March 21, 2010

Free Trade Hits Hackers Hard!

Who could figure that the main breakthrough in hackproof hardware-based computer systems would come from … Ukraine. Yes, the Ukrainian programmer, Oleksiy Shevchenko, employed by the Kyiv-based American IT company came up with ingenious invention, the reversely engineered computer system. It protects your computer by creating its virtual copy so that hackers, spywares, viruses and other web-based security breaches end up in a wrong, non-existing, computer system. By the way, the estimated losses from hacker attacks are pegged at more than $1 trillion per year. According to the Ponemon Institute's survey, 85% of companies and agencies have suffered security breaches and data losses over the previous year.
Now Mr. Shevchenko works in, a tiny, Herndon (Virginia, USA) startup called InZero Systems side by side with Mr. Hughes, former president of General Motors' international operations and of Lockheed Martin. The BusinessWeek reports that the InZero has already been tested by the US "military's Defense Advanced Research Projects Agency (DARPA) and several companies that specialize in finding cracks in computer security. No one has broken in". Since InZero wants to catch a big fish, the US DOD, both Mr. Shevchenko and Mr. Hughes face a burden of proof that InZero has no built-in back door left for Eastern European spies. Let's cross our fingers that the red tape of the American bureaucracy will not stall the technological breakthrough. The Obama administration actually thinks about speeding up a bureaucratic review of export-oriented products that are sensitive to the national security. Now the US Department of Commerce can take up to 60 days to review the export-oriented product. President Obama wants to slash it down to 30 minutes!
The estimated cost of InZero software is $25 for individual users versus more than $1 trillion in losses from hacker attacks per year. If it is not the Pareto improvement, then what's that? The InZero is a direct outcome of free market forces. It is a by-product of globalization, free trade, and outsourcing. Isn't it the best way to give a lecture about benefits of free trade? I'll test it on my students in the International Economic Policy class. Rock on!
From UkraineWatch


  1. The recent Google hack last month that was traced back to two Chinese schools (one which has close ties to the Chinese military) and another computer that was located in a Ukranian professor's computer science class was enough to prove that the U.S. needs to be on their toes. The current stock of internet security software available to us is not enough to keep the hackers away. It's GOOGLE they're hacking into! As globalization continues to further entangle the world via the Internet, we will continue to see cases such as the aforementioned.

    It is evident that the $25 price tag versus a $1 trillion dollar loss is Pareto efficient. Large firms suffer from security breaches and data losses due to hackers. Although I do agree that the cost-benefit analysis of this product without a doubt proves to be more beneficial and user-friendly, as any skeptical American would think: How do we know this is not part of a Russian plot? A Ukrainian hardware system that allows special access to some entity after large corporations adopt the new system. It is a game of cat and mouse where and I would be skeptical of anything from a former Soviet state until further notice.

  2. After reading this article, one would think that this story presents a win-win situation for all parties, with free market forces working to better both the Ukrainian IT contractor and possibly the American Government who would buy his product. While the Federal Government should always strive to be efficient and maximize the taxpayer benefit for each tax dollar, there are often hidden costs associated with outsourcing.

    Globalization and incentivizing something as critical as national security, however, may be asking for disaster, as national security and economic goals aren’t always aligned, and free market forces are arguably the primary motive for espionage in the first place.

    Cyberspace is getting increasingly more dangerous. As Sabrina has pointed out, Google, the seemingly impenetrable online giant, has been thwarted by hackers. The Pentagon recently used over 100 million dollars in one of the latest cleanups of a cyber attack, and it’s peppered constantly by raids of electronic assailants. What’s interesting is that many of these attacks come from China, the US’s most prominent trading partner. This demonstrates that economic and military goals don’t always align themselves with greater economic cooperation and integration, and even seemingly allied countries will attempt to gain a military advantage over the other. As long as this is true, the US should be cautious in outsourcing sensitive information management.

    At an individual level, it has been researched and demonstrated that the greatest reason why people spy in the US since 1947 has been money. (1) Amongst spies, reimbursement has been the top motive for both volunteer spies, and ones recruited by foreign intelligence. While it is true that most domestic spies have been former military members who seek to “capitalize” on their “specialization”, the betrayal of their country brought vital secrets to the “free market”. Unfortunately for the rest of us, this puts our lives into very real danger and the costs of repairing the damage done by these spies are borne by us all. The Pentagon has used a billion dollars up to date to repair the damage done by the spy John Walker, a spy caught in the 80’s. (2) These were the actions of military men, sworn in by a code of honor, whose treachery is punishable by death. Unfortunately, it is probably much easier to sway Inzero’s engineers in Kiev with money to expose this system’s possible flaws than that of a military officer.

    Even without the comments stated earlier, there are inconsistencies in the response to this article. Firstly, one can hardly compare the $25 dollars an individual would have to pay to the cumulative efforts of all hackers costing $1 trillion dollars to the United States. The cost of upgrading the security of the thousands of computers of the Pentagon, and thousands more throughout the DOD affiliates would undoubtedly swell that number quite a bit. Also, the man who introduced Shevchenko to the American investor was a former Soviet Government official, and many of the company’s engineers still work from Kiev. I would be quite cautious in taking everything from that point on at face value at the least, and encourage American security contractors to take this concept, which is admittedly not new, and emulate it.

    In conclusion, government should always seek to provide the best product for their citizens, but they should be wary and always strive to protect them at the same time. Red tape, Dr, is sometimes put in place to keep you from going over the precipice. Shevchenko’s product sounds like a good use of taxpayer money, but to jump into a conclusion based on simple market principles like it being cheap, (especially within a suggested 30 minute deadline) seems like a downright dangerous concept.The article itself reads like it was meant to beat a deadline.


    Ian Madison

  3. Courtney ShepherdMarch 24, 2010 at 3:54 PM

    The main thesis of the post is that globalization and outsourcing have led to the creation and important/eventual use of this product.

    Labor was outsourced to Ukraine and it resulted in the creation of this product. The IT industry has become globalized, visible in the use of Ukrainian programmers to create products for American firms.

    The situation is related to Pareto Improvement in the way that a group of people (in this case, the user of the product) will have improved well-being, and no one will be worse off.

    President Obama wants to speed up the process of the cost benefit analysis to 30 minutes when the product in question is important in national security efforts. In this case, the software can aid in information protection for the Department of Defense, the government and the military.

    The effect of this product on free trade is that it becomes trade that is not free. The government is controlling the production, use and importance of this product. Additionally, it favors this product over others (visible in the sped-up decision making) that aren't important to national security.

  4. The improtant thesis of this article is that people can benefit from free trade and not always at the expense of others.

    This technological breakthrough can benefit many companies across nations. If companies outside the US outsource jobs from InZero workers the benefits whould be tremendous to all parties.

    The companies that are using Schevchenko's skill would be able to reduce some costs for doing so. And the US would also gain returns for trading his skills.

    This is a great example of the effects and benefits of free trade. If US trade policies didn't allow for us to be able to trade his skill for another good or service from another country we would be the only ones benefitting from the spywares usage. However, we could benefit more if we were able to use the spyware for ourselves AND get the good/service from other countries in exchange for our service.

    Also globalization plays a huge role too because in a world of free trade, if one country benefits from a breakthrough, all other countries will be able to benefit too and globalization comes easier. This is kind of the idea of the Pareto Movement because everyone benefits except for hackers (but no one wants them to anyway).

    ~DeAnna Pruitte

  5. Computer hackers constitute a major security threat towards individuals, businesses and public institutions around the globe. Current policies implemented are directed at reducing hacking by affecting the supply side of hacking which in turn reduces the quantity of bad profit-driven hacking. Other than money being an incentive, hacking motives pan to the need for attention, new legislation and even fame seeking hackers. The one-size-fits-all punishment approach to hackers remains ineffective due to the vast age rage in hackers; which continues to pose a threat on national security. New technological breakthrough such as InZero aim to reduce the net loss in hacker attacks spilling over 1 trillion dollars per year. This attempt of national security control is an attempt of free trade. The incentive for purchasing a $25 software program is guaranteed personal security on your home/office computer systems. Sounds like a pretty fair bargain to me.