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Report: U.S. to spend $100 billion fighting Y2K

U.S. government agencies and organizations will spend more than $100 billion fighting the Year 2000 technology problem, much less than many earlier forecasts, according to a government report.

U.S. government agencies and organizations will spend more than $100 billion fighting the Year 2000 technology problem, much less than many earlier forecasts, according to a government report released today.

The report concludes that the single largest effect of Y2K on the economy may be the diversion of these funds from other uses, but the technology glitch will not harm the nation's economy.

The study, conducted by Commerce Secretary William Daley and other administration officials, estimates that from 1995 through 2001, U.S. businesses and government agencies will have spent about $100 billion to identify, Y2K: The cost of feartest and correct error-prone technologies. This is equal to about $365 for every American.

"The greatest cost to our economy is behind us, with billions of dollars diverted from other sources to fix the problem," Daley said at a press conference. "Any glitches that pop up next year should not hurt our economic growth."

Daley released the report, entitled "The Economics of Y2K and the Impact on the United States," at a press conference with John Koskinen, chairman of the President's Council on Year 2000 Conversion, and Robert Shapiro, director of the Economics and Statistics Administration, the Commerce Department agency that prepared the report.

As early as 1995, both the private and public sector began to correct the Y2K problem, according to the report. In 1995, costs reached almost $5 billion. In 1998, spending peaked at $32 billion. Spending this year is projected to be a little less. There will be some spending in 2000 and very little in 2001. "This is because some companies and organizations have not yet dealt with the problem. Some have spent less than they need to," said Daley.

Spending on Y2K remediation by U.S. firms has varied, based on the kind of markets they face and the costs they can pass on. Firms in highly competitive markets show significant variation in their spending, those in more concentrated markets tend to spend similarly to one another and those in regulated markets spend to fix all problems. Some enterprises, both public and private, may spend more than necessary to fix minor Y2K glitches, according to the report.

Y2K disruptions that are likely to occur in some small and medium-sized businesses could cause economic losses in local areas, the officials warned.

Back to Year 2000 Index Page The majority of computer year-change turnovers occur before Jan. 1 or substantially after it. Many firms have already experienced some temporary Y2K failures, and the small scale and brief duration of these problems is evidence that Y2K will not have a major adverse economic effect, according to the report.

"Overall what these numbers tell us is we can start looking for a kind of Y2K dividend," Daley said. "Companies can once again put capital and thousands of information technology specialists to work creating new products and solving new problems--not dealing with old ones."

The report shows the sectors that have invested the most--and are best prepared--are those that form the critical network of goods and services on which the rest of the economy depends. Those sectors are energy, finance, telecommunications and transportation.

Seemingly less well prepared are the education and health care sectors, small businesses and agencies, and non-critical systems. "It would be surprising if Y2K problems in these areas do not make news in early January," said Daley.

Daley admitted that the government is "exploring new territory." The government has no historic data to draw from. And officials can't be sure how the public will respond to real or imagined problems as the millennium approaches.

He pointed to new research showing that more and more Americans are becoming less worried about Y2K as Jan. 1 approaches.

"But this is no time for over confidence. All firms and individuals should identify, fix and test for Y2K problems--and have contingency plans," he said.

As for Y2K problems overseas affecting the US economy, the report found there will be no negative impact.

U.S. firms overseas appear to be preparing for Y2K at the same rate as domestic firms. Major foreign-based firms that are highly dependent on information technology generally are well along in their Y2K fixes.

According to the report, there is no evidence that Y2K disruptions abroad will affect U.S. imports enough to damage the economy. Trade-related production and transportation failures are likely to be brief, and firms that depend on just-in-time deliveries have taken steps to ensure that their foreign business partners are Y2K compliant.