. • Although a large majority of respondents agreed that it is necessary for the NRC to implement a performance appraisal system, most agreed that this system has not yet evolved to a satisfactory state, and that it still needs improvement. • Respondents felt that their desire for training and career development particularly in the areas of language skills, management skills, client-service skills and professional development was not being satisfied by sufficient opportunities for such training and development.

The NRC in the Past Decade 71

• More than half of the respondents indicated they would be 'interested' or 'extremely interested' in public or private sector employment outside the NRC (Professional Institute of the Public Service of Canada, 1994:1-2). Another section of the survey report, dealing with the NRC's culture in 1994, was summarized as follows: Members most often chose the following values to describe the NRC's culture: bureaucratic, procedures-oriented, cost-conscious, control oriented, conservative, passive, risk averse and authoritarian. With the exception of the 'cost conscious' value, very few of the respondents believe that the NRC should ideally, possess any of these values. In fact, the values chosen most often by respondents to describe the ideal culture for the NRC were: innovative, quality oriented; open/communicative, people-oriented, oriented towards the benefit of Canadians, advancement of technology, and advancement of science. Again, with the exception of 'advancement of technology/ these values were not often chosen to describe the current culture of the NRC. (PIPS, 1994: 8)

We have no later (or earlier 1980s) surveys to compare this 1994 survey against, and all such surveys are subject to different interpretations. Even so, this single snapshot has much to tell us. It shows that some aspects of the HR system were taking hold and that expectations of better career development were being expressed. It also suggests that along at least some dimensions, NRC employees were positive about their work environment and their work. At the same time, it shows that there was a sharp disjuncture between the values that employees thought should be at the heart of the NRC's culture and those which they saw as dominant. In Part II of this book we will return to these views about innovation versus bureaucracy, and about the nature of the work that scientists do in the institutes 'at street level' so to speak. These views are very important and go to the heart of the dual framework being applied in the study as a whole - namely, conceptions of innovation, and views about how institutions are analysed and are being changed as hierarchies, markets, and networks. In the Carty era the agency improved its relations with PIPS, but in part this was simply a result of the fact that budget cuts had ended and some funding stability had returned. That much aside, in the last half of the 1990s the HR function did shift to a more people-oriented

72 Macro Framework Issues

approach. The NRC was recruiting the 'best of the best' and committing itself to nurturing its intellectual capital. Performance appraisal has been retained, but it has also been improved, and in addition, some positive incentives have been put in place, including award systems and an emphasis on entrepreneurship and spin-off companies. Some effort has also been made to play catch-up on salaries, but in these and in other related personnel matters, it must be stressed that throughout the decade, the NRC has remained a part of central agency fiscal and HR control. It does have 'separate employer' status and thus some flexibility, but in the final analysis it is still a departmental corporation and not a Crown corporation or a quasi-privatized agency. Another key development that can be related to HR and also to the broader dynamics of reconfiguring hierarchies, networks, and markets is the nurturing of spin-off companies. The NRC has kept data (of varying quality) on the number of companies that have been founded diretly or indirectly on its work. Between 1942 and 1999,110 such spinoff firms were created, with about 45 deemed to be 'primary' spin-offs and another 65 'secondary.' In the second half of the 1990s, the pace of spin-off activities increased to about eight firms a year. These firms tended to be smaller. The increasing number of them reflects the fact that the NRC and its institutes are now functioning under explicit enterprise development programs and incentives. The NRC's most recent policies are encouraging employees to seriously consider establishing spin-off firms (and leaving the NRC). Clearly these incentives present dilemmas for institute managers, who are anxious to keep good people. They also reflect a changed culture within the NRC. This brief look at human resources is a natural lead-in to any discussion of what the NRC culture is and how it has changed. The culture of an organization reflects a complex bundle of perceptions and realties, procedures and traditions. The NRC's culture draws on many of the elements discussed in this chapter and on some we will explore later, when we take a closer look at the NRC's institutes. We must also take far more fully into account than this chapter does the roles of IRAP and CISTI, which have some differences in orientation and behaviour that space does not allow us to discuss. Conclusions This chapter has taken a closer look at the NRC's transformation in the past decade by examining several key dimensions of the agency as an

The NRC in the Past Decade 73

organization: leadership, the planning process, the council and executive structure and key political relationships, the reform of the institutes, and human resource issues and overall cultural change. Clearly, the Perron era was the more radical period of change, because Perron - as his political masters in the Mulroney government fully intended - was determined to change how the NRC functioned and how it saw itself. Under the 1990 five-year plan, the NRC was forced to depart radically from its traditional culture. The human resources function became more explicit and institutionalized, and efforts to emphasize performance were entrenched, partly in keeping with the governmentwide NPM ethos but also undoubtedly because of the conceptual changes inherent in the competitiveness themes that were central to the Perron era discourse. But the key test for this era was the revenue-earning capacity of the institutes. This financial leverage, which Perron sought to institutionalize, was seen as the best indicator of whether the institutes were engaging in practices that were in tune with the needs of Canadian business. Thus in a very real sense, to become a more innovative organization and to enhance performance, the NRC had to become more bureaucratic, not in the sense of more layers of hierarchy, but in the other key sense of bureaucracy - namely, the sense of having to institutionalize change procedurally and to report performance. The Carty era was built on the Perron changes, and indeed was made possible by them, but it also was politically structured to move the NRC away from the severities of the early 1990s reforms. Carty's style is gentler and more permissive and is intended to soften the perceived excesses of Perron's command and control style. The broader politics of the NRC demanded this shift: the Chretien Liberals wanted a more consolidated environment for the NRC. The Liberals were also buying into the various innovation concepts in an eclectic fashion namely, an innovating economy, national systems of innovation, and local-regional systems of innovation. As well, the internal politics of the NRC were calling for a release from past tensions. All of this is reflected in how Carty related differently to the council, in how he dealt with and fostered a more stable, one-track political relationship with one minister, John Manley, and in how he softened the human resource practices of the NRC by offering more rewards and incentives. The macro perspective in this and earlier chapters makes it clear that the NRC was indeed transformed in the 1990s. However, institutions

74 Macro Framework Issues

march to many different drummers. The next four chapters explore how the scientific 'troops' in the institutes have responded, and perhaps learned to see the world differently. They also take us closer to the nature of actual scientific and technological work, which often seeks and finds its own modus operandi despite, or because of, what is going on at the macro level of policy and institutional change.

PART TWO

NRC Institutes and Programs: Institutional Change at the Mezzo and Micro Levels of Innovation

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4 The Biotechnology Research Institute

The first of our case study institutes is the NRC's Biotechnology Research Institute (BRI) in Montreal. Biotechnology sounds like, and in many respects is, the quintessential industry of the knowledge-based economy. It is an enabling technology for the economy and for society as a whole. It is also a series of products and innovations that Canadians view with a sense of promise and new discovery but also with strong concerns regarding food and drug safety and biological ethics (the possibility of cloning humans being an obvious example of the latter). The BRI was established from the outset as an institute rather than a division, so it is far less bound to the discipline-based traditions of some of the former NRC divisions. In this chapter we approach the BRI as an institute very much embedded in views about regional and local innovation systems, and also as a key player in an industry that depends heavily on supportive federal policies, including policies on intellectual property. Since the BRI is only one of five biotechnology institutes under the NRC's umbrella, we will be referring to the other four institutes as appropriate. The NRC's Biotechnology Program dates back to 1983 and has five fields of specialization. Two concentrate on human applications (human diagnostics and human therapeutics); the other three focus on applying biotech in the fields of agriculture, aquaculture, and the environment. Each of the NRC's five biotech institutes has a specialty: for the Institute for Marine Biosciences in Halifax it is aquaculture, bio-informatics, and sequencing; for the Biotechnology Research Institute in Montreal, human therapeutics and the environment; for the Institute for Biological Science in Ottawa, immunochemistry;

78 NRC Institutes and Programs

for the Institute for Biodiagnostics in Winnipeg, human diagnostics; and, for the Plant Biotechnology Institute in Saskatoon, agriculture. Key features of the BRI are profiled below. Our analysis has four parts: the BRFs mandate, origins, and key features; changes in it in the past decade; its networks and stakeholder structure; and its performance and capacity. Conclusions follow. Mandate, Origins, and Key Features The BRI's vision is to 'create an internationally recognized incubator facility for the Canadian biotechnology industry.' Its stated mission is to 'contribute to wealth generation and job creation in the environmental biotechnology and pharmaceutical industries, to pursue world-class, innovative research, which through Institute licenses, generates products and processes for industry, and to foster the needed skills and knowledge to maintain Canadian leadership in the field' (NRC, 1999a: 3). Key features of the Biotechnology Research Institute

Location: Montreal Technology cluster-based Budget: $53.5 million (revenues $50.5 million) Staff: 270 FTE Extensive business network responsive to business research needs on co-funded basis; • Extensive university and NSERC grant involvement by staff • Regional-local innovation approach as focus but some national role as well • • • • •

The BRI's R&D strategy is to focus mainly on two industries: pharmaceuticals and natural resources (i.e., the environment). Its Pharmaceutical Biotechnology Sector has about a hundred staff (plus fifty fulltime guest workers from industry and universities), who use various biotechnologies to develop new treatments for cancer and cardiovascular and inflammatory diseases. Its researchers identify new molecular targets 'and develop and improve potential therapeutic agents using drug design methods' (NRC, 1999b: 1). The BRI's Bioprocess Sector carries out bioprocess innovation and technological development 'from process inception to industrial level production, using micro-

The Biotechnology Research Institute 79

organisms, enzymes or animal cells as biocatalysts' (NRC, 1999c: 2). The BRI has created a multidisciplinary team of researchers specializing in environmental biotech. This group focuses on two key environmental issues: the remediation of polluted sites, and the problems posed by greenhouse gases. In the latter area it works on 'integrating bioprocesses into existing industrial processes to cut greenhouse gases' (NRC, 1999a: 4). The BRI grew directly out of the federal government's 1983 strategy on biotech. However, it did not start actual operations till 1987. Montreal's pharmaceutical industry was going to be a major factor in its operations, so that city was the obvious location. Part of the reason for the Biotechnology Research Institute's relevance to industry and its success in forming industrial research partnerships lies in its location. The Province of Quebec is home to a full 40% of the Canadian biotechnology industry and greater Montreal is one of the 10 major biotechnology centers in North America. As well, over 45% of Canada's pharmaceutical companies are on the Island of Montreal, qualifying it as the New Jersey North of the North American industry. (NRC, 1998g: 3)

The BRI has helped the economy of Montreal by spurring the creation of new biotech firms and also by attracting foreign firms: BRI has acted as an incubator facility for 30 biotechnology companies over the last three years alone, with 16 firms and over 150 full-time employees now resident in its new 4 560 sq. m. industrial wing ... In recent years, BRI has provided an easy landing strip in Canada for such firms as Gist-brocades/Biolntermediair from Holland, ACT Genomics from France, and Intellivax, Conjuchem, Methylgene and Carboner from the United States. These companies came to Canada on the strength of the Institute's reputation for expertise in their respective fields and its sophisticated scale-up and bio-process facilities. (NRC, 1999a: 3)

The BRI, which has around 270 full-time employees, is a dynamic agency that is integral to the industries it serves and to Montreal's economy. Though it has an important national role in environmental biotech, its main importance for this study is as the NRC's lead biotech institute and as an exemplar of Canada's local-regional innovation centres.

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Basic Transformation in the Past Decade The BRI has always focused on industrial research. That being said, the changes it has undergone since it began operations in 1987 closely reflect the NRC's transformation over the same period, under Perron and Carty. In the late 1980s the BRI was seen by some of its own staff as quite 'academic' in nature. This did not mean that it was university oriented, but rather that it took a markedly long-term approach to managing its research projects. It was also quite arm's length in its relations with industry. Indeed, its early links with the private sector were 'IRAP-like,' in the sense that it operated a contributions fund of $12 million. This fund was ended in 1990, with the result that many of its key industrial relationships ended as well or were seriously curtailed. The BRI's management increasingly took the view that firms could not simply be enticed by funding; it would instead have to offer private firms strong, market-based reasons to associate themselves commercially with it on a continuous basis. It was also apparent that an institute in a large city like Montreal must quite literally prove itself to the local economy. NRC institutes in smaller cities (including other biotech institutes, such as those in Saskatoon and Winnipeg) tended to be welcomed with open arms; in contrast, in Montreal the BRI was just one more player. Ultimately, of course, all institutes must demonstrate real and credible capacity in R&D and innovation, but in a city the size of Montreal, the BRI faced bigger challenges than most institutes. Because it already understood that it needed to change its approach to industry, the BRI had considerable sympathy for Perron's reforms. In the early 1990s it began taking a far more business-oriented approach to project selection. Perron was seen as a supporter of BRI. Though he looked closely at its business plans, BRI management did not perceive him as a meddler, and generally saw his reforms as positive and necessary. In 1993 the BRI introduced a portfolio management system, under which it fully evaluated all of its projects and dropped many of them. This process led to the decision to focus BRI activities on the two main sectors noted earlier. It also resulted in standards being set for future activity; for example, the institute would engage approximately 15 per cent in contract work; 40 per cent in long-term research; and 45 per cent in collaborative research. The BRI's research advisory committee was told to offer more specific, hard-headed advice on research priorities within and across the two main sectors.

The Biotechnology Research Institute 81 TABLE 4.1 Biotechnology program spending and revenues 1997-8

Sector

Expenditure allocation % (59.6M)

Revenue allocation % (11.1M)

Biopharmaceutical Agri-food Biodiagnostic Environment Aquaculture

53.5 16.6 11.7 12.0 6.2

50.5 23.4 12.6 9.6 3.9

Source: NRC's Biotechnology Program: Strategic Plan 1998-2003: 5.

During the Carty era, the BRI made strong progress. Carty is perceived as practising a more academic style of management. At the BRI, he is given high marks for encouraging entrepreneurship in var-ious ways, such as through initiatives relating to venture capital, royalty regimes, and incentives for employees to establish spin-off companies. While the influence of Perron and Carty has been crucial in the past decade, the BRI has been affected strongly during their tenure by two further developments, which have also affected the NRC as a whole. The first was the emergence of the larger Biotechnology Program spread across the five NRC institutes mentioned earlier; the second was the politicization of biotech as the new millennium dawned. Table 4.1 shows 1997-8 expenditures on the different fields identified above, and the proportion of independent income each specialization generated. It is clear that biopharmaceuticals (i.e., human biotech) is by far the most important field in the NRC's biotech program: it utilizes more than 50 per cent of the total resources devoted to the program. Obviously, it is the NRC's main focus in biotech. The least important field seems to be aquaculture, which gets more or less 6 per cent of the NRC's biotech funds. The biotech program doesn't generate much revenue, but at least in the BRI's case, this is changing (see below). The overall goal of the NRC's Biotechnology Program is to create wealth, economic growth, and employment for Canada. In its 19982003 strategic plan, the agency noted that 'for the period 1998 to 2003, the Biotechnology Group will be an engine for biotech development, wealth creation, economic growth and competitiveness helping Canadian-based firms develop and exploit key technologies' (1998f: 12). The decision to disperse the biotech program's five institutes across

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the different regions of Canada is part of the federal government's broader effort to stimulate economic growth and employment in those regions. Thus, regional development can be invoked as a benefit of this program. But the reasons are often more obvious than that. For example, it is obvious that aquaculture has particular importance for the Maritimes, whose economy relies heavily on the sea, and that agriculture is important to the prairie economy in the same way. Thus, the Institute for Marine Biosciences is located in Halifax, and the Plant Biotechnology Institute is located in Saskatoon. The emergence of a biotech program within the NRC reflected the growing importance of that sector in the 1990s, but it also occurred within the NRC in a largely quiet technical fashion. In other words, within the NRC, biotech was not in and of itself controversial, and decisions to proceed were largely non-political in nature. But by 2000 the broader political controversies surrounding biotech were taking shape, and new federal strategies and decisions were emerging. In the 1980s and 1990s, biotech gradually emerged on the national and international policy and economic agendas in three main ways: in federal biotech strategies in 1983 and 1998; in an evolving biotech regulatory system responding to the industry's development of new products and processes; and in periodic controversies relating to specific products and scientific developments. The 1983 National Biotechnology Strategy has been replaced by the 1998 Canadian Biotechnology Strategy (CBS). The CBS is intended to 'support the responsible development, application, and export of biotech products and services/ the context of 'social and ethical considerations' (Canada, 1998: 1). The CBS sets out a vision, guiding principles, and goals, all of which reflect biotech's importance to the economy and to Canada's quality of life. Ten themes 'for concerted action' are identified; these are to be implemented on a partnership basis with stakeholders, which include the provinces, industry, consumers, environmental groups, and the academic community. The centrepiece of the CBS is the Canadian Biotech Advisory Committee, an expert panel that advises ministers on the 'ethical, social, economic, scientific, regulatory and environmental and health aspects of biotech' (Canada, 1998a: 1). The advisory committee plays no role in specific regulatory decisions, but it serves as a forum to give Canadians a voice in an 'open and transparent dialogue on biotech issues' (Canada, 1998:1). The process of establishing the CBS was quite elaborate. It was coor-

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dinated by the Minister of Industry, but six other portfolios had a hand in it: Agriculture and Agri-Food, Health, Environment, Fisheries and Oceans, Natural Resources, and International Trade. Also consulted were over 5,000 individuals representing various sectoral interests. Roundtable discussions were held in five cities (Canada, 1998d). In tandem with this process, a regulatory system emerged for biotech: the Federal Regulatory Framework for Biotechnology (Canada, 1998a: 7). Biotechnology is somewhat unique in that it has no single regulator. Instead, a framework of principles has been developed to guide the various regulatory bodies and departments whose job it is to approve biotech products and processes. In this sense, the Canadian system for regulating biotech has been described as 'relatively new, emerging and institutionally dispersed' (Doern and Sheehy, 1999). By deliberate design, the core of the biotech regulatory system is a secondary set of arrangements and processes agreed to by several regulatory bodies whose key regulatory tasks are far broader than biotech in that they deal with broader and longer-established regulatory tasks such as relating to health, safety, and the environment (Canada, 1998c). Biotech has also become central to particular policy and regulatory controversies. These include global scientific issues such as the cloning of Dolly the sheep, gene prospecting and its links to biodiversity, and the vast human genome project (Grace, 1997; Appleyard, 1999; Mironesco, 1998). Proof that biotech can inspire governmentwide and national controversies is easy to find in the United Kingdom, where in February 1999 the British government's policies and institutions relating to genetically modified (GM) food came under sustained and fierce attack by environmental and other groups, and engaged several ministers - including Prime Minister Tony Blair - in high-level backtracking and political damage control (The Independent, 16 February 1999: 1). Controversy can also arise over specific products, a Canadian example being rbST (MacDonald, 2000); this biotech product, which enhances the efficiency of milk production in cows, has been approved for use in the United States but has been rejected in Canada (Ottawa Citizen, 15 January 1999:1). Underlying all of the above developments are the emergence and growth of new biotech firms in Canada and globally, and the consolidation and growth of biotech in established pharmaceutical firms (Industry Canada, 1997; Canada, 1998b). Clearly, biotech has taken a central place in the political economy of Canada and in the global economy.

84 NRC Institutes and Programs Networks and Stakeholder Communities At one level, the BRI's networks and stakeholder communities are quite straightforward; they involve industrial firms, universities, Montreal-area businesses, international businesses, and other NRC institutes. The BRI interacts with a complex set of industrial firms: about one-third are small businesses, one-third medium-sized firms, and one-third large corporations. In 1998-9 the BRI listed twenty-two industrial alliances and partnerships in its pharmaceutical biotech sector. These partners included firms such as AstraZeneca, Pfizer, and Biochem Pharma, as well as McGill University. The bioprocess sector listed a further seventeen partnerships - with Merck Frosst and DSM Biologies, for example - and the environmental technology sector twenty-six more, with entities as varied as Domtar, Noranda, the Department of National Defence, and the Montreal Urban Community. The BRI partners with universities, and its role regarding them, and regarding the development of knowledge, is quite multifaceted. In a 1998-9 report, the BRI noted that its researchers had in the past year published 128 articles in referred journals, and 316 over the previous three years. As well, they had presented 104 invited talks and papers at conferences and written numerous book chapters and technical reports. Besides all this, the BRI had developed into a key player in the broader biotech knowledge community. Thus BRI researchers received 34 MRC and 81 NSERC research grants. As well, 41 BRI researchers were holding adjunct professorship posts at seven universities. The BRI was also involved in two proposals for National Centres of Excellence funding, one based at the University of Montreal and the other at Queen's University. On top of all this, BRI researchers were highly recognized by their peers: nine of the NRC's top twenty researchers were working at the BRI. Another feature of the BRI's networking activity was that it invited many research students from universities and guest workers from private industry to work with it. In the three years ending in 1998-9, the BRI trained about 92 graduate students, 73 foreign and domestic researchers, 37 summer students, and over 524 guest workers, and provided research facilities for them. Another example of the BRI's efforts to establish and maintain national and international networks is its annual 'Montreal: The Cross-

The Biotechnology Research Institute 85 road of Biotechnology' symposia. Held each autumn in Montreal, these attract more than five hundred participants annually and play a key role not only in marketing the BRI (and the NRC) but also in promoting Montreal as a centre of excellence in biopharmaceutical research. Finally, the BRI receives over twenty thousand visitors annually from those in government, business, and academe who are interested in biotech. The BRI sees itself playing a key role in nurturing smaller biotech firms in Canada. Biotech is a risky business that requires a lot of capital up front, both to do the initial research and then to develop the products and bring them to market. The BRI's 1997-8 Annual Report noted: 'Where almost 70% of American biotech companies are mid-sized and large, the same percentage of Canadian companies are very small ... [The BRI] is currently the largest laboratory site in Canada dedicated to research and development in biotech' (NRC, 1998g: 3). Interestingly, the NRC's strategic plan for 1998-2003 notes that in the biotech sector, the proportion of small firms (i.e., firms employing less than fifty employees) is actually slightly higher in the United States and Europe than in Canada: 75 per cent in the United States, and 81 per cent in Europe, against 72 per cent in Canada (NRC, 1998f: 8). Clearly, Canada is not the only country where small firms are an important part of the biotech industry. In fact, in at least this aspect Canada is more similar to than different from its main competitors. The central problem in Canadian biotech is not that most Canadian firms are small, but rather that only one of them - Biochem Pharma - is very big. Even so, small businesses must be a key focus for Canadian efforts in this sector. In this respect, the strategic plan for the NRC's Biotechnology Program notes: Canada has established strong capability in some areas, most notably biomedical and agricultural research. The sectors now include an estimated 224 core firms, generating revenues of $800 million and investing over $350 million per year. However, the industry in Canada has been slow to commercialize and is several years behind the US in developing industrial applications. (NRC, 1998f: 1) The BRI elaborates on this: Today, pharmaceutical and biotech companies prefer to invest their resources

86 NRC Institutes and Programs in developed research packages rather than lab results that simply show promise. Rather than signing agreements early on, for example when a protein is identified and characterized in a signal pathway, they prefer to come in when the molecule has been validated as a drug target for disease, or when preliminary screening has identified promising lead drug candidates. To compete, R&D organizations like BRI must develop the intellectual property value of research projects further along than in the past and be prepared for tougher negotiations with an industry whose positions are hardening on sharing intellectual property. (NRC, 1999a: 21)

According to these comments, Canadian biotech's problem is not research but commercialization. In this regard, the instruments that have been devised to help this country's biotech firms are somewhat different from the ones devised for other branches of the NRC (e.g., the IRC). Thus, a program such as IRAP is perhaps less relevant for the biotech industry, since its purpose is to help small firms begin doing research. Indeed, IRAP is scarcely mentioned in BRI documents. The BRI instead takes a much more proactive approach: through industry advice and partnering, it identifies niches with strong commercial potential and takes a hand in developing the products - often literally to the point where their commercial value can be reaped. This proactive approach takes two forms: the BRI creates spin-off firms from its own ranks that develop products whose scientific potential has already been established by its own researchers, or alternatively, it nurtures on its own premises firms that it thinks will later develop commercially viable products. The BRI incubates firms and spin-offs; it also sells its discoveries to outside firms under licence. The disadvantage of both incubating and spinning off is that the BRI must release some valuable knowledge, as well as some extremely valuable resources - namely human resources. The basic definition of a spin-off firm is one that arises from the entrepreneurial efforts of the BRFs personnel. Usually, public firms take great pride in the quality of their employees; this is especially true of an institute such as the BRI, which aspires to be known as an international research centre. Usually, an institute achieves its international reputation through the quality of its personnel; it follows that losing key personnel through spin-off firms works against building a high reputation. The NRC has long taken great pride in its personnel, but it is the nature of the biotech industry that those people must be released to create value-added elsewhere and in other ways. The BRI cannot

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simply watch the situation of the biotech industry from above and intervene by occasionally dispensing to Canadian firms some knowledge that it has discovered in its 'ivory tower' laboratories. In order to foster wealth creation and employment in the biotech industry, the BRI must be either an entrepreneur or a crucible for entrepreneurs. The indicators used by the BRI present the following picture: BRI's commitment to translating laboratory research in biotech and pharmaceutical sciences into practical processes is reflected in the numbers that describe its applications-oriented activities ... Over the last five years, ... BRI issued 20 licences, primarily to Canadian-based industries. The intellectual property revenues from these licences amounted to approximately $280K, virtually all of it received in 1998-99. The Institute's intellectual property has also been translated into practical applications through the creation of spin-off companies. Four firms have been launched from BRI during this time, BioSignal and Quantum Biotechnologies in 1995-96, Bio3D in 1997-98, and NovoScience in 1998-99, with a cumulative total of about 100 full-time employees ... One of the Institute's special strengths in furthering Canadian innovation is reflected in its record of supporting biotech firms in their first critical years of operation. Today, the Institute has 16 companies in its new incubator wing with upwards of 150 full-time employees. (NRC, 1999a: 11,15)

Clearly, the BRI's major successes have come from its spin-off companies and incubator activities rather than from its licensing activities. In this respect, its licences have grossed only $280,000, while its revenues from contracts and collaborative agreements amount to $6 million. It should be noted that it is the nature of some sectors, such as the environment, that royalties are always low. On the other hand, the spin-off and incubator programs have generated over a hundred jobs each. Obviously, these employment statistics look much better in an Annual Report than the $280,000 obtained through product licensing. Performance and Capacity We have already touched on how BRI has learned to manage by performance. The portfolio management approach we referred to earlier was introduced so that projects would be evaluated more rigorously. The evidence shows that the revenues Perron demanded be generated are actually materializing (see Table 4.1). The BRI is also publishing more of its research findings in academic journals and other appropri-

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ate places (see previous section). And there is not much doubt that the BRI has been marketing itself (and the NRC) quite well. Recently, when it opened its new research laboratories, they were quickly filled to capacity by firms wanting to partner with the agency. In the past decade, the BRI has faced difficult issues of capacity maintenance and capacity building. Like other institutes, it had to absorb budget and staffing cuts of about 20 per cent in the mid-1990s. By 2000 it could undoubtedly claim enhanced efficiency: it was running an operation three times larger than a decade earlier, but with the same staff complement, including a net reduction in support staff. But some staffing problems haven't yet been solved. The BRI's pay rates make it difficult for it to retain its existing scientists and to recruit new ones, for both present and anticipated areas of specialization. It has attempted to rely more on contract staff, but this approach has limitations. And of course it is competing with the private biotech sector, whose firms are anxious to attract the best people wherever in Canada or the world, they can find them. The BRI has done quite well at raising revenues, but there is a sense at the agency that it may be growing too dependent on this revenue. The BRI labs need more capital if they are to stay up to date and relevant, and given its niche role, Canadian taxpayers will have to provide it, through the NRC. Another capacity question that the BRI has worked on in recent years, and that needs still more work, is the development of its business capacity. This relates mainly to spin-off companies whose performance has been promising. The BRI has capacities in intellectual property and in planning IP strategies, but these are far from fully developed, and will assume more importance over the next decade. As noted earlier, the BRI has managed to avoid having to confront the politics of biotech regulation, but this is likely to change in the future, and is going to be an institute capacity issue. Inevitably it is also going to be an issue for all of the NRC's other biotech institutes, and will be linked to their joint or coordinated planning and operations. There are several conjoined issues here that can only be highlighted. First, in the past decade the BRI has not had many links with other federal departments, often because its client firms have not wanted to be too closely connected to federal departments that are biotech and drug regulators, such as Health Canada and Environment Canada. Second, as mentioned, the BRI has seen itself as part of the 'good' side of the biotech world - namely health, cancer cures, bioremediation, and the

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like - and so has not had to face many political or public relations issues. In other words, it has not been involved in the more controversial areas of biotech that centre on genetically modified foods (the focus of the NRC's Saskatoon institute). Many changes are likely in this regard. One is that the NRC's five biotech institutes are going to have to coordinate their activities more closely. At present there is little overlap in their activities, but this is likely to change as they are forced to make hard decisions as to where to establish research facilities or ventures. The next facility to be established will undoubtedly be part of the human genome project; the NRC has already been promised $32 million to start one, and it will be linked to the new federal Institutes of Health Research. A project of this scale - which includes involvement in new platform technologies - is seen by NRC management as requiring a multi-institute approach. The biotech program's strategic plan clearly envisages the need for greater multi-institute decisions and plans (NRC, 1998f). The BRI currently chairs the multi-institute program, and the mere existence of such a program is bound to reduce every institute's freedom to take initiatives. Implicit in any multi-institute process is the notion that regional innovation systems may not have sufficient bench strength to foster a national capacity in this high-stakes global industry. The politics of biotech are likely to become more divisive in the years ahead; all research institutes will have to become more responsive to the public's views about biotech. Also, the various institutes may find themselves at odds in the broader political debate over biotech in the health and food sectors. Conclusions The macro perspective (seen Part I) suggests that the NRC has indeed been transformed in the past decade. Not unexpectedly, the institute and program case studies in Part II, beginning with that of the BRI, provide their own somewhat different but complementary samples of change. As we suggested early on, the case study of the BRI brings us closer to the nature of actual scientific and technological work and exchange, which has to find its own modus operandi both despite and because of what is going on at the macro level of NRC policy and institutional change. Each institute deals with institutional change in its own way as it is imposed or encouraged by the NRC's corporate lead-

90 NRC Institutes and Programs ership and by its own stakeholder communities. And each has to grapple with its own interpretation of what innovation means in its realm of operations. Each institute has its own interpretation of what the NRC's inovation paradigm means to it - to how its labs function and to how its networks are to develop. In this chapter we have shown that the BRI - and by inference, the other biotech institutes - have focused sharply on the regional innovation model. The BRI has developed in the past decade in a quite dynamic way, with strong support in Montreal's pharmaceutical and biotech business communities. But a secondary aspect of the BRI's role is more national: its environmental remediation work and network of firms is more pan-Canadian. The BRI, as one of the newer institutes, was already fairly sympathetic to the reforms that Perron ushered in during the early 1990s. However, it still faced adjustment problems, especially in toughening its approach to assessing projects. In the Carty era it has functioned quite successfully under the new ethos of entrepreneurialism. It has grown its network of partners and alliances, it has built new facilities, and it has filled itself with firms doing both new and repeat business with it. The BRI has also developed close links with universities. Finally, its staff are actively seeking the peer recognition that the institute needs, not only for its own purposes but also to attract visiting graduate students and guest workers. It this chapter we have also shown that the BRI faces several important capacity issues. It will need more government investment if it is to meet the demand for its research. It is finding it a challenge to attract first-class scientific staff in a very dynamic industry, with what it can afford to pay them. We have touched only briefly on the biotech program at the NRC, but developments among the five NRC institutes may suggest that multi-institute approaches are likely to gain prominence in the future, propelled by new funding for projects such as the human genome project, and by the increasingly difficult politics of regulating biotech. At the same time, regional pressures may greatly affect how closely the biotech institutes can adhere to a group approach. Funding from the government may play a decisive role in the outcome.

5 The Institute for Research in Construction

Biotechnology is a vital field of research in this fast-moving, knowledge-based economy. The same might not be said of research on construction. In the same vein, the Biotechnology Research Institute is one of the NRC's flagship institutes. Again, the same might not be said of the Institute for Research in Construction (IRC). The IRC and the construction sector suggest a realm where innovation is slower paced and where the industry is undoubtedly national rather than regionally concentrated or clustered. As we will show, the IRC is not pulled by the private sector but actually leads it in matters of research and innovation. In many respects this is a function of industrial structure - and thus of an inherently different model of innovation - but it is also a function of the crucial role that the IRC plays in devising technical standards and codes for various aspects of construction. The IRC is unique among NRC institutes in that it plays what amounts to a quasinational regulatory role. Moreover, construction research does not have a strong presence in Canadian universities, and so, unlike other NRC institutes, the IRC has few formal ties with universities. Key features of the Institute for Research on Construction: Location: Ottawa Engineering 'Discipline-based' applied technical mandate Budget: $23.2 million (considerable revenues since inception) Staff: 218 full-time Quasi-regulatory role as technical advisor to provincial safety regulators • National role for a nationally dispersed highly regulated industry • • • • •

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• Leads industry through its own research, but extensively networked with building and construction industry, public and private. • Very limited university links The IRC has undoubtedly changed in the past decade. The nature of this change has been conditioned by the factors noted above and also by the fact that historically, as an outgrowth of postwar housing policy, the IRC has always been grounded in very real socioeconomic realities: in the buildings in which Canadians work, live, and produce. Regarding these, there are constantly changing concerns about safety, quality, and cost. See the key features of the IRC, outlined above. Our analysis of the IRC has four parts: its current mandate and unique elements; basic changes during the Perron and Carty eras; the IRC's networks and stakeholders; and performance and capacity. Conclusions follow. Mandate, Origins, and Key Features The IRC was founded in 1947. Its only laboratory is located in Ottawa, on the premises of the NRC headquarters. Its core activity is conducting research that relates to construction technology and disseminating the results thereof. More specifically, it has developed the following five core competencies: • Codes and Evaluation. Codes and Evaluation (C&E) is a client and stakeholder driven program with two significant functions: it provides the Canadian construction industry with a set of national model codes that promote uniformity and efficiency while addressing public health and safety; and it offers a technical evaluation service that facilitates the acceptance of new and innovative construction materials, products, and services, both nationally and internationally. • Indoor Environment. The Indoor Environment (IE) Program integrates various competencies in lighting, acoustics, ventilation, indoor air quality, thermal comfort, energy efficiency, and environmental psychology, with the goal of providing cost-effective technologies for maximizing the comfort, productivity, and health and safety of indoor environments. • Building Envelope and Structure. The Building Envelope and Structure Program develops and applies technologies for designing, construct-

The Institute for Research in Construction 93 ing, and operating buildings that are durable, energy-efficient, and cost-effective. This addresses both new construction and the repair or renovation of all types of buildings and concrete structures. Traditionally, this program emphasized systems for cold climates; more recently, it has expanded to encompass systems encountered in key export markets. • Fire Risk Management. The Fire Risk Management (FRM) Program integrates fire modelling and experimental competencies with specific expertise in fire resistance, fire detection and suppression, and fire assessment, for the purpose of developing methodologies and technologies that will save lives and reduce the total cost of fire in Canada. While directed mainly toward buildings, some elements of this program also serve other structures and equipment. • Urban Infrastructure Rehabilitation. The Urban Infrastructure Rehabilitation (UIR) Program focuses on cost-effective technologies for increasing the durability of urban environments and for improving municipal asset management practices. The program integrates laboratory and full-scale experimentation, materials development and testing, and analytical and numerical modelling competencies in the following areas: urban road structure, utility cuts, buried pipe performance, non-destructive testing, concrete repair, corrosion protection, and decision-making processes. (Performance Management Network, Inc., 1998:15-22) The IRC has two basic missions. The first of these is to produce valuable information for public authorities in Canada that are involved in risk assessment and management. As the IRC notes: 'Governments bear the major responsibilities and costs of infrastructure and societal risk management. Sustained knowledge investments are required to remain current. NRC is Canada's most visible national authority for technical information to support management of risks associated with fire, building safety, air quality, infrastructure, deterioration and earthquakes' (NRC, 1999: 6) This mission has an important 'public goods' component: at its core, it involves producing knowledge that benefits all Canadians. This knowledge is widely diffused, in the sense that no particular individual or actor can be said to especially gain from it (that is why it is called a 'public good'). This knowledge is often referred to as generic - the opposite of patent - since no one can monopolize its benefits. Yet paradoxically, this generic knowledge about safety and efficiency in con-

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struction contributes a great deal to the IRC's coffers. This is because the IRC disseminates its knowledge through publications such as the National Model Code. These codes alone generate over $1 million a year for the IRC. This kind of revenue provides about 30 per cent of the institute's resources (Performance Management Networks Inc., 1998: 30-1). Thus, despite the generic nature of the knowledge it produces, the IRC is able to capture important benefits from it. The IRC operates the Canadian Construction Material Center (CCMC). For a fee, the CCMC provides 'technical evaluation service, operated in partnership with Canada's provinces and territories, for construction materials, products, systems, and services, to facilitate their acceptance nationally and internationally' (Performance Management Network Inc., 1998: 17). Thus, besides producing general guidelines for construction purposes, the CCMC offers its opinion on the suitability for extended use of certain construction products that the private sector wants to introduce in the market. The CCMC's services were provided in 1998-9 'mainly to Canadian SMEs (62%) and Canadian LEs (17%). Clients from all regions of Canada were served. The portion of CCMC clients who are "non-Canadian" has steadily increased as a result of increasing trade globalization and has now reached 21%' (NRC, 1999:10). In sum, the CCMC caters to the needs of both Canadian and foreign firms that want to sell their products in Canada. Interestingly, the benefits the CCMC provides in this way have both public and private aspects: the Canadian public benefits from the fact that the IRC tests new products, and private firms benefit from the blessing that the IRC bestows on their wares. For generating information about the safety and efficiency of construction products, the IRC uses its own laboratories and also maintains 'a network of linkages to domestic and international technical standards organizations and professional societies' (NRC, 1999: 9). Thus, when it comes to gathering knowledge, which it then disseminates through its codes, the IRC relies not only on its own facilities but also on research conducted elsewhere in Canada and abroad. A final feature of the IRC's mandate is that officially, it is only a provider of information. In this respect, neither it nor its funding agent, the federal government, is a regulator per se. Regulation in this sector is a provincial or municipal responsibility, which is why the IRC's codes are referred to as model rather than official - they don't constitute binding, constraining regulation as such. The IRC often portrays itself

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as a neutral arbitrator between regulators, and between regulated actors such as construction firms: The construction sector is heavily regulated and consists of many stakeholders, including the general public, designers, contractors, owners and manufacturers of products. Very often the issues at stake, such as the development of model regulations on the use of a proprietary product, are complex and usually impact directly on commercial interests. As a result, there are competing interests that benefit from independent evaluation and arbitration. NRC is in a position to provide a highly credible, third party role in this area through the management of the production of construction codes, the evaluation of products and high quality research and technical advice. (NRC, 1999: 6)

The knowledge of construction produced by the NRC through the IRC has been used mainly to settle disagreements between contractors and regulators regarding acceptable levels of safety and efficiency. For example: 'A landmark agreement was signed with the Province of British Columbia through which BC agrees to base its code regulations on NRC's national model code and contribute financially of the model codes' development. With the BC agreement all provinces and territories, with the exception of one, will now financially support the codes development process' (NRC, 1999:11-12). Clearly, the IRC is working to ensure that its codes do not remain simply suggestions that regulators and construction firms may choose not to follow. Through agreements such as the one concluded with British Columbia, the IRC's codes are automatically incorporated into the official codes and regulations of the provinces. It is tempting to suggest that the IRC is abandoning its arbitration role in favour of a more proactive, quasi-regulatory role. After all, through these agreements its model codes become enforceable regulations rather than mere standards of comparison, and its knowledge is used not just to settle disputes but to produce binding regulations. Interestingly, the NRC suggests that it (primarily through IRC) 'offers the construction sector a national technology focus, in the absence of a federal department of construction' (NRC, 1999: 6). However, we must be cautious about attributing direct regulatory agency to the IRC. The real authority lies with the Canadian Commission on Building and Fire Codes, and with the provinces, which have the regulatory authority. The latter often modify the IRC's

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model codes to suit local conditions. Increasingly, the provinces are beginning to work with the IRC in developing model codes; when codes are developed in this way, their acceptance is almost automatic. The IRC's advisory technical role is thus critical.. The faster panCanadian adoption of codes can foster interprovincial trade and reduce transaction costs; it can also make Canadian technologies easier to export. The IRC's second important mission is to support wealth generation in Canada: There is substantial export trade in construction products ($9 billion) and engineering services ($653 million in 1993). There are increasing markets worldwide (hundreds of billions in USA, Japan and NICs) plus the potential to displace $13 billion in imports. Efficient production of a high quality product is essential for global competition against the large increasingly integrated companies of Japan and Europe. The Canadian industry will need substantially improved productivity, based largely on improved technology, to compete in the global market and maintain Canadian jobs. (NRC, 1999: 5)

It seems evident from this that the IRC's research capacities could be used to develop new products that are efficient and safe. In explaining how its research can benefit the Canadian economy, the IRC offers the following analysis. International trade has become the engine driving job creation and economic growth in Canada, and this trend is expected to strengthen as trade barriers continue to tumble. Yet in the construction industry, international trade is less than 10 per cent of total output. Thus, a sector like construction, which is not heavily involved in international trade, can be said to be suffering from a form of market failure; put another way, private firms on their own seem unable to take full advantage of the available opportunities to conquer foreign markets and thereby foster growth in the Canadian economy, like firms in other economic sectors are able to do. The IRC's research facilities are well positioned to correct some aspects of this market failure. Future markets will require more and more products that are highly efficient and safe - in other words, that have an important value-added component that only technological improvement can bring. Since the construction industry in Canada is composed mainly of small firms that do not have the means to conduct their own research, the government will have to do it on their behalf. The IRC wants to be the research lab of all those small firms that do not

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have the capacity to do product research and development on their own. Basic Transformation in the Past Decade In earlier chapters, we approached the Perron and Carty presidencies' contrasting eras. The contrast isn't as sharp in the case of the IRC, largely because of changes in the 1980s that were unique to it. In the early 1980s, the IRC was a traditional division and in many ways closely resembled many of the NRC's discipline-based divisions. It differed from the others mainly in that it had always been industry focused, because of the imperatives attached to its specific mandate (i.e., to produce technical model building codes). Also, it had always been a revenue earner, unlike most other divisions and institutes. It also had a strong research focus already. Indeed in the 1970s it had been actively involved in energy conservation research, which had been spurred by the energy crises of 1973 and 1979-80. In 1984 the Mulroney government, as a part of its sharp reversal of Trudeau's National Energy Program, cancelled key parts of federal efforts in energy conservation research, including those of the NRC and the IRC. The view within the IRC is that it 'experienced Perronstyle reforms and cuts' before there was a Perron. Perron's institutional changes (see Chapter 3) were seen as an effort to turn the NRC into more of a government research department. The departmental model was based more or less on performance-based management and on much closer central control. This change was not as jarring for the IRC as it might have been for some other institutes and divisions, largely because its role in generating technical codes meant that in some respects it already functioned a little like a department. But when Perron was appointed the NRC's president, the IRC's management felt a special need to explain to him that the IRC was indeed different from other institutes. The IRC led industry R&D, not vice versa. It played a sophisticated S&T information role that was largely separate from the broader NRC information roles centred in CISTI. Its advisory and governance structures were already heavily tilted toward industry (i.e., the construction industry). Thus, during the Perron era the IRC saw itself as a unique institute, and at the same time as already in tune with many of the changes that Perron wanted to make. For the first half of the 1990s it continued to focus sharply on its core mandate, which was to develop codes.

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Like the other NRC institutes, the IRC sees the Carty era as one during which research has been given more support, accompanied, however, by both encouragement and pressure to disseminate research and transfer technology. In this context, it is interesting to observe how the IRC has adapted to the Carty era. Unlike some other institutes, the IRC could not easily latch onto the concepts of local and regional innovation systems. As noted earlier, the IRC deals with an industry that is strongly national and has a significant presence in every part of the country, in both the public and private sectors. In the latter part of the 1990s, IRC management spent considerable time thinking about its mandate, particularly regardng broad issues such as what constituted innovation in the construction sector (and indeed whether it was still appropriate to think of construction as a traditional sector). This effort was obviously driven by the government's broader concerns about fostering an export-driven global innovation approach in all sectors. However, in Canada just as in other countries, the construction sector is largely a national and domestic industry in which exports play little part; it is also a tightly regulated sector, regarding not only technical safety standards but also labour and work practices. During the Carty era, all of this played out for the IRC in the form of commissioned consultant studies about the nature of innovation in the construction industry (Nordicity Group, 1997; ARA Consulting Group, 1997). We consider these studies in more depth in the next section on networks and stakeholders, but the broad conclusions of both studies are of interest in the context of the basic nature of institutional change in the past decade. In essence, both studies complimented the IRC for contributing greatly to innovation in the industry, in which innovation is seen as particular forms of product innovation. However, both studies also called for greater process innovation - an approach that is far more radical and risky, and that the IRC and NRC have had to be very cautious about implementing. It is best to review these findings, and their implications for the IRC, in terms of the IRC's network of stakeholders. Networks and Stakeholder Communities The structure of the construction industry tells us much about who its stakeholders are, and how they are networked, and how its system of innovation operates. As studies conducted for the IRC suggest,

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the industry comprises the following four elements (Nordicity Group, 1997: 7): • At the top of the supply chain are the providers of end-user products, who are ultimately the 'systems integrators/ These are the thousands of Canadian building and contracting firms, which are small in terms of sales, employees, and even skill levels. They build shopping malls, bridges, highways, and residential subdivisions. • Farther down the supply chain are those firms that supply machinery and make major subassemblies such as elevators, aluminum siding, prefabricated housing, door and window systems, and equipment such as furnaces and heat pumps. These firms tend to be much larger than building firms, and there are far fewer of them. • Still farther down in the supply chain are the suppliers of building and industrial materials. Their products range from wood, nails, and poured concrete to steel billets, specialty chemicals, and plastics. They also include raw materials such as iron ore, petroleum, sand, and raw timber. • Complementing all these suppliers of goods are the suppliers of services. These include architects and other planners; engineers and various designers, trucking and shipping companies, and specialists in building maintenance and repair (and demolition). Even this simple outline of the industry's structure suggests an enormously complicated web of stakeholders. Thus, when the IRC's managers describe their stakeholder community, several features emerge. First, the institute must deal with a very large number of associations. Second, it must pay special attention to the federal government because in practical terms, the NRC's 'owner' is by far the largest property owner in Canada. Third, the provinces are large property owners and construction hinders, but they also are the industry's regulators when it comes to both safety and labour practices. Fourth, the processes of doing research and developing technical codes is highly complicated simply because a new construction product cannot get to market unless almost the entire construction industry accepts it. In other words, the industry itself is an adaptor of technology. Fifth, the IRC is having to deal more and more with consortia of firms, whereas it used to conduct research for or with individual companies. And sixth, as noted earlier, universities are not central to the IRC's network. Once the IRC began looking more closely at innovation in the con-

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struction industry, it quickly became clear that it did not fit the model of other sectors such as biotech and telecommunications. Indeed, its innovation characteristics were virtually the inverse of these sectors. The Nordicity Group study in particular concluded that 'this sector cannot innovate close to market' (1997: 8). The study noted that the end users in the system have only limited innovation capabilities, for these reasons: • They lack the financial surpluses to invest in R&D or even new technology adaptation on their own. • The industry is based on traditional processes and regulated trade skills. Accordingly, the many small firms in the sector do not have much exposure to new technology, and lack the resources to do extensive training. • The life cycle of construction products is long, and the risks inherent in introducing any new innovation are perceived as great. It follows that the risk/reward ratio of new products is perceived to be poor, and this inhibits change. • The industry is widely dispersed: as one respondent put it, 'There's no "Silicon Valley" you can drive to in order to obtain the best technology' (Nordicity Group, 1997: 8). Basically, all of this meant that innovation tended to occur farther down the supply chain, among the larger and more technologically sophisticated firms. The studies also drew attention to the key role in innovation played by architects, who not only to foster design but also interpret building codes. Ultimately, innovation in the construction industry is linked to the building codes themselves, and thus to the role of the IRC. The Nordicity Group's analysis concluded that the IRC supports innovation in two key ways. First, it is responsible for developing model building codes, which ultimately become law, and which serve as a 'proxy for "market-pull" demand for innovation in the construction sector' (1997: 9). Second, the research undertaken by the IRC to underpin the codes itself leads to innovation, both directly and indirectly. A more recent example of an IRC effort to extend its role in innovation is the Municipal Infrastructure Guide. In an approach similar to the one it follows to develop building codes, the IRC is developing a triad research-evaluation-technical guide for and in concert with the municipal infrastructure sector. A Canadian Infrastructure Technology

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Assessment Centre (CITAC) has been established to aid municipal authorities in their engineering and financial decisions. Performance and Capacity In 1998-9 the IRC had a budget of $23.2 million and a full-time staff of 218. Both figures have stabilized in the last three years, after earlier cuts and uncertainties. With this core capacity and its laboratories in Ottawa, the IRC has evolved in the past decade - along with other NRC institutes - to embrace a more overtly performance-based mode of management and operation. Its records reflect the management reforms faced by all NRC institutes. In the early stages the IRC was asked, in effect, to indicate broadly what it was doing; more recently it has focused on the need to submit structured plans for its future endeavours. It has been asked to provide evidence that it is generating patents and spin-off companies. IRC management feels that both these measures are less relevant to its mandate than they are to some of the NRC's other institutes. Accordingly, it is cautious about its performance indicators, arguing often and with some validity that the qualitative aspects of its role are more crucial. This usually refers to the more subtle contributions it makes to model code development and knowledge dissemination. In its 1998-9 performance report, the IRC summarized its performance over the three previous years by stressing that 'peer reviewed publications have increased by 23%, technical report output has increased by 57%, the number of clients and partners increased by 35%, the number of clients categorized as SME's increased by 35%, and income increased by 12%' (NRC, 1999: i). It also reported that 'client satisfaction with regard to quality of output, remains high, although concerns with timeliness of delivery have been expressed' (NRC, 1999: ii). The same report also pointed out that on matters such as the involvement of graduate students (12 to 16) and guest workers (44 to 61), the IRC has very limited activity - no doubt mainly because there is little university research in its field, but also because the IRC has not tried especially hard to develop such links (NRC, 1999: 28). The IRC provides as an indication of its activity an extensive list of associations and bodies (national and international) with which it is networked (NRC, 1999b: 38-9). With respect to its underlying capacity, the IRC had some difficulties in the late 1990s, arising in part from the fact that it was led by acting

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directors for a brief time. This situation has now been rectified. The IRC has also had to become more interdisciplinary in its work. At one point it was a much more discipline-based organization, but its main business lines and groupings of activity - including materials research, fire protection, and building performance - are now demanding more interdisciplinary capacity. In the future, it will undoubtedly have to develop more expertise in cracking export markets, and also in identifying opportunities for spin-off companies. The IRC is working more and more closely with IRAP with the goal of making its research resources available to the small firms that are the specific focus of the IRAP program (NRC, 1999: 2, 17). In another report the IRC observed that 'an opportunity for major economic gains has been identified [but] further study is needed to define a specific niche' (1999: 12). The fact that the IRC is still looking for a niche on which to focus its activities with respect to developing innovative products suggests that the hard part is still ahead in its plan to become an engine for economic growth in Canada. Scepticism about the IRC's capacity to realize this second objective is quite evident in the report produced by the consulting group that the institute hired to review its performance. It concluded: TRC plays a legitimate honest broker role within a diverse set of public and private sector stakeholders in the construction sector. The Institute should seek ways and means to foster this role in the continued evolution of codes, standards, and best practices.' But it quite directly counselled that 'research projects which do not lend themselves to wide appropriation of benefits should be discouraged' (Performance Management Network, 1998: 57). Such studies of the IRC praise it for providing guidelines and standards for the construction industry, but are far from convinced that it can succeed equally well at directly generating wealth. In part, this reflects the practical problem of finding an appropriate niche; in part, the fact that by passing its innovations on to private firms, which will then commercialize them, it will in effect be concentating the benefits of them in the hands of a small number of firms. The fear, according to these studies, is that the IRC's work may become less of a public good if these few firms are able to monopolize its innovations. It is interesting to note that even though the innovative research conducted by the IRC will benefit mainly a few identifiable firms, it will be much harder for it to recover its costs than has been the case with its other mission, which is nevertheless portrayed as being a public good. This second mission of the IRC - to foster economic growth by developing innova-

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tive products - is far more adventurous and controversial than the first one, which is to establish guidelines and standards for the industry as a whole. Conclusions The IRC is very different from the BRI in the challenges it faces to carry out the NRC's innovation mandate. The IRC had to begin searching for a new kind of relevance when the NRC embraced the innovation paradigm, and has had a harder time of it than the 'new tech' branches of the NRC, such as biotech. The IRC is tied to its historic postwar mandate - to conduct research with the goal of developing building codes and is strongly aware that its 'continuing innovation' role is tightly bound to a construction industry that is literally pan-Canadian, as well as to highly complex regulatory systems. In this chapter we have shown that the IRC has stuck strongly to this core role, in part because it is familiar and of national importance, but also because venturing farther will be terribly complicated. The IRC has grappled with the issues and demands of the new knowledge-based economy largely by considering closely exactly what model of innovation it would be functioning under if it ventured farther. The studies it commissioned in the late 1990s showed just how different that model was for construction compared to sectors such as biotech and telecommunications. These studies also brought out more clearly the stark differences between 'product' innovation and 'process' innovation in the construction industry, and revealed just how much the construction industry is still a national industry in all countries. The IRC is a highly networked institute linked by numerous relations with diverse national and international associations, but it is very much still focused on the process of developing technical model codes. It has only limited links with universities and unlike other institutes it essentially leads industry research instead of following it. The IRC is beginning to move toward greater links with smaller firms, through IRAP and in other ways, but even in this limited realm of change, it does not have a high comfort level. Thus, the IRC faces a real dilemma: Can it truly play both roles - namely, that of a producer of genuine public goods, and that of a supporter of private goods?

6 The Herzberg Institute of Astrophysics

The Herzberg Institute of Astrophysics (HIA) is the third institute we have selected for closer examination. Named after a Canadian winner of the Nobel Prize, Gerhard Herzberg, the HIA is of particular interest because it has far deeper roots in the traditions of the former discipline-centred divisions that either the BRI or the IRC. Unlike most institutes, it also has a direct parliamentary and statutory mandate: to manage Canada's two core observatory facilities in Victoria and Penticton, British Columbia, and to support research in astronomy at Canadian universities. This means that it has responsibilities as a national institute that is crucially and increasingly linked to international observatories. All of this means that the HIA's transformation in the past decade was bound to be different from that of the BRI or the IRC. As part of this transformation, the NRC consolidated the HIA in British Columbia by relocating the Ottawa sections to Victoria. In the late 1980s a proposal was made to centre its operations at the University of Victoria, but the various hoped for commitments of the B.C. and federal governments failed to materialize. The federal Program Review of 1994-5 forced the decision to consolidate the HIA in B.C. The purpose was to reduce the costs and inefficiencies of running an institute spread over three locations. The HIA has also been transformed by the broader managerial and political requirements that we traced in Chapter 3 - including the requirements to cut budgets and increase the transfer of technology - albeit subject to two important realities: the HIA's own internal culture and research realities, and the primacy of its university support function.

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Aided by the initial profile presented in the list of key features below, we examine the HIA under four headings: mandate, origins, and key features; basic transformation in the Perron and Carty eras; networks and stakeholder communities; and performance and capacity. Conclusions follow. Key features of the Herzberg Institute of Astrophysics: • Location: Victoria • Science 'discipline-based' institute evolved from earlier 'divisions' • Budget: $10.7 million (very limited revenue earnings, though these have increased in recent years) • Staff: 106 full time • Statutory mandate to manage national observatories • National role linked to universities and to national and international 'big science' observatory facilities (increasingly the latter) • Limited business links, though some are being developed Mandate, Origins, and Key Features The HIA's mandate includes the statutory duty to operate the astronomical laboratories of the Government of Canada and to ensure that the Canadian scientific community has appropriate access to these facilities (NRC, 1998c: i). The main domestic facilities are the Dominion Astrophysical Observatory (DAO) in Victoria and the Dominion Radio Astrophysical Observatory (DRAO) in Penticton. Crucially, the HIA also works through multinational facilities: the Canada France Hawaii Telescope (CFHT), the James Clerk Maxwell Telescope (JCMT), and the Gemini Telescopes in Hawaii and Chile. The HIA also maintains the Canadian Astronomy Data Centre (CADC), which provides access to astronomy data from these telescopes and from others such as the Hubble Space Telescope. More specifically, the HIA defines itself as 'committed to excellence in research in astrophysics through the provision of first class facilities and services to Canadian researchers and through the direct participation of its staff in research (NRC, 1998c: 1). To this end, it focuses on the following: • Providing Canadians with access to leading research facilities; • Providing innovative instruments and software for these facilities;

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• Performing leading scientific and engineering research relevant to these facilities; • Developing international collaborations to enhance its facilities; • Training students and post-doctoral scholars in science and technology; • Transferring expertise to university faculty and industry in Canada; and • Responding to the strong public interest in astronomy (NRC, 1998c: 1). The HI A was established as a division of the NRC in 1975, through the merger of the space physics and spectroscopy sections of the Division of Physics with the planetary sciences, radio astronomy, and various other elements of the Division of Electrical Engineering. In 1989 the federal government established the Canadian Space Agency (CSA), which included some elements of the NRC. This development is worth noting at the outset, because the CSA has ever since competed for resources with the NRC in the S&T field, and because it presently has the more direct ear of the Minister of Industry (Atkinson and Coleman, 1991; Freedman and Crelinsten, 1993). But at the same time, the CSA is a source of funds to the HI A (see below). In 1990 the HI A was involved in four research fields: optical astronomy, radio astronomy, molecular spectroscopy, and solar-terrestrial physics (NRC, 1991a: 2). By the end of the decade, balances had shifted: the HIA performance report noted that 'in the past the HIA effort in radio astronomy relative to optical astronomy has considerably exceeded the proportions among Canadian university staff (NRC, 1998c: 2). More than the BRI and the IRC, the HIA has academic links: Canada's university-based astronomers simply could not carry out their work if the HIA did not exist. Moreover, the HIA deals with big science in that by definition, astrophysics research involves very expensive telescopes and related research facilities that increasingly have to be international in both nature and funding if they are to be affordable. Indeed, a key issue in the near term is whether such facilities will ever be built again in Canada. The issue is not simply money; the best conditions for actual observation are in more southerly locations. But at the same time, the HIA deals with 'little science' in two respects. First, academic scientists and doctoral and postdoctoral researchers need grants that will allow them to gain access to facilities, both Canadian and multinational, to carry out their individual research. Second, the

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HIA's own staff need access as individual scientists so that they can do research, keep up to date, and be credible partners with their academic colleagues. Thus the HIA pays its share of the access costs at the facilities it is partnered with, but also uses other facilities through normal bidding for access time. Because the HIA's core activity springs from big science, its international links are growing stronger and stronger; scientists from other partner countries use Canadian observatories, and Canadians have access to multinational facilities. But this is always an earned linkage. As always, one has to be able to contribute to the science in order to gain from the larger community. Basic Transformation in the Past Decade At least on the surface, there were few differences between Perron and Carty in how they approached the HIA, which during their tenure has changed less profoundly than other NRC institutes. There were some early concerns that Perron was not at all enthusiastic about the HIA, in part because he was trying to steer the NRC away from its real or alleged 'university without students' ethos and toward greater commercial relevance. In the Carty era, the NRC has shown only basic benign interest in the HIA. In the past decade, astrophysics has not been a high priority for the NRC, and the HIA's leaders well know it. Perron's arrival had an almost immediate impact on the HIA. Its staff was cut from 178 to 149 in 1990-1 (in the late 1980s it had as many as 206 full-time equivalents) (NRC, 199la: 17). Its operating budgets suffered proportionately, and its minor and major capital budgets were reduced by one-third (1991a: 17). And as mentioned earlier, the decision to move the HIA to Victoria was a cost-cutting measure. On the positive side, Perron's personal support was the key factor in persuading the NSERC to put up $10 million to finance the HIA's involvement in the crucial Gemini project. The annual reports of the early 1990s reveal some valid resistance to the Perron-era financial regime. In those reports, the HIA argued strongly that user fees were not appropriate for its work: 'As is the normal practice worldwide, the NRC does not levy user fees for its facilities. The work usually has no immediate commercial value and charges to university users would only result in a transfer of funds between tax supported agencies. Moreover, Canadian scientists benefit

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immensely from being able to use facilities in other countries on the same charge-free basis' (1991a: 3). Under Carry, the NRC has placed greater emphasis on business-linked technology transfer activities and revenues. There is little doubt that the HIA has found it difficult to align itself to this approach, partly for attitudinal reasons but mainly because of genuine problems in finding appropriate private companies with which to form partnerships. The Perron era also brought changes to the institute's advisory structure. Perron insisted that the HIA's own scientists (except for its own director general) could no longer be members of its advisory board. This was because the task of the advisory mechanism under Perron was not to tender broad advice on likely research developments in astronomy as such, but rather to monitor the institute's management and priorities. There was some initial opposition to this change among the HIA's staff scientists, but it eventually was accepted, given the different function of advice implied by the change. By the end of Perron's tenure, the advisory board was serving as a mechanism for client and collaborator participation. Of its twelve non-NRC members in 1994, eleven were from universities and one was from business (Bristol Aerospace); clearly, the HIA's core community was still strongly university based and internationally oriented. The HIA Advisory Board is still dominated by academics. Carty's arrival did not end budget and personnel cuts at the HIA. Using full-time equivalents (FTEs) as its measure, the HIA reports that its FTE staff were reduced from 172 in 1992-3 to 106 in 1996-7. Its budget cuts were 27 per cent in the same period; there were further deep cuts in the minor capital budget (NRC, 1998c: 3). In its 1998 assessment report, the HIA stated that its 'resources had been cut too close to the bone' and that it 'cannot take on any more responsibilities within its present funding envelope' (1998c: ii). Perhaps more critically, the institute indicated that 'HIA has lost (or will very soon lose) scientific and engineering critical mass' (1998c: iii). Networks and Stakeholder Communities The HIA's network and stakeholder community is relatively stable and compact. In order of prominence, it comprises the following: astronomers and graduate students in Canadian universities; multinational observatory facilities, access to which is crucial for astronomy

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researchers; three other federal science agencies (CSA, NSERC, and NRCan); and (more recently) a handful of Canadian companies active in technology transfer. The first two parts of the HIA stakeholder community are growing. Increasingly, Canadian academic astronomers and their students need access to the very best facilities; by definition, these are expensive and therefore international. Some fifty-two members of the Canadian community were surveyed in the 1998 HIA assessment process; almost all of them were faculty members in Canadian universities, with a fiftyfifty split between optical and radio astronomers. The peer community for astronomy is international, and the work done by Canadian astronomers must be viewed as relevant and important by that community. Canada's astronomers rely heavily on the HIA as a gateway to and source of facilities for research. The HIA's in-house astronomers in turn rely heavily on the peer review of their academic colleagues. Undoubtedly, the key medium-term issue in all this is whether Canada's national telescopes will survive as state-of-the-art facilities. In other words, must the HIA and Canadian astronomy in general anticipate a system in which all the key research will be carried out in multinational facilities? Probably yes. The astronomy community's long-range plan - presently before the NRC's senior management doesn't mince words on this. On a more day-to-day basis, the in-house politics of the HIA's community are expressed in terms of three types of relationships: international versus domestic; radio versus optical; and community versus the HIA staff versus instrumentation development. The HIA's 1998 inhouse review reveals some of the fine balances at work. The past fiftyfifty split between domestic versus international was seen by 50 per cent of respondents as acceptable, but only 21 per cent saw it as acceptable in the future. Some thought that there had been too little domestic in the past and that this needed rectifying; but most saw a more international focus as probably inevitable - hence the strong view we alluded to earlier (1998c: 16). With respect to radio versus optical, the starting point here is that Canada's radio community is much smaller than its optical community, and that in the past, resources had been split roughly two-thirds for optical to one-third for radio. The HIA community seems to regard this split as about right, and probably about right for the future as well. Similarly, when asked about support for community research as

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opposed to HIA staff research as opposed instrumentation development, the HIA community seemed satisfied; however, the 1998 review also concluded that the HIA 'has probably done too little of its own research (vs. instrument development), mainly in response to budget limitations and international commitments' (1998c: 17). The third element of the HIA's stakeholder community is centred on the three federal science agencies: NSERC, CSA, and NRCan. As noted earlier, NSERC is indirectly crucial to the HIA in that its grants fund astronomy faculty and graduate students. The NSERC has also helped pay the capital costs of the Gemini project. Of more direct importance to the HIA, and probably still an underexploited linkage, is the CSA. Initially, the CSA and the HIA in concert with Canadian universities used to share a space physics program; when they did, contacts were frequent and the CSA became a source of funds for the HIA. Then in the mid-1990s, the relationship unravelled. The 1998 the HIA assessment noted that 'CSA believes that the number of interactions between the two agencies has decreased significantly. This also coincided roughly with the HIA's move to Victoria' (1998c: 19). But since 19992000, relations with the CSA have bounced back, largely because the CSA itself obtained increased funding in the 1999 federal budget. Lastly, NRCan has a linkage with the HIA, in that it uses DRAO as a part of NRCan's geodetics projects. The HIA's technology transfers to the business community have never been central to its overall culture and priorities, but they achieved at least some importance in the latter part of the 1990s. It was reported in 1998 that about '$200 million in gross revenues for Canadian companies have resulted ... from association with HIA' (1998c: 26); however, these were tied to only one or two firms. The limits here are undoubtedly a function of the subtleties of the types of technology transfer that the HIA can supply, which include the following: • Technical support - provision of engineering design, technical advice, review of R&D results etc.... • Strategic support - assistance with planning the company's R&D programs and intended commercial applications; • Infrastructure support - use of HIA facilities and staff to test new products and designs; and • Marketing support - proactively informing companies of potential technical and sales opportunities, providing references,

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helping make connections with key individuals, acting as a 'seal of approval' when involved with the technical design etc. (NRC, 1998c: 26). Most of the technology transfer activity has grown out of the HIA's expertise in instrumentation. Instrumentation is often a key commercial venue as one moves from fundamental research to practical application. Indeed, as we indicated in Chapter 1, the links here are by no means only linear: instrumentation capacity may suggest avenues for further fundamental research. The HIA acknowledges that its success at technology transfer has been limited by the fact that it doesn't have any staff who concentrate specifically on this activity. It hopes to make better use of IRAP links (see Chapter 7), but it also stresses that 'unlike most other NRC institutes, companies are unlikely to ever derive direct economic impacts from applying results of the astronomy research' (1998c: 27). Interestingly, the HIA offers concrete examples of technology transfer with three specific companies. Two of these, Coast Steel and Global Cellular, are based in British Columbia. This leads one to ask whether the HIA's technology transfer role is also becoming a regional innovation role. As Chapter 3 has shown, the Carty era has emphasized the value of local innovation networks. While citing these B.C. examples, the HIA is careful to point out that it is fundamentally a national institute. It sees itself depending more and more heavily on its international involvement in the best global facilities, but with the focus always on the research needs of astronomers at Canada's universities. However, as we have seen, there may be some backlash to the HIA in British Columbia if present trends result in the shutdown of the Penticton facility. Performance and Capacity Like other NRC institutes, the HIA has long sought ways to assess its own performance. Its self-assessment of 1998 was based on the idea that its effectiveness as an institute 'is measured by the quality and relevance of its facilities as assessed by the community of users, and by quality of the scientific output from its staff, as assessed by international peers' (1998c: 3). This approach was directly to the HIA's previously established criteria for deciding whether to start a new project or continue an old one:

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• The extent to which a project will increase understanding of the physics of a field; • The scientific productivity - measured, in part, by papers published and their citations; • The number of Canadian scientists and students outside of HIA, and the number of foreign scientists, who use the facility or the service; • Over/under subscription factor, where time is allocated; • Contribution to technical training to Canadian industry, or to public awareness of science; and • Uniqueness of the project in national and international contexts, and the extent that it fosters international linkages and collaborations. (1998c: 3-4) For its 1998 assessment, taking this mixed qualitative and quantitative approach, the HIA made use of the following: a bibliometric review of the HIA publications; a peer review carried out on site at DAO and DRAO; other documents, including a survey of fifty-two members of the Canadian astronomy community; and structured interviews with stakeholders and outside experts. With regard to the quality of its facilities and instrumentation development, the review concluded that the HIA 'is providing facilities of good to outstanding quality' (1998c: 8). But clear differences were noted between international and domestic facilities. The international facilities 'are some of the best in the world/ [whereas] the domestic facilities are aging but still (just) useful for science' (1998c: 8). This finding brought to the fore the dilemma we referred to earlier regarding future investment in national versus international facilities. The HIA's instrumentation development capabilities and software, and associated services, were judged 'very impressive' and as providing the 'entryway for effective Canadian participation in multinational projects,' This capacity was crucial because 'little such competence remains in Canadian universities' (1998c: 10). When the review shifted its attention to the quality of the HIA research, a mixed picture almost inevitably emerged. The bibliometric review, among other things, compared the impact of the published work of HIA staff (a rough indicator of the importance of the papers published) with that of other Canadian astronomers and astronomers in other countries. These data showed that the HIA ranked eleventh out of twelve in 1990, but had improved greatly to third out of twelve by 1995. Other countries showed similar rapid swings, so for caution's sake, the HIA

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concluded only that 'HIA science is roughly comparable to that done by astronomers in other countries with significant astronomy investments' (1998c: 12). The review also noted that some HIA scientists were recognized as world leaders in their fields; also, that HIA scientists were finding it harder to arrange time to actually do their research; also, that it would be difficult to replace high-quality staff when they retired. We have already noted the Canadian astronomy community's perceptions of the HIA regarding the appropriate balance of resources for substantive fields within astronomy. These perceptions are of course linked to aspects of research and to the training of graduate and PhD students. This aspect of the review showed the intricacies of de facto networks and assumed (versus mandated) tasks. The HIA has no specific mandate to train students (i.e., through co-supervision with academics); that being said, the HIA can hardly avoid training Canada's future astronomers - this task arises naturally from everything else it is mandated to do. The 1998 review pronounced these aspects of support by the HIA to be quite good, but added that there were practical problems on the horizon - specifically, a need for greater funding to allow students to travel to the better-equipped international facilities (1998c: 15). For reasons we have already discussed, the review gave the HIA's performance in technology transfer only average grades. This is a decidedly secondary part of the institute's mandate, and improving performance in it has been a struggle. One aspect of performance that takes on greater importance in the context of contemporary science management, and in the macropolitics of science, is the HIA's public outreach activities. This aspect was not specifically part of the evaluation, but in the course of the review it was raised several times by the astronomy community. In particular, the peer review committee drew attention to its importance: 'For HIA particularly, public outreach represents a vast untapped resource for both the NRC and the Institute ... an outreach program would allow the HI A/NRC to demonstrate their use of public funds in an area where the audience is guaranteed to be receptive' (1998c: 21). The 1998 performance review profiled in this section necessarily reflected a mix of qualitative and quantitative criteria. It also represented an 'evolved' assessment process and set of criteria. Earlier performance reviews were either more rudimentary or were simply the product of the NRC's centrally determined criteria, which changed

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quite often. The HIA became frustrated by these changes, and has developed an approach to evaluation that, however imperfect, is well beyond what it was required to do (or wanted to do) in the 1980s. Conclusions The HIA's evolution in the past decade reflects its own unique activities in astrophysics research. We have not done justice to the substantive issues and concerns that are ultimately the lifeblood of national and international research in fields such as astronomy. We selected the HIA for a case study to represent those institutes that are rooted in academic or scientific 'discipline-based' traditions, and also because the HIA has a direct statutory mandate to support research in astronomy. Yet even in the case of the HIA, disciplinary boundaries are breaking down or are being contested. In a very real sense the HIA is a traditional NRC institute. Its strongest links cannot be anywhere but with university astronomers, who must have access to the best international facilities and observatories. The HIA is also a more traditional institute in the sense that it is unambiguously national. Inherently, it has no scope whatsoever to foster local systems of innovation, like the BRI certainly has. The HIA has local effects where its main facilities are located, and knows it has them, but its mandate is quintessentially national. Yet the HIA has changed in the past decade as a result of changes in governance at the NRC and the new financial realities of big-science astronomy. It has faced significant budget and personnel cuts, and has tried to increase its technology transfer activity. It has also undoubtedly tried harder to develop a more performance-oriented approach to managing science. At the same time, the internal culture of the HIA has resisted some of the excessive managerialism that has accompanied centrally driven initiatives in the past decade. The HIA faces both risks and opportunities. On the one hand, it must confront the strong likelihood that soon only shared international facilities will be feasible in big science astronomy, and that national observatories will atrophy even further than they already have. On the other hand, there is a focused national constituency at several universities, and there is also latent public support for astronomy, just as there is for all of the NRC's activities. The NRC may soon face greater budgetary and political competition from bodies, such as the Canadian Space Agency, that have the ear of ministers and that capitalize more

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skilfully on the public's genuine interest. Note here, of course, that the HIA benefits directly from any success the CSA has. Like any entity that is part of a larger institution, the HIA has defended its core research concerns and culture and has also sought to adapt to the imperatives of the larger forces that surround it, both inside and outside the NRC.

7 The Industrial Research Assistance Program: Advice, Networks, and Money

The Industrial Research Assistance Program (IRAP) is like the institutes examined in the three previous chapters in that it supplies technical advice and is an intricately networked entity. However, it is different in that it has money to hand out to firms. Thus, as with all distributive incentive programs in government, IRAP's culture centres on knowing 'how to give to get' in supplying innovation-oriented services. IRAP is different also because almost by definition, its funding and advice are spread across many industrial and technological sectors, and because in many respects it enjoys solid political support in a way that the NRC as a whole does not (Lipsey and Carlaw, 1998). Moreover, it has maintained that political support despite the strong trend in the past twenty years away from subsidies to industry (see Chapter 1). In Chapter 2 we conveyed some key aspects of IRAP's budgetary history. Between 1986 and 1998 the NRC's total current dollar budget increased by 20 per cent, whereas IRAP's increased by 53 per cent. In constant dollar terms the NRC's total budget decreased in real terms by 12 per cent, while IRAP's increased by 12.4 per cent. In the mid-1990s IRAP's budget was cut, and then frozen for several years, before being replenished at least in part. All of this suggests that IRAP is directly and indirectly a key player in the politics of the NRC's internal resource allocations, for the simple reason that grant money is a flexible instrument that others will seek to get their hands on. IRAP's money is more flexible than that of the institutes, which are more people and capital intensive and whose budgets are thus more rigid. Over the past twenty years, IRAP's budget increases have been negotiated directly with the minister, which suggests that there is no internal

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resource trade-off within the NRC. What is more difficult to detect is whether ministers then simply give the NRC less, knowing that IRAP has already obtained funds. Other parts of the NRC covet IRAP's money, but IRAP's relationship to the rest of the NRC is more complex than this. IRAP is more than just a spending program: its industry technical advisors (ITAs) advise and work with many more small and medium-sized enterprises (12,000 SMEs) than receive financial assistance (3300 SMEs). And IRAP's advice intermingles with institute tasks and with other elements of the NRC, such as CISTI. In this chapter we examine IRAP as a key element of the NRC and also as an element that seeks independence for the purpose of defending its mandate, its budget, and its own forty years of tradition. In the first section we look briefly at its origins and evolution until 1990. In the second part we focus on IRAP's past decade under Perron and Carty. We then examine IRAP's core culture and operations, which are centred on its ITAs, and how IRAP is linked to the following: the NRC's executive processes; CISTI; the institutes; and its larger networks. This also includes an examination of how the innovation paradigm has changed IRAP's approach to fulfilling its mandate. Conclusions follow, which focus on IRAP's prospects and performance within and outside the NRC in the context of global trade constraints. Origins and Evolution until 1990 In 1961, in response to criticisms that the NRC was paying insufficient attention to industry, E.W.R. Steacie proposed IRAP to the Diefenbaker government. In 1962, it was established. But the real roots of IRAP date back to 1945 with the NRC's Technical Information Service (TIS). The TIS was essentially the joint idea of C.D. Howe, Canada's 'Minister of Everything/ and CJ. Mackenzie, the NRC's president at the time (NRC, 1995b). Both Mackenzie and Howe were engineers by training and had seen how well government and business had cooperated in wartime. In the postwar context they saw a critical need to prepare Canadian industry - especially smaller enterprises - for what would be a very different postwar economy. The mandate of the TIS was to increase the dissemination of technical knowledge; Canadian business had been depending too heavily on foreign sources of this knowledge. This pragmatic need was captured in a 1946 NRC article: the TIS's 'regional representatives and Ottawa staff do not provide a general consulting service, in the ordinary sense of the word. They do, how-

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ever, endeavour to bridge the present gap between the scientist and industrialist by searching the technical literature of the world for information/ Such work demanded 'special training by the staff in science, technology and languages, as well as a natural aptitude for collecting information and presenting it in language which the practical man can understand' (NRC, 1946: 2). In 1947 the TIS became entirely the NRC's responsibility. It quickly established close links with the NRC's national science library. But to succeed, the TIS had to develop a field advisory service. Thus, very early on, regional advisors were put in place across Canada, partly through agreements in the early 1950s with provincial research organizations. The TIS was not consolidated with IRAP until 1982, although the two agencies worked together in many important ways and had adjacent offices in Ottawa from 1962 to 1974 (NRC, 1995b). It is important to stress that a technical information service came first, and an incentive program came later. IRAP was the incentive component. While companies did not have to pay back its contributions, they did have to at the very least match the agency's funding for any project. IRAP started with $1 million in the 1962-3 fiscal year. Between then and the late 1980s, IRAP (including the TIS) displayed a capacity to grow, to increase services and budgets, and to survive in a policy climate increasingly suspicious of funding for industry. IRAP grew in its earlier years mainly by adding components to its origin program, like ornaments on a Christmas tree. Each new element reflected some technical or industrial need advocated by either the NRC or some other part of the government. Each of these needs was quite genuine, but at the same time, each was small in financial terms. The more small increments are added on, the more difficult it became to administer all of them. The NRC's IRAP program attracted many additional elements, even when - as sometimes happened - the ideas did not originate there. IRAP succeeded in attracting new program elements partly because it was at the same time forming and building a core of expertise as well as the capacity to make incentives work without politicizing the process of allocating grants. This is no small skill, in that all contribution and grant programs face the daunting question of how to deal with what economists refer to as moral hazard (Lipsey and Carlaw, 1998). The central problem is how to manage the perverse behaviour of applicants and recipients - behaviour that arises simply because the money is there. 'Build it and they will come' is a phrase that applies even more to government grants than to W.P. Kinsella's

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mythical baseball stadium in an Iowa cornfield. A related issue is the 'incrementality' problem, which relates to the issue of whether firms and recipients would have achieved similar results without the money. Examples of additional elements that joined the core IRAP program: a 1975 program for industry and government laboratory projects; a 1978 program for hiring engineering and science students; a 1981 manufacturing assistance program; and a 1985 program on international technology transfer (NRC, 1995b). As we show below, IRAP's tendency to take on added elements continued into the late 1990s. Clearly, IRAP has never been a static or single-program entity. These program 'add-ons' are important to any understanding of IRAP; so also is IRAP's long tendency to 'buck the policy trend.' To grasp this, we must look both at IRAP and at broader developments that can be traced to the 1960s but that coalesced mainly in the 1980s. In Chapter 1 we traced the general elements of this policy trend in our discussion of the decline of traditional industrial policy. The policy critique was that industry subsidies of various kinds were counterproductive and even wasteful; that they were too expensive for cash-strapped governments; and that they were becoming illegal or dubious under international trade rules. IRAP faced criticism as early as 1964, when the Glassco Commission criticized the grants it made, albeit mainly because they were matching grants and industry needed more unencumbered funding. It should be kept in mind that at this time the perception was growing that Canadian industry was too often foreign-owned, and that the Canadian manufacturing sector was suffering from general neglect. This was a key reason why Pearson's Liberal government in 1965 established a Department of Industry, whose sector branches were also seen as knowledge resources. After this, criticisms of grantsmanship and of industry's overdependence on grants emerged in a series of studies: an industrial strategy review in the early 1970s; the Lambert Commission in 1976; the Mulroney government's 1984-5 program review; the 1985 MacDonald Royal Commission on the Economic Union; and eventually the Chretien government's 1994-5 program review (McFetridge, 1985; Blais, 1986; Doern, 1995; Lipsey and Carlaw 1998). This chorus of criticism eventually had considerable effect, but it was by no means totally triumphant. IRAP often took its share of this overall criticism; typically, however, it survived scrutiny by showing some net payoffs in cost-benefit terms, or by mobilizing its political constituency in the small and medium

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enterprise (SME) community. But developments were occurring that would imply that IRAP's incentives were not enough. One such substory arose in the 1980s around the establishment of the scientific research and experimental development (SR&ED) tax incentive (Doern, 1995a). An earlier, ill-conceived tax incentive in 1980-1 had resulted in the federal treasury suddenly losing over $1 billion. The SR&ED was established to close this breach and to provide a workable R&D tax incentive. A key feature of the SR&ED was that it would be in the form of a refundable tax credit aimed at small Canadian firms (since such small firms had no cash flow and thus tax deductions were of little use to them). IRAP's advice was sought on how to ensure that the credits really did go to eligible 'experimental' research; however, this incentive program continued to be administered by Revenue Canada. This tax-based program is important to mention not because it is a head-on criticism of IRAP, but rather because it shows that some elements of business were not being reached by IRAP incentives, and that some business sectors preferred that such incentives be delivered through the tax regime. Issues concerning how to define experimental R&D were also similar in many ways to IRAP and the NRC's continuing practical concerns about how to define innovation, in that both dealt with the existence of uncertainty as opposed to routine technical advance (see more below). As the 1980s ended, IRAP's incentives, federal tax incentives, and other incentives still being offered by budget-constrained but still functioning regional agencies such as ACOA and WEDC were becoming intermingled. They were all leaning toward support for SMEs. They were all being encouraged to broker and partner with each other, and they were all concerned about just what kind of room for manoeuvre was left for the legitimate use of such incentives in the new era of free trade and globalization. Moreover, Industry Canada itself (then the Department of Industry, Science and Technology) was beginning to end its contributions and was casting itself as being in the knowledge and information business 'for business.' Its industry branches could no longer offer tariff support or much money, and thus everyone was increasingly in the innovation/information business - a point we develop more later in this chapter. IRAP in the Past Decade We now look more closely at IRAP in the past decade, under Perron and Carty.

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In the NRC's 1990 to 1995 long-range plan, IRAP received only a brief three paragraphs, which included the fact that in 1990 it had 200 technology advisors across the country (NRC, 1990:18). There was scarcely any reference to how much IRAP cost, nor was it mentioned that IRAP was about 25 per cent of the NRC's budget. All of this undoubtedly reflected the higher priority that Perron was giving to reforming the NRC institutes and to changing the NRC's overall culture; but it also reflected the concern that if IRAP's funding was made too visible, it would be targeted because of the growing need to cut spending and because industrial incentives were falling out of favour. Internally, however, Perron was looking harder and harder at IRAP. It was suspected that IRAP was too independent, that it lacked an NRC corporate identity, and that it was not linked properly with the institutes. With few exceptions, IRAP and NRC staff worked in separate offices. There were also concerns within IRAP that Perron coveted some of IRAP's budget for the institutes. All the while, IRAP was being swept along by the general tide of Perron's reforms. An especially intense and eventually public dispute arose over IRAP in 1990-1. The NRC's new leadership, supported aggressively by the council, wanted tougher targets and performance criteria to be applied to IRAP. IRAP had (and still has) a strong identity; and its own leadership strongly believed in the value of what it was doing and in the need for more funds during this period of fiscal restraint, and had a board that shared its attitude. A conflict ensued during which IRAP's director general and board sent a letter to the council, which became public through the media. Eventually, personnel from both the NRC and IRAP appeared before a parliamentary committee. IRAP's director general and board were replaced as a result. Afterwards, quite delicate negotiations took place to reform IRAP along the lines favoured by Perron and the council, who fully recognized that IRAP was important, though it could not be immune from the budget-cutting temper of the times. One of the changes introduced, which IRAP pressed for, involved decentralizing decision making so that decisions at a higher-threshold level of spending could be made in the field rather than in Ottawa. Accountability and performancereporting relationships through the new IRAP and to the council were part of the new trend toward decentralization. IRAP's 1991 strategic plan reflected these new arrangements, and also noted new ways in which IRAP would increase its links with the institutes. For example,

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IRAP later became a part of the Technology Group Fora, which provided a vehicle for coordinating institute activity in the technology clusters being developed. IRAP also indicated that it would take a more holistic and innovation-oriented approach to helping its clients (about which more will be said later). In the Perron years, IRAP actually had reasonable budgetary stability. Paradoxically, this may have been due to the public controversy, which seemed to show that while you could change how IRAP was run, it was best in political terms not to be seen openly cutting it. It was not until the program review of 1994-5, under Carty, that cuts hit IRAP with greater force. The Carty Era

Carty's 1995 strategic plan was fairly kind to IRAP, which was given pride of place. This plan referred to IRAP as 'the envy of the world as a means of providing technology assistance to small and medium-sized businesses' (NRC, 1996: 6). It also notes that IRAP clients had been awarded all six top prizes for invention and innovation at the previous year's Canada Awards for Business Excellence. However, as we pointed out in Chapter 3, the Carty era began with budget cuts, arising from the Chretien government's program review, that the NRC's new president had not expected to have to make. IRAP suffered a hefty 30 per cent cut (due to the expiration of some biotech funding). After that, however, IRAP recovered its footing, and began doing again what it had always done: adding small programs and relying on its innate flexibility and instinct for growth. Some planned cuts were deferred, and some funds were restored but in the last four years of the 1990s IRAP latched onto new funds and related duties, through partnering with the federal regional agencies; the Canada Technology Network, established in 1994; sustainable development incentives; and a Youth Employment Strategy Initiative (NRC, 1998b). IRAP is also delivering several provincial programs. The evolving views about IRAP in the mid-1990s can be seen in its strategic plan for 1996 to 2001. This plan attributed IRAP's longevity to its flexibility and also to the fact that 'it maintains core principles and approaches that continue to meet client needs.' It cited positive client surveys, and it quoted analyses indicating that 'IRAP leads to the creation or saving of some 9,000 jobs per year ... at a one time cost per job of $10,000 [and that] these jobs tend to be higher paying technical and

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production jobs' (NRC, 1996c: 3). The Auditor General's 1999 report (Auditor General of Canada, 1999) criticized these job claims. However, IRAP's survey results relating to client satisfaction, which indicated 83 per cent satisfaction, were viewed as sound. The same plan emphasized that IRAP's environment was changing in various ways. First, its clients were changing, mainly because of the explosion in the number of start-up technology companies, 'which possess a strong core technical competence but which often lack some of the other capabilities or resources required to get their good ideas to market' (NRC, 1996c: 3-4). Second, IRAP's networks were changing, because of the shrinking or elimination of provincial research organizations and also because other network players, such as federal and university labs, were now under revenue-oriented funding regimes. Third, information technology was strongly affecting IRAP's approach to giving advice as well as the capacity of SMEs to obtain information from other sources beside IRAP. Fourth, the NRC itself was changing; thus, the plan stressed IRAP's 'connections to other parts of the NRC as an essential element of its continued success' (1996c: 6). In keeping with the new federal and Industry Canada policy template, IRAP's strategic plan described its mandate as the 'stimulation of wealth creation for Canada through innovation,' and its mission as to foster innovation, especially regarding SMEs (NRC, 1996c: 8-9). IRAP recognized that it wasn't enough merely to build technical capacity. Of particular interest for this book, IRAP's plan discussed what innovation meant to the agency: 'Innovation occurs when there is new commercial application of technology' and was 'not invention alone' (1996c: 9). The plan stated that 'for IRAP's purposes, innovation involves client uncertainty as to whether the technical or commercial outcome can be achieved. Innovation does not include undertakings where it is generally recognized that competent implementation would be expected to lead to success' (1996a: 9). Also, innovation did not mean 'one-off technical problem solving 'i.e., where a ready solution exists somewhere and needs only to be identified and applied' (1996a: 9). In a sense, IRAP with these statements was raising the bar of innovation considerably; it was also defining that word more in terms of what it did not mean than of what it did. IRAP was of course not alone in creating its own definitions of terms that were important to it; after all, what words mean has both political and practical implications. For example, in the previously mentioned SR&ED tax credit program,

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analogous problems had arisen over just what constituted eligible 'experimental development.' Moreover, part of the definitional conundrum centres on the presence of uncertainty rather than ordinary offthe-shelf problem-solving or production-related research. To summarize, in the past decade IRAP has gone through considerable change and angst. In the Perron era, it was changed structurally, but its budget was stable. In the Carty its new structure was consolidated, but its budget was cut, though later restored both directly and through program add-ons. More now needs to be said about core aspects of IRAP's operations. IRAP's Culture: ITAs, Changing Networks, and a Holistic Approach to Innovation for SMEs At the start of the twenty-first century, IRAP's core features can be summarized as follows. The agency is a national network of around 245 industry technology advisers (ITAs) located in eighty different cities across Canada. These ITAs are experienced scientists and engineers who provide 'innovation assistance, advice, referrals and cost and risksharing innovation financing to Canadian SMEs in all industry sectors and all regions of the country' (NRC, 1998b: preface). In 1997-8, IRAP provided services to about 12,000 clients as well as financial assistance to around 3,300 firms on 4,139 industry-led projects totalling about $67 million (network members, including CTN members, contributed a further $21.4 million). In the same fiscal year IRAP also had multifaceted links with other sources of technology: 2,718 projects (out of 4,200) had 3,839 linkages to 2,525 organizations. These links included 163 to the rest of the NRC, 2,401 to other companies, and 894 to universities. Not all linkages were triggered by the IRAP process. These linkages embodied the 'levelling of the playing field for client SMEs' in that they offered multiple sources for SME choice. As well, IRAP was developing more and more international linkages. SMEs were the main recipients of funding, 82 per cent of which went to firms with fewer than fifty employees (NRC, 1998b: preface). In addition, IRAP now funds and manages for the NRC the $4 million Canadian Technology Network (CTN), which links public and private sector organizations that offer innovation support services throughout Canada with clients who are engaged in developing or exploiting technologies. IRAP also funds and delivers two components of the federal Youth Employment Strategy initiative in S&T on

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behalf of Human Resources Development Canada. This initiative has $4.8 million of funding. When IRAP received an additional $34 million in the 1998 federal budget, about $19 million was to be used to encourage environmentally sustainable technologies and processes and strategic innovation, as outlined in IRAP's 1996 strategic plan. Clearly, IRAP has had much of its core program funding restored, and has acquired new add-on tasks (all, in general, innovation-linked). Furthermore, it now has 245 ITAs, up from 200 in the early 1990s. But if these are core descriptions of IRAP at present, what can be said about its culture within the NRC? IRAP sees itself as a 'people-topeople' organization and as primarily a network. Its ITAs exchange information with individuals in SMEs and with fellow ITAs and other sources of technical expertise far more than IRAP hands out money. Phrases that describe IRAP as an organization that knows how 'to give to get' or 'to share to get' are a part of the operating culture. This leads often to a handshake approach to deal making, whereby incentives provide an initial buy-in and exchanges are then broadened and extended for as long as they are useful. As a self-styled 'can do' organization, IRAP had no problem embracing the client-centred ethos of the 1990s new public management reforms, because it believed - with considerable justification - that it had been paying attention to clients for over fifty years. IRAP's staff possess a wide range of scientific, engineering/technical, and industrial expertise, but unlike their colleagues in the NRC institutes, they do not see themselves as research scientists. They are more like brokers and intermediaries exchanging scientific and technical information, and they want client firms to move issues forward. Because of this micro-oriented approach and an instinct to 'pilot' solutions with firms, others in the NRC feel that IRAP is too reactive in its basic approach and not sufficiently inclined to look at the bigger picture, with the bigger picture meaning variously the following: the NRC, as a corporate entity; the institutes, whose work might be more medium term; and SMEs, which are looking for a more holistic approach to innovation. For their part, IRAP officials often feel that they are looking at the bigger picture, in that they look at more than just the NRC precisely for the sake of unearthing multiple options and hitting on the most appropriate linkages as seen by the SMEs. Overall, IRAP behaves by instinct, in much the same way that the older NRC research divisions functioned in the 'university without students' era. They both said, in effect, 'trust us,' with the divisions

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saying 'trust us, we do good research' and with IRAP saying 'trust us, we know how to network/ how to make a difference to SMEs, and how to get technical information and incentives to SMEs. For IRAP, this tends to mean that it is not inclined to broadcast its success stories, which are a part of its unwritten oral history. There is also a reluctance, as there was for some time in the NRC as a whole, to accept anything that looks like detailed or systematic performance evaluation. These latter two features are changing: IRAP is learning to trumpet its successes, and to report on its performances, albeit cautiously in both instances (see below). Another key feature of IRAP's culture concerns its 245 ITAs. They are indeed IRAP's core human resource, yet about 130 of them are not actually NRC employees. Rather, they work for many other public and private organizations. For example, about sixty ITAs are based at universities, where they operate out of Vice-President Research offices, engineering departments, or (more recently) technology transfer offices. These latter units are themselves being built up in universities to deal with businesses. The ITA network is a key part of IRAP, but the fact that most do not work for the NRC can lead to problems and anomalies, not only in levels of pay but more recently in efforts to introduce incentive pay. ITAs advise and interact with firms in over twenty industrial sectors. One result is that their backgrounds must be very diverse. Another is that some ITAs are generalists and others very much specialists. But the task of keeping up to date and of assembling and changing core competences is daunting, to say the least; this is of course a challenge that every modern knowledge-based organization faces. Some of the challenges of network reshaping and capacity building are reflected in IRAP's efforts since 1997-8 to link its ITAs to the NRC's three national technology groups. Also, IRAP must use some of its budget just to maintain and develop its main and subnetworks. Only by doing so can it build its capacities to manage knowledge, and broaden its crosscountry links. To this end, in eleven key technology areas IRAP has initiated sector groups comprising between seven and eleven ITAs each. A final feature of IRAP's culture relates to its need (and the need of the NRC) to foster a holistic approach to innovation. IRAP's 1998 performance review stressed that 'innovation is more than technology: to be successful in innovation, firms require financing, marketing, business and other strategies and information to move through the innovation process' (NRC, 1998b: 4). It went on to say that IRAP now

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recognized this need, and cited the CTN and other initiatives as indicative of a more holistic approach. This reference to a holistic approach suggests a much more expansive mindset than was evident in the stricter notions of innovation reviewed in the previous section. This does not mean than the earlier views were wrong, only that they were different and that the innovation paradigm has resulted in a constantly shifting commercialization agenda. IRAP is not the only program that is having trouble finding a secure booth in the free market from which it can sell its organizational and human resource competences, particularly to SMEs. It is instructive to note the findings of another federal study (Baldwin, 1997), which examined the use made of intellectual property (IP) by firms in Canada's manufacturing sector, and by a subset of firms that had just introduced major new products or processes. These forms of IP were surveyed: patents, copyrights, trademarks, industrial designs, and trade secrets. The study found that fewer that 25 per cent of all firms made use of at least one of these forms of IP, and that only 7 per cent used patents, but that these firms accounted for 50 per cent of employment (Baldwin, 1997: 9). When data from large and small firms were separated out, it was found that over 62 per cent of large firms (those with more than 500 employees) used IP, compared to less than 30 per cent of small firms (those with fewer than 100 employees). The Baldwin study also suggested how business viewed and approached innovation. Reinforcing various American studies, it concluded: 'Innate forms of protection, like being first in the market, or having complex product design, are seen by almost every subgroup large, foreign-owned, innovative firms - as being equally if not more effective in preventing an innovation from being copied' (1997: 10). Perhaps even more importantly, the study concluded that 'small firms do not feel that protection for intellectual assets that they might develop during innovation is lacking'; rather, they felt that 'innate strategies such as being first in the market, are effective while patents are not' (1997:10). The findings of the Baldwin study show that it is likely to be difficult to devise policies for innovation. This is because small business is not a homogenous category. Moreover, small firms as firms perceive themselves as having innovation needs that public policy or public information services may or may not fill. IRAP has always tried to stay closely in touch with the needs of SMEs, but knowing what they need isn't the same as being capable of

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providing all that they need. In this regard IRAP shares the same challenge - the same moving target - as the NRC as a whole, and Industry Canada in its search for an overall knowledge role, and ultimately the fast-forming knowledge, information, and consulting firms of the private sector. Last but not least in our discussion of holistic approaches and IRAP's changing culture is the related issue of changes in the nature of funding. 'Repayable contributions' have recently been introduced to IRAP's funding mix. The more that innovation support becomes holistic, the more that precommercialization assistance is needed. But the more the latter is needed, the greater is the likelihood that such assistance may run afoul of trade agreements if it is deemed to be a subsidy. Repayment assistance is one antidote to trade jitters, or it may be sought for simple fiscal reasons by treasuries that are hungry for user fees. However, if repayable contributions are extended, or if they become a dominant part of IRAP, they may profoundly change the culture and incentive structure of IRAP. This is because they create an incentive to simply 'recycle' more firms more quickly. One provides money to get money and to provide more again ... and again ... Linkages and Performance In the past decade IRAP has been trying to preserve its core values and culture while fully aware that the innovation age is bringing rapid change to it. In this final section we look more closely at IRAP's linkages and at how it reports and defends its performance. IRAP's linkages are basically five: with the NRC's policies and management; with CISTI; with the NRC's institutes; with government labs and various private-sector technology firms; and with the changing business/university nexus (i.e., its 'network of networks'). IRAP's links at the centre of the NRC are now quite deliberately and necessarily those of an organizational matrix. The familiar part of the matrix for IRAP is its now quite decentralized accountability link for information and funding, which is region and client-centred. But the matrix aspect, which is more unfamiliar and decidedly a work in progress, is the complex national and horizontal overlay of different program elements such as the CTN, various sectors and subnetworks, and emerging strategic alliances. In many respects this aspect of the matrix requires different competences than those typically possessed by the ITAs. Ultimately, some of the key policy and management aspects of

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the multiple matrix links must be developed and coordinated by the NRC's Vice-President of Technology and Industry Support, one of the NRC's two vice-presidents. Such matrix managing and functioning is not something that most public organizations do well, and the NRC and IRAP are certainly not alone in finding these tasks difficult. The above-mentioned VP's duties also encompass CISTI, so it is appropriate to discuss the relationship between CISTI and IRAP. CISTI does not receive chapter-length treatment in this book, but some mention of its links with IRAP is important. CISTI's clients include of NRC scientists, Canadian academics, large firms in Canada, other Canadian R&D performers, Canadian SMEs and IRAP, and (increasingly) international academics and industrial firms. CISTI serves IRAP's network members, who in turn provide information services to SMEs and ITAs. As we saw in Chapter 2, CISTI is similar to IRAP in that it has a mandate to transfer information and technology; in fact, the former TIS was part of the original national science library. But CISTI is also different in that it has no funding role. Also, within the NRC, CISTI has followed the same kind of institutional learning curve as IRAP. It shares a client focus and a sense of independence, but it is also becoming less bureaucratic; it has found itself having to become less and less a library and more and more an information network. This has been evident for some time within CISTI, and has meant that CISTI's internal staffing needs are different from IRAP's and from the NRC's as a whole. CISTI is important to IRAP because it provides services to ITAs and their clients, either directly, or indirectly through their host organizations. In recent years these basic links have been augmented by pilot projects in several provinces to develop information products for SMEs. The goal here is to introduce and expose SMEs to the wealth of technical information that is available electronically provided that a focused and coordinated approach is taken. IRAP is also working with CISTI on a Scientific Knowledge Network (SKN) (NRC, 1998b: 10). As we noted earlier, IRAP is attempting to strenghen its links with the NRC institutes. The institutes refer clients to IRAP, so there has always been at least some linkage. More recently, some institutes have involved IRAP in their internal planning processes (or invited its participation), in situations where IRAP staff may have particularly good regional perspectives and knowledge about firms and needs. IRAP is also networked to the NRC through the latter's technology group fora (TGFs), but apropos our discussion of matrix management, these links

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are more difficult to aggregate. ITAs have visited several NRC institutes, and this has increased their awareness of the capabilities of the NRC institutes; it has also helped the institutes become more aware of the needs of Canadian SMEs and of opportunities for NRC technologies to be either spun off or licensed. In 1997-8, exchange was further institutionalized through an internal assignment program that saw three ITAs assigned to institutes; the following year six ITAs were so assigned (NRC, 1998b: 9, 20). In considering IRAP's broader links to 'networks of networks/ one must take a dual view of change. These networks are undoubtedly expanding, and necessary. In the knowledge economy, unless the NRC and IRAP are plugged into such multiple networks, they will have no way of knowing what they don't know. At the same time, these networks can easily waste effort and resources (with resources including both money and human effort), and ultimately may be impossible to evaluate. The pros and cons of this networking by IRAP can be seen in its most recent performance report, in which two full pages (one of the longest sections of the report) were devoted to brief descriptions of its involvement in the NRC's community-based initiatives in all regions of Canada and in five provinces. Some of these initiatives, such as those in Alberta, have been described as 'virtual institutes/ and some are linked to funding with both the federal regional agencies such as ACOA and Western Economic Diversification. As we have seen, a good case can certainly be made for 'bottomup' innovation, and the Carty era at the NRC has encouraged it; but at the same time, the task of establishing at any given point in time whether the network is yielding benefits - let alone whether the NRC's role or IRAP's role in that network is yielding benefits - is difficult to say the least. The development and encouragement of these linkages and networks, and the cumulative pressures of the past decade, mean that IRAP has begun reporting its performance in ways it neither wanted to nor had to or want to, at the start of the 1990s. At one time IRAP reported systematically on linkages and networks, but in 1995 it dropped this approach in favour of reporting on impacts for sample cases (approx. 10 per cent of all cases). It now also reports on the following: jobs created or saved by IRAP's efforts; client feedback (which is basically positive), with selected testimonials; and of SME success stories (NRC, 1998b). Interestingly, one of the dilemmas of communicating success stories is that the industry minister and the NRC presi-

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dent may choose to disseminate them through the media, but client firms may prefer they did not. The latter may prefer not to have it known to the world that they have received government assistance, or they may prefer to keep some aspects of their competitive advantage out of the public eye. Conclusions This chapter has by no means done justice to all of IRAP's activities and linkages inside and outside the NRC, but it has described broadly what the program has been doing at the millenium. Compared to a decade ago, IRAP is more decentralized in its basic decision making, and more integrated with the NRC in a broader corporate sense, and it is networked in more complex ways. It is also better than it was at linking with the institutes. Because it has money to disburse, IRAP plays a somewhat ambiguous role within the NRC. First, its funds may be coveted by other parts of the NRC (as in the 1990s), but at the same time those funds are the key to IRAP's culture and central to its quite tenacious political support base and to its capacity for survival and for longer-term incremental growth. In the free trade era, IRAP has so far survived the argument that funding for industry should disappear. As we have seen, IRAP is more than a spending program, and its ITA capacities and networks are crucial to its successes and to its tenacity. But this always raises the issue of whether (and to what extent) SMEs would use IRAP services if there was no money or possibility of money to, lubricate the exchange. IRAP provides advice to three times the number of firms that it gives money to, but this still is in the context of a program that has money to possibly give. It is not clear whether firms would use the service if it was only an information service. This commentary is not intended as criticism of IRAP as such. Rather, our point is to highlight a question that any funding body must ask: Will clients pay attention if funding runs dry? It is unlikely that IRAP will suffer major budget cuts any time soon, but lapses in the funding of linked projects in 2000-1, and thus different conditions on funding, may have some adverse effects. IRAP funding has typically involved some investment by firms as well, but the recent introduction of repayment provisions may test the concerns raised earlier. Key changes to IRAP were made during the Perron era, and these

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changes were consolidated under Carty, but throughout their tenure, IRAP's culture has remained remarkably intact. It has strong ethos of client service to SMEs, local networking, and the provision of useful and practical advice. However, the conception of innovation has been a moveable feast. IRAP was always more plugged into some kind of innovation agenda than the rest of the NRC, in part because IRAP started with the wartime and postwar TIS. In short, it was an information entity before it was a money-providing program, so it was in the innovation business before either the government or the NRC began articulating an innovation policy paradigm. But IRAP's operational notion of innovation has changed in the past decade. Its 1996 strategic plan revealed a quite strict definition of 'real' innovation. This definition centred largely on the existence of uncertainty. By the end of the decade the notion of a holistic approach to innovation was more apparent; this concept is much looser and has the potential to pull IRAP and the NRC toward various advisory services of the kind that other fast-forming, information-centred private firms have already began to offer. Finally, IRAP has improved its performance reporting, albeit through a necessarily cautious sense of what success means. It stresses its widening set of networks and 'networks of networks/ but it knows that evaluations are more an art than a science. It uses surveys of client satisfaction and also key examples of successful firms. Both systematic analysis and anecdotal success stories are politically necessary within the NRC, outside it in the Industry Canada portfolio, and beyond Ottawa. In some quarters and some regions of Canada, IRAP is better known than the NRC.

8 National and Local Innovation Systems and the NRC's Competitor-Partner Institutions

By examining IRAP and our three institutes, we have been able to observe something of the NRC's institutional dynamics and of its diverse scientific and innovation realms. But our case studies only go so far; they have left out other aspects of the internal and external challenges that the NRC faces, represented by the work of other NRC institutes and by the institutional transformations and strategies of the NRC's competitor and partner institutions. In this chapter we add yet another level to our analysis of the national and regional/local innovation institutions functioning with, and partly competing with, the NRC in the very early twenty-first century. We begin by delving briefly into a further subset of the NRC institutes to draw out key aspects of such innovation systems. We then look at more recent models of science and innovation at the federal level for example, the Canadian Foundation for Innovation (CFI) and the Canadian Institutes of Health Research (CIHR). Those models have gained political and institutional favour, in part at the expense of the NRC, but their presence also creates opportunities for the NRC. After this we look at universities and at federal granting councils such as NSERC, again as both competitors of and collaborators with the NRC. We end the chapter by looking at business in Canada, in the context of the new economy and its institutional links to the NRC and its implicit and explicit thinking about innovating institutions. Conclusions follow. Other NRC Institutes and Local Innovation Systems The NRC's transformation and the challenges of producing local inno-

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vation clusters can be further seen by a brief reference to four other NRC institutes: Plant Biotechnology (Saskatoon); Biodiagnostics (Winnipeg); Biological Sciences (Ottawa) and Integrated Manufacturing Technologies (London). We highlight very selected aspects of each institute, with a focus on the reception each has enjoyed in its city or region; in each case the local-spatial setting is a 'triple helix' of links between business, universities, and government. Of course, we cannot separate these relationships and partnerships from the underlying nature of the S&T and innovation being done at each institute. The Institute of Plant Biotechnology (IPB) traces its roots back half a century, to the Prairie Regional Laboratory (NRC, 1999d). Its focus on plant biotech is a logical progression of this history, which led to the development of Canola, which is now a $3 billion business. The IPB also emerged out of the federal government's 1983 federal biotech strategy, and has entrenched itself in what the NRC management regards as a good local-national innovation cluster; it is closely involved with the University of Saskatchewan, the University of Regina, the Saskatchewan Department of Regional Economic Development, the Saskatchewan Wheat Pool, the federal agency Western Economic Development (WED), and Agriculture and Agri-Food Canada. Crucial to this web of agencies is the Innovation Place facility in Saskatoon, which has attracted 100 companies; between 30 and 40 of these are agricultural biotech firms that have been drawn to North America's largest centre of expertise for agricultural biotech. The IPB's budget of $9.5 million has been steady or slightly declining in the last decade, but it has secured $16 million in funding for collaborative research and innovation through partnerships with firms. Of the IPB's normal compliment of 110 researchers, only 22 are IPB scientists; the rest come from business or from non-NRC institutions (NRC, 1999d). The Institute for Biodiagnostics in Winnipeg is of more recent lineage and focuses on the health side of biotech research and innovation (NRC, 1999e). It was originally a section of the Institute of Biological Sciences in Ottawa; it was moved to Winnipeg in 1992, to solve an 'excess space' problem at an already existing federal building that was formerly a manufacturing research centre, and also to take advantage of an new opportunity to diversify the West's economy. The twenty staff who came to Winnipeg in 1992 have now grown to 180. The institute has forged, and has been strongly influenced by, the partnerships and links it has built locally with the University of Manitoba, research

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hospitals, the Government of Manitoba, WED, and numerous firms (including pharmacompanies such as Apotex and Novopharm and local venture capital firms). Because it started virtually from scratch, it has hired new scientists, who tend to be much younger than most employed by the NRC. These staff have no institutional memories of the NRC's former heyday as a university without students. The institute has generated six spin-off companies, and intellectual property rights have been central to its spin-off activity. It has an advisory board with all the appropriate cluster memberships, but the board rarely meets as a full board. This is because the institute seeks advice on both technological forecasting and competition intelligence, and prefers to meet with smaller subsets of board members (and others) whose expertise is more precise and targeted. The Institute of Biological Sciences (IBS) in Ottawa is another of the NRC's biotech institutes. Its roots go back to 1928, in one of the NRC's science discipline-based divisions. Some of the NRC's other biotech institutes were spun off from the same division (NRC, 1999f). Its core Immunochemistry Program presently consists of a multidisciplinary team of about 80 scientists and technicians. The institute's total staff is about 160 - an increase of around 30 since the mid-1990s - and its budget is about $13 million, up from about $10 million in the mid-1990s. The institute generates modest revenues and royalties of just under $2 million dollars a year. Its scientists tend to be older than at the NRC's Winnipeg institute. Because it is one of the NRC's Ottawa-based institutes, it has found it harder to forge a local cluster and to garner unambiguous support of the kind that has rallied around the Saskatoon and Winnipeg institutes. The IBS focuses on health science and is seeking to develop stronger life science links with Ottawa's two universities. Its scientists are well connected to national and international researchers at universities, but it has found a distinctly regional focus difficult to establish. Some progress will likely be made in this when funding for the Genome Canada project - another networked initiative - begins flowing. The NRC's Integrated Manufacturing Technologies Institute (IMTI; NRC, 1999g) dates back to the late 1980s, and was originally formed in Ottawa. Winnipeg wanted it, and lobbied for it, but London in southwestern Ontario was eventually chosen, partly because the NRC had a limited presence in the area, and partly because of pressure from the local business community and the enthusiasm of the University of Western Ontario, and partly because key manufacturing cities such as

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Windsor and Kitchener-Waterloo are all within a short drive of London. Indeed, London was chosen in 1996 after a competitive process during which several other cities in the region made bids. IMTI will function as a multicity institute in a way that the institutes in Winnipeg and Saskatoon do not. IMTI was established only in 1997 and is clearly a newcomer in the NRC stable of institutes. It hired fifteen new staff in 1999-2000 as part of an effort to build up its core competencies and critical mass in its main advanced manufacturing groups. While it is too early to talk of spin-off companies in this realm, the institute is being designed so that it will have long-term stable relationships with many companies, large and small. It will also be dealing with integrated technologies that are not available yet, and so will be more medium-term in its orientation. The above is not anything close to a full analysis of the four institutes (Smith, 1999; 1999a). However, it does suggest how NRC institutes vary in kind, origin, type, amount of local or regional involvement, degree of institutional clustering and networking with universities and business, strategies for growth, and capability to attract business involvement. The New Model of Federal Science Networks: The CFI and CIHR While the NRC and its institutes were variously repositioning themselves, another institutional and policy change was occurring at the federal level and generating for the NRC both competition and a new set of complex opportunities and challenges. In the past five years a new model of federal science networks and funding has been born in the form of the CFI and the CIHR. We look briefly at each of these, and then consider how they are changing the NRC's environment. The CFI was established by the federal government in 1997 to strengthen Canada's capability for research by investing in the development of research infrastructure at Canada's universities. It was the direct result of lobbying by a handful of university presidents - lobbying directed at the Prime Minister's Office with the support of Kevin Lynch, then the Deputy Minister of Industry Canada, who supported not only the innovation paradigm but also the notion that the CFI should be even more arm's-length from the government than the various bodies that were already a part of Industry Canada's stable of

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agencies, including the NRC, NSERC, and the CSA. The core of the universities' argument was that Ottawa's penchant for 'infrastructure' funds of the roads-and-bridges kind (a mid-1990s Liberal program) needed to be complemented by demonstrable support for the even more crucial 'infrastructure' of the innovation economy. This argument found favour in 1997, which was the first year that Ottawa mandarins could see budget surpluses on the horizon. The CFI was established as an independent corporation with an initial federal investment of $1 billion (since doubled to $2 billion); its stated mandate is 'to increase the capability of Canadian universities, colleges, hospitals and other not-for-profit institutions to carry out important world-class scientific research and technological development' (CFI, 2000). More specifically, the CFI exists to: • • • • • • •

support economic growth and job creation; lead to improvements in health, environment, and quality of life; build capacity for innovation; strengthen training for research careers for young Canadians; attract and retain capable researchers in Canada; promote networks and collaboration among researchers; and ensure optimal use of Canadian infrastructure by promoting sharing within and among institutions (CFI, 2000).

The CFI's independence from the government is secured initially through its board of directors, whose fifteen members are drawn from the research and business communities. Only six of them are appointed by the federal government; the other nine are elected by the CFI members. The Minister of Industry 'informs' Parliament annually of the CFI's activities. The CFI's initial endowment of $1 billion generates funds of about $180 million annually, but this is levered into much higher investments (an estimated at $2 billion in total), because the CFI operates on the principle that its investments are made in partnership with the private and voluntary sectors as well as with provincial governments. The CFI contributes only up to 40 per cent of total eligible project costs. The CFI is run also through a series of multidisciplinary assessment committees, which review applications. An initial report (Brochu, 1999) on the early impacts of CFI investments concluded on the highly positive note that the CFI had had four immediate impacts:

138 NRC Institutes and Programs • CFI had a major impact on institutional planning by virtue of the fact that it asked institutions to submit a summary of its research development plan, a request that institutions took very seriously indeed; • Institutions have been successful in building partnerships with other organizations, especially provincial governments, some of which increased their support for research in response to the opportunity offered by CFI; • The morale of the research community has improved dramatically. The New Opportunities Fund is contributing significantly to this; • CFI is having an impact in transforming the way research is being done by fostering collaboration and interdisciplinary research and partnerships. (CFI, 2000: 2) This assessment did not try to measure the actual outcomes of the research enabled by CFI funding, since it was simply too early to do so (Brochu, 1999). In the wake of the CFI came the announcement in 1999 that the federal government would establish the CIHR. Its formation was influenced by the CFI model, and also by the model of the long-established National Institutes of Health in the United States. The driving force behind the CIHR was a group of prominent Canadian health researchers, who met as a task force in 1998 with the goal of finding ways to link researchers from all disciplines and to focus resources on Canada's major health challenges (Canada, 1999b). The CIHR is still being established, but its key features and principles are important in the context of the themes of this chapter. The CIHR's guiding principles are as follows: • Adopt research priorities that are linked with Canadian health priorities and complement the provincial investment in research, education, and health; • Encompass and support the full spectrum of health research - from basic science to clinical research to population health - recognizing the important role of investigator-initiated research; • Ensure Canadian researchers succeed in the worldwide research community through the application of peer review as fundamental to the evaluation of research excellence and internationally competitive levels of funding; • Encourage individual Institutes within the network to conduct

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unique programs - from capacity-building to third party partnerships - in pursuit of the improved health and well-being of Canadians; • Collaborate with all organizations that have demonstrated a capacity to support or conduct health research. CIHR supports and recognizes the major contributions to health research by voluntary health organizations, universities, provincial granting bodies and individual research centres; • Recognize and support the central role that universities and associated health science centres play in education, in training and in creating interdisciplinary research opportunities (Canada, 1999b: 9). In structural terms, the CIHR is to be - like the existing Medical Research Council (MRC) - an agency of the federal government. It will report to Parliament through the Minister of Health. The CIHR will incorporate the current operations of the MRC itself, but its core structural feature will be its series of institutes. Its initial thirteen institutes emerged in 2000 through further consultation, and include institutes for traditional or familiar areas of research, such as one on cancer research, but also several that are much more interdisciplinary, such as the Institute of Healthy Ageing and the Institute of Aboriginal People's Health. Federal policy stresses that 'the Institutes [will] not be centralized "bricks and mortar" facilities. Instead these virtual organizations [will] support and link researchers who may be located in universities, hospitals and other research centres across Canada.' Another key feature of the institutes is that they will 'support researchers who approach health challenges from different disciplinary perspectives' (Canada, 1999b: 4). The vision of transformation that the CIHR is to bring sees the old existing system and model as having 'dispersed research efforts, disciplinary separation, separate from delivery, and multiple agendas'; in contrast, the new model anchored in the CIHR will be 'integrated: across geography/institutions; across scientific disciplines; into the health system; and with the national health agenda' (1999b: 6). With respect to funding, the CIHR received an initial $65 million in 2000; it is expected to receive another $175 million in 2001-2. Together, the MRC and CIHR will receive an estimated $506 million in 2001-2. The federal government is now applying the CFI/CIHR funding model to other research realms. The Sustainable Development Technology Fund (SDTF) was modelled on the CFI precedent and given an initial $100 million endowment. It too functions under a competitive

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funding application process. Similarly, the federal 2000 budget established the Canadian Foundation for Climate and Atmospheric Sciences. It has funding of $60 million and will be administered by the Canadian Meteorological and Oceanographic Society. The Granting Councils and Universities as the NRC Competitors and Collaborators Our discussion of the CFI and CIHR pointed to developments that are intricately linked to the federal granting councils and to Canada's universities. The CIHR is to absorb the MRC; this is implicitly a criticism of some of the ways the MRC has functioned. The MRC has itself recognized the new influences on medical and health research. But the MRC is only one of the three main granting bodies, the other two being NSERC and the SSHRCC. We refer to changes mainly to NSERC, but the SSHRCC is also a factor in the innovation models. As we noted in Chapter 2, the NRC was the granting body for engineering and the natural sciences until 1978, when this task was shifted to the newly established NSERC. As a result, the NRC lost some of its day-to-day contact with researchers in universities because it was no longer handing out grants or anchoring the peer review process that determined which researchers received them. Since then, NSERC has evolved into quite a different entity. NSERC's core task is still funding research, but there is little doubt that it also has become a much more innovation-oriented body with an interest in the commercial potential of university research. Space allows only a brief account of NSERC's transformation, but we do have room to say that NSERC not only has been influenced by the innovation paradigm but also has advanced it. In terms of the direct and indirect impacts that NSERC has had on the NRC, three developments deserve emphasis: its role in the founding of the federal Networks of Centres of Excellence Program; its efforts to extend direct industryuniversity links; and its role as a co-founder of some programs with the NRC. The Networks of Centres of Excellence Program was made permanent in the 1997 federal budget, but it had been evolving before then, and in many ways was the trial run for networked research and funding reforms, on which both the CFI and CIHR have been built (Auditor General of Canada, 1999). NSERC was a strong advocate for this program, but it also found support within Industry Canada, the

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SSHRCC, and the MRC, as well as in universities. In essence the program is driven by 'centres' that compete with one another and combine researchers from many different locales in Canada. These centres are peer reviewed and given five years of funding. A new round of competition then follows, based on the assumption that centres funded in the previous rounds will have found other permanent funding. The 1997 round included networks on bacterial diseases, protein engineering, and telecommunications, to name only three (NSERC, 1998). An even more direct NSERC-centred change is that it has begun itself to encourage spin-off companies built on NSERC-supported university research (NSERC, 1999). A 1999 report profiled 111 startup companies whose origins could be traced to NSERC-supported research. These companies are located in nine provinces, employ more than 7,500 Canadians, and generate about $1.3 billion in annual sales and revenues (1999: xi). They employ anywhere between three and several hundred workers each, and they are in industries ranging from aerospace to pharmaceuticals to information technology to agriculture. NSERC further notes that around 1,000 companies (including twothirds of Canada's top fifty R&D companies) are involved in its separate Research Partnerships program. With respect to NSERC's joint funding role with the NRC, we have noted some aspects of this in previous chapters. The two have funded TRIUMF together and are both backing the Canadian Neutron Facility. In addition to these are a host of other the NRC-NSERC partnerships. Also, NSERC directly or indirectly funds many of the NRC's younger researchers. The different (though interacting) strategies of NSERC and the NRC have produced different perceptions in the past decade. For example, it can be argued that politicians still perceive the NRC as an Ottawa institution, and NSERC as more outreach oriented, largely because it sends funds out across the country. Also, NSERC has articulated more clearly its spin-off company theme. Thus different perceptions of the two have emerged within Industry Canada and among the central agencies of the federal government, even though the NRC has also changed key aspects of its institute role and has extensive networks of activity throughout the country - networks that generate their own stories of spin-off companies to tell. This difference in perceptions, coupled with the distributive nature of NSERC's funding, may partly explain why NSERC has been more successful in the past few years at garnering new funds from the federal treasury.

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Meanwhile, there are interacting effects from all of the recent changes and institutional experimentation. For example, the CFI and CIHR have garnered, even more than NSERC, the lion's share of new money. The CFI does not itself do any direct innovation, but the infrastructure it is funding and co-funding is having knock-on effects on NSERC. This is because the new facilities being built will create a stream of demands for NSERC to fund new research and researchers. This could amount to a necessary doubling of NSERC's budget in the next five years. Meanwhile, as we have seen earlier, the CIHR is scheduled to receive extensive new funding as well. Thus, S&T and innovation confront a kind of pecking order in the politics of federal funding. Research and S&T is still a relatively hard sell to the federal Cabinet, compared to other social priorities. Research and S&T is easiest to justify in areas such as health care; Canadians find it easier to see the link between research and health, and ministers help them see it. The next-strongest link in the pecking order is being developed under the innovation paradigm (as is borne out by NSERC's new resources). The NRC has not been as successful at making this case for itself, because it is still seen as Ottawa based and as too close to government. So it finds itself working harder to sell itself as a key national innovator. A glimmer of optimism that the climate may be changing for the NRC came just before the 2000 federal election, when it garnered $110 million in new funding over the next five years to expand and strengthen its presence in Atlantic Canada. This funding is part of a $700 million Atlantic Investment Partnership initiative, and is to be used to promote technology development across the region. Besides expanding existing NRC facilities in Halifax and St John's, this program will establish a new NRC institute in New Brunswick. The story by no means ends here, and requires some further observations about federal funding and about the nature of changes within universities themselves, in Canada and around the world. The federal government has also announced programs such as the Millennium Scholarships program and the Canada Research Chairs Program; the latter will create 2,000 research chairs at Canadian universities at a cost of $300 million over three years. These initiatives, which resulted from some direct university lobbying on the federal government, have been welcomed in many quarters but have also been criticized. Again, they produce related demands. For example, one estimate suggests that the research chairs program will require fifty new buildings for labs and offices (CAUT Bulletin, 2000: 1). Another criticism is that the criteria

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for choosing chairs are such that they will go mainly to about ten universities, and will be skewed heavily toward the natural and health sciences at the expense of the social sciences and humanities. Universities in Canada have changed quite markedly in the past decade, and the NRC and other federal science-based agencies have been greatly affected by these changes. Their main thrust has been to enhance the commercial potential of university research. A 1999 expert panel report for the federal Advisory Council on Science and Technology made recommendations the overriding objective of which was to 'increase the return to Canada on the investment in university research made by Canadian taxpayers' (Canada 1999a: 1). Its conclusions were 'premised on a belief that research-based innovation originating in universities has the potential to contribute much more than it does now in a form that is very important to all Canadians, namely well-paying jobs' (1999a: 1). The report addressed itself to what it saw as the two types of university faculty: the majority who 'are not entrepreneurs ... and who do not want to learn how to become entrepreneurs in order to make a promising invention or discovery to market/ and a minority who 'have the aptitude and taste for entrepreneurship, and who might be the best people to commercialize their own inventions' (1999a: 1). This report devoted itself mainly to the entrepreneurial element, in that it went on to discuss the nature of the innovation process, Canadian universities' innovation performance (which it judges to be weak), barriers to university innovation potential, intellectual property issues and frameworks, and Canada's performance relative to the United States. Since universities are largely in provincial jurisdiction for many aspects of their funding and governance, the activities of provincial governments on the commercialization front are also crucial. Ontario is launching a program to help bridge the gap between university-based discoveries and the marketplace. This program is based on data which show that less than 3 per cent of the discoveries generated by Ontario universities find their way into actual products or services (Research Money, 2000: 4). Not surprisingly, some commentators have criticized what they regard as a campaign of commercialization led by business interests. They believe it is eroding the traditions of scholarly independence in Canada's universities (Tudiver, 1999). An autumn 1999 Conference of the Canadian Association of University Teachers (CAUT) focused on the theme of Canada's 'Universities and Colleges in the Public Inter-

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est/ and was strongly critical of the commercialism trend (CAUT Bulletin, 1999). However, the issues confronting the university sector regarding innovation are quite multifaceted, and this makes it difficult for universities to devise their own policies about innovation and issues central to it such as intellectual property (IP). Universities have made strong commitments to support basic, noncommercial research and to exchange it freely through national and international journals by the processes of peer review. In this sense, the very idea of innovation as intellectual property and ownership is almost the opposite of the university ideal (Etzkowitz and Leydesdorff, 1998). Obviously, however, universities support intellectual property rights in other ways. The books and articles published by their faculty are protected by copyright. There are provisions regarding graduate student research, to ensure that the students' own work receives proper attribution and recognition by supervising faculty members, and also to ensure that students properly attribute the work of others (including professors as authors) in their essays and research. But at the same time, universities, their libraries, and their faculty extensively photocopy many journal and book articles for use in courses without paying the authors and so have come to see such copying as a free user's right. By the late 1990s these freedoms were being challenged by copyright laws, which imposed quite stringent penalties on universities for violating copyright. Thus, already in this brief summary, three interests are present in even a simple universityinnovation equation: the university as a corporate (usually statefinanced) entity; the universities' faculty and other employee interests (some researchers and some with entrepreneurial ability); and the universities' students. In recent years, universities have faced many external and internal demands and pressures that have strongly affected their innovation and commercialization choices. University finances increasingly revolve around the need to obtain partnership funding, especially with business, with the latter insisting on some reasonable commercial relevance. In 1980 Canadian universities obtained about 18 per cent of their basic research funding from private sources; by the early 1990s they had become 30 per cent dependent on such funding. Also, universities are being perceived more and more in microeconomic policy thinking as central to how nations, regions, and cities can be made more competitive and innovative. They may be cast in terms such as 'Silicon Valley/ or they may be perceived as part of clusters of institu-

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tions promoting bottom-up, network-centred industrial policy; whichever the case, they are seen as multipurpose sources of linkage to local firms and communities (Etzkowitz and Leydesdorff, 1998; Roy, 1999). All of this has generated many different pressures on university research - on its purposes and funding. For example, does a university have a policy about patenting products and processes? And how does it manage and share the profits that accrue? In Canada's early years there were intricate links between scientists and engineers, their inventions, and universities. These often related to natural resource development and agriculture (Langford, Langford, and Burch, 1997). A 1995 Industry Canada study by Doutriaux and Barker surveyed a quite eclectic set of sources and information and reached several overall conclusions (Industry Canada, 1995): • University R&D and U-I linkages generate a high social rate of return; • Basic research should continue to be adequately supported at universities ... (because research excellence is central to technology transfer); • Because Canadian universities perform a high share of domestic R&D, and Canadian firms are not, on the whole, highly innovative, the efficient transfer of technology to the domestic market is important; • University and College Industry Liaison Offices (ILOs), when professionally staffed and allocated sufficient resources, are an important asset for U-I links and technology transfer. A well-run office appears to have a significant impact on the commercial activity generated by a given university; • Other intermediary organizations, such as networks, consortia and regional economic development organizations also have critical roles to play in local U-I linkages and technology transfer or diffusion, and they tend to be more approachable to small and mediumsized enterprises (SMEs); • Industrial sponsorship of university-based R&D is on the rise in Canada (1995:107-8). Another study that explored university-industry collaboration in R&D offered alternative insights and solutions (Conference Board of Canada and NSERC, 1995). These included the view that university technology transfer offices (ILOs in the terminology above) 'should be

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abolished since they tend to bureaucratize the partnership process and inhibit creative solutions/ as well as the view that 'universities should not own patents ... rather they should focus on their traditional role of creating knowledge, leaving the role of wealth creation to industry' (1995: 6-7). The quid pro quo, of course, is that business should generously support university-based research. Thus within Canadian universities there seem to be two stylized models of innovation and IP-related institutional policy or strategy. One, which we could call the Stanford model, is exemplified in Canada by universities such as Waterloo. Though models are rarely this pure, the Stanford model leans toward encouraging faculty and students to invent and commercialize, with little or no IP ownership by the university itself. The payoff to the university is that it becomes known as a dynamic place where researchers, students, and innovators want to come. The polar opposite model, which some see in policies such as those of the University of Toronto, is that all inventions are the IP of the university, which on that basis has a right to negotiate a share of the returns. In 1998 a further review paper was published as a joint endeavour by Industry Canada and the Association of Universities and Colleges of Canada (ARA Consulting Group and Brochu, 1998). This paper, which was part of a symposium 'Capturing the Benefits' and clearly an effort to encourage IP in Canadian universities, focused on important issues surrounding IP management in Canadian universities: paying for IP management; dealing with conflicts of interest; disclosure practices; spin-off companies versus licensing; and human resource challenges. Also in 1998, Statistics Canada released its data on IP commercialization in higher education, a report that, among other things, showed that universities in the mid-1990s had established 312 spin-off entities (Statistics Canada, 1998). These various mid to late 1990s studies and reviews indicate an ever growing interest in universities and their innovation and commercialization potential; but they are still quite limited studies that only begin to deal with the issues surrounding innovation, its impacts on the national economy, and its effects on local and regional economies, which universities might serve and draw on. Business and the Innovation Imperatives of the New Economy We have already noted many aspects of the business sector's role in

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S&T policy, in the innovation debate, and in relations between firms and the NRC institutes and IRAP. And of course the previous sections of this chapter have been about new institutional models, which function as co-funded partnerships and the core purpose of which is to get closer to markets. But there are still other aspects of business in the innovation policy era that we need to consider if we are to understand the contending and supportive forces that the NRC is having to strategize about, and find its niche within, in the early twenty-first century. We highlight two of these: the general pressures to benchmark innovation performance with competitor countries, especially the United States; and the tax policy issues related to claims and counterclaims about the 'brain drain.' Efforts to benchmark Canada's efforts in technological innovation are exemplified by some of the overall findings of the Conference Board of Canada's 1999 innovation report, the first of what is intended to be a series of annual reports (Conference Board of Canada, 1999). It compared Canada with the other G7 countries and with three smaller innovation economies (Australia, Sweden, and Finland) whose industrial structures are similar to Canada's. The study's key findings: • Overall, we are close to the bottom of our comparison group in terms of our efforts in technological innovation. On six of the seven indicators we have used for this benchmarking exercise, Canada ranked no better than eighth out of ten countries. Our best performing area - technology balance of payments (total transactions) places us only fourth. In addition, compared to 1981, we have lost rank in four areas, maintained rank in two, and improved in only one. • Canada is narrowing the gap that separated us from the G7 economies: however, it is important to note that the gap between Canada and those major economies is still large. • We have not been able to catch up to Sweden. In addition, Finland and, most recently, Australia have pulled ahead of us (1999: 3). The indicators of innovation effort considered in the study included R&D intensity (ratio of R&D expenditure to the country's GDP); industry-funded business expenditure on R&D; government expenditure on R&D; human capital devoted to R&D; national patent applications; external patent applications; and technology balance of payments (total transactions).

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With respect to the performance of firms, the report concluded that most large firms innovate in one way or another. More particularly, 'almost all of them have introduced at least one type of innovation products, processes, organizational change - over the last three years; however, only two-thirds have innovated in all three areas. There is significant room for improvement.' More tellingly, the study concluded that 'on average only 10 to 12 percent of the corporate revenue of large firms in Canada is generated from sales of new products. In a world where product life cycles are shortening and new products are introduced into the marketplace every day, this result is not good enough' (1999: iii). Other recent studies have also criticized the performance of Canada's business sector and have focused even more on the core sectors of the new economy: biotech, information and communications technology, envirotech, and so on. For example, an Industry Canada study compared Canada's performance in the Internet economy with that of the United States and concluded that the gap between the two countries is growing. For example, Canadian e-commerce business revenues were $5.5 billion in 2000; American revenues were thirty-eight times larger. Furthermore, the Internet economy employed 1.5 million Americans that year but only 95,000 Canadians (Industry Canada, 2000). One of the policy debates growing out of the new economy and Canada's presence as an open-border neighbour of the dynamic U.S. economy has centred on the 'brain drain' and tax policy. This debate is highly complex, but in terms of new economy high-tech workers, the central question has been whether Canadians are being driven south by the higher tax rates on individuals and firms in this country. Also, whether some of this country's economic policies act as disincentives to invest in Canada, especially in new and innovative start-up firms. The CEO of Nortel strongly contends that these disincentives exist; they have also been debated in several reports and studies (Statistics Canada, 1998; Helliwell, 1999; Devoretz and Laryea, 1999), and have been the focus of several broader debates about taxation in Canada (Mintz, 1999; Business Council on National Issues, 1999; Brown, 2000). The linked issue of free markets and institutional change extends well beyond the two themes examined here. Related themes include the innovation roles of small versus large firms, and foreign-owned firms versus Canadian firms; and the future of the traditional resource sectors, which are often seen as 'old' economy but which see them-

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selves as highly innovative and historically global and international. The NRC is part of all of these debates in any number of ways, not only at the institute level but also regarding whether it will receive new public resources. For example, tax cuts are yet another way of 'spending' the fiscal surplus, but they would reduce the federal government's resources, some of which would otherwise have gone the NRC's way (or the CFI's, or the CIHR's). Conclusions In this chapter we looked at Canada's various other national and regional/local innovation institutions, which function in tandem with and sometimes compete with the NRC. Our brief look at four other NRC institutes showed how strongly they differ in terms of origin, type, size, degree of clustering and networking, strategies for growth, and capacity to attract business involvement. The CFI and CIHR have gained political and institutional favour, partly at the expense of the NRC; yet their presence also creates opportunities and resources for the NRC. But the resource opportunities are still significantly constrained by the fact that the NRC is not eligible for CFI funding. Universities and federal granting councils such as NSERC are shifting gradually toward the commercialization model, and this makes them both competitors of and collaborators with the NRC. The NRC has had to function in the midst of other institutional experimentation, such as the Centres of Excellence model, which has been quite successful in its decade of existence. The NRC is now openly promoting itself as an incubator for spin-off companies, with the goal of garnering support from politicians for increased federal funding. The innovation policy era has forced Canada to measure its innovation performance and capacities more accurately, in particular to compare itself to other countries, especially the United States, with whose economy Canada is ever more closely integrated. The brain drain issue, and especially the tax policy element of that issue, may seem several steps removed from the NRC's immediate concerns, except that even here there are direct consequences when it comes to who gets how much of the (expanding) innovation part of the federal budget, and whether high-tech workers are leaving Canada for countries with a lighter tax burden.

Conclusions

In this book we have examined the NRC's difficult transformation in the past decade. Essentially we followed two stages. First we took a broader macro look at the NRC as a corporate entity, from its origins in 1916 to the Mulroney and Chretien eras. The leadership of Perron and Carty has been central to our story. Then we analysed the NRC by looking closely at three of its institutes, and at IRAP, and also by examining the NRC's competitor and partner institutions and how they are gearing up for the imperatives of the knowledge economy. The innovation paradigm in all its facets has been central to our analysis. Schumpeter's notions of radical innovation and destructive competition show up in this book in two ways. First, the NRC's federal paymasters, Industry Canada and the Department of Finance, are well aware of the driving importance of new technologies such as the Internet, e-commerce, and biotech. Industry Canada's impact on the NRC has been indirect, in that for most of the past decade it has given the Internet and related realms a higher priority in funding than it has given the NRC specifically. But the NRC's five biotech institutes have also been nourished, albeit with modest levels of funding in the budgetary context of largely steady-state or declining NRC budgets for the past decade as a whole. The concept of innovation as continuous incremental product and process adaptation has been reflected most directly in the evolution of IRAP within the NRC's larger culture. The notion of an innovation paradigm that embraces partly complementary and partly conflicting relations between national systems of innovation and local-regional systems of innovation has also been key to understanding the NRC's

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transformation. We consider this further later in our conclusions, in part because it is central to how the NRC may evolve or position itself in the future. Innovation as a layperson's or voter's concept has seeped into the veins of the NRC, and of Industry Canada and the federal government as a whole. Innovation in this context is a broad synonym for gradual improvement and acceptable change in areas such as job growth and the maintenance of a human face in public and private organizations. This view of innovation is not given much emphasis in the specialized literature on innovation, but the NRC's political parent institutions have often expressed it and acted on it. In the decade covered in this book, deficit reduction was the paramount federal policy, and in macroeconomic policy was linked to job creation. Thus funds that in theory might have gone to the NRC went to other areas of job creation and job saving, including several industrial sectors supported directly or indirectly by Industry Canada and other federal economic departments. This accounts for why Industry Canada's minister far more often than not linked innovation to populist notions: the Information Highway, connectness, e-commerce, and so on. Complementing all this, the NRC must be analysed in terms of hierarchies, networks, and markets. Table C.I summarizes some of these elements of change. Conclusions about them emerge here and in the remaining sections of this chapter. The NRC is a hierarchy in itself, but it is also very much lodged within an even more complex 'hierarchy of hierarchies' in the Industry Canada portfolio and in the larger Government of Canada. A focus on hierarchy forces us to appreciate how the NRC has changed as a corporate entity, as a budgetary system, as a system of personnel management, and as a set of procedural rules and policies relating to the integrity and performance of research and innovation. The extent to which the NRC has been transformed from an Ottawa-centred institution (its wartime roots), into a more regionally dispersed entity also affects the hierarchy question, as well as how politicians perceive it as a national institution. In one sense the NRC is less hierarchical than it was a decade ago, in part because it has eliminated several vice-presidents; but it has also rebureaucratized itself as have most reinvented federal agencies in response to the new demands for performance accountability being placed on it. The NRC also has created more rules and processes for establishing a proper merit-based career system. The NRC was an organization of networks long before it was fash-

TABLE C.1 Aspects of hierarchy, networks, and markets in the NRC's institutional transformation Hierarchy Levels of reporting and superiorsubordinate relations in NRC as a bureaucracy Procedural bureaucracy to ensure accountability on inputs, outputs, and performance to multiple players Leadership strategies and styles Nature and time frame of macro planning As system of budgetary and allocative control Formal career system and meritbased performance Support for core values and traditions of agency but also conducive to inertia (the opposite of innovation) NRC as a departmental corporation lodged within a larger hierarchy of many government departments and agencies (a hierarchy within other hierarchies such as the Industry Canada portfolio and the rest of the federal government) Elimination of several NRC vicepresidents in 1990 Effort to establish in 1990s first real personnel and performance system for NRC scientists Need for more hierarchical policies on ethics and integrity of research (both NRC and granting bodies) Extent to which NRC changed from an Ottawa-centred entity to a more regionally dispersed set of institutes

Networks Systems of trust and exchange of information, knowledge, and support NRC's earlier, discipline-based divisions functioning as networks, sheltered within the NRC hierarchy Science peer review system as network in granting function and in performance evaluation Associate committees as sources of networked advice CISTI as national library and now Internet-driven service network for S&T information IRAP advisers as part of university and business network and, increasingly, 'networks or networks' Institutes functioning as parts of local/ regional innovation networks Other institutes geared more to national systems of innovation Greater experimentation, with newer cross-boundary organizations and virtual networks such as through Centres of Excellence, CFI, and CIHR, which are both competitors of the NRC and collaborators and sources of funding Exponential growth in global networks of science and innovation

Markets Extent of links with and encouragement of markets (including quasi-markets and business-like methods) Early historic view that the NRC was needed because industrial research was weak or non-existent 1960s view that the NRC had become a 'university without students' and had moved away from market mandate IRAP as market-oriented program of advice, especially to small business Importance of some institutes as public goods investment geared to key industrial sectors (e.g., aeronautics, construction) Shift from divisions to institutes with business-oriented advisory boards Use of revenue-generation performance targets as a surrogate for market relevance NRC's embrace of the local innovation systems model of innovation Greater use of partnered funding with business firms Increased encouragement of 'spin-off1 companies Greater attention to intellectual property rights and strategies Greater presence of guest personnel from companies in NRC labs and institutes Greater university-based 'commercialization' effort with effects on the NRC

Conclusions 153

ionable to advocate networks. We pointed out what the NRC's original networks were in our discussion of its earlier, discipline-based divisions, its peer review processes, and its associate committee system. These networks were long central to the NRC's social system of exchange, just as similar ones have always been to scientific exchange generally. But they have changed and been greatly augmented to the point where we really must speak of complex 'networks of networks.' Our analyses of IRAP and the three institutes brought out these network changes. We discuss network change in more detail later on. The influence of markets - including, for our purposes, quasi-markets and businesslike methods of managing - has also been an important part of our analysis. The NRC is of course not a market institution per se. It is still fundamentally a government agency; indeed, early in the century and into the Second World War, it was seen as a virtual substitute for markets in matters of R&D. The rising influence of markets has manifested itself in a series of changes in the past decade. These changes involve spin-off companies, regional innovation systems and local business-university clusters, and the presence in far greater numbers of guest business personnel in the NRC labs and institutes. Also, far greater importance is being attached to partnerships with business and to intellectual property rights and strategies. We now made some concluding observations on the five main arguments and themes we advanced earlier regarding the NRC's policy and institutional transformation. We set these out in our introduction and have discussed them throughout our analysis. Each of the five reflects different manifestations of both the innovation policy paradigm and its contending elements, and the evolving mix of hierarchy, networks, and markets. The NRC as a Changed Institution Our first argument is that the NRC has undoubtedly changed a great deal in the past decade, but in ways that reflect the diverse and contested meanings of the innovation policy paradigm that emerged under the Mulroney and Chretien governments. For the NRC, the innovation policy mantra emerged somewhat in the form of an interpretative journey. At first, under Mulroney, the emphasis was on liberalized trade and hard competitiveness (combined with managerial change); later, under Chretien, the focus shifted to national and localregional innovation systems.

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Both the macro corporate history of the NRC in Part One and the middle-level perspective provided by the case studies in Part Two offer us vantage points that are essential if we are to understand how and why the NRC has changed. As one would expect with any complex organization, the nature and causes of change are neither uniform nor simple. First, the innovation paradigm has evolved gradually in the context of the decline of traditional industrial policy and criticisms of the traditional 'spectrum of R&D' model in S&T policy. Also, the political imperatives of the Mulroney and Chretien etas have affected the NRC in concrete ways. Factors in this regard have included free-trade policies, deficit reduction strategies, and growing criticisms of federal laboratories and Ottawa-based national institutions. Our longer view of the NRC in Chapter 2 did not explain recent changes as such, but it did place the past decade in a necessary context regarding the agency's past capacity to change. Since 1916 the NRC's mix of functions has changed; it has variously acquired, shed, and reconfigured its programs, or had them taken away. It is no longer the government's chief science policy advisor, but it is still very much a de facto science policy maker through its decisions as to how its laboratories will be used. The NRC's granting function was taken from it in 1978 (and acquired by NSERC), but the NRC still funds some key 'big science' projects. Since it lost its granting function, the NRC's links with universities have been partly reduced and partly changed. At the same time, its spending and advisory role regarding industry has been greatly enhanced, partly through IRAP but also through the transformation of the labs from divisions into institutes. The expenditure and resource allocation politics of the NRC reflect an internal struggle among the institutes, and between the institutes and IRAP over which is best at reaching and serving industrial and innovation firms in the private sector. With respect to the NRC as a research performer, the budget cuts since the mid-1980s have certainly been traumatic, but arguably the more significant change has been cultural. The shift from discipline-, based divisions to institutes organized as S&T clusters has been important. So has been the formation of business-dominated advisory boards to govern many of the institutes. Again, the NRC's networks are taking a more commercial direction. The NRC has always been an agency of technology transfer and

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information provision. It still is, through CISTI and present-day links to the Internet and the information and knowledge economy. This function is both an opportunity for the NRC and a threat to it. It is an opportunity because the overall economy has a clear need for technical and scientific information that can only grow. It is a threat because many new firms are entering the information business and will be preempting many governmental knowledge providers unless the latter are especially authoritative, nimble, and - in a word - innovative. Finally, the NRC is strengthening its role as an intellectual property and research ethics manager. It has long served this purpose, and more so now than ever in the knowledge economy. Innovation Policy as a Contested Concept The notion of innovation policy is crucial to any understanding of the NRC's transformation. At the same time, innovation is still very much a contested policy rubric in political and institutional terms. The tensions inherent in the NRC as a national and local-regional innovation system were revealed in our case studies, which took us closer to the nature of actual scientific and technological work. S&T research often seeks and finds its own modus operandi, whatever is going on at the macro level of policy and institutional change. Each of the three institutes we examined exhibited different innovation and network characteristics as it dealt with institutional change imposed from the centre and with its own stakeholders. And each had to interpret the concept of innovation in its own way. In the past decade the NRC's corporate centre has placed various demands on the institutes: requirements for budget and personnel cuts; requirements to earn more contract and fee income; requirements to establish more business-centred advisory mechanisms; requirements for better performance evaluation; and so on. It has also encouraged institutes to create spin-off companies and to establish more progressive human resource policies, and provided incentives for them to do so. The corporate vision of the NRC regarding innovation required the institutes to assess carefully the actual value of their S&T activity, and the utility of their networks. Montreal's BRI has quite clearly grasped the local-regional innovation model and has developed in the past decade in quite dynamic ways, with strong support from its local pharmaceutical and biotech community. (The same can be said of the

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NRC's other biotech institutes; see Chapter 8.) But a secondary aspect of the BRI's role is more national; its environmental remediation work and networks are more pan-Canadian. On the other hand, in the past decade the IRC has had to search for a continuing role and relevance in the context of a quite different set of innovation and network dynamics in the construction industry. It is tied to its historic postwar mandate - to research and develop building codes - and has a strong sense of its 'continuing innovation' role, which is tied to a national construction industry that is literally pan-Canadian and in which innovation is bound up in highly complex regulatory systems. The IRC has grappled with the new, knowledge-based economy by considering exactly what model of innovation it is functioning under. The studies it commissioned in the late 1990s showed how different that model was for construction compared to sectors such as biotech and telecommunications. This work also brought out more clearly the stark differences between 'product' innovation versus 'process' innovation in the construction industry, and revealed the extent to which the construction industry is still very much a national industry in all countries. The NRC's role here is unambiguous: to offer vital support for a national innovation system. Different yet again is the HIA's evolution in the past decade. This institute is rooted more in an academic or scientific 'discipline-based' tradition, and it has a direct statutory mandate to support research in astronomy. Its strongest links are necessarily with university astronomers, both faculty and graduate students, who must be provided with access to the best international facilities and observatories. The HIA is a more traditional institute as well in that it is unambiguously a national institute. It does not actively aim to develop local systems of innovation. The HIA has local effects where its main facilities are located, but by nature of its mandate, it is the prime example of a national institute. The HIA has been transformed by developments in the past decade relating to changes in the NRC and to the new realities of big science astronomy investments. It has faced significant budget and personnel cuts and is trying to enhance its technology transfer activity. It has also undoubtedly worked harder to develop a more performance-oriented approach to managing science; however, the internal culture of the HIA has resisted some of the excessive managerialism that has accompanied centrally driven initiatives in the past decade. Like every entity that is part of a larger institution, the HIA has

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defended its core research concerns and culture and at the same time has tried to adapt to the larger forces converging on it from both inside and outside NRC. IRAP is a different institutional animal, largely because it is not a laboratory and is linked across the country with a very large number of SMEs and universities. It is more decentralized in its basic decisionmaking than it was in 1990, and more integrated with the NRC in a corporate sense, and is networked in more complex ways. It is also better than it once was at linking with the institutes. Because it has money to disburse, IRAP has a somewhat ambiguous existence within the NRC. Its funds are coveted (in zero-sum budgetary politics) by other parts of the agency, but at the same time those funds - along with networked advice and information - are the key to IRAP's culture as well as vital to its quite tenacious political support base and capacity for survival and longer-term incremental growth. IRAP's operational notion of innovation has changed in the past decade. Its 1996 strategic plan revealed a quite tough set of tests for what real innovation was. These tests centred largely on the existence of uncertainty. By the end of the decade it had embraced a more holistic approach to innovation - one that is much looser and that has the potential to draw IRAP and the NRC toward many kinds of advisory roles that other, fast-forming information-centred private firms are now beginning to play. Change and Inertia at the NRC The third theme advanced is that as these newer policy and strategic rubrics were imposed, and partially accepted and adapted, the NRC inevitably had to confront and change, and also defend and support, its own traditions as a complex government science agency that still values research for its own sake and as a public good. We cannot overemphasize that the NRC is still fundamentally a departmental corporation of the Government of Canada, and that its internal processes of change cannot help but involve all of its political-organizational characteristics. Namely, the NRC is an organization of scientists, a politically controlled and accountable agency, a national institution, and as a regionally dispersed institution of many and various institutes. In Chapter 3 we pointed out some of the tensions between change and inertia over the past decade. Perron was more radical than Carty because Perron - as his political masters in the Mulroney government

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fully intended - was determined to change how the NRC functioned and how it saw itself. The 1990 five-year plan, the new roles of the council and the executive, and the structural changes within the institutes were all stark departures from the NRC's traditional culture. As well, the NRC's approach to human resources became more bureaucratic, and efforts were made to move toward a performance orientation, partly in keeping with the government-wide new public management ethos. But the biggest change in this era was that revenue-earning capacity was adopted as the key measure of performance. Perron sought to institutionalize this latter change, on the basis that revenues were the best indicator of whether the institutes' new practices were in tune with the needs of Canadian business. Thus in a very real sense, to become more innovative and to enhance its performance, the NRC had to become more bureaucratic, not in the sense of more layers of hierarchy but rather in the other key sense of having to institutionalize change procedurally and in performance reporting (see Chapter 1). The Carty era was built on Perron's changes, and indeed was made possible by them, but it was also politically structured to soften the tone of the early 1990s reforms. Carty's style is gentler and more supportive and is intended to reverse the perceived excesses of the earlier command-and-control ethos. The larger politics of the NRC demanded this change of tack: the Chretien Liberals wanted a more consolidated environment for the NRC. The Liberals were also buying into the various innovation concepts in an eclectic fashion - namely, an innovating economy, national systems of innovation, and local-regional systems of innovation. Also, the internal politics of the NRC were calling for a release from past tensions. All of this was reflected in Carty's different approach to the council; and in how he fostered a more stable relationship with one minister, John Manley, and also with Parliament; and in how he softened the human resource practices of the NRC through various rewards and incentives. The New NRC Niche A fourth key theme is that the NRC's role in Canadian S&T has shrunk since the Second World War. It is likely that as a stand-alone performer of research the NRC will shrink even more, proportionately, in the years ahead. At the same time, the entire idea behind reconfigured institutions and the innovation policy paradigm is that no one can 'stand alone' or do it all. The essence of the recent changes is that all

Conclusions 159

the macro players are now networked and are even taking on some of the characteristics of one another. Universities and government have had to become more 'businesslike/ and now see themselves as embedded in complex innovation systems. The business sector, especially SMEs, needs the public goods its partners supply; it also needs to take on actual or quasi-governance tasks. And all of the players in the national and local innovation systems have no choice but to become simultaneously global. The NRC has always shown itself able to shed entire functions, and in the past decade it has spun off companies and firms based on research, innovations, and products generated by its own people, either on their own or in concert with firms. And the instihates themselves may soon be spinning off. Some may be compelled to embrace new, university-centred governance models and operating modes; others may have to link themselves ever more closely to industries and local clusters. And of course, in still other situations the entire language of institute spin-off may make no sense, in that the Internet allows the creation and operation of virtual research and innovation institutes. It is essential to visualize the new niche the NRC may occupy in the early twenty-first century as it attempts to position itself strategically in relation to other macro players - namely industry, universities, and the rest of government (including Industry Canada and the sciencebased departments of the federal government). Between the First and Second World Wars, the NRC did not have a niche role wedged between industry and universities. Canada's research capacity in both universities and industry was so weak that the NRC was by default the pivotal national S&T institution. The gap it was filling was Grand Canyon-like in size, so the word 'niche' was hardly appropriate. In the postwar era, up until the 1960s, the NRC emerged as an even more pivotal S&T institution. Despite its nominal industrial S&T mandate, it eventually tilted toward a stronger role with universities. Internally, with hindsight, this era is often seen as the heyday of the NRC's 'university without students' era. During the same era the NRC also became a quite Ottawa-centred institution. Meanwhile, Canadian industrial research was advancing, albeit sluggishly, and with this sluggishness the result of several factors, such as foreign ownership of key manufacturing sectors, tariff protection, and the greater politicaleconomic ease of living off the country's abundant natural resources. The NRC in the 1970s and 1980s did try to redefine itself by tilting

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more toward an industrial role, but its own inertia made this a struggle. It did not help that Canada's political leaders had no clear plan for the Canadian microeconomy as a whole. At present, the NRC certainly sees itself as occupying a niche, and nowadays the word niche really is appropriate. It sees itself as having a smaller role to play in university research, and as most at home in strategic applied research. With regard to industry - especially SMEs - it sees itself as a networker and source of support and advice for firms interested in a commercial payoff. It has also become an unabashed supporter and practitioner of local or regional systems of innovation - more so than any other federal department, and far more so than Industry Canada. In the early twenty-first century, the NRC's position in the knowledge-based economy will depend in part on how other macro-institutional sectors change their strategies. In Chapter 8 we looked at these other sectors - industry, universities, and government - in terms of their evolving strategies. We can now comment on the nature of the NRC's choices and challenges in this context. Industrial research and innovation is still a very skewed affair in Canada and is likely to remain so in the next decade. Research is still dominated by and concentrated in global firms such as Nortel. Next to Nortel, the NRC is the second-largest S&T institution in Canada. There are other key firms and sectors with decent research and innovation programs in telecommunications, transportation, and emerging technologies such as fuel cells. But the NRC will likely have to continue to focus on SMEs, both nationally and in terms of regional and local clusters. In Chapter 8 and some of the institute case studies, we showed that Canada's universities are becoming different institutions than they were for most of the last century, albeit some more so than others, and some faster than others, and some in different ways than others, and some for different reasons than others. Universities are becoming commercialized, but they are changing in other ways besides. For example, they are relying more heavily on partnered business financing; they are charging higher tuition; some (the lead universities) are marketing themselves as global players in the global education industry; they are fostering intellectual property and spin-off companies; and they are being pressured to serve as engines for local and regional economies and societies. It is quite possible that Canada's larger universities, such as U of T and UBC, may soon become - if they aren't already - competitors and partners of the NRC. Already they are concentrating their

Conclusions 161

research and innovation capacity in their top faculty and graduate students, whom they are now marketing and promoting, regionally, nationally, and internationally. Like the NRC, universities face the task of 'branding' themselves and formulating medium-term strategies that are the inevitable result of this exercise. When one thinks of the federal government and its likely strategies, three different dimensions emerge. For the NRC, one of these is certainly Industry Canada itself and its nominal portfolio of agencies. The NRC and Industry Canada display considerable mutual ignorance of each other. A policy liaison mechanism is in place, but Industry Canada seems surprisingly uninformed about what the NRC's capacities actually are. For its part, the NRC has been reluctant to aggressively make its case and build support at Industry Canada. In the next few years there will probably have to be a careful look at exactly what research and innovation synergies there are among the NRC's institutes, Industry Canada's sector branches; and some other sciencebased departmental labs. The second dimension of the governmental sector centres on the federal preference for research and innovation agencies that are arm'slength, networked, and virtual, such as the Canadian Foundation for Innovation and the Canadian Institutes of Health Research. As we noted in Chapter 8, in the context of the Networks of Excellence and similar approaches by NSERC and the SSHRCC, this raises the broader issue of whether the NRC needs a change of form. It would be made a Crown corporation, or it could devolve even further toward some form of multisector governance. These issues can easily be linked to debates about the inherent structure of government science laboratories and units. Radical changes are unlikely here, but at the same time the public is growing more concerned about science-based issues relating to health, the environment, and the fisheries, and this is serving to generate ideas about making these aspects of government science more arm's-length from ministers. Rebranding the NRC in the New Politics of Innovation A final overall conclusion is that there is little alternative for the NRC but to actively engage in a more public process for defining its role as a national institution. It is more intricately networked now than it ever was in the past, so many sectors have developed opinions about it, both supportive and critical. But in an even broader sense, national

162 The NRC in the Innovation Policy Era

institutions simply need to develop a greater capacity for public input if they hope to meet the standards of Canadian democracy in the twenty-first century. All of this is linked directly to the core politics of the NRC. The NRC can no longer take for granted its political legitimacy and acceptability. This is not because it has somehow failed in the past decade; quite the contrary, it has adapted remarkably well to often difficult circumstances. Political legitimacy and support are more important simply because so many interests, sectors, and regions are competing for the government's attention. The NRC needs to work much harder to canvass support and show its relevance, in all the key political arenas that will shape its future and its resource capacity. We must touch here on the NRC's vision for itself in the next decade, on its efforts to 'sell' and otherwise legitimize itself to relevant policy and political communities (including Canadian voters), and on the institutional form it will take as it continues evolving into a permanently innovating institution. The NRC's two most recent vision statements suggest how its fiveyear vision-setting process works. In broad terms, each vision statement reflected the NRC's views but in a way that necessarily accommodated the views of the federal government. This was visible not only in broad directional terms but also, often, in terms of the specific discourse used. At the start of the 1990s the NRC's vision focused on competitiveness and on related issues that were central to the Mulroney government. In the latter half of the past decade, the agency adopted the discourse of innovation policy, job creation, and national and regional-local systems of innovation. The innovation mantra, though sensible in an overall way, was open to loose interpretation, and in this regard the NRC practised the virtues of studied ambiguity. The 1990 to 1995 plan was devised in a very topdown fashion, whereas the second plan was drafted with greater involvement from middle-ranking NRC officials and scientists. How will the NRC express its vision for the next planning period? And how will it brand itself while expressing that vision? And will it express its vision independently or make efforts to encompass the views of the broader public? The NRC could simply retread its current vision, on the assumption that it is sufficiently broad enough, and generally relevant enough, to be useful for another few years. But if it truly wants to brand itself and clarify its new role, it may be farther ahead emphasizing its role in

Conclusions 163

regional innovation and its mandate to support clusters of innovation networks. The NRC basically has no choice but to actively engage in a more public process for defining its future, and to do so in such a way that this process is linked directly to its core politics. The NRC needs to devote much more strategic time to gaining the support of all the key political players that will shape its future: Industry Canada and its minister; the central agencies of the federal government; Parliament, individual MPs, and the Canadian public; the national and regionallocal media; and Internet users. The NRC is an important Canadian institution that is entering the new century in better shape than it was in fifteen years ago. If it did not exist, the federal government would undoubtedly have to invent it, or something like it. However, its role in the Canadian and global knowledge-based economy is not at all guaranteed. An innovating national research institution cannot function in a steady-state equilibrium: neither economics nor politics nor S&T will permit it. Accordingly, the NRC will increasingly and proactively have to demonstrate its considerable net worth to Canada in all three of the following crucial stakeholder arenas: national and global firms competing in the new global economy; sceptical political institutions faced with many demands for funding and political support; and a fast-changing and more commercialized university sector still concerned about science as a public good.

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Index

Advisory Council on Science and Technology, 143 alternative service delivery, 30 Animal Care Policy Committee, 55 Association of Universities and Colleges of Canada, 146 Atlantic Canada Opportunities Agency (ACOA), 120,130 Atlantic Investment Partnership, 142 Auto Pact, 17 Baldwin study, the, 127 Biotechnology Research Institute (BRI), 77-90,91,155; Bioprocess sector of, 78; networks and stakeholder committees, 84-7; Pharmaceutical Biotechnology Sector of, 78,81 Blair, Tony, 83 Cabinet Committee on Economic Union (CCEU), 40 Canada France Hawaii Telescope (CFHT), 105 Canada Institute for Scientific and Technical Information (CISTI), 5, 52-3,97,128-9

Canada Research Chairs Program, 142 Canada Technology Network, (CTN), 122-4,128 Canadian Association of University Teachers (CAUT), 143 Canadian Astronomy Data Centre (CADC), 105 Canadian Biotech Advisory Committee (CBAC), 82 Canadian Biotechnology Strategy (CBS), 82-3 Canadian Commission on Building and Fire Codes (CCBFC), 95 Canadian Construction Material Center (CCMC), 94 Canadian Foundation for Innovation (CFI), 9-10,30,133,136-40,149 Canadian Infrastructure Technology Assessment Centre (CITAC), 100 Canadian Institutes of Health Research (CIHR), 9-10, 30,42,133, 136-40,143,149 Canadian Space Agency (CSA), 55, 106,110,114,137 Carty, Arthur, 57,70; era, 59-61,81, 108,122-4

178 Index Chretien: era, 6; government, 18-9, 32-3,73,153; Liberals, 16, 73 Conference Board of Canada, 147 Council of Science and Technology Advisors (CSTA), 40 Defence Research Board, 47 Department of Finance, 150 Department of Industry, 18-9,32, 39, 119-20,146,150 Diefenbaker Conservatives, 39,117 Dominion Astrophysical Observatory (DAO), 105,112 Dominion Radio Astrophysical Observatory (DRAO), 105,112 endogenous growth, 23 Energy, Mines and Resources, 32 Federal Regulatory Framework for Biotechnology, 83, Free Risk Management Program, (FRM), 93 Free Trade Agreement (FTA), Canada-U.S., 17, 31 Gemini Project, 107 General Agreement on Tariffs and Trade (GATT), 17,43 Glasco Commission, 119 governance, 4 Herzberg Institute of Astrophysics, (HIA), 104-15,156; basic transformation of, 107-8; mandate, origins, key features of, 105-7; network and stakeholder communities of, 108-11; performance and capacity of, 111-14 hierarchies, networks and markets, 4, 8,152; institutions as, 25-8,

Honorary Advisory Council on Scientific and Industrial Research (HAC), 38 Howe, C.D., 117 human genome project, 89 Human Subjects Research Ethics Committee (HSREC), 54-5 industrial policy: traditional, 16-19 Industrial Research and Assistance Program (IRAP), 5,40-6,49-50, 56, 86,116-32,154; culture of, 124-8; linkages and performance of, 12831; origins and evolution of, 117-20 Industry Canada, 32,140,150-1 Industry, Science and Technology Canada, 18 innovation: and economy, 55; as a form of Schumpeterian market technology, 7; imperatives of the new economy, 146-9; as marketcentred process, 21-5; national and local systems of, 15; national system of, 7,23-4; new politics of, 161-3; oriented services, 116; policy, 15,18, 21,155-7; policy paradigm, 4-6,15-19,33, 39,57,103,153; regional and local systems of, 24, 133-6,150; Schumpeterian notion of, 21 Institute for Research in Construction, (IRC), 91-103; basic transformation of, 97-8; mandate, origins, key features of, 92-7; networks and stakeholder communities of, 98-101; performance and capacity of, 101-3 Intellectual Property Services Office (IPSO), 53-4 Kerwin, Larkin, 51

Index 179 Kinsella, W.P., 118, knowledge-based economy, 16 Lambert Commission, 119 Lynch, Kevin, 136 Macdonald, John A., 17 MacDonald Royal Commission on Economic Union, the, 119 Mackenzie, C.J., 117 Manley, John, 33,65,73 Millennium Scholarships program, 142 Mulroney: Conservatives, 16,31,39, 62; government, 18,119,153,157 National Advisory Board on Science and Technology (NABST), 32,66 National Research Council (NRC): change and inertia at, 157-8; as a changed institution, 153-5; as a granting and funding agency, 40-6; in historical context, 35-56; as an innovating institution, 15; in the innovation policy era, 3-11; institutional transformation of, 3; as an intellectual property and research ethics manager, 53-5; the new niche of, 158-61; as policy adviser, 38-40; as researcher, 46-51; as a science agency, 9; as a technology transfer and information agency, 51-3 National Research Council Act, 5

National Science Library, 52 Networks of Centres of Excellence Program, 140 new public management (NPM), 4,9, 25; ethos, 67,73; reforms, 125; and reinvented government, 30-1 Nordicity Group study, 100 Perron, Pierre, 57,107; era, 58-9, 121-2 policy and institutional approach, 8 Privy Council Committee on Scientific and Industrial Research, 38 R&D: in private industry, 29; spectrum, 19,24,154; spending, 17 Schumpeter, Joseph, 21 Science and Technology Policy (S&T), 4,17,19-21,154 science bureaucracies, nature of, 28 Scientific Research and Experimental Development (SR&ED) tax, 120, 123 Stacie, E.W.R., 39,117 Sustainable Development Technology Fund (SDTF), the, 139 Tri-University Meson Facility (TRIUMF), 41-2,141, Youth Employment Strategy, 124