Analysts Say Year 2000 Issue May Cost Billions
By SAMANTHA ROSS, Dow Jones Newswires July 30, 1997
NEW YORK -- As Federal Reserve and other U.S. government officials testify before Congress Wednesday on the "year 2000" computer challenge, analysts continue to grapple with how it will affect the economy.
To be sure, few analysts have estimated the economic impact in terms of gross domestic product. Many believe, however, that reprogramming computers and rewriting software to deal with the new millennium will cost billions of dollars worldwide. Some worry that it may even trigger a recession.
Then there are the analysts who believe that the year 2000 issue won't have nearly that much impact.
The problem stems from the recording of dates in old software applications. Space limitations in early computers prompted programmsers to record calendar years with two digits. Thus, the year 1999 is stored as "99." When the year 2000 arrives, many software applications will read the "00" as 1900 and fail or produce errors.
Citing a lack of coordination between industry and government, procrastination, and the short time left until the year 2000, some analysts warn the problem will have a dramatic economic impact. The Gartner Group, a consulting firm in Stamford, Conn., figures that dealing with the dawn of another century will cost $300 billion to $600 billion in software renovation alone.
The estimate excludes the cost of business failures, disaster recovery, litigation, or fixing embedded systems like microprocessors. It is based, Gartner said, on the estimated cost of fixing billions of lines of commercial and government software code.
"The (information technology) issues are actually the most well underst. It's what's going to happen if supply chain systems fail," said Mattt Hotle, Gartner's research director. "If you manufacture something that comes from somebody that builds components - that comes from someone that builds parts - what happens in the supplier chain could impact everyone," he said. "It's not as easy as saying 'I'm OK.' "
Those in the technology industry have been aware of the year 2000 issue for decades, and some companies have been addressing it for some time. Economists, for their part, are just beginning to discuss it.
Most businesses "will undoubtedly fix" the year 2000 problem in time to avoid an economy-wide disaster, but "some businesses might fail, which would boost unemployment," wrote Ed Yardeni, chief economist of Deutsche Morgan Grenfell, in a recent research report.
"If they are important vendors to other companies, the domino effect could be disruptive enough to cause a recession," Yardeni wrote.
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