Intelligence Failures: An Organizational Economics Perspective

T wo recent failures of the U.S. intelligence system have led to the creation of high-level investigative commissions. The failure to prevent the terrorist attacks of 9/11 prompted the creation of the National Commission on Terrorist Attacks Upon the United States (2004), hereafter called the 9/11 Commission, and the mistaken belief that Saddam Hussein had retained weapons of mass destruction prompted the creation of the Commission on the Intelligence Capabilities of the United States Regarding Weapons of Mass Destruction (2005), hereafter called the WMD Commission. In this paper, we use insights from organizational economics to analyze the principal organizational issues raised by these commissions. Intelligence systems face the same kinds of tradeoffs that all organizations face. On the positive side, organizations enable the constraints of bounded rationality to be circumvented, so that more information (for example, intelligence data) can be gathered and a greater variety of expertise can be used in its compilation and evaluation than any individual or small group could achieve. An organizational hierarchy enables the aggregation of information. Each agent processes a bit of information, summarizes what matters or combines it with other information and passes the summary up to the next level. Hierarchy also enables experts’ knowledge