WAR BY OTHER MEANS
Economic Espionage in America
By John J. Fialka
Norton 242pp $25
Last year, Congress finally made economic espionage a federal crime. And that should bolster a crackdown by the FBI, which has about 800 probes pending of thefts of U.S. companies' trade secrets. The new law and the FBI's campaign are just two signs that industrial espionage is on the rise. With the cold war long gone, foreign spy agencies increasingly are being reassigned to the economic front. Washington, on the other hand, has decided that the Central Intelligence Agency shouldn't get into economic spy games--although it plays some defense against foreign companies whose bribes wrest contracts from American rivals.
In War By Other Means: Economic Espionage in America, reporter John J. Fialka of the Wall Street Journal argues that the danger to the U.S. goes far beyond foreign spooks. It includes the penetration of American business and academe by foreign nationals who gather data on the latest research and products for commercial and sometimes military purposes. Their work, the author says, has rendered the U.S. an "empire with no clothes." The peril Fialka describes is real--but his book overstates the impact and some of Fialka's remedies are too harsh.
Economic espionage is hardly a novel practice. Fialka describes Francis Cabot Lowell's 19th century theft from Britain of plans for the revolutionary Cartwright loom. And the author cites more recent cases. In 1988, for example, the FBI accused a former Amgen Inc. researcher of peddling secret documents concerning the wonder drug Epogen. In 1989, U.S. agents tracked down three moles working at an IBM affiliate in France after they supposedly botched a sale of confidential documents. In 1990, British authorities apprehended a Swiss spook who was allegedly attempting to buy information on Exxon's oil-drilling-equipment purchases.
But only a portion of War By Other Means is devoted to pure economic espionage. There's too much space given to peripheral matters. For example, Fialka details the demise of a double agent who worked for the French and Russians and exposed how the Soviet military acquired Western arms technology. He rails against a perfectly legal practice that the Japanese have perfected, competitive intelligence, which generally relies on public sources for information and which he dubs "data rape." And he discusses such other issues as a Japanese patent process stacked against foreigners and money laundering. It's not clear whether these tangents stem from conceptual confusion, a dearth of industrial-espionage examples, or an attempt to paint a picture of a nation vulnerable on many fronts.
Whatever the case, Fialka contends that America's economic future is bleak because others are stealing our innovations. For this, he doesn't just blame the overseas invaders. He believes U.S. companies are so arrogant and lazy that they have become easy targets. They pay too little attention to foreign rivals. They take few precautions to protect vital trade secrets. And they do too little to improve U.S. public schools--if American students were better educated, he reasons, companies would depend less on foreign-born scientists and engineers. The result, he frets, is "a strangely hollowed out economy that continues to function, even to boom, but it is a decidedly pale version of our manufacturing past."
Can we really pin manufacturing job losses solely or even largely on economic espionage? Manufacturing accounted for about 28% of gross domestic product in the 1950s, compared with around 17% today. But in the '50s, the U.S. had little competition, since the rest of the industrialized world was still recovering from World War II. Currency fluctuations, wage differentials, and improvements in shipping have all had a lot to do with the shift of manufacturing out of the U.S. What's more, the theft of U.S. ideas has hardly left the U.S. economy flat on its back: In the past four years, it has generated 11 million net new jobs. And if government statistics overstate inflation, as many economists believe, real pay and productivity are higher than has been reported.
Still, if Fialka overrates the impact of foreign economic intrigue, he does accurately target some dilemmas. The use of foreign-born engineers and scientists and the free flow of information are critical to America's leadership in innovation. Yet these are potential Achilles' heels, too, as some foreigners do return home to launch upstart competitors.
Fialka offers some draconian nostrums. He suggests tightening the visa process so immigrants can't fill graduate-school slots. And he wants U.S. companies to halt business with China until it's clear just which companies are tied to the People's Liberation Army and finance its weapons purchases. The former measure would hurt U.S. high-tech companies by denying them talent. The latter would deny them sales and merely prompt the PLA to buy elsewhere.
However, the book offers some sound options, too. Executives must balance more carefully the costs and benefits of hiring foreign nationals and disclosing data. They should go on the offensive and, like the Japanese, spend more energy studying markets and competitors. And they must sensitize workers to the possible consequences of leaking information--the loss of jobs if the employer loses markets. The No.1 goal is clear: Make the work of all economic spies as tough as possible.