Defensive Industrial Policy: Cybersecurity Interventions to Reduce Intellectual Property Theft

Abstract

Through cyber-enabled industrial espionage, China has appropriated what Keith Alexander, the former Director of the National Security Agency, dubbed “the largest transfer of wealth in history.” Although China disavows intellectual property (IP) theft by its citizens and has set self-sustained research and development as an important goal, it is unrealistic to believe IP theft will slow down meaningfully without changing China’s decision calculus. China and the United States have twice agreed, in principle, to respect one another’s IP rights. However, these agreements have lacked any real enforcement mechanism, so the United States must do more to ensure its IP is better protected from China’s sophisticated hackers. We call for selective interventions in nascent industries—especially those with important implications for national defense. U.S. policymakers must consider both the supply and demand aspects of the “market” for intellectual property theft to make informed decisions as to how to steer resources. This paper offers insight that the supply side of the equation has been given relatively short shrift. We offer a spectrum of potential interventions to address underinvestment in cybersecurity leading to IP theft and discuss where to go from here.