The Year-2000 Software Problem: An Economic Perspective

Jeff Gainer

(Authorís note: This article was originally published in the Missoula, Montana Missoulian.)

12 November, 1997

Recently, the popular news media has begun to focus on the Year-2000 software problem. In brief, the Year-2000 software problem (known in the computer industry as "Y2K") stems from the widespread practice of using calendar year dates in a two-digit form. The effect will be that numerous computer systems, old and new, large and small, will not work properly after December 31st, 1999. Unfortunately, most of the media attention does not discuss the potential economic consequences of the Y2K problem. Even if your own organizationís computer systems are fully Y2K compliant, it wonít matter much if your customers, vendors and suppliers are not Y2K compliant. And even if you do not own or use a computer in your business, the Y2K problem will almost certainly affect your life and livelihood.

Usually, the popular media portrays catastrophic Y2K scenarios. The truth is, it is not likely that elevators will plummet to the basement or that airplanes will fall from the sky at the stroke of midnight on Dec. 31st, 1999. What will likely happen will be less dramatic, but more insidious, and the economic consequences may be serious, if not catastrophic. "The year 2000 problem is a serious threat to the global economy," says Wall Street economist Edward Yardeni. Earlier this year, he predicted there was at least a 35% probability that Y2K software bugs could provoke ". . . at least a mild recession." In a speech on November 10th, Yardeni said that he now regards the risk of a Y2K-induced recession to be 100%.

The worldwide stock market gyrations of late October brought home the realization that we do indeed exist in a fragilely balanced global economy. Earlier this year we received a more prosaic example in the economic disruption of the mercifully brief UPS strike.

Ed Yourdon warns of a Y2K "ripple effect." Yourdon, the chairman of the Cutter Consortium, a Y2K advisory service, predicts that seemingly small service disruptions in one business sector will increase in seriousness as they "ripple" to other sectors. For example, if, due to Y2K software problems, one of your companyís suppliers is unable to provide material, or your customers are unable to pay receivables, your business will inevitabley suffer. It will be more difficult or impossible for you to provide products and services to your customers, who, in turn, will further suffer, as the original cause ripples though the economic pond.

You may experience a personal "ripple effect" in your local supermarket. If a food producer experiences delivery problems or delays, the store might not have, say, milk or certain fresh produce. You can live with that, right? But what if a national transport company encounters a shutdown due to Y2K bugs? Gasoline, food, or raw material deliveries could be interrupted or impaired . . . think about the ripple effect that scenario might create.

Capers Jones, chairman of the Software Productivity Institute, has estimated that correcting the Y2K bug will cost at least 297 billion US dollars and require at least 9.3 million programmer-months of work. Others in the field regard this estimate as optimistically low; some experts estimate the cost to be as high as 600 billion dollars. Unfortunately, there are now over 190,000 information systems positions in the United States alone with no one to fill them. As simply fixing all the existing bugs in time is clearly impossible, the solution is to fix only those systems which are absolutely critical to continuing to do business. Even with this approach, many organizations are already falling behind schedule. Some of the worst prepared organizations are part of the U.S. government, including the Departments of Energy and Transportation, the IRS, and ironically, the Federal Emergency Management Agency.

Beyond insuring your organizationís Y2K compliance, what can you do to protect your company, your employees, and your family from a Y2K-spawned economic crisis? Unfortunately, not much. But you can be prepared to weather a business slowdown or temporary interruption of communications, supplies, or electrical service. The Y2K crisis is very real, yet the magnitude of its effect is unknown. It may only cause a minor hiccup on the Dow; it may cause a long-term recession, even a depression. Although we canít accurately predict the ultimate effects, at least we know when to be prepared. As Y2K expert Peter de Jager said in concluding his testimony to the Congressional Science Committee, "I wish us luck, weíre going to need it."

Please send any comments to Jeff Gainer.


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Copyright © 1997 by Jeff Gainer. All rights reserved.