Posted at 12:02 a.m. PST Thursday, April 2, 1998
Study: Encryption curbs cost U.S. billions
BY RORY J. O'CONNOR
Mercury News Washington Bureau
WASHINGTON -- The U.S. economy could lose at least $35 billion over the
next five years if the government continues its export restrictions on
data-scrambling technology, according to a think-tank study released
Wednesday.
Urging the government to abandon its current policies on encryption, the
Economic Strategy Institute calculated billions in losses to the software
industry and the national economy at large. It said those losses could be
as much as $96 billion.
The report also concludes that current policies fail to serve the national
security interests they ostensibly are intended to protect, noting that
criminals and terrorists who want to use the strongest encryption to hide
their activities already can obtain it easily.
That bolsters the high-tech industry's case in its five-year battle with
the government over technology used to scramble the transmission and
storage of digital data on everything from the telephone system to the
Internet.
``The encryption issue so far has been played as a software issue, but
this report shows this is much broader,'' said Erik R. Olbeter, director
of the institute's Advanced Telecom and Information Technology Program and
the report's main author. ``This affects industries that have generated
much of the increase in wealth in the past 10 years . . . and things that
are key and instrumental to the next 20 years of growth.''
The report is the first systematic calculation by an organization not
directly connected to the high-tech industry of the cost of the
controversial encryption policies. In that respect, it was cheered by
opponents of the government's policy, which restricts the export of most
encryption technology to relatively weak versions.
``For a long time, the government insisted that industry hasn't been able
to prove any economic loss from export controls,'' said Lynn McNulty,
director of government affairs for RSA Data Security Inc. of Fremont, a
leading maker of encryption software.
McNulty, who formerly oversaw computer security policy for the Commerce
Department's National Institute of Standards and Technology, called the
report ``one of the missing links'' in the policy dispute.
The report was criticized by the government official overseeing the
policy, in part for what he called ``exaggeration'' of its figures and for
failing to propose a workable policy alternative.
``My biggest frustration is, they offer absolutely nothing as a
constructive alternative, and that severely weakens it in my view,'' said
William Reinsch, undersecretary of commerce and head of the Bureau of
Export Administration. ``I'm sure it will add fuel to the fire the other
side is trying to start.''
Olbeter acknowledged that he and co-author Christopher Hamilton didn't
have a replacement policy to offer, saying that they chose to examine the
economic impact, while constructing a policy involves complicated legal
and political questions as well.
While not offering a specific proposal, the report suggests that any such
policy meet a four-point test, including being technology neutral,
market-driven and protective of individual and corporate privacy.
The 94-page report, ``Finding the Key: Reconciling National and Economic
Security Interests in Cryptography Policy,'' concludes that the most
significant losses accrue from so-called ``spillover'' to the general
economy. In the extreme, the ripple effect of current government
encryption policies, estimated at $51.62 billion between now and 2002, is
50 percent larger than the direct losses to high-tech industries.
The encryption battle has raged since 1993. The administration,
spearheaded by the FBI and the National Security Agency, tightly controls
the export of data-scrambling technology on national security grounds.
They reason that the widespread availability of coding schemes they can't
break will let criminals and terrorists plot their actions while evading
surveillance.
The administration is also attempting to create an encryption regime that
relies on secret keys with copies held by third parties and made available
to government agents upon presentation of a court order.
The computer industry, joined by privacy advocates and civil libertarians,
has long advocated no controls on encryption. They say powerful encryption
will minimize potential computer crimes, and that foreign companies are
offering products that U.S. companies are not permitted to sell abroad.
-o-
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Received on Thu Apr 2 18:49:26 1998