Data sovereignty: the hidden economic trade-offs

Data sovereignty – the principle that individual countries can regulate the storage of data within their borders – has become an important political issue. The European Union, United States, India and many other jurisdictions work to [subscription required] extensive legal frameworks that strictly govern how data is collected, stored and distributed across borders.

Much of this debate has been viewed through a political and philosophical lens, framed as an individual struggle privacy versus technological innovation, or a power struggle between big technology and national governments.

While these are key elements of the data sovereignty debate, they obscure another part of the debate that we don’t see much discussed: the economic tradeoffs that arise from these laws. Beneath the lofty statements about protecting the privacy of citizens’ data are some stubborn nationalist economic considerations. Policy makers and industry players need to understand the true costs and benefits of data sovereignty laws, both political and economic.

The benefits: more jobs and investment

When implemented, data sovereignty laws will require users to expressly consent to the transfer of their data to another jurisdiction. For large organizations and enterprises, this means that it may be illegal to move their customer data to the country where it was collected. For example, data sovereignty laws can force organizations to store data locally, even if it costs more. Storing a lot of data in different countries may not only be more expensive, but it can also become significantly more complicated data analysis and normal business processes.

Essentially, organizations should invest in local data storage rather than take advantage of less expensive storage that may be available beyond their borders. For example, a company in India may not be allowed to store its data in England and a company in Brazil may not be allowed to store certain data in the US. any country where it intends to market its services.

While one could discuss the benefits of protecting the privacy of citizens’ data by banning its storage abroad, there is no discussion of the economic benefits of forcing suppliers to build local data centers to comply with the data sovereignty laws. These laws promote an influx of capital investment, local job creation and increased demand for local suppliers of goods and services.

In fact, data sovereignty laws have the effect of reducing demand for: data centers within national markets. Where an organization in London was previously able to store data in cheap locations such as Amsterdam, it now has to purchase computing and storage space in a local data center.

While this requirement for local data storage leads to increased demand for materials, parts and workers to build and install data centers, and permanent jobs for people to operate these data centers, running a data center in London is arguably more expensive than running one. a data center in London. Amsterdam. The extra costs can be a drag on profits and ultimately have to be passed on to the consumer.

Nevertheless, at first glance, data sovereignty may seem like a very positive story: countries are creating more jobs and increasing their tax base, while also strengthening their own tech ecosystems and encouraging further growth and innovation.

The cons: Higher costs for customers

Unit economics favors larger scale: it is cheaper to run one large data center than to run ten small data centers. And the cost of running a data center in one country can be very different from the cost of running a data center in a neighboring country. The migration of data storage to the cloud has reduced the costs of storage and compute use precisely because companies have been able to centralize storage and processing power in efficient, low-cost locations and take advantage of economies of scale in maintenance, personnel costs and procurement.

For example, the electricity costs in Germany are about € 24 per kWh, while the costs in the neighboring Netherlands are only half as high. By forcing German organizations to store their data in Germany, customers may end up paying more and not realizing any significant benefits in terms of security or performance, as data protection laws in the Netherlands are similar to those in Germany.

Instead of a few large data centers worldwide, operators are now forced to build many smaller data centers. So consumers of data storage end up paying more, which negates at least some of the economic benefits of capital inflows and job creation.

There is also a notable environmental corner with data sovereignty laws. The best place to put a data center is a cold place with access to cheap energy, such as Iceland or Scandinavia. If you can cool a data center by simply bringing in cold fresh air from outside instead of running huge air conditioning units in a warm climate, data centers can have a much lower impact on the environment. And given the abundant amounts of energy used by data centers, the environmental impact of data sovereignty laws is likely to be seen as a more serious issue in the coming years.

Evaluating data sovereignty

It is a fundamental duty for organizations, and those who provide them with cloud services, to ensure that end-user data is handled properly and securely. If a jurisdiction’s data sovereignty laws are the standard customers expect for proper and secure handling, then that’s something customers should expect without hesitation. This is not only good ethics, but also good business sense – ultimately organizations must adhere to these laws because they represent the law and requirements for doing business in their area.

But when it comes to evaluating the impact of many different national data sovereignty laws with varying degrees of rigor, we must remember that these laws have a knock-on effect. While much of the data sovereignty debate has been framed in terms of principles and theory, we must keep in mind that these laws can have a substantial impact on people’s livelihoods, and it’s critical for responsible policy makers to keep this in mind. when debating and deciding on these laws.

As the CEO of a cloud storage provider, I want to provide our customers with cloud storage in the most cost-effective way. Data sovereignty laws complicate our mission by requiring that we build many small data centers instead of a few large data centers. But I also understand why someone who wants to create jobs and grow their country’s tech ecosystem can consider data sovereignty a boon.

Ultimately, it is the job of policy makers to weigh up these conflicting interests and decide which course of action is best in principle and in the public interest.

David Friend is the co-founder and CEO of Wasabi.