Y2K Pains Could Prove to Be Economy’s Gain
Anxieties over computer chaos at the shift to a new century have overshadowed a profound irony: A tidal wave of investment by corporate America to prevent a possible high-tech disaster could spark a more powerful U.S. economy for years to come.
“Y2K turns out to be a net plus for the U.S. economy--in fact, a large net plus,” declared Lawrence A. Kudlow, chief economist with the Schroder & Co. investment bank in New York. “It will really increase the global lead of American business in terms of being cutting-edge. We had a lead, but this is really going to enhance it.”
On Sunday, it was clear that the worst nightmares of computer paralysis have not come to pass. Disruptions could still crop up in the coming weeks, experts caution, with some potential to undermine economic growth in the United States and overseas.
But looking to the future, some analysts have begun to focus on a less dramatic yet potentially much more important legacy of the high-tech anxiety attack known as Y2K: Jitters about computer disruptions prompted a cross-section of American industry--from financial firms to factories, chemical producers to construction companies--to leap into the 21st century of technology.
Rather than make limited fixes to handle the concerns, many companies opened their checkbooks and replaced aging computer systems with sleek, modern ones. In the process, they gained the potential to perform an array of tasks that were out of their reach before, from sophisticated use of the Internet to much speedier processing of orders and bills. They tossed out a hodgepodge of obsolete computer networks, dumped extraneous e-mail systems and embraced swifter, coordinated computer programs that free up time and effort that was previously wasted.
Long after people forget about Y2K and its short-term economic effects, some analysts say, the American economy will continue to benefit from what has been a historic push to modernize.
“People need to understand this,” said Lou Marcoccio, research director at GartnerGroup, a consulting firm that estimates U.S. companies spent as much as $225 billion to prepare for the calendar change. “It’s really made a tremendous difference.”
Among the events that could enhance prosperity tomorrow:
* Many companies used the problem as an excuse to modernize ahead of schedule, raising the prospect of a boost in productivity in coming years.
“They sent people around to upgrade every single computer to make it Y2K-compliant, and while they were at it they put the latest version of everything else on the computer,” said Jeremy Hildreth, senior economist at American Skandia, a financial services firm in Shelton, Conn. Nationwide, he added, such efforts will be a boon to companies’ bottom lines.
* Throughout corporate America, managers got rid of waste, saving time and resources. Fluor Corp., a global construction and engineering firm based in Irvine, slashed its number of uncoordinated, in-house software packages roughly in half, to 1,300, said Dennis W. Brenner, vice president and chief information officer at the firm.
In all, Fluor spent about $16 million to prepare for Y2K.
“The cost of supporting one [software] package is less than the cost of supporting two--and I would suspect that most companies did something like that,” Brenner said.
* For the first time, many top-level executives took a critical look at how their entire organizations are wired together.
“The Y2K effect really got us thinking--do we have our arms around what we’re doing here?” said Tracy A. Edwards, president and chief executive of Bell Industries in El Segundo. “Can we handle things differently?”
Bell, with business activities that range from distributing parts for recreational vehicles to advising firms on computer technology, invested “a couple million dollars,” Edwards said, to buy a single, consistent computer system for its three divisions.
To be sure, some experts take a dim view of Y2K’s impact on the economy. Its reputed dangers posed an enormous distraction, soaking up time and money that might have been plowed into projects with a more immediate payoff. Much of the investment went to inoculate older technology against the computer bug rather than to embrace the newest processes that could revolutionize the way work is done.
Beyond that is the reality that it may take years for people to gain comfort with new technology, which suggests that many firms now possess a wealth of sophisticated equipment that their workers are not prepared to take advantage of.
“There are a lot of crosscurrents,” said James Glassman, senior U.S. economist at Chase Securities in New York. “I don’t know how it all resolves.”
Kudlow of Schroder & Co. believes that companies’ sharply increased spending for equipment and computer software added a remarkable 1.5% to U.S. economic growth in 1998 and 1999. Some analysts fear that the very stampede to invest in such technology will now give way to a severe pullback, slowing the economy in the months to come.
Yet the positive economic legacy of Y2K may endure long after the short-term twists and turns. To gain insight into this paradox, one must look at how many corporations faced the much-ballyhooed computer dangers of the century shift.
DuPont, for example, allocated more than $300 million to the task of safeguarding its worldwide facilities from snafus. The Wilmington, Del.-based chemical giant had several goals, explained Cinda Hallman, senior vice president for information technology. One was to ensure that its many business activities would continue uninterrupted; another was to prevent any problems to health, safety and the environment.
Where changes were necessary, she said, managers considered whether the best course was to bring in new technology. A DuPont division that manufacturers windshield glass, paint finishes and other automotive products got a new computer system designed to modernize the lengthy chain of transactions that begins with a customer order and ends with payment to the company.
Over the New Year’s weekend, DuPont encountered some inconsequential Y2K-related problems that were quickly remedied, such as with time clocks in some facilities, Hallman said. The computer improvement, by contrast, will pay off for years to come. “There are probably cases where the time is cut in half” for business transactions, she said, adding, “It’s like getting two or three [benefits] out of one initiative.”
Similar stories can be found among very different industries. At Data Broadcasting Corp., which provides instant stock quotes and other financial information, executives had to decide whether to spend $2 million to $3 million to safeguard their systems against near-term havoc--or take the bigger step of laying out $4 million for a new computer system. They chose the more expensive route, said Susan Lackey, a vice president of the Jackson, Wyo.-based firm.
The new technology was designed to do a lot more than cruise effortlessly through the calendar shift. Data Broadcasting’s customers, for instance, can now use the Internet to order new services or cancel them. “Once [New Year’s] is over, the whole focus is on the improvements we’ll make to the business,” Lackey said.
Marcoccio of GartnerGroup recalled how Y2K concerns prompted one of his clients, a maker of computer chips, to purchase a computer upgrade that now enables it to keep up almost instantly with the thousands of suppliers it relies on for silicon, ceramics, glass, gold and other critical supplies. Similarly, he said, a construction firm adopted new technology that now enables it to use Internet auctions to purchase parts at lower cost.
Repeated widely enough through the U.S. economy, such efforts only bode well for efficiency and productivity, which is a key to rising standards of living.
“To me, any dollar spent on high-tech equipment is a step toward boosting productivity,” said Glassman of Chase.
Or as Lackey put it: “The focus was Y2K--but the benefit in the long run should be better service to customers.”
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EARTHLINK’S DULL NIGHT
It was a calm Y2K watch at Pasadena’s EarthLink. C1
* MARKET REACTION
Asian financial markets open trading without hitch. C1
