War by Other Means.

Economic espionage may be rampant, but this book doesn't quite prove it

Perhaps we aren't surprised that with the end of the Cold War, people in high places did not take a look at the $30-billion-a-year U.S. intelligence community, scratch their collective heads, and ask, "What do we need them for anymore, anyway?" Despite the elimination of the military threat to the United States and the disappearance of the Third World hot spots that pitted the United States against the USSR, the persistent CIA and its sister agencies have held their own. Last year, Congress gave them a raise, increasing spending on intelligence--and promising more in '97. Reaching for a metaphor, former CIA Director James Woolsey gave this oft-quoted reason why America's intelligence problem had gotten worse, not better, with the demise of the USSR: The dragon may be dead, but the forest is filled with many "poisonous snakes" And only the CIA could help America spot them and stamp them out. For many critics of the national security state, however, it was difficult precisely to identify the threat. Was it terrorists? Drug traffickers? Arms proliferators?

Now comes John Fialka, a highly respected veteran reporter for The Wall Street Journal, to tell us that a rapidly propagating species of snake is the economic espionage agent. Like a corporate Paul Revere, Fialka sounds the alarm about industrial spies from countries friendly and not-so-friendly swarming to steal the Fortune 500's trade and technology secrets, and thereby reduce America to second-class status. Fialka reports that since 1950 "three successive waves of economic espionage have rolled over the country" And he concludes that Russian, French, Japanese, and other spies are a key reason why the United States is no longer the undisputed world economic leader.

Certainly there is a contingent of economic spies out there, and has been for as long as there have been technological developments to steal. In fact, Fialka's most compelling anecdote may be in the book's introduction, which details nineteenth-century entrepreneur Francis Cabot Lowell's theft of the design plans for England's Cartwright loom, and the resultant effects on US. industry. But, in general, the author does not help us get a handle on how serious the threat of economic espionage is. His arguments and examples throughout seem thin--as if Fialka is trying to weave a tapestry of international espionage out of a few colorful, but not particularly substantive, threads.

As the basis of his argument, Fialka relies (rather uncritically) on the assertions of the CIA, the FBI, and private security consultants--many of them, of course, former spooks--who assert that America is engaged in a new kind of Cold War. (Since around 1993, CIA directors have repeatedly assured Congress and the American public that the agency will aggressively pursue the growing foreign threat to American companies.) Unlike Cold War I, Cold War II pits the United States against virtually the entire rest of the world. "In the vast arena of economic espionage, Americans have been looted by the Russians, outplayed by the Japanese, and overwhelmed by the Chinese," Fialka says, along with the French, the Germans, the Koreans, the Indians, the Israelis--the list goes on. With an apparent lack of skepticism, Fialka accepts the FBI's claim that it is handling more than 800 cases of economic espionage at present, though FBI Director Louis Freeh refuses to document a single one.

It can certainly be argued that with the end of the Cold War, economics--not ideology--began to govern the foreign-policy apparatus of most of the world's leading nations. Of course, to many students of the long Cold War era, American foreign policy has always been guided primarily by the imperative to defend the commercial interests of corporate America abroad, from the CIA's subservience to the United Fruit Co. in Guatemala and Big Oil in Iran in the 1950s to the eager defense of the copper industry and ITT in Chile in the 1970s. Yet in the 1990s that imperative is no longer distorted by the prism of the US.-Soviet conflict. Policy makers here and abroad could, theoretically at least, make rational calculations of their own nation's economic self-interest and act on them. And if those calculations were to include the apparent need to plunder other nations' economic secrets using spies, eavesdropping technology and other Cold War tools, the theory goes, they would do so.

As the Cold War fizzled, a renewed debate occurred in the United States about whether or not the CIA and the rest of the U.S. intelligence community ought to be unleashed to give America a competitive advantage in trade and technology by stealing economic secrets. Many in the CIA were opposed to the idea, while others saw it as a way to make use of otherwise superfluous spies and spy satellites. Members of Congress openly called on the CIA to help U.S. industry abroad. At the very least, the list of the CIA's customers expanded from the Pentagon and the State Department to include the Commerce Department and the Federal Reserve. Fialka ignores this debate. With it, he ignores or pooh-poohs reports that the U.S. intelligence agencies are engaged in precisely the kind of conduct that he so denounces among other countries. The widely reported news that the CIA and National Security Agency (NSA) spied on and bugged the Swiss hotel rooms of Japanese trade negotiators in 1995 fails to interest Fialka. And the more scandalous and heavy-handed 199495 CIA effort in France, where undercover CIA operatives bungled an attempt to pry into French industrial and trade secrets (and were caught) is dismissed by Fialka. "As spy stories go, it wasn't much," he writes, blaming it all on "the alleged machinations of a fiftyish Dallas public relations woman" In fact, the affair involved at least seven CIA officials from stations in France and Belgium and caused heads to roll at the CIA's headquarters in Langley, Virginia.

To criticize Fialka's book is not to dismiss entirely the idea that other nations are mounting spying operations against the United States. Certainly they are. And though most of the spying is aimed at military secrets, defense technologies, and our own intelligence agencies, at least some of it may be directed at civilian technology, from software to electronics to biotech. But it is a question of degree. If any country has anything like a coordinated, long-term plan to grab U.S. intellectual property, it would be China. China has much to gain, and boasts an authoritarian, military-dominated regime that mixes the civil economy with industry run by the People's Liberation Army. (Indeed, one of China's most notorious military-industrial bigwigs managed to infiltrate himself into a White House coffee with President Clinton, thanks to the overeager Democratic party fundraisers who booked his unauthorized tour. And another China-connected money man, the Lippo Group's John Huang, deposited himself at the Commerce Department, where he secured top-secret clearance.)

But cases of actual spying are a different kettle of snakes from efforts by China--or any other nation--to make use of America's thankfully open society. All nations' intelligence services use so-called "open sources," publicly available data, to gather information, and there the United States is a treasure trove. Yet in his headlong rush to warn America about economic spies, Fialka frequently inveighs against legitimate and proper intelligence collection through open sources. And, far too often his anecdotes involve conflict in areas that have little to do with spying per se. For instance, China's insistence on obtaining military-related technology from McDonnell-Douglas, which Beijing then quietly shifted from its nominally civilian use to an apparently military purpose, was hardly an example of economic espionage; it was an example of a subservient US. corporation willing to kowtow to the Chinese in order to win export contracts, America's national interest be damned. Similarly, Fialka presents us with this supposedly alarming statistic: "In 1981, the People's Republic of China had no doctoral candidates in the United States; ten years later, it had 1,596" But it is a long march from the fact that China sends 15,000 students a year to the United States to the unsupported claim that Beijing has "a minimum of several hundred long-term agents operating here" Perhaps we need to start looking under our beds again.

When it comes to remedies, Fialka's are a mishmash of the platitudinous and the outrageous. Few would quarrel with his recommendation that "the public school system must be fixed" in order to boost U.S. competitiveness, but his call to scale back visas for foreign students is strident. He endorses the idea that the United States must spend more money on counterintelligence, beefing up the FBI and tracking suspected money laundering. But, of course, that is exactly the solution sought by many of his sources in the intelligence community, who want more money for such purposes. Most outlandish is his call to limit or "even [close] down altogether" the Freedom of Information Act, because it opens US. government institutions to foreign prying.

Fialka probably knows better. At least we can hope that he wrote his book in such alarming, even apocalyptic terms, because it would be provocative and boost sales, but that deep down he knows that things are not so bad. He tells the story of a French author who wrote a book and wanted to call it La Guerre Economique (Economic War). "But his publisher insisted on changing the title. `War' was felt to be too strong a word," he says. Unfortunately, Fialka's publisher had no such scruples.