Using Economic Intelligence to Achieve Regional Security Objectives

Economic intelligence is information about how those outside the collecting organization's country develop material goods that is interpreted and presented to inform policymakers. ¹ The debate over the role of economic intelligence in meeting a country's economic or security goals remains for many reasons, controversial and unresolved. By conceiving of economic intelligence as an activity focused on external, nondomestic environments—therefore, mostly regional security issues—economic intelligence can be successfully incorporated within the larger intelligence community. Such intelligence provides a means of integrating economic planning with security issues, during both the contingency period and the post-conflict reconstruction period. Additionally, economic intelligence allows policymakers to better understand some of the economic underpinnings of politics and society in different regions.

THE ECONOMIC INTELLIGENCE DEBATE

Mercantilism represents the premier issue facing any advocate of economic intelligence. Essentially, any author promoting the idea of economic intelligence invariably encounters an irrefutable thesis: since economic intelligence uses government resources to pursue corporate profitability, this mercantilist activity is an antithesis to the ethos of democratic, free market societies. In other words, what is good for General Motors may not be good for the United States, since giving General Motors a trade secret may undercut freedoms or the level economic playing field that democracy usually seeks to preserve. Beyond this issue, some secondary issues face proponents of economic intelligence: the private sector's preeminence in economic analysis; the role of economic intelligence in preserving trade deals; and the issue of economic counterintelligence. Despite showing some impetus for the need for economic intelligence, these last two issues never break enough ground to allow them to persevere over the primary counterargument to economic intelligence. But this entire debate overlooks the work of one of the world's first economic spies: the British economic geographer Richard Hakluyt the Younger (1552–1616). His activities provide a working definition of economic intelligence which circumvents the current debate and suggests a framework for useful economic intelligence.

More recently, at the end of the Cold War, Jeffrey Wright argued that new changes in the world political environment generated an increasing correlation between national security and economic issues. He suggested that a reduction of spending on arms could be redirected to “… an entire ‘corps’ of men and women to work … programs critically important to security and growth” which would allow the United States to capitalize on the “peace dividend.” ² Other authors commented at the time on the need to shift the structure of the Intelligence Community to meet a new economic order. For example, William Agrell argued: “A major difficulty stems from the fact that the intelligence organs of the state still concentrate too exclusively on military security even though intelligence needs are now considerably broader … the concept of security is evolving from that of a nation-state based on military power to a total security concept embracing all of society.” ³ Other authors specifically asserted the need for microeconomic intelligence, or intelligence at the level of the firm. ⁴ Such intelligence is geared towards the success of a given country's firms.

However, this general argument has faced some important and largely neoclassical economics critiques which seek to refute the idea of a microeconomic intelligence capability akin to that of Japan's Ministry of Trade and Industry in the United States. ⁵ Abram Shulsky commented in particular about this conflict among economists, suggesting that “… questions about the use of intelligence agencies to collect economic information are in large measure surrogates for a more fundamental debate over government's role in directing a country's economic future.” ⁶ Additionally, Stanley Kolber argues: “The economic espionage mission is based on faulty assumptions,” and that “the focus on commercial espionage also creates a myopic perspective,” meaning that spending on economic information diverts needed funds from issues like terrorism. ⁷ Given these criticisms, researchers have sought to very specifically outline the conditions under which economic intelligence would be useful to national security objectives.

Law and Order Economics

This supporting rationale for economic intelligence is similar to the role of governance and rule of law in New Institutional Economics. ⁸ In plain terms, economic intelligence serves as a “law and order” mechanism by mitigating economic espionage and monitoring trade deals. This grows out of Philip Zelikow's four points outlining the effective use of economic intelligence: it should (1) leverage unique capabilities, (2) operate in areas where there is no open information, (3) fit information for special requirements, or (4) operate where the private sector cannot. ⁹ This is commensurate with the sense that the private sector features as the primary progenitor of economic information and the information technology base, as advocated by Bruce Berkowitz and Allan Goodman, which places government's activity only in areas where the private sector fails to display competency. ¹⁰

Some of these “law and order” motivations for economic intelligence can be only loosely considered economic. As Michael Herman suggests, while in the 1990s forty percent of collection could be termed “economic”; in reality “The figure points to the problems of defining by subjects … parts of it include efforts on ‘bad actors’ in the international market-place guilty of … money laundering, sale of fissionable materials … and on tracing profits and laundering operations of narcotics dealers.” ¹¹ As such, the discussion here is really about lawyers and not economists. This portends trouble for advocates of economic intelligence, leading to questions as to why a wing of the Intelligence Community can do better than the Federal Bureau of Investigation (FBI) or the Treasury Department in mitigating economic espionage, financial crimes, or trade treaty irregularities.

Consultative Economics

More recent discussions of economic intelligence only briefly mention these difficulties, and focus on predictive models or conditions underpinning the generation of economic espionage. Some authors advocate a “holistic” approach to the use of economic intelligence in the context of national security objectives, but this approach offers few practical implications for intelligence practitioners, and relegates economic intelligence to a largely consultative, tertiary role. ¹² Such a consultative role has also generated interest in utilizing a growing corporate intelligence sector in government intelligence programs. ¹³ As argued elsewhere, however, instead of viewing corporate intelligence as a response to a void of government capabilities, the recent rise in corporate intelligence activity may perhaps be in reality a response to the changing structure of international business. ¹⁴ Furthermore, substantial reasons exist as to why corporate intelligence aiding government may be just as unethical as government running its own economic espionage programs.

Other recent commentaries on the functionality of economic intelligence focus on historical case studies. John Farquharson has detailed the British scramble for German technology and scientists after the close of World War II. ¹⁵ Christopher Andrew discussed the role of the Soviet Union's Line X in capturing vital technologies for furthering Soviet economic development. ¹⁶ Command-economies are frequently the topic of economic espionage collection, as Kristie Macrackis described the role of East German intelligence in technical collection. ¹⁷ Lastly, Barrett J. Riordian has attempted to explain the demand or motivation for economic espionage as stemming from the precepts of transaction cost economics (TCE): bounded rationality, asset specificity, and the issue of “hold-up.” ¹⁸ However, TCE features as only one conception of sustainable competitive advantage. The inclusion of institutional or resource-based views might complicate Riordan's analysis. ¹⁹

The Hakluyt Influence

Despite these useful depictions of economic espionage, scholars need to delve deeper into history for a meaningful model of economic intelligence for today's purposes. That model of economic intelligence is Richard Hakluyt the Younger. Lessons from Hakluyt's experience remain overlooked in the academic economic intelligence discourse, but remain influential in the business intelligence community, to the extent that a prominent British business intelligence firm is named after him.

Hakluyt may perhaps be considered the world's first prominent economic intelligence officer. His activities centered on collecting news and reports of economic conditions in areas vital to the national security of the British Crown. A major proponent of colonization, he even identified Chesapeake Bay as a premier starting point for Britain's North American colonial aspirations. ²⁰ Best known for his book, The principall navigations, voiages and discoveries of the English nation (1589), Hakluyt was intimately involved with the East India Company's planning. As Heidi Brayman Hackel and Peter C. Mancall explain, “[The East India Company's] plans would be approved only if supported by knowledge of the exact location of precious commodities and the whereabouts of other Europeans whom the queen did not want to challenge or offend … Hakluyt did not get this information first-hand; he devoted his energies to gathering information about the entire world.” ²¹ The operations of the British Crown in North America could have destabilized the security environment had they interfered with other powers' operations. Better economic intelligence via Hakluyt minimized this risk. In other words, this incident demonstrates that economic intelligence represents a means of achieving regional security goals.

TOWARD USEFUL ECONOMIC INTELLIGENCE

As the Hakluyt example suggests, conceiving of economic intelligence as a means of achieving regional security goals represents a more fruitful area of inquiry than is provided by the current debate. This arises from the fact that the domestic use of economic intelligence remains locked within a debate that economic intelligence advocates may never successfully resolve. As such, economic intelligence helps achieve regional security goals by collecting information that is interpreted and presented to inform policymakers about how those outside the collecting organization's country develop material goods in a particular region. Both practical and theoretical reasons indicate why this conception or reorientation of economic intelligence will remain robust. First, theoretical reasons suggest that the structure of Western economies differs appreciably from those of non-Western countries and developing nations, meaning that the economic assumptions denying effective economic intelligence in the United States are not relevant in other countries. Second, this conception achieves all of Philip Zelikow's four points.

In terms of theoretical underpinnings, a considerable literature details how the world may consist of different “varieties of capitalism,” meaning that the economies of different regions are structured in different permutations of the basic market economy. While prices and incentives retain considerable importance around the world, various social structures and institutions mitigate the full reign of the perfectly competitive economy. In other words, the world better approximates Keynesian imperfect competition than it does a pure neoclassical model. ²² Additionally, theories and notions constructed in terms of Anglo-Saxon economies may translate poorly to developing countries. For example, considerable literature has been published on the need for companies to focus their operations on core activities. ²³ While this makes excellent sense in Western countries, missing markets and institutional voids in developing countries may suggest the opposite recommendation—that more diversification leads to better performance. ²⁴ As a result, economic intelligence may be more acceptable to governments in countries where “axes of solidarity” between business and government overlap more than others. ²⁵ This means that while economic intelligence may not work domestically in Anglo–Saxon countries, it may prove extremely beneficial outside these areas.

Evaluating Zelikow's Arguments

With regard to Zelikow's work, his four points outline succinct principles which delineate the appropriateness of economic intelligence. First, he argues that economic intelligence must be a public good that the private sector will not provide. Zelikow offers the example of North Korea, a country posing a real regional security issue for the United States and one that is underserved by the private sector economic information market. This example can be applied easily to other regions featuring a “rogue state,” which the private sector avoids completely.

Second, Zelikow suggests that economic intelligence makes sense when the government maintains unique collection abilities. Notably, the dichotomy between business and other institutions in many developing countries is not as starkly defined as that in North America and Europe. For example, the military acts as an economic actor in many developing countries—Iran, Pakistan, and Thailand, to name just a few. ²⁶ Generals run businesses across the globe, but information on them will not often be found in the Wall Street Journal. The role of the military in business presents a clear example of the intersection between regional security and economic intelligence gathering. Furthermore, for these types of businesses, the government may represent the only institution with the unique collection abilities to gather information on such entities.

Another rationale for economic intelligence regards the case where the government does not wish to rely on outside sources. Zelikow suggests that a disconnect may exist between private and public sector estimates. In terms of economic intelligence for regional security objectives, using in-house economic analysts allows for a better internal provision of intelligence. Since the economic analysis is then performed within the organization, the policymaker may more easily communicate his or her needs to the intelligence organization and to set up liaison arrangements. ²⁷ Communicating regional strategies with outside private sector groups is most likely impossible due to secrecy. As a result, an in-house economic intelligence capability for regional security may in fact generate better intelligence than relying on the private sector in certain cases. Of course, this does not negate continued government reliance on the private sector for raw data.

Lastly, economic intelligence makes sense when the government wishes to mold information to fit its own needs. This is especially the case for post-conflict operations or for planning for future post-conflict operations. As the ongoing case of Iraq suggests, the United States's economic planning for the post-conflict situation in Iraq was severely lacking and a definite role existed for collaboration among the Intelligence Community, the military, and economic planners. Furthermore, an economic intelligence capability can aid the government in determining how to maximize and manage economic development in the wake of political crises or conflict.

ECONOMIC INTELLIGENCE IN THE MIDDLE EAST: IRAQ'S POST-CONFLICT OPERATIONS

The United States lacked significant post-conflict economic planning for Iraq. This somewhat represented an over-reliance on neoliberalism or free market fundamentalism, which was poorly suited to the economic conditions of Iraq. ²⁸ Perhaps too many examples of mismanagement are available for consideration; from the 24-year-old American tasked to reopen the Iraqi stock market, to the complete dismantling of Iraq's large, state-owned enterprises. ²⁹ The United States did not proactively reconstruct the market in Iraq, nor was Iraq's successor government able to use its state-owned entities as a starting point. The sense is growing in policy circles that Iraq needs a “New Deal” type of economic plan that reverses mass unemployment, a factor commonly regarded as a cause of political violence. ³⁰ But more recent recommendations tend to discuss the mechanics of aid allocation: how the flow of aid emanates from different U.S. bureaucracies, the role of military reconstruction procedures, the size of aid, the budget evaluation process, and the need for an “economic czar” for Iraq. ³¹

Remaining poorly understood are the “nuts and bolts” of the process of economic development and their relation to regional security. A role exists for economic intelligence in bridging the gap between these two concepts. Economic intelligence represents a means of merging different policy dialogues into the overall strategic orientation of regional security initiatives. Economic intelligence could catalyze an effective industrial policy for post-conflict countries within the overall policy environment, for example:

1. Economic intelligence officers should identify the key players behind the host nation's large business groups, their reputation, their capabilities and the status of their assets and enterprises. Since these business groups represent the commanding heights of the economy, they will serve as an important source of information about the domestic country's economic needs. ³² Therefore, interactions with business groups should be closely coordinated—not just with other economic policies, but with political and tactical efforts as well.

2. Economic intelligence can also contribute to reconstruction programs by crafting a strategy for rural economic development and agricultural reforms. ³³

3. Economic intelligence officers can craft a dynamic investment policy to promote project execution capabilities in large firms as a basis for long-term economic growth. ³⁴ Government worker training (engineers, skilled labor) and large-scale infrastructure projects complement the private sector's efforts to build project execution skills. ³⁵

4. Economic intelligence officers can further aid in post-conflict environments by designing and monitoring institutions that promote a dynamic investment policy, as follows:

   1. An economic advisory board, created within a larger ministry for trade and commerce, that will approve and extend performance-based incentives, guarantee development loans, audit projects, and coordinate with the national budget.

   2. An office of planning coordination, to monitor and evaluate the implementation of projects.

   3. An export promotion committee, representing a task force of private and public partners.

   4. The development of programs for specific commodities or sectors, which coordinate with representatives of those industries, such as the firms with the largest market share.

   5. A trade promotion corporation, which will set up offices in different countries to promote awareness of trade opportunities, help domestic companies locate partners or markets, discuss trade and marketing requirements, and serve as an information conduit.

   6. The creation of sectoral export organizations providing marketing, advertising, quality inspection, dissemination of standards, and arbitration assistance.

Given the ability of economic intelligence to view post-conflict areas from the lens of economic development, this added capability to the overall Intelligence Community's efforts in post-conflict countries will reap continuing benefits arising from finally fitting the economic angle into the overall strategy. These recommendations suggest a more pragmatic means of conducting post-conflict operations than previous conceptions of economic intelligence. In terms of country reconstruction, planners and actors in the process should also regard markets in need of reconstruction. Economic intelligence represents an important means of achieving such reconstructed markets.

ECONOMIC INTELLIGENCE IN AFRICA

Modern African history demonstrates many examples of development failure, ethnic strife, and conflict. ³⁶ An increasing chorus of commentators emphasizes how failures in generating economic growth, in concert often with long-lingering political and historical issues, leads to civil war. ³⁷ Kishor Sharma argues that “development failure” largely explains Nepal's current civil war. In a multiethnic environment, increasing inequalities among groups fosters tensions leading ultimately to conflict. ³⁸ S. Abeyratne suggests that ethnic tensions combine with economic problems to generate conflict. He argues that “[W]idespread social exclusion in a stagnant economy, though not a sufficient condition for the outbreak of civil war, created a fertile ground for the emergence and sustenance of political conflict.” ³⁹ More recently, economic development represents one of the U.S. Army's major “logical lines of operations” within its newly-revised counterinsurgency manual. ⁴⁰

Given this link between development failures and conflict, economic intelligence can play an important role in supporting strategies for regional security goals in Africa by identifying key facets of the economy which relate to political outcomes and by preparing for economic disaster or reconstruction. Similar to other developing regions around the world, economic clout means political clout in Africa. In the past few years, the Nigerian government has attempted to organize large, formerly state-owned companies under the helm of a group of “mega businessmen” in order to generate investment within Nigeria. ⁴¹ Understanding the economic activities of this elite group will better characterize policy. Secondly, economic intelligence can fulfill a preventive role and mitigate risk by planning for events such as economic collapse. If more contingency studies of the economic variety are performed ahead of time, the risk that the United States will be caught unprepared for any economic events which may exacerbate already fragile political situations will be greatly reduced.

PLANNING FOR SECURITY

This conception of economic intelligence as a mechanism for meeting regional security objectives provides a means of moving beyond the current economic intelligence debate. As the professional and academic literature stands, considerable research defines economic intelligence as inimical to the ethos of free markets and ethical government action. But once economic intelligence is conceived of as an external, nondomestic function, this impasse is removed from operationalizing economic intelligence.

At the same time, recent events demonstrate a clear need for integrating economic analysis into the overall intelligence community. The cases of Africa and Iraq present clear rationales for this need. An additional event is Israel's conflict with Hezbollah in 2006. After the cessation of hostilities, the United States struggled to bring timely and sufficient development aid to Lebanon. ⁴² If the United States integrated preventive economic planning into its regional security strategy, then the United States would be better prepared to face these economic quandaries in the future.

Additional information

Notes on contributors

Jeffrey Owen Herzog

Jeffrey Owen Herzog is a doctoral candidate at the Judge Business School at the University of Cambridge in the United Kingdom, and Editor-in-Chief of The Cambridge Review of International Affairs. He previously held a Teaching Fellowship in the Economics of Developing Countries from 2005 to 2007 at the Faculty of Economics and is a member of St. Edmund's College, both also at the University of Cambridge.