This essay demonstrates the method, impact and possible results of the year 2000 computer bug. Since Y2K is unprecedented, it is not based on any traditional economic model. The author wishes to hypothesize based on the current evidence, which is well documented throughout the internet. It is made under the assumption that a large percentage of government agencies, businesses, utilities and financial institutions will not fully complete conversion repairs before the January 1, 2000 deadline. At present, this is indeed the case.
It must be stressed that the year 2000 computer bug is deeply embedded into virtually every computer system (but not every individual computer, i.e. many post 1996 pc's). There are up to 1.2 trillion lines of computer code world-wide, of which an estimated 180 billion are date sensitive and must be manually converted to meet year 2000 compliance. Approximately 70% of the world's critical information is stored as data in the mainframe computers of business, government and banks. There are also 25- 40 billion embedded micro systems of which an estimated 1% to 5% are not year 2000 compliant (we don't know which ones!). The world wide cost of repairing y2k, if repaired, would total $ 1.3 trillion.
If an entity is to remain viable, virtually all its business critical computers must be fully converted in order to interact with one another. Its survival requires it. It is well established that any uncorrected computer or embedded system will produce erroneous data or shut down after 2000, thereby hampering (or halting) routine business functions. History has shown that a companies suffering only a 10 day computer failure never fully recover, and half go out of business within 5 years. The Gartner group conservatively estimates 15% of U.S. firms will either suffer severe hardships or even automatically shut their doors after 2000 due to the inability to conduct business whatsoever.
While many are attempting a brave, last minute scramble to convert their systems, most just won't make it . The majority of those with y2k remediation projects started too late and are faced with severe hardships or possible over-night extinction. Findings by the SEC last July found that an astonishing 73 percent of companies had not even begun code remediation, and an estimated 66 per cent of businesses worldwide will experience failure of mission-critical computer systems in the next 18 months due to the millennium bug as The failure rate by industry as shown by the following (Gartner Group):
| 15% | Insurance, Investment Services, Banking, Pharmaceuticals, Computer Manufacturing | 1 |
| 33% | Heavy Equipment, Aerospace, Medical Equipment, Software, Semiconductor, Telecom, Retail, Discrete Manufacturing, Publishing, Biotechnology, Consulting | 2 |
| 50% | Chemical Processing, Transportation, Power, Natural Gas, Water, Oil, Law Practices, Medical Practices, Construction, Transportation, Pulp & Paper, Ocean Shipping, Hospitality, Broadcast News, Television, Law Enforcement | 3 |
| 66% | Education, Healthcare, Government Agencies, Farming & Agriculture, Food Processing, Construction, City & Town Municipal Services | 4
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An equally immense problem are the billions of embedded micro-chips that control these systems. Only 9% of companies are making an effort to address this issue. A troubling situation considering, say some experts, the embedded system problem could outweigh the mainframe problem.
We are now in a world and that is heavily dependent on computers. They have been integrated into society, and intertwined and networked to a degree that staggers the mind. The electronic storage and flow of information is now the life blood of modern industrialized nations. Countless systems in every economic sector require dependable storage, calculation and transfer of data to control critical business and governmental functions. They have literally replaced generations of managers, workers and the skills they possessed. Computers made possible the modern "just in time" means of delivery and stocking of inventory, which made the system very efficient, but subjects it to supply chain problems as there is little slack for error. Since businesses store very little inventory, any disruption in the delivery of goods and (electronic) services can have immediate negative effects.There is simply no possibility of reverting back to manual systems (i.e. pen & paper) when the computers go down, as there are no manual systems to revert back to; The infrastructure of 30 years ago has been replaced.
In order to understand the macro-economic scope of the y2k problem, the subject of systems must be addressed. The international economy is a complex web of interconnected systems, where every component depends on one another to function. This chained interdependency extends to all regions of the economy. The millennium bug is built into and threatens all these systems with partial or complete failure:
These sectors all interact and require one another to make up the larger system known as Modern Industrial Society. Large scale failures in one component creates a choke point which hampers the function of the larger system, just as the oil shortages did to the economy in the 1970's. Completely eliminate any one or more of the above sectors and the system itself collapses... like a house of cards. The difficulty with the millennium bug is that it will hamper or halt each and every sector, which all interact, and are going to be failing at the same time and throughout 2000. . If each sector could only function at 60% capacity (Or even 80 or 90%), most importantly the " Iron Triangle " of power, banking and telecommunications, the economy and infrastructure would be strained to the point of systemic failure, and would also collapse.
Cities are also living systems. Urban centers are the pinnacle of modern civilization and the result of mechanization and increased division of labor , burning of fossil fuels, progression and adaption of technology that enabled mass food production and freed millions from the burden of farm life. They depend on a constant, tremendous input of goods and critical resources. City dwellers depend on food shipped from the surrounding rural areas and is produced by only 6% of the population. The fuel to transport, grow and harvest crops is found and refined elsewhere. Minerals and resources used to build urban structures and the vehicles used to transport them are brought in from elsewhere. In addition, agricultural regions depend on cities to manufacture needed machinery, tractors and supplies.
Large quantities of investment capital are required to finance these endeavors. Banking and finance are now dependent and interconnected through computerized means. Several trillion dollars are electronically exchanged and transferred daily through the telecommunication system, which may also suffer global failures throughout 2000. In supporting this level of activity, it is a necessity to remain "wired". There simply is no possibility of reverting back to manual methods when the phone lines go down.
The y2k computer bug can be likened to a virus built in to all these computer systems. To function properly, any one computer apparatus must be fully converted and tested. Every date critical line of code must be repaired, or will otherwise infect the remaining code and program structure. A computer will be confused and produce erroneous and faulty data if a date ( example: Sept. 25, 1992 ) is calculated or sent across a network as 092592 when it should read 09251992. An entire networked system could be shut down by a only few faulty lines of code. Entities who are fully converted cannot deal and exchange data with those who are still y2k infected. Like the case of two friends who cannot meet another because one has the flu or chicken pox. Therefore an entity (company, government or bank) not only must be fully compliant in and of itself, but cannot deal with any non-compliant entity without corrupting its own computers and database and must be cut off from the system. Exchange of data must be congruent and compliant between every computer apparatus. See: Imported Data
For several decades, the two digit date field was the accepted standard. In many companies' efforts at y2k conversion, some are using "patches" and other techniques to fix their systems. Some use 'windowing', some have 4 digit dates, 10 year 'roll back' etc. The problem is the inoperability of systems and networks, as there is no widely accepted date standard. So if two different companies claim to be compliant, their computers can still infect each other when they are connected to a network and corrupting each others systems. Visa and Mastercard, who are nearly compliant (and an exception), will not be able to exchange data with the thousands of banks and vendors who are not compliant.
This situation becomes even greater when dealing with larger integrated systems as the global economy or world trade and finance. In order for such a large-scale structure consisting of many systems to function, all part icipating entities must be virus (y2k) free and subject to a particular date standard. Global trade has increased tremendously in the past few decades and has brought a new paradigm of goods and capital between participating nations. This tends to destabilize the balance and independence of individual economies (lacking diversity) which rely on specialized economic endeavors for income. Since y2k is a global bug, it will affect this new economic interdependency between nations in a very negative manner, as shown by recent global crisis and in the essay; Global Economic Instability and Fault Tolerance
| 15% | Australia, Belgium, Bermuda, Canada, Denmark, the Netherlands, Ireland, Israel, Switzerland, Sweden, the U.K., and the U.S.A. | 1 |
| 33% | Brazil, Chile, Finland, France, Hungary, Italy, Mexico, New Zealand, Norway, Peru, Portugal, Singapore, South Korea, Spain, and Taiwan | 2 |
| 50% | Argentina, Armenia, Austria, Bulgaria, Columbia, Czech Republic, Egypt, Germany, Guatemala, India, Japan, Jordan, Kenya, Kuwait, Malaysia, North Korea, Poland, Puerto Rico, Saudi Arabia, South Africa, Sri Lanka, Turkey, U.A.E., Venezuela, Yugoslavia | 3 |
| 66% | Afghanistan, Bahrain, Bangladesh, Cambodia, Chad, China, Costa Rica, Ecuador, El Salvador, Ethiopia, Fiji, Indonesia, Laos, Lithuania, Morocco, Mozambique, Nepal, Nigeria, Pakistan, Philippines, Romania, Russia, Somalia, Sudan, Thailand, Uruguay, Vietnam, Zaire, and Zimbabwe | 4 |
In an economy based on multi-levels of interdependent systems , isolation means instant death. But so could dealing with y2k corrupt companies! A break in the supply chain could cause serious and fatal results in all areas of the economy. Companies don't have a choice of refusing business with one another, or dealing with companies who are still y2k infected .....lest they go bankrupt (which would happen if they went into isolation). Clearly a no-win situation. Every large institution, government, corporation and each of their subsidiaries are all interconnected and reliant on one another. If one goes down, the rest are dragged down with it. The potential domino effect and resulting economic disruption can be clearly imagined.
An example of this interdependency is the recent strike of a few suppliers of General Motors. It immediately halted production on the assembly line. The cost of a temporarily idled plant is enormous. In the year 2000, hundreds--even thousands of GM's 85,000 ( non-compliant ) suppliers may fail to deliver due to their own y2k failures, thereby ensuring a halting of all automobile production. If such disruptions continue for long (likely), General Motors (not to mention other manufacturers in cross-over industries) will soon go bankrupt. If GM goes bankrupt, then so do thousands of its suppliers, creating the "Mother of all domino effects". GM itself has catastrophic y2k problems in all of its plants. Due to this complexity factor, the above example will happen to millions of large companies and suppliers all in the same year.
The banking system's reserves are only between 6-12% of its stated deposits, and actual cash in circulation (and reserve) is much less. The remainder is lent to borrowers as credit for investment and consumption on the faith it will be paid back. Most of the "money" in the system is actually stored, exchanged and processed as "digital cash". Most transactions have a date sensitive code attached which must be properly calculated when date arithmetic is carried out, and only a handful have yet to publicly state compliance, which would be in their best interest.
The human reaction in anticipation of these realities must be accounted for. Y2K media coverage and awareness is growing rapidly. It will start hitting the TV air-waves in full force late this year. If done responsibly, such publicity is productive and will create well-placed concern, leading to demand for solutions. However, the response to large-scale computer failures will convincingly demonstrate that the y2k threat is real and may create a panic.
In late 1999 and, most importantly, early 2000 systems will begin breaking down on a large scale. Failures will be hidden as much as possible until it is obvious systems are faltering, and the Great Cover-up becomes transparent. At this point the public will realize there is a fundamental problem with the system. As a precaution they may begin demanding payment of account and withdraw cash on a large scale, knowing their savings are at risk. Likewise in stocks, bonds, treasuries, and any other paper investments that may seem at risk. A severe decline in the stock market can be expected shortly before 2000. Consumer and corporate debt is also at a dangerous, all-time high and growing, and many are on the verge of bankruptcy even in the midst of an economic boom. Borrowers may also start defaulting on debt in the new the millennium, creating an unparalleled credit crunch.
Large numbers of banks would quickly lose liquidity and fail, on a world-wide basis, thus fueling a negative feed-back spiral into ever greater financial chaos and disaster. If banks are shut down and fail in such an international bank run , so will the balance sheet of governments, conglomerates and their dependents. Thus we can expect economic hard times and panic starting in the last quarter of 1999. At some point a freeze on the bank accounts may occur. Then, finally, after the clock strikes 01-01-00 the millennium bug will catastrophically crash millions of computers, any system they control, and annihilating whatever remains. The great 20th century credit bubble will burst, washed away in a digital flood of 00's. In less than 18 months, our current means of payment--the fractional reserve banking system-- as we know it is threatened with an historic collapse.
From this analysis we can deduce that any 'system' infected with the y2k bug, and any other system reacting to or involved (directly or indirectly) will fail and breakdown. Hence, we are facing not only a collapse of the current monetary, banking and capitalization systems, but most functions of urban systems as well. A collapse of global trade on par with the 1930's is bound to occur. The infrastructure, subject to decay and neglect, will deteriorate. A halting of most complex manufacturing processes can be expected in 2000 due to the domino effect with disastrous consequences. A severe displacement in the division of labor must necessarily occur thereafter, with extremely high unemployment levels. Price levels could soon enter an unprecedented hyper-deflationary spiral with certain commodities hyper-inflating (in relative value) . Means of trade and exchange will then, to a large degree, become localized.
If large sectors of business, government, utilities and banks don't largely complete the y2k conversion, ( this will be the case ) We are facing a system-wide collapse of the world's economy beginning in late 1999 and escalating into 2000. Many ill prepared countries and governments will fall into complete disarray with no remaining infrastructure. The situation is compounded and multiplied by global failures of electric power, telecommunications, transportation and government services. At some point martial law may be enacted over certain economic sectors.
Modern computerized & automated global food chain which is dependent on all the previously mentioned systems for growing, processing and transporting will be greatly impaired, resulting in wide-spread food shortages, hunger and a possible reduction in population.
If the (non-year 2000 compliant) national Power Grid overloads and goes down from serious failures of electrical utilities and their suppliers for several weeks or more, the resulting chaos may keep it down. If this occurs, all of the above is irrelevant. We would witness the total collapse of civilization as we know it.
Are these conclusions too extreme? Hopefully. But so was the 14th century plague, The Great Depression, World Wars One and Two, yet such events continue to occur on a regular basis.
Based on the available evidence, are these conclusions plausible and probable? Definitely...
Links:
HOME PAGE (frames)
'Too Late to Fix y2k' page
division of labor
Transportation & y2k
Banks & y2k
Electricity & y2k
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