Continued failure by policymakers to recognise the national security value of the networked economy would be a strategic mistake

The worldwide public discussion about surveillance produced by the Snowden revelations has so far largely missed a major strategic fault with national security arguments for continued mass surveillance: that economic damage to the technology sector but more fundamentally to the wider economy is a likely result. This damage is also likely to undermine security far more than any potential gains from continuing as we are—or continuing but with some transparency or narrowing that leaves the existing industrial scale surveillance system largely unchecked.

The idea that each country’s economy is at the heart of its national security should be obvious and you would think that countries’ national security strategies would recognise this, wouldn’t you? Regrettably that is far from true. Let’s look at the US as an example.

A report from the US’ Congressional Research Service in 2011 warned that the US is not properly accounting for the economy in national security strategy; a graphic from that report elegantly makes the fundamental point though the report as a whole is recommended:

The Economy and National Security Source: Congressional Research Service

The US’ most recent National Security Strategy covers “cyber” security concerns and the value of the Internet in promoting democratic values at length—but recognition of the economic value of the Internet is limited to a single phrase in a sentence otherwise about cyber-criminality (see page 27). Understanding why this is such a strategic mistake requires a short history lesson.

In the 19th century the invention of key general purpose technologies (GPTs) in the UK combined with a culture that valued entrepreneurship and innovation to produce the Industrial Revolution. This first mover advantage was key to ensuring the UK not only remained the most powerful and wealthy country in the world with the largest empire the world has ever seen, but actually extended that leading edge as the rest of the world played ‘catch up.’ To this day English is the global language of commerce, bicameral Parliaments are the norm, and the Common Law-based English legal system and thinking continue to profoundly influence the global economic and political architecture.

Skip forward to the development of the Internet in the United States. That too is a GPT and the first mover advantage is obvious: look at the famous names of the commercial Internet and where they started. Such technologies are a sea change; the lesson of history is that they transform the power and economic position of countries across the board and on a lasting basis. Given the experience of the UK in the Industrial Revolution it is particularly remarkable that it has failed to see the national security dimension of the networked economy in its current strategy though other parts of that government clearly see the bigger picture.

For the US, its “Internet advantage” could continue and even expand in relative terms as more than half of the world’s population isn’t online yet and the principle of network effect ensures that the economic value of each user already connected increases with each new user—and more 650,000 new users go online for the first time every day.

In normal circumstances, countries’ ability to choose protectionist economic policies are constrained; WTO and other commitments ensure this and these rules are enforceable through the WTO’s dispute settlement system. However, those agreements have “out clauses”—exceptions for certain national policy priorities, including national security and the privacy of personal information.

The Snowden revelations create a perfect storm: they give countries the cover they need to create protectionist measures, strong domestic political support to do so, and a national security imperative to act in self-defence. Officials from trade delegations in Geneva tell me privately they’re concerned that the widespread use of the exceptions could undermine the trading system as a whole, a system upon which a globalised world is profoundly dependent.

The technology sector in countries engaging in very extensive surveillance will face increasing competitive disadvantage. Countries and entire regions are debating rules that disadvantage foreign firms over locals. The Internet itself risks becoming more balkanised as countries’ domestic actions distort traffic and create legal uncertainty in an inherently borderless medium. Disadvantage to the poor and small and medium-sized enterprises (SMEs) that benefit the most from the information revolution is the proximate result. This is particularly unhelpful as Internet economy growth rates in developing economies will be over 18% in the next 5 years—more than twice that of developed countries—and SMEs who heavily utilize the Internet export twice as much as those that don’t.

Tech is the ‘canary in the coal mine’ but the truth is that the entire economy is in the mine with it. A recent McKinsey study found that 75% of the Internet’s economic benefit goes to traditional industries through efficiency gains and expanded markets.

It is time for policymakers to recognise that the networked economy is at the heart of the economy, and that the Internet is a general purpose technology that requires assessing opportunities and not just risks when looking at national security options. Those countries that do are likely to find they are safer and more prosperous than those that don’t.