From Communications Policy to Trade and Industrial Policy: The Canadian State and Telecommunications Technology

Stephen McDowell (Carleton University)

The performance of Canadian telecommunications firms in the 1980s and the early 1990s has been extensively covered by business journalists in Canada (Surtees, 1992). Similarly, technology policy analysts and industry groups have targeted this high-technology and "world-class" sector, producing a plethora of reports and studies (ISTC, 1992). However, despite the importance of the use of telecommunications technology to provide communications services to Canadians, and in determining the type and level of employment which will be available (in equipment design and manufacture and communications service provision), the production of the technical means of communication from a distance has received less attention from communications scholars (for exceptions see Babe, 1990; Gillies, 1990).

Two documents illustrate the divergent policy approaches to telecommunications technologies within the Canadian federal government. A 1987 discussion paper from the Department of Communications argues that the major challenges facing telecommunications in Canada were:

encouraging the development of new networks and services in every part of the country;
accelerating the spread of new technologies to improve the lives of Canadians--in health, educational, cultural and business activities, for example; and
stimulating and coordinating a national research and developmental effort that underpin our response to these challenges. (Communications Canada, News Release, November 5, 1987)

A 1993 industry profile from Industry, Science and Technology Canada regarding the competitiveness of the Canadian telecommunications industry concludes:

[It] is generally considered to be world-competitive, enjoying a greater share of the world market than Canada's size and natural advantages would warrant. The disappearance of Canada's trade surplus in the late 1980s and the recent lacklustre performance of many of the firms in most countries is evidence that international competition is intensifying.

...With the trend towards concentration in the industry, the globalization of supply and the declining influence of medium-sized companies in the industry structure worldwide, the ability of Canadian firms to grow and prosper from a Canadian base is being threatened. Nevertheless, the liberalization of telecommunications services and equipment markets is opening up new opportunities. (ISTC, 1993, p. 8)

A consensual perspective is emerging regarding the nature of world telecommunications equipment production and the proper responses of firms and states. Even before the restructuring of federal departments, which was proposed in the summer of 1993, the production of telecommunications equipment was seen increasingly as an industrial policy issue, rather than as a communications policy concern. World production and use of telecommunications equipment, long seen as a series of separate and nationally based markets, was becoming more integrated on a global basis through international trade and investment flows, through multilateral research and development programs, and through technology transfer agreements. This "globalization" was said to be prompted by the convergence between communications and data-processing technologies, by telecommunications companies seeking to recoup investments in research and development by expanding international sales, by national regulatory changes that opened segments of telecommunications equipment markets to competitive international supply (i.e., private branch exchanges, customer premises equipment), and by bilateral and multilateral trade agreements facilitating liberalized trade and investment in telecommunications equipment and services.

Globalization entailed new strategies for both states and for firms. This commentary examines government policies for telecommunications equipment development and production. It argues that the shift from a national to a transnational (or global) approach involves certain state strategies and social costs that are not fully considered by either business reporting or industrial policy literature.

Policies and Programs for Telecommunications Equipment Production

The role of governments in promoting the development of information and communication technologies is widely debated, even in an era of "globalization." The Commission of the European Communities has initiated a number of regional neo-mercantilist programs to advance information technologies, including ESPRIT and RACE (Mytelka & Delapierre, 1988). In the United States the Reagan and Bush administrations restricted the role of industrial policy to defence spending, despite concerns over strategic considerations and national competitiveness (Peters, 1991; Hawthorne, 1991). Thomas Ferguson (1993) argues that firms in the high technology sector supported Bill Clinton's bid for the US presidency in 1992 because he promised that the US state would begin working for them more effectively.

For liberal economists and industrial analysts, national deregulation and the negotiation of international agreements liberalizing international trade are seen as expanding the scope of market access for firms. Since national markets are no longer guaranteed, firms which develop new communications technologies should be outward oriented, and should not depend on state programs and funding to provide initiative for research. Despite the claims of the free-market narrative, globalization is also accompanied by continued demands for state support. As Barbara Jenkins (1991) argues, even minimalist states can act to facilitate strategic alliances by providing a policy framework affecting partnering decisions and the openness of national markets, and by developing standards for telecommunications systems.

Canadian policy seems drawn by these various examples (see Niosi, 1991). Industry analysts claim the efficacy of markets and competition, but call for active state support in export promotion and extended tax credits for product and market research (NGL Consulting, 1991). The state is also asked to support technological innovation activities undertaken by national companies (and reduce firms' risk and exposure) through national and international technology transfer programs, direct funding of research, export promotion and market information, international negotiations to develop technical standards, liberalized trade and intellectual property institutions, tax credits, grants and loans for research, encouraging industry/university affiliations, the provision of other research infrastructure, procurement policies (including defence procurement), and reregulation of telecommunications service provision.

Direct Canadian federal government involvement in telecommunications service provision was reduced with the privatizations of the 1980s. The commitment of the state to supporting Canadian-owned companies declined as an expanding number of domestic and foreign providers of services were allowed following the Canada-US Free Trade Agreement and CRTC decisions regarding long-distance competition in the early 1990s. Nevertheless, many Canadian government policies and programs are still aimed at encouraging the development of telecommunications technology in Canada or at promoting technology transfer and licensing agreements (in the export or import of telecommunications equipment or production processes). These form a network of public assistance that supports the telecommunications industry as a business, rather than direct public support of the provision of high-quality services to all Canadians.

There is some participation of the Canadian government in telecommunications and information technology research. The Industrial Research Assistance Program (IRAP) of the National Research Council funds small- and medium-sized firms in adapting technologies and expertise from "government laboratories, specialized research centres, universities and consulting engineering companies," and foreign sources to their needs. The IRAP Technology Network is intended to provide "vital linkages between companies and sources of appropriate technology and expertise" (National Research Council of Canada). The Strategic Technologies Program (which supports pre-competitive research and development and applications projects) and the Microelectronics and Systems Development Program are run by Industry, Science and Technology Canada. Communications Canada funds the Communications Research Centre and the Canadian Workplace Automation Research Centre. The Defence Industry Research Program also funds communications technology research, "providing financial assistance to promote and improve the research and technological capability of the Canadian defence industry, to widen the industrial base and to promote and assist strategic industries" (Investment Canada, 1991b, p. 17), as does the Defence Industry Productivity Program. Communications Canada also supports research partners dealing with the social uses of information technology, including the Telemedicine and Educational Technology Resources Agency, Canadian Healthcare Telematics Inc., the Legal Information Systems and Technologies Foundation, and the Centre for Image and Sound Research (Communications Canada, 1991).

Rather than directly funding research or using public procurement to promote new technologies, public policy measures have increasingly acted to facilitate or broker technology transfer from abroad, and to assist Canadian industry in becoming more competitive. Such programs include the Technology Inflow Program of External Affairs and International Trade Canada. As well, technology transfers (and access to foreign markets) are promoted by encouraging direct investment by foreign telecommunications companies in Canada and strategic alliances among Canadian and foreign companies (Mytelka, 1987; Investment Canada, 1991a, 1991b). Other programs and publications serve to enhance international information flows and technology transfers and alliances (EAITC, 1990a, 1990b; ISTC, 1991, 1990).

In the area of export promotion, the Program for Export Marketing Development of External Affairs and International Trade Canada assists in export marketing and financing (EAITC, 1989). The Canadian government also participated actively in the late 1980s and early 1990s in negotiating liberalized bilateral and multilateral trade institutions to open economic opportunities in foreign markets to Canadian exporters of telecommunications goods and services, such as the Canada-United States Free Trade Agreement, the Uruguay Round of negotiations in the General Agreement on Tariffs and Trade, and the North American Free Trade Agreement. These agreements are in addition to the long-standing Defence Production Sharing Agreement between Canada and the United States. Given that equipment trade, technology licensing, and the transfer of technology takes place in the context of intellectual property rules, Canada's domestic and international participation in the strengthening of institutions for intellectual property creation and protection has also contributed to the globalization of equipment development and production.

Tax credits and incentives to encourage investments in research are also an important part of public efforts to promote the development of telecommunications (and other) technology by the private sector. Investment Canada promotional literature notes that "Canada has the most generous R & D tax incentive system of all advanced industrialized nations" (Investment Canada, 1991b, p. 17). Measures include tax credits for eligible depreciable equipment and machinery, as well as deductions for salaries and other operating costs. The system has been tightened up since the mid-1980s, when there were complaints both about companies' uses and government administration of the Scientific Research Tax Credit. The Canadian Telecommunications Action Committee suggests, however, that "activities designed to improve the production process" and market research be included in Revenue Canada's definition of "scientific research and experimental development" (NGL Consulting, 1991).

Along with research programs in telecommunications in 27 universities across Canada (institutions which also provide trained engineering, software and research personnel to be employed by high technology industries), Centres of Excellence in telecommunications and microelectronics have been funded by federal and provincial governments. These, in addition to university/industry/government alliances in research and development, are seen as an important component of the "research infrastructure" (Investment Canada, 1991b; TRIO, 1992).

Finally, one of the most important policies in the development of indigenous capabilities in telecommunications technology in Canada has been the regulatory framework that allowed the close relationship between member companies of Bell Canada Enterprises. The monopoly service provider (Bell Canada) was a certain and growing purchaser for new technologies from Northern Telecom, and these companies jointly funded research at Bell Northern Research. The relationship resulted in greater financial stability to support research and equipment production than that enjoyed by the stand-alone equipment suppliers (i.e., Gandalf, Mitel, Newbridge). However, supporting technical change by providing guaranteed revenue streams to monopoly service suppliers was argued in some instances to have significantly slowed the introduction of new technologies and services, and, following Michael Porter's report, restricted the competitive market and learning opportunities of other domestic suppliers (Porter, 1991).

New Public Policy Goals and Instruments

As might be expected given the communications, trade, and industrial policy debates of the late 1980s and early 1990s, federal government policies promoting telecommunications technology development exhibited a distinct shift in paradigms. This included changes in policy objectives, legislative and program means, and departmental and institutional sites. The past model was typified by actual state participation in the provision of services or technologies, through public companies like TeleGlobe or Telesat, or programs like Telidon. The state ensured the provision of high-quality services to Canadians and assisted the establishment and technological development of a Canadian telecommunications industry. The new "global" policy model has less role for public sector enterprises, or for any national or social objectives to guide the development and use of communications technologies. Government intervention assumes a global trade, investment, and industrial framework, rather than trying to significantly change the parameters of world markets for technological transfers and flows.

Calls for state support are still voiced by the private sector. These calls are now heard by industrial and trade policy-makers rather than communications policy analysts. Government programs assist research, promote the export of Canadian telecommunications equipment and technologies, and assist in obtaining technology from abroad or in forming strategic alliances with foreign companies. Programs also emphasize commercialization of techniques developed in government laboratories, and promote research infrastructure advantages in industry/government /university alliances. As well, the formation of international standards and stronger intellectual property laws are seen to assist the creation of and access to new technologies.

Since state support is still extensive, it is legitimate to ask about the ways in which these programs serve the public's communications needs in Canada. However, the new policy framework does less to specify the purposes and ends for which telecommunications technologies should be developed. Can broad public access to communications, and to an expanding range of new communications services, be maintained by policies using markets and tax credits as their primary means? Funding research through tax credits means that only market demands for new technologies and services will be served. At present, public services such as health, education, and security constitute significant markets for information and communications technologies, prompting the development of new technologies and services. As the public expenditure comes under financial pressure in the 1990s, demand for these uses of communications technologies--and that form of indirect public shaping of telecommunications technology--cannot be assured.


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