National Security

Is it Legal for the Military to Patrol American Networks?

Posse Comitatus meets the 21st century.

Over the past couple months, the Pentagon has assumed an increasing role in defending American networks. In October, Secretary of Defense Leon Panetta announced new rules of engagement for the Pentagon's cyber operations. "The new rules will make clear that the department has a responsibility, not only to defend DOD networks, but also to be prepared to defend the nation and our national interests against an attack in or through cyberspace." Panetta insisted that the Pentagon would play only a "supporting role," but as James Lewis at the Center for Strategic and International Studies pointed out, "When it comes to cybersecurity, the center of action just shifted." And, indeed, a few weeks ago, the Washington Post revealed that President Obama had signed a secret directive expanding the U.S. military's authority in cyberspace to include defense of non-military networks.

It is a sign that efforts to develop the capacity of the Department of Homeland Security (DHS) to defend cyberspace have not kept pace with the perception of increasing threats. But it's also a sign that the United States is struggling to adapt to a world of transnational threats -- and risks eroding the fundamental distinction between the traditional roles of civilian and military forces in providing security. The Posse Comitatus Act of 1878 has restricted the deployment of federal troops in the homeland since the end of Reconstruction. It enshrined the idea that police forces are responsible for security within U.S. borders, while the military protects against threats beyond the country's borders. That is why only in extreme circumstances -- a natural or man-made crisis -- do we see troops in the streets.

The new policy is essentially the result of a trade-off between authority and capacity: The Department of Homeland Security has the authority, but not sufficient capacity to effectively defend the nation's networks. In contrast, the Department of Defense has better capacity, but not the authority. The choice then is to build up DHS's capacity, leaving the nation less protected in the interim, or expand DOD's authority. (This publication by National Defense University provides a more comprehensive analysis of the various policy options.)

Apparently, DHS has not been coming on fast enough. Lewis notes that "Iran has discovered a new way to harass much sooner than expected, and the United States is ill-prepared to deal with it," referencing the cyberattacks against the Saudi Aramco and RasGas companies. Secretary Panetta points out, "We know that foreign cyber-actors are probing America's critical infrastructure networks.... We know of specific instances where intruders have successfully gained access to these control systems. We also know they are seeking to create advanced tools to attack these systems and cause panic, destruction, and even the loss of life."

So does that mean the Posse Comitatus Act doesn't apply in cyberspace? Or if it does apply, how so? While cyberspace is bound by physical infrastructure located on territory with national borders, cyberspace as a domain is very different from any of the four other territorial domains -- land, sea, air, and space. There is no physical border in cyberspace that an attacker must cross to hit at his or her target, as there was for the British ships in 1777, the Japanese planes in 1941, or the terrorists on 9/11. An attack can happen anywhere within the United States, and in the case of zero-day exploits -- a cyberattack using a previously unknown vulnerability -- without prior warning. How will the government know whether suspicious activity is a criminal matter most appropriate for law enforcement, or a security matter falling within the Department of Defense's mission to protect the nation against threats from abroad in light of the continued challenges to attribute the source of an attack?

Expanding the Pentagon's role is a slippery slope. Not only is the military ill-suited for many civilian tasks -- witness police training in Afghanistan -- it can also easily bump up against civil liberties. For example, the warrantless wiretapping scandal during the last decade included the National Security Agency -- whose director also leads U.S. Cyber Command -- which was authorized by an executive order to conduct domestic surveillance. If the military is taking over cybersecurity simply because it has greater capacity, what will prevent it from being asked to assume ever greater homeland responsibilities in the future? After all, the Pentagon is the largest organization in the world -- it has more capacity when it comes to any number of problems. But capability is not a sufficient argument for policy. It highlights how reactive our current approach to cybersecurity is. It is borne out of immediate necessity to fill the current gap, but we need an effective longer-term plan -- and an exit strategy for the Pentagon's involvement in domestic security. 

The public needs to start discussing how comfortable it is with the military's role in cyberspace. Clearly, some advocates are not: The Electronic Privacy Information Center, for example, filed a Freedom of Information Act request the same day the Washington Post revealed the secret directive, arguing that "transparency in cybersecurity is crucial to the public's ability to monitor the government's national security efforts." Congress faces a choice, too. So far it has not yet passed effective legislation even though both parties agree that there is a need for a comprehensive domestic strategy to protect critical infrastructure. Is Congress more comfortable with the alternative -- the U.S. military becoming increasingly involved in domestic security?

What about the private sector? The U.S. Chamber of Commerce has been blocking action and watering down legislation lest business be forced to adhere to even minimum security standards. It does not suffice that some industry members develop strong security standards while others refuse to adopt them, creating negative security externalities for others in the sector who are trying much harder. Harvard law school professor Jack Goldsmith makes a compelling case: "This is a classic case for government regulation -- indeed, it is the classic case for government supply of the public good we call national defense, since there is every reason to think that the private sector, following its private interests, will undersupply national defense in this context."

Some of the issues cybersecurity entails affect core principles that have been a foundation of democracies for over a hundred years. But extending DOD's authority to manage the cyberthreat should be an interim solution with a sunset clause and an exit strategy for when DHS has the capacity. After all, the Secret Service is also part of DHS and enjoys an excellent yet underreported reputation when it comes to cybersecurity. The Secret Service was able to develop its expertise and become a leader in this field as the Internet spread over the last 15 years. Why should this not be possible at a larger scale for DHS, especially since it was established only a decade ago? The Pentagon plays a crucial role, but as with any crisis in a democracy, using the military should always be a last resort and a temporary state. The administration has been trying hard to address these challenges and Congress demonstrated this year that it considers cybersecurity a top issue. This administration's first cyberstrategy has been called "clunky;" it now has a second term to develop a smoother long-term strategy.

JIM WATSON/AFP/Getty Images

Democracy Lab

Egypt's Economy: The Downside to Growth

Mubarak may be gone, but his economic policies still haunt Egyptians.

Note: This article is an abridged version of an in-depth country study produced as part of the Prosperity Index project of the Legatum Institute. Complete versions of all 12 are available on the Institute website.

The Egyptian republic's economic course has been problematic, to say the least. Gamal Abdul Nasser's experiment with nationalization, central planning and Soviet-assisted industrialization left the economy hobbled by regulation and inefficiency. Anwar Sadat's successor regime relaxed the government's grip, but accumulated a mountain of foreign debt that caused stagnation through much of the 1980s.

But fortune favored the economy thereafter. Much of Egypt's external debt was forgiven or restructured in the wake of the Gulf War. And in the decade that followed, per capita GDP calculated in terms of purchasing power rose by one-third simply on the strength of containing both inflation and budget deficits.

Mubarak subsequently introduced major market-based reforms -- steps toward privatization and deregulation -- that permitted growth to accelerate to the 7 percent range. His technocrats also negotiated the global recession without a tumble, responding with a domestic stimulus (mostly infrastructure investment) that largely offset declines in private investment and exports. In the two years prior to the Arab Spring, the economy seemed to be back on the rapid development track.

However, in the years of high growth, though unemployment in the formal market rarely fell below 9 percent, youth unemployment hovered around 25 percent, and increasing numbers of college graduates never managed to get a first job. Moreover, the stimulus barely touched smaller enterprises, reinforcing the popular impression that the game was rigged in favor of insiders.

The revolution and lingering uncertainty during the transition exacted a huge toll on economic performance. The economy has since been creeping back, but at a pace hopelessly short of the 7 percent pace needed to absorb new entrants to the labor force.  And the prospects for acceleration are mixed.

The first economic challenge to the newly elected government is to reduce uncertainty about the viability of Egypt's finances. Before the revolution, the Ministry of Finance had targeted a gradual reduction in the overall fiscal deficit from 8.1 percent of GDP in 2009-10 to 3.5 percent of GDP by 2015 -- and thereby to decrease the public debt from 77 percent of GDP to 60 percent.

Government debt per se creates no immediate threat since relatively little of it is owed in currencies other than Egyptian pounds. But deficit reduction will almost certainly be a condition for much-needed support from the IMF. In any event, permitting the recent surge in deficit spending to continue for much longer would undermine the prospects for a return to rapid growth.

That's because government borrowing is absorbing much of Egypt's relatively meager domestic savings, crowding out private investment. Credit has been increasingly skewed towards support of the government and away from financing private activity.

The other side of the budget ledger matters, too, of course. As the economy recovers, there will be scope for raising revenue by widening the tax base, as well as by fighting corruption and tax evasion. One high-priority target is the revision of export contracts, particularly for natural gas, which would bring in billions in added revenues.

Then there's the issue of price and exchange rate stability. Egypt, like other relatively small open economies, must reconcile conflicting goals here. It needs an exchange rate that makes the country an attractive venue for foreign direct investment and a competitive source of goods and services for global trade. But Egypt is also a big importer of food and fuel, so both domestic inflation and government spending can be quite sensitive to depreciation in the exchange rate.

That explains why the Central Bank of Egypt (CBE) has been spending down its foreign currency reserves in the teeth of declining foreign investment, foreign tourism income, and Suez Canal receipts. But it also explains why the CBE has been of two minds on monetary policy.

Responding to the economic downturn, it cut minimum bank reserves to ease constraints on domestic liquidity in the face of surging government borrowing. However, the CBE has been reluctant to lower interest rates for fear of depressing the Egyptian pound's exchange rate, encouraging capital flight or creating expectations of higher inflation.

The new government will have little choice but to continue this juggling act. With foreign exchange reserves badly depleted, Egypt must secure credit from the IMF and other international lenders that follow in the IMF's wake. A tentative deal providing $4.8 billion contingent on budget reforms was announced on November 20, and another $10 billion in aid from other donors is likely to follow. This will give the CBE the resources to stabilize the exchange rate, and thereby to contain import-price inflation, until Egypt regains the confidence of investors.

While Mubarak's deregulation strategy paid off in terms of growth, it allowed corruption to fester: Egypt, ranked a wretched 112th among 183 countries on Transparency International's Corruption Perception Index in 2011. The most corrosive consequence of corruption -- and more generally, the failure to provide equal protection of economic rights -- is that it reduces social and economic mobility. Small- and medium-sized enterprises, the likely engines of mobility, face daunting barriers when they compete with the incumbent elite.

The list of impediments to free enterprise in Egypt is long. According to the World Bank, a business owner needs 218 days to obtain a construction permit. It takes seven procedures and 72 days to register property. Getting an electricity hookup averages seven procedures and 54 days, and costs four-and-a-half times the annual income of an average Egyptian. Moreover, despite substantial growth that made Egypt's industrial base globally competitive in key areas and raised the economy to what the World Bank calls "lower-middle income" status over the past two decades, the discrimination against small business only heightened.

Market reforms are thus a key to fixing what ails Egypt, increasing the potential rate of growth while opening the door to new entrepreneurs and creating jobs to absorb the burgeoning workforce. But such reform is an immensely difficult process in the face of elites that have little to gain and much to lose from change.

The mainstay of Egypt's efforts to deal with poverty is the array of food and fuel subsidies noted earlier. One problem with this approach is that it distorts consumer prices, creating incentives to waste food and fuel. But the most troubling aspect of the subsidies as now constituted is that most of the benefit goes to households and businesses that aren't really needy. Two-thirds of the cost of the subsidy system is linked to fuel. Yet, according to household surveys, less than 5 percent of the fuel subsidies aid the bottom-fifth of the income distribution.

Much the same can be said for food subsidies. Two-thirds of all households now have ration cards, and the bulk of the benefit is going to the middle class. Dumping the subsidies overnight (and replacing them with cash grants to the poor) would not be politically practical. I favor gradual replacement, focusing on the fuel subsidies, which cost more and matter less to the poor. And this is apparently the direction approved by the IMF. But it will be critical to link the phase-out to cash grants and/or in-kind support to the vulnerable.

While transfers must be part of any plan to cope with poverty, they shouldn't be viewed as a substitute for jobs. Restoration of Egypt's once-booming tourism industry, which is more labor-intensive than most modern industries, should thus be a top priority. But the key to job creation in the long-run is a flowering of small- and medium-sized enterprises that can make productive use of unskilled labor, as well as aiding mobility for middle-class entrepreneurs.

To that end, these firms need better access to credit. While subsidizing credit can be a slippery slope -- the costs are hard to contain, and the target group has a way of expanding -- some preferred access makes sense to offset the capital market's bias toward large-scale enterprise. This might take the form of direct business loans or credit guarantees through private banks. Moreover, the government cannot afford to give short shrift to rural areas, where the poverty is greatest and the exit to cities is creating social dislocation.

Consider, too, in this regard, the importance of bringing the large numbers of small businesses that find it too expensive to operate legally into the open. The astonishing size of this underground economy -- by one estimate, it accounts for 40 percent of all employment -- reflects the general difficulty of doing business in a climate of corruption and bureaucratic indifference. But until underground enterprises become part of the formal economy, they will not directly benefit from measures designed to make it easier to challenge entrenched producers.

While unemployment is a chronic problem for Egypt, its nature has changed considerably in the last few decades. It's no surprise that unemployment is exceptionally high  among the young (around 25 percent) -- high fertility rates in the 1990s guaranteed unmanageable labor force growth now. What is surprising is that young college graduates are faring no better than their less-educated peers.

One reason: As the government shed enterprises in the last decade, it ceased to be a reliable employer of last resort for college graduates. Another: Business owners traditionally give first priority in employment to relatives. But arguably the most important reason is that universities don't provide the skills that the rapidly evolving Egyptian private sector needs.

The main issue isn't underinvestment in tertiary education -- one-third of high school graduates go to university -- but the system's failure to make good use of the resources. The new government thus faces the difficult task of remaking a higher-education establishment built for a different era.

Egypt's recent economic history is punctuated by ironies. In particular, development proved to be profoundly destabilizing, dislocating millions of citizens in the rush to cities, raising the visibility of a detested new class of crony capitalists and creating expectations of mobility that were impossible to realize.

This problem is hardly unique to Egypt -- think China and India. But the Mubarak regime lacked the political legitimacy to survive it. The new government's task is to restore that sense of legitimacy without sacrificing the growth that has, in many ways, changed Egypt for the better. And one key to success will be to convince ordinary Egyptians that they have a real voice in the process. No easy task, indeed.

Photo by MARCO LONGARI/AFP/Getty Images