US Snooping Costs High-Tech Sector $35B and Counting

Other countries’ concerns over U.S. government surveillance programs likely will cost American businesses more than US$35 billion, according to a report released Tuesday by the Information Technology & Innovation Foundation.

Originally it was thought that the fallout from Edward Snowden’s revelations of U.S. mass surveillance programs would be limited to cloud service providers, but the impact has reached beyond that sector, the ITIF found.

“Since then, it has become clear that the U.S. tech industry as a whole, not just the cloud computing sector, has underperformed as a result of the Snowden revelations,” says the report. “Therefore, the economic impact of U.S. surveillance practices will likely far exceed ITIF’s initial $35 billion estimate.”

Opportunity Strikes

Surveillance concerns have been used in effective marketing campaigns in other countries to grab business from U.S. companies. Moreover, those concerns have been used as a pretext to put into place protectionist laws that put U.S. tech firms at a competitive disadvantage.

“While some defenders of these policies have asserted that they are designed to increase the privacy or security of their citizens’ data, it is clear that they are also motivated by misguided self-interest,” says the ITIF report.

“By creating rules that advantage domestic firms over foreign firms, many countries believe they will build a stronger domestic tech industry or gain short-term economic value, such as jobs in domestic data centers,” it continues.

“In reality, these policies unwittingly limit the ability of a country’s own firms to innovate,” the report maintains, “by shielding them from international competition.”

Head in the Sand

Despite the harm the government’s surveillance practices are having on the U.S. tech industry, federal officials seem unconcerned.

“Most of Washington has their head in the sand, and they’re not addressing this issue head-on,” said ITIF Senior Analyst Daniel Castro, coauthor of the report.

American companies have taken some measures — such as investing in data encryption and overseas data centers — to build trust for their wares in foreign markets, but more is needed from government, the report says.

“We really need to see top-level U.S. government leadership coming in saying a balanced approach to this is needed. It’s not just about surveillance and law enforcement. It’s also about the economic consequences,” Castro told the E-Commerce Times.

“Until that happens, industry can do a lot, but they’re not going to solve this problem on their own,” he added.

A balanced approach to the issue may be elusive unless the tech industry learns to play the Washington game, noted IT Harvest Chief Research Analyst Richard Stiennon, who was among the first to predict the economic consequences of Snowden’s revelations.

“It’s pretty typical for government not to recognize players in the economy until they’ve got significant money in lobbying,” he told the E-Commerce Times.

Trust Deficit

Washington hasn’t been totally paralyzed on the surveillance issue, as the recent passage of the USA Freedom Act illustrates. However, concern over domestic surveillance isn’t likely to translate into international confidence gains.

“We’ve got a big trust deficit to make up,” observed Julian Sanchez, a senior fellow with the Cato Institute. “Globally, there are a lot of people who are not going to be that confident — whatever reforms we pass — that the NSA isn’t doing whatever it wants in secret anyway.”

American officials have made the point that the government’s powers to spy on Americans pales compared to its powers to spy on foreigners, he pointed out.

“The message you’re sending out may be reassuring to your domestic political audience, but it’s not that reassuring to our global market audience,” Sanchez told the E-Commerce Times.

Unless Washington takes decisive steps to reform digital surveillance by government agencies, there will be dire consequences, ITIF predicted.

“When historians write about this period in U.S. history, it could very well be that one of the themes will be how the United States lost its global technology leadership to other nations,” the report says. “And clearly, one of the factors they would point to is the long-standing privileging of U.S. national security interests over U.S. industrial and commercial interests when it comes to U.S. foreign policy.”