The economic impact of cybercrime and cyber espionage

22 July 2013

Introduction

Is cybercrime, cyber espionage, and other malicious cyber activities what some call “the greatest transfer of wealth in human history,” or is it what others say is a “rounding error in a fourteen trillion dollar economy?”

The wide range of existing estimates of the annual loss—from a few billion dollars to hundreds of billions—reflects several difficulties. Companies conceal their losses and some are not aware of what has been taken. Intellectual property is hard to value. Some estimates relied on surveys, which provide very imprecise results unless carefully constructed. One common problem with cybersecurity surveys is that those who answer the questions “self-select,” introducing a possible source of distortion into the results. Given the data collection problems, loss estimates are based on assumptions about scale and effect— change the assumption and you get very different results. These problems leave many estimates open to question.

The Components of Malicious Cyber Activity

In this initial report we start by asking what we should count in estimating losses from cybercrime and cyber espionage. We can break malicious cyber activity into six parts:

  • The loss of intellectual property and business confidential information
  • Cybercrime, which costs the world hundreds of millions of dollars every year
  • The loss of sensitive business information, including possible stock market manipulation
  • Opportunity costs, including service and employment disruptions, and reduced trust for online activities
  • The additional cost of securing networks, insurance, and recovery from cyber attacks
  • Reputational damage to the hacked company

Put these together and the cost of cybercrime and cyber espionage to the global economy is probably measured in the hundreds of billions of dollars. To put this in perspective, the World Bank says that global GDP was about $70 trillion in 2011. A $400 billion loss—the high end of the range of probable costs—would be a fraction of a percent of global income. But this begs several important questions about the full benefit to the acquirers and the damage to the victims from the cumulative effect of cybercrime and cyber espionage.

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Suggested Citation

James Andrew Lewis, Stewart Baker, 2013, The economic impact of cybercrime and cyber espionage, Center for Strategic and International Studies, viewed 27 April 2017, <http://apo.org.au/node/35084>.

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