U.S. Is Putting Y2K Behind It, Commerce Dept. Says
The U.S. economy has already absorbed most of the costs connected with the 2000 problem--a staggering $114 billion--and the future effect may be positive as resources are shifted from computer repairs to more productive uses, federal officials said Wednesday.
“The greatest cost to our economy is behind us,” said Commerce Secretary Bill Daley, releasing the agency’s assessment of the economic effect of the Y2K phenomenon. “We should not lose any sleep worrying about Jan. 1.”
Commerce Department officials flatly rejected previous forecasts of a possible Y2K-induced recession caused by computer-related breakdowns, such as power outages or shipping disruptions, either at home or abroad.
“Not only will they not be great enough to drag down the U.S. economy, they won’t be great enough to slow the U.S. economy,” predicted Commerce Undersecretary Robert Shapiro.
From the 1950s through the early 1990s, computer hardware and software used only two digits to identify years. If not modified, many computers could confuse the arrival of the year 2000 with 1900, causing them to malfunction.
To avert widespread breakdowns, government agencies and private business will have spent an estimated $114 billion between 1995 and 2001--peaking at $32 billion in 1998 and $29 billion in 1999--to fix the Y2K glitch. The federal government alone is expected to spend $10 billion on Y2K repairs.
The Commerce Department report says the colossal effort will largely prevent the kind of catastrophic disruptions that, when initially predicted, caused considerable public anxiety.
Over the last few years, the massive Y2K spending has diverted resources from other potential uses, including productivity-enhancing investments. “Lifting the Y2K repair burden should free resources that can be used in ways that will raise productivity,” the report states.
During a press briefing, Daley cited another potentially positive effect on the economy. Because of the Y2K remediation process, many firms brought their computer systems up to date, which could increase efficiency and heighten productivity over the long term.
“It forced us all to look at our systems, find ways to better manage our systems and update them,” Daley said. “I think the dividend will be real.”
Some private sector economists suggested that the government’s analysis is a little too rosy.
“I don’t think we’re in the clear yet,” said Sung Won Sohn, chief economist for Minneapolis-based Wells Fargo & Co.
Sohn said he fears that companies will scale back their capital expenditures, especially in the first quarter of 2000, to compensate for Y2K spending. He also worries that Y2K problems in other countries could hinder imports and hurt the U.S. companies that rely on them, and computer malfunctions could disrupt the flow of money between the United States and its trading partners.
He predicted that economic growth during the first quarter will be 1 percentage point lower, on an annual basis, than it would be without Y2K.
The Commerce Department report, in contrast, is fundamentally positive. It discounts, and in some cases refutes, several of the Y2K economic disaster scenarios that have created concern in recent years:
* Surveys indicate a majority of major firms already have experienced minor Y2K-related failures, but the problems were temporary and fixable, calling into question forecasts of cascading crises around the globe on Jan. 1. “There will be a spike in failures at the turn of the year, but it may not be as large or as significant as commonly expected,” the report says.
* Y2K-related troubles in other countries will not have a significant effect on the U.S. economy because the nation’s largest trading partners--Canada, Mexico, Europe and Japan--appear to be well prepared for the new year. U.S. firms that rely on imports have taken pains to ensure their foreign partners are ready for Y2K, or to stock up on extra goods.
* Opinion polls show that public concern about the 2000 problem is declining, casting doubt on predictions that widespread panic would incite hoarding of money and goods.
* There are no signs of significant business stockpiling in the second half of this year, which could disrupt the just-in-time inventory practices that have contributed to the economic successes of recent years. “So far, no evidence of Y2K inventory buildup has appeared in the statistics,” the report says.
Commerce officials said their optimistic assessment does not mean the 2000 problem is a hoax. “This was not an imaginary situation. It was a real problem that had to be corrected, and government and the private sector did,” Daley said.
Companies with the greatest vulnerability--those that rely on computers for their basic operations--did the most to lessen their risk and are considered the best prepared. They include the industries responsible for the nation’s critical network of goods and services: energy, finance, telecommunications and transportation.
Small businesses, smaller health care facilities and schools responded later and less aggressively, because their risks were smaller, the Commerce report says.
Even though Commerce officials expressed considerable confidence in their assessment, they conceded that the Y2K phenomenon still is uncharted territory and surprises could still occur.
