Response to the Economist Y2K Article
by Don Estes
Uploaded to the CPSR-Y2K Mailing List, 1997-10-05

Dear Economist:

Well, well, you have come a long way since last year when you could not imagine that this problem could be that serious. At least a crow sandwich might be in order, don't you think?

In many respects, this was a much more reasonable coverage than you have made heretofore, and you are finally making some of the points that need to be made. But, you have left out several that a journal of your stature should be making.

First, you are right that the problem may be less serious for many than initially thought, but unfortunately not for all. The real problem is that even now most senior executives do not understand the risks that they are potentially subject to in this problem. I liken the risks to earthquake risk or war risk.

There are appropriate ways to analyze and mitigate these risks, but the people with the analytical experience and authority to deal with them properly are rarely engaged in the problem. Decisions that put major institutions at risk are being made at the IT project leader level, when they should be made at the board room level. Future litigation will liken this to the Barings debacle, when management who should have known better allowed disastrous decisions to proceed.

Within the last two weeks, I have seen the state of testing plans for one of the most important quasi-governmental financial institutions in Washington, D.C. The people who are making the decisions, rightly or wrongly, have the strategic perspective of saying, "well, we only have so much disk space, and that will determine how much we can test". If we are lucky, they will get through more or less intact. If we are not lucky, a major and prolonged disruption will occur in their section of the financial markets. Trusting to luck and the decisions of people without a strategic perspective is not an appropriate way of dealing with the problem.

Second, following on the first point, luck and muddling through will determine the survivability of many organizations. As I said in my recent survey report on the Year 2000 readiness of a US state government, "...Year 2000 projects will succeed or fail largely by accident: success will come where the problem is not too bad as compared to the personnel and resources deployed, and failure will occur where the personnel and resources are inadequate...". The problem is too often not being managed, it is simply happening.

Third, and most importantly, there are likely to be macroeconomic effects that are disproportionate to the expenses involved. Most everyone familiar with the efforts of the US Federal Government and many major state governments know that significant periods of erratic or nonexistent services will occur. The IRS in particular has already run up a white flag. Perhaps your other leader missed the possible cross-over: it will be easy to repeal a non-functioning taxation system.

In addition to government, manufacturing should be the next hardest hit. Given erratic functioning of JIT inventory control combined with unknown effects of embedded systems, we can expect dozens if not hundreds (others say thousands) of supply chain interruptions on the order of the Dayton, Ohio brake plant strike last year.

For how long will this occur? The optimists say for months, the pessimists say for years. The simple fact is that no one knows either the duration nor the severity, and we all know what happens to the financial markets in periods of turmoil and uncertainty.

Assuming that the other sectors muddle through OK, we could easily see my personal guess of -5% growth for 2000 and a Dow Jones at 4000 through just these two sectors of the economy and their ripple effects. You heard it here first: Al Gore will not be president in 2001 unless he comes out in front on minimizing the effects on ordinary people, and is seen to be the active worker in an otherwise paralyzed government.

I would like to see responsible and knowledgeable economists model the likely scenarios and move government to take action to contain the worst effects. Moving toward this goal is the role logic dictates for a uniquely positioned publication such as yours. Get to it.

Don Estes
P. O. Box 230
Lexington, Mass. 02173

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