Chapter 4 : Historical Analysis of Alberta's System of Innovation.

The following is an excerpt from my thesis on 'Innovation Agencies in a Resource-based Economy'. This chapter is the historical analysis of the theoretically relevant narrative of Alberta's sub-national system of innovation. Comments and suggestions are always welcome.

This chapter presents a historical context as a foundation for my case study research on AOSTRA, AHMFR and iCORE (the 'Trio') and provides an overview of the complex web of non-linear social, industrial, and political causes that led to their establishment. It will consider phenomena such as institutions, natural resources, policy entrepreneurs, and the organizations that shaped the sub-national system of innovation in conceptually important ways. For brevity, the thesis uses the term ‘Lodges’ to refer to the First Nations Government, ‘London’ to refer to the British Government, ‘Ottawa’ the Canadian Government and ‘Edmonton’ the Alberta Government. The chapter is organized around eras outlined below.

Pre-Confederation Alberta (Up to 1867)

• Ancient oceans of organic matter transformed into vast fields of hydrocarbons in the Western Sedimentary Basin.
• The First Nations people settled Alberta and developed non-industrial institutions.
• Europeans explored Alberta and traded with the local peoples. Early explorers noted Alberta’s oil sands, but the now familiar age of fossil fuels had not yet arrived.

Pre-provincial Alberta (1867 - 1905)

• Canadian settlement and its supporting socioeconomic institutions supplanted First Nations control in most of the region and over most natural resources. 
• Alberta’s economy was focused on farming and ranching.

Heritage Alberta (1905 - 1947)

• Alberta became a province but governance of the oil sands remained with Ottawa and, to an extent, London. 
• In 1930, control of most natural resources transferred from Ottawa to Edmonton. 
• Conventional oil was discovered in Turner Valley but was rapidly drained to sate the thirst of two world wars.
• The University of Alberta is established, playing an important initial role in energy and biomedical research.

Early modern Alberta (1947 - 1971)

• Major conventional oil deposits were discovered and transformed Alberta’s economy. 
• Commercial development of the surface oil sands grew, however, development and adoption of in-situ techniques remained elusive.
• Peter Lougheed’s political career begins.

Modern Alberta (1971 – 2009)

• Peter Lougheed took office and pursued an agenda of utilizing resource revenues to prepare the economy for what he deemed the inevitable eventual resource decline. 
• The growth of the energy sector leads to demands for ICT communication and data solutions.
• The Trio innovation agencies were founded and operationalized hundreds of millions of dollars of Alberta innovation policy funding.

1.1     Pre-Confederation Alberta (<1867)

During the Early Cretaceous age, an ancient seabed was transformed into hydrocarbon rich deposits underneath Alberta including three major oil sands deposits in Alberta; Athabasca (including Wabasca), Cold Lake, and Peace River (see Figure 1) These fossils set the stage for the possibility (not certainty) of a vast hydrocarbon economy.

Figure 1: Alberta oil sand deposits

(https://www.mining.com/wp-content/uploads/2013/09/Alberta-oil-sands-map1.png)

About 13,000 years ago, ‘Albertans’ settled across the province, from the woods of northern Alberta to the plains of the south. Early Albertans were nomadic, applied generalized knowledge about hunting tactics, used high-quality stone for their tools (which was drawn from quarries far from where the tools were uncovered), and possessed sophisticated stone, bone, antler, and ivory technologies (Ives, 2006). After having lived in Alberta for over 10,000 years, the institutions, skills, knowledge, routines, and technologies evolved in response to the natural resources opportunities of the region of the First Nations peoples (Peck and Vickers, 2006). In 1778, an explorer, Peter Pond, noted the existence of the bituminous oil sands of Alberta and, while the oil sands remained undeveloped during this era, the vast energy potential of the area had become obvious (Chastko, 2004).  In the 1700’s Alberta’s First Nations peoples were in control of Alberta’s economic and military situations (Devine, 2006) although with increased settlement of Alberta came increasing institutionalization, which eroded the foundation of system that was ‘the commons of the plains’; the impact upon hunting altered the natural resource economy of First Nations peoples’ (Pannekoek, 2006). 

1.2     Pre-provincial Alberta (1867 - 1905)

The British North America Act of 1867 created the Dominion of Canada and introduced the federal system which created two levels of authority; the federal government and the provincial government. The federal government handled issues like banking, trade, First Nations, the post office, national defense, and taxation in addition to the task of acquiring the remaining British colonies in North America (Hall, 2006). Provinces entering Confederation had limited taxation powers (and instead received subsidies from Ottawa) but had control over most lands and natural resources, civil rights, education, and health (Hall, 2006). In 1870, Canada received the British title to the former Hudson’s Bay Company holdings, known collectively as ‘Rupert’s Land’. Alberta was then known as the North-West Territories and was governed under the 1875 North-West Territories Act which meant that Ottawa provided and exerted control of Alberta’s budget. Ottawa’s plan was for Alberta to gradually gain control over the placement of the federal grant, beginning with an appointed lieutenant governor and council in 1875, and eventually see an elected premier and a cabinet in 1897 (Hall, 2006). 

Economic development in the region required access to the land, which was still mostly controlled by First Nations peoples. This tense land situation drove a need for a significant institutional transformation that this thesis considers the first building block in Alberta’s modern innovation system. Canada’s treaties with the First Nations have been called ‘the Hidden Canadian Constitution’ and brought First Nations peoples under the umbrella of federal government institutions (Carter and Hilderbrandt, 2006). 

It difficult to overestimate the importance of the treaties, as they defined relationships between First Nations and non-First Nations peoples and transferred vast amounts of land and natural resources to the Dominion of Canada. In a 1975 report, the Indian Chiefs of Alberta stated “To us who are Treaty Indians there is nothing more important than our Treaties, our lands and the well-being of our future generations. (Indian Chiefs of Alberta, cited in Indian Association of Alberta, 1975). Taken together, Treaty 6 (1876-78), Treaty 7 (1877), Treaty 8 (1899), and Treaty 10 (1906) cover all of Alberta (see Figure 2). For First Nations peoples, these treaties resulted in a great diminishment of their land base, economies, and freedoms and are responsible for the seizure of control over natural resource development (Carter and Hilderbrandt, 2006). The concept of ceding land was not part of First Nations routines and the vocabulary to accurately convey the concept did not exist in many of the First Nations languages. Additionally, per the records of treaty negotiations, the Crown underemphasized the topic of ceding land. In general, this led to an unfortunate misunderstanding where First Nations peoples thought that they were lending their non-reserve territory, rather than ceding it (and its mineral wealth) forever. Siksika Chief Ben Calf Robe wrote:

When I heard from the Old People about this treaty is that it was a peace treaty. They agreed to make peace, but they didn’t say anything about selling the land. The treaty discussions have a lot about giving up our lands, but the Old People didn’t know anything about it … There was no mention made to sell land [during the negotiations]; or to sell what was underneath the land or to sell the mountains, trees, lakes, rivers, and rocks. And we didn’t say to sell the animals that fly, or the fish that swim. The Old People didn’t get asked to sell these things. They were told, “the Queen will be like your mother, and she will take care of you until the sun stops shining, the mountains disappear, the rivers stop flowing, and the grass stops growing.”

(Calf Robe cited in Carter and Hildebrandt, 2006) 

Figure 2: The Treaties of Canada

(Natural Resources Canada, 2007)

The treaties resulted in the Government of Canada gaining control of Alberta’s vast resource wealth and opening the door to increased settlement. The treaties, which acknowledge the sovereign political and cultural status of First Nations, remain central to the rights of First Nations and impact their socioeconomic development to this day (Carter and Hildebrandt, 2006).

While Alberta’s territorial government had very limited capabilities there existed a growing desire to achieve provincial status, driven in part by the insufficiency of federal government funding in meeting Alberta’s growing needs. In 1900, the Government of Alberta was unsuccessful (unlike Manitoba) in petitioning Ottawa for provincial status with control of its public lands and resources (Hall, 2006). In Ottawa, Alberta’s energy potential was top of mind. Government reports from the 1880s suggest that territory owned by First Nations in the Athabasca and Mackenzie Valleys contained “the most extensive petroleum field in America, if not in the world.” (Canada, Senate Journals, 2 May 1888). The technical challenges of economically developing these unconventional oil deposits were not appreciated. Also, the vast fields of conventional oil and gas that lay beneath Alberta’s soil were unknown.

1.3     Heritage Alberta (1905 - 1947)

In 1905, the Alberta Act legally created the Province of Alberta. Alberta began with much of her best land, natural resource development, and royalties administered by Ottawa (Hall, 2006). While the Alberta act created the province and a host of provincial government institutions, Ottawa had determined that the neophyte provincial government in Edmonton simply didn’t have the routines and capabilities necessary to manage its strategic natural resources. In exchange for this loss of sovereignty over resources and their royalties, Ottawa provided Edmonton a subsidy. Since the federal government lacked the resources to invest directly in the development of the oil sands, it displayed a preference for allowing private industry to spearhead development (Chastko, 2004). This differed from the approach of Alberta’s first premier, Alexander Rutherford, was an economic protagonist who believed that governments and business should collaborate in development; Alberta’s style of government/industry partnership is as old as the province of Alberta itself (Chastko, 2004).

The University of Alberta (founded in 1908) was an important organization to the early effort to develop the oil sands and biomedical research. Dr. Henry Tory, the first president of the University of Alberta, felt that the federal approach to oil sands development was inferior to Alberta’s approach to public-private collaboration and would lead to sub-optimal outcomes (Chastko, 2004). Some of the earliest biomedical research in Alberta began in 1915 at the University of Alberta, when Dr. Tory, hired Dr. James Collip, who had been researching ‘internal secretions’ and had presented his research to the American Medical Association. In 1919, Dr. Tory formed a scientific interest group that, in 1920, would be reorganized as the Scientific and Industrial Research Council (later renamed the Alberta Research Council in 1928). In 1920, the University of Alberta was successful in receiving a $500,000 grant based on completion of the planned medical school building, implementation of a full four-year MD curriculum, upgrading the clinical faculty, and the reacquisition of a hospital. In 1938, the National Research Council created the Medical Research Council (MRC) and a Calgary surgeon, Dr. John McEachern, drove the Canadian Medical Association to create the Canadian Cancer Society. The idea of government funded and university-based research became national during Dr. Tory’s presidency of the National Research Council, from 1923 to 1935. 

Meanwhile, since Canada was a part of the Commonwealth London could exert significant influence over the development of Alberta’s resources; and London viewed Alberta’s oil sands as a strategic asset that was to be used to support the British Empire. Under pressure from London, Ottawa placed the oil sands in reserve in 1913. This policy put an end to the limited commercial development that had begun and even allowed Ottawa to seize assets on crown land. This policy effectively meant that Albertans had to apply to the federal government to conduct research on the oil sands. Alberta remained largely focused on ranching and farming while all oil development activity focused on the oil sands. Progress in development was slow, with many industrial stakeholders expressing that Ottawa’s approach to the development of the oil sands was haphazard (Chastko, 2004).

By the 1920s, scientists from the federal government, the University of Alberta, and the Alberta Research Council had spent over a decade working to develop processes for exploiting the oil sands. One important technology system was the hot water separation process, developed by Dr. Karl Clark, that facilitated the separation of bitumen from oil sands mined from the surface (Chastko, 2004; Patton et al., 2006). However, the perceived role of the oil sands as Alberta’s primary energy opportunity changed when significant conventional oil deposits were discovered in Turner Valley in 1914. This find decreased the appetite for oil sands development and reinforced the value of prospecting for conventional oil deposits (Rennie, 2006). The discovery at Turner Valley was immediately globally relevant, as World War One had arrived with its enormous energy and food demands. With the discovery of oil in Turner Valley, the conventional oil economy of Alberta began to emerge. This economic activity created a culture of exploration that would pay off in the 1940s (Rennie, 2006).

In 1930, the province and federal government ratified an agreement to transfer control of Alberta’s natural resources to Edmonton. The Alberta Natural Resources Act was as transformative as Treaty 6, Treaty 7, and the Alberta Act of 1905 and gave Alberta control over its crown lands and resources for the benefit of its inhabitants (a status that B.C. and the eastern provinces had long enjoyed). This act did not affect the governance of First Nations territories, whose resources were administered by the Government of Canada under the terms of the Treaties. However, one important exception to the natural resource transfer existed - the largest oil sands deposit in Alberta. Critically, the federal government retained the resource management of the region around the Athabasca deposit. Chastko (2004) explains:

Ottawa inserted a caveat into the Natural Resource Transfer Act that granted the Federal government control over approximately 2,000 square miles of territory in Northern Alberta, including the Athabasca deposit. Then, a matter of weeks before the agreement was to take effect, Ottawa signed a lease agreement with Max Ball that would allow Abasand Oils to develop the same area that the Federal government had held back from Alberta in its agreement.

Ottawa had excluded the prime oil sands deposit from the transfer and had done so without consulting the province. This action made many in Alberta suspect that Ottawa was planning to commercially develop the oil sands without Edmonton’s involvement (Chastko, 2004).

Governance of Alberta’s natural resources had moved from the First Nations to London, to Ottawa, and eventually to Edmonton (with limited natural resource control 1905 - 1930) and Edmonton (with almost complete natural resource control from 1930 onward)(Chastko, 2004). 

Figure 3: Evolutions in Alberta's natural resource governance

During this period, a pioneering research effort to develop the Alberta oil sands was primarily being led by two innovation agencies; the Alberta Research Council and Abasand Oils.

1.3.1    The Second World War

The Second World War impacted Alberta in much the same way that the First World War had, as global conflicts require enormous amounts of food and fossil fuels. During this time, the institutions related to and the governance of natural resources and industry transferred to Ottawa, through the Federal Minister of Munitions and Supply. To quench the thirst of the war, Ottawa set aggressive production quotas for the Turner Valley fields which shortened their lifespans dramatically. The policy of aggressive production from the Turner Valley fields worked against Alberta’s economic interests and acted as another irritant between Edmonton and Ottawa. (Chastko, 2004). 

In 1942, the Turner Valley oil fields were experiencing a marked decline in production which drove interest in Abasand (the oil sands innovation agency endorsed by Ottawa) and its potential to provide a domestic supply of oil. Abasand was successfully processing bitumen on a limited scale, albeit amid concerns regarding commercial scalability in its current facilities. Federal government assessment of the Abasand operations eventually led to Ottawa assuming its control with the goals of reorganizing operations, upgrading the facility, and piloting a more effective separation process. After the takeover by Ottawa, many of the skilled operators of the Abasand plant left and the modest relationship between the Alberta Research Council and Abasand also came to an end. The termination of this relationship meant that the Albertan government now had limited ability to gain knowledge of the oil sands. By 1944, continued poor performance at Abasand led its management to re-establish its relationship with the Alberta Research Council. At that time, Abasand also faced resistance from Ottawa on its implementation of new processes. This issue precipitated the perception in Alberta that Ottawa was mismanaging Abasand operations. This was a difficult pill for Albertans to swallow, as the oil sands represented a major development opportunity for a strategic reserve of oil. By 1945, Ottawa had decided to abandon its Abasand efforts due to a series of fires at the Abasand plants which resulted in Alberta losing both its access to federal government oil sands expertise and Edmonton’s allocation of funding for its own oil sands pilot plant (Chastko, 2004).

Figure 4: Abasand refinery

 (University of Alberta Archives, 2014)

Alberta’s conventional oil sector was rapidly growing but the Province’s overall economic character was still agricultural. With the Turner Valley fields in rapid decline, Abasand proving less than promising and conventional oil exploration efforts yet to bear fruit, it was believed that agriculture would continue to be the backbone of the provincial economy. At the time, the farms and ranches of Alberta provided almost sixty percent of Alberta’s economic production. Fossil fuels were still Alberta’s primary hope for economic diversification away from agriculture and, while research continued with the goal of developing the unproven oil sands, more significant industrial effort was expended on searching for conventional fields (Breen, 2006). For the preceding thirty years, major oil companies had been exploring Alberta with hopes of locating her next oil fields. However, until 1947, success had been elusive. Beyond searching for new oil fields, Alberta’s economic policy lacked serious calls for both industrial development and economic diversification (Myers, 2006). 

1.4     Early modern Alberta (1947 - 1971)

In 1947, vast conventional oilfields were discovered in Leduc and followed by discoveries at Redwater, in 1948, and at Joarcan, Golden Spike, Stettler, Excelsior, and Bon Accord, in 1949. By 1953, sixteen new fields had been added, notably, the Pembina, which exceeded all others in size. Like Turner Valley in 1914, these conventional oil discoveries began another evolution of the Albertan economy by reinforcing the importance of conventional oil resources and capabilities as the center of Alberta’s economy. The epic scale of these conventional oil discoveries dramatically changed the economic case for industry and government support of the research and development of the oil sands. The vast and technically challenging oil sands were now competing against yet more extant supplies of well-understood conventional oil. To make the future development of the oil sands even more challenging, the conventional oil industry neglected oil sands development, due to its economics, and generally opposed their further development (Chastko, 2004).

There was still some activity surrounding oil sands development. A public-private partnership, Bitumount, was proposed to the province before the end of the Second World War to develop a pilot plant that would demonstrate the potential of the hot water separation process at a commercial scale (Bowman, 2008). Many felt that the initiative was underfunded and made poor use of the skills and resources located in Alberta, replicating many of the weaknesses of Ottawa’s Abasand effort. The Bitumount plant struggled towards completion in 1947 and began to produce results in 1948, to the chagrin of many individuals in the Alberta Research Council who were displeased with their lack of official project involvement. In 1947, the discovery of conventional oil deposits at Leduc dealt a blow to Bitumount research. In response to the criticisms and cynicism, its champions argued that proving commercial viability of oil sands was crucial to catalyzing industrial involvement and that the plant would not be the failure that Abasand had been. Toward the end of 1949, it was determined that the provincial effort had produced enough knowledge to prove commercial viability of the hot water separation process and the Bitumount research concluded (Chastko, 2004).

At the end of the 1940s, Alberta entered a prolonged period of healthy economic development, with personal income doubling by 1951 and a prolonged real growth rate of five to seven percent (Owram, 2006). There was an expectation that the conventional oil bonanza would be retained within Alberta and would continue to displace agriculture as the center of Alberta’s economy. Farming and ranching were extremely volatile and subject to boom and bust cycles. The oil and gas sector provided much needed economic diversification. As seen in Figure 5, even though agriculture was worth more in net economic value, there was an obvious focus on exploiting conventional oil and gas and unlocking its future potential. Interestingly, the conventional oil industry was having a disproportionate effect on industrial development and job creation, negatively impacting sixty percent of manufacturing in Alberta (Foran, 2006).

Figure 5: Primary and secondary production in Alberta (1905 - 1950)

(Boothe, P. and Edwards, H., 2003)

Conventional oil had grown to become the incumbent economic sector. The struggles of the oil sands contrasted sharply with the success of conventional oil and further entrenched the latter as the foundation of Alberta’s economy. Thus, it was rational for many industrialists to believe it against their interests for the government to invest in developing the oil sands a competing supply of oil (Owram, 2006). During the 1950s and into the 1960s, conventional oil interests in Alberta positioned the oil sands as an expensive and risky alternative fuel source. In the United States, however, there existed some interest in Alberta’s mammoth oil sands reservoirs. The president of Sun Oil, J. Howard Pew, steadfastly believed that the oil sands had the potential to become his company’s primary source of oil. Sun Oil worked to take over a significant amount of the Abasand lease and, in 1958, after eight years of development, entered an agreement with the Great Canadian Oilsands. After several false starts, Great Canadian Oilsands, in partnership with Sun Oil, received permission to develop the first commercial oil sands plant in Alberta (Chastko, 2004). By the late 1960s, only the Great Canadian Oilsands was engaged in commercial production of oil sands using mining techniques (Hester and Lawrence, 2010). Clem Bowman (2008) described Sun Oil and its decision to create the pilot plant as “displaying great courage” and described the company as “one of the heroes of [the oil sands] story”. 

There remained tension and conflict between conventional and unconventional energy producers over preferential institutional treatment (e.g. royalties, fiscal regimes, technological research, style of infrastructure, etc.) (Hester and Lawrence, 2010). Tremendous technological, logistical, and political challenges had yet to be overcome before the potential of the oil sands could be realized economically. Very few Albertan industrial organizations had active development plans for their oil sands leases. Syncrude had leases that it intended to develop but had been slowed by challenges in securing financing to begin operations. In 1966, Syncrude urged the government to consider the merits of allowing a second oil sands plant and, despite concerns of impact on the conventional oil sector, the government approved their final application in 1969 (Chastko, 2004). 

In the late 1960s and early 1970s, modest industrial development of surface oil sands deposits using mining techniques continued under the assumption that the government would eventually deem oil sands development an economic development priority (Chastko, 2004). At this point, there was no in-situ project close to being commercial nor any on the path to commercial viability (Bowman, 2008). The large in-situ potential of the oil sands would be unlocked by technologies that were decades in the making (Hester and Lawrence, 2010). 

In the 1960s, Alberta’s oil industry faced the challenge of oversupply from the American market and lacked sufficient logistical resources (i.e. pipelines) to distribute its surplus. In this context, many Albertans saw the development of the oil sands as expensive and unnecessary. However, there were some individuals, such as J. Howard Pew and Roger Butler, who played critical roles in the development of the oil sands. Howard Pew was the President of Sun Oil and believed that the oil sands would be a key fuel source for his company. Dr. Butler was a scientist working to develop the steam assisted gravity drainage process. Dr. Butler would go on to become the director of AOSTRA’s technical programs (Chastko, 2004; Patton et al, 2006).

The 1960s saw the beginning of Peter Lougheed’s political career, which would be unmatched in its impact on modern Alberta. He had a professional background in institutions, having graduated from Harvard Law, and had practiced law in Calgary. Peter Lougheed spent the pivotal early years of his career surrounded by western regionalists and fierce free enterprisers, from whom he inherited a concern for the eventual exhaustion of conventional oil reserves. Of the ideas of his peers, Lougheed also internalized the economic necessity of diversification into industrial and petrochemical operations (Friesen, 1984, cited in Marsh, 2006). In 1965, Peter Lougheed announced his intention to lead the nascent Progressive Conservative party against the incumbent Social Credit party (who had governed Alberta with a bible in one hand since 1935). The Progressive Conservative party of Alberta had no leader, no seats, no funding, and no organization but their energetic and modern approach appealed to Albertans. Peter Lougheed and five other progressive conservatives were elected to the Alberta Legislature in 1967. In 1971, the Progressive Conservatives defeated the stale Social Credit party and Peter Lougheed became Alberta’s Premiere (Marsh, 2006).

Peter Lougheed exhibited his ambition when, in 1966, he presented his vision for the future of Alberta:

1)        to recognize the important leadership role that Alberta could perform in Canada;

2)        to improve the public good;

3)        to have a long-term plan for the future development of the province;

4)        to anticipate problems and prepare for shortages; and

5)        to set as an objective, a society that is not inferior to any province or state in North America (Lampard, 2011).

In this speech Peter Lougheed described how Alberta would be the long-term beneficiary of increases in oil (and gas) revenues, which would then enable the government to make long-term investments in accelerating growth and economic diversification (Lampard, 2011). 

1.5     Modern Alberta: (1971 - 2009)

Peter Lougheed’s victory in the 1971 election began an agenda of province building, which included preparing for the day when the resource base would inevitably decline. Peter Lougheed’s view was that the government had the responsibility to steer economic and social development. He was an interventionist leader who believed that, if there existed an opportunity to add value, the government was obligated to act (Isaacs, E. 2014. Interview with Terry Ross. March 3. Calgary). The Progressive Conservative party unleashed a torrent of legislation, averaging 94 bills per session between 1971 and 1985 (Marsh, 2006). In 1974 he outlined his strategy to encourage economic diversification through knowledge-based industries and stated his intention to invest significant funds in science. Mr. Lougheed’s vision was to position Alberta as Canada’s research leader and, in doing so, prepare Alberta to weather economic downturns and develop into a region that was, economically and socially, second to none (Lampard, 2011). This vision of developing Alberta’s research capabilities would eventually include significant investment in what Lougheed termed Alberta’s ‘brain industries’; which in the context of this thesis includes the oil sands and biomedical research.

Upon election in 1971 the government of Peter Lougheed was not satisfied with the pace of oil sands in-situ industrial development (Bowman, 2008). Alberta’s industry lacked a development path for the oil sands, particularly for in-situ techniques. Peter Lougheed implicitly understood that a long-term focus was needed to develop the required advanced technological capabilities and earth science knowledge base to tilt the economics of the oil sands toward viability, a vision initially articulated in 1974 as an “Energy Breakthrough” (AOSTRA, 1990; Chastko, 2004; Hester and Lawrence, 2010). He also understood that, while the province owned the resource, the sum of the government’s technical capabilities fell far short of what was needed to address the challenges of commercially developing and deploying in-situ oil sands techniques (Hester and Lawrence, 2010). The Lougheed government’s vision for transforming Alberta’s oil sands industry involved industry developing a deep technological focus on new recovery and processing technologies for the oil sands. The government’s role would include leading investment for demonstrations of in-situ production technology (Chastko, 2004). In an interview, David Redford recalled what Peter Lougheed told him about the situation:

Look, we’ve got all of this money coming in from conventional crude. We have all royalties coming in and land sales coming in from conventional crude. But, it’s limited. It’s going to start going down. We have this huge resource out there. Everyone knows how much is there because of the work of the Alberta Research Council. We know that we have one of the largest hydrocarbon resources in the world, if not the largest. But, it’s all in-place reserves. It’s not proven reserves. We don’t know how to produce the in-situ material and that’s the largest part of it. And, the economics for the mine material is questionable. We’ve got these two plants that are going. Great Canadian Oilsands only was allowed to go because it was the smallest bid, 40,000 barrels a day. And, Syncrude, we spent a lot of money, put a lot of money into that to get that project to go. So, we need to improve the economics. Now, you can prove your economics by price or you can improve the economics by better technology. Why don’t we take some of this revenue that we’ve got coming in from the royalties and invest it the development of the technology which will make the in-situ recovery possible and make the mine material economic?

(Petroleum Historical Society, 2013)

Turning to Alberta’s biomedical situation during this era, economic inflation in the 1970s was 10 to 11% and, in 1974, led to a medical funding crisis when a major federal medical research funding organization was forced to curtail its biomedical research funding programs (Lampard, 2011). Thus, Alberta’s medical research faculties faced the prospect of capability erosion. By 1974, biomedical research funding had reached over $3 million at the University of Alberta and the University of Calgary (see Figure 6), about 8% of all Canadian MRC funding (see Figure 7) (Lampard, 2008).

Figure 6: Alberta biomedical research funding (1974)

Figure 7: Alberta portion of medical research funding (1974)

(Lampard, 2008)

1.5.1    Alberta Heritage Savings Trust Fund

In 1975, Lougheed’s party was overwhelmingly re-elected, taking 69 of Alberta’s 75 seats. In 1976, resource related revenues filled Alberta’s purse with a declared surplus of $600 million. From this solid footing, Peter Lougheed implemented policies to manage non-renewable resource rents for the continuing benefit of Alberta and announced the creation of the Alberta Heritage Savings Trust Fund (hereinafter called the AHF). This measure attempted to convert non-renewable resources into a renewable resource, a fund, and into infrastructure that would have the capacity to provide enduring benefit to the province (Warrack, 2005). AHF emerged as an instrument to manage the dynamics that significant resource revenue can have on a sub-national economy. There were concerns that a resource bonanza would induce unsustainable government expenditures, create corruption, and induce inflationary pressures, because of money directly invested into the economy that was not easily absorbed (Warrack, 2005). Warrack (2005) outlines four main drivers behind the creation of the Alberta Heritage Savings Trust Fund:

• To support future generations of Albertans via conservation of resources, increased economic opportunity, and environmental preservation;
• To strengthen the Albertan economy by supporting diversification and investment in strategic infrastructure (e.g. educational infrastructure and economic infrastructure);
• To improve quality of life through investments in culture (e.g. parks and art galleries), medical research, and innovation (which can all provide social dividends) and attract highly skilled individuals to the province; and
• To have at government disposal a source of revenue to smooth variations in tax revenue.

AHF was created with an initial contribution of $1.5 billion and an investment of 30% of future oil and gas royalties. Table 1 shows how the AHF has been resourced since its inception.

Table 1: Alberta Heritage Savings Trust Fund royalties (1976 – 2005)

• 1976: $1.5 billion initial allocation to AHF
• 1976 - 1982: 30% oil and natural gas revenues (royalties and land sales) + all financial AHF yields
• 1982 - 1987: 15% oil and natural gas revenues (royalties and land sales) but no yields allocation
• 1987 - 2005: No allocations and no yields allocations - this was the end of natural resource revenues being allocated to the AHF

(Warrack, 2005)

1.5.2    The emerging information technology sector

Much of the energy sector development discussed in the previous sections often required robust communication networks for its operations that would cover the vast distances and rough terrain, which makes laying the cables for communications systems difficult. Thus, the logistical and tactical needs of the Albertan energy industry became a driver for the development of informatics capabilities in wireless systems, geological data, and geospatial technologies (e.g. Novatel) (Langford, Wood, and Ross, 2003). Brian Unger was the first CEO of iCORE and talked about the information technology sector in Alberta prior to the establishment of iCORE “The needs of the energy sector led to the creation of roughly 1000 information technology companies in Alberta prior to the creation of iCORE. This information technology sector was created because of the energy sector and while it was not a large industry sector compared to the energy sector, it was still a large sector in and of itself. This information technology sector and its skilled workers were a resource that iCORE would attempt to work with” (Unger, B. 2013. Interview with Terry Ross. October 4, Calgary).

While still dominated by the energy sector’s needs, Alberta’s economic policy was characterized by a deliberate and focused effort to take revenue from nonrenewable sources (i.e. conventional and unconventional oil royalties and leases) and invest it in knowledge infrastructure initiatives that were physical, intellectual, and social. In the 1990s, the institutions and technologies of the global information technology economy were emerging. Government search routines suggested that informatics would be a wise economic development choice for diversification, however, some policy entrepreneurs felt that Alberta was lacking the talent to participate in the productivity and diversification opportunities that the ‘dot-com’ boom could provide (Taylor, R. 2013. Interview with Terry Ross. November 8, Palo Alto). The Alberta Science and Research Authority suggested that deliberate, entrepreneurial investment in the information technology sector of the economy would lead to increased prosperity in the province: 

The industrial age has given way to the information age as technological advancements in computers, telecommunication, software, and digital information provide new economic opportunities … with the proper use and encouragement of ICT, Alberta can seize the opportunity to become more productive and more competitive in the global economy.

(ASRA, 1998)

In November of 1997, the Alberta Science and Research Authority created the Information and Communications Technology Task Force to make recommendations on an ICT strategy for the province (iCORE, 2000). The resulting document, entitled “Information and Communication Technology: A Strategy for Alberta”, recommended a four-point strategy for developing Alberta’s ICT system of innovation, which focused on creating positive feedback loops in education, infrastructure, research and development, and technology commercialization (ASRA, 1998). Table 12 describes the main initiatives that resulted from the government’s focus on informatics policy.

Table 2: Main informatics development policies (circa 1998)

• SuperNET: Top quality data infrastructure for Albertan communities
• Banff International Research Station: A top tier mathematical research institute
• Education: IT training in the primary education system
• The Informatics Circle of Research Excellence (iCORE): Attraction and development of top caliber informatics teams at Albertan universities

(ASRA, 1998)

1.6     Summary

Alberta’s sub-national system of innovation lies over vast fields of hydrocarbons. It has emerged from the institutional foundations of Treaties with First Nations peoples, which provided institutional access to natural resources to the Federal Government.  When the sub-national province of Alberta was created in 1905 governance over the natural resources remained with Ottawa.  The oil sands had been recognized as a valuable resource by the federal and provincial government; however, research and development was slow and awkward.  The establishment of the University of Alberta and the Alberta Research Council marked the emergence of biomedical research in Alberta and innovation agencies focused on developing the oil sands.  When conventional oil was discovered in 1914, the thrust for development of the oil sands diminished.  In 1930, the Alberta government received control over natural resources, with the notable exception of the most significant oil sands deposit, which remained with Ottawa. The discovery of large conventional oil deposits at Leduc in 1947 further affected the drive to develop the oil sands as the emerging energy sector focused upon conventional oil and gas. This development of the energy sector often required the development of communication and data solutions, which fostered an information technology sector in Alberta. When Peter Lougheed rose to power in the 1970’s he brought an activist attitude to the Alberta government which was focused on developing institutions to manage natural resource wealth through institutions that would enhance the sub-national system of innovation (e.g. the Alberta Heritage Savings Trust Fund, the Alberta Heritage Foundation for Medical Research, the Alberta Oil Sands Technology Research Authority). 

This historical analysis provides the context of the sub-national system of innovation in Alberta and an examination of the three innovation case studies that provide the data to answer this thesis’ research question.

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