Economic Espionage Hasn't Gone Away

Tilting the Playing Field: Economic Espionage Hasn't Gone Away Since 9/11
JINSA Online, January 28, 2005

Costs to the U.S. Economy Could Be in the Hundreds of Billions of Dollars

Overshadowed since 9/11 and the age of spectacularly explosive acts of terrorism, economic espionage against businesses, industries, technology, and trade interests continues to erode American economic strength and, consequently, U.S. national security. The notoriety of a French school dedicated to teaching the finer points of what is called ‘business intelligence,’ may be drawing more attention to a type of warfare that, pre 9/11, was considered a grave threat to America.

IBM's Armonk, New York headquarters. The pioneering computer firm has been a target of foreign industrial espionage.

Al Qaeda’s 2001 strikes on the World Trade Center and the Pentagon dealt a serious blow to the nation’s economic wellbeing in direct losses and in a profound ripple effect nationwide. Economic espionage wields the potential to cause greater damage, experts fear. It can serve to destroy the rewards of investment and, hence, “to destroy the incentive to innovate,” in the words of Peter Schweizer, a research fellow at the Hoover Institution at Stanford University. The U.S. economy is the world’s leader in no small part because of the tremendous innovation that goes on here. In fact, the very socialist underpinnings of European economies tend to stifle innovation. As former CIA Director R. James Woolsey explained in a March 17, 2000 Wall Street Journal op-ed, “[European] governments largely still dominate [their] economies, so you have much greater difficulty than [the U.S.] in innovating, encouraging labor mobility, reducing costs, attracting capital to fast-moving young businesses and adapting quickly to changing economic circumstances.” Unable to change their economic foundations, Europeans have found that “[I]t’s so much easier to keep paying bribes.”

What makes the threat of economic espionage against the U.S. unique from other security concerns is that the culprit nations are, by all other accounts, America’s strongest allies and trading partners. In a world of increasing globalization, competition, and economic integration, however, they have become our biggest rivals. France, in particular, has emerged as perhaps the most serious practitioner of economic intelligence against the U.S. As one Clinton Administration official told the New York Times in 1996, “when it comes to economic espionage, no one is any better.”

France is “one of the most aggressive collectors of economic intelligence in the world,” according to Schweizer, who authored the 1993 book “Friendly Spies: How America’s Allies Are Using Economic Espionage to Steal Our Secrets” (Atlantic Monthly Press, 1993). Utilizing espionage methods normally associated with traditional intelligence targets, the French government has been accused of infiltrating numerous American companies including IBM, Texas Instruments, and Corning, which, among other things, produces cutting edge fiber optics, semiconductors and advanced materials for the telecommunications industry. According to Schweizer, these operations, mainly aimed at stealing American technology, were carried out by France’s “well-developed intelligence service,” the Direction Generale de la Securite Exterieure (DGSE). Parallel to these state-run efforts, however, France has also, in recent years, been cultivating a controversial academic approach and institutional framework intended to develop a strategic edge in the current climate of intense economic competition between countries and between firms. In 1996, the Ecole de Guerre Economique (EGE) or School of Economic Warfare was established by Christian Harbulot, described by the French daily Liberation in November of 2004 as an “ex-Maoist of the proletarian Left.” He still heads the school, located in Paris.

Despite criticism from some in the U.S., including the online magazine, that the EGE is “a special school for economic espionage that trains students to target U.S. technology and information,” Harbulot denies these accusations, and maintains that the mission of the EGE is not to teach espionage, but instead to practice “economic intelligence”, which he defines as “the management of information to develop an economic strategy in the context of conflict and the battle to conquer segments of the market.” According to Harbulot, the EGE teaches students how to wage aggressive economic war, but they are prohibited from undertaking the sort of espionage practices pursued by the DGSE.

America is, according to Schweizer, “target number one” when it comes to economic espionage. Harbulot confirmed that while the School of Economic Warfare “does not work against American targets”, it does seek to “undertake research on the problems of economic confrontation which arise in France and abroad.” In an interview with Liberation, however, Harbulot explained that while countries like China do pose an economic threat to French companies, “the urgency” lies with the United States. As reported by Liberation, in a series of articles on the subject, the School of Economic Warfare is only one part of a broader French strategy of economic intelligence that began to emerge in the 1990s. As part of their November 2004 series titled “Guerre Economique” which focused on the French concept of “Economic War”, Liberation explains that without utilizing economic intelligence, the French would be at a disadvantage against economic superpowers like the United States. As Harbulot explained, the wider objective of the EGE is to “make companies more operational” in the face of what he views as “unfair competitors.”

To some, the crux of what the EGE is teaching may blur the line between legitimate and illegitimate business practices. Arthur Hulnick, a professor at Boston University and an expert on corporate espionage with 35 years of experience in the intelligence field, explained that there are three categories of economic espionage: legal, illegal, and a “gray and shady” area, which may be an accurate categorization of the teachings conducted at the EGE. According to Harbulot, the EGE focuses on giving students the tools to operate in a highly competitive business environment using information collected from open sources, such as the Internet, otherwise known as “methods of competitive intelligence.” The way in which this information and intelligence is used however may reflect France’s reputation as the world leader in nefarious economic practices. One EGE student explained to Liberation how open sources can be exploited to uncover unethical business practices in another company, information that can later be used to “crush” such adversaries.

Using real life case studies, students at the EGE also focus on such topics as “the destabilization of the salmon market,” although another EGE student explained that the school, while teaching how to destabilize markets, stops short of disrupting the private life of a company executive, which is a practice officially “prohibited” by the EGE.

Hulnick echoed Woolsey when he explained that one of the reasons why the French are among the leaders in economic espionage is the prevalence of state-owned enterprises in France, which creates a climate in which government interests can overlap with company interests. The U.S. maintains a tradition of limited government involvement in private business interests; what Woolsey referred to as America looking to Adam Smith as its economic patron saint as opposed to France which, he claimed, still looks to Jean-Baptiste Colbert, finance minister for King Louis IVX. American companies wishing to collect and use intelligence against competitors must proceed on their own, without the assistance of government intelligence services and within the boundaries of the law, specifically the Foreign Corrupt Practices Act.

Asked about the role of the French government in providing economic intelligence to assist French corporations, Harbulot told this reporter that the EGE has no “official” or “semi-official” connections with French intelligence, despite the accusation by that the EGE was established by Defense Consultancy International, a semi-public company with ties to the French Defense Ministry. According to Harbulot, the school is instead affiliated with a larger business school, the Ecole Superieure Libre des Sciences Commerciales Appliquees (ESLSCA), and the EGE’s funding does not come from the French government, but from studies and research that it conducts and sells to the public.

What one defines as legitimate and legal economic practices and teachings may differ vastly from country to country, according to Schweizer. While the United States government has adamantly resisted using intelligence capabilities and resources to assist American businesses, there has been criticism by many that this approach is unrealistic and na•ve in the face of ever growing economic competition from the European Union, China and others. The necessity of engaging in economic espionage beyond traditional counter-intelligence is only magnified when one also considers the extent to which other countries are using economic espionage and other aggressive economic techniques against the United States. Foreign economic espionage and intelligence-gathering damages America’s economic health to an unknown degree. It is difficult to gain an accurate estimate of the totality of the damage done to the U.S. economy.

The sixth Annual Report to Congress on Foreign Economic Collection and Industrial Espionage, submitted yearly by the President, estimated the total cost to U.S. businesses in the year 2000 to be $100-250 billion. To stay on top it has been said that the U.S. must seriously reconsider its policy against using economic espionage to help American businesses. There is evidence in recent years, however, that the U.S. intelligence apparatus has been used not only for counter-intelligence measures against economic espionage, but also to ‘level the playing field’ against the tilt brought on by the sort of “shady” aggressive techniques that are alleged to be taught at the EGE.

According to an MSNBC report that aired in May 2004, correspondence during the Clinton Administration between the CIA and Congress obtained by the network indicate that U.S intelligence resources were devoted to assisting private American companies to win overseas contracts. These documents revealed that the U.S. undertook intelligence operations intended to act upon what the U.S. government deemed to be evidence of “unfair” competition by foreign businesses, including the bribing of officials in the customer country. Robert Windrem, an investigative producer for NBC News, noted in his May 7, 2000 report for MSNBC: “ has previously reported that in 1993 and 1994, the U.S. intelligence community helped U.S. firms win $16.5 billion in overseas contracts by alerting the governments in Third World countries that ministers and others were “on the take.” Among the U.S. companies that have benefited are Raytheon, Boeing and Hughes Network Systems. The intelligence community has clamped down on the release of such data since then.”

It has been alleged that the United States government used intelligence gathered from Echelon - a name given to software filters installed on computers that process the “take” from the U.S.-run global network of electronic interception and transmission sites. Echelon is said to search through millions of intercepted messages for pre-programmed keywords or fax, telex and e-mail addresses relevant to improper business conduct. European governments, and especially that of France, were critical of Echelon being utilized for this purpose. In response, Woolsey noted in his aforementioned op-ed that the United States used Echelon to even the playing field against European nations that had turned to economic espionage and bribery to win contracts over their American competitors. After all, Woolsey noted, “most European technology just isn’t worth our stealing.” As a matter of fact, he explained, there are but “a handful of areas where European technology surpasses American, but, to say this as gently as I can, the number of such areas is very, very, very small.”

The Global War on Terrorism looks to be an ongoing struggle against a determined enemy. American policymakers should not forget that prior to al Qaeda’s 2001 strikes, the U.S. was already under siege in war fought without bombs. France’s School of Economic Warfare is just a reminder of a different type of threat that could be no less dangerous to America.