July 1999

During the first half of 1999 government officials in the former Soviet Union, particularly Russia, have publicly downplayed the impact of the Y2K computer glitch upon the Russian economy. The Russian computing infrastructure is very old and the cost of repairing it has been estimated in the billions of dollars. Russia simply does not have the money to institute those repairs and so in the middle of July the Russian government announced that it would curtail a variety of industrial and commercial activities on New Year's Day to avoid Y2K glitches. Airline flights will be disrupted and certain undescribed industrial processes will be temporarily stopped in order to prevent more extensive chaos. The candor of the Russian government is to be applauded, but it must also be understood that there are many other countries that are in similar or far worse straits. Current expectations are that Y2K disruptions within the United States will be sporadic, but that is not so throughout much of the rest of the world. It is fair to say that many other countries that supply American companies with both raw materials and manufactured parts will experience substantial disruption. The effect may be devastating to American companies that have adopted "just in time" manufacturing processes that are dependent on parts and supplies produced abroad. In addition, it is expected that many foreign financial markets will be disrupted and the international travel and shipping infrastructure will be impaired. That is the downside of the global marketplace and the interdependence it has spawned.

We are not alone anymore. Last week, I opened a new computer box. The keyboard was in another box and was sealed with a tag that said "Made in China." China has not been as forthcoming as Russia recently was but it is well known that Chinese industrial processes are very much at risk. If my computer manufacturer cannot ship my new computer because it does not have keyboards, its business processes will be substantially disrupted. Because my computer manufacturer is a ‘just in time" manufacturer the inability to ship computers without keyboards will undoubtedly cause it to delay purchasing other parts from other companies both here and abroad. That is the way "just in time" manufacturing works. Thus, a Y2K glitch in a Chinese keyboard manufacturing plant will send disruptive ripples through one part of the world economy and more importantly prevent me from undertaking what ever activity I had planned for my new computer. If I was going to do something for you, my promised performance may not be possible. Those kind of supply chain glitches are bound to occur and will have impact upon us here in Arizona. Even if all of our systems are Y2K compliant by the end of the year we will be affected by failures elsewhere.