The market loves to reward corporations for risk-taking when those risks are largely borne by other parties, like taxpayers. This is known as “privatizing profits and socializing losses.” Standard examples include companies that are deemed “too big to fail,” which means that society as a whole pays for their bad luck or poor business decisions. When national security is compromised by high-flying technology companies that fob off cybersecurity risks onto their customers, something similar is at work.
Similar misaligned incentives affect your everyday cybersecurity, too. Your smartphone is vulnerable to something called SIM-swap fraud because phone companies want to make it easy for you to frequently get a new phone — and they know that the cost of fraud is largely borne by customers. Data brokers and credit bureaus that collect, use, and sell your personal data don’t spend a lot of money securing it because it’s your problem if someone hacks them and steals it. Social media companies too easily let hate speech and misinformation flourish on their platforms because it’s expensive and complicated to remove it, and they don’t suffer the immediate costs – indeed, they tend to profit from user engagement regardless of its nature.
In today’s underregulated markets, it’s just too easy for software companies like SolarWinds to save money by skimping on security and to hope for the best. That’s a rational decision in today’s free-market world, and the only way to change that is to change the economic incentives.
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