Real damage of cybercrime may be counted in job losses, not dollars, says CSIS report

Earlier estimates of “trillion-dollar” damage to the world economy may have overstated the financial impact of cybercrime, according to a report by the Center for Strategic and International Studies.

The report The Economic Impact of Cybercrime and Cyber Espionage, points instead to less quantifiable damage, including slowing innovation and job losses – with up to 500,000 skilled jobs in the U.S. lost to slowing exports.

An estimate of damages amounting to $1 trillion per year from cybercrime, quoted by NSA director Keith Alexander, was widely criticized earlier this month.

“Cybercrime and cyber espionage cost the global economy billions of dollars every year. The dollar amount, large as it is likely to be, may not fully reflect the damage to the global economy,” the report concluded.

“Cyber espionage and crime slows the pace of innovation, distorts trade, and brings with it the social costs associated with crime and job loss. This larger effect may be more important than any actual number and it is one we will focus on in our final report.”

The damage to exports caused by cybercrime could translate into up to 508,000 lost jobs in the U.S., the report concluded.

“This report connects malicious cyber activity with job loss,” said Dr James Lewis, director of CSIS. “Using figures from the Commerce Department on the ratio of exports to U.S. jobs, we arrived at a high-end estimate of 508,000 U.S. jobs potentially lost from cyber espionage. As with other estimates in the report, however, the raw numbers might tell just part of the story. If a good portion of these jobs were high-end manufacturing jobs that moved overseas because of intellectual property losses, the effect could be wide ranging.”

The researchers attempted to establish a reliable methodology for quantifying such damage – and warned that previous reports may have been distorted by poor methodology, including the use of survey data from small groups. Flawed analogies with other areas of crime, such as the global drug trade, may have distorted estimates further.

The researchers said that finding an analogy for the impact of cybercrime was difficult – both in terms of damage to consumers, and likely gain to cybercriminals. A second CSIS report will analyze the effects of cybersecurity losses on the broader economy.

“Previous estimates of the annual losses to businesses from cyber espionage show a startling variation, ranging from few billion dollars to hundreds of billions. The wide range of estimates reflects the difficulty of collecting data,” the researchers say.

“A rough guess? Losses to the US (the country where data is most accessible) may reach $100 billion annually. The cost of cybercrime and cyber espionage to the global economy is some multiple of this likely measured in hundreds of billions of dollars. To put this in perspective, the World Bank says that global GDP was about $70 trillion in 2011. A $300 billion loss – and losses are probably in this range – would be four tenths of one percent of global income,” the report concluded.

Author Rob Waugh, We Live Security

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