Monthly Archives: November 2013

Economic Consequences of NSA Surveillance

Note: This article is also available in Portuguese, translated by Anders Bateva.

(Note: A version of this article also got published on Consortium News) In the last 6 months or so, Edward Snowden, former NSA contractor, came forward with revelations about the NSA, disclosing quite a few of the agency’s surveillance programs, and revealing that the agency has the most blatant disrespect for civil rights and spies on everything and everyone, all over the world, in a Pokémon-style “Gotta catch ’em all!” fashion. The actions of the NSA are also having a real effect on the United States economy. Let’s talk about the economic consequences the NSA’s surveillance programs will have on the United States economy, and, more specifically, its tech industry. The actions of the US administration, and more specifically what the NSA is doing with their surveillance programs, are having a big impact on the US economy, especially in Silicon Valley. Why would I store my data on servers in the United States, where this data is easily accessible by the NSA, among others, if I can just as easily store it in Europe or some other, more secure place?

A Positive Investment Climate

To understand the US hegemony when it comes to IT companies and services, it is good to have a look at the history of the investment climate. Why did these companies pop up in the United States? Why wasn’t Google invented in, say, Germany, or Finland? The reason many of these cloud storage services and internet companies popped up in Silicon Valley as opposed to Europe, say, is because of the investment climate in the United States, which made it much easier to start an internet company in the United States. Large institutional investors, venture capitalists, are less likely to invest in a start-up in Europe. Also, bankruptcy laws are much more relaxed in the US as opposed to Europe. Whereas in the US, you can be back on your feet in a year or so after going bankrupt, in Europe, this is generally a much longer process. According to the Economist, it takes a minimum of 2 years in Spain, 6 years in Germany, and a whopping 9 years in France. In my own country, The Netherlands, it takes 3 years to be debt-free again after a bankruptcy, but if you go bankrupt in Paris, good luck, you’ve just ruined your future. This makes it far more risky to try new things and set up shop in Europe, because the consequences if things go bad are so much worse. Unfortunately, this has left us Europeans in the position that we currently don’t really have a European ‘Silicon Valley’, we don’t have a lot of viable, easy to use alternatives, and these desperately need to get developed. We depend too much on American companies right now, and I think it’s good if we diversified more, so that we will get a healthy market with plenty of good alternatives, instead of what we have now, which is a US monopoly on web-mail (Gmail/Hotmail etc.), social networks (Facebook, Twitter, LinkedIn, Foursquare, etc.), internet search (Google), cloud storage (Dropbox, Microsoft, Amazon), and other things. Already, cloud storage providers in Silicon Valley currently see big drops in their revenues because of the disclosures of Snowden. Why would we store our data across the pond? This is the central question and this is having real economic consequences for the United States.

US Cloud Service Providers Face Economic Consequences

US Cloud Service Providers Face Economic Consequences Because Of NSA SurveillanceCloud providers based in the US were experiencing significant profit drops when the NSA revelations were made public. People outside the United States suddenly began to question whether their sensitive data was safe on American soil. All these companies are subject to the  PATRIOT Act, which requires them to hand over any information and data they have on their customers, and they are prohibited by the US government to tell their customers about it. So the conclusion can quite definitively be that no, your data cannot be trusted to stay secure if you send it over to the United States, by using ‘convenient’ cloud services like Dropbox, or Amazon, among others.

This is the critical criterion. It doesn’t matter that the company tells you that they use the most high-end military-grade encryption, it doesn’t matter that they thought of an interesting technical solution to try and circumvent surveillance, it doesn’t matter that they write glowing blog posts solemnly promising not to hand over your data, all that matters is that it is a US company, required to obey US law, and required to hand over your data. Few companies will be able to resist the pressure and forfeit their entire business model to protect your privacy. This is also what strikes me as funny when I read about major US tech companies, like Google, Apple and Microsoft, who found out that their server-to-server connections were being intercepted by NSA. These intra-server connections were not encrypted, sent in the clear, probably on some private fibre optic cable. Of course this could be intercepted given the NSA’s technical competence. So now these companies are trying really hard to sell the story to their overseas customers that their intra-server communications are now fully encrypted. This is a feeble attempt to keep some of their customers from switching to alternatives (of which there are not many, unfortunately), as these companies are still US companies, with offices and infrastructure in the US, and the need to obey the laws over there. So it’s totally irrelevant that these tech companies are now encrypting their intra-server communications, as the US government can simply request the data via other, more official means. But these companies aren’t just promoting irrelevant measures, they actively act against our interests. After the revelations done by Edward Snowden, Facebook is making data hand-offs to US authorities easier (fully automated, without judicial oversight). Facebook is also partnering with police to make protests harder to organise. And still we insist in using its social network. These are instruments of control and surveillance. We’re not their customers, we’re the product being sold. We have a distinct lack of viable alternatives which aren’t based in the US, and it’s important to remember that social networks have a social aspect. It isn’t enough for you to change over to a competitor, you have to convince your friends to switch as well. This is what keeps social networks afloat for so long, because this is indeed very hard to do.

March to Irrelevance

In October 2013, Congress raised the debt ceiling again, which will buy some time until January 2014. Then they will have the exact same problem. The United States is structurally spending more money than they have available, and current US national debt ($17 trillion dollars) can never be repaid. They are pretty much already in default. But since the financial system is based on trust and hearsay, smoke and mirrors, it takes a while for people to face the reality, wake up and smell the coffee. At which point the United States will be an irrelevant relic from the past. Here in Europe, we need to protect our own citizens’ interests, and start developing viable alternatives for the US hegemony, because the US hegemony will be over one day.