FreedomWorks Foundation Content

Capitol Comment 184 – Three Simple Steps Toward a Sound Encryption Policy

Consumers have an economic interest in the widespread use of strong encryption. Unfortunately, under the current political environment, either Congress or the administration may implement dangerous restrictions on the development, sales and use of this technology. Liberty is at stake, both economic and civil.

Consumers provide confidential information every time they use grocery discount cards, credit and debit cards, automatic teller machines, or any of the burgeoning interactive Internet technologies. Once the information passes from the consumer to the business, additional transfers of the information may occur between the business branch and its main office, the various departments within the business, and between different businesses. Strong protection for consumer information relies on security at every point of the transaction and at every point where the data is stored.

Encryption products allow consumers to scramble access codes and other data; it is encryption that prevents unauthorized access to sensitive information. Every day banking and medical records, credit-related information, private one-to-one computer transmissions, and Internet browsing habits are vulnerable to unwanted and illegal trespassing. The freedom to buy, sell, manufacture, use and improve strong encryption products is the best protection for consumer privacy and the integrity of electronic commerce. As with any other good or service, competition will prompt innovation and quality in encryption technology.

A market uninhibited by costly government regulation can respond to consumer demands and provide products that protect consumers in their homes, in schools, in the workplace, and in the global marketplace.

The foundation of federal encryption policy should be consumer choice. Consumer choice increases security for personal data and electronic transmissions, and it provides the incentives that ultimately will create solutions for the concerns of law enforcement officials. Citizens for a Sound Economy Foundation would like federal encryption policy to take three steps toward increased consumer choice and consumer protection.

1. Liberalize export controls.
American companies are being kept out of the world market by regulations that restrict the export of encryption products. The day has long past when the only competitive products came from America. Secretary of Commerce William Daley estimates that by the end of 1997, there were 656 encryption products available from 29 different countries.1 A study by the Economic Strategy Institute notes that more than 470 foreign firms make encryption products.2 America should export encryption products and American innovation, not jobs and opportunities.

2. Take a common sense approach to privacy.
The Bill of Rights guarantees that individuals are protected from government infringement upon the right to secure their homes, papers and effects. Encryption technologies have emerged as the most commonly used method of securing information on a computer network. In addition to Constitutional protections for individual privacy, this technology is also good for consumers. Encryption permits buyers and sellers to verify and authenticate a transaction over the Internet. Finally, vital personal information resides on countless computer and database systems – its security depends on widespread use of strong encryption.

3. Reject mandatory key-escrow or key-recovery systems.
The Department of Justice is pursuing a path of increased controls on domestic use and manufacture of encryption products. Dating to the Bush administration’s Clipper Chip initiative and living on through a variety of proposals by the Clinton administration, the government has sought to control domestic use of encryption. Mandatory key escrow, key recovery, trusted third party or key management systems are bad policy and should be abandoned. Any government policy that would mandate duplicate keys that allow third party or government access to private consumer transactions creates a vulnerability in the encryption product while creating a situation ripe for abuse.

The domestic market for encryption products exceeds $1 billion.3 The effect of encryption policy on the economy is not, however, limited to sales. The Economic Strategy Institute estimates that the current federal encryption policy will cost consumers between $2.8 billion and $9.8 billion in 1999.4 Competition, not government coercion, is the path that will insure consumer protection of both economic and civil rights.

1Daley, William M., Remarks upon the release of “The Emerging Digital Economy,” April 15, 1998. Found at

2Olbeter, Erik R. and Hamilton, Christopher, “Finding the Key: Reconciling National and Economic Security Interests in Cryptography Policy, Executive Summary” Economic Strategy Institute, p. 2, April 1998.

3Matlick, Justin, “U.S. Encryption Policy: A Free Market Primer,” Pacific Research Institute, p. 1, April 1998.

4Olbeter and Hamilton, p. 4.