ON SECURITY
Understanding Economic Espionage: The Past
undefined and Global Security Analyst
Ben West
Global Security Analyst, Stratfor
13 MIN READFeb 12, 2021 | 10:00 GMT
Series Introduction
The world is currently embroiled in a new wave of economic espionage facilitating technology transfer at a pace and scope unrivaled in human history. Previous waves saw the transfer of traditional practices and methods from China to Europe, including silk in the 6th century B.C. to porcelain and tea in the 17th and 18th centuries A.D. The United States drove the next wave of espionage, targeting British technology to grow its domestic industrial capacity following its independence. The current wave has brought history back full circle, with China now the main aggressor in economic espionage as it seeks to reclaim its title as a global technology leader.
A map showing three waves of economic espionage
In this three-part series, we will explore historical examples of trade secret theft and how the practice of economic espionage has assisted transfers of technology. We will also explore the current threat of economic espionage posed primarily, but not exclusively, by China. And we will also explore the future of economic espionage, the world's next aggressors and targets, and how this could facilitate shifts in the balance of power as seen during previous eras.
For our purposes, economic espionage will refer to state-backed efforts to steal trade secrets either through human, electronic or other intelligence practices. The definition of trade secret has shifted over time, but essentially it is any technology or process protected by law. Economic espionage is distinguished from corporate espionage, which involves the attempted theft of trade secrets by rival companies rather than states. While corporate espionage typically poses a narrow threat and can be resolved in court, economic espionage tends to be much broader and more difficult to resolve due to competing jurisdictions. In countries with state oversight of commercial endeavors, where state-owned enterprises have access to the state's intelligence apparatus through concerted, state-backed industrialization efforts, companies and the state act in unison. Trade secret theft that benefits state-backed enterprises is considered economic espionage. We distinguish both of these from strategic, or military espionage, which seeks access to government-controlled secrets. There is overlap here, since the theft of secrets regarding military technology or political strategies can have commercial benefits. But if the primary motivation is to gain a political or military, rather than a purely economic, advantage over a country, we will consider it strategic intelligence for the purpose of this series.
Part I: The Past
The threat of economic espionage involves an assessment of the interest, intent and capability of a state to steal trade secrets for economic benefit. This essentially means whether a country is interested in a technology, has the intent to acquire it through theft and the capability (i.e. intelligence resources) to gain unauthorized access to it.
But surveying the history of state-backed economic espionage, capability is more than just the technical ability to steal a piece of technology. It also requires an adequate financial, labor and industrial base to exploit the secrets. Intelligence successes do not always translate into economic advancement. Even then, economic espionage has been most successful at boosting domestic industries rather than destroying targeted industries.
China to Europe
For most of the previous two millennia, China was the international commercial center of the world. Products such as silk, porcelain and tea were rare and expensive in previous eras. The only way to get them was through trade with China. Commercial scheming by foreign powers to share in the profits generated by these products motivated trade secret theft that undermined China's monopoly on those products.
One of the first documented involuntary transfers of technology from one state to another is silk from China to the Byzantine Empire in the 6th Century A.D. Silk wasn't just coveted by the early European ruling class as a luxurious material that signified wealth and opulence, it was also one of the strongest, most versatile fabrics available. European fabrics were limited to wool, linen and leather. Silk was lighter, stronger and offered a greater variety of designs and applications. Silk also had important military applications: Special weaves could contain spear points that punctured the skin, making extraction easier and limiting the risk of infection. In addition to being prohibitively expensive and only accessible to the wealthiest people, the supply chain from China to Europe (via the Silk Road) was long, complex and risky. Persia, a historical rival to the Byzantine Empire and its Roman predecessors, occupied a prominent choke point along the supply lines and could disrupt European access to silk should it deem necessary.
Sericulture is an example of a complicated technology that gradually transferred out of China over centuries. China certainly appreciated the importance of maintaining its monopoly on silk, threatening anyone who intentionally spread knowledge of sericulture with death. But it was also a technology impossible to contain over the long run. Sericulture involves multiple processes, including cultivating white mulberry trees for the silkworms to feed on, raising the ideal silkworm specimen, harvesting the silkworm cocoons, extracting the threads and weaving for various uses. It was a cottage industry in China for thousands of years, with the knowledge passed down from generation to generation, and was not a centralized process that could be contained to a few trusted individuals. As demand for silk increased abroad, so did demand for the tradecraft behind it. Chinese soldiers used silk to purchase necessities from Central Asian traders, so knowing how to produce silk was akin to printing money.
Samples of silk discovered throughout Central and Southwest Asia suggest that sericulture gradually made its way westward from China over many generations and political shifts, eventually making it to the Byzantine Empire by the 6th century A.D. Gifting silkworm eggs (which is how Justinian I allegedly obtained the secrets of silk production) was somewhat common, especially for traveling religious men seeking approval from local leaders. Having eggs alone would have been inadequate to the eventual establishment of Byzantine silk production; white mulberry trees and knowledge of the processes of producing silk, which appear to have come to Europe from Central Asia rather than China, would also have been required.
Despite the gradual transfer of technology and establishment of independent production bases in China's clientele markets, China remained the dominant producer of silk for the next thousand years. Even today, China is one of the largest producers of silk.
The story of how China lost its monopoly on sericulture is important because it highlights how the more valuable a trade secret is, the more vulnerable it is to theft or simply natural transfer; and how the theft of trade secrets and espionage for economic gain in general is just one force within the larger process of technology transfer. Whether the technology is sericulture or semiconductors, technical knowledge alone is not enough to set up a rival industry. One also needs reliable access to raw materials, a knowledgeable workforce, and a financial and industrial base to support the industry. Ultimately, while countries have every incentive to protect their trade secrets, and have tried to do so throughout history, the ultimate transfer of technology is likely inevitable: It's probably just a matter of whether it happens over centuries, decades or years.
Similar to silk, porcelain was in high demand across Europe in the 17th century, and China was essentially the only source. While porcelain didn't have the same strategic value of silk, replication of the product promised to be a commercial boon to any European that could figure out how to reproduce it.
Recognizing the value of learning the trade secrets behind porcelain and hoping to give their producers a leg up, France dispatched Jesuit missionary Father Francois Xavier d'Entrecolles to the center of Chinese porcelain production, Jingdezhen, in the early 18th century. D'Entrecolles used his religious background to work his way into porcelain factories that were otherwise barred to foreigners. He sent letters to his handlers laying out the process in great detail, noting that upward of 70 people handled each piece of porcelain in a complex assembly line-style production process. Though he spent nearly 20 years collecting illicit information on the Chinese porcelain industry, France ultimately failed to exploit the trove of intelligence d'Entrecolles provided to create an indigenous, French porcelain manufacturing industry. While France certainly had the interest, intent and capability to obtain the trade secrets, it lacked the industrial capability to exploit those secrets.
About 50 years later, during the mid-18th century, Englishman Josiah Wedgwood read Father d'Entrecolles' letters and incorporated some of the details observed of the Chinese porcelain assembly lines into his own production process. The intelligence helped to increase the quality of English dishes and establish a company bearing the Wedgwood name that is still well known for fine porcelain today. Historian Robert Finlay even suggests that far beyond the production of porcelain, d'Entrecolles' letters helped lay the groundwork for assembly line-style manufacturing during the early days of the European Industrial Revolution. Great Britain may have been better positioned to exploit Father d'Entrecolles' intelligence because it had advanced further with the Industrial Revolution than France had in the early 18th century, demonstrating the importance of indigenous industrial capability when it comes to exploiting the clandestine transfer of technology.
The British were also capable of stealing secrets of their own, as evidenced by the highly coordinated 19th-century effort to steal Chinese tea cultivation secrets in order to assist the British East India Company's establishment of a rival industry in India.
United Kingdom to United States
During the late 18th and early 19th century, it was essentially U.S. policy to steal components of foreign technology and recruit technical experts to build up the U.S. industrial base from its infancy. Alexander Hamilton promoted rewards to anyone who brought secrets of value to the United States. Presidents Washington and Jefferson, eager to gain economic as well as political independence from Britain, approved of the acquisition of any technology or knowledge that would bolster U.S. manufacturing capabilities and end its junior economic relationship with Britain. Despite U.S. independence from Great Britain, the former colonies still relied heavily on selling raw materials to British merchants and buying finished products from them. Thomas Attwood Digges acted as a kind of case officer and recruiter, advertising rewards across the British Isles for anyone who could smuggle technology and know-how to America. Britain responded with bans on exporting technology and forbidding the emigration of textile workers for fear that they would help the fledgling U.S. industrial sector, as well as by arresting recruiters such as Digges.
One of the most successful examples of the recruitment of a British textile worker was the emigration of Samuel Slater to the United States in 1790. Slater was a successful apprentice at an English textile mill using state-of-the art technology to produce cotton fabrics. The mill owners' sons, however, inherited the operation and Slater was cut out of the business. He responded to an ad offering 100 pounds (about $20,000 in today's dollars) to British textile workers to relocate to America. While he allegedly did not smuggle any tools or equipment with him, he did possess immense knowledge about the technical aspects of running a textile mill, and had logistical and managerial expertise that helped establish one of the most advanced (and successful) textile mills in the United States within three years of his arrival. Like his predecessors, Slater hardly accomplished this on his own. He had the help of capable technicians who had also responded to the U.S. offers and likely access to machinery that previous recruits had smuggled into the United States. Slater also had access to capital from Rhode Island's Brown family, who were early industrialists closely linked to the political struggle for independence. In that era of American history, the struggle for economic development was imperative to political independence from Great Britain, and the theft of trade secrets was justified for national survival.
Another pivotal figure was American Francis Cabot Lowell, who leveraged his wealthy family's connections to gain access to manufacturing sites in Great Britain that were heavily restricted to Americans. Since Cabot Lowell came from a well-known, well-connected family, he found it easier to evade official efforts to block Americans. During a trip to Great Britain in 1810, Cabot Lowell toured textile mills across the country and returned to the United States inspired by what he saw.
Similar to Slater, Cabot Lowell also adopted some British technology that he observed, but his primary contribution to the U.S. textile industry was in management and organization. Thanks to Slater's innovations, American textile mills were using similar technology to their British counterparts, but the scale of production was still small and inefficient compared to the more mature British industry. Cabot Lowell improved upon American mills in two major ways after his trip to Great Britain: He developed the first fully integrated American mills that converted raw cotton bales into ready-to-use bolts of fabric; and he was a founding member of the Boston Manufacturing Co., one of the first industrial joint-stock companies in the United States that had a board of directors and sought to scale production beyond the single owner-manager mills that dominated U.S. textile industry. The creation of the joint-stock company created larger pools of capital to scale up the production of textiles in the United States. Cabot Lowell also benefited from the timing of his return to the United States during the lead-up to the War of 1812, which started over, among other things, trading arrangements between the United States and Britain. His contributions to the U.S. textile industry were as politically valuable as they were economically valuable, reinforcing U.S. policy at the time of copying and stealing British technology.
The United States was not alone in its targeting of British industrial trade secrets. In Belgium, Lieven Bauwens is considered a national hero for practicing many of the same tactics as his American counterparts, namely, luring British workers to kick-start industrialization in his home country. Later in the 19th century, German industrialist Alfred Krupp greatly improved on German manufacturing processes after touring British factories.
While the systematic targeting of British industrial processes in the late 18th and early 19th centuries certainly strengthened its rivals on the Continent and in North America, the British textile industry and manufacturing in general continued its success throughout the 19th century and into the 20th century. While the United States caught up with British industrial output by the late 19th century and Germany caught by the early 20th century, British textiles still made up over half of global production in 1913 — over 120 years after Samuel Slater defected to the United States. Similarly, China's historical commercial dominance of sericulture, porcelain manufacturing and tea cultivation came to an end during the Century of Humiliation due in part to an erosion of their competitive advantage from trade theft. Modern-day China, however is the leading producer of silks and tea and a leading global producer of porcelain and ceramics. In previous economic espionage campaigns, the theft and transfer of trade secrets boosted economic independence and self-sufficiency in the receiving country; targeted industries suffered lost demand, but they continued to have success. This is an important lesson to keep in mind as we address the third and current era of economic espionage that has marked China's evolution from victim to aggressor.
