How Can Privacy be Protected in the New Digital Age?

New privacy articles in Canadian Student Review             Back to NCPA Debate Home Page

How Can Privacy be Protected in the New Digital Age? The September/October 2000 issue of the Fraser Institute's newsletter, The Canadian Student Review, includes two valuable articles on privacy. The Fraser Institute is Canada's leading market-oriented think tank and has published policy studies on a wide variety of economic topics. Both articles are available in the online version of the newsletter on the Fraser Institute web site Below is an excerpt from the first article, follow link at the bottom for the full version: How Can Privacy be Protected in the New Digital Age? by Dorian Hajno, BA Economics and Political Science, Simon Fraser University At first sight, this question might seem rhetorical. Indeed, how is it possible to protect privacy when there are 300 million publicly-accessible pages on the Internet, its use is doubling every 100 days, as of March 2000 there were over 324 million Internet users, and the Bankers Roundtable study estimated traceable electronic based payments of $450 trillion per year, and cash payments of only $2.7 trillion! This has led many to believe that privacy is doomed for those of us that want to take advantage of the digital revolution. However, instead of concluding the argument here, we can use the tools of economics and common sense to tackle the question at hand. First, let's see why we want to protect privacy. Normative social sciences claim that privacy is a right that should be fully protected by the government at any cost. However, this approach does not provide an answer when privacy is at odds with other government services, such as national security. A more dynamic perspective is one that recognizes privacy as a good or service with a specific value. This viewpoint allows us to extrapolate that the cost of regulations for protecting privacy should be equal to the value of privacy that they are providing, at the margin. At the same time, privacy holds value relative to other goods and services, and therefore this value can be determined in the free market. One might think that all we have to do is determine how much privacy we want, and force everyone to respect it. But our decision on how to protect privacy is intertemporal, in the sense that current decisions also affect the choices available in the future. Too high costs can diminish our future well-being and our ability to protect privacy. As an example, suppose that we find the level of privacy that each of us would ideally want to have, and the cost of forcing everyone to comply with it is 200 percent of GDP. Should we regulate the protection of privacy? This sort of inquiry is not a trivial exercise in dispensing hypothetical situations, but rather a way to help understand that we cannot afford to protect privacy simply through regulations. So what should we do? To explore this, imagine that privacy is like a river. Its breadth depends on the position of its two banks. One side is determined by the economic costs of governmental regulations about privacy. The higher are these costs, the less the privacy we should obtain. The second bank reflects the level of privacy supplied in the free market, which clearly increases our overall level of privacy. More formally, this method is based on the Simpson-Paradox1, referring to a tri-variate statistical problem in which a contingency between two variables, x and y, can be accounted for by a third variable, z. ...