Economics Seeps Into Intelligence Assessments

October 15, 2009
By Maryann Lawlor
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Ed Granstedt, vice president of strategy, mission solutions group, national systems, QinetiQ North America, warns that current economic conditions can favor U.S. adversaries if organizations do not invest more heavily in comprehensive information security measures.

Globalized marketplace influences how analysts view the world.

The worst global economic recession since the Great Depression is causing repercussions far beyond home foreclosures, skyrocketing fuel prices and lost jobs. In the intelligence realm, analysts find themselves considering its ramifications on politics, governments and security. Even cyberspace, an environment that is tenuously secure at best, may be feeling the effects of a stagnant economy as organizations—both public and private—put off investments in both security upgrades and research.

According to a senior U.S. intelligence official, an economic downturn affects the way the intelligence community identifies, assesses and predicts trends, challenges and opportunities. Economics and finances are a significant new driver. “As I am writing an analytic assessment on X country or X region, if I am thinking about the future of democracy globally, military modernization of a particular country or achieving multilateral cooperation in fighting terrorism, do I now need to think about economics or finance?” the official says. “To some extent, in terms of thinking as an intelligence analyst, the economic indicator or the economic driver is both a key uncertainty in the way we look at events going forward and a key determinant for events going forward.”

Analysts have begun to put on a lens that focuses on the economic aspect of countries’ behaviors. This new lens is not one that is natural for analysts, the official says. It means considering a number of factors, including the effects of technology. And, in a globalized society, the economic shock—both positive and negative—can be stronger and more widespread.

Cell phones, for example, enable citizens from vastly different places to see how other nationalities live. The consequences of access to this information can be less predictable and more meaningful than U.S. intelligence analysts thought in the past, the official says. Learning about the lifestyles of citizens of nations throughout the world can cause mixed reactions. On one hand, it may make them desire the freedom and access to wealth available in other countries, leading to the demand for a change in government. On the other hand, it can foster illegal migration or anger.

“One of the most potent things you’re seeing is the demand around the world from the populace for a clean government. In a civil society, the populace in a lot of countries is railing against government corruption,” the official relates. Today, most of these changes have taken place through the democratic process; in the long run, these conditions may increase the demand for democracy, according to the official.

Although the impact of the economic recession has had a larger effect on some nations than others, few countries have remained unscathed. Initially, the crisis in the financial markets was the nexus of the problems experienced in the industrialized world, sparing many emerging market economies from the first phase of the economic downturn. However, once consumer demand from industrialized countries sharply contracted, the economic crisis began seeping into market-based nations’ economies.

Some countries began feeling the crunch from two sides. The decreased demand for their goods reduced cash flow into the country; skyrocketing fuel prices limited the amount in subsidies—which were quelling populace instability—they could provide to their poor citizens. “They were seriously hurting,” the intelligence official states. To some extent, the collapse of prices, at least in the short term, was a welcome relief to these nations, because some did not know how long they would be able to extend subsidies.

Citizens of poor countries felt the economic impact in yet another way. Migrant workers often send financial support to family members living in their homeland. Without the need for workers in the commodities and construction marketplaces, their services were no longer needed, and the remittances dried up. “There is a sense that the private sector and earnings would really be a growth engine, which would be the sources of capital for less-developed economies to grow. Now all of those sources of finance take a huge hit. At the same time, the industrialized countries—the major donors—also have financial constraints,” the senior intelligence official relates. “Going forward, it’s going to be a big question mark. What is going to be the source of finances?”

Another question also looms. Financial instability can lead to political changes that may or may not improve security worldwide. There already has been fallout from the crisis, especially in Europe. On the other hand, in some instances incumbent governments have been re-elected with an even stronger mandate. India is one example, the official states.

From an intelligence aspect, the United States excels at forecasting that economic decline leads to political instability. However, it is more difficult to detect the point of resiliency without some nitty-gritty understanding of individual countries. While an economic decline of 10 percent or 15 percent may lead to instability, without a closer look at a specific country, it is more difficult to predict, the official allows.

Although the economic crisis is a threat to U.S. security, it is uncertain whether it is the largest menace the country faces today. The intelligence official allows that some interpreted Dennis C. Blair’s testimony before the Senate Select Committee on Intelligence in February 2009 that way because it was his first topic. However, Blair, who is the director of national intelligence (DNI), in fact described the economic crisis and its geopolitical implications as the primary near-term concern the United States faces.

Although economic security does not fall into the traditional definition or perception of threats, Blair felt that the variety of factors related to the crisis—including its global reach and its effects economically and geopolitically—have raised major concerns among leaders worldwide; many have  expressed these concerns both publicly and privately to the DNI, the intelligence official says.

The apprehension includes how the crisis could feed into security threats from terrorism or a shift in focus from security issues to economic issues. When public resources are being spent on subsidies to citizens, less are available for national security or fighting the Global War on Terrorism. In some cases, countries facing an economic crisis may be tempted to sell out to the highest bidder. “If anybody comes along and wants to set up a training base for example, [a national leader may] say ‘go ahead.’ To me that’s a little overplayed and maybe a bit cliché, but it is something that you worry about,” the official explains. A debate is occurring within the public realm, and to some extent within the intelligence community, about whether this economic crisis has been a game changer. This conclusion is impossible to reach until some years down the road.

Continued uncertainty about the impact of the economic crisis on national security leaves a number of unknowns about the future health of economy and financial systems. A shock of any kind, including the failure of a major corporation, could undermine the progress of the still-recovering banks and financial institutions. Something as seemingly unrelated as a worldwide outbreak of the H1N1 influenza this fall could have economic fallouts if people limit their visits to retail outlets, hotels and restaurants, the official points out.

The Internet may be one place consumers would turn to should the H1N1 influenza reach pandemic levels. However, the economic downturn has had ramifications in this environment as well. Ed Granstedt says work on new solutions to quash cyberthreats is being delayed because innovation, invention, adoption and information technology expenditures are shrinking. Granstedt is the vice president of strategy, mission solutions group, national systems, QinetiQ North America, McLean, Virginia.

According to Granstedt, the threat can be broken down into three drivers. Digitization allows nearly everything to be converted into a zero or a one; information then can be processed and rapidly exploited; and standardization moves information around the world. “Information is moving much faster, influencing people, changing connections, switching our value chains, changing our social relationships, and in that process, we are changing the way in which we as a society work economically. This introduces a whole new set of vulnerabilities that are there for exploiting,” he says. “This is happening at nearly the speed of light.”

Granstedt allows that although some information technology spending is occurring, funds are being invested in incremental improvements to maintain legacy systems as long as possible. It is a block-and-tackle mentality that is not good enough. “I think that we are coming to a tipping point where we have to do something different, a step-function change in our security posture,” he states.

Open-source information alone indicates that personal, government and business information is being compromised every day. These attacks occur because the step-function investment that would move the defensive posture away from permeable perimeter defenses has not been put into place, he contends. “It will require substantial investments, and in some cases infrastructure upgrades, and those things are expensive and hard to do when you’re trying to meet your daily operational bills,” Granstedt states.

This is a challenge that both the private and government sectors face. The problem must be addressed holistically in terms of mission and priorities, he says. It is a matter of determining the amount of investment that can be leveraged against it in an effective way and requires a change in paradigm to determine a cumulative defense of information systems. “There is not magic here, but there certainly is a lot of hard work in an area that we tend to treat more as a box-and-tool answer, as opposed to a mission assurance, a mission solution answer,” Granstedt relates.

From the cyberspace intelligence aspect, organizations must stop operating in a local way. Instead, they must examine their systems in a global context and create a global situational awareness. They must begin forecasting the problems they will face in cyberspace security, and then bring that analysis back into local relevance, he recommends.

“It’s that virtual context that really creates a new dynamic. We as individuals are very much tied to our geography and surroundings. When we hit cyberspace, all of those traditional conventions get set aside, and it requires a bigger appreciation of what that means and how we’re operating,” Granstedt explains.

To some degree, U.S. leaders will have to “place the right bets” about what they think will be important and relevant to the future. It is too soon to tell whether they are placing the right bets now. “We’re not going to know that until we get downstream of this,” he states.

The downturn in the economy is affecting adversaries as well, making cost-effective cyberattacks attractive, Granstedt allows. Adversaries have easy access to sensitive information, and the safeguards are not yet commensurate with the value of that information, and this troubles him.

He also is concerned about how outsourcing in an effort to be competitive facilitates access to information. Many U.S. companies have outsourced their value chain to firms all over the globe. “We don’t really quite understand all the places our value chains have been outsourced. We may have outsourced something to India, and then India has outsourced it to Malaysia and Malaysia has outsourced it somewhere else. We lose track of all of that because there are too many degrees of separation. ... To me, that’s quite troubling,” Granstedt states.

During this time of economic recovery, some steps can be taken to help ensure cybersecurity, he believes. One approach would be to offer incentives to companies to invest in information systems security. Another is to view cybersecurity not only as an information technology department function but also as a core element critical  to every aspect of an organization’s mission and make a commensurate investment in information security, Granstedt advises.

Office of the Director of National Intelligence: 

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I believe that Granstedt hit the nail on the head!