Economic Intelligence

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Economic Intelligence

█ MARTIN J. MANNING

Economic intelligence can be loosely defined as information gathered about materials and resources that are developed, produced, or managed outside the United States, and the interpretation and presentation of raw information or unpublished data to reports or analyses that inform policy makers and consumers.

Background. The importance of economic intelligence first surfaced in 1776 when the Committee of Secret Correspondence of the Continental Congress, considered the first U.S. intelligence agency, sent William Carmichael to Europe to survey several economic matters crucial to the emerging government, such as foreign competition in European markets from tobacco grown in the Ukrainian provinces of the Russian Empire. In his secret dispatch (November 1776) from Amsterdam, Carmichael reassured his superiors that, despite the fears that "the Ukraine would supply Europe with tobacco," the best that he saw "is worse than the worst of our ground leaf."

During World War I, an economic intelligence section, within the Army's military intelligence operation, was headed by a future U.S. Secretary of State John Foster Dulles. When this war ended, and President Wilson was preparing for the Versailles Peace Conference, he consulted private experts, the "Inquiry," which gathered economic intelligence from its headquarters at the American Geographical Society, New York.

In World War II, U.S. government agencies, such as the Board of Economic Warfare, studied the Japanese economy while the Office of Strategic Services (OSS) collected information on key commodities, including tungsten; its Russian division, directed by economic experts Abram Bergson and Wassily Leontief, targeted appraisals of the Soviet Union's postwar economic condition.

Post-World War II. In 1945, OSS was abolished; its successor, Central Intelligence Group (CIG), coordinated economic intelligence. Its June 1946 report gathered intelligence on foreign industrial establishments and foreign petroleum extraction, compiled comprehensive geographic information, and utilized the services of its foreign officers to gather data on strategic minerals.

When the Central Intelligence Agency (CIA) was established as part of the National Security Act of 1947, its role to monitor national intelligence, by coordinating the information collected by the various departments of government, was supplemented by a 1949 recommendation of a review group that the CIA create an Office of Research Reports (ORR) to collect and examine economic information.

In National Security Council Intelligence Directive No. 15, Coordination and Production of Foreign Economic Intelligence (June 13, 1951), CIA was given responsibility to determine the overall requirements of foreign economic intelligence, to evaluate foreign economic data of significance to national security issues, and to conduct "such foreign economic research and produce such foreign economic intelligence" as required to supplement work being done by other agencies. A year later, Director of Central Intelligence, Walter B. Smith, informed the NSC that the ORR was releasing accurate appraisals of an "enemy's economic potential" and that an interdepartmental Economic Intelligence Committee to establish priorities and publish interdepartmental economic estimates, was in place, chaired by the ORR assistant director.

The allocation of responsibility for economic intelligence over the next 20 years shifted between the CIA and the Department of State. Both worked closely together during the Truman administration when the State Department produced economic intelligence on countries out-side the Sino-Soviet Bloc while CIA compiled economic intelligence on the Sino-Soviet Bloc. By 1955, the CIA Office of Research Reports was generally credited with composing the first good pictures of Soviet economic capabilities, including its transport system, current production, and plant capability. This analysis was relied upon by the Kennedy administration.

During the 1960s, the CIA became the government's leading provider of economic intelligence as it expanded its economic analysis to "Free World" economies, especially to examine Soviet bloc economic activity in the developing world. After State's Bureau of Intelligence and Research, hurt by shrinking budgets, cut the majority of its economic research to maintain its expertise for political analysis, CIA supplied regular economic inputs to national intelligence documents and picked up substantial new demands from policy makers, especially for information on developing countries.

By 1968, the CIA replaced ORR with the Office of Economic Research but the CIA's overall importance in the provision of economic intelligence lessened during the Reagan Administration for several reasons: the U.S. Department of the Treasury and the Federal Reserve Board improved their monitoring of international financial issues; new competition came from the highly sophisticated technology of international economic analysis available from the private sector; the international financial institutions, such as the International Monetary Fund (IMF) and the World Bank, supplied their own economic expertise; and a variety of on-line services, newspapers and trade publications made a vast amount of data available to nongovernment subscribers.

The exact role of economic intelligence remains a widely debated issue. According to Dr. Mark Lowenthal, Senior Specialist in U.S. Foreign Policy, Congressional Research Service, Library of Congress, in testimony before the U.S. Senate's Select Committee on Intelligence, August 5, 1993, no one questions the importance of economic issues but there is "no broad consensus" about the Intelligence Community's proper role in it. He noted that the issue has been oversimplified by calls for "more economic intelligence" unsupported by any "knowledge of long standing activities in that area or of the likely utility of these intelligence activities and products to economic problems or issues." Lowenthal argues that no persuasive case has yet been made that "U.S. economic competitiveness requires large-scale aid from the Intelligence Community."

Types of information. There are three main sources of economic intelligence. The first, open sources, range from official statistical publications, newspapers, radio broadcasts, and trade publications to IMF country studies. Unclassified sources generally constitute the foundation of any economic analysis, an interpretation of the overall picture.

The second are the reports and cables from U.S. embassies and consulates, compiled by State Department economic officers, Treasury Department attachés, and officers of the Foreign Commercial Service.

The third, clandestine information, is obtained without either the knowledge or consent of foreign governments. It can come from satellites, from intercepted communications, or from secrets stolen by a foreign national employed by the United States.

Present situation. The CIA, assisted by other government agencies, provides economic intelligence for U.S. policy, with experts monitoring international transactions (including sanctions enforcement and illicit finance); international economic and environmental problems, including trade and finance; defense markets and logistics; geographic resources, including demographics and commodities; civil technology, including aerospace, advanced manufacturing, and emerging technologies; and energy resources. However, critics feel that American companies don't need the CIA to compete in the global marketplace. The glut of information (sometimes too much information) coming from the Internet, private citizens, groups and organizations with access to foreign economic activities, and subscriber services, such as The Economist's Economic Intelligence Unit (EIU) databases, complement and sometimes replace official channels.

Resources. The official record of economic intelligence in U.S. economic diplomacy is in the Foreign Relations of the United States series volumes compiled by the Office of the Historian, U.S. Department of State; published by the Government Printing Office. Beginning with 1944: vol. II; General: Economic and Social Matters (Washington: GPO, 1967), individual volumes have dealt with U.S. economic policy.

An excellent introduction to the history of U.S. economic intelligence is: Philip Zelikow, "American Economic Intelligence: Past Practice and Future Principles," Intelligence and National Security 12, no. 1 (January 1997):164–177. I am indebted to Mr. Zelikow's research for providing background for this essay.

█ FURTHER READING:

BOOKS:

Katz, Barry M. Foreign Intelligence and Research and Analysis in the Office of Strategic Services, 1942–1945. Cambridge, MA: Harvard University, 1989.

U.S. Congress. Senate. Select Committee on Intelligence. Economic Intelligence. Hearing, 103d Congress, 1st Session. Washington, D.C.: GPO, 1994.