Industrial spying helped East Germany narrow economic gap

 
East German mosaic
East German mosaic (Dmitry Popov/Unsplash)
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The United States often complains about Chinese industrial espionage, accusing the Asian superpower of stealing intellectual property and commercial secrets worth billions of dollars a year. No longer is this branch of spycraft the domain of men in fedoras dashing through factory gates. Today the FBI cites “cyber intrusions” as the chief threat.

Academics have long wondered if industrial espionage pays, or if it stymies organic research and development. According to a new working paper from one of Europe’s top centers of economic research, the answer may be both.

Together, the partition of Germany during the Cold War and subsequent reunification offer researchers a model laboratory. Walled off for four decades by a militant ideology, East Germany’s economy fell far behind the West’s; by some measurements the eastern regions still lag. After unification in 1990 East Germany then opened up its files – including over 151,000 classified documents about secrets gathered abroad between 1970 and 1988 and sorted by date, source and keyword. As it turned out, the secret police, “the Stasi,” had made the theft of commercial secrets from West Germany a priority.

The working paper by IZA, the Institute of Labor Economics in Bonn, finds that the thefts allowed East Germany to narrow the gap with the West – at a cost. The authors gauge total factor productivity (TFP), a measurement of economic efficiency and technological progress while controlling for research and development (R&D) spending.

West Germany, at unification, was 189 percent ahead of the East in TFP. Without the industrial espionage, the gap would have been 6.3 percent larger, the authors find. Other findings:

  • The TFP gap in the electronics sector was 416 percent; it would have been 562 percent without industrial espionage.
  • But the spying came with a cost. The reliance on espionage in the East resulted in significantly fewer patents (a proxy for R&D spending). “In fact, internal estimates by the Stasi itself suggested that its industrial espionage had saved the East Germany economy about 75 million East German Mark in R&D expenditures.” In the long-run, this hurt the East’s ability to develop.
  • The espionage does not appear to have damaged the West’s economy.
  • “Whether the East German economy’s dependence on industrial espionage bore some responsibility for its poor post-unification performance is an interesting question for future research.”

Last updated: November 20, 2017

 

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Citation: Glitz, Albrecht; Meyersson, Erik Gustaf. “Industrial Espionage and Productivity.” Institute of Labor Economics (IZA) Discussion Paper No. 10816, 2017.