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The Countdown Continues
A continuing analysis of the potential effects of the Year 2000 issue
As the clock ticks inexorably toward January 1, 2000, America's businessmen and women are realizing that the major Year 2000 (Y2K) issue they now face is not one of awareness, but rather one of preparedness. In general, most folks who have a major stake in any business that relies on computers (Can you think of many that don't?) are aware of the fact that computer programmers and chip manufacturers have always, and until remarkably recently, programmed their software, operating systems, and various devices to use only two digits to designate the year component of dates. That means that many computer and/or chip-driven systems could go totally haywire as we roll into the new millennium.
Of course, knowing about a problem and doing something about it are two totally different things. There is a movement afoot in the business world, especially in finance and banking, to make a concrete effort to ascertain just how ready we are with real solutions to the problem. An international group of major banking institutions, calling themselves the Global 2000 Coordinating Group, has banded together to create and disseminate a set of guidelines for addressing the Y2K problem. In addition to considering financial applications such as foreign currency and commodity exchanges, cash-payment systems, bond futures, and securities clearance, the group will also attempt to assess the level of preparedness of utilities and transportation industries, which are vital links in the global economic infrastructure. With the clout of powerful entities such as Citicorp, Barclay's, Bank of Tokyo, and Deutsche Bank behind the group, and the willingness of national and international banking regulators to support and disseminate the guidelines, the Global 2000 Coordinating Group will hopefully make serious headway in identifying and correcting Y2K noncompliance in key economic sectors.
Today's global economy calls for a strong international effort lest the weakest links in the chain of international commerce prove the undoing of all the rest. While the U.S. is nowhere close to ensuring Y2K compliance by the year 2000, especially in the government sector, the situation is much more dire in other parts of the world. At most severe risk are the former Eastern Bloc countries and parts of Asia. Once the Iron Curtain fell, qualified computer scientists and programmers began emigrating to the West in droves, leaving a shortage of knowledgeable professionals to deal with a massive task. And in Asia, confusion over the vulnerability of operating systems programmed to traditional cultural calendars has led to an almost complete lack of decisive action. Western Europe, however, is not in much better shape. In Germany, for instance, only eight percent of all companies have developed a plan for dealing with the year 2000, as opposed to about 80 percent of U.S. firms.
How serious are the ramifications of noncompliance in international manufacturing, service, and financial sectors? Edward Yardeni, chief economist and managing director of Deutsche Morgan Grenfell, was recently quoted in the Wall Street Journal thusly: "The likely recession could be at least as bad as the one during 1973-74, which was caused mostly by a disruption in the supply of oil. Information, stored and manipulated by computers, is as vital as oil for running modern economies. If information is harder to obtain, markets will allocate and use resources inefficiently. Market participants will be forced to spend more time and money obtaining information that was previously available at little or no cost... Furthermore, a 2000 recession is bound to be deflationary. The U.S. may experience a $1 trillion drop in nominal GDP and a $1 trillion loss in stock market capitalization."
Next month: one more Y2K column -- how's our government doing?