Policymakers and industry participants need to understand the full costs and advantages 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, the United States, India, and many other nations strive toward comprehensive legal frameworks that strictly regulate data collection, storage, and cross-border distribution.

A large portion of this discussion has been presented through a political and philosophical lens as a conflict between big tech and national governments or a struggle between personal privacy and technical advancement.

While these are the significant issues in the argument over data sovereignty, they also obscure a topic rarely covered: the trade-offs these laws cause in the economy. Underneath the lofty declarations that the privacy of citizens’ data will be protected, some ruthless nationalistic economic motives exist. Policy policymakers and industry participants need to understand the full costs and advantages of data sovereignty laws, both politically and economically.

The pros: More jobs and investment

To be put into effect, data sovereignty regulations will require users to expressly agree to have their data transferred to another country. This implies that it might be unlawful for large businesses and organizations to share customer data outside the nation where it was initially obtained. Therefore, even though it could be more expensive to store data locally, data sovereignty regulations may oblige enterprises to do so. Not only would it be costlier to store data in multiple locations, but it might also make data analysis and routine business operations much more difficult.

In essence, businesses should spend money on local data storage rather than relying on less expensive storage offered elsewhere. While preventing other countries from storing citizen data to safeguard citizens’ privacy may be debatable, there is no disputing the economic advantages of requiring vendors to construct local data centers to adhere to data sovereignty rules. These regulations encourage local job creation, capital investment, and demand for goods and services from local suppliers.

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

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The cons: Higher costs for customers

Unit economics favor larger sizes, i.e., operating one huge data center is less expensive than operating a dozen small ones. Additionally, the cost of operating a data center in one nation may differ substantially from that of another. Because businesses have been able to centralize storage and processing capacity into practical, affordable places and benefit from economies of scale in maintenance, staffing expenses, and procurement, the transfer of data storage to the cloud has driven down the cost of storage and computation. Operators are now required to establish numerous smaller data centers rather than a few important data centers spread out over the globe. As a result, data storage users pay more, which at least partially offsets the positive economic effects of capital inflow and job growth.

Evaluating data sovereignty

Organizations and those who offer them cloud services are responsible for guaranteeing the proper and secure handling of end users’ data. Customers should be able to expect this right away if a jurisdiction’s data sovereignty laws are the benchmark for proper and secure data management. Ultimately, businesses must abide by these laws since they stand in for the rules and regulations for conducting business in their regions. This is not only good ethics but also prudent business practice.

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