Top Silicon Valley execs have warned that the NSA's continued surveillance of innocent people will rupture the internet – which is bad news for business.

Oh, and bad news for hundreds of thousands of workers, and America's moral authority, too.

The suits were speaking at a roundtable organized by Senator Ron Wyden (D-OR) in Palo Alto, California, on Wednesday. Google's chairman Eric Schmidt and John Lilly, a partner at venerable VC firm Greylock Partners, were on the panel, along with Microsoft's general counsel Brad Smith and his counterpart at Facebook, Colin Stretch, and Dropbox, Ramsey Homsany.

"It is time to end the digital dragnet, which harms American liberty and the American economy without making the country safer. The US government should stop requiring American companies to participate in the suspicionless collection of their customers’ data, and begin the process of rebuilding trust both at home and abroad," said Senator Wyden.

"The United States – here in Silicon Valley, up in the Silicon Forest of the State of Oregon that I am so proud to represent, and in tech campuses and garage start-ups across the country – has the best technologies and the best ideas to drive high-tech innovation. It is policy malpractice to squander that capital for no clear security gain."

The assembled speakers echoed Wyden's sentiments, and agreed that unless the US government reined in its intelligence agencies, American business would suffer badly.

"The simplest outcome [of NSA spying] is that we end up breaking the internet," Google's Schmidt said.

"What's going to happen is that governments will bring in bad laws and say 'we want our own internet and we don’t want to work with others.' The cost of that is huge to knowledge and science, and has huge implications."

Schmidt said he had spent the summer in Germany talking to, among others, Chancellor Angela Merkel. She had told him of her youth growing up in East Germany and said that the knowledge that the NSA were listening to her calls to her mother reminded her of chilling Cold War surveillance.

What's terrifying the tech industry is the prospect of more laws like those enacted in Russia: the President Putin-led nation insists data on Russian citizens is stored solely on servers in the country.

US companies with large numbers of customers in overseas territories therefore would have to build data centers in each market, which would drastically drive up costs. Such policies therefore have the ability to balkanize internet traffic.

Homsany pointed out that 70 per cent of Dropbox's customers were overseas, and it would cost over a billion dollars to comply with such regulations for Western Europe alone. If such laws were enacted, it would destroy the ability of small startups to operate outside of US territory, he claimed.

Facebook's Colin Stretch added that having overseas data centers would cause massive privacy problems of their own: governments that don’t respect citizens' privacy would be within reach of large amounts of data.

Wyden said laws that control where information must be stored would undo decades of hard work in bringing down trade barriers and opening up freer markets. Governments could start enacting protectionist trade laws under the guise of safeguarding privacy and deterring spies.

No backdoor action for us, please

Wyden also wondered why cops and feds were outraged at the decision by Apple and Google to encrypt files on smartphones by default: the police already had all the powers they needed to monitor criminal activity, he said, and any backdoors in the software for official snoops to use could be exploited by criminals and hackers.

Schmidt said the government shouldn’t be surprised that his firm and others were gearing up their encryption. Google had started encrypting network traffic between its data centers, as had many other Silicon Valley firms, because they had found out from the Edward Snowden leaks that intelligence agencies were tapping their links.

Microsoft's Brad Smith said there were only two ways to protect privacy: better technology and stronger privacy legislation. America's data protection laws were 30 years old, he said, and almost any technology that was 30 years old was in a museum by now.

What is needed, he argued, is a law that ensures the full and transparent disclosure of what exactly can be accessed by cops and g-men. If people create something, irrespective of if it was held on their home PC or in a data center, then it was their property, he argued.

Until that was sorted out, in an open and forthright piece of legislation, then the rest of the world would continue to look on American companies and their government with suspicion, Smith said. That would lead to the loss of America's most powerful asset – trust.

"We need to remember that 96 per cent of the world's population lives outside the US," he said. "If we want a long term future for our technology industry we need to recognize that."

However, Wyden warned that legislation on the matter may not be forthcoming. It had been expected that the USA FREEDOM Act, which would curtail some of the NSA's snooping, is stuck in Congress and there's little sign that the Republicans and Democrats can get their act together and pass legislation quickly, he said.

The president's own review board had noted that mass surveillance by the NSA had achieved nothing in terms of stopping America's enemies, Wyden claimed, and yet the intelligence community was still fighting any attempts at reform.

The rest of the panel agreed that legislation was needed quickly, but there wasn't much hope, as far as they could see, at Congress putting aside party political division to do what was right for American businesses. Smith sounded pessimistic at the chances, but said the attempt had to be made. ®