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PUBLISHED IN HBR
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ARTICLE yo
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DEFEND YOUR RESEARCH
Industrial Espionage
Is More Effective
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Than R&D
No

An Interview with Erik Meyersson by Curt Nickisch

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 IDEA WATCH
DEFEND YOUR
RESEARCH
INDUSTRIAL
ESPIONAGE IS
MORE EFFECTIVE
THAN R&D
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
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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
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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
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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
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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.
2 Harvard Business Review November 2016
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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
COPYRIGHT © 2016 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
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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.
TIM BRADFORD
It’s hard to give up. Yeah, exactly. It’s like
R&D on cocaine. You get there very quickly,
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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
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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,
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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
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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
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Bond–like spies. They weren’t leaping
around in their smoking jackets with
silencers on their pistols. Maybe some of
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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
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recorded instance of state-sponsored
industrial espionage occurred in the
sixth century. It’s believed that two
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Nestorian monks successfully smuggled
silkworm eggs from China to the Byzantine
the
Empire, hiding them in bamboo canes.
Smuggling silkworm eggs must have
been very hard. They had to be kept fresh
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for months, maybe even years, during
those travels. But the consequences of
this clandestine feat were enormous. It
Harvard
helped the Byzantine Empire break the
Chinese monopoly on silk production and
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the Persians’ monopoly on the silk trade
with the West. The Byzantine Empire got
its own new monopoly on silk production
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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.
Interview by Curt Nickisch
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