<nettime> millennium bug

[Roberto Verzola <rverzola@phil.gn.apc.org>]

                     THE MILLENNIUM BUG: A TIME BOMB
                  IN THE HEART OF INDUSTRIAL ECONOMIES
            (Should we prepare for the blast or the fallout?)

                           by Roberto Verzola


     When the final midnight of this millennium ushers in the year
2000, less than 500 days from now, many expect a grand celebration.


Year 2000: expecting the worst

     In the United States and other highly-automated societies,
however, an increasing number of people expect the opposite. They
foresee a failure in basic services; water and food shortages; long
periods without gas, electric and telephone services; and a general
breakdown of society. The cause of the breakdown? The millennium bug,
a technological bomb planted in the very heart of the world industrial
system and set to trigger at the precise moment of arrival of the new
millennium.

     With a world on verge of a recession, the millennium bomb can
push the world economy beyond the brink and trigger the collapse of
what is even today a shaky world financial system.

     The problem is simple enough to understand.

     Many hardware and software designers of the past decades, in what
is now clearly a monumentally short-sighted effort at efficiency, used
only two instead of four digits to represent the year in time-and-date
computations. Thus 1980 was stored as 80, and 1990 as 90. The approach
was considered clever as well as efficient, because it saved two bytes
of storage every time the year was stored. It illustrates the typical
industry preoccupation with maximization and efficiency, with little
regard for long-term risk and reliability.

     But on the midnight of December 31, 1999, electronic year 99 will
become electronic year 00, turning the millennium bug into a
millennium bomb. (The M-bomb is also called the Y2K problem, 2K being
computer jargon for 2,000).

     Electronic time will suddenly move back one century. To
computers, the elapsed time between 23:59:59 of 12/31/99 and 00:00:00
of 1/1/00 will not be one second, but more than 3 billion negative
seconds. And any elapsed-period computation between any time in the
20th century and another in the 21st century will be wrong by the same
huge negative amount.

     The consequences are unpredictable.

     Some computers will simply freeze and stop working. While this
will be the simplest problem to detect and correct, it is itself bad
enough, especially if the computers are doing such tasks as
controlling a nuclear plant. Others may suddenly generate
astronomically high figures (in interest computations, for example) or
even negative figures. Watchful eyes of auditors should be able to
catch these errors, unless, of course, the computer is one that
controls the fuel fed to the engines of a 747 in the air. Still others
may automatically try to correct the problem and produce some
reasonable, but wrong, figures. Where checks are automatically
generated, sorted, and mailed and where other time-dependent financial
transactions are initiated, processed and concluded all without human
intervention -- as is now done in many highly-computerized economies
-- the implications are enormous.

     Going after microefficiencies, technologists created instead a
millennium bomb.

     Every piece of electronic equipment that performs time-dependent
calculations will be affected. This includes interest computations
(banks and other financial institutions), age calculations (insurance
firms and social security institutions), wage calculations (all
payroll systems), income calculations (all financial reporting
systems). It also includes all rate-of-change measurements such as
speed, flow-rate, revolutions per minute, etc. Every financial,
industrial, manufacturing and processing quantity that is measured
electronically in terms of time units (per year, per month, per day,
per hour, per minute, per second, etc.) can give a wrong figure, and
trigger automatic actions that can lead to a chain reaction of
problems.


Software compliance in three months?

     Most efforts to correct the situation are centered today on huge
software systems in large computers. The problems are daunting because
such software is highly complex, comprising millions of lines of
instructions, where slight changes in some part of the system can
introduce new bugs that can lead to failures later. (The industry
statistic is that for every 14 lines changed -- presumably to correct
an old bug -- one new bug is introduced.) Thus every single change
must be tested thoroughly for its potential side-effects on other
parts of the system. According to the New York Federal Reserve Bank, a
large corporation needs a full year of thorough testing before such
systems can be certified to be working properly.

     Thus, the real deadline for Y2K software conversions, if time is
alloted for thorough testing, is not year-end 1999, but year-end 1998.
Yes, we are talking about the end of this year, 1998.

     Excluding weekends and the holidays, that means a three-month
deadline.

     So, any effort to start a major software conversion project today
is probably already too late.

     And while today's efforts are centered mostly on huge software
systems and large computers, they are in fact the systems where the
problem is easier to correct.


What about the billions of embedded systems?

     What gives conversion experts even worse nightmares are the more
than twenty billion computers-on-a-chip, or microprocessors, which are
at the core of most automated equipment in all industrial societies.
The software of these chips are either built-in or are stored on
equally-tiny memory chips called read-only memories (ROMs),
permanently wired on electronic boards beside their computing
counterparts.

     These are the embedded systems, and they are everywhere from
microwave ovens to nuclear submarines, from VCRs to missile systems.
They are in all kinds of automated equipment in industrial plants,
power plants, chemical plants, and nuclear plants. They are in
telecommunications equipment, data equipment, and satellite equipment.
They are in hospital equipment, transportation equipment, shipping
equipment, airplane equipment... And they are used in elevators, air
traffic control, traffic lights, emergency room equipment ...

     Even if only one in a thousand of these embedded systems caused
serious trouble if it failed, that is still 20 million pieces of
equipment, ticking towards failure. DOST secretary William Padolina
cites a study of a single hospital in the Netherlands which identified
10,000 pieces of equipment that needed to be upgraded for Y2K
compliance!

     BYTE Magazine, one of the oldest and most respected computer
industry publications worldwide, estimates that it will cost the U.S.
around $1 trillion (or twice the cost of the Vietnam War) to test all
its systems, identify the problematic ones, and replace them. As the
millennium date approaches, the cost estimates will probably go up.

     If the world's financial and industrial centers are behind in
their preparations, the newly-industrialized economies of Asia have
hardly begun their Y2K efforts, crippled as they are by the
debilitating financial crisis which has been raging for more than a
year, with no signs of abatement.

     Modern technology itself has become the worst terrorist of all --
planting millions of electronic triggers inside most major pieces of
automated equipment in all industrial economies, all timed to set off
at the same moment.


Should the Philippines be worried too?

     Ground Zero of the M-bomb will cover every financial and
industrial center in the world. All will be hard-hit, there is no
doubt about that.

     The less highly-automated -- and therefore electronically-
dependent -- a society is, the less vulnerable it will be to the
M-bomb. It means that Filipinos should be able to cope with most
breakdowns in basic services. Blackouts, no dial tones, offline ATMs,
broken traffic lights, stuck elevators? We have been coping with these
problems a long time ago.

     And while these issues are worrisome enough, they are not the
biggest of our worries.

     We should be worrying less about a direct blast -- we are far
from Ground Zero -- and worrying more about the heavy fallout to come.
What the government should be preparing for is insulating the
Philippine economy from the financial and economic turmoil and from
the potential collapse that will radiate from the industrial and
financial centers of the world, as they get badly hit by the M-bomb.


The millennium fallout

     Even without the Y2K problem, the world financial system today is
shaky.

     Mere rumors of devaluation can trigger the panic buying and
selling of currencies or stocks. In Asia, bad news in one country
leads to further depreciation in another, which in turn makes matters
even worse. Whether it is the devaluation of the yen, the yuan or the
ruble, or the collapse of a bank in Korea or a conglomerate in
Indonesia, or perhaps another round of oil price hikes, or another war
involving an oil-exporting country, each event builds up the tension,
which then needs only a hair trigger to set off yet another round of
financial crises and turmoil.

     Analysts who had no idea of the M-bomb had been warning for
sometime that the entire financial system could headed for collapse.
Authors Richard Barnett and John Cavanagh (Global Dreams: Imperial
Corporations and the New World Order) call it "a global system in
trouble." David Korten, who wrote the book When Corporations Rule the
World, points out that for every $1 circulating in the world economy
of real tangible products, $20 to $50 of speculative capital
circulates -- totally unassociated with any real value. The banking
system can create this speculative capital, Korten says, because it
can lend $20 or more for every $1 on deposit, and because the values
of real assets can be manipulated upwards until those bloated stock
values take a life of their own, quite unrelated to the real value of
the asset. Eventually, that bubble must burst.

     The world financial system today is one such a huge bubble. And
there is widespread fear that enough pin pricks could burst the
bubble. Newspapers increasingly refer to the possibility of a "global
meltdown," reflecting public concern about the Asian financial crisis
causing a worldwide recession.

     If isolated triggers in the peripheries can cause such fears,
just imagine the havoc that millions of pieces of Y2K-vulnerable
equipment can create, as they fail practically simultaneously and
cause economic dislocation throughout the industrial and financial
centers of the world.


The psychology of panic

     Because everybody knows exactly when the M-bomb will be set off,
the tension throughout the industrial world will build as the
new millennium approaches. As the realization sinks in that it is too
late to convert the automated systems at the core of every industrial
and financial process, attention will shift towards coping with the
possible breakdown of basic services.

     Those who have the money will stock up on essential goods. Since
for every $1 of real goods available, $20 to $50 are currently
circulating, the excess purchasing power will compete to push prices
up. Eventually, shortages will occur, as those who have more money buy
more than they need in anticipation of shortages.

     The rush to buy and stock up on goods will make things worse,
because people will be withdrawing money at the same time. They will
also want to keep large amounts of cash in anticipation of breakdowns
in bank and credit card services. Should a bank run out of funds to
meet the heavy withdrawals, that shortage can trigger a bank run
which, if not immediately controlled, can spread to bigger banks. And,
as every banker knows, the banking system can cope with a run on one,
perhaps a few, banks, but not a run occuring simultaneously on many
small and big banks, and in every financial center of the world.

     This scenario is exactly what Ed Yourdon is worried about.


Yourdon: a scared computer guru

     Edward Yourdon is a highly respected consultant and expert on
systems analysis and design, with several textbooks to his credit.
Widely recognized as a systems guru, he is intimately familiar with
the extent of the industrial world's dependence on computers and
embedded systems.

     Yourdon thinks that many Y2K problems will be corrected within a
few days, causing only minor trouble. However, he also warns that the
some problems will be felt for several months; a few will last for a
year or so; and a smaller portion might linger for a decade or more.
Yourdon has written a book, entitled Time Bomb 2000 and published
1998, about his warnings.

     Recently, however, Yourdon sold his New York property and took
his family with him to live in a U.S. mountain community. He has
stocked up on food, water, and other essentials -- including cash --
and expects that a widespread breakdown in basic services in the U.S.
will lead to general lawlessness as people become desparate for basic
necessities.

     Here is one expert who was at the center of the design processes
that deployed the computer systems which now automatically run the
U.S. economy. If he is that scared, isn't it reason for the rest of
his compatriots to be worried?

     By 1999, we can expect that an increasing number of failures and
disasters such as plane crashes, ship collisions, hospital deaths,
industrial accidents, and bank mistakes will be blamed -- justifiably
or not -- on the Y2K bug. Those who produce movies like "Armageddon"
or "Deep Impact" will probably exploit the M-bomb's tantalizing
box-office potential, and bring it even closer to the popular psyche.
As the world ticks towards the new millennium, more and more people
will react as Yourdon did, and the sense of tension, hysteria and
panic will build.

     We also know from historical accounts that doomsday cults,
millenarian movements, and even mainstream religions tend to give
special meaning to calendar transitions, particular one as momentous
as the coming millenial transition. It will be a time when every
comet, solar eclipse, earthquake, volcanic eruption or flood tends to
acquire apocalyptic significance and to fuel popular fears and
expectations. This will aggravate the situation even more, as the
surreal melds with the real and as the millenarians' hysterical
warnings and the public's justified anxiety over the M-bomb reinforce
each other.

     While the worldwide M-bomb and the shaky world financial system
comprise an extremely volatile combination, a third ingredient --
end-of-the-millennium mass psychology -- turns the whole thing into a
truly explosive mix.

     It is perhaps one of the greatest ironies of history that the
much-vaunted industrial system unknowingly built within itself a
potentially universal self-destruct mechanism set to go off at the
exact turn of the millennium.


Coping with disaster

     Given the certainty that millions of automated systems will fail
at the end of the millennium and the real possibility that this failure
will bring the world industrial and financial system to its knees, the
Philippine government should totally reexamine its basic assumptions.

     Forget about open economies and globalization. The more open our
economy is, the more susceptible we are going to be to millennium
fallout. U.S. bank runs, for example, can reach our shores and spill
over to local banks. U.S bank failures can victimize local depositors.
Local savings can be rapidly sucked out of our economy into the
bottomless pits that the M-bomb will create.

     The government should change its present approach to the Y2K
problem, which is basically a copy of the U.S. approach. President
Estrada is talking about software compliance programs; DOST secretary
Padolina has expressed pessimism about embedded systems; some
government officials are still talking of training Y2K programmers for
deployment abroad to earn foreign exchange for the country.

     For the Philippines to prepare as if it were part of Ground Zero
is to waste scarce resources on unnecessary expenses. According to
news reports, for example, President Estrada has ordered the
Presidential Commission on Y2K Compliance to "reprogram or replace
computer-based systems in all state offices," an effort which, the
commission estimates, will cost P270 billion ($6 billion). What a way
for the hardware and software suppliers to make fast money! Many of
the older machines are already compliant anyway, and quite a number of
those which are not compliant only run word processors and perhaps
Solitaire and other games instead of mission-critical tasks. There is
no point wasting government (and private) funds to convert these
systems.

     The government should concentrate on coping with the financial
and economic fallout of the M-bomb.

     We should instead be thinking about building what computer
designers call firewalls, policies to insulate our economy from the
impact of the fallout. These policies can include reinstituting
foreign exchange (forex) controls, regulating banks more tightly to
guard against the threat of bank runs, and discouraging speculative
investments. Malaysia has already done so (although for a different
reason, as a move against speculators). Once the Malaysians realize
the more serious threats posed by the millennium bug, they would be
glad they acted quickly in reinstituting forex controls. China and
India have never really fully opened their economies to global finance
and speculators. They would be crazy to do so now. The sooner
developing countries can put firewalls into place, the better prepared
they will be when the millennium fallout from the hard-hit industrial
world comes.

     We need to unlink our local currency from the U.S. dollar, so our
economy can function reliably even when the dollar's value fluctuates
wildly as the financial maelstrom whipped up by the M-bomb releases
its full force. Forex controls and similar measures are a necessary
short-term step. But over the long-term, unlinking can only be done by
putting more importance to internal production for local markets and
to internal trade, rather than export production and foreign trade.

     Our country is heavily dependent on the foreign exchange sent
home by the more than five million Filipino contract workers overseas.
If their host countries face an economic crisis or slide into a
recession, our OCW compatriots will have nowhere to go but home. We
should have jobs waiting for them, not to mention the 10.8 million
under- and unemployed we already have.

     In short, we should be doing what it takes to keep an economy
self-sufficient and self-reliant in the first place. Only such a
shelter can protect us from the fallout of the millennium bomb.

=1A
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