Data Sovereignty: Key Considerations and Hidden Economic Tradeoffs

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Data Sovereignty: Key Considerations and Hidden Economic Tradeoffs

Policymakers and industry players need to understand all the costs and benefits of data sovereignty laws, both politically and economically.

Data, the idea that individual nations can control how their citizens’ personal information is stored, has become a serious political issue. The European Union, United States, India, and many other countries are striving to put in place comprehensive legal frameworks that strictly regulate cross-border data collection, storage, and distribution.

Much of this discussion has been framed through a political and philosophical lens such as a clash between big tech and national governments or a struggle between privacy and technical progress.

While these are the important issues in the data sovereignty argument, they also obscure a rarely discussed topic: the trade-offs these laws cause in the economy. Behind lofty claims that the privacy of citizens’ data will be protected, there are ruthless nationalist economic motives. Policymakers and industry players need to understand all the costs and benefits of data sovereignty laws, both politically and economically.

The benefits: more jobs and investments

To be implemented, data sovereignty regulations will require users to expressly consent to their data being transferred to another country. This implies that it could be illegal for large companies and organizations to share customer data outside of the country where it was originally obtained. Therefore, while it may be more expensive to store data locally, data sovereignty regulations may require companies to do so. Not only would it be more expensive to store data in multiple locations, but it could also make data analysis and routine business operations much more difficult.

Essentially, businesses should spend money on local data storage rather than relying on less expensive storage offered elsewhere. While preventing other countries from storing citizens’ data to protect citizens’ privacy may be debatable, it is undeniable that the economic benefits of requiring providers to build local data centers to comply with the rules of data sovereignty are undeniable. These regulations encourage the creation of local jobs, capital investment and demand for goods and services from local suppliers.

Data sovereignty regulations increase the demand for data centers in individual national markets. At first glance, data sovereignty appears to be a very positive development, with countries strengthening their tech ecosystems, creating more jobs, broadening their tax bases, and fostering innovation and growth.

Read also : Strategies for business leaders to strengthen their data management strategies

Cons: higher costs for customers

Unit economics favor large sizes, i.e. running a huge data center is less expensive than running a dozen small ones. Additionally, the cost of operating a data center in one country can differ significantly from another. Because businesses have been able to centralize storage and processing capacity in convenient, affordable locations and benefit from economies of scale in maintenance, staffing costs, and procurement, moving data storage to the cloud has lowered storage and compute costs. Operators are now required to establish many smaller data centers rather than a few large data centers spread around the world. As a result, data storage users pay more, which at least partially offsets the positive economic effects of capital inflows and job growth.

Assess data sovereignty

Organizations and those who provide cloud services to them are responsible for ensuring the correct and secure handling of end-user data. Customers should expect this immediately if a jurisdiction’s data sovereignty laws are the benchmark for proper and secure data handling. Ultimately, companies must abide by these laws as they supersede the rules and regulations governing the conduct of business in their regions. This is not only good ethics, but also prudent business practice.

It is the responsibility of policy makers to assess these conflicting interests and choose the course of action that is optimal on principle and for the general good.

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