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Collapsing US supply chains preclude independent US action


Collapsing US supply chains preclude independent US action: The intersection of loss of supply chain control and emerging, reemerging threats is a recent presentation outlining the hollowing out of US and EU supply chains and the vulnerabilities that ensue. Current reality is defined as:

  • The People's Republic of China can prevent the US from commencing or maintaining the ops tempo of a future Desert Storm or Operation Iraqi Freedom.
  • If the PRC is the adversary, it can preclude our ability to conclude combat operations.
  • PRC has the ability to induce trap-doors into HW and embedded SW assemblies.

Hollowing of the supply base nationally has mimicked effects in the automotive sector between OEMs and their tier base: 

  • US and Europe have lost control of their defense and commercial industrial supply chains.
  • Exporting capability rather than capacity, the US has increasingly retained only a top tier or integrator role while exporting its tier 2-tier n base.
  • US cannot realistically define discrete and net risk as supply chains are too opaque for identification.
  • Decreasing ability to direct sourcing to less risky tiers.
  • Loss has not come without warning

The full presentation principally draws upon the monograph, Foreign vulnerability inherent in US globalization of its commercial and defense supply chains, 5/6/2008. Readers are directed to Foreign vulnerability for detail and supporting sources that "reasonably constitute a four decade record on globalization." Readers may also consult, Israel was planting malicious chips in US assets before China, 5/20/2008.

When the USSR was the bipolar peer nation state to the US, it could, and did, press Japan over its commercial and military partnership with the US, but unlike China, the USSR never had control of US supply chains. The rare Russian exception besides energy stocks has been US manned access to earth orbit.


Legacy constraints in supply chain inertia


Wayne Hall, former head of the space shuttle program, now NASA's deputy associate administrator for strategic partnerships, penned a small masterpiece on the importance and the inertia of supply chains in attempting to resuscitate the shuttle. It must be noted that Hall's comments apply generally to many defense systems in current inventory:

One of the first lessons I learned in program and project management is that attention to the details of supplies, vendors, and parts manufacturers will determine success or failure more than anything else that management does... [L]ogistics and supply chain are the unsung pillars on which every major project rests.


It is nice to have eloquent oratory and high flown philosophical statements, but the real way that real programs are really controlled is through the money.  When the logistics and supply budget is stopped, the program is over.  Momentum and warehoused supplies can carry on for a short period, but when those are exhausted, its time for the museum.


Starting four years ago, the shuttle program in its various projects made "lifetime buys".  That is, we bought enough piece parts to fly all the flights on the manifest plus a prudent margin of reserves.  Then we started sending out termination letters.  About two years ago, we terminated 95% of the vendors for parts for the external tank project, for example.  Smaller, but still significant, percentages of vendors for SSME, Orbiter, and RSRB have also been terminated.


A lot of things that go into the shuttle build up are specialty items.  Electronics parts that nobody makes any more (1970's vintage stuff).  Hey, if it works, why invest money in certifying new parts?  Certifying new ones would be even more costly!  Specialty alloys to meet the extraordinary demands of space flight, parts that are made by Mom and Pop shops mostly in the LA basin are norm rather than the exception.  You might think that simple things like bolts and screws, wire, filters, and gaskets could be bought off the shelf some where, but that thinking would merely prove how little you know about the shuttle.  The huge majority of supplies, consumable items, maintenance items, they are all specially made with unique and stringent processes and standards.


Our shuttle history tells us that when we try to cut corners, trouble results.  Small, even apparently insignificant changes have caused big problems... There is a long and arduous process to certify a vendor to produce the logistical parts for the shuttle.  Not many companies do this work... A lot of them have been there from the beginnings in the middle 1970s.  So when a Mom and Pop specialty shop gets a termination letter from the shuttle program after 35 years of production and they have other customers, guess what happens?...


Where does the money come from?  Where do the people -- who should be working on the moon rocket -- where do they come from? We started shutting down the shuttle four years ago.  That horse has left the barn.

It appears that neither of the current US presidential candidates has read Hale, but to be charitable, one or both may have wisely decided now is not the time to educate voters on logistics and the fact that a nominal five year gap till Orion/Constellation makes the US dependent on Russian Soyuz systems to put men in orbit.


Given the changing political landscape, the problem is so severe that NASA has begun to study flying the shuttle beyond its 2010 retirement despite the April 2008 testimony by NASA Administrator Michael Griffin before the Senate Commerce, Justice, and Science Appropriations Subcommittee:

"Everyone's deeply concerned about the gap," [committee chair] Mikulski told Griffin, referring to the often-discussed five-year gap between the scheduled retirement of the space shuttle in 2010 and NASA's new Orion and Ares system that will fly in 2015... Mikulski asked Griffin if this gap could be reduced with additional funding. Griffin replied it would cost at the rate of a $100 million to shorten the schedule by a single month. It would be impossible to shorten the schedule to be earlier than the late fall of 2013, "given the water over the dam behind us," he said...


Mikulski told Griffin: "there are some Members in the House who are raising the concept of extending the life of the shuttle until 2015." Griffin replied, "the shuttle is an inherently risky design," with NASA calculating that if the shuttle was flown twice a year for an additional five years "the risk would be about one in twelve that we would lose another crew. That's a high risk." He added, "To fly the shuttle after the space station is completed for any significant length of time I believe would incur a risk I would not choose to accept on behalf of our astronauts." It would, Griffin said, cost around $3 billion a year keep the shuttle flying. If this $3 billion came out of NASA's budget, it could delay the launch of the Orion and Ares system, at a rate of a month's delay for every $100 million that was redirected. "You extend the [five-year] gap, if you fly the shuttle longer," Griffin told Mikulski.


[Mikulski replied] "So what you're saying is there is no silver bullet. There is no magic motion available to close the gap." Griffin agreed.

While there is a gentleman's rule to "not mess with the safety of humans in space" and the Russians have stated that they will honor their launch commitments, rising Russian leverage will weigh on a US president in a second Georgian confrontation as it will on Ukraine (also here) and other former Soviet republics that make up the Near Abroad. I see no change in my 2004 and May 2007 forecast that "the common axis of Putin and energy will see Russia attempt to recover its near abroad, expel the US from the energy Stans of Central Asia and create a rift between the US and Europe."


The Richter 15 to 30 event


The presentation proceeds to describe what I call the Richter 15 to 30 event - the interruption of Taiwanese Original Design Manufacturers (ODMs), including their plants on the Chinese mainland. Unless readers are embedded in the ODM electronics segment, they are generally unaware of the centrality and magnitude of Taiwan in the global electronics market for computers, telecommunications, and modular components. For background, this 2005 pair remains useful:

Writing of Silent Hands Behind the iPhone in 2007, I noted it was a good "primer to the Taiwanese presence in our electronics backbone. Now reconsider the implications of a major earthquake in Taiwan. Then generalize that to any interruption to, or redirection of, this segment":

"The iPhone is a great example of where Taiwan is still strong: reliable sourcing, leading technology and complex integration."... "It's not a surprise that the iPhone would be made here because the food chains for Apple's notebooks and iPods are already in Taiwan... It's a natural progression."...


Taiwan's rise as a communications workhorse is part of a decade-long transformation under way on this Chinese Nationalist-controlled island south of the mainland. Already the world's biggest producers of computer components, Taiwan companies like Compal Electronics, in addition to Hon Hai and Quanta [both of whom make iPhones], have used their expertise to branch out into new markets that use many of the same products.


The strategy of repackaging - finding new uses for computer components - has paid dividends... By harnessing the ability to cut costs, churn out products quickly and work flexibly with customers, the Taiwan companies have become top makers of cellphones, smartphones, broadband modems, wireless routers, global positioning devices, networking equipment and other gear. They, like companies elsewhere, have also made deep inroads into China, where many of their factories are...


Taiwan's evolution from [boards to telecommunications] has gone largely unnoticed in the [US] because companies here make most of their money as made-to-order manufacturers, not sellers of their own brand products. But Taiwan's industrial makeover has helped its companies remain competitive in a world increasingly dominated by low-cost Chinese assemblers and by Japanese and South Korean companies with strong footholds in high-end components like flash memory chips.

A colleague shared this in 2005:

Quanta (biggest customer is Dell), Mitac (builds notebooks, Sun servers, the iPaq for HP, etc), and Inventec (biggest customer is HP) have been somewhat schizophrenic about stepping out of the "tell us what you want and we will build it" ODM model.  Quanta made a bunch of Silicon Valley investments at the height of the boom, mostly for naught.  Inventec is probably the most conservative, [but with] their booming HP business, they are sounding like they will try to chase more ODM business (essentially OEM as known in the auto business but they invest in reference designs that can be mass produced) rather than the IDM (Integrated design/manufacturing) approach ("We designed this really cool product. It has these features, it is better than these competitors, and we can do some customization to fit your requirements")...


But all of these manufacturers are constantly looking at ways to expand their business and cut their dependency on Dell, HP, and IBM.


My recollection is that Hi Lin Lee, senior vp and co-founder of Quanta went to MIT. [In 2002 an] Apple iBook and the Mac with the dome base... were in his office. Of the later he said with obvious pride "That is my product." As I have said before the growth in manufacturing capacity fueled by the Chinese investment credits goes on for some time.


Quanta is not the only one with senior guys with strong connections in the US. Mitac is run by Mathew Miau.  Matt moved to the US as a young teen, worked for Intel as an engineer.  He designed the USART which was a pretty famous and very successful product.  He negotiated a package to transition out of the company by opening Intel Taiwan and had a big role in launching the Taiwan PC manufacturing  industry. With his Intel option proceeds, and his father (who had made a fortune in raw materials if my memory is right) bought a small PC company (Mitac) and turned it into a powerhouse. Synnex, a major us high tech equipment distributor is under the Mitac group.  Matthew is as comfortable (and as well connected) in Silicon Valley as he is in Taiwan... [email]


A year ago my friends at Inventec, who built the iPods [said] they enjoyed the volume, but weren't making anything on them.  The Taiwan ODMs are now operating on 5+% gross margins, which would be more tolerable if they weren't spending some much on engineering of their customers' products gratis in order to win the manufacturing business. In general the margins are so thin that the manufacturers have to provide high quality products because a few warranty returns can wipe out any profits. [email]

On reading of Dell's decision to sell its PC factories, I wrote:

The king is dead. Long live the Taiwanese princes. The top tier chain is collapsing but the great OEM/ODM chains are vibrant. I had friends in DEC Asia who were leaving for these early princes, even before [DEC's acquistion by] Compaq. The topic of conversation was 'Do we stay invisibly in place with no name show through or do we go direct? If yes, how?' The opinions appeared to come down on the side of: 'We have no distribution channel. We are not strong enough to challenge Dell, or HP, etc.' That has changed. [email]

Chinese quest for technology independence


The Chinese have ceased to be content to stuff components and fabricate assemblies for Taiwanese ODMs. The CCP has made indigenous chip set production a national priority; they want to create a peer competitor to both Taiwan and Intel:

[The] objective for China is to take control of the design and manufacture of vital technology. "Like America wants to be energy independent, China wants to be technology independent...They don't want to be dependent on outside countries for critical technologies like microprocessors, which are [now] a fundamental commodity." Federal laws also prohibit the export of state-of-the-art microprocessors from the United States to China, meaning that microchips shipped to China are usually a few generations behind the newest ones in the West.


Despite its late start [China was slow to support microprocessor R&D], China is making rapid progress. The [Institute of Computing Technology] ICT group began designing a single-core CPU in 2001, and by the following year had developed Godson-1, China's first general-purpose CPU. In 2003, 2004, and 2006, the team introduced ever faster versions of a second chip--Godson-2--based on the original design. [Each] new chip tripled the performance of the previous one... [The Godson-3 chip was unveiled in August 2008.]

The technological imperative is not limited to electronics:

No longer content to be the home of low-skilled, low-cost, low-margin manufacturing for toys, pens, clothes and other goods, Chinese companies are trying to move up the value chain, hoping eventually to challenge the world's biggest corporations for business, customers, power and recognition.


The government is backing the drive with a two-pronged approach: using incentives to encourage companies to innovate, but also moving to discourage low-end manufacturers from operating in southern China. That step would reverse one of the crucial engines of this country's spectacular economic rise...


Chinese firms are expanding into (or buying companies that work in) software and biotechnology, automobiles, medical devices and supercomputers. This year, a government-backed corporation even introduced its first commercial passenger jet, a move Beijing hopes will allow it to some day compete with Boeing and Airbus...


China has "a lot of technology locked up in the military, and now the government is reducing budgets and pressing agencies to privatize... So suddenly, a lot of technology people thought didn't exist has come out from behind the curtain."...


There are still plenty of obstacles here, including weak intellectual property rights enforcement and a culture of copying or stealing technology from foreign companies or joint venture partners...

Predicting the Second Chinese Exclusion Act


What I have come to call the Second Chinese Exclusion Act will exact great commercial hardship on Western firms as China moves to expel foreign firms. The Chinese Exclusion Treaty (1880) and the Chinese Exclusion Act (1882) were racist low points in US history, exacting great hardship on Chinese already in the US and those attempting to enter. The Second Act will be no more palatable to its recipients.


Senior Chinese have, in small groups, stated an intent to: 

  • Absorb Western technology through joint venture (JV) and partnering strategies.
  • Slowly make JVs less attractive by progressive tariff and currency policies.
  • Force Western partners from Chinese market.

Multinational offshoring has had two purposes, the second not as well discussed as the first: 

  • Cost reduction, short to medium term.
  • Access to markets, long term.

I am not alone in believing that the Chinese will contain multinational access to its domestic markets, especially in its "pillar" and "heavyweight" industries. See Confluence of thinking on Chinese outsourcing and supply chain risks from DSB and USCC, 11/17/2007.


Given Chinese performance to date, multinational access will be limited, perhaps to a third on the market and then decline as China reclaims the then maturing market. The mechanism for expulsion is elegant: standards and administrative edicts. The strategic use of standards, notably indigenous standards, will: 

  • Free China of foreign royalties.
  • Create standards which Chinese products can meet but foreign products cannot.
  • Reverse the royalty stream.
  • Create price/volume advantage for global Chinese goods that overwhelm offshore local production.

Targeted Richter effects on US/EU supply chains


I often hear that the Chinese would not interrupt the trans-straits ODM traffic, but we know from experience that events that threaten the CCP or the state are dealt with immediately and firmly regardless of collateral impact or personal distress.


If the PRC is presented with conditions it finds intolerable and can degrade a key adversary by non-military means and thereby escape or reduce damage to the mainland, they will do so. Supply chains under Chinese control can be slowed or terminated to prevent the US from commencing or maintaining the ops tempo of a future Desert Storm against any adversary. Many of these interruptions can be cloaked as commercial actions, thereby offering China plausible deniability. In other words, China has become a governor on US actions.


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October 6, 2008


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by Brian Grow, Chi-Chu Tschang, Cliff Edwards and Brian Burnsed

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October 2, 2008, 5:00PM EST


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September 24, 2008


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NASA is Making Preliminary Plans to Extend Shuttle Launches Beyond 2010

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Universe Today

August 29th, 2008


Shutting down the shuttle

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Wayne Hale's Blog

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August 25, 2008


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By Lester Haines


Published 17 July 2008 10:20 GMT


NASA Internal Presentation: CxMPR, Orion Project Office, 2 July 2008


Source: Johnson Space Center


Date Released: Wednesday, July 16, 2008

Excerpts: FY08 Cost Issue, FY09 & FY10, Orion Summary, Top Risk List CEV [Crew Exploration Vehicle], Technical Performance


Space shuttle: 10 flights to go before retirement

JR Minkel

Scientific American

Jul 11, 2008 02:57 PM


Mikulski on NASA: "There is No Silver Bullet"

Richard M. Jones

American Institute of Physics

FYI: The AIP Bulletin of Science Policy News

Number 45 - April 11, 2008


Shuttle Retirement May Bring Loss of 8,600 Jobs, NASA Says


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Published: April 2, 2008


The Offshoring of Engineering: Facts, Unknowns, and Potential Implications

Committee on the Offshoring of Engineering

National Academies Press

ISBN-10: 0-309-11483-7


Executive summary PDF


Silent Hands Behind the iPhone


New York Times

July 18, 2007


Taiwan, China lead in huge chip-making growth

TSMC and UMC account for over 50 percent of all foundry capacity in Asia

By Dan Nystedt, IDG News Service

April 06, 2006


Taiwan Transforms into IC Development Center

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Nikkei Electronics Asia - February 2006


Taiwan Towers as Tech Innovator


By John Boudreau

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Original scrolled off



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By Terence Tsai, Borshiuan Cheng

Published by Edward Elgar Publishing, 2006

ISBN 1840642408


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(2006 Edition)

Taiwan Semiconductor Industry Association

Rm. 1246, Bldg. 51, 195, Sec.4, Chung-Hsing Road

Chutung, Hsinchu, Taiwan 31015

TEL:+886-3-5913560 FAX:+886-3-5820056


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Amanda Liang, International News Center

Rodney Chan,

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By: David Chen, Hai Benron , Solid State Technology

Date: August, 2004


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by Adam Pick, Analyst, EMS and ODM Services, iSuppli/Stanford Resources

Electronic Manufacturing Asia

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Michael Rywkin

American Foreign Policy Interests


Vol 25, Issue 1, pp.3-12, 2003


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I. Chinese Exclusion Treaty, 1880

II. Chinese Exclusion Act, 1882


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The sovereign individual as target; the sovereign superindividual as Temporary Autonomous Zone


History is filled with the sound of silken slippers going downstairs and wooden shoes coming up. [Voltaire]

A colleague, Michael Sheren, was recently profiled in A Growing Trend of Leaving America:

Talk to some of the successful American relocators around the world and the broad generalizations about them tend to hold up - though not so much as to overwhelm the huge variety of experience and achievement that distinguishes their lives. Michael Sheren, 45, who worked for Chemical Bank in New York in his early career, came to England in 1997 primarily to apply his background in leveraged buy-outs to the European market. Now working in the London office of Calyon Crédit Agricole, a French bank, he credits his American training and drive for giving him a leg up in his work. America's image abroad has suffered during the Bush years, he acknowledges, but he finds that Europeans still value the can-do spirit of Americans. "People equate America with success, even now," he says.

While business is what initially drew him to England, Sheren is now deeply attached to the British way of life. That includes everything from a generous government-backed system of social supports for all citizens to a mentality that is more comfortable with leisure. "I consider the quality of life here significantly better than what I would have over there," he says.

Sheren acquired British citizenship and has at times been tempted to abandon his American one, but he attaches relatively little importance to nationality. His closest friends are an international lot, and he greatly values the freedom of movement that comes with a European passport. "I feel more like a sovereign individual," he says, using the label coined by authors James Dale Davidson and William Rees-Mogg in their book, The Sovereign Individual: Mastering the Transition to the Information Age.

I replied with a mixture of humor and concern that goes beyond the economic aspect of the "sovereign individual":

When the US Air Force loadmaster at the airstrip or the US Navy chief petty officer on the evacuation quay asks your citizenship, the statement "US" and the passport will get you on and away to safety, all under US military force projection. I ask that you consider carefully their response when you announce "sovereign individual" and produce an EU passport... You won't get the courtesy of "Wait for the French," fairing no better than the poor benighted souls carrying UN refugee passports - which in my experience is a label that says, "Please exploit me after I step to the back of the line." In what may pass as a future Dunkirk, you are not going to get on the plane or on the boat. In such cases, sovereign individual and dead body may be indistinguishable.


I know the risks of bandying US credentials in certain places. By all means, use the EU document for genteel commerce, but keep the US document handy when the balloon goes up. [email]

Whenever I see an interest voiced in aspiring to be a sovereign individual while still acting under the protective umbrella of a sovereign state, even a declining one, I want to say, "Get a copy of Roberts' STAYING ALIVE: Safety and security guidelines for humanitarian volunteers in conflict areas. Read it cover to cover. You might just get through."

It is the mindset shift that I have in mind as much as the direct guidance. Roberts is a Sandhurst trained British Army parachutist that saw action in various conflict zones, then the operational security adviser for the International Red Cross and later its unit for promoting humanitarian law among various armed forces. "Staying Alive" is elegant, short, and should be read by anyone stepping off the beaten path. In conditions where nation states decline, the beaten path shrinks dramatically.

The economic sovereign individual as target, hostage and kidnap victim


I think it fair to say that in their third book, The Sovereign Individual, Davidson and Rees-Mogg did a reasonable job of drawing economic implications of the application of the microprocessor and internet revolution, what many now sum as the shift from an industrial to an information society. In what the authors call a "fourth stage of human society" that frees individuals while weakening governments (by reducing their ability to tax), they offer financial strategies for newly enabled sovereign individuals to move and protect their wealth.


Unfortunately the authors did a poor job in defining the military or defense strategies needed to keep the sovereigns from being robbed, kidnapped or killed. This despite the fact that Davidson and Rees-Mogg introduced the concept of megapolitics - loosely described as the fundamental forces affecting the way man and society work, that are the hidden drivers to current and future events - in their first book, Blood in the Streets, carrying it into their second, The Great Reckoning.


Megapolitics states that it is possible to determine a society's structure based upon its cost of violence; their term is the "logic of violence." When WMD are expensive and rare, empires form and enforce a semblance of peace. (Pax Romana, Pax España, Pax Britannica and Pax Americana) But when WMD are relatively inexpensive and increasingly common, states decline and the level of violence rises dramatically.


Every technology has its "glide slope to the desktop" (where the angle of descent indicates the decreasing cost threshold of acquisition over time) such that the technology's capacity will ultimately get to anyone's desktop, anywhere and for any purpose. John Robb was describing "open source" warfare whose development was paralleling open source software as early as 2004. (See also here and here as well as Charette.)


There is ample evidence of the proximity of the superempowered individual - and if there is one there will be many:

[A superempowered actor] must be able to initiate a destructive event, fundamentally with their own resources, that cascades systemically on a national, regional or global scale. They must be able to credibly, "declare war on the world".

Examples to date indicate that systemic violence is easy to organize, especially in mildly disturbed societies. Consider the sovereign individual class of Mexico who are now at risk of cyclic kidnapping that has reached epidemic proportions to the point that mere professionals and the modestly employed are at risk. Mexico has set up an anti-kidnap squad in the wake of the kidnapping-murder of a minor after ransom payments in the millions of dollars. Public anger is so great that the anti-death penalty state had heard calls for its reinstatement and has barely noticed the recent execution of a Mexican national in Texas. Economic prowess in Mexico and many other states are no longer enough to shield this class from predation. I am surprised that Davidson and Rees-Mogg could have missed the application of lowered cost of violence against their chosen class.


The sovereign superindividual as Temporary Autonomous Zone


Writing under the pseudonym, Hakim Bey, Peter Lamborn Wilson created the concept of the Temporary Autonomous Zone (TAZ) based on research of what he called Pirate Utopias beyond the reach of established states. At least read the 'Pirate Utopias' section and scroll down to 'The Net and the Web'.


If economic sovereign individuals have a future, this analyst feels that most of them will join in temporary autonomous zones that may have characteristics of statelettes, more commonly called micropowers, and Hawala informal funds transfer (IFT) systems said to be "less expensive, swifter, more reliable, more convenient, and less bureaucratic than the formal financial sector."


Certain sovereign individuals such as George Soros will be wealthy enough to create their own TAZ, a superindividual, and may well attract lesser sovereigns to join. The key is enough power to stave off predation, i.e., either the sovereign is a superindividual, joins a superindividual or bands together with like sovereigns to form a defensive entity against likely aggressors. Zones formed by sovereigns may exhibit characteristics such as:

  • Areas beyond global nation state control:
    • Failed/collapsed states.
    • Chaotic areas.
    • Virtual sanctuaries (Internet Relay Chat (IRC), secure Web, secure Satellite transmission).
  • Staging grounds for operations against "controlled" areas.
  • Sanctuaries created as needed in areas without global/state order:
    • Fluid, rapidly shifting locations.
    • Locations resistant to interdiction.
    • Politically diverse, fuzzy tools needed to eliminate.
  • Military operations can inadvertently create a TAZ where none existed.
  • Long-term issue for nation states, aggravated by cooperative criminal, corrupt actors.

A TAZ may inhabit a micropower but will have to careful that its micropower does not overplay its hand as Georgia has now done.


Not all Zones are created equal


Just as with the original Medieval and Renaissance principalities, the new duchies that Davidson and Rees-Mogg predict to reemerge will not be created equal. They will both trade and war with one another. This analyst regards the longevity of a TAZ similar to that of an arms merchant: be as useful to many without being especially annoying to influential patrons or competitors (that can terminate life, steal treasure, or both). A TAZ will have to have to be adaptive and possess excellent means of surveillance and early warning of aggressors.


From Trends point towards Mexico's destabilization, 9/25/2007:

[Mexico bears the brunt of the] pan-national destabilization of the interlocked narcotics corridor stretching from Brazil to Columbia, the Isthmus and Mexico, the rise of Mexican cartels at the expense of the Columbians. The cartels have militarized and expanded to the point that they have formed Temporary Autonomous Zones outside control of the Mexican state; those autonomous zones effectively control significant stretches of the US-Mexican border. The cartels have both grown strong even as they have lost command & control over critical assassination and enforcement assets. Either singularly or in concert, the cartels and their enforcers have broached plans to assassinate US journalists on US soil that have reported critically on cartel activities. (Deaths among Mexican journalists already put Mexico among the big three (Iraq, Mexico and Columbia).)... Calderón has undertaken not just a war against the cartels but a war on a failing Mexican social infrastructure all the way down to the national sport of tax evasion.

The Mexican drug cartels form especially potent Temporary Autonomous Zones capable of attacking other TAZ assets as well as the Mexican state:

  • Hyperviolence at the low end.
  • Bribery and threats at the high end.
  • Expand control of local state police assets.
  • Cow and co-opt up the judicial chain.
  • Attack the military intelligence community.
  • Attack incorruptible senior judiciary.
  • Co-opt fractious political opponents.
  • Selective state disruption, damaging businesses.
  • Isolate, emasculate Calderón.
  • Failing that, assassinate him.

Tunable Just-in-time Disruption


Sovereign TAZs will have to insure systemic resilience against physical and internet attack. The Mexican cartels have now demonstrated what I call Tunable Just-in-time Disruption against state and corporate assets. Attacks have been made against Pemex (in which corporate interruptions are collateral damage) and municipal power grids. The cartels' technical capability for broad industrial sabotage at any level is clear.


Sovereigns will have to install their own systemic resilience against a broad spectrum of predators:

  • Building systemic resilience must become a priority.
  • Virtually all commercial systems (any type, any scale) are designed for commercial efficiency, not security.
  • Resilience to systemic attacks requires redundancies or "circuit breakers" that increase adaptive capacity and automate reactivation.
  • Critical infrastructure industries are increasingly private-sector institutions. (Who will pay, and how, especially when these industrial assets are under stress?)
  • Resilience will be expensive and disruptive, so states will not do it until it is too late. Sovereigns may have other ideas.

If the state is a descendent institution as Davidson and Rees-Mogg believe it to be - and certainly there are indicators (and here) that point to its possibility - sovereigns will have to transition a disrupted state environment in which states will find it increasingly difficult to:

  • Reestablish order and functionality.
  • Maintain financial viability.
  • Deliver critical services to their citizens.
  • Control their borders and economy.
  • Maintain a monopoly on violence.

Roberts' STAYING ALIVE sounds more useful by the moment.


Mexico launches anti-kidnap squad

BBC News

Page last updated at 09:35 GMT, 12 August 2008 10:35 UK


Georgia reports new air attacks near capital



Aug 8, 2008


Mexico president wants tougher punishments for kidnappers

Felipe Calderon urges Congress to act on his proposal after a 14-year-old abductee was found dead.

By Ken Ellingwood, Los Angeles Times Staff Writer

August 8, 2008


Medellin execution draws little public protest in Mexico

La Plaza

Aug 7, 2008 9:20:44 AM


Crime-weary Mexico barely focuses on US execution


Associated Press

Aug. 6, 2008, 12:27PM


A Growing Trend of Leaving America

By some estimates 3 million citizens become expatriates a year, but most not for political reasons

By Jay Tolson

US News and World Report

Posted July 28, 2008


Not shocked but stressed

David Steven

Global Dashboard

March 15, 2008


The resilience agenda

David Steven

Global Dashboard

February 10, 2008


Open-Source Warfare

How do you defend a country against small stateless bands of terrorists?

Jim Henley

Reason Online

February 2008 Print Edition


A mild rebuttal to John Robb's open source warfare

Professors Sam and Sydney Liles

Selil Blog

November 24, 2007 (posted by: sam)



John Robb

Global Guerrillas

19 November 2007


Open-Source Warfare

By Robert N. Charette


First Published November 2007




July 27, 2007


Georgia: Little Engine that Can?

by Chirol

Coming Anarchy

Posted on 14 Oct 06


More on Micropowers

John Robb

John Robb's Weblog

October 12, 2006


Becoming a Micropower

by Chirol

Coming Anarchy

Posted on 12 Oct 06


JOURNAL: Can Georgia become a MicroPower?

John Robb

Global Guerrillas

07 October 2006


Megaplayers Vs. Micropowers

By Moisés Naím

Foreign Policy

July/August 2006



John Robb

Global Guerrillas

11 February 2006


The Open-Source War


Op-Ed Contributor

October 15, 2005



JOURNAL: The Haditha TAZ

John Robb

Global Guerrillas

22 August 2005


Number Crunchers

James Wolcott

James Wolcott's Blog

July 11, 2005, 12:30 PM



John Robb

Global Guerrillas

08 July 2005


STAYING ALIVE: Safety and security guidelines for humanitarian volunteers in conflict areas

David Lloyd Roberts

International Committee of the Red Cross (ICRC)

1999, Revised and updated 2005



John Robb

Global Guerrillas

08 November 2004



John Robb

Global Guerrillas

24 September 2004



John Robb

Global Guerrillas

20 August 2004



John Robb

Global Guerrillas

24 May 2004


The Hawala System

Mohammed El-Qorchi

Senior Economist, Monetary and Exchange Affairs Department, IMF

Source: Finance and Development, December 2002, Volume 39, Number 4


A Second Look at the Cathedral and the Bazaar

Nikolai Bezroukov

First Monday

Paper received 21 November 1999; revision received 22 November 1999; accepted for publication 22 November 1999; revision received 29 November 1999; revision received 6 December 1999; revision received 9 December 1999


The Cathedral and the Bazaar

Eric Steven Raymond

Thyrsus Enterprises

This is version 3.0




The Sovereign Individual: Mastering the Transition to the Information Age

by James Dale Davidson and Lord William Rees-Mogg

ISBN-10: 0684810077



The Argument for Deflation

This article is a review of The Great Reckoning, by James Dale Davidson and Lord William Rees-Mogg, Summit Books, 1991, 473 pp. plus




Vol. LIX No. 5

March 2, 1992

Original scrolled off

HTML Mirror


The Great Reckoning: Protecting Yourself in the Coming Depression

by James Dale Davidson and Lord William Rees-Mogg

Summit Books

ISBN-10: 0671885286

1991, revised 1993


Blood in the Streets: Investment Profits in a World Gone Mad

by James Dale Davidson and Lord William Rees-Mogg

Summit Books

ISBN-10: 067162735X



T. A. Z.

The Temporary Autonomous Zone, Ontological Anarchy, Poetic Terrorism

By Hakim Bey


1985, 1991



Gordon Housworth

InfoT Public  Infrastructure Defense Public  Risk Containment and Pricing Public  Strategic Risk Public  Terrorism Public  


  discuss this article

Beijing moves to preempt flash mob behavior for any purpose, be it civil, commercial, nationalistic or anti-state, during the Olympics


As part of an all-state asset effort to produce a Disney-like Olympics experience to the world, Beijing is preempting flash mob/smart mob behavior for any purpose, be it civil, commercial, nationalistic or anti-state during, and perhaps after, the August venue. The tell tale is in a Fallows' Atlantic article:

[N]ew limits will apply on how many messages can be sent from each phone each hour. The limits are high enough that they won't affect ordinary users but would make it harder to send a mass broadcast... Short messages are the main way people can react to news in a hurry -- or organize actions in response. If you want to hold a meeting or rally or just get a lot of people to the same place at the same time, SMS is the way to go. So if you limit SMS, you've cut the main communication tool for individuals trying to act as a group...

The surprise is that the authorities have waited so long. China has a rising and vibrant protest movement that the authorities have spent considerable effort to suppress both in the field and in the press:

These "sudden incidents" or "mass incidents," in official parlance, are presenting Chinese officials with a serious problem that goes beyond the negative image of China they project to the outside world. The sheer numbers are noteworthy. In August 2005, the country's public security minister, Zhou Yongkang, announced that some 74,000 such events had taken place in 2004, an increase from 58,000 the year before. According to Zhou, 17 of the 74,000 involved more than 10,000 people, 46 involved more than 5,000 people, and 120 involved more than 1,000 participants. But many believe the actual figures are higher.

While many of these are lesser events, rising locally by word of mouth without communications technology, many are extremely potent in terms of their public reaction. See The Case of Dai Haijing for the public reaction to the obtuse official handling of the gruesome murder of a favorite teacher. The number of total incidents are now put over 100,000 per annum. It is this volume that forms the backdrop of uncertainty for the CCP.

The 2005 anti-Japanese watershed: state sponsorship loses control


The CCP found that even when it instigated a nationalistic street response to Japanese application for a permanent seat on the UN Security Council, Japanese history textbook minimizing Japanese wartime atrocities, and Japanese objection to a tripartite agreement between national oil companies of China, the Philippines and Vietnam for seismic exploration of the contested Spratly Island Group (also here, here and here), that it could not contain the public fury of a population armed with cell phones offering voice, email and SMS. (Readers wanting to reprise these events are recommended to look at the endnote bibliography, starting here and here for events and here for the longer term context.)

Writing in Autonomous Chinese 'smart mobs' outside of Party control, 4/26/2005:

While many have noted the risk to the Chinese Communist Party (CCP) of promoting nationalism as a distraction to social and economic matters, the recent near miss of nearly "losing control over xenophobic crowds" in promoting anti-Japanese protests must have driven home the risk to both the CCP as governor of the nation and to personages and factions within the CCP... I submit that technology stole a march on CCP leadership:

[While] police and Ministry of State Security agents had closely monitored the activities of various "anti-Japanese" NGOs - which were responsible for organizing protests and internet petitions - Beijing had far from adequate control over the extent to which such "people-level" organizations would go... "Hu and a number of his PSC colleagues have come to the conclusion that the authorities' ability to control nationalistic outbursts has declined markedly compared to [1999 when Beijing was] largely successful [in stopping] the anti-U.S. protests a few days after the embassy-bombing incident."

Diplomatic analysts in the Chinese capital said Beijing was nervous over the fact that, owing to the internet and other sophisticated forms of organization and mobilization, several relatively new and inexperienced groups were so successful in turning out the crowds. The analysts said many protests in recent Chinese history... started out as expressions of patriotism. Once the genie is out of the bottle, however, it would be difficult even for the CCP to prevent mass movements from suddenly becoming anti-government in nature.

Spontaneous smart mobs independent of government control have come to China's youth where an approximate 100 million internet users grow at 30% per annum and 350 million (27% of China's 1.3 billion people) own cellphones for voice and text messaging...

Even the most benign organized public events give an order-obsessed public security apparatus concern. Take this modest flash mob event:

On Sunday afternoon, a small group of young people gathered at the Hongqi Street in city Changchun, northest China's Jilin Province. These young people, in matching clothes, and each holding a guitar, stood in line and began to sing a pop song. And suddenly, they dispersed.

Protests from fenqing to middle class

The authorities are highly attentive to young nationalists known as fenqing, or the 'angry youth' among other translations:

"These people have been trained in an authoritarian system. They are at the same time victims of an authoritarian system, but they also behave in an authoritarian way towards others and are incredibly self-righteous... We should be more tolerant and respect the right of people to disagree with us but these people do not understand such values."

The definition of fenqing has morphed:

  • Cultural Revolution: urban-dwelling students who were sent to the countryside to toil with peasants and became embittered towards a society that had stolen their futures.
  • 1980s: students and intellectuals who shaped the movement for greater social and political freedoms that ended when the tanks rolled into Tiananmen Square
  • 2000s: patriotic, xenophobic, nationalistic and, in some cases, violent in their defence of the motherland. This latest incarnation has partly emerged as the result of government policies implemented in reaction to the events of 1989, after which "patriotic" indoctrination became an even more important element of the education system.

Beyond the fenqing, the Chinese middle class are rising, albeit more politely, against what they see as local government inattention and inaction to their needs.

The CCP in Beijing was forced to take notice, overruling local party cadres in the process, of a 2007 popular middle class resistance in Xiamen that, in the face of local party control of the press, used blogs, cellphones and text messaging to oppose a multi-billion dollar chemical plant believed to be harmful to the environment. (Also here)

Mere months later, the bourgeoisie of Shanghai emulated Xiamen in 2008 to express its "discontent over a planned extension of the city's magnetic levitation, or maglev, train" through residential neighborhoods, and at excessive cost.

This author doubts that the state security apparatus could have failed to notice that an "online 'flash mob' and not the Russian government" was responsible for DDoS attack against the Estonian state.

Bulletin boards, SMS and the Human Flesh Search Engine


Bulletin boards do much of the heavy lifting before SMS takes over:

[A] large part of the organization is done on the Internet in China, specifically on BBSes. While the BBS (bulletin board system) is something outdated and antiquated in the US Internet, it has been a very important part of the Chinese Internet, and I would argue, it is growing and becoming more influential. For the Chinese government, it is a headache because in spite of Chinese government regulations, it is largely unregulated. For western corporations it is a good place to gather information but is useless for advertising, but for many Chinese it is the most important part of the Internet (along with online gaming and their IM client, which is most likely to be QQ or MSN Instant Messenger depending on their age and demographics).

Most westerners who come into the China Internet market have no idea of its power and influence, and instead think that the Chinese Internet is largely the same as the US market, but it isn't. The Chinese government doesn't really like BBSes because it really is free (as in free speech), and is the breeding ground for all kinds of weird stuff. And while it is important for gathering buzz on products (as CIC, based in Shanghai, does) for corporations, nobody has really been able to monetize it. And, western journalists fail to monitor it, which is why they miss on so many big stories, and end up giving credit to some sinister Chinese government policies.

And China's Human Flesh Search Engine:

The types of group-forming [Clay Shirky] describes are sometimes called crowdsourcing and flash mobs. For those of us in China, we might better know crowdsourcing as the Human Flesh Search Engine, the increasingly frequent phenomenon of online crowds gathering via China's bulletin board systems, chat rooms, and instant messaging to collaborate on a common task. The Human Flesh Search Engine shares many of the same characteristics of Shirky's networked social collaboration: Enabled and made cost-effective by technology, channeling an existing motivation that was not possible to act upon as a group before...


China's Human Flesh Search Engine is a poor translation (yet a popular and visceral description) of the Chinese phrase ren'rou sou'suo... and was, for a day, Google's homepage for its Chinese edition (the page can still be found online here). The fact that day was April 1st should tell readers it was meant as tongue-in-cheek (and may not entirely be a joke - a number of search engines have tried human-assisted search and relevance checking), but it put a name to a movement that has been happening online in China for some time: Online collaboration by Netizens to search via the power of China's massive 225 million Internet users.

It remains to be seen if a resourceful Chinese interest group will find a way around the SMS limitation imposed by the authorities, but Beijing has increased its odds of a Disney production.


Everything changes tomorrow

James Fallows

The Atlantic

19 Jul 2008 12:01 am


Tag Archives: What is Fenqing

What is a Fenqing?

Thinkwierd's Blog

June 10, 2008 - 12:50 am


China's Human Flesh Search Engine - Not what you might think it is...

China Supertrends

May 25, 2008 3:56 pm


What Tibet and Carrefour Can Teach Us About the Chinese Internet

The China Vortex

May 9, 2008 at 10:11 am


China's angry youth vent their feelings

By Jamil Anderlini in Beijing


Published: May 2 2008 17:15 | Last updated: May 2 2008 17:15


JOURNAL: Tibet, Protests, and Insurgency

John Robb

Global Guerrillas

Saturday, 29 March 2008

NOTE: See the reader comments to Robb's post in relation to this topic


Spratly Islands: Dangerous deals in Dangerous ground

Mike in Manila

March 9, 2008


China: Coveting Neighborhood Energy Resources

Written by Administrator

Paracels & Spratlys

Monday, 04 February 2008


Shanghai's Middle Class Launches Quiet, Meticulous Revolt

By Maureen Fan

Washington Post

January 26, 2008


Estonia attacks down to online 'flash mob'

Russian government not to blame, says F-Secure

Written by Iain Thomson in Helsinki

27 Sep 2007


"Flash Mob" Puzzles Bystanders

China Org CN

( August 7, 2007)


Green Protests Suspend Chinese Chemical Plant

by Shai Oster, Wall Street Journal

Wen Bo

China Program

Pacific Environment


Text Messages Giving Voice to Chinese

Opponents of Chemical Factory Found Way Around Censors

By Edward Cody

Washington Post

June 28, 2007



Susan L. Craig


Strategic Studies Institute

ISBN 1-58487-287-X

March 2007


Daily Brief Comments September 2006


September 2006


The Case of Dai Haijing

Why do students demonstrate in China?  First of all, please remember that high school student demonstrations do not happen that frequently and so there must be something extraordinary.


August 26, 2006


A Real Peasants' Revolt

They're rioting in China.

by Jennifer Chou

The Weekly Standard

01/30/2006, Volume 011, Issue 19


The Anti-Japanese Demonstrations in China

A Long History



Weekend Edition

April 23 / 24, 2005


Anti-Japanese Demonstrations Appear "Staged"

By Zhao Zifa

The Epoch Times

Apr 18, 2005


Violent anti-Japanese protests resume in China

Christopher Bodeen
Associated Press
April 17, 2005


China rejects calls for apology


Published: 2005/04/17 11:43:53 GMT


In pictures: China protests grow

BBC News

Last Updated: Sunday, 17 April, 2005, 16:04 GMT 17:04 UK


Chinese Authorities Temper Violent Anti-Japan Protests

Students Cancel Mass March in Beijing

By Edward Cody

Washington Post

April 16, 2005



Chris Myrick

April 16, 2005


China warns against Japan rallies

BBC News

Last Updated: Friday, 15 April, 2005, 07:31 GMT 08:31 UK


U.S., U.N. warn on China, Japan


April 15, 2005 Posted: 0643 GMT (1443 HKT)


Anti-Japan Fury Spreads Through China's Streets

By Bruce Wallace

LA Times

April 11, 2005


China blames Japan for tensions

BBC News

Last Updated: Monday, 11 April, 2005, 05:39 GMT 06:39 UK


China rally prompts Japan protest

BBC News

Last Updated: Sunday, 10 April, 2005, 05:06 GMT 06:06 UK


Chinese angry at Japan's UN bid

By Rupert Wingfield-Hayes

BBC News, Beijing

Last Updated: Monday, 4 April, 2005, 10:44 GMT 11:44 UK


Spratly Islands: The Tide of Trouble Rises


March 31, 2004 | 2359 GMT


Spratly Islands

Global Security


The Spratly Islands:  A Threat To Asian Regional Stability

K. Scott Holder, Defense Intelligence Agency

CSC 1995


Gordon Housworth

Cybersecurity Public  InfoT Public  Strategic Risk Public  


  discuss this article

Realistic Intellectual Property (IP) Protection in China, Updated: 26 Jun, 2008


Realistic IP Protection in China, 26 Jun, 2008, is the latest in our series on Intellectual Property (IP) threat and remediation given at the GlobalAutoIndusty (GAI) conference on 26 June.

In preparation of this particular conference, GAI asked for "What you will learn" bullet points to include in their trade press. My immediate response was this set of six key takeaways:

  1. Define IP and its loss
  2. Redefine the nature of IP loss into a workable global framework
  3. Understand the nature of supply chain "risk at any tier" as opposed to "risky countries"
  4. Learn the common "solutions" that do not work, that actually leave the user more vulnerable
  5. Overview an approach that does work, drawn from counterintelligence practice
  6. Know that most of your advisory firms are less skilled in IP protection than you are.

Reviewing previous IP risk presentations against these criteria, the latest China risk presentations best address these key points as the risk analyses for India, Mexico and Brazil have to contrast too many other topics such as threats to personnel and facilities, terrorist focus on disrupting BPO and data centers, and impacts of the drug trade.

For those wishing to dig deeper into the 26 June China presentation:

Keynoted topical thefts and acts of piracy, as well as the government's capacity to suppress illegal activities when it is so inclined, are explored in detail in:

The processes on risk remediation and the Design Basis Threat (DBT) analysis and response are addressed at length in this two part series:

The "Misadventures in IP protection" summary is abstracted from the detailed analysis of PRTM's survey of failed IP "protective" practices employed by a set of global automotive suppliers in: 

Just as this note was going to release, I was discussing the fake Chinese iPhone clones (also here) that are just now gaining notoriety in the west. My colleague offered yet another example of how little things change in China when it is not in the government's interest to suppress illegal activity that produces revenue and growth so long as it does not embarrass the party:

A year ago I was in Beijing with [Taiwanese colleague], who grew in Taiwan before getting his MS degree at Stanford. A few  blocks from our Hotel on the main street were two multi-tenant shopping buildings, one for tourists, with likely all legitimate goods, cashmere clothing, tabletop art, furniture, and so on.


The other according to [him] had been knocked off the Internet (the authorities had begun their ongoing show of cracking down on counterfeit stuff in prep for this summer).  It was jammed with aggressive merchants manning small booths, many chock full of fake watches, others selling cameras, cell phones, knock-off designer clothing.  When I walked through by myself, several called out "iPhone" and I stopped to look at them.


[Both of us] went back and heard none of that. I even went to one that an hour earlier had showed me one and when I asked was told they had no such thing.  The likely reason for the change was that they thought [my colleague] was with the [Chinese] authorities. [private email]

Fake Chinese iPhone is Pretty Good Photocopy of the Real Deal

By Kit Eaton


3:56 AM on Thu Jul 3 2008


Fake Chinese iPhones Look Pretty Convincing

posted by arn on Thursday July 03, 2008 12:34 AM


Gordon Housworth

InfoT Public  Intellectual Property Theft Public  Risk Containment and Pricing Public  Strategic Risk Public  


  discuss this article

Olympian embarrassment coupled with central government revenue loss produce instant Chinese Intellectual Property (IP) compliance


Excess optimism in the face of asset harvesting

This writer has long identified IP risks in China:

[E]dicts on IP infractions, or anything else, often rarely leave Beijing as provincial, city and enterprise zone mangers do largely as they wish and are tolerated so long as they bring growth and revenue without significant embarrassment to the Party (CCP)...

The CCP (Chinese Communist Party) can only maintain its "mandate from heaven" to govern by providing rising economic growth, nor can it maintain the PLA (People's Liberation Army) solely on the "imperial wheat" of government subsidy.

Various Chinese sources have pleaded the 'youth' of their nation, implying that foreign aggrieved targets must grant China more time to reform such practices. The reality is that China is unique among developing nations. Even in 1980 it had a "first world" mentality atop a "third world" industrial capacity. China's controlled economy closed off industrial penetration and investment that it did not like while it turned a benign eye on the means by which domestic industries nurtured growth, revenue and industrialization. The Chinese Communist Party (CCP) encourages IP collection and can and will suppress it when it suits state needs.


Suppliers and those with assets of interest to the PRC inhabit a Panglossian world if they do not believe that their assets are at risk or subject to interdiction by the authorities if party or state security is deemed at risk. For readers immune to the attractions of Voltaire, his novella "Candide" (Optimism) showcased a character Dr. Pangloss ("all tongue" or "windbag") in order to:

point out the fallacy of [Gottfried] Leibniz's theory of optimism and the hardships brought on by the resulting inaction toward the evils of the world. Voltaire's use of satire, and its techniques of exaggeration and contrast highlight the evil and brutality of war and the world in general when men are meekly accepting of their fate. Leibniz, a German philosopher and mathematician of Voltaire's time, developed the idea that the world they were living in at that time was "the best of all possible worlds." This systematic optimism shown by Leibniz is the philosophical system that believed everything already was for the best, no matter how terrible it seemed. In this satire, Voltaire showed the world full of natural disasters and brutality. Voltaire also used contrast in the personalities of the characters to convey the message that Leibniz's philosophy should not be dealt with any seriousness... Voltaire created the character Dr. Pangloss, an unconditional follower of Leibniz's philosophy. Voltaire shows this early in the novella by stating, "He proved admirably that there is no effect without a cause and that, in this best of all possible worlds...." Pangloss goes on to say that everything had its purpose and things were made for the best. For example, the nose was created for the purpose of wearing spectacles...

Intersection of state embarrassment, national pride, and central government revenue loss

The Summer Olympics in Beijing is the latest in a series of intrastate events that repeatedly demonstrate that the PRC can act decisively to curtail threats as diverse as Intellectual Property (IP) theft (below) and unrest in the aftermath of the Sichuan earthquake:

The furtive trade in the five official, adorable Olympics figures -- including Huanhuan, Jingjing the Panda and others -- is part of an Olympic-size battle that has erupted between the keepers of the Games' lucrative symbols and an army of Chinese citizens who traffic in counterfeit versions of the world's most coveted brands.


For years, China has been known as the leading exporter of fake goods, from Louis Vuitton handbags and Patek Philippe watches to auto and jet engine parts. The underground economy, which according to U.S. trade officials costs American companies $3 billion to $4 billion annually, has been allowed to flourish by a Chinese government that seldom prosecutes intellectual property violations.


But the Olympics have mobilized China's piracy police like never before. Beijing, the host city, stands to receive up to 15 percent of all revenue from Olympic merchandise, a figure expected to easily top the $62 million raised in Athens four years ago. Aside from the mascots, China is also reportedly collecting up to $120 million each from Coca-Cola, McDonald's, Adidas and other companies that have qualified as the highest-level Olympic sponsors.


With the world's gaze on China in the run-up to the Aug. 8-24 Games, officials have moved to make sure counterfeit goods don't reflect poorly on the festivities. Fake Adidas clothing that was widely available at popular Beijing markets a year ago is now hard to find.


"It's a political mission, and the government doesn't want anything to ruin the quality of the Games," said Wang Hai, a Beijing-based advocate who has campaigned against fakes and worked with government officials to crack down on counterfeiters. "The Olympics are about the country's image, so it has a priority."


Through stepped-up market raids and better interagency coordination, officials have demonstrated that they can reduce counterfeiting. But in doing so, they have forced the sale of fake Olympics mascots and other souvenirs onto the black market...


"It proves that China can do something about the problem when its own interests are aligned with the crackdown... More police have joined the fight against counterfeiting, which used to be primarily the domain of commerce and quality-inspection officials, Wang said. Companies are beginning to successfully sue markets for selling fake merchandise. And thresholds for the amount of illicit proceeds that constitute a crime have been cut in half, to about $7,000 for individual suspects and about $21,000 for companies.


The counterfeiting of Olympic products has cost other host cities, including Atlanta and Salt Lake City, millions of dollars. But the scope of the problem in China is particularly vast. At Yiwu market, for example, a major destination for Chinese wholesalers and tourists, there are tens of thousands of shops and more than 200,000 vendors.

Conversely, when the PRC is secure that no international embarrassment will occur, the penalty for even modest transparency is swift:

The Communist Party's Central Propaganda Department and the official All-China Journalists Association issued a directive ordering [Pang Jiaoming's] employer, the China Economic Times, not only to fire him, but also to "reinforce the Marxist ideological education of its journalists." In a separate notice to news organizations across China, Pang said, propaganda officials announced that he was also banned from further work as a reporter at other publications.


Pang's offense was a pair of articles reporting that substandard coal ash was being used in construction of a showcase railroad, the $12 billion high-speed line running 500 miles between Wuhan, in Hubei province, and Guangzhou, an industrial hub just north of Hong Kong. The ash is a key ingredient in concrete used for tunnels, bridges and roadbed, Pang wrote, and a substandard mix raised the specter of collapsing structures and tragic accidents.


Pang's report, which was published on the front page, illustrated the growing desire of young Chinese reporters to push the limits of the country's draconian censorship system. In a booming and fast-transforming economy riddled with corruption, they have found a fertile field for investigative journalism, along with readers increasingly hungry to know about malfeasance that affects their lives.


But his fate also dramatized how helpless China's journalists remain under the thumb of an authoritarian government that maintains a vast propaganda bureaucracy with unquestioned power to control what is published and decide who rises and falls in the news business.

"The Chinese government usually only manages during a crisis... When things reach a peak and they have to deal with it, they will."


While the following action outcome was written in 2008, it could have easily been 2002 0r 2006:

Counterfeit mascots were produced almost immediately after the government unveiled the official versions in November 2005. For a time, fake versions of Beibei the Fish, Yingying the Tibetan Antelope and Nini the Swallow, as well as Jingjing the Panda and Huanhuan the Olympic Flame, were easily found at Beijing subway stops. Now, in the capital, they are harder to spot. "When the authorities feel more pressure from America, they can do it, they take it seriously...


[Chinese] officials were generally taking a greater interest in protecting [Chinese] intellectual property, in hopes of encouraging entrepreneurs to create their own brands while assuring them that those brands will be protected. But the Olympic Games provide another incentive. "The Chinese government usually only manages during a crisis... When things reach a peak and they have to deal with it, they will."

In 2002, the authorities made a determined and largely successful effort to protect the film release of Zhang Yimou's "Hero," as the Chinese government was intent on protecting the revenue of a Chinese director well known in the west and whose film needed recognized attendance figures:

When the members of the preview audience showed up at China's fanciest new movie theater here this week, they were treated to much more than just the first look at Zhang Yimou's big-budget martial-arts film, ''Hero.''


Viewers had identity card numbers inscribed on their tickets. They were videotaped as they entered the theater's foyer. They handed over all cellphones, watches, lighters, car keys, necklaces and pens and put them in storage. Before taking their seats, they passed through a metal detector. Then they got a welcoming address.


''We are showing this preview for your enjoyment tonight,'' announced Jiang Wei, an executive with the film's Chinese distribution company. ''I plead with you to support our industry. Please do not make illegal copies of this film.''...


Security guards heightened the drama at the theater. They ordered people to leave behind jewelry and pens to protect against ''needlepoint'' digital camcorders, though varying descriptions of how such devices worked sounded more like something Q made for 007 in a James Bond movie than a common pirate's tool. Uniformed policemen roamed the aisles during the film. A few sat in front of the screen and watched the audience with what appeared to be night-vision binoculars...


The belt-and-suspenders security procedures during the limited release of ''Hero'' at New South Country Cinema here, just across the border from Hong Kong, were aimed at protecting what China's film industry hopes will be the biggest martial arts sensation since ''Crouching Tiger, Hidden Dragon.'' The movie, with an all-star cast led by Jet Li, cost $30 million, making it China's most expensive film production to date. Beijing will submit it to the Oscars as a candidate for best foreign-language film. Miramax, a division of Disney, has bought the international rights...

In 2006, the authorities summarily suppressed and gerrymandered showings of foreign films in an effort to prime attendance figures for Zhang Yimou's "Curse of the Golden Flower" submission as an Academy Awards candidate. (Zhang Yimou is one of the most successful of the Fifth Generation group of filmmakers - talented graduates who emerged from the Beijing Film Academy after the Cultural Revolution. Yimou achieved international acclaim in 1991 with "Raise the Red Lantern."):

In the midst of a boffo three-week run, Chinese authorities suddenly plucked "The Da Vinci Code" from theaters. Even though "Mission: Impossible 3" was made in China with full approvals and scrutiny, local bureaucrats abruptly delayed its release... The big question: Is China limiting Hollywood pics to keep its local movie industry in the race?


While such speculation reflects tinges of paranoia on the part of frustrated executives -- and would be difficult to prove -- the situation is being taken seriously enough that the Motion Picture Assn. has commissioned an internal report to examine what has happened...


Day-and-date releases are hugely popular -- the recent gala opening of "Da Vinci Code," which had its world preem in China, was one of the social occasions of the year -- and big premieres are used to showcase China's growing openness and tolerance. But while the politicos are happy to enjoy the night out, they are less happy with the commercial and political ramifications of hugely successful foreign product...


A heavy hint that the government is prepared to take action favoring Chinese film at the expense of others came during last month's Shanghai Film Festival. While opening-night addresses are usually congratulatory and banal, State Administration for Radio, Film & Television (SARFT) director general Hu Zhanfan dropped a couple of sentences into his speech describing "preferential treatment for commercial Chinese cinema" and the "opportunities ahead for domestically produced movies to increase screenings...


State news agency Xinhua also quoted Liu Shusen, distributor of a number of recently released low-budget local films, saying, "The box offices of these movies would be guaranteed by SARFT, which required theaters across the country to allocate time spaces, and to organize officials, students and soldiers to watch."...


[US] Studio execs do not view China's film restrictions as malicious, but they fear worse is to come, and that administrative tools are being used to make commercial reality fit a policy goal. Specifically, they worry that:

  • the 20 films imported into China each year and eligible for revenue-sharing distribution are being selected to keep B.O. on Hollywood pics down;
  • there is an unofficial ceiling of RMB100 million ($12.5 million) placed on the revenues of foreign films. In other words, "Da Vinci" may not be the last Hollywood film whose run is cut short prematurely in China;
  • censorship and approvals bureaucracies are being used to delay the release of Hollywood movies. This keeps marketers in the dark until the last minute and allows disc piracy to erode theatrical potential;
  • the number of "blackout" periods in which foreign films are not allowed to release is on the increase from a typical two or three to perhaps five this year.

Chinese authorities deny any attempt at market manipulation... While most individual instances of release difficulties for foreign movies can be attributed to plausible explanations, taken together the list of complaints looks to some like the manifestation of a policy to suppress Hollywood's B.O. in China...


Trouble is, 2006 has been a lousy year for Chinese releases. And in order to maintain the very important Asian concept of "face," which roughly translates as "respect," films of other nationalities are being held down...


The regular April blackout of foreign films -- intended to allow room for local movies in theaters -- appeared to protect nothing much at all [while]  Zhang Yimou's crucially important "Curse of the Golden Flower" was [not scheduled for release until] December.

Beijing's willingness to damp down its long awaited international coming out party

It is hard to overstate the CCP's attention to, and expectations for, the 2008 Summer Olympics in Beijing. It was to be nothing less than an international showcase for China as well as an ambassadorial and financial windfall to the state. With party and state image now at risk, the state has reluctantly but forcefully opted for the state:

[With] the Olympics less than two months away, China has been restricting foreign visitors from entering the country in the hope of guarding against terrorist threats or unruly visitors who might plot to disrupt the Games, which begin Aug. 8. The government appears to be approving fewer tourist visas. Business executives say they face new bureaucratic hurdles to visiting the city. And hotels are being asked to give the government detailed information about foreign guests.


The measures, combined with the tragic news about the powerful earthquake in Sichuan Province last month, have already sapped tourism in China and cast a pall over Beijing during what was supposed to be a busy and jubilant tourist season leading up to the Olympics.


The high published rates for Beijing hotels during the summer and difficulty getting Olympic tickets have also dampened expectations, even though many five-star rated hotels say they are fully booked during the Olympics...


The government does not seem to have come to its decision lightly. In a year plagued by riots in Tibet, protests of the Olympic torch relay, a terrorist plot to kidnap journalists covering the Olympics (according to Beijing officials) and the Sichuan earthquake, the government is stressing public safety, above all else.


Beijing appears less concerned about being the host of a global party, experts say, and more concerned with making sure no one spoils it... If there were any doubts about Beijing's priorities, they were made clear [with] the announcement that 100,000 commandos, police officers and army troops would be placed on high alert during the Games, signaling that China is prepared for anything...


Nothing is hurting more than the visa policy... Hotel operators are also frustrated. A massive hotel building boom - which has bolstered the number of four- and five-star hotels in Beijing from about 64 in 2001 to 161 as of April 30, according to government figures - is beginning to look frothy. Many operators are depressed...

If any supplier believes that their assets will fare any better in the face of state interest, Dr. Pangloss has a world for you, the best of all possible worlds.

Visa limits undermine Beijing's tourism hopes

By David Barboza


Friday, June 20, 2008


China's Olympic Turnabout on Knockoffs

Fake Games Merchandise Targeted

By Maureen Fan

Washington Post Foreign Service

June 13, 2008


Chinese Parents Call Off Quake Memorial After Official Warning


New York Times

June 13, 2008


China Vows Harsher Punishment on Piracy amid "Grave" Situation


CRI English

2008-06-13 20:17:23


The "ten firsts" that follow China's massive quake

China View/Xinhua

2008-06-13 04:14:05


Some Chinese Officials Punished, Some Promoted for Actions After Quake

By Edward Cody

Washington Post Foreign Service

Tuesday, June 10, 2008; 10:39 AM


DPRK media: Chinese army's response to quake shows high combat capacity

China View/Xinhua

2008-06-03 16:59:26


Quake Is Formidable Challenge to China's Government

Rescue and relief efforts continue in China as the death toll from Monday's 7.9-magnitude earthquake neared 15,000 and is expected to rise, with tens of thousands still buried in rubble. An analyst examines how the country and its government have handled the disaster.

Gwen Ifill, Judy Woodruff


May 14, 2008


China moves quickly in quake zone

The country's deadliest quake in three decades hit central China Monday.

By Peter Ford

Staff writer of The Christian Science Monitor

from the May 13, 2008 edition


News Analysis: China's response to quake is unusually open

By Andrew Jacobs


Tuesday, May 13, 2008


Powerful Earthquake Destroys Buildings, Builds Mountains in China

There's a saying among seismologists: "Earthquakes don't kill people. Buildings do." The powerful 7.9 magnitude earthquake that rocked central China on Monday afternoon, killing upwards of 8,500 people, was a grim reminder of that common phrase.

By Jenny Marder, NewsHour with Jim Lehrer

May 12, 2008


Dishonesty in world of luxury brand goods

By Dana Thomas

China Daily

Updated: 2007-11-29 07:22


Chinese Muckraking a High-Stakes Gamble

Propaganda Authorities Intervening With Increasing but Unpredictable Frequency

By Edward Cody

Washington Post

November 12, 2007


China's global luxury brand workshop
By Olivia Chung
Asia Times
Apr 14, 2007


Zhang Yimou Blames China's Movie System

Shanghai Daily

CRI English

2006-12-25 14:38:00


Curse of the Golden Flower not violating copyright!

Posted by Joel Martinsen


December 22, 2006 3:39 AM


Chinese film industry split over "Curse"

UPI/M&C (Monsters & Critics)

Dec 20, 2006, 2:08 GMT

Original scrolled off


Curse of the Golden Flower breaks Chinese box office record





U.S. trade visit to China yields piracy promise, business deals


The Associated Press

Wednesday, December 13, 2006 - Page updated at 01:50 PM


Curse of the Golden Flower

Anne Thompson
Risky Business Blog
November 15, 2006



by Michael Schlesinger

Partner, Smith, Strong & Schlesinger LLP

NOVEMBER 6, 2006



Chinese checkers

The Great Wall shatters H'wood's hopes for pic blitz


Posted: Sun., Jul. 16, 2006, 6:00am PT


Chamber of Commerce Asks U.S. to Crack Down on Chinese Copyright Violations


New York Times

February 10, 2005



Zhang Yimou, China/Hong Kong, 2004

Interview with Zhang Yimou conducted by The Culture Show production team

BBC Four

November 2004



By: Graham J. Chynoweth

iBRIEF / Copyrights & Trademarks

Duke Law & Technology Review 0003





Zhang Yimou, Hong Kong, 1995

Clare Norton-Smith

BBC Four

Saturday 1 February 2003 11.45pm-1.30am


The Pinch of Piracy Wakes China Up On Copyright Issue; It's More Than a Trade Dispute When the Victims Are Chinese


New York Times

November 1, 2002


Gordon Housworth

InfoT Public  Intellectual Property Theft Public  Risk Containment and Pricing Public  Strategic Risk Public  


  discuss this article

Congressional Quarterly's remarkable recap of Israeli espionage


Congressional Quarterly (CQ) recently released a startlingly candid analysis of Israeli espionage, including the process of Mossad's seeking "spotters" able to identify members of the Jewish-American community susceptible to recruitment:

Mossad agents also scout for people to help them in the Jewish-American community, he said, based on their religious and political commonality. It's a vast community of potential "spotters," who can point them to other Jewish Americans in government, law, finance and banking who might be susceptible to recruitment, as is the case with potential Chinese and Cuban recruits.

Furthermore, the level of Israeli penetration is so great that many or all trials on the topic may be hamstrung:

A former senior CIA counterintelligence operative believes the [Ben-Ami Kadish] case "will never go to trial, because of all the ugly stuff that would come out" about Israeli activities in the United States. Indeed, Justice Department attorneys have fought to keep "ugly stuff" from emerging in the trial of two officials of the American Israel Public Affairs Committee, or AIPAC, charged with accepting classified documents from Pentagon official Larry Franklin.

NOTE TO READERS: If you are already aware of pro-Israeli efforts to deflect frank discussions of US geopolitical interests, or are immune to comments critical of Israel, skip down to the full text mirror of the CQ article by Jeff Stein. If you are unfamiliar with Congressional Quarterly or the efforts to stifle debate I submit the next comments are worth the read as a follow-on to Israel was planting malicious chips in US assets before China.

For those unfamiliar with CQ, it is the gold standard in Capitol Hill and congressional reporting, fielding more than 150 reporters and researchers while maintaining substantial databases on both Congress and government. Founded in 1945 by husband-wife team of Nelson and Henrietta Poynter as a explanatory link between newspapers and the opaque operations of DC, Nelson Poynter stated that "government will never set up an adequate agency to check on itself," foundations were "too timid," thus client-driven commercial effort was needed. (Most of CQ's products are subscription based but the espionage item was among the subset flagged for public release.)

One would think, but cannot be certain, that CQ is above reproach from the hyper-Israeli press sentinels of which I have written:

The pro-Israeli HonestReporting is often not, but it is only modestly apologetic in comparison to the Committee for Accuracy in Middle East Reporting in America (CAMERA), the velocity of whose text barely holds onto a claim of legitimacy in presenting an Israeli issue.

A month has elapsed since the CQ National Security Editor, Jeff Stein, released Israel Might Have Many More Spies Here, Officials Say and as of today neither CAMERA or HonestReporting has attacked CQ, Stein or the article so there may be limits after all. If so, it is the first in recent memory. As the UK's Financial Times observed in its 2006 American and Israel:

Reflexes that ordinarily spring automatically to the defence of open debate and free enquiry shut down - at least among much of America's political elite - once the subject turns to Israel, and above all the pro-Israel lobby's role in shaping US foreign policy.


Even though policy towards the Middle East is arguably the single biggest determinant of America's reputation in the world, any attempt to rethink this from first principles is politically risky.


Examining the specific role of organisations such as the American Israel Public Affairs Committee, commonly considered to be the most effective lobby group in the US apart from the National Rifle Association, is something to be undertaken with caution...


Moral blackmail - the fear that any criticism of Israeli policy and US support for it will lead to charges of anti-Semitism - is a powerful disincentive to publish dissenting views. It is also leading to the silencing of policy debate on American university campuses, partly as the result of targeted campaigns against the dissenters...


Doctrinal orthodoxy was flouted [in] a paper on the Israel lobby by two of America's leading political scientists, Stephen Walt from Harvard's Kennedy School of Government and John Mearsheimer from the University of Chicago. They argue powerfully that extraordinarily effective lobbying in Washington has led to a political consensus that American and Israeli interests are inseparable and identical.


Only a UK publication, the London Review of Books, was prepared to carry their critique, in the same way that it was Prospect, a British monthly journal, that four years ago published a path-breaking study of the Israel lobby by the American analyst, Michael Lind...

The irreverent Texan political commentator, Molly Ivins, observed from our side of the pond:

For having the sheer effrontery to point out the painfully obvious - that there is an Israel lobby in the United States - Mearsheimer and Walt have been accused of being anti-Semitic, nutty and guilty of "kooky academic work." Alan Dershowitz, who seems to be easily upset, went totally ballistic over the mild, academic, not to suggest pretty boring article by Mearsheimer and Walt, calling them "liars" and "bigots."...


In the United States, we do not have full-throated, full-throttle debate about Israel. In Israel, they have it as a matter of course, but the truth is that the accusation of anti-Semitism is far too often raised in this country against anyone who criticizes the government of Israel.


Being pro-Israel is no defense, as I long ago learned to my cost... It's the sheer disproportion and the vehemence of the denunciations of those perceived as criticizing Israel that make the attacks so odious. Mearsheimer and Walt are both widely respected political scientists - comparing their writing to "The Protocols of the Elders of Zion" is just silly...

That disproportion was demonstrated against a renown economist attempting, at US military request, to estimate the cost of conflict:

A good example was the furor made over Thomas Stauffer's estimation of the cost of conflict of US policy in the Middle East which was disputed by pro-Israeli sources. Stauffer made his initial comments under US Army War College auspices at a conference at the University of Maine but that presentation seemed to be obscure, ultimately yielding only one HTML copy on the web, with a PDF mirror at an appallingly anti-Semitic site. That led to more developed items in Middle East Policy Council (MEPC) and the Middle East Economic Survey (MEES).

Stauffer suffered the same withering criticism as did any source mirroring his conclusions as the very reliable Christian Science Monitor (CSM) found when it attempted to cover the topic.


Preface concluded, here is Stein's article: 

Israel Might Have Many More Spies Here, Officials Say

By Jeff Stein, CQ National Security Editor

CQ Homeland Security

Congressional Quarterly Inc.

April 25, 2008 - 8:13 p.m.

The elderly New Jersey man arrested last week on charges of spying for Israel years ago was probably still working for the Jewish state's espionage service in tandem with another, as yet unidentified spy, former American intelligence officials say.

Ben-Ami Kadish, now 84, was employed as a mechanical engineer at a U.S. Army weapons center in New Jersey when he allegedly supplied his Israeli handler with classified military documents, according to charges filed last week.

The handler was named only as "CC-1," or co-conspirator 1, in the criminal complaint. But its description of him as the same man who was handling the notorious Israeli mole Jonathan Pollard all but identified him as Yosef Yagur, formerly the consul for scientific affairs at the Israeli consulate in New York.

Pollard, who gave Yagur thousands of highly classified documents while working as a navy intelligence analyst in the 1980s, is in the 21st year of a life sentence for espionage.

Kadish, who worked at the U.S. Army's Picatinny Arsenal in Dover, N.J., from 1963 to 1990, could also spend the waning years of his life in jail if he is convicted.

A former senior CIA counterintelligence operative believes the case "will never go to trial, because of all the ugly stuff that would come out" about Israeli activities in the United States.

Indeed, Justice Department attorneys have fought to keep "ugly stuff" from emerging in the trial of two officials of the American Israel Public Affairs Committee, or AIPAC, charged with accepting classified documents from Pentagon official Larry Franklin.

But the federal judge in the case has indicated he might not go along with their strategy. Last month Judge Thomas Ellis III indefinitely postponed the trial of AIPAC officials Steven Rosen and Keith Weissman, which was scheduled to open next week.

Neither the United States nor Israel, strategic allies struggling with Middle East terrorism, the war in Iraq and the rising threat of Iran, can afford a breech in relations triggered by either case.

The Justice Department said Kadish brought home briefcases full of classified documents, which "CC-1" photographed in his basement. Among the documents was "restricted data" on nuclear weapons, classified information on a modified F-15 fighter that was sold to an unnamed foreign country (most likely Saudi Arabia), and a document relating to the Patriot anti-missile system, which the United States deployed to Israel during the first Gulf War in 1990.

Yagur fled New York in 1985 as U.S. counterintelligence agents closed in on Pollard. He has not been back since, U.S. officials believe.

They thought that was the end of his espionage operations here.

But Yagur evidently kept in touch with Kadish, exchanging e-mails and telephone calls with him long after he returned to Israel. Kadish went to Israel in 2004 and met with his former spy master, authorities said.

Just last month, on March 20, "CC-1" told Kadish to lie to FBI agents who had questioned him about the documents, according to a wiretap transcript produced by federal prosecutors.

"Don't say anything. Let them say whatever they want. You didn't do anything," CC-1 told Kadish. "What happened 25 years ago? You didn't remember anything."

Ron Olive, the navy investigator in charge of the Pollard case, said he was shocked when he heard about Kadish's arrest.

The description of CC-1 as Pollard's handler meant that "it has to be" Yagur, he said by telephone from Arizona, where he was giving a counterintelligence lecture to federal officials.

"I was like, 'holy cow, this is unbelievable,'" he said.

Olive said the arrest meant that Kadish was still working for Israeli intelligence.

"It means Israel still has an agent in place in the U.S. who can ferret out someone who has access to information they want," Olive said.

One role Kadish could play was as a "spotter," who could size up possible recruits for Israeli intelligence, even while living in a retirement community in Monroe Township, N.J., said Olive and another former federal agent.

"That jumped out at me," said Harry B. "Skip" Brandon, a former deputy assistant director of counterintelligence at the FBI.

"It is very unusual for a former agent handler and his former agent to remain friends. And it's dangerous for both," he added. Any communication between the two, no matter how innocent, raises the risk of detection and exposure.

Other aspects of the case suggest that Jerusalem has at least one, and maybe several more spies embedded in U.S. military services or intelligence agencies: As with Pollard, the Israelis asked Kadish for specific documents, indicating they knew what they were looking for, supplied by another spy.

"You know, it wouldn't surprise me one bit," said Olive, who in 2006 published a memoir about the case, "Capturing Jonathan Pollard: How One of the Most Notorious Spies in American History Was Brought to Justice".

Olive said Pollard stole "360 cubic feet" of classified documents during his six years as an Israeli mole. "It was the most devastating spy case I ever saw," he said. "No other spy in the history of the United States has stolen so many secrets, so highly classified, in such a short period of time."

"No other spy in the history of the United States has stolen so many secrets, so highly classified , in such a short period of time," he said.

There have long been rumors of a "Mr. X," Olive said, "another unknown government employee who had access to information that the Israelis could use."

Israeli intelligence had a spy, code-named MEGA, high up in the Reagan administration at the same time Pollard, and now allegedly Kadish, were stealing documents, according to a Washington Post story years ago that has never been confirmed.

In fact, according to past and present U.S. counterintelligence officials, Israeli agents were so aggressive even after the Pollard case that an FBI counterintelligence boss in the late 1990s, David Szady, summoned Mossad's top official for a tongue lashing.

"Knock it off," Szady said, according to a reliable source on condition of anonymity.

Szady has been pilloried in pro-Israel circles for pursuing the AIPAC case, which many critics say amounts to trumping up espionage charges against officials who were merely engaging in the kind of transaction officials and journalists conduct every day.

But the Israelis here have never stopped practicing the "world's second oldest profession," as espionage is sometimes dubbed, despite years of rote denials, many officials say.

"I guarantee you the same thing is happening now," said Olive, who trains Department of Energy security officials on detecting signs of espionage.

One effective espionage tool is forming joint partnerships with U.S. companies to supply software and other technology products to U.S. government agencies, intelligence officials say.

But Brandon, who retired in the mid-1990s but retains many intelligence contacts for his global security consulting business, says the Israelis are interested in commercial as much as military secrets. They have a muscular technology sector themselves.

"They are always looking for a leg up," he said.

Congress is a major target, too, Brandon said.

"God, they would work the Hill," he said. "They really worked the Hill. They were not necessarily interested in collection [of information] so much as they were in influence."

Influencing Congress is usually the domain of foreign diplomats, he said, but in Israel's case there was "very little distinction between Mossad and the diplomats."

"They were very sharp," he added. "Their best and brightest."

Mossad agents also scout for people to help them in the Jewish-American community, he said, based on their religious and political commonality. It's a vast community of potential "spotters," who can point them to other Jewish Americans in government, law, finance and banking who might be susceptible to recruitment, as is the case with potential Chinese and Cuban recruits.

Or just useful conversation. Israeli agents, Brandon said, are skilled at eliciting information from unwary Jewish Americans in strategically important positions.

"They make you feel good, feel important," he said. "They don't even realize they're giving up something" sensitive, or even classified - until it's too late.

At the same time, U.S. and Israeli intelligence officials have worked hand in glove on numerous fronts since 1948, when the Jewish state was founded.

Mossad had access to Russian Jews who supplied the West with Soviet military, scientific and technical secrets. American and Israel intelligence have always worked closely in counterterrorism.

But they don't tell each other everything, which is why the relationship sometimes veers from friendship to competition.

"They were never, ever allowed in our facilities," says a former CIA officer who was sometimes assigned a liaison role with Israeli counterterrorism agents.

Likewise, when CIA or other U.S. intelligence operatives visited Israel, Israeli security agents would "toss their room," he said, "just to show who's in charge."

Jeff Stein can be reached at

Source: CQ Homeland Security
(c) 2008 Congressional Quarterly Inc. All Rights Reserved.


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In fair disclosure, following is my AIPAC series:

Israel Might Have Many More Spies Here, Officials Say

By Jeff Stein, CQ National Security Editor

CQ Homeland Security

Congressional Quarterly Inc.

April 25, 2008 - 8:13 p.m.


Molly Ivins: Pro-Israel 'Nutjobs' on the Attack

By Molly Ivins


Posted on Apr 25, 2006


America and Israel

Financial Times

Published: April 1 2006 03:00 | Last updated: April 1 2006 03:00


Economist tallies swelling cost of Israel to US

By David R. Francis

Christian Science Monitor

December 09, 2002 edition

Editor's note to Economic tallies

Christian Science Monitor

posted December 16, 2002


Gordon Housworth

Cybersecurity Public  InfoT Public  Infrastructure Defense Public  Intellectual Property Theft Public  Risk Containment and Pricing Public  Strategic Risk Public  


  discuss this article

Israel was planting malicious chips in US assets before China


Reporting on the FBI investigation of Chinese counterfeit, some possibly malicious, electronics has made no mention that Israel had embedded malicious chips in nothing less than the White House phone system by 2000. Outside of members of the intelligence community and attentive technical readers of the period, this will come as a surprise, possibly coupled with the erroneous assumption of anti-Israeli bias, to many readers.

Nothing in open source then or since has convinced me that the US telecommunications network is either secure or immune to further interruption or breach. Whereas SCADA control networks, primarily for power grid generation, transmission and distribution applications (genco, transco, disco), and recently fiber optic networks have been identified as vulnerable to attack, little has been made publicly of telco vulnerability until the China Cisco counterfeits. The vulnerability of the US/EU telco network to a variety of state and nonstate actors is so great that it should be ranked adjacent to the vulnerabilities of our SCADA networks, for all applications, and fiber optic networks. See:

Telco supply chain analysis has again been reduced to function at lowest cost with the assumption of low risk. All tier providers from whatever state actor need to be examined and risk assessed in the design, fabrication, installation and maintenance phases. See Foreign vulnerability inherent in US globalization of its commercial and defense supply chains, 5/6/2008.

Israel as independent actor, often counter to US interests, not unlike China

From Palmerston, interests, and forms of governance, 5/22/2004:

Israel pursues an independent diplomatic policy at odds with US interests. Israel is a modest cooperative partner in the US war against terrorism. Just as the Russians, the Pakistanis, the Chinese and others did in the post 11 September period, Israel immediately offered the US data that painted their parochial adversaries as the architect or participant of the air liner assault so that we might attack them. Each country offers or withholds information so as to advance its national interests, and attempts to influence where it cannot command. Israel is no exception and I think that it applies Palmerston better than the US.

Israel ran Jonathan Pollard, a US Navy civilian analyst, as a spy to enormous and ongoing harm to the US. Israel not only used that information to US disservice but further went on to sell or broker that information to the Russians and the Chinese, perhaps others. The impact on the US is still being felt to this day and none of the attempts of his apologist spouse, Esther, will wipe that away. The effects of Pollard's espionage is so great that Director CIA threatened to resign if Clinton pardoned Pollard. (If a US national has strong loyalties, be it religious, tribal, cultural or geographic, that work to the detriment of US interests, then I am also at odds with them.)

Israel is not a devoted friend of the US and it has nothing to do with religion or its democratic governance. (We forget that France was the principal post-partition mentor of Israel before the US.) It is a nation state acting in its best interests, some of which correspond to our own...

Yes, there are tactical interests between the US and Israel. Examples being the identification of certain Palestinian assets to the Israelis... I was in some briefings by Israeli officers in which they used a metaphor that I think circulates within the IDF, as others have heard it, that Israel is like the man atop a burning building that can neither put out the fire or get down off the building. All actions are conducted within that narrow range of options.

Commentary follows on related Israeli collection efforts and how those events receded from the public consciousness. The note on sources for a series on the interaction of AIPAC, American Jews, the State of Israel and the Christian Right also applies here.

Recognition of intel collection events obscured by fog facts

Larry Beinhart, author of American Hero [snippets here] filmed as Wag the Dog, describes "fog facts" as an overlooked class of information that become increasingly obscure with the passage of time. (This analyst would add lack of simple search tool access by scrolling off of the original source, lack of mirroring or mirroring at sites that have an otherwise offensive character, original foreign or foreign language sources, or pre-2004 topical information before the advent of the web that is still less well captured than post-2004 data.):

Fog facts are things that have been reported, somewhere, sometime, but have disappeared into the mist - like the pre-9/11 hints that there were hijackers in our midst. The fog facts can still be found by enterprising reporters, but with time and news space increasingly crunched - and media priorities shifting to the trivial - they usually remain obscure, at least to the general public.

Diplomatic "dead air," from both the embarrassed target and successful collector, combined with dissuasion of national reporting creates fog facts in record time. In the case of Israel, two events have persisted in the public consciousness, out of the fog bank: the Jonathan Pollard and USS Liberty affairs. Almost all other Israeli intel collection efforts against the US have receded into fog facts as if they never existed.

Espionage at the pinnacle of impunity

Consider Bush43 standing before the State Duma (lower house) or the Federation Council (upper house) of the Russian Federation or the PRC's National People's Congress (NPC) or Central Committee of the CCP and making the equivalent declaration:

I have been fortunate to see the character of Israel up close. I have touched the Western Wall, seen the sun reflected in the Sea of Galilee, I have prayed at Yad Vashem. And earlier today, I visited Masada, an inspiring monument to courage and sacrifice. At this historic site, Israeli soldiers swear an oath: "Masada shall never fall again." Citizens of Israel: Masada shall never fall again, and America will be at your side.

Given the level of espionage directed against the US by the State of Israel, the comparison is pointedly appropriate.


Israel's espionage efforts against the US, despite Israeli diplomatic statements to the contrary, are long standing, and all too effective. From Who's on the National Security Threat List and why?, 4/27/2004:

The 2000 Annual Report to Congress on Foreign Economic Collection and Industrial Espionage uncloaked to identify six greatest offenders as China, Japan, Israel, France, Korea, Taiwan, and India. I surmise the temporary Russian absence was due to the disruption from the breakup of the former Soviet Union. Taiwan was greatly exercised by being publicly placed among 13 nations designated as a threat to US national security, "including Russia, China, North Korea"... Who doesn't get publicized on the list are our closest allies such as the UK, (then West) Germany, the Netherlands, Belgium, and Canada.

Commercial enterprises and individuals account for the bulk of international industrial espionage activity, roughly three times the percentage due to foreign government-sponsored efforts.  Even developing countries pose a threat as their intel agencies profited from training provided by the USSR, DDR (East Germany), Czechoslovakia, Bulgaria, and even the US and so have created a "reservoir of professionally trained intelligence mercenaries."

Israel's espionage efforts are rivaled by their technology diversion efforts. From the 2005 Israel as serial violator, temporarily the chicken killed to scare the monkeys:

It is appropriate to class Israel as a serial violator in terms of its diversion of US weapons technology and weapons systems embedding US technology to states such as the PRC. Israel regards such sales as essential both to bolster its own defense industry and to secure greater independence from US strictures on its diplomatic action. Israel is also a purchaser of US weapon systems as well as a creator of weapons systems of interest to the US, thus it becomes a multi-edged proposition in purchases, technology, diplomacy, and US domestic politics.


Despite its violations Israel has succeeded in deflecting the bulk of US displeasure, thus is was interesting to see the US move to "sideline" Israel from "participating in developing the Joint Strike Fighter because of violations of agreements about arms sales to China."

Whatever one's opinion is of the State of Israel, the state is certainly unique in its ability to target US assets while retaining a more than cooperative relationship with the US.

Security risks in telco supply chains

This analyst would have the same concerns of employing a Chinese telco to build and/or maintain sensitive telecommunications systems, or provide service via their systems, as I would an Israeli firm as we have already had three significant, verified breaches courtesy of Tel Aviv, most notably the breach (also here) of the White House phone system by Telrad during the Clinton administration. I would have equal interest in the master purchase agreement between Sprint and ZTE, and the presence of Huawei of Telrad in telco installations.

PTT (Post, Telegraph and Telephone) applications should be on a national security-level footing regardless of who builds, and the pen testing and on-going monitoring should be done externally. Yes, this approach requires more money, assets and training but that is part and parcel of a national security footing. Witness the recent penetration of the Greek cell phone system (details here) and the recording of calls by senior government officials. Due to both architecture and insufficient patching, the perpetrators were able to penetrate and monitor even as they shielded their efforts.


Possible targets must examine their entire supply chain well into the lower tiers, the ostensibly more innocuous the better. Witness the Israeli firm, Amdocs Ltd, which did, and may still do, the bulk of directory assistance calls and call records and billings in the US. It was said that it was virtually impossible to make a landline call without generating an Amdocs record. NSA long felt that while Israel may not have been intercepting the contents of the calls, it did have a perfect "traffic analysis" of who called whom when and for how long. Combine that with external events and you have amazing abilities.


Israel penetrates the White House communications network


Said to have been operational in 1998 during intense Israeli speculation about US intentions of the ongoing peace process:

The tip-off about these operations [appears] to have come from the CIA... A local phone manager had become suspicious in late 1996 or early 1997 about activities by a subcontractor working on phone-billing software and hardware designs for the CIA. The subcontractor was employed by an Israeli-based company and cleared for such work. But suspicious behavior raised red flags. After a fairly quick review, the CIA handed the problem to the FBI for follow-up...


"It's a huge security nightmare,"... "The implications are severe,"... "We're not even sure we know the extent of it...All I can tell you is that we think we know how it was done... That alone is serious enough, but it's the unknown that has such deep consequences."


Sources in Israel say intelligence agents infiltrated Telrad, a company that had been subcontracted by Nortel, America's [then] largest telecommunications conglomerate, to help develop a communications system for the White House.


Company managers were said to have been unaware that virtually undetectable chips installed during manufacture made it possible for outside agents to tap into the flow of data from the White House.


Information being sent from the president to his senior staff in the National Security Council and outside government departments could be copied into a secret Israeli computer in Washington, the sources said. It was transferred to Tel Aviv two or three times a week.


One opportunity for Israeli agents to mount the operation arose when Nortel, Telrad and another firm won a 33m contract to replace communications equipment for the Israeli air force. Members of the air force were allowed access to manufacturing areas as a result...


As for how this may have been done technologically, the FBI believes it has uncovered a means using telephone-company equipment at remote sites to track calls placed to or received from high-ranking government officials, possibly including the president himself, according to Insight's top-level sources. One of the methods suspected is use of a private company that provides record-keeping software and support services for major telephone utilities in the United States.


A local telephone-company director of security, Roger Kochman, tells Insight, "I don't know anything about it, which would be highly unusual. I am not familiar with anything in that area."


U.S. officials believe that an Israeli penetration of that telephone utility in the Washington area was coordinated with a penetration of agents using another telephone support-services company to target select telephone lines. Suspected penetration includes lines and systems at the White House and NSC, where it is believed that about four specific phones were monitored -- either directly or through remote sites that may involve numbers dialed from the complex.


"[The FBI] uncovered what appears to be a sophisticated means to listen in on conversations from remote telephone sites with capabilities of providing real-time audio feeds directly to Tel Aviv," says a U.S. official familiar with the FBI investigation. Details of how this could have been pulled off are highly guarded. However, a high-level U.S. intelligence source [said] "The access had to be done in such a way as to evade our countermeasures .... That's what's most disconcerting."

Supply chain breach of the US telecommunications network


As part of, or in concert with, the Telrad penetration, the FBI was investigating Bell Atlantic and Amdocs Ltd., a "Chesterfield, Mo., telecommunications billing company [that] helped Bell Atlantic install new telephone lines in the White House in 1997":

Amdocs provides billing and customer services to telecommunications companies around the world, including Bell Atlantic, BellSouth, Sprint and Vodafone. The Israeli-owned company has grown at an incredible rate since opening an American base in 1997, tripling its U.S. revenues to more than $600 million in 1999. Amdocs software handles 50 percent of all local calls in the United States and 90 percent of all local calls in Germany...


Amdocs, once a small Israeli software company, is the world's leader in the $20 billion telecommunications billing software industry, with expected revenues this year of $1.1 billion, said Debra Katz, an analyst with Gerard, Klaur and Mattison in New York. The company employs 5,600 people worldwide and is run by "an amazingly high caliber of people."...

In what was a stupendous opportunity for traffic analysis, the US offered significant parts of its telephone logs (date, time, duration, to, from, likely more) to Israeli assets:

In 1997, the White House had a new, state-of-the-art phone system installed by Bell Atlantic. The system installed was not the secure, military-installed system for classified conversations but rather a commercially secure phone system. The classified phone lines presumably remain secure and are not involved in the alleged breach, sources said...


[A]  senior-level employee of Amdocs had a separate T1 data phone line installed from his base outside of St. Louis that was connected directly to Israel. [Investigation centered on] whether the owner of the T1 line had a "real time" capacity to intercept phone calls from both the White House and other government offices around Washington, and sustained the line for some time... An interceptor could allegedly place the location in the White House or other buildings where phone calls originated Sources familiar with the investigation say FBI agents on the case sought an arrest warrant for the St. Louis employee but Justice Department officials quashed it...

A US cryptographer and security specialist asked the same question that first came to mind when the breach was discovered:

Why should we be freely giving to Israeli corporations information (call records, CALEA information) that requires court orders to obtain in this country?  Such information is obviously sensitive, and the well-motivated efforts to strengthen and protect our national infrastructure should reasonably include mandating that such information not be routinely handled by any foreign entities...

 The balance tipped further in Israel's favor by its ownership of the major Lawful Interception (LI) products producer, Comverse Infosys. As US domestic calls transit telco routers, "Custom computers and software, made by companies like Comverse, are tied into that network to intercept, record and store the wiretapped calls, and at the same time transmit them to investigators":

The [Lawful Interception (LI)] manufacturers have continuing access to the computers so they can service them and keep them free of glitches.  This process was authorized by the 1994 Communications Assistance for Law Enforcement Act, or CALEA... [W]hile CALEA made wiretapping easier, it has led to a system that is seriously vulnerable to compromise, and may have undermined the whole wiretapping system...


[Comverse] insists the equipment it installs is secure. But the  complaint about this system is that the wiretap computer programs made by Comverse have, in effect, a back door through which wiretaps themselves can  be intercepted by unauthorized parties.


Adding to the suspicions is the fact that in Israel, Comverse works closely with the Israeli government, and under special programs, gets  reimbursed for up to 50 percent of its research and development costs by  the Israeli Ministry of Industry and Trade. But investigators within the DEA, INS and FBI have all told Fox News that to pursue or even suggest  Israeli spying through Comverse is considered career suicide.

Significant elements of the US/EU telecommunications network are neither secure or immune to further interruption or breach from a variety of state and nonstate actors. To focus on only one state, possibly erroneously, only does us harm.


President Bush Addresses Members of the Knesset

The Knesset


Office of the Press Secretary

For Immediate Release

May 15, 2008


USS Liberty Summary of Events

USS Liberty Memorial


I busted Pollard


Jerusalem Post

Nov 20, 2006 20:18, Updated Nov 20, 2006 20:41


telnetd root Backdoor in Vodafone's Ericsson Systems?

Sascha Welter


1 March 2006


Phone Tapping Scandal in Greece

Sascha Welter


02 February 2006


Why Jonathan Pollard is Still in Prison?



JUNE 28, 2002

See the section: 'THE CRIME'


Allies and espionage

Jane's Intelligence Digest

15 March 2002


Mirror via Nucnews




By Sylvain Cypel


05 March 2002

Translated by Malcolm Garris




The Israeli Spy Flap Will Fade Away, But At What Cost?

By Douglas J. Brown


February 7, 2002


Israeli News Reports On The Fox Series Of Israel Spying On US



U.S. phone eavesdropping software open to spying --Fox News

From: Declan McCullagh


Date: Fri, 14 Dec 2001 14:51:51 -0500

A Fox series of 4 items, of which this is part 3, is mirrored at Cryptome


FBI Probes Espionage at Clinton White House - suspected telecommunications espionage

by J. Michael Waller,  Paul M. Rodriguez

Insight on the News

May 29, 2000




Weekly  Intelligence Notes
Association of Former Intelligence Officers (AFIO)
26 May 2000


Israeli spies tapped Clinton e-mail

by Uzi Mahnaimi

Sunday Times (UK)

May 21, 2000

Original scrolled off




Weekly  Intelligence Notes

Association of Former Intelligence Officers (AFIO)

19 May 2000



Weekly  Intelligence Notes

Association of Former Intelligence Officers (AFIO)
12 May 2000


President, Senior Officials Briefed on Possible 'Penetration' of White House Phones

By Carl Cameron


6:57 p.m. ET (2257 GMT) May 5, 2000

Original scrolled off



The ABC's of Spying


New York Times

March 14, 1999


Why Pollard Should Never Be Released (The Traitor)

Seymour Hersh

The New Yorker

January 18, 1999


Gordon Housworth

Cybersecurity Public  InfoT Public  Infrastructure Defense Public  Intellectual Property Theft Public  Risk Containment and Pricing Public  Strategic Risk Public  


  discuss this article

FBI Cisco counterfeit investigation is live fire demonstration of failed supply chain oversight


The recent bureau investigation outlined in FBI Criminal Investigation: Cisco Routers of counterfeit Cisco routers, switches, interface converters (GBIC), and WAN interface cards (WIC) is a long overdue spotlight on the failure to properly manage and assess critical supply chains. Two themes stand out:

  1. Validation of insufficient supply chain analysis at tier: From a supply chain analysis standpoint, the problem is worse that the FBI notes. If the tier 0 is the OEM or top level consumer as it is in the manufacturing sector, then the malicious entry is coming in at tier 4, not tier 3, as the "GSA IT Vendor" is the tier 1. The 'tier 3' to the tier 1 is thus a tier 4 to the OEM/top tier consumer and thus well below superficial oversight limits. Alternately, federal purchasing guidelines were so loose that malicious equipment could be effectively sanitized at tier 2 as noted in the eBay and federal credit card procurement paths. As noted in Foreign vulnerability inherent in US globalization of its commercial and defense supply chains, the lack of effective means and metrics had led to complacency and ignorance.
  2. Probably PLA participation at overt/covert subsidiary: From a motivation standpoint, this analyst believes that the question of "For profit or state sponsored?" is not an 'or' but an 'and,' i.e., both motives are cooperating within the People's Liberation Army (PLA) and have been for well over a decade.

Extensive supply chain 'undersight'


While there are many things of interest in FBI Criminal Investigation: Cisco Routers, these caught my eye.


Foil #10, "Sub-Contracting Process":

  • Material is coming in via a drop ship GSA vendor to a tier 3 sub, i.e., well below the tier 2 boundary and largely sanitized from the nominal tier 3.
  • The problem is worse that the FBI notes as if tier 0 is the OEM or top level consumer as it is in the manufacturing sector, then the entry is coming in at tier 4, not tier 3, as the "GSA IT Vendor" is the tier 1 and thus well below superficial oversight limits

Foils #13-14, "Directly from PRC" and "Through Foreign Country":

  • Material is sanitized through US and nominal friendly states which confer validation in the absence of investigation.

Foils #15-16, "eBay" and "Government Credit Card":

  • Material apparently bypasses all tracking as a discrete federal group uses their fed credit card or PayPal account to buy from eBay or non-GSA vendor.

Foils #22-23, "U.S. Navy Project":

  • Lockheed Martin is the tier 1, thus the material is again coming in at tier 4 from PRC, whereupon the tier 4 ships direct to the Navy.

Foil #48, "Intelligence Gap"

The scope of criminal activity by insurgent and terrorist groups is vastly underestimated by lay readers; It is as if operational money appears as Minerva from the head of Jupiter, if it is thought about at all. Terrorist organizations build criminal funding arms that have the real possibility of dwarfing the military mission, and in some cases, as I believe is happening in Northern Ireland, they become nearly pure criminal groups with a veneer of rhetoric. None are immune:

[The Red Brigades'] daily life was ruled by economics. Members of the organization spent most of their time raising money to carry out their violent attacks, to buy weapons, to rent new safe houses… The Red Brigades [often] sailed to Lebanon to pick up arms from the PLO. The weapons were them brought to Sardinia where other European groups, such as the IRA and ETA, came to collect their share of the cargo. For this service the Red Brigades received a fee. [To give an idea of the] money required by an armed organization to function, in the 1970s, the Red Brigades had a turnover of $8 to 10 million, equivalent to about $100 million today. This figure was equivalent to the turnover of a medium size Italian company. Generating such vast flow of money required constant attention and absorbed the bulk of the time of the full time members of the organization…

Napoleoni goes on to describe that 2003 market "has merged with the international illegal and criminal economy and together they have a turnover of $1.5 trillion dollars" allocated as:

  • $500 billions are capital flights, money which move from country to country undetected, unreported and illegally;
  • $500 billions is what is commonly known as the Gross Criminal Product, money generated primarily by criminal organizations;
  • $500 billions is the New Economy of Terror, money produced by terror organizations of which 1/3 is represented by legal businesses (which include charitable donations) and the rest comes from criminal activities, primarily drug trade and smugglings.

The bulk of the $1.5 trillion flows into Western economies, it gets recycled in the US and in Europe. It is a vital infusion of cash into these economies.

Tradition of simultaneously 'manning the trenches and the cash register'

As previously noted, "The CCP (Chinese Communist Party) can only maintain its "mandate from heaven" to govern by providing rising economic growth, nor can it maintain the PLA (People's Liberation Army) solely on the "imperial wheat" of government subsidy," thus the PLA was instructed to become largely self-sufficient.

From working notes in 2004:

Official position: Peoples' Liberation Army (PLA) relinquished all commercial investments other than "logistics" in 1999.  Highly visible, high-profile investments handed over.


Reality: PLA influence over the economy remains deep and widespread.  The 1999 deadline merely commenced the start of protracted negotiations on who gets what and how Beijing will compensate the military for the revenue lost by handing over its companies. [Includes current value of airlines, pharmaceutical firms, manufacturing and chemical plants, as well as their future revenue stream.]


PLA units used the divestiture to shift money-losing firms to local governments even as they kept the best for themselves, blocked audits that would reveal theft and corruption, moved assets into umbrella companies to hide ownership, and allowed departing military officers, their wives or relatives to take over "divested" firms.


By 2000 PLA still owned some 10,000 companies selling everything from toilet paper to telecommunications services [Per military analysts, diplomats and China watchers] vastly undervalued at $9.7 billion USD.


PLA has a long tradition of simultaneously manning the trenches and the cash register. [Army actions against the Japanese and the Nationalists before and after WW II relied on farming, factory work and other extracurricular activities to support guerrilla operations. Mao Tse-tung cited Ming and Qing dynasty precedents as justification.]


China lacks the financial resources to support the PLA solely on the "imperial wheat" of central government funding.


PLA's modernization efforts are posting even more aggressive financial demands, yet the Communist Party (CP) needs the PLA as the ultimate defender of its privileged position. Backlash over US-led NATO bombing of the Chinese Embassy in Belgrade [8 May 2000] reduced "pressure to close up shop" of extra-commercial activities.


Before 1978, the PLA's business focus was largely limited to production for its own use.  Deng's exhortation to the people to "get rich for the good of China" found fertile ground in the military.  The PLA used its tax-exempt status, warehouses, vehicles and border control to its advantage.  Resulting abuse of power undermined Communist Party credibility, embarrassed CP leadership, while private sector interests undermined military loyalty and left many soldiers with divided loyalties.  PLA greed during the 1997 Asian economic crisis pulled forward the timeline for military divestiture.  PLA was engaging in massive oil smuggling (almost bankrupting China's two state-run oil monopolies) using its border control, ships, warehouses, trucks, private gas pumps and storage tanks to operate the smuggling operation and arbitrage the price difference between dropping world oil prices and China's higher protected prices.  The CP was enraged, recognized the PLA as a corrupting force, and feared that the PLA could endanger CP legitimacy.]


July 30, 1998: Military officials in Beijing and analysts abroad believe it will be many years before there is more than "incremental" change in People's Liberation Army ownership of private businesses, the Wall Street Journal reports. Several PLA officials say that lucrative companies, many related to the acquisition and development of weapons systems and related technology, owned by the powerful Headquarters of the General Staff will be exempt from the new rules by the central government. Companies such as the five-star Palace Hotel in Beijing and China Poly Group, a weapons dealer and real estate firm, will keep their military ties.  The PLA is considered the world's biggest business empire. The WSJ cites the recent sale of a PLA-owned restaurant to a private entrepreneur. The new owner pays the PLA a $1,200 monthly fee to "rent" the restaurant's name. "The military stands behind everything we do," says an employee.

PROVENANCE: My notes are unclear on provenance. At the time, was reading Mulvenon and Yang's The People’s Army in the Information Age, notably Jencks' "COSTIND IS DEAD, LONG LIVE COSTIND! RESTRUCTURING CHINA'S DEFENSE SCIENTIFIC, TECHNICAL, AND INDUSTRIAL SECTOR"; Scobell's CHINESE ARMY BUILDING IN THE ERA OF JIANG ZEMIN; Mulvenon's Soldiers of Fortune; Mulvenon and Yang's The People's Liberation Army as Organization, Reference Volume v1.0, notably Finklestein's THE GENERAL STAFF DEPARTMENT OF THE CHINESE PEOPLE'S LIBERATION ARMY: ORGANIZATION, ROLES, & MISSIONS; Magnier's Chinese Military Still Embedded in the Economy; and French's China Moves Toward Another West: Central Asia. Apologies to any that were omitted.

F.B.I. Says the Military Had Bogus Computer Gear
New York Times
May 9, 2008

US, Canadian agencies seize counterfeit Cisco gear

Grant Gross




FBI Criminal Investigation: Cisco Routers

Section Chief Raul Roldan

Supervisory Special Agent Inez Miyamoto

Intelligence Analyst Tini Leon

January 11, 2008


Managing the Risks of Counterfeiting in the Information Technology Industry

KPGM International

Electronics, Software & Services



China Moves Toward Another West: Central Asia


New York Times

March 28, 2004


The New Economy of Terror
By Loretta Napoleoni, author of Modern Jihad: tracing the Dollars behind the Terror Networks
Sign of the Times (UK)

1 December 2003


The People's Liberation Army as Organization

Reference Volume v1.0

Ed: James C. Mulvenon, Andrew N. D. Yang


ISBN/EAN: 0-8330-3303-4





Soldiers of Fortune

by James C. Mulvenon

M.E. Sharpe

ISBN-10: 0765605805

November 2000



Andrew Scobell

Strategic Studies Institute, U.S. Army War College

ISBN 1-58487-030-3

August 2000


Chinese Military Still Embedded in the Economy

Mark Magnier

Los Angeles Times

January 9, 2000


The People’s Army in the Information Age

Ed: James Mulvenson and Richard H, Yang



ISBN/EAN: 0-8330-2716-6




Gordon Housworth

Cybersecurity Public  InfoT Public  Infrastructure Defense Public  Intellectual Property Theft Public  Risk Containment and Pricing Public  Strategic Risk Public  


  discuss this article

Foreign vulnerability inherent in US globalization of its commercial and defense supply chains


The US and, and to a lesser degree, Europe have lost control of their defense and commercial industrial supply chains. Exporting capability rather than capacity, the US has increasingly retained only a top tier or integrator role while exporting its tier 2-tier n base. Worse, the US cannot realistically define discrete and net risk as the chains are too opaque for identification and there is decreasing ability to direct sourcing to less risky tiers.

The loss has not come without warning, especially in the seminal analyses of the mid-1980s to early 90s (much of which is cited here) and near-disaster supply chain bottlenecks that nearly sidelined front line equipment during Desert Storm (1990-91).

Having surveyed four decades of research on globalization impacts, we can state that there are virtually no metrics in open source. There are drivers and characteristics but there are no actionable metrics of sufficient robustness to pass the test of falsifiability. At a macro level we are secure that we and some others have the compass right, but actionable information about a specific chain condition and greatest risk at component at tier in the chain is fuzzy at best. Given our supply chain analytic experience, we can see the tracks of bland assumptions without the understanding of how supply networks actually work. Defense and commercial sides of the house share the same problem - insufficient granularity of analysis which if they get there they find that they do not have accurate and timely data. At this point the commercial side generally gives up. The defense side can't so spends much time in Rommel's Wolkenkuckucksheim (Cloud-Cuckoo-Land after Aristophanes). Striped of politeness, almost everyone is guessing although they shroud it in tech speak which pacifies the unknowing.


The US manufacturing loss is staggering in its sweep as it includes:

  • Technology (Research Testing Development and Evaluation - RTD&E)
  • Industrial base (tier base capability , knowledge gaining, performance curve and price/volume)
  • Volume (capacity)
  • Availability (conversely product unavailability, product as hostage, withheld or not surged in time of national need)
  • Supply chain (chain complexity masks risky sourcing and possible interdiction)
  • Forensics (undocumented/latent/hostile firmware and/or software additions)
  • Education (learning citadels clustered to engineering and production centers)

Having reviewed analyses of manufacturing globalization for both the defense and commercial sectors, this analyst is of the opinion that the risk to the US has become so great that it should study itself as a reasonable target of economic sanctions (also here), hence the inclusions of citations on that topic. (The Chinese have studied means of countering economic sanctions; can we do no less?)


Before globalization there was 'NATO-azation'


The issue of dealing with the effects of globalization on US commercial and defense industries has been with us for decades. The 1985 Strategic Materials: Technologies To Reduce U.S. Import Vulnerability, whose advisory panel an Air Force logistics colleague advised me "looks like a 'Who's Who' for the defense department in the 1990's.  Lot of them went on to very senior DoD positions," stated the problem and its complexity well:

Crafting a workable policy [regarding dependence on foreign sources, NATO allies included, for defense material and technology] will be a tricky job.


There are three basic policy choices:

  • demand that anything that goes into defense equipment be built in the U.S. from U. S.-sourced components, taking whatever measures are necessary to ensure that all the necessary industries are alive and well in the United States;
  • let the market dictate which industries will be healthy in the United States and look only for the best deals wherever they can be found worldwide; or
  • choose some industries that have to be located in the United States, take appropriate measures to ensure that, and let the rest go with the market.

The first and third require some sort of intervention in the international economy, either supporting the international competitiveness of U.S. companies or protecting, supporting, and subsidizing U.S. companies that cannot otherwise survive. Another approach is to design nothing into U.S. defense systems that cannot be domestically sourced. But this cuts off a great deal of modern technology, a Western strength. In making these choices, the United States will have to decide how dependent we can afford to be, and how much independence we are willing to pay for. If the United States demands self-sufficiency without taking measures to keep U.S. companies alive and competitive, the list of technologies available for defense systems is likely to decrease as time goes on.


It will be necessary to decide how to treat dependence on various nations. There are significant differences in being dependent on Canada (already defined as part of the North American industrial base), Britain, our other NATO allies, Mexico, Japan, Korea, etc... Other nations are much less tightly tied to the United States.


The high-technology economy is an international one and responds to international market forces. These forces are likely to continue to move industries offshore despite U.S. efforts to will (or legislate) them to stay. In the vast majority of cases, defense business is far too small to provide the necessary clout, particularly when faced with other nations that manipulate their civilian markets to keep their companies healthy. Competition comes from Japan, the smaller Asian nations - Korea, Taiwan, Singapore, etc - and Western Europe...

The US chose the second path by a combination of default and design augmented by partial regulation; Private industry sought performance and integration coupled with higher margin and lower costs. Our current globalization impasse is its direct descendent.

By 2000, the challenges facing the US Air Force were typical of an increasingly globalized and consolidated industrial base:

Between 1990 and 1998, a horizontal and vertical integration took place across all segments of the U.S. aerospace industry. [Driven by a dramatic decline in military aircraft procurement budgets as well as overall defense authorizations since the end of the Cold War,] The number of credible U.S. prime contractors for integrating fighters and bombers fell from seven to two; the number of U.S. missile manufacturers from fourteen to four; and the number of space launch vehicle producers from six to two. By the end of the 1990s, the European defense aerospace industry had also begun to experience a dramatic cross-border consolidation and restructuring. This growing consolidation of defense prime integrators and subsystem suppliers has resulted in increased numbers of strategic and product-specific alliances, international teaming and joint ventures, and cross-border mergers and acquisitions (M&As) among defense firms, together with heightened interest in foreign exports and foreign lower-tier suppliers.

From foreign source to dependency to vulnerability

As early as 1987, US Industrial Base Dependence/Vulnerability. Phase 2. Analysis, had defined three elements of foreign sourcing: (1) a foreign source is a source of supply, manufacture, or technology that is located outside the United States or Canada, (2) a foreign dependency refers to a source of supply for which there is no immediate available alternative in the United States or Canada, and (3) foreign vulnerability, related to foreign dependency. refers to a source of supply whose lack of availability jeopardizes national security by precluding the production, or significantly reducing the capability. of a critical weapon system. While the US has yet to suffer a sustained foreign supplier cutoff "either in peacetime or war," the military and economic balance has now shifted against the US, making it increasingly plausible that the PRC or Russian Federation could directly or indirectly influence 'just-in-time' availability:

One potential scenario simply posits disagreement by the foreign supplier with US policy... Problems such as strikes, political unrest, or natural disasters within the supplier's country are all plausible. Cutoffs might also be created by the supplying nation giving priority to ventures more profitable than DOD contracts, or giving priority to the supplier's home country needs over the United States, especially in times of crisis. Countries external to the supplying country could also create cutoffs - by threatening the supplier, by an overt blockade, or by war. One US study done prior to the end of the Cold War, reminded readers that Japan was within easy bombing distance of the Soviet Union, and thus the USSR could easily cut off critical components for US weapon systems... The USSR test fired two sea-launched ballistic missiles into the Sea of Japan at a time coinciding with Mikhail Gorbachev's April 1991 visit to Japan. Some analysts described the test firings as a "muscle flex" and a "political message for Tokyo." The message, however, has ramifications for the United States also - sources of certain critical supplies are vulnerable to hostility, a situation that creates a possible domino effect on US weapon systems.

Given the shift in manufacturing key component categories from Japan to China, were the US to incur the ops tempo of a second Desert Storm or OIF level endeavor not to Chinese favor, the issue of shortages would not be 'if' but rather 'how many and how soon.' (Nothing has to overt; polite expressions of regret coupled with 'work to rule' responses and the need to service current customers would attenuate/terminate supplies of many critical parts and assemblies needed to sustain the ops tempo.):

Despite the successes of US military weapon systems that used foreign high technology components during the Gulf War, there were moments of uncertainty as to whether the United States would be able to get requested "rush" orders filled for needed components on a timely basis. [On] "nearly thirty occasions, the Bush administration had to call upon foreign governments for help to get delivery of crucial parts for the war effort."... "foreign manufacturers often were reluctant to put the Pentagon's purchase orders ahead of their regular customers' without prompting from their governments, according to officials at embassies here and at the Commerce Department." Of special concern were Japanese suppliers... "The Japanese electronics companies - whose identities have not been publicly disclosed - reportedly said they could not curtail existing commercial contracts, such as orders from VCR, television, and automobile manufacturers, to meet the needs of the US forces in the Gulf." Experts on Japan [also] speculated that Japanese suppliers, in a society geared toward avoiding any military involvement beyond national borders in the post-World War II era, "may have been afraid of domestic political ramifications of favoring military over commercial customers." [An] interview with an unnamed Commerce Department official revealed that the US government "had to 'jump through the hoops' and that the department took the unusual step of asking Japanese government officials at the embassy in Washington for help in prodding Japanese suppliers."

Said of Japan in 1991, the following applies with greater intensity to China. As a calibration, consider a US air and naval intercession on behalf of Taiwan in the Formosa Strait. Leaving aside the likely effort by the Chinese to sink a US carrier battle group, thereby shocking the American populace, one can assume that the entire component supply chain would shut down. Whatever ops tempo the US envisioned would have to come from inventory or alternate supply. Lesser scenarios should have less chain disruption, but a degree of disruption remains high:

The potential for crisis, however, certainly existed and only a common political objective shared by top levels of the US and foreign governments averted more serious problems. The bond between most governments during the war was created by nearly-unanimous outrage over Iraq's aggression; such a bond was both unprecedented and delicate, thus it may be tough to duplicate in the future. Had there not been a common political objective or had the Japanese government, for instance, been more inclined to bow to domestic calls for avoiding contributions to the war effort (and there was considerable pressure within Japan for noninvolvement), it is quite likely the United States would have had to look for other sources to obtain necessary components. Without pre-planning for alternate supply sources, the probability of a favorable resolution would have decreased significantly.

Analogous to mercury accumulation in top tier marine predators, buyers of assemblies, modules and larger finished goods faced with chain opacity will incur rising risk of chain interruption and functional tampering. Without actionable information and the ability to affect chain substitutions, virtually all are now accepting risk by default. See: Confluence of thinking on Chinese outsourcing and supply chain risks from DSB and USCC. From an ICG note:

As we do quite a lot of supply chain analysis, we know why it so often fails, namely the OEM or top tier cannot get the data from their immediate tier who are loath to reveal their chains. Data is shielded, normalized, changed without notification, fictionalized either by surrogate data or simple commercial misrepresentation. Counterfeits add yet another layer on the problem set.


From electronic/electrical chain examples we have at hand, many are PRC at tier 2 to tier 5, others are Taiwanese ODMs which means PRC for almost all tiers save design, Japanese chains have PRC, Korean and Singaporean tiers. There are many cases where the OEM or top tier believe that a certain part comes in at tier x in its entirety, but the reality is that a goodly portion comes in PIA down to tier x+3. The PRC presence, either as source or influencer, is overwhelming.


Our commercial experience has repeatedly shown that the OEMs don't know what, from where, is in their chains. A common experience is that as the OEM or top tier develops the algorithms of granularity needed to be effective, the data becomes too difficult or costly to obtain. If the OEM demands an identified tier x validate volume and pricing as stated by the purchasing tier (tier x-1), the tier x will validate lest they run afoul of their purchasing tier.


As automotive OEMs are phasing out Full Service Suppliers (FSS) by their recognition that they were enduring margin without equivalent value, defense sector firms are enthusing over Performance Based Logistics (PBL) structures which are beginning to blind Defense Logistics Information Service (DLIS) as to what it in a chain and conceivably debase the value of a National Supply Number (NSN). (It should be remembered that DLIS rose from "the World War II era when each of the Military Services operated independently and maintained a separate supply system and procedures for cataloging their items of supply [in which] many items were given a different name by each of the services, making efficient use of available stock impossible.")  [As an aside, buying "Power by the Hour" (PBH) has its merits (also here) but it is disconcerting to see how contractors perceive its profitability.] [ICG note]

Inability to divorce supply chain access from mercantile efforts

Writing in 2004:

The PRC is preoccupied with the US given it current dominance in Asian and global affairs, and see it as the principal "international danger" able to "confront and complicate China's development and rising power and influence in Asian and world affairs." China is mindful that three nations that sought to overturn the prevailing international order of their day, Weimar Germany, Imperial Japan, and the Soviet Union, were punished by an allied coalition of established nations. While I've not see it in print, I cannot but note that the leader of the winning coalition in each case was the United States, a fact that I cannot imagine has been lost on the Chinese.

China is well into the process of creating a mercantile, rather than fungible, market for raw materials that is expressly grounded on the inability of the US or US allies to interdict it. (China's growing mercantile net is of keen interest to this author, but lest I be accused of China bashing, items of equal weight are a Russian kleptocracy class armed with the energy weapon and the implosion of the US Pre-K through 20+ education structure.) See:

Chinese mercantile highlights of interest to this author are:

  • Strategic plan creates mercantile structure that secures energy stocks, raw materials, and crops.
  • Cannot be interdicted by the US or its allies.
  • Delivers export markets for commercial and military production, redirects regional elites to study in China, and extracts diplomatic obedience.
  • Sends large groups of diplomatic and consular agents that meet counterparts at each level of the target country's bureaucracy.
  • Promotes infrastructure projects using Chinese firms, creating a camouflaged posting for People's Liberation Army (PLA) assets.
  • Veiled PLA works have common pattern: tidewater port presence offering partial or complete opaqueness connected by a strassendorf (street city) style of satellite towns connected by new roads to a processing plant at the primary extraction asset, e.g., coal, oil, minerals, timber, etc.

Taken together with China's regional economic might, the PRC is demonstrably capable of building the regional relationships needed to eject the US and in the process become the dominant mercantile center of an Asian trading block that includes Asia's "most vibrant economic sub-region" (China, Hong Kong, Taiwan, South Korea, and Japan).

While I freely admit this macro level view lacks granularity and has yet to be submitted to the test of falsifiability, I do not believe it can be removed from a discussion of sustained supply chain access.


A unitary threat exceeding combined prior Soviet and Japanese threats

Economic power is the foundation of military power. The most important single indicator is GDP. Like defense budgets, however, GDP provides only a limited picture of power. It says little about the composition of the economy, such as whether it is spearheaded by leading sectors or dominated by old and declining ones. Other important variables include human capital and technology. The best readily available measure of human capital is the average year of educational attainment. For technology, the best indicator is per-capita expenditure on research and development.

The US now faces a potential threat of chain disruption from the PRC greater than that presented by combined Soviet espionage efforts directed against the US technology base, military, dual-use and commercial, and Japanese commercial inroads against a wide range of commercial products, notably electrical and electronic systems, that were conceived in the US:

  • In the case of the Soviets, the US did not cede manufacturing and design efforts wholesale to the USSR; the Russians had to employ economic espionage (see also B.R. Inman's Senate statement) to get technology and equipment otherwise embargoed to them.
  • In the case of the Japanese, the US had an exceptionally strong commercial competitor periodically balanced by a pro-US government that recognized its privileged place under a US defense umbrella which allowed it to devote its GNP to commercial pursuits; when it was essential to US interests, Tokyo would intervene on our behalf. See Refining a China forecast. (It was an unwritten rule of the Nixon administration that the Japanese were to be allowed to dominate electronics markets in return for their unwavering support of US diplomatic initiatives.)

I submit that the PRC will continue to strengthen the independence its own strategic supply chains, a condition that the US/EU have aided by seconding wholesale the manufacture, now design, and in the offing, unique product standards, to the Chinese. A current example of this effort is the gaining of indigenous, as opposed to Taiwanese owned, semiconductor device fabrication capacity from wafer fab through deposition, removal, patterning, and properties modification.

As for the US/EU, the de facto 'sole sourcing' of much of the US and elements of the EU industrial base to China has already rendered its manufacturing base into Chinese hands at multiple tiers, many of which, as noted above, are opaque to the top tier, integrator and ultimate buyer. Similarly, the export of much of its design process for future products to China-based R&D hives have increased the potential for IP predation and the appearance of peer Chinese competitors before the US/EU products reach market.


Just as the Soviet Union pointedly pressed Japan over its commercial and military partnership with the US, so will China both direct its domestic suppliers to comply while pressing Taiwan, Japan and Singapore when any of those states significantly work against Chinese Interests.


We have already seen two examples of that pressure, one in Japan and the other in the US. Japan squelched what it described as a 'national security' IP theft from Denso, which is itself a repeat of the humiliation that Cisco received at the hands of Huawei and the PLA, i.e., suppress litigation or your commercial interests in China suffer. In each case, once matters became public, and in the case of Cisco went litigious, the Chinese were able to apply commercial pressure on Cisco and Toyota-Denso to relent or suffer immediate penalty. See two items: Prediction: the Cisco-Huawei IP debacle repeated itself with Denso, and likely for the same reasons and A tipping point in intellectual property protection?


I submit that both the US government and private industry would find it instructive to receive the equivalent of the Russia's gas embargo to the Ukraine who surprised all by continuing to tap their allotment, thereby plunging the EU into shortage. European energy sourcing directions shifted in the moment with reliable sourcing and self-sufficiency rising in relation to cost as prime issues.


I further submit that the US needs to adopt the Toyota/Denso model of retaining the capacity to design and manufacture a portion of the annual buy of everything that they purchase. Toyota/Denso is the only significant automotive OEM to retain that capacity which also gives Toyota leverage with its suppliers by its understanding the technological, design, manufacturing, component pricing and supply chain tier structure of what it procures.


This process was proposed, at least for the defense sector in the 1980s but was not acted upon. In the interval, the US, much like the other automotive OEMs has already surrendered much of its process technology in the form of joint ventures, outsourcings and tier manufacturing, leaving the Chinese only to target mathdata and key design efforts not sourced to the tier base.

Chicken Little's sky may be falling but it is does not fall uniformly

If at a macro level it is plausible that the US/EU are subject to systematic supply chain interruption/embargo by the PRC at the commercial and dual-use level, what is the status for defense items given the near misses of Desert Storm? How do we validate (falsifiability) and prioritize investigation in order to identify the most essential chain elements? Even the salient works of the 1980s-early 1990s were imprecise on granular means of analysis. DoD has been providing guidelines "for evaluating, on a case-by-case basis, the need for Government action to preserve industrial capabilities vital to national security" for some time. Witness the 1996 Assessing Defense Industrial Capabilities handbook. The problem was then, and appears to remain, one of data, rigorous trigger thresholds and chain transparency below the DoD vendor.

It is with some interest that DoD appears to believe that its key systems are intact. A three year 2006 National Research Council effort on Critical Technology Accessibility attempted to answer two questions:

  • What products/components/technologies currently being solely procured from foreign suppliers could significantly disrupt U.S. defense capabilities if access to them were denied (through conflict, embargo, treaty, etc.)?
  • What emerging technologies/products that, if the United States chooses not to pursue domestic production, could significantly disrupt U.S. defense war fighting capabilities if access to them were denied?

In which the NRC Committee:

looked for but did not find an existing, exhaustive database of foreign products/components being procured by the Department of Defense (DoD) and decided to not attempt to develop such a database on current foreign sourcing across the vast numbers of DoD systems. Nor did the committee assess, for each foreign component, the impact of denial on operational capability or try to understand the particular mitigation opportunities and consequences. Finally, it did not develop a collective assessment of the technological and industrial trajectories of emerging technologies that promise to be key to our nation's security. The size and scope of such an effort would have exceeded the time and resources available to the committee, and it became clear from the information provided to it and from its deliberations that this was not the right approach.

In the absence of data, the NRC committee:

did listen to government plans and perspectives, discussed the issues with recognized experts, and independently reviewed source material and past literature. In addition, the members of the committee arrived with substantial background, service, and expertise in these matters.

Without intending to flip, they guessed, or as you prefer, SWAGed. Without data, chain transparency, metrics and algorithmic analyses, how could they do better? We find Fortune Fifty firms in similar predicaments with their supply chains.

Despite these limitations, the NRC Committee was confident that:

Based on the information they received and their own knowledge, committee members were unable to identify any product or technology currently being exclusively procured from a foreign supplier that could significantly disrupt U.S. capabilities or operations should it suddenly become unavailable...


If the ]US] were to become strategically dependent on a foreign industrial base for items that are critical or for which the regeneration of a U.S. industrial base would take a long time, the risk would be unacceptable. The committee does not see any signs of that at this time, but the possibility should be taken into account when determining what the U.S. industrial base needs to be for defense purposes. The committee identified four areas of future technological and industrial advancement that warrant discussion: (1) information technology (IT) components; (2) IT services, which include many forms of the capability to manipulate, store, and exploit data and information; (3) nanotechnology; and (4) biotechnology. The committee also identified another area of concern, systems integration capabilities.

The 2006 NRC Committee text strongly echoed, and possibly accepted the findings of, a 2004 Study on Impact of Foreign Sourcing of Systems that "contacted a total of 806 prime contractors and first and second tier subcontractors in order to collect and evaluate information" for systems:

shaped by the recent experiences in Operations Enduring Freedom and Iraqi Freedom. Those operations were conducted largely as "come-as-you-are" conflicts with the combat platforms already deployed to our forces; and they consumed significant quantities of precision guided munitions. As a result, this study is focused on those items that were or would be in high demand and/or consumed during similar future operations.

In the absence of rigorous means and metrics coupled with our case work in supply chain analysis, we question the findings of that 2004 effort:

  • Foreign sources provide limited amounts of materiel for the identified programs.
  • Utilization of these foreign sources for these programs does not impact long-term readiness.
  • Utilization of these foreign sources does not impact the economic viability of the national technology and industrial base.
  • In most cases, domestic suppliers are available for the parts, components, and materials provided by the foreign sources.
  • The results of this study are consistent with recent related studies.

This voluntary survey went down to tier two, identifying a total of "73 first, second, and third tier foreign subcontractors" from Austria, Belgium, Finland, France, Germany, Israel, Italy, Japan, Malaysia, New Zealand, Netherlands, Russian Federation, Singapore, Spain, Sweden, Switzerland, Turkey, and the UK. (DoD has been habitually comforted by UK subs, after that NATO and friendlies.) This analyst is pleased that the questionnaire went to tier two, but the report seems to treat 'tier two' (from any country) as the edge of the world after which one needs to look no further.

Also the test characteristics seem vague, looking to the past ("Supply disruption is not likely since the current suppliers have demonstrated reliability in the past..."), rather than to the future. There was also a repeated implication that if the dollar amounts were small that the risk was low as opposed to cessation of component access regardless of cost. ("Collectively, foreign subcontracts represent about four percent of the total contract value and less than ten percent of the value of all subcontracts for these programs.")


The report did not reveal or imply any further granular analysis. Based upon our supply chain analysis, this analyst would want more rigorous analysis, look at lower tiers and other chain characteristics before issuing a similar pronouncement.

Returning to the 2006 NRC report, its recognition of the changing nature of the supply base harkens back to the good works of the 1980s:

The impact of component denial is not a static estimate. The risks entailed in depending on a foreign-produced component are embedded in the strategy of supply management and the diversity of the impacted operational system or force. The size and power of the globalized commercial marketplace are such that we must find a way to exploit the marketplace's value for our security. The risks and benefits of this exploitation are at least as much an issue of acquisition and logistics strategy as they are of estimating foreign intent. The viability of the future assured domestic supply of critical components for the DoD is dependent on the health of the U.S. industrial base in these sectors.

Its recommendations to Under Secretary of Defense for Acquisition, Technology and Logistics (USD(AT&L)) and DIA are interesting, although some are unworkable while others are likely to be ineffective:

  1. [D]evelop a system for monitoring the risks of component unavailability within the procurement and operating elements of DoD... [ICG comment: Having not worked before, and with no better tools and metrics on offer, how will it work now?]
    • A self-certification approach by USD(AT&L) should direct the services and defense agencies to annually prepare a product and supply chain assurance report that identifies important vulnerabilities, potentially significant operational consequences, and recommended mitigation actions... [ICG comment: Self-certification rarely, if ever, works as bureaucracies are loathe to mark themselves deficient; even less likely without clear means and metrics.]
    • [A]nalyze these annual reports to identify DoD-wide vulnerabilities that might not be detected by the individual services and agencies and to warn of worrisome trends in the integrity of the supply chain, ensuring it is not compromised by foreign supply sources... [ICG comment: Unlikely to work as the certifications are suspect, and no metrics are proposed.]
    • [ICG comment: There are, however, some useful questions which could lead to metrics:
      • Where there is a lack of war reserves or stockpiles.
      • Where a weapon system is uniquely in the U.S. inventory and therefore cannot tap into worldwide depots.
      • Where developing an alternative source of supply requires significant lead times.
      • Where the DoD has developed sole-source, single-solution capabilities.
      • Where critical technologies have migrated offshore or been developed there in their entirety.

  2. [D]evelop a system for monitoring U.S. industrial health in strategically important global commercial market sectors that are critical to the availability of components for DoD... [ICG comment: Fine, but how and by what means and metrics?]
  3. [O]organize a systematic method of assessing the health of military systems integration in and for the DoD as well as that of potential coalition partners and adversaries... [ICG comment: Again, how and by what means and metrics?]

The foreign dependency analysis that this analyst would like to see is a Joint Logistics Commanders' 1986 report, A Study of the Effect of Foreign Dependency, summarized in GAO/NSIAD-90-48, that "reviewed 13 DOD weapon systems and found dependencies1 on foreign sources in 8 of them with severe problems in 6. According to the study, these dependencies could result in a total cut-off of the production of these items as early as 2 months into a war mobilization effort for a period lasting from 6 to 14 months.":

To obtain information regarding the lower subcontractor/vendor levels, for 12 of the 13 weapon systems reviewed, the project team performed a limited survey of the market structure supporting the systems. That is, for each of the 12 systems, program officials were asked to identify 5 subsystems and components at the next lower production tier meeting certain criteria2 and this identification continued through the lower production tiers down to the level of basic materials. For the other system, the Sparrow missile, a complete vertical tier analysis was done.3


1 A foreign dependency, as defined in this study, is an immediate, serious logistics support problem that affects the combat capability of the United States because of the unavailability of a foreign sourced item.

2 Each subsystem or component had to be (1) complex enough so that the program officials were unable to categorically state that it did not contain any foreign manufactured items and (2) critical enough to production, and complex enough to produce, so that its loss would pose serious problems in meeting production schedules

3 A vertical tier analysis identifies critical items acquired from foreign sources for an individual weapon system down through the tiers of suppliers and evaluates possible production constraints at each level.

Going forward, RAND's effort to assess industrial impacts identified a typology of "cross-border business relationships and activities" then, and still, prevalent in the defense aerospace industry:

  • Cross-border shipments of finished platforms, systems, or major subsystems
  • Licensed coproduction
  • Foreign Military Sales (FMS) coproduction
  • "Partnership" coproduction
  • Codevelopment

All five were supported primarily by "prime/subcontractor [by far and away the leader], marketing agreement, team, joint venture, and parent/subsidiary" structures while the latter three usually involved "relatively greater level of collaboration among participating firms."


RAND also segmented USAF objectives relevant to globalization into three categories (economic-technological, political-military and national security-viability) and identified program characteristics it said showed "the most promise for promoting the potential military-political and economic benefits of globalization." This analyst notes that those same characteristics also made it possible to individually and incrementally transfer the US technology base. Note that the primary driver is the defense firm not the government; all other drivers follow:

  • voluntarily structured and often initiated by defense firms rather than by governments on the basis of internal business calculations of market conditions and best business practices.
  • painstakingly structured to satisfy the existing U.S. arms export and technology security regulatory regime and CFIUS.
  • often focus on promoting existing products or modifications thereof, or on specific product market sectors.
  • frequently focus on subsystems, munitions, or discrete components or areas rather than on large, complex programs for the development of entire weapon system platforms.
  • designed to gain and expand active reciprocal market access through new programs.
  • often motivated by a desire to add to a company's product portfolio a highly competitive product in a market sector dominated by another firm or firms.
  • characterized by mutual perception of balanced and complementary bilateral market access opportunities and technology transfer.
  • most aggressive and innovative among these relationships depend on continued reform of the U.S. export control regime in order to achieve their full potential.

RAND’s defense globalization conclusions from 2001 have only accelerated (while they have exploded exponentially in the commercial sector):

  • Numerous innovative cross-border strategic market sector agreements initiated by U.S. and foreign companies are emerging.
  • U.S. aerospace firms are not significantly increasing their acquisition of wholly owned subsidiaries of foreign defense aerospace firms.
  • Teaming and joint ventures with non-UK and non-Europe-based firms are increasing.
  • U.S. industry collaboration with one country's firm increasingly means collaboration with many countries' firms.
  • Consolidated European and other foreign firms mean potentially more equal partners as well as stronger competitors.
  • European and other foreign firms seek U.S. market access but resent barriers.
  • European and other foreign firms view the acquisition of U.S. firms as the most effective means of penetrating the U.S. market.
  • Non-European foreign firms are forming strategic relationships with European and U.S. firms, potentially enhancing competition but complicating standardization and interoperability objectives.
  • European and other foreign industry consolidation present U.S. government and industry with unprecedented opportunities as well as risks.

Yet all of the above are drivers and characteristics which may yet yield metrics, but do not now offer the analyst an actionable means of identifying trigger thresholds.


Where are the metrics?


Metrics in open source have been difficult to obtain. An effort was made by King and Cameron in 1974 and updated in 1977. Their work was reprised, and remains online, in Appendix A of Strategic Materials: Technologies To Reduce U.S. Import Vulnerability.


A more intriguing effort, Conservation, Integration and Foreign Dependency: Prelude to a New Economic Security Strategywas done by David Leech, then at TASC, now Northrop Grumman, in 1993. His was the sole search result on "foreign vulnerability index." Leech proposed the use of Herfindahl-Hirschman Index normally used in anti-trust litigation to "measure the worldwide supply concentration of items, both overall for firms and with firm market shares grouped by country of origin." Along with risk factors it is one of the methods noted in INDUSTRIAL BASE: Assessing the Risk of DOD's Foreign Dependence, GAO/NSIAD-94-104.


This author found Leech's approach of sufficient interest to post a fair use excerpt of the GeoJournal piece, with footnotes, dealing with its Foreign Vulnerability Index (FVI). I believe it reasonable to say that Leech believes that:

  • The King and Cameron approach, as with many engineering approaches, will not pass the test of falsifiability.
  • Moran's 4/4/50 rule, which states that if four foreign firms or four nations control more than 50 percent of an international market, that market is considered "vulnerable" and should be monitored, might be a Herfindahl threshold value.

  • The essential problem of assessing the potential for 'concerted effort' in the anti-trust realm is analogous to the essential problem of assessing 'concerted effort' by nations and their industries to deny the US access to their products, services or technologies.
  • Vulnerability is a narrow consideration having to do with tightly defined markets for products and services.

It remains to be seen if Leech's approach falls victim to the problem we frequently see in supply chain analysis, namely that the complexity issue is so great that cost effective, perishable data is not available. I fear that may well be the case, hence the value of inserting a Design Basis Threat (DBT) analysis as we must have actionable values in a low data environment and be able to defend them. See:

Still, Leech is the strongest approach to metrics that this author has seen and deserves exploration anew.


Postscript: The Appendices (actually Vol. 2 issued in 1990) of the 1985 Strategic Materials analysis had a specific case study of the strategic value of the carbon fiber market, Case Study: The Advanced Composites Industry.


Leaping forward to the present, we see aviation/aerospace, industrial, sporting goods and automotive driving a robust market:

Over the last several decades, the global market for carbon fiber has grown about 12%. Industry experts expect this market to reach $0.9 billion by the year 2010 (around 50 million lbs), with the market for finished carbon fiber reinforced composites parts growing to $9.9 billion. The price of carbon fibers is expected to reach around $5/lb in 2008, a significant reduction in the $150/lb price in 1970 when the market was only around several million lbs.


Aerospace markets have led recent demand and are expected to grow at a 19% compounded annual growth rate (CAGR) through 2010. However, industrial applications are taking off, too, with a total combined CAGR of 14% through the end of the decade (this segment currently accounts for around 60% of the current demand). Sporting goods CAGR is estimated at 5% over the same time period, resulting in a total overall projected growth rate of a robust 13%. Wind energy could become the second largest market sector after aerospace by 2010. The following table summarizes some of these applications.

In this thriving environment, the last principal US producer of Acrylonitrile (AN or ACN), the precursor to Polyacrylonitrile (PAN) (See carbon fiber value chain) which is the basis for all aerospace/high end carbon fiber, has passed into foreign hands.


Apocryphal stories to the contrary, frogs are smart enough to jump from water whose temperature is elevating; in this skill of self-preservation, frogs are smarter than governments, corporations and self-interested political elites who will stay in the water until it is too late. Once again, low cost has proven not to be low risk.


Bibliography Note: While the following list of citations is not exhaustive, I submit that they reasonably constitute a four decade record on globalization and are a good jump point for further investigation.


Crafting A Contractor PBL Organization

By John Kotlanger & Ron Giuntini

Performance Based Logistics

29 April, 2008


PRC still expanding sub fleet: analysts

THREAT: Many security experts say that China's main objective in upgrading its submarine fleet is the ability to delay or deter US intervention on behalf of Taiwan


Taipei Times

Tuesday, Feb 26, 2008


Strategic Materials

Final Report, Spring 2007 Industry Study

The Industrial College of the Armed Forces, NDU



'Power by the Hour': Can Paying Only for Performance Redefine How Products Are Sold and Serviced?

Sang-Hyun Kim, Morris A. Cohen, and Serguei Netessine

Wharton School, University of Pennsylvania


February 21, 2007


Critical Technology Accessibility

Committee on Critical Technology Accessibility, National Research Council

National Academies Press


Appendix C - Previous Reports on Globalization and the U.S. Military Industrial Base


PERP Program - Acrylonitrile

New Report Alert


November 2006


Letter from China: Is it a 'peaceful rise'? U.S. shouldn't bet on it

Howard W. French


APRIL 20, 2006


Russia and Ukraine Reach Compromise on Natural Gas


New York Times

January 5, 2006


Measuring National Power

Gregory F. Treverton, Seth G. Jones

Intelligence Policy Center (IPC), RAND National Security Research Division (NSRD)

ISBN: 0-8330-3798-6



Measuring vulnerability to U.S. foreign economic sanctions: focused sanctions reduce costs to business.

Askari, Hossein; Forrer, John; Hachem, Tarek; Yang, Jiawen

Business Economics

VOL 40; NUMB 2, pages 41-55




Sanctions Assessment Handbook

Humanitarian Information Centre (HIC)

UN Office for the Coordination of Humanitarian Affairs

2004 last update


VALUE CHAIN OF CARBON FIBERS: Issues associated with production, conversion, and supply of PAN carbon fibers into high volume applications.

Presented by: Martin Kokoshka

Grafil Inc.

March 2004


Study on Impact of Foreign Sourcing of Systems

Office of the Deputy Under Secretary of Defense for Industrial Policy

January 2004


Speed Kills: Supply Chain Lessons from the War in Iraq

by Diane K. Morales and Steve Geary

Harvard Business Review

November 2003



Positioning Your Company for Defense Department Work

Helping Remanufacturer's of Service Parts Capture A Highly Profitable New Source of Revenue Through Performance Based Logistics (PBL)

John Kotlanger

November 2, 2003


Background Paper of the Millennium Project Task Force on Science, Technology and Innovation

Smita Srinivas et al

United Nations Development Programme (UNDP)

April 18, 2003


Going global: U.S. government policy and the defense aerospace industry

Mark A. Lorell, Julia Lowell, Richard M. Moore
RAND MR-1537

ISBN 0-8330-3193-7



Certain Issues on China Countering Future Economic Sanctions

By Jiang Luming

The (Chinese) National Defense University

Military Economics Study, November 2001


Was America hunting for a new killer submarine?

Global Intelligence Update/Asia Times

April 6, 2001


Measuring National Power in the Postindustrial Age

By: Ashley J. Tellis, Janice Bially, Christopher Layne, Melissa McPherson





Analyst's Handbook - Measuring National Power in the Postindustrial Age

By: Ashley J. Tellis, Janice Bially, Christopher Layne, Melissa McPherson, Jerry M. Sollinger



ISBN/EAN: 0-8330-2803-0



Interpreting China's Grand Strategy: Past, Present, and Future

By: Michael D. Swaine, Ashley J. Tellis





How Long Do Economic Sanctions Last? Examining the Sanctioning Process through Duration

Sean M. Bolks, Dina Al-Sowayel

Political Research Quarterly, Vol. 53, No. 2, pp. 241-265

DOI: 10.1177/106591290005300202





Task Force on Globalization and Security

Defense Science Board

December 1999


The Impact of Economic Sanctions on Health and Well-being

by Richard Garfield

Relief and Rehabilitation Network (RRN)

Overseas Development Institute

RRN Network Paper 31

ISBN: 0-85003-435-3

November 1999


Overview and Analysis of the Economic Impact of U.S. Sanctions With Respect to India and Pakistan

James Stamps, Project Leader

U.S. International Trade Commission

Investigation No. 332-406

Publication 3236 September 1999


Assessing Defense Industrial Capabilities

DoD Handbook 5000.60-H

Under Secretary of Defense for Acquisition and Technology

April 1996


INDUSTRIAL BASE: Assessing the Risk of DOD's Foreign Dependence

Report to the Chairman, Subcommittee on Defense Technology, Acquisition, and Industrial Base, Committee on Armed Services, U.S. Senate


April 1994


Conservation, Integration and Foreign Dependency: Prelude to a New Economic Security Strategy

David P. Leech

The Analytic Sciences Corporation (TASC)


Volume 31, Number 2, October, 1993

pp. 193-206

Abstract and order info

FAIR USE excerpt of its Foreign Vulnerability Index (FVI)


US Procurement of Weapon Components from Foreign Sources: Policy Implications

Guy J. Fritchman

Major, US Air Force

USAF Research Associate

Program in Arms Control, Disarmament, and International Security

January 1993 (written during spring 1991)


Building Future Security: Strategies for Restructuring the Defense Technology and Industrial Base

Office of Technology Assessment


NTIS order #PB92-208156

June 1992



Henry B. Gonzalez, (TX-20)

(House of Representatives - June 24, 1991)

[Page: H4929]


Industrial Base: Significance of DOD's Foreign Dependence

Report to the Chairman, Subcommittee on Technology and National Security, Joint Economic Committee, U.S. Congress

House of Representatives


January 1991


The Globalization of America's Defense Industries: Managing the Threat of Foreign Dependence

Theodore H. Moran

International Security, Vol. 15, No. 1, pp. 57-99

Summer 1990


Technology and Competitiveness: The New Policy Frontier

B.R. Inman and Daniel F. Burton, Jr.

Foreign Affairs

Spring 1990


Holding the Edge: Maintaining the Defense Technology Base - Vol. II, Appendices


NTIS order #PB90-253345
January 1990


Industrial Strength Defense: A Disquisition on Manufacturing, Surge and War

Martin C. Libicki

National Defense University




Arsenal of Democracy in the Face of Change: Economic Policy for Industrial Mobilization in the 1990s

D. J. Bjornstad, ORNL Principal Investigator, et al
December 1989


Industrial Base: Adequacy of Official Information on the U.S. Defense Industrial Base

Report to the Chairman, Subcommittee on Legislation and National Security, Committee on Government Operations, House of Representatives


November 1989


Holding the Edge: Maintaining the Defense Technology Base

Office of Technology Assessment

NTIS order #PB89-196604
April 1989


US Industrial Base Dependence/Vulnerability. Phase 2. Analysis,

Martin Libicki,; Jack Nunn, Bill Taylor

Mobilization Concepts Development Center

National Defense University


NOV 1987


US Industrial Base Dependence/Vulnerability. Phase 1. Survey of Literature,

Roderick L. Vawter

Mobilization Concepts Development Center

National Defense University


DEC 1986


A Study of the Effect of Foreign Dependency

The Joint Logistics Commanders

Department of Defense,

(Contact No. F33600-85-C-0293), March 1986

Item is often cited, but no direct citation appears.

Brief summary of its foreign dependency analysis contained in: Industrial Base: Adequacy of Official Information on the U.S. Defense Industrial Base


Strategic Materials: Technologies To Reduce U.S. Import Vulnerability

Office of Technology Assessment, OTA-ITE-248

NTIS order #PB86-115367

May 1985

Appendix A - Review of Previous Lists and Methods of Selection

Strategic Materials: Technologies to Reduce U.S. Import Vulnerability

Appendix E - Case Study: The Advanced Composites Industry


Scientific Communication and National Security

Panel on Scientific Communication and National Security, National Academy of Sciences, National Academy of Engineering, Institute of Medicine

National Academies Press

ISBN-10: 0-309-03332-2



Appendix H: Statement of Admiral B.R. Inman for the May 11, 1982, Senate Governmental Affairs Subcommittee on Investigations Hearing on Technology Transfer (140-142)


Materials Vulnerability of the United States - An Update

Alwyn H. King

Strategic Studies Institute, U.S. Army War College

April 1977


Order info


Materials and the New Dimensions of Conflict

Alwyn H. King and John R. Cameron

Strategic Studies Institute, U.S. Army War College

December 1974


Order info


Gordon Housworth

InfoT Public  Infrastructure Defense Public  Intellectual Property Theft Public  Risk Containment and Pricing Public  Strategic Risk Public  Weapons & Technology Public  


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Intellectual Property (IP) risks in Brazil and Mexico


Protecting your Intellectual Property in Mexico, Brazil and China was a recent presentation done in response to a request to compare IP risks in key Western Hemisphere states with those in China. As it is difficult to address three such diverse regions in a short presentation, readers are recommended to also look at:

The Brazilian IP risk is new to the list as it contains:

  • Unique Brazilian characteristics
  • Brazil as a mixed threat environment
  • Condition of ungoverned areas, ill-equipped lawenforcement agencies and militaries
  • Endemic IP abuse environment
  • Moderate anti-IP intellectual environment
  • Pressure to remain preferred Southern Cone regional automobile supplier
  • Brazil as part of China's mercantile strategy
  • Brazil's attractive IP targets

The Mexican IP risk is summarized from the larger Mexican risk horizon as:

  • Unique Mexican characteristics
  • Mexico as a mixed threat environment
  • Piece part/commercial focus fails to include key Mexican factors
  • Drug cartel counterattacks
  • Cartels ability to sever Mexico's national critical infrastructures

Based upon interactions with a number of firms operating in both Brazil and Mexico, it is our opinion that IP risk is either misunderstood or ignored, leaving the firms open to exploitation and acceptance of risk by default.

Gordon Housworth

InfoT Public  Infrastructure Defense Public  Intellectual Property Theft Public  


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