costs and the privacy industry
This page highlights debate about the 'cost of privacy',
largely driven by claims that strengthened privacy regimes
will impose intolerable direct/indirect costs on business.
The page also looks at the privacy industry, with a dissection
of who's peddling policy, placebos or other products.
How much does privacy regulation cost? Does privacy legislation
impose onerous burdens on business, government and nonprofit
Some advocacy organisations suggest that any cost is too
much. Others, particularly those in the US seeking to
shape new legislation, claim that it will cost billions,
erode national competitiveness and destroy the new economy.
The answer is that there are few widely accepted studies.
Most research has concentrated on costs but ignored benefits
or dismissed the consumer concerns noted on the preceding
page of this guide. Many statistics are contentious; much
of the writing is essentially polemical.
We'll be assessing overall research in the near future.
In the interim this page points to particular studies
in the US.
a 17 billion infotax?
In 2001 the Online Privacy Alliance (OPA),
an advocacy group under the aegis of the US Direct Marketing
Association, released a package of reports asserting that
US privacy legislation would cost consumers billions of
The reports included Customer Benefits from Current
Information Sharing by Financial Services Companies
The Impact of Data Restrictions on Consumer Distance
and The Value of Comprehensive Credit Reports: Lessons
from the US Experience (PDF).
Restrictions on the corporate sale or sharing of customer
information without permission would supposedly cost 90
of the largest financial institutions US$17 billion a
year of added expenses, resulting in a US$1 billion 'information
tax' on consumers as costs are passed on through snailmail
catalogues and websites. Stronger privacy rules would
increase the risk of fraud and identity theft and restrict
available consumer credit.
Robert Hahn's 2001 An Assessment of the Costs of Proposed
Online Privacy Legislation (PDF)
for the Association for Competitive Technology (ACT)
forecast direct costs of US$36 billion. (As a frame of
reference we note estimates that the global market for
haircare products is worth over US$28 billion annually,
that US business spends around US$5 billion per year on
consumer market surveys that the North American direct
marketing sector turns over roughly US$600 billion each
The Hahn study claimed that US websites will have to around
US$100,000 each to comply with the legislation and concluded
that "further regulation of online privacy is premature",
because "the direct costs of compliance could be substantial,
benefits of such regulation have yet to be quantified
and the market continues to respond to consumer concerns
about online privacy". Privacy protection, it seems, verges
on being unpatriotic, since
economy is at a fragile juncture, and we're counting
on the information technology industry to pull us through.
In a market where cash and labor are scarce commodities,
shortsighted privacy regulations will lead to fewer
choices and higher prices for consumers.
figures were questioned
by experts such as Peter Swire
and Richard Smith of the Privacy Foundation (PF).
Smith for example pointedly queried why the study appeared
to have excluded business-to-consumer sites and criticised
much of the analysis.
DMA and its affiliates the Privacy Leadership Initiative
and Progress & Freedom Foundation (PFF)
released a 34 page report on The Impact of Data Restrictions
on Fundraising for Charitable & Nonprofit Institutions
and a report on The Hidden Costs of Privacy: The Potential
Economic Impact of 'Opt-In' Data Privacy Laws in California.
Those documents claim that "opt-in" legislation that restricts
organisations from sharing customer data without explicit
permission could cost US charities as much as US$16.5
billion each year. California-based charities would lose
over US$1.5 billion each year and the state's tax base
would "likely be reduced by $2.1 billion within several
years" - mortgage interest payments would be several
billion dollars higher and "employment in the construction
industry alone would be reduced by thousands of jobs as
new home sales were lost".
Consumer advocates such as Privacy Rights Clearinghouse
responded that the proposed Californian legislation -
and similar laws across the US - will
require companies to offer better incentives to customers
in exchange for permission to share their personal financial
data. The real difference here is that companies would
no longer be able to get this information for free.
US Citizens Against Government Waste (CAGW) 2001
Keeping Big Brother From Watching You study
argued that federal privacy legislation is unnecessary
and an impediment to economic growth, with
the cost of privacy laws - this time to the "online
business community" - put at a "devastating
$9 billion to $36 billion". CAGQ sniffed that
is ample evidence that the federal government is incapable
of sufficiently protecting the sensitive data it collects.
... The federal governments vast incompetence to secure
data puts it in an unsound position to legislate privacy
critique of several of the 'anti-privacy' studies is provided
by Robert Gellman's 2002 report
for EPIC on Privacy, Consumers, and Costs: How The
Lack of Privacy Costs Consumers and Why Business Studies
of Privacy Costs are Biased and Incomplete.
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