Tim Bradford

The research: Erik Meyersson, an assistant professor at Stockholm School of Economics, teamed up with Albrecht Glitz, an associate professor at Pompeu Fabra University, to study the archives of the East German Ministry for State Security (known as the Stasi). The two researchers analyzed 189,725 informant reports and cross-referenced them to industrial sector economic data for East and West Germany from 1969 to 1989. Their research paper found that East Germany enjoyed significant economic returns from its state-run industrial espionage operation. The spying narrowed the technology gaps between the two countries and was so successful that it drove down R&D efforts in the East.

The challenge: Is corporate spying more effective than innovating? Does it really pay off more than legitimate R&D programs do? Professor Meyersson, defend your research.

Meyersson: Industrial espionage had quite a substantial effect in East Germany. The information from it reduced the technology and productivity gap between East and West Germany. Each standard deviation in increased spying activity narrowed the so-called total factor productivity gap by 8.5 percentage points. And espionage was especially effective in sectors where Western countries had economic containment policies against the Eastern bloc to try to prevent technology transfers.

HBR: How did you measure the success of corporate espionage?

East Germany’s state-led spying venture placed thousands of informants around West Germany and helped them pro​gress in their careers at Siemens, AEG/Telefunken, IBM, and other companies. We measured the flow of information from industrial espionage activities in West Germany and in other European countries to the Stasi, East Germany’s main intelligence agency. We ended up with a lot of metadata from informants’ reports that turned out to be extremely useful. Our paper’s empirical foundation is the fact that we could link informants’ key words to specific industrial sectors.

Are you recommending that companies invest more in spying than in R&D?

No, no. I have to be very careful. I don’t recommend it, given what happened later in East Germany. Though it had the strongest economy in the Communist bloc, companies there had a hard time competing after German reunification.

Did its success at spying contribute to that?

One result was quite important: Industrial espionage, perhaps because it was so successful, crowded out standard forms of R&D. All these industries there relinquished so much R&D capacity. Had the Cold War continued, it would have been very difficult for East Germany to become a leader of any kind of sector, precisely because it was so focused on industrial espionage.

If you want to increase your productivity, you can choose between stealing somebody else’s secrets or trying to generate innovations yourself. In East Germany, new patent applications actually fell over time as industrial espionage increased. That was possibly detrimental in the long run.

At the end of the Cold War, many East German companies were quite advanced, but suddenly they no longer had that source of technology transfer. So they had to revamp and do their own R&D. The inflow of industrial espionage made East German firms really reliant on the government.

It’s hard to give up. Yeah, exactly. It’s like R&D on cocaine. You get there very quickly, but you don’t really develop the tools for engaging in innovation for the long run.

For those who foresee themselves forever being stragglers, in countries where they’re never going to be technology leaders, there may well be a benefit to industrial espionage. But if you strive to be a technology leader, it’s unclear that espionage will have much effect.

What governments do you think are going to be reading your paper with special interest?

Oh, I hope as many as possible. North Korea is probably the most similar to East Germany. I predict that other countries that have limited intellectual property protection and are under various kinds of economic sanctions will be interested, too. The usual suspects would be Russia, Iran, and maybe even China.

I think this paper offers the neat insight that human intelligence gathering still matters. Today we have all these sophisticated forms of electronic espionage. But there was a time in the past when human intelligence could also generate a great deal of economic advantage, and maybe that’s still the case today.

What made you want to study this?

I’ve always been fascinated by espionage. I grew up reading novelist John le Carré, and I watched a lot of spy movies. There were a bunch of famous cases in Sweden, influential people who spied for the Soviet Union for a long time. I also visited Berlin very shortly after the fall of the Berlin Wall. Twenty years later, I’m reading an article about some of this Stasi archive material. I get completely mesmerized by the idea. I tell Albrecht Glitz, a German economist, and he also finds it very interesting. I get an e‑mail from him a week later. He says the data is there; we just have to convince the authorities to release it.

Where else do you want to take this research?

We’d like to understand espionage as a labor choice. You know, why would anybody become an informant? I mean, these informants weren’t James Bond–like spies. They weren’t leaping around in their smoking jackets with silencers on their pistols. Maybe some of them had political leanings, but for many of them it was just like an extra buck at the end of the month. And so I find it very interesting, this whole culture of espionage that developed.

What’s your favorite case of industrial espionage in history?

The earliest recorded instance of state-sponsored industrial espionage occurred in the sixth century. It’s believed that two Nestorian monks successfully smuggled silkworm eggs from China to the Byzantine Empire, hiding them in bamboo canes. Smuggling silkworm eggs must have been very hard. They had to be kept fresh for months, maybe even years, during those travels. But the consequences of this clandestine feat were enormous. It helped the Byzantine Empire break the Chinese monopoly on silk production and the Persians’ monopoly on the silk trade with the West. The Byzantine Empire got its own new monopoly on silk production and trade in Europe. It was very profitable, and lots of territories around the eastern Mediterranean saw new economic development as a result. Whole production and trade economies flipped just like that.

Another interesting case happened in 1970, when East German experts were able to reverse-engineer the IBM 360. Three years later a company from Dresden was producing up to 100 computers per year. It’s pretty cool that they were able to do that to such a large extent through industrial espionage.

How can I tell if there’s a spy in my office trying to learn how we do such great Q&As?

That’s a good question. I wouldn’t expect the spy to be the most extroverted or suspicious kind. It could be anybody. I think it’s very hard to tell without good counterespionage capabilities.