How Foreign Backlash Against NSA Spying Hurts US Firms

Spying has been going on centuries — but as foreign outrage against the NSA’s activities in Europe, Mexico, and Brazil shows, we’d rather not hear about it. Apart from Edward Snowden and his media allies, no one knows if there are more revelations to come — and whether the backlash against US interests will grow.

The reaction of America’s corporate leaders will show whether their mindsets are as global as their companies’ operations. The knee-jerk patriotic reaction of some CEOs — and the resort to cynicism by others — reveals that enough are close to failing this test. Assuming US national security policy doesn’t change, US corporate strategies at home and abroad will have to adjust to the foreign backlash.

It’s not hard to succumb to cynicism about European outrage. The NSA’s director has more than implied that Europe’s spy agencies themselves provided his organization with data, Meanwhile, nations of people more than willing to post revealing information about themselves on Facebook suddenly object to “American” intrusions into their privacy. Furthermore, it looks like newspapers in France and Spain have exaggerated the scale of the NSA’s activities. And, for ten years or more, haven’t Europeans been carping about this or that American policy? Isn’t this just more European political theater?

These responses are wrong. There’s more at stake here, on the surface and deeper. According to the latest annual data from the US Department of Commerce, the affiliates of American firms sold $2.5 trillion worth of goods in the European Union. The profits on those sales exceeded $550 billion, which is more than three times the total profits made by US affiliates in the three billion person-plus markets of the Asia Pacific. Europe may be slow growing, far too regulated, and irritating but it still contributes hugely to the bottom line.

The fallout from the NSA scandal is already starting to crimp US corporate expansion plans in Europe. Analysts had expected AT&T to acquire Vodafone Group, whose cell phone operations cover many EU states. Accusations that AT&T gives the NSA data on customers’ telephone calls is raising red flags in those European countries, like Germany, where privacy is taken seriously. Regulators and legislators are already making noises about this deal. If AT&T does go ahead–and even if it prevails and acquires Vodafone — there will be strings attached and much more oversight from European government agencies. Potential regulatory risk has suddenly soared for AT&T.

For many foreign companies and governments, there is a certain justice in AT&T paying a price for its links to the US government. After all, it was Huawei’s apparent links to the Chinese military that so enraged one US Congressional committee that they recommended that no US public agency or firm should buy Huawei’s telecoms equipment. That effectively shut Huawei out of the US market.

Many US firms work with the US government in sensitive areas and want to do business abroad — a point not lost on those American trading partners that have nationalistic industrial policies. The price of fat US government contracts, burnishing patriotic credentials in Washington DC, and cooperation with the US security apparatus has just gone up markedly for American firms. Is being seen to be American firm becoming a huge liability abroad, just like being a state-backed Chinese firm?

In addition, US business wants the ongoing EU-US trade talks to streamline regulations on the other side of the Atlantic. The NSA scandal has given those regulators seeking to protect their turf another excuse to resist change. No one knows what revelations about US firms and their relationship to its government will come next, so regulators will claim that they must preserve their discretionary powers to protect European citizens. A tough trade negotiation just got tougher.

Given that so many firms keep data on their customers, ostensibly to serve them better, there is a risk that any eventual EU-US trade deal will involve provisions on data storage and transfer that fragment markets further on national lines and raise the cost of operating globally. Some have even argued that the US-written rules governing the internet could be rewritten. Finally, there is the risk that the European Parliament might throw out any trade deal with the US, just like they did a major anti-counterfeiting treaty in which US firms had a large stake. Political insanity is not the exclusive preserve of Capitol Hill.

Forward-looking US CEOs with big global ambitions must ask themselves whether the current blend of knee-jerk nationalism, aggressive US security policies, and us-versus-them corporate strategy — which often links American firms at the hip with Washington D.C. — is really in their interests. Full disengagement from Washington DC isn’t plausible; but is being seen as an extension of a troubled hegemon desirable?

Spying, terrorist threats, and whistle blowers aren’t going away. After all, the reaction of the French Trade Minister wasn’t to condemn the NSA but to say that Paris should ramp up its espionage efforts. Isn’t doing business at home and abroad hard enough without taking on the risks that come with mixing profits with nationalism? At times like these, CEOs of truly global companies should be credible brokers urging calmer heads to prevail — and their credibility rests partly on not being too close to any government.

This entry was posted in Leadership. Bookmark the permalink.

Comments are closed.