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Silicon Valley’s Spy Problem

DAVIS, CALIFORNIA – In a recent letter to US President Barack Obama, the CEO of Cisco Systems, John Chambers, requested that the National Security Agency stop intercepting the company’s products to install devices for spying on foreign customers. This is the latest in a series of revelations of how US information-technology firms have been enlisted, knowingly or otherwise, in the “war on terror” – revelations that are threatening the American IT sector’s global dominance.

Since the scale of the NSA’s Internet eavesdropping came to light, governments and large companies outside of the United States are questioning the capacity of American IT firms to guarantee their products’ security. America’s central position in the world’s information economy, which seemed secure just two years ago, is now under threat – a fact that should raise serious concerns for every entrepreneur, executive, employee, and venture capitalist in the American industry.

There is more than a little irony in this turn of events. America’s global IT leadership, after all, can be traced directly to its national security apparatus. Following World War II, and especially after the Soviet Union’s launch of the Sputnik satellite in 1957, the US made massive investments in electrical engineering and, later, computer science.

Cost-plus contracting allowed what were then small technology firms like Hewlett-Packard and Fairchild Semiconductor to charge the Department of Defense for the price of research and development that none could pay on its own. This enabled the firms to create technology products that eventually created entire new markets and economic sectors.