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Report Summary May 15, 2012
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State Capitalism
Can state-run economies sustain their success?
By Jason McLure

Since the 2008 financial crisis China, Russia and Saudi Arabia have been among the best-performing economies in the world. All three countries practice so-called state capitalism, in which the government. . . .

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The Issues
  • Is state capitalism better at avoiding economic crises?
  • Is state capitalism an effective model for developing nations?
  • Does state capitalism threaten free trade?


Pro/Con
Is state capitalism a good model for the world's poorest countries?

Pro Pro
Aldo Musacchio
Associate Professor of Business Administration, Harvard Business School; Author, Experiments in Financial Democracy. Written for CQ Global Researcher, May 2012
Stefan Halper
Director of American Studies, Department of Politics and International Studies, University of Cambridge; Author, The Beijing Consensus. Written for CQ Global Researcher, May 2012


Spotlight
Western countries are warned to expect more espionage.

Three employees of American Superconductor Corp. (AMSC), a Massachusetts-based company that makes software to run wind turbines, recently climbed to the top of a shaft in a giant turbine in China's Gobi Desert. The turbine had been manufactured by the Sinovel Wind Group, a Chinese company that was once AMSC's biggest customer.

AMSC had sent the three men to China to find out why its software had failed to shut down the turbine at the end of a testing period several weeks earlier and why Sinovel had suddenly stopped buying new AMSC turbine controllers.

After sending a copy of the code from the turbine's computer to a company lab, AMSC discovered that Sinovel was using a stolen version of its software, according to Bloomberg Businessweek. Footnote 1

The theft of corporate and trade secrets by China and Russia is pervasive and openly facilitated by the closely intertwined relationships between spy agencies and businesses in both countries, according to a 2011 report by U.S. intelligence agencies. And while corporate espionage is now increasingly conducted in cyberspace, much spying is still done the old-fashioned way, by people on the ground with access to information sources.

Sinovel Wind Group (AP Photo/Color China Photo/Zhang Ke)
Sinovel Wind Group, a Chinese state-run company that manufactured these wind turbines at an offshore wind farm near Shanghai, was alleged to have stolen software from the Massachusetts-based American Superconductor Corp., according to Bloomberg Businessweek. Corporate espionage is often facilitated by state capitalist governments to benefit state-run companies. (AP Photo/Color China Photo/Zhang Ke)

“China's intelligence services, as well as private companies and other entities, frequently seek to exploit Chinese citizens or persons with family ties to China who can use their insider access to corporate networks to steal trade secrets using removable media devices or e-mail,” the report said. Footnote 2

Russia's intelligence service not only engages in spying to help the country economically but also has been quite open about it.

“Intelligence … aims at supporting the process of modernization of our country and creating the optimal conditions for the development of its science and technology,” said Mikhail Fradkov, director of Russia's SVR, the foreign intelligence successor to the KGB, in December 2010. Footnote 3 Six months earlier, 10 Russian spies trying to collect economic and technology information had been arrested in the United States. They were later returned to Russia as part of a spy swap. Footnote 4

In the United States, FBI agents in July 2011 arrested a California couple accused of participating in a decade-long effort to steal trade secrets from Dupont Co. The investigation led the Justice Department to file charges against China's Pangang Group, the first time the United States has brought criminal charges against a foreign state-owned company. Footnote 5 And in 2010, David Yen Lee, a chemist with Minnesota-based Valspar Corp., pleaded guilty to the theft of trade secrets after downloading 160 secret formulas for paints and coatings before leaving for a job with a Chinese paint company.

China's so-called Project 863, launched in 1986, offers funding and advice to Chinese citizens on how to steal high-level technologies from foreign companies to help narrow China's gap in fields such as biotechnology and computers. In December, a Chinese scientist was sentenced to seven years in a U.S. prison after pleading guilty to stealing secrets from Dow AgroSciences and Cargill Inc. and passing it on to Project 863.

Estimates on how much economic espionage is costing U.S. industries in lost business and jobs range so widely — from $2 billion to $400 billion or more a year — as to be meaningless, said the intelligence report, reflecting the scarcity of data and the variety of methods used to calculate those losses. Cargill alone says it lost $12 million due to information recently stolen from the company. Footnote 6

And the United States is hardly the only victim. Germany estimates its companies lose at least $28 billion a year to economic espionage, while South Korea puts the toll at up to $82 billion. A government survey of 625 Japanese manufacturing firms in 2007 found that 35 percent had reported some form of loss — more than 60 percent of the leaks involved China. Footnote 7

Western companies should brace for additional threats, intelligence experts say, as more work is shifted to online networks and more data is stored through cloud computing.

“China and Russia will remain aggressive and capable collectors of sensitive U.S. economic information and technologies, particularly in cyberspace,” the U.S. counterintelligence report says. “Both will almost certainly continue to deploy significant resources and a wide array of tactics to acquire this information from U.S. sources, motivated by the desire to achieve economic, strategic, and military parity with the United States.” Footnote 8

— Jason McLure

[1] Michael Riley and Ashlee Vance, “Inside the Chinese Boom in Corporate Espionage,” Bloomberg Businessweek, March 15, 2012, www.businessweek.com/articles/2012-03-14/inside-the-chinese-boom-in-corporate-espionage.

Footnote:
1. Michael Riley and Ashlee Vance, “Inside the Chinese Boom in Corporate Espionage,” Bloomberg Businessweek, March 15, 2012, www.businessweek.com/articles/2012-03-14/inside-the-chinese-boom-in-corporate-espionage.

[2] “Foreign Spies Stealing US Economic Secrets in Cyberspace,” Office of the National Counterintelligence Executive, October 2011, www.ncix.gov/publications/reports/fecie_all/index.php.

Footnote:
2. “Foreign Spies Stealing US Economic Secrets in Cyberspace,” Office of the National Counterintelligence Executive, October 2011, www.ncix.gov/publications/reports/fecie_all/index.php.

[3] “Cyber Theft of Corporate Intellectual Property: The Nature of the Threat,” Economist Intelligence Unit, 2012, www.boozallen.com/media/file/Cyber-Espionage-Brochure.pdf.

Footnote:
3. “Cyber Theft of Corporate Intellectual Property: The Nature of the Threat,” Economist Intelligence Unit, 2012, www.boozallen.com/media/file/Cyber-Espionage-Brochure.pdf.

[4] Mary Beth Sheridan and Andrew Higgins, “U.S. and Russia complete Spy Swap,” The Washington Post, July 10, 2010, www.washingtonpost.com/wp-dyn/content/article/2010/07/09/AR2010070901956.html.

Footnote:
4. Mary Beth Sheridan and Andrew Higgins, “U.S. and Russia complete Spy Swap,” The Washington Post, July 10, 2010, www.washingtonpost.com/wp-dyn/content/article/2010/07/09/AR2010070901956.html.

[5] Justin Scheck and Evan Perez, “FBI Traces Trail of Spy Ring to China,” The Wall Street Journal, March 10, 2012, http://online.wsj.com/article/SB10001424052970203961204577266892884130620.html.

Footnote:
5. Justin Scheck and Evan Perez, “FBI Traces Trail of Spy Ring to China,” The Wall Street Journal, March 10, 2012, http://online.wsj.com/article/SB10001424052970203961204577266892884130620.html.

[6] “Chinese Scientist Huang Kexue Jailed for Trade Theft,” BBC News, Dec. 11, 2011, www.bbc.co.uk/news/business-16297237.

Footnote:
6. “Chinese Scientist Huang Kexue Jailed for Trade Theft,” BBC News, Dec. 11, 2011, www.bbc.co.uk/news/business-16297237.

[7] “Foreign Spies Stealing US Economic Secrets in Cyberspace,” op. cit.

Footnote:
7. “Foreign Spies Stealing US Economic Secrets in Cyberspace,” op. cit.

[8] Ibid.

Footnote:
8. Ibid.


Document Citation
McLure, J. (2012, May 15). State capitalism. CQ Global Researcher, 6, 229-256. Retrieved from http://library.cqpress.com/globalresearcher/
Document ID: cqrglobal2012051500
Document URL: http://library.cqpress.com/globalresearcher/cqrglobal2012051500


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