Government Research Institutes(GRI), together with universities and private research labs, constitute the core of the Korea's national innovation system, The aim of this paper is to analyze the current system of GRIs and the National Research Councils(RC) in Korea, and suggest some policy recommendations conducive to achieving a world class competitive research system. To identify the problems and policy issues, we have conducted interviews (with executives staffs of RCs, GRIs and government ministries) and questionnaire surveys. For benchmarking purposes, we have visited 9 public research institutes in the USA, UK, Germany, and France. From the analysis of the problems revealed from the interviews and questionnaires, 6 policy variables are identified: three of them, which we call systemware variables, are governance structure, resources allocation system, and management control system; and the other three, which we call humanware variables, are visions and strategic goals, leadership, and research manpower, respectively. We have found that 1;he current GRI/RC systems are inefficient mainly due to the rigid and bureaucratic governance structure and inconsistent resource (i.e., government budgets) allocation systems. We reject the idea of replacing the current RC system with such radical alternatives as 're-governmentization'or 'privatization'. Instead we recommend that the government introduce a better system of governance and national budget allocations, which in turn would help induce a better management control systems, clear research visions and goals, strong leadership on the part of the RC chairman, and more creative and motivated researchers. These recommendations may provide opportunities and rooms for chairmen of RCs and presidents of GRIs to exercise more positive leadership in terms of fitting the visions and goal of GRIs to the national R&D strategy and creating a rational management control system as well as motivating researchers in GRIs to be more creative and productive.