Productivity

Technology's Millennium Bug

Many analysts are issuing dire warnings concerning the effects of the year 2000 computer glitch. They say systems ranging from air traffic control to nuclear power plant operations, financial systems, government payouts and even the rate of inflation will be affected as computer systems built for 20th century needs fail under the challenge.

Most experts believe U.S. businesses aren't prepared -- much less federal and state governments. The situation is even worse in Europe and Asia -- one trying to come to grips with the Euro and the other trying to combat economic upheaval.

  • According to an analysis prepared by Standard & Poor's DRI, the U.S. economic growth rate in 1999 will be 0.3 percentage points lower as companies divert resources to fix their computer systems.

  • Another half of a percentage point of growth could be lost in 2000 and early 2001.

  • All told, the 2000 bug could cost the U.S. about $119 billion in lost economic output between now and 2001.

  • The need to divert resources from productivity-enhancing projects to patching old programs could require over 700,000 person-years and start pushing up inflation beginning next year.

A December 1997 survey by Hunter College computer expert Howard Rubin found that two out of three large companies did not yet have detailed plans in place to combat the problem. Genzyme Corp.'s Robert Cowie believes changes to systems must be completed by the end of this year, "or it will be too late."

Deutsche Morgan Grenfell's chief economist, Edward Yardeni, sees a 40 percent chance of a sharp economic downturn -- possibly triggered by a major failure of the government's computer systems.

Source: Michael J. Mandel, Peter Coy, Paul C. Judge, "Zap! How the Year 2000 Bug Will Hurt the Economy," Business Week, March 2, 1998.

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