The spies who kill innovation

Opinion by AZ Gordon
Nov. 2, 2014, 9:49 p.m.

Much has been made of China’s rise and America’s supposed decline, but these arguments are generally unsound. American declinists leech off the belief that faster growth today means more power tomorrow. They assert that China’s economic rise means that the Middle Kingdom will necessarily supplant America’s global hegemony with its own.

Such declinist arguments discount the type of growth that China is riding out of poverty. China’s high-speed swelling is not high-tech progression, argues Stanford scholar Josef Joffe in his book, “The Myth of America’s Decline,” for China still clings to industrial labor, the “queen of the 19th and 20th centuries.” America, despite its faults, is the master of 21st-century economy, with better universities, technological development and innovation, outpacing China in annual patents by a three-to-one margin.

But China has one sinister advantage that the U.S. still has no clear strategy for deflating: economic espionage — the act of stealing trade secrets and proprietary information from corporations, often through cybercrime and online criminal acts.

As the Internet connects the world, cybercrime steals from it. Each year, the economy suffers $375-$575 billion in losses due to cybercrime, according to a comprehensive study by the Center for Strategic and International Studies (CSIS). CSIS reports that the U.S. economy suffers $70-140 billion of those losses, more than any other nation does. To put this in perspective, CSIS estimates that those losses amount to 200,000 lost jobs for American workers, roughly the same number of total jobs added in September.

The most committed of cybercrime culprits is China and its People’s Liberation Army (PLA). According to both independent studies and the U.S. government, the PLA routinely steals proprietary information from American corporations through extensive cyberattacks and then uses this stolen information to provide Chinese corporations with a competitive advantage over American firms.

This threatens American competitiveness by weakening intellectual property protections for entrepreneurs and large corporations alike, consequently decreasing the incentive to invest in innovation.

For example, Chinese firms stole American Superconductor Corp.’s software designs for wind turbines, effectively pushing it out of the Asian market. Similarly, Chinese economic spies have attempted to steal trade secrets from Apple, Ford Motor and the Jet Propulsion Laboratory. Such cybertheft also threatens U.S. defense posture, as the PLA likely poaches American weapon designs and hacks into America’s critical infrastructure systems.

China and America’s impregnable economic cooperation complicate the application of punitive measures. One attempt by the Senate’s 2013 Deter Cyber Theft Act called for direct sanctions in response to proven economic espionage, but the bill met private sector opposition and has since stalled.

Meanwhile, China continues to deflect criticism by denying complicity in any cyberattacks against U.S. corporations or the government.

The U.S. must unequivocally act to mitigate the danger of economic espionage and damper China’s incentives for supporting cybertheft.

This begins with passing comprehensive legislation that facilitates cyberthreat-related data sharing among corporate and governmental entities without compromising civil liberties. The Cyber Intelligence Sharing and Protection Act (CISPA) facilitated data sharing but failed to pass the Senate in 2013. Legal liability now deters data sharing that would aid in cybertheft response and prevention, but it requires significant political will.

Then, the U.S. must work with the international community, including the United Nations Security Council, to outline shared cyber norms. These norms must differentiate acceptable cybertheft targets, such as military assets, from unacceptable ones. such as civilian corporations and critical infrastructure, in the same sense that the Geneva Convention explicitly defined the norm of not targeting civilians.

Once norms have been widely accepted, at least publicly, we must develop cyber-specific venues within the WTO to arbitrate economic espionage allegations. Amendments to the WTO’s Agreement on Trade-Related Intellectual Property Rights that account for the technical realities of cyberspace would provide international legal grounding for cybertheft arbitration.

Finally, the Senate and Congress must appropriate sufficient funds and liaisons for the DHS and FBI to effectively collaborate on cybertheft forensics. Doing so will ensure each organization can collect sufficient evidence from cybertheft cases to secure DOJ indictments against potential aggravators.

These policy prescriptions are not without challenges and pitfalls. Despite its WTO member status, China’s economic power may shelter it from serious sanctions. In other words, international law and norms may not have a great impact on China’s decision-making. Also, even with clear forensic evidence identifying Chinese nationals as the sources of economic espionage, the PLA will likely claim that suspected cybercriminals are not among their ranks.

But these challenges to combating Chinese and other nations’ economic espionage must not deter the U.S. from aggressively tackling this issue. Doing so is vital to ensuring that American public and private investments in innovation will remain highly desirable and exportable throughout the world.

As students in the Silicon Valley, it is difficult for us to conceive of a world in which innovation is not rewarded. However, without sufficient action to deter economic espionage, this will increasingly be the reality we face.

Contact AZ Gordon at zelinger ‘at’

Aaron Zelinger Gordon likes to argue with anybody who can bear it—friends, strangers, other Daily columnists, and himself. As such, a friend once berated him for refusing to believe that it's not butter. He appreciates few things more than astutely cited Will Ferrell quotes, dance floor shenanigans, oreo milkshakes, and foreign policy debates. When not studying Symbolic Systems and Economics, he can be found procrastinating in the pool, writing poetry, and learning languages other than his native Spanish and English. Contact him for coffee at zelinger 'at' stanford dot edu.

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