Policy: Technology

NSA spying threatens U.S. tech industry

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The National Security Agency's spying tactics leaked by former contractor Edward Snowden are threatening the U.S. economy's growing technology sector.

Companies, particularly in Europe, are rethinking their integration with the American digital economy, worried that their data may not be secure if processed by U.S. hardware or through U.S. data centers. They are especially concerned about the security of American cloud computing services, which use remote, virtual services to store data. American-manufactured computer hardware also is being scrutinized.

"We are not looking at the complete shutdown of digital trade between the U.S. and the EU, but there is a real risk of increased costs, slowed innovation and a balkanized Internet," said William Rinehart, director of Technology and Innovation Policy at the American Action Forum.

The industry is one of America’s largest: U.S. exports of digitally enabled services, a measure of international digital trade, rose from $282.1 billion in 2007 to $356.1 billion in 2011, according to the U.S. International Trade Commission.

“In the United States, a lot of its strongest industries are in technology. You look at Google, Apple, Salesforce.com, Dropbox. There's a lot of growth here, and [the NSA's practices] open the door to competitors from Europe, and gives them a competitive edge," said Steven Titch, an associate fellow at the R Street Institute, a think tank that advocates free markets. "German competitors could tell a German bank to keep their data domestically."

Snowden's leaks last year led to the revelation that the NSA was collecting massive amounts of information about the communications and Internet traffic of ordinary citizens. The NSA's actions included the collection "metadata" that included information about phone calls but not the content; the infiltration of private networks owned by tech companies like Google and Yahoo; and tapping the communications of key world leaders, including U.S. allies.

“The NSA, through its programs, has cast a pall of distrust over almost every U.S. Internet hosting company, almost every company that is managing data. ... That's the long-term concern here," Titch said.

One research institute, the Information Technology and Innovation Foundation, estimates that the growing suspicion could cost the U.S. industry between $21.5 billion and $35 billion over the next three years, based on the assumption that the tech industry will lose 20 percent of its foreign market share.

Judging by the aggressive response from EU policy makers, a prediction of falling foreign sales holds weight. "They're been pushing for us to do something about reforming surveillance. They've also been pressing for commercial privacy, which they view as being related. They're asking, 'Why does the government have access to all this information?' " Rinehart said.

The NSA's practices may hurt domestically as well. Forrester Research, a firm that provides financial analysis, predicted that the Information Technology and Innovation Foundation estimate was too low and didn't take into account the decline of domestic demand for U.S. tech products. James Staten, an analyst for Forrester, wrote that the potential worldwide tech industry cost of the NSA's practices could reach $180 billion by 2016.

Prescriptions on how to blunt the blow run the gamut: Staten suggests that world leaders draw up international surveillance transparency rules; Titch suggests that U.S. lawmakers pass legislation to extend the expectation of privacy to personal data stored through cloud computing and the total rebuilding of the American surveillance program.

Whatever the solution, the risks are big: a splintered Internet (or "splinternet," as Titch calls it), a wound to the American economy, even a culture change leading to wariness about whether to use the Internet for private information at all.

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