The Economics of PRISM and the Internet

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The Economics of PRISM and the Internet

June 24, 2013


While much has been said about the recent leak regarding the NSA PRISM program, little has been said of its economic impact. Consider the fact that a 2011 McKinsey study found that the Internet contributed to 21 percent of the GDP growth in mature economies over the prior five-year period. Thus, fostering the growth of the Internet equals greater economic growth as well and conversely, threats to Internet can be viewed as an economic danger.

NSA1At present there are a number of serious threats to the growth of the Internet that are not being addressed. The NSA controversy has had a disquieting effect on Internet users and there are murmurs coming from Washington that what we know so far may only be the “tip of the iceberg.”

The expansion of government surveillance comes with the parallel rise of Big Data in the private sector. Big Data always has had to face what it concedes is the “ickyness” factor or the consumers’ uneasiness about the scope and breadth of information collected about them. It now faces a backlash in Europe with the debate over a “right to be forgotten,” in which consumers can withdraw from social media and take their data with them (and to a lesser extent here in the United States with various efforts to establish a “Do Not Track” functionality).

Increasingly, the NSA story has been linked with Big Data and to the extent this development makes netizens more reluctant to engage in BIGDATA1online activity, that is a concern that needs to be addressed.

Unfortunately, it is unlikely that there will be anything more than hearings and grandstanding on this issue during the remainder of the Congress. The same is true on privacy legislation, as there appears to be no movement likely to break the current impasse that exists in Congress on “Do Not Track” and other privacy legislation. On the regulatory side, the Federal Trade Commission has hinted at future regulation but this may be in the form of further disclosures to consumers that they concede are not read anyway.

Cyber security is another important threat, as consumers are increasingly being impacted by having their social media and email accounts hacked or having their records accessed through data breaches. At the same time cyber attacks are reaching critical infrastructure in both the public and private sectors, raising fears of a Cyber 9/11.

It is unfortunate that currently there are no true market incentives for addressing cyber security, except for the fact that some insurance companies are providing discounts on fees for companies that address cyber threats effectively. At the same, the business community has vigorously resisted any baseline security mandates, despite the economic and national security implications of inaction. There are no signs that this Congress will make any progress on this issue as well.

Throw in the legal battle over net neutrality coming at a time when Internet service providers are imposing data caps, not to manage capacity but to discourage use of competing streaming video services, and it is evident that this is a critical time for the Internet.

There are important choices to be made and many complicated considerations involved in all of these issues, but it may be useful to understand why the Internet has grown so rapidly? What has drawn consumers to make this tool such an important part of their lives (convenience, greater choice or value, political expression, love of funny cat pictures, etc.)?

This is important since whether it is government surveillance or net neutrality, there has to be an understanding that whatever actions are taken or even inaction by itself will impact the growth of the internet and by extension economic growth for all of us.

The other critical point is to remember the role of the Internet in promoting freedom across the world, partly by serving as an essential tool for transparency in government. Which is why the solution to the current controversy over the Snowden leaks is not to retreat back to the prior “cone of silence,” but rather to have an open debate over what level of surveillance is permissible and the process for doing so because that is what free societies do. Let us find a consensus that sets an example for the rest of the world.

To foreclose such a debate on the grounds of national security is short sighted and ignores the fact that such a debate not only will impact our standing in the world but it may also be vital to our economic security.