Chapter 1 : Introduction

The following is the 'Introduction' Chapter of my upcoming PhD which examines three government agencies and how they impacted Alberta's regional system of innovation.  Thank all of you for your helpful feedback. 

1      Introduction

1.1     General topic

Effective innovation policy is critical to the sustainable economic development of a region with abundant natural resources and is a primary concern for national and sub-national governments. A common approach to the delivery of innovation policy is the creation of arms-length agencies with a mandate to affect specific functions of the sub-national system of innovation. The main topic of this thesis is whether innovation agencies can be instrumental is affecting the capabilities of a sub-national system of innovation.

1.2     Literature overview

The OECD defines innovation as “the implementation of a new or significantly improved product (good or service) or process, a new marketing method, or a new organizational method in business practices, workplace organization, or external relations.” (OECD, 2005). Innovation does not happen within an isolated individual, group or region; rather, it is a complex phenomenon that must appreciate the systematic processes and the breadth of impactful economic elements (Smith, 2000).

The system of innovation approach attempts to understand the determinants of innovation, incorporating a historical perspective and appreciating that elements within the system coevolve under the guidance of institutions (Edquist, 1999). Systems of innovation can be conceptualized nationally which minimizes variation in culture and institutions (Lundvall, 1998). Sub-national systems of innovation build on the national system of innovation approach where the proximity to resources (e.g. knowledge networks, natural resources) and regionally controlled institutions can influence the character of the system over time (Doloreaux, 2002).  Cooke et al. (2000) describe sub-national systems of innovation as being comprised of ‘interacting knowledge generation and exploitation sub-systems linked to global, national and other regional systems for commercializing new knowledge’. The government plays an important (but often underappreciated) role as the creator of many institutions that can address system deficiencies, and the government can actively shape the evolution of a system of innovation (Mazzucato, 2013; Mazzucato, 2016). Institutional entrepreneurship literature suggests that individual actors can craft a vision and align the principal actors to drive endogenous change in institutional structure (Battilana, 2009). 

In many regions, natural resources are fundamental to economic growth (Lundvall, 2007) and can profoundly shape the development of sectors in the sub-national economy (Hawkins, 2012). The impact of natural resources on sub-national development is determined by social and economic factors, for example intensity of exploration, extraction and refining technologies, institutions governing natural resources, markets for local natural resources, etc. (David and Wright, 1997; Sachs and Warner, 1997; Sachs and Warner, 2001). A central goal of sub-national governments in natural resource intensive regions is to develop social and technological elements (e.g. educated workforce, geological surveys, extraction technologies, etc.) that could lead a resource focused economy towards a comparative advantage (Wright, 1990; Edquist, 1999; Wright and Czelusta, 2004). Another important goal of the government is to mitigate the risks associated with the natural resource based economic bonanzas with policies designed to help smooth government expenditures, support investments in economic diversification, and make quality of life improvements (Magud and Sosa, 2011).

The functions of the government can be managed directly by government ministries or by arms-length government-created organizations.  In this thesis organizations that are mandated to provide an innovation related function to the sub-national system of innovation are referred to as ‘innovation agencies.’  Agencies are established by the government, are not part of a government department, are mandated with performing a public function, are accountable to the government through a defined reporting relationship, have some degree of autonomy, and are subject to government involvement in the appointment of key individuals (McCrank et al., 2007). Agencies can contribute five different types of activity to the sub-national system of innovation; research (basic, developmental, and engineering), implementation (manufacturing), end use (customers of the product or process outputs), linkage (bringing together complementary knowledge through investment) and education (learning and skill development) (Liu and White, 2001). Agencies may deliver their functions directly (e.g. by conducting research inside of their organizational boundaries) or affect the behavior of other organizations and thereby create an effect on the innovation system (Liu and White, 2001).

1.3     Scope and limitations

The scope of the thesis is limited to the conceptually relevant aspects of the sub-national system of innovation in Alberta; however, since Alberta is embedded within the Canadian system of innovation and the global system of innovation there will be occasional references to national or international elements if they pertain to the functioning of Alberta’s system of innovation. Of the dozens of innovation agencies that have operated in Alberta, three agencies were selected for in depth study:

• AOSTRA (Alberta Oil Sands Technology and Research Authority): Focused upon energy innovation
• AHFMR(Alberta Heritage Foundation for Medical Research): Focused upon biomedical innovation)
• iCORE (Alberta Informatics Circle of Research Excellence): Focused upon informatics innovation)

These agencies were selected due to their significant funding and length of operation, and because each was mandated to impact a different economic sector. Throughout the thesis, these agencies will be referred to collectively as “the Trio”.

Each agency had a broad range of programs that created diverse impacts, not all of them related to innovation policy as such (for example, AHFMR had impacts in terms of clinical practice). To keep the research focused, only programs with direct relevance to innovation policy were examined. The time frame was also limited primarily to the lifespan of these agencies, which began in the 1970s and ended in December 31, 2009 with the enactment of legislation from the Alberta government that wound down several innovation agencies (including the Trio) and replaced them with four ‘Alberta Innovates’ organizations (see Appendix D: Bill 27).

1.4     Current situation and the research gap

The literature on sub-national systems of innovation has a broad perspective of economically relevant elements and their systemic interaction. However, there are some important gaps in the literature that are important to address. Firstly, studies of sub-national systems of innovation may not truly reflect the contextual elements that give the regions a distinct character.  Furthermore, studies of sub-national systems of innovation may not incorporate the instrumentality of innovation agencies into their frameworks. Also, the systems of innovation literature do not adequately appreciate how impactful institutional entrepreneurship can be, particularly in a sub-national system of innovation. Finally, there has not been a comprehensive examination of the Alberta sub-national system of innovation and how it evolved to support the founding of the three case study organizations.  These are gaps in the existing literature that this thesis aims to address.

1.5     Importance of the research

Addressing these issues are important since innovation agencies play an important role in the delivery of a governments innovation policies. Understanding how and why innovation agencies are founded, how they affect the sub-national system of innovation and what type of impact they can have are important considerations when considering how systems of innovation operate. Posing these questions in an Alberta context is important as agencies play a critical role in the government’s efforts to improve Alberta’s economic prospects (McCrank et al., 2007).  The thesis examines three Alberta innovation agencies: AOSTRA (focused upon energy innovation), AHFMR (focused upon biomedical innovation), and iCORE (focused upon informatics innovation). The thesis refers to these three organizations as ‘the Trio’.  The thesis aims to both extend the knowledge around these agencies as well as understand their instrumentality on the Alberta system of innovation. By examining how these three innovation agencies were created, and how they attempted to create impact, the thesis will gain valuable insights into how innovation agencies have been instrumental to Alberta’s system of innovation. The findings from this thesis can assist policymakers to understand better how to design innovation agencies for optimal additionality in the sub-national system of innovation.

1.6     Research question

The topic of this thesis is whether innovation agencies can be instrumental in a sub-national system of innovation. Thus, the main research question is: “Have the Trio of innovation agencies been instrumental to the development of Alberta’s sub-national system of innovation?”. This main question is explored with three sub-questions: How did the Trio emerge and evolve? How did the Trio attempt to create impact? Did the Trio have a discernable impact?

1.7     Research method

The thesis uses a combination of historical analysis and case study methods to answer the main research question. This mixed method approach allows a richer sampling of data than a single method alone. The historical analysis focused upon the events, individuals, institutions and natural resources that were essential for understanding the subsequent innovation agencies. The case study of the Trio was constructed by analyzing Trio documentation and interviews with individuals that were significantly involved in the formation or operation of the Trio. The data collected from the historical analysis and the case studies was analyzed through a system of innovation perspective.

1.8     Important findings

The main research question asks whether the Trio was instrumental in the Alberta system on innovation and it was found that they were. AOSTRA used economic incentives, a major test facility and an IP framework to qualitatively change the structure of the Alberta economy by supporting the development and adoption of in-situ oil sand techniques. Both AHMFR and iCORE were instrumental in upgrading the research capabilities of Alberta universities and post-secondary institutions.  

Additional important findings in relation to the research question are:

• Institutional control over natural resources and the attributes of the natural resource (e.g. market value and technical challenges) have an important impact upon the evolution of the sub-national system of innovation.
• The actions of an individual institutional entrepreneur can have a important influence on the sub-national system of innovation.
• The Trio were established with varying degrees of authority and accountability; these attributes can shift over time.
• Subsequent innovation agencies can learn from the previously established innovation agencies in the hopes of increasing the efficacy of programs.
• The Trio created impact by influencing other organizations to create the desired impact.
• The Trio had two approaches to IP policy. AOSTRA directly influenced the sharing of IP within industry, whereas AHFMR and iCORE left the IP to be managed by the universities.
• Some of the Trio programs had unanticipated consequences such as underinvestment in environmental mitigation of oil sands development and creating a difficult to sustain funding model for skilled researchers.

1.9     Thesis structure overview

Chapter 2 surveys the literature that positions the thesis within systems of innovation and historical literature and is presented in two sections. The first section provides an overview of systems of innovation literature including the role of natural resources as a source of path dependency. The second section reviews literature about innovation agencies and institutional entrepreneurship.  Chapter 3 presents the research methods used to collect and analyze the data. Chapter 4 provides the findings from the historical analysis of Alberta’s sub-national system of innovation that is required to place the Trio into context. Chapter 5 presents the findings from the analysis of Trio cases. Chapter 6 discusses the findings and positions them against existing systems of innovation literature. Lastly, Chapter 7 concludes this thesis with suggestions about how and why these organizations deserve greater consideration in systems of innovation literature and discusses some directions for future research..