March 6, 2011
The Strength of NationsBy Lawrence J. Siskind
The strength of nations has emerged, for much of history, from mastery of physical resources. Early humans who learned to make stone weapons earned an advantage over those using wooden ones. Their successors who leaned to learn to use bronze, then iron, then steel, and then uranium gained advantages over their less advanced adversaries.
But power comes in many different forms. Events of the last year demonstrate that the strength of nations may depend as much on knowledge and information as it does on tanks and jets. Knowledge and information, in turn, blossom in the right legal climate. Laws that encourage the development and protection of intellectual property and the free flow of ideas are a key component of national strength.
Israel's experiences defending itself from hostile neighbors intent on acquiring nuclear weapons illustrates the changing nature of national power, and the importance of a legal system that respects intellectual property rights.
In 1981, a squadron of eight Israeli F-16As flew 1,000 miles to destroy the Iraq's Osirak nuclear reactor, believed to be on the verge of producing plutonium for nuclear weapons. In September 2007, another squadron of Israeli jets destroyed a nuclear reactor in Syria's Deir ez-Zor region, constructed with the assistance of North Korean technicians, for the purpose of processing plutonium for nuclear weapons.
Both raids demonstrated traditional military strength. They also illustrated the limitations of such strength. They succeeded because the targets were small structures conveniently located above the surface. Recently, the world has taken notice of a different form of strength.
For years, the government of Iran has been pursuing a nuclear development program widely believed to be aimed at acquiring nuclear weapons. Learning the lessons of Osirak (which, ironically, Iran had tried to bomb during its war with Iraq), the regime dispersed its reactors over a number of heavily encased underground installations. In the summer of 2009, reports emerged that hundreds of these reactors were taken out of production. The frequency converters, which control the speed of the reactor motors, were the targets of a highly sophisticated cyber-weapon known as the Stuxnet worm. According to the Institute for Science and International Security, a private group in Washington that tracks nuclear proliferation, the Stuxnet worm ramped up the frequency of the electrical current supplying the centrifuges, causing them to hit 1,410 Hertz, or cycles per second -- enough to send the centrifuges flying apart.
German cyber-security expert Ralph Langner has assessed the worm's military value: "It will take two years for Iran to get back on track. This was nearly as effective as a military strike, but even better since there are no fatalities and no full-blown war. From a military perspective, this was a huge success."
Israel has not taken responsibility for the cyber-attack -- just as it has never acknowledged having nuclear weapons. But its authorship is an open secret.
The Stuxnet achievement is worth pondering for what it teaches about the source of modern power, and the role of intellectual property law in contributing to that power. The development of the worm required sophisticated code writing on a massive scale. There are 15,000 lines of code on the reactor control devices, meaning that designing a worm to infect the machines must have taken years. As Langner noted: "With the forensics we now have it is evident and provable that Stuxnet is a directed sabotage attack involving heavy insider knowledge. This is not some hacker sitting in the basement of his parents' house. To me, it seems that the resources needed to stage this attack point to a nation state."
Until relatively recently, Israel could not have undertaken such a feat, for the country was a technological backwater. Michael Porter of Harvard Business School is an international authority on business strategy and competition. The Competitive Advantage of Nations, his 1990 landmark work, mentioned Israel only once, and then only in regard to its innovations in agriculture and defense. George Gilder noted in The Israel Test, "Israel, by 1990 was still mostly barren of technology and finance. ...Israel generated few significant companies or technologies, no significant financial institutions, and little important science."
Something changed in the intervening years, something that enabled the State to become a cyber-superpower. That change involved the country's attitude toward intellectual property rights.
For decades, Israel was one of the world's most notorious IP pirates. In the 1990s, it was widely known as "One Diskette Land": whenever an American company introduced a hot new software program, the joke went, the State of Israel purchased exactly one copy. One was enough. In 1995, the International Intellectual Property Alliance, a private coalition of America's copyright-based industries, recommended "Special 301 status" for Israel, which allows the U.S. government to impose trade barriers against countries for piracy violations. Copying of Microsoft's Windows operating system was so widespread that Bill Gates vowed he would not step foot in the country until it mended its ways.
All that changed in the new century. In its 2004 annual report, the Office of the U.S. Trade Representative (USTR) noted: "In 2003 Israel was moved from the Priority Watch List to the Watch List. Last year's move was based primarily on Israel's improvements in copyrights and trademark enforcement." The report also commended Israel for joining the U.S. and ten other nations in the largest single law enforcement action ever undertaken against Internet piracy. Although the USTR has continued to monitor Israeli IP policies closely, its 2009 Report concluded: "The United States is encouraged by the high level of engagement between the United States and Israel over the past year." It noted with approval Israel's passage of copyright legislation.
The International Intellectual Property Alliance, while maintaining that more can be done to combat copyright infringement, conceded in its 2011 report that "the level of business software end-user piracy has remained relatively low in the past few years."
As Israel's image morphed from IP pirate to IP protector, the country became a magnet for global investment. Bill Gates finally stepped foot in the country for the first time in 2006. He declared that the "innovation going on in Israel is critical to the future of the technology business." As Dan Senor and Saul Singer note in Start-Up Nation, "technology companies and global investors [began] beating a path to Israel...." By the end of the decade Israel had more companies listed on the NASDAQ than all European countries combined. In 2008, per capita venture capital investments in Israel were 2.5 times greater than the U.S., 30 times greater than Europe, 80 times greater than China, and 350 times greater than India. In absolute terms, Israel, with its population of 7.1 million attracted as much venture capital as the United Kingdom with its 61 million, and as much as Germany and France combined. Two years after Bill Gates' first visit to Israel, his company's presence had grown to the point where CEO Steve Ballmer could call Microsoft "an Israeli company as much as an American company."
This dramatic expansion of trade and investment made Israel a high tech superpower, with the human and technological resources required to undertake a project like the Stuxnet worm, a project in many ways comparable to America's Manhattan Project -- with the signal difference that the latter was a drive to develop a nuclear weapon while the former was an effort to stymie one.
It would be an exaggeration to say that adopting and enforcing intellectual property law has solved Israel's security problems. Stuxnet has slowed but not completely derailed the Iranian nuclear effort. And while Israel has made great strides in intellectual property law observance, the USTR continues to monitor its performance, especially in the area of pharmaceuticals.
But there is no question that Israel's new approach to intellectual property law has made a difference, and not just to the country's legal and economic spheres. Its ability to deter foreign threats -- and therefore its very ability to survive -- has been enhanced.
Writing in 1776, Adam Smith attributed The Wealth of Nations "above all, [to] that equal and impartial administration of justice which renders the rights of the meanest British subject respectable to the greatest, and which, by securing to every man the fruits of his own industry, gives the greatest and most effectual encouragement to every sort of industry." Today, the strength of nations may be attributed, in no small measure, to the administration of intellectual property law.