October 01, 2002

Economic Intelligence (full text)

12 min

The modern U.S. Intelligence Community was conceived and developed as the result of the "Hot War" in the 1940s and the recently ended 50 year "Cold War." Throughout that period the focus of the Community's efforts were primarily: 1) Communist political activities; and 2) military capability and plans. The dramatic changes in Eastern Europe and the Soviet Union have altered that focus, perhaps forever. While the world has not returned to the "pre-apple" Garden of Eden, the continuing military threat we and others face is far different than that of a decade ago. The "ism" of most concern now is no longer the philosophy of Marx and Lenin, but the resurgence of intensely religious isms of ancient lineage. These changes in our global world have and will continue to produce profound changes in our domestic agenda and the structure and focus of our government.

In adjusting to the New World, it is important to remember that the Soviet Union did not collapse as the result of a weakened military or the threat of opposing military might, but from a failed internal economy, fueled by the technology of communications and the ideology of freedom. The presence of Western military might and the nuclear umbrella may well have been "necessary" conditions, but they were by no means "sufficient." The Soviet Union collapsed despite the fact it had a strong military, if not at least in part as a result of the unbalanced governmental attention to military needs. One of the lessons of the decade is a reminder that true national security rests on a strong economic foundation, not mere military might.

It has been apparent for some time that international economic competition poses a threat to our domestic welfare that is perhaps as great as any threat posed by the Soviet Union in the past 25 years. The recent and dramatic changes in public attitude during the presidential campaign is dramatic testimony to the fact that economic issues have replaced military and strategic security as the primary problem in the minds of Americans. This change in focus will increasingly drive governmental and political decisions, including the reorganization of the Intelligence Community.

There are essentially two interrelated aspects to the subject of economics and intelligence: 1) collection of non-public economic information; and 2) dissemination of that information to the private sector. Both aspects raise matters that are, or at least should be, significant concerns of both the Intelligence Community and the non-defense segments of American business. Both aspects raise matters that have not yet been fully thought out and run risk of being decided in the context of reactions to unforeseen crises rather than addressed in a thoughtful, unhurried dialogue among intelligence officials, business people and politicians. This paper is an attempt to address, at least in a preliminary form, certain specific potential problems and concerns.

I. COLLECTION OF MICROECONOMIC INFORMATION From an analytical perspective, collection of economic information is both substantially similar and significantly different from collection of military or political information. Both categories of information include a large amount of publicly-available material, while the most significant information, to an intelligence analyst, may often be closely held within a small circle of key individuals or organizations. Both categories of information are, at least under Western law, protected from unauthorized disclosure. Military secrets are protected by systems of classification and criminal law; economic intelligence is often protected by contract, the law of trade secrets and certain statutes. Both categories contain similar subsets of information of significance to the analyst: "hard facts" and "intentions." Acquisition of the closely-held non-public information in both subsets is essential to any truly informed intelligence estimates. The most obvious and significant difference between economic and politico-military information is not the nature of the information, but the character of the institutions and individuals who hold the most significant non-public information. Politico-military information is, by necessity, held by governments and government employees. Economic information, at least in capitalist economies, is more often held by private companies and individuals than by governments. Equally significant is the fact that while the intelligence community knows what's going on within our own governmental and military structures, it has virtually no information on the economic facts and plans of our domestic business sector. In fact we undoubtedly know far more about the private plans of Japanese businesses than of American companies. These differences in the character of the holder and the comparative knowledge of domestic and foreign activities presents a fundamental point of departure in any discussion of the role of our Intelligence Community in collecting and analyzing economic intelligence.

The American society long ago rejected the concept that "gentlemen do not read one another's mail" when it came to international politico-military matters. Although the rules of diplomacy and the laws of many nations ban espionage, the unspoken "rules of the game" in practice are that the United States and every other major power knowingly engage in espionage, often against "friendly" as well as "hostile" foreign powers. The sanctions for this activity are, in practice, mild indeed, at least for the professional spies operating under the protection of diplomatic immunity. Thus while our nominal legal structure forbids others from spying on us, while authorizing us to spy on them, the reality is that all parties knowingly tolerate substantial espionage activities because all sides believe that, on balance, they have more to gain by a world order of secrecy/spying than by either total availability of information or unrestrained efforts to prevent "hostile intelligence activities."

That somewhat schizophrenic posture toward politico-military intelligence is sharply contrasted to the prevailing public and private sentiment about domestic economic privacy. Contemporary American morality places a high value on preservation of economic privacy, perhaps higher than any other area of privacy. Both personally and institutionally our society guards its economic data against unauthorized intrusion. Proposals for public access to individual tax returns and corporate business plans are not likely to be pressed by any aspiring politician or senior government official. It is not readily conceivable that the current restrictions against spying on U.S. persons will be lifted. Given the inhibitions on domestic intelligence gathering in general and the special sensitivity about economic privacy, any discussion about "economic intelligence" must begin with an awareness that it is indeed a Brave New World for the Intelligence Community, one that must be entered with extraordinary sensitivity, as well as extensive public dialogue.

The importance of looking at this issue broadly and promptly cannot be minimized. For decades American policy has rested on a fundamental foundation of free trade, buttressed with a number of substantial restrictions and barriers. Most would probably agree that we have no coherent public policy on foreign trade, but have instead developed over the years a hodge-podge collection of rules, regulations and practices that more often reflect the results of domestic political lobbying strength than any broad, integrated, long-term policy. If our foreign policy and military philosophies occasionally seem a bit vague and inconsistent, our foreign trade policy must be viewed as non-existent. Given the increasing awareness of our economic problems and the belated realization that changes in communications and transportation have forever shrunk our world, it is unlikely that our polity will continue to drift along without a more focussed effort to understand the world economy and then try to manipulate it to our own advantage.

If the assumption of increasing focus on understanding the economic forces around us is valid, then it is inevitable that our public officials will increasingly demand to have the best and most current information available instantaneously. Having become accustomed to the luxury of KH-11, CNN and Pentagon-to-front line communications, our leaders in the next century (if not the next presidential term) are not likely to be very patient with an inability to forecast significant changes in production runs of Hondas, BMWs and Chevrolets. The policy issues posed by this inevitable demand are substantial: 1) Do we want our government to engage in international economic espionage with the probable result of reciprocal foreign intrusions into the American economy?; 2) How much information about our domestic economic activities are we willing to share with our own Government?; and 3) Do we want do use clandestine means to acquire economic intelligence at home or abroad?

II. DISSEMINATION OF ECONOMIC INTELLIGENCE Use of the Intelligence Community to collect economic intelligence will not only affect American businesses as potential sources of significant information, it will also generate a substantial volume of data and analyses that our business sector would want to have available to it for internal planning purposes. This need is not, in fact, a new one, but expansion of economic intelligence activities will significantly enlarge the scope of the problem.

The Intelligence Community has been producing economic forecasts for quite some time. The annual USSR GNP estimates were a baseline against which much of the government's projections of military strength and expansion was measured. Over the years that forecast moved from the classified to the public arena, thereby providing private sector planners with additional information for evaluating their own interest in the developing Soviet marketplace.

Unlike the situation with respect to technological intelligence, which is in fact widely disseminated through the private sector through the Defense Industrial Security Program, much of the most significant economic intelligence fails to reach important potential domestic consumers. A good example of this limitation is the classification of overhead photography products. While pictures from LANDSAT, EOSAT and other U.S. satellites have been publicly released, we still follow a policy of essentially "no release" of our most detailed, and therefore most useful, overhead photography. Whatever the merits of this policy from a "protection of secrets" perspective, that policy has had the effect both of denying Americans access to a substantial source of valuable information, as well as adversely affecting the balance of trade by giving the French remote-sensing satellite SPOT, as well as the Soviets, a far less competitive marketplace for their own satellite-overhead products. Our present policy of non-disclosure has clearly limited our own economy's ability to integrate overhead products to maximum advantage. That example should not be repeated; we must find a way of making the finished products of our new economic intelligence more readily available to the non-defense business community so that we can collectively enhance the ability of the American business community to compete in the brave new world of a truly international economy.

Resolution of the dissemination issue is in fact closely tied to resolution of the collection issue. Clandestine collection historically breeds classified dissemination. Open collection furthers, but does not guarantee, public availability of finished product. If the Intelligence Community were to follow the models of the Departments of Commerce or Agriculture, it would seek some method of confidential reporting of essential data followed by secret government analysis and pre-announced public releases to avoid giving competitive advantages to particular companies. If the Intelligence Community were to follow the DISP model, it would enter into classified relationships with preferred providers of company-sensitive data, analyze the data and provide it in classified form to the community of providers. This model would give preferred treatment to those business who were willing to share their own "secrets" with the government in exchange for access to the products of that process.

It must be recognized that the business community will undoubtedly approach this world of information exchange with great fear and trepidation. Business efforts to keep trade secrets from competitors is a deeply ingrained instinct. Business fear about government access to "hard economic data" and business plans reaches the level of virtual paranoia. Even the most conscientious, law-abiding business executive will shiver if one proposes an "open-files" policy in which the CIA can gain total access to production forecasts, compensation studies, productivity analyses and pricing strategies. Yet without such access to both domestic and foreign company data, we cannot really expect meaningful economic intelligence activities.

III. IS THERE A ROLE FOR INTELLIGENCE AGENCIES? The problems posed by involving the intelligence agencies in economic intelligence activities are substantial. Collection and dissemination pose significant policy choices. Analysis has never been the strongest of the intelligence skills and there is no reason to expect that economic forecasting by government professionals will be significantly better than the same tasks performed by the private sector. It is axiomatic that economics remains an art, not a science, and reliability in this area is notoriously limited. Given the scope of the problems presented, it is reasonable to inquire whether there is any role for the government in expanding activities in the arena of economic intelligence.

The American society is deeply rooted in capitalism and rests on a fundamental mistrust of mixing government and business. While the modern American government is far more entwined in business concerns than was the case a mere 100 years ago, there remains a strong vestigial belief in our society that the wall of separation between government and business should not be that much shorter than the wall between Church and State. That belief, coupled with a laissez-faire foreign trade policy, might lead to the conclusion that the Intelligence Community should stay out of the field entirely, leaving matters of economic intelligence to other federal agencies and the private sector. That result is certainly the easiest solution to the multiple conflicts and adjustments that would be required if we prefer a more active role for the community. That easy path may, however, not be the best in the long run.

Our European and Asian competitors are accustomed to societies in which there is a substantially lower wall between business and government. While their economies are not Marxist, there are far from pure capitalist societies. As the world has shrunk, the role of government as a partner in business has correspondingly grown. It is probably true that it is now impossible for our government to disengage from business, even if either side really wanted a disengagement. The future undoubtedly will continued to require a mixed economy with a probability of increasing role for government because competition in a global market will require our government to become more like those of our foreign competition.

Our plans for the future use of our Intelligence Community assets must be formed in a manner consistent with our anticipations of the future role of government as a participant in the world economy. If, as suggested, that role will increase rather than decrease, it makes little sense to plan for a negligible role for intelligence agencies in collection, analysis and dissemination of economic intelligence. Our fears over how to blend intelligence and business are genuine, but the problems facing us cannot allow those fears to cause us to solve the problems by simply avoiding them.

Our defense industry has developed a close and essentially comfortable working relationship with the Intelligence Community over the past 50 years. That healthy spirit of co-operation does not presently exist throughout the American business community, but we must find ways to build on that relationship as we move beyond the politico-military wars we have successfully waged into the economic battles that presently stalemate American competitiveness. That effort will require skilled, sensitive and committed leadership in both the public and private sectors. As difficult as the resolution of these issues will be, the situation is only going to get even more intractable if we decide that the community will play no role in the economic intelligence arena.