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Year 2000 International Security Dimension Project Report

Are We Moving to a New Global Rule Set?

If Y2K had happened back in 1995, it certainly would have been a different beast, and not just for the lack of any accompanying Millennial Mania.  Back in the mid-90s we were talking about the "end of the business cycle" and the New Economy in such bold tones as to suggest that this current era of globalization (the first being from the 1880s to approximately 1929) would seamlessly and quickly knit the planet together in a win-win manner.  In short, everyone was going to make lots of money and everyone was going to move up at roughly the same pace.

Of course, what's happened since then has tempered much of the naive enthusiasm about globalization, emerging economies and the New Economy.  The Global Financial Crisis (Asian Flu of 1997 spreading to Russia and then Brazil in 1998) effectively left the global economy with only two vibrant engines of growth: North America and Europe.  Since that time, Europe has likewise suffered an economic slowdown, leaving really only the United States and its "Goldilocks Economy" (and the U.K., to a certain extent) still riding the great 90's bull market.

When, not too long ago, the conventional wisdom on Y2K was that the most advanced, IT-intensive economies were at greatest risk, the economic worst case scenario on Y2K was that it would cripple the global economy's #1 engine of growth, the U.S.  Today, with our current sense that the least advanced, and least IT-intensive economies are at greatest risk, the economic worst case Y2K scenario is that almost everyone in the global economy suffers badly except the U.S. and a few other, very similar economies (e.g., U.K., Australia, Canada, Israel).  So while the former scenario predicted a near-instantaneous, TEOTWAWKI-like collapse of the U.S. economy stopping the global economy in its tracks, the latter scenario predicts a slower and broader Y2K-induced global slowdown eventually lapping up on U.S. shores and ultimately derailing the Goldilocks Economy.  In essence, the shift in global recession/depression Y2K scenarios has been from "pay me now" to "pay me later," at least as far as the U.S. is concerned.
 
 

No matter which scary scenario prevails, or even if neither comes to pass, it's reasonable to say that we're currently living in a rather fragile global economy, certainly one far more fragile than we assumed back in the mid-1990s.  Thus, the big picture argument for why Y2K could play a crystallizing role in terms of forging a new global consensus for international financial reform (e.g., more controls over capital flows, greater transparency among hedge funds, better accounting in emerging economies, revamping the IMF and World Bank, dollarization of certain economies) arises less from the notion that Y2K in and of itself is THE cause of a global downturn than the notion that any associated slowdown tags Y2K as an identifiable culprit that crystallizes in many people's minds all that's wrong with the current global financial system (i.e., too given to wild periods of breakneck speculation and financial tumult).  This argument was originally suggested in Slide 3, and is repeated above in Slide 28.

To repeat the basic argument:  the origins of the current Global Rule Set dates back to the Great Depression of the 1930s, which ended the planet's first great period of globalization from roughly 1880 to 1929.  That global economic downturn constituted a drastic systemic stress that gave way to World War II.  Following that experience, the great powers (at least in the West) essentially swore, "never again," and decided to erect a new international order, or rule set (e.g., Bretton-Woods, GATT, U.N., IMF and World Bank), to prevent the 1930s style economic nationalism or protectionism from ever occurring again.   Led by the United States, the Western great powers were eminently successful in this effort, and the lasting fruit of their collective labor was and is the globalized economy we now enjoy.  This feat, far more than the story of the Cold War, represents the greatest historical legacy of the post-WWII period.

The question that arises in the late 1990s, however, is whether this new, globalized, IT-driven economy has advanced to the point of outgrowing the "new rule set" of the late 1940s and early 1950s, in effect creating the need for a new rule set for the New Economy.  Those who make this call basically point to the systemic instabilities since 1997 (or even back to Mexico's peso crisis of 1994) as evidence that the old post-WWII rule set is now antiquated, thus endangering this second great period of globalization to the same fate as the first.  So it's into this somewhat shaky rule-set environment that Y2K appears as 1999 draws to a close, the basic question being, With the global economy so fragile right now, how big of a disruption would Y2K need to be to throw a wrench into the world's financial machinery, finally crystallizing a broad-scale effort to rewrite its operator's manual?
 

Will There Be A "Flight to Quality" Prior to 010100?

In our May workshop in New York City, hosted by the brokerage firm Cantor Fitzgerald, we presented out six-phase Y2K Event timeline to a group of Wall Street investment experts, traders, bankers, brokers and research/media types, exploring the complex question, How would global financial markets adjust to, and process the unfolding of, such a broad, stressing scenario?

Slide 29 presents "what we heard" from Wall Street in terms of the Mania and Countdown phases, or basically the build-up toward the 010100-threshold.  In this phase pairing, we proposed that Flight to Quality was the most likely global financial dynamic in response to the looming Y2K Event.  While simplifying some of the arguments greatly, we arrayed the major points offered by participants into two distinct camps--here, pro-panic and anti-panic.
 
 

We'll start with the pro-panic arguments, the first of which is the standard grip about the great bull market of the 1990s--namely, all this success makes everyone feel like they're geniuses and thus the market's never had so many idiots spending their money so foolishly as right now.  While that's been the standard cry of many "bears" for several years now, it certainly carries a lot more weight after the near-global meltdown of 1997-98, when the global market run-up in emerging markets reached great "bubble" proportions and finally collapsed in on itself.  Naturally, when the most disastrous bet made was spearheaded by a highly respected U.S. hedge fund fronted by two Nobel Economics Prize winners (Long Term Capital Management), the notion that the average investor may be in well over his or her head becomes a lot more believable.

Another pro-panic argument says that the U.S. financial markets are long overdue for a correction, noting that much of the recent run-up in stocks has been concentrated within a very small pool of highly successful New Economy firms such as Microsoft, the Silicon Valley giants (e.g., Oracle), the Internet constructor firms (Cisco), and all those "anything.com" IPOs.  Naturally, if so much of our optimism about our collective economic future is tied up in IT firms, then certainly a IT-triggered global economic shock would strike deep into the heart of investor confidence concerning the so-called Nifty Fifty.

Looking more to the U.S. investor, concern was expressed that all this "doom and gloom" flying over the media airwaves (e.g. AM radio) might trigger many to withdrawal their funds from the stock market as the year wound down, and as goes the U.S. flagship markets, so too could go the rest of the world's.  In short, given the slim foundations of this very long-in-the-tooth bull market in the United States, it wouldn't take much in terms of investor jitters to trigger a significant stampede out of equities.

Finally, there was a nagging sense that the U.S. Congress would never muster enough will to pass a liability-limit bill that would survive a presidential veto, a bit of pessimism that already seems unwarranted, as it now seems inevitable that such a bill will be signed by President Clinton.  Still, much criticism has been voiced concerning the compromise, with many strong-voiced opponents labeling the law a sell-out to big IT corporations at the expense of small and medium enterprises.

Among the anti panic arguments, the most compelling comprehensive argument was that the 1997-98 global financial crisis served to vaccinate markets against the flight to quality threat.  The argument here was many sided:

• There's a lot less "gypsy" or "hot" capital streaking around the world now
• Hedge funds have come under a lot more scrutiny after the Long Term Capital Management debacle
• Emerging markets have cleaned up their act a lot by adopting far more transparency in terms of market operations, banking, and general financial accounting practices
• Global investors are now much less naive about emerging markets
• International Financial Institutions like the IMF and the World Bank have learned much from the process, and, along with the U.S. Treasury, now act more preemptively to stave off currency crises, such as the recent rescue package for Brazil
• Markets and market players have, in general, learned much about the pitfalls of the globalizing New Economy, therefore acquiring many of the skills needed to weather whatever financial tumult Y2K might toss in their direction.

In sum, this argument states that the 1997-98 Global Financial Crisis was sort of a dry run or dress rehearsal for Y2K.

A second anti-panic argument states that even if a flight to quality occurs, it will simply "even things out" financially by moving more money into securitized debt markets in general and, within equity markets, away from the so-called New Economy heavyweights into small and middle capital firms and those old market standard bearers, the cyclicals (i.e., more industrial-era firms specializing in production).  While this shift might burst the Internet bubble, that's hardly the end of the world as we know it, and really only proves that no great laws of economics have been repealed by the Information Revolution.  In short, much ado about nothing.

A third anti-panic argument points to the clear readiness of the U.S. Federal Reserve to keep money plentiful and cheap as 1999 draws to a close.  The unprecedented step last December by Chairman Alan Greenspan to print out an extra $50 billion for injection into the U.S. currency supply signaled that in spades.  In short, this will be exactly the sort of experience the Fed was designed to mitigate, and with the impressive Greenspan at the helm, all is likely to be well in the world's financial center of gravity.

Finally, Europe feels Y2K okay as a result of going through their own vaccination-like experience: preparing for and introducing the European Monetary Unit, or Euro.  Now, the oft repeated counter to this notion is that Europe's preoccupation with the Euro's introduction in January 1999 served as a huge distraction that diminished its Y2K remediation effort, thus exposing it to more danger come 010100, but many in Europe feel--much like Wall Street does about the 1997-98 Global Financial Crisis--that much good came out of the Euro experience in terms of preparing them for new levels of coordination among state governments and financial markets.  Again, many Europeans feel the Euro's introduction taught them much of the New Economy skill set needed to deal with a systemic challenge such as Y2K.

To sum up this section, we note that the majority opinion here lay with the anti-panic arguments.  In effect, whatever financial knee jerks Y2K could trigger were seen as falling within the normal, sometimes roller coaster-like parameters of major markets in our IT-driven, globalized New Economy--definitely not for the weak hearted, but not out of the ordinary for today's financial environment.
 

Could Markets Go Broke in Post-010100 Meltdowns?

Slide 30 moves us on to the Onset and Unfolding phases, or basically the first several weeks past the 010100-threshold.  In this phase pairing, we proposed that Markets Going Broke was the most likely global financial dynamic in response to the Y2K Event initial unfolding.  Again simplifying the arguments, this is what we heard in terms of pro- and anti-crash rationales.
 
 

The biggest pro-crash argument concerned oil, and the argument was an unusual one.  Most participants were sanguine about the oil companies themselves and the shipping of oil over the seas, whereas the biggest concern revolved around the transshipment ports and specifically, the record keeping or "admin."  The reality is that it doesn't take much of decrease in the flow of oil, for example, into the United States to trigger short-term price rises. A slowdown in the range of only 5 percent is sufficient to send gasoline prices significantly upward, according to Department of Energy representatives, and once that happens, the economy adjusts accordingly to account for higher cost in such a crucial commodity.  In short, that price rise alone is enough to make Wall Street sit up and take notice of the possibility of a Y2K-induced downturn.

Another pro-crash argument centered around the enterprise software systems that allow for the just-in-time supply chain margins that have come to define the New Economy.  We can sum up the Wall Street thinking here rather easily: This will be a big test of enterprise software systems. If they work, they will have proven themselves in a very profound way, but if they don't, the economy could be in for a nasty surprise.  Along with manufacturing, this argument points in the direction of the Flood Onset Model, i.e., the slow but inexorable "gumming up" of the supply chain "works," especially among critical component suppliers.

Another pro-crash argument concerned countries with xenophobic tendencies.  In short, those states that have a hard time letting outsiders help may be in for the harder times.  Taking into account that Y2K is ultimately a localizing affair to the extent it's significant, most participants assume the U.S. and Europe will do reasonably well, leading to the possibility of providing immediate help to lesser-developed countries suffering worse. Thus, to the extent that such countries are politically open to this aid (i.e., "Western help for a Western problem"), they may weather the "storm" like any other complex emergency.  However, if cultural norms or political values such as the desire for autarky ("We solve our own problems without the West's help!") predominate, the interconnected nature of the Y2K Event may force the West, along with neighboring states, to effectively "quarantine" the state in question, thus exacerbating the ongoing situation in a multiplicity of ways.

Finally, there was the sense that International Financial Institutions like the World Bank and IMF would be forced, for lack of funding, to turn a deaf ear to those states suffering Y2K-induced economic crashes that had not "cleaned up their acts" following the 1997-98 Global Financial Crisis.  In short, if you "firewalled" your economy off from the world a bit in response to IMF calls for reform, don't expect to find yourself at the top of the list for it's attention come 010100.

Moving on to the anti-crash arguments, the first and most obvious one offered was that the markets would naturally take Y2K into account when forecasting 1st Quarter earnings estimates, with consideration given to firms that experience unusually high volume in the last two quarters of 1999 and suffer a dearth of sales in the first due to a combination of Y2K disruptions and the inevitable draw down of stockpiled supplies.  In other words, so long as there's enough realistic thinking on Wall Street concerning vulnerable firms, there'll be no surprises, and since the market basically responds to "current events six months into the future," 1st Quarter activity will reflect the view of the inevitable recovery in the 2nd or 3rd Quarters, and not the immediate difficulty of the first.  In sum, losses aren't the problem, surprises about earnings are the problem.  But no surprises should happen if Wall Street firms and other markets do their homework.  Of course, this gets us back to the problem of all that self reporting that goes into generating those Gartner Group (and others) reports, but "putting on a good face for the investors" isn't exactly a Y2K-specific problem, now is it?

A second anti-crash argument cites a perceived but not yet proven IT "lockdown" by major firms, meaning a freeze on IT purchases through the last two quarters of 1999 until Y2K passes.  On this point, participants noted that IT firms had taken this dynamic into account already, and we're planning to unleash a torrent of new products during 2000.  In effect, Silicon Valley saw this lull coming and is prepared to jump start the market ASAP once the Y2K Event recedes into the background.  If Y2K turns out to be minor, then confidence regarding Silicon Valley and the Internet stocks should soar in combination with the expanding market moment for hardware and software firms.  In short, this argument is not only anti-crash, but pro-boom.

Another anti-crash argument notes the usual "January effect" whereby markets, responding to positive earnings reports from the previous year's 4th Quarter, tends to look rather optimistically toward the future year, especially if the markets end up in positive territory after the first business week (historically a good sign of positive returns for the year).  A corollary to this may be a rapid influx of cash from individual Americans who, having taken substantial amounts out of equities in weeks prior to 010100, now feel reassured enough to put their money back into play.

Finally, participants predicted that the IMF, World Bank, and the US Treasury would work hard to protect those emerging economies that had suffered much in 1997-98 but had "cleaned up their acts" as a result.  A good example of this would be the story that Thomas Friedman repeats in his book, The Lexus and the Olive Tree, where he notes how far South Korea's Ministry of Finance has come since late 1997 in terms of transparency to the outside world. In December 1997, when the country's currency was under attack by international speculators, international organizations seeking to help Seoul inquired as to the state of their foreign currency reserves, only to be lied to by the Ministry of Finance, which had claimed three times as much as it actually possessed.  Learning from that mistake, and the pounding it took from the "Electronic Herd" when the truth came out, the Ministry of Finance now sends out an email at the end of every business day detailing its foreign currency reserve holding down to the last penny.  In short, Y2K will show the price of secrecy and the promise of transparency.

To sum up this section, we note that the majority opinion here lay with the anti-crash arguments.  In effect, however Y2K unfolds over the 1st Quarter, Wall Street thinks it and other global super-markets can adjust accordingly, with the caveat being that "you're only as smart as the information you possess."
 

What's the Likely Long-Term Market Impact from Y2K?

Slide 31 wraps us up with the Peak and Exit phases, or basically the first several weeks past the 010100-threshold.  In this phase pairing, we proposed that Small and Medium Enterprises (SMEs) Failing was the most likely global financial dynamic in response to Y2K's peak experience.  Again simplifying the arguments, this is what we heard in terms of pro-downturn and pro-boom rationales.
 
 

The first pro-downturn argument centered on consumer and investor confidence within the United States, and the potential for Millennarian-engendered social unrest to sap the public's optimism about the future.  For example, what would be the social climate in the U.S. if November and December witnessed several Littleton-like shooting sprees, several "Heaven's Gate" mass suicides, and one or more Waco-like standoffs between federal police forces and a Millennarian group.  It would not be overstating the possibilities to say that such a confluence of seemingly "crazy" tragedies would shove the country's collective psyche into levels of fear we haven't experienced since the 1968.

A second argument is more general, noting that the current global economic picture features really only one solid engine of growth--the United States.  As Secretary of the Treasury Robert Rubin warned repeatedly during his last weeks in office, it's simply not enough to hope that the U.S. economy can keep the global economy moving all on its own, especially given the rather slim foundations upon which recent stock market rises have occurred (i.e., the concentration on the Nifty Fifty, or New Economy/Internet/".com" firms).  Moreover, it's dangerous to assume that the IMF could do much more than help out a small handful of affected nations, given its limited resources.

Another argument turns a previous one on its head: namely, worse-than-expected 1st Quarter earnings could trigger a mass exodus out of equities, given the scary long-term perspective those numbers might create among individual investors (i.e., "Wall Street had no idea how bad it was going to be!").  Linking back to the previous negative argument concerning oil, we'd note the consensus view that no commodity cost increase could throw off earning estimates more than a rapid jump in oil prices.  More obviously, a peak Y2K environment would provide the average investor with more than enough signs that the future was uncertain above and beyond what was happening in the markets.

Switching to pro-boom arguments, many participants argued that most large firms--especially US ones--looked at the Y2K Event more as an opportunity to expand market shares than a threat to their existence.  In effect, they're defining Y2K as a sped-up market experience, not some one-of-kind exogenous catastrophe that affects all equally.  So-called New Economy firms stand at the forefront of this aggressive thinking, believing that the organizational and marketing skill sets they've mastered to flourish in the New Economy are well-suited to coming through the Y2K Event in good enough shape to capture market shares lost by less agile competitors.  In short, they don't view Y2K as something to sit out, but rather as an inevitable set of dynamics they will encounter again and again as the New Economy matures.  In their minds then, there's no escaping Y2K, so why get as good as you can at dealing with this sort of market experience?

A second pro-boom argument basically discounts the economic "threat" of high SME failure rates, noting that this dynamic is increasingly part and parcel of the New Economy anyway, where a winner-takes-all mentality prevails.  We could call it a sort of "T Rex" economy, where a relatively small number of behemoths regularly gobble up (acquire or bankrupt) smaller dinosaurs (firms), which in turn are constantly being replaced by new species, i.e., start-up firms promoting a singular service or product that eventually draw the attention of the giants.  If, many of our participants argued, the Y2K Event forces a higher SME failure rate for some significant length of time, then all we'll see is a faster concentration of wealth and market shares in a few giant firms in each industry, but no more of a concentration than would have happened without Y2K's intervention.

Another pro-boom argument says that if fortressing occurs, much of it will be time-based rather than business partner-based, i.e., you won't ditch your long-term partner, but you may force him to engage in some wholesale IT upgrade if his current system fails the Y2K test.  In effect, this has happened in many firms throughout the remediation period, as many simply found it cheaper to replace than to fix.  If this dynamic must be repeated for those who fail post-010100, it'll be hard on them financially, but doable in many instances.  And for those who can manage this, efficiencies will naturally accrue.

Finally, there is the general pro-boom argument that has long been offered regarding Y2K, especially in terms of the lengthy remediation effort leading up to the 010100-threshold: namely, all this preparation for Y2K constitutes a "great IT housecleaning" for almost all firms, organizations, and government entities--one that was long overdue.  In many instances, firms and governments have bought into the IT Revolution with little planning or forethought, resulting in a mishmash of systems and poor overall understanding of architecture and best practices.  Y2K's arrival has force many efficiencies in this regard and, in the long run, the economy will benefit greatly from them.

To sum up this section, we note that the majority opinion once again lay with the more positive perspective, making it 3 for 3.
While it's easy to brush aside such optimism as reflecting the narrow, profit-obsessed perspectives of these oft described Masters of the Universe, there are a number of good reasons to believe their opinions are not misplaced:

• Wall Street firms place a lot of emphasis on good intelligence
• They've got tremendous financial exposure on Y2K (i.e., incentive) and tremendous financial resources to deal with it (i.e., remediation)
• They are greatly familiar with the dynamics of the New Economy, and think Y2K (as a threat) is part of that paradigm they've spent so much time and money seeking to understand
• They're not naive about the risk, just confident that the markets can process that risk
• They see the recent Global Financial Crisis as a wake-up call that a good portion in the industry took seriously, especially in the United States.

Summing Up An Optimistic Wall Street:  Market Indicators

As a way of summing up the Wall Street perspective on Y2K as we found it, we'll present the participants' sense of where the markets would go if Y2K turns out to be significant (meaning these are not their predictions for markets if Y2K turns out to be less than significant). We won't offer any hard numbers here, just gross directions, although we'll note that none of the cumulative percentage swings were greater than roughly 10 percent, meaning the group as a whole did not foresee great market instability out of line with the last year or so.

Table 2 below presents the directions predicted in a significant Y2K Event across nine key market indicators based on the price levels recorded at the close of business, 30 April 1999 (last market day prior to the workshop).
 
 

For purposes of clarity, we explain the results in the following method.  If the global Y2K event was significant and destabilizing, then we would expect the following trends:

• Gold would rise in cost through the start of next spring and then decline
• Oil would rise in cost through the start of next spring and then decline
• The Nikkei would decline throughout all scenario phases
• The Dow Jones would decline through the start of next spring and then rise
• The Yen would weaken against the Dollar through the start of next spring and then strengthen
• The Dollar would weaken against the Euro through the end of this year and strengthen thereafter
• The return on a 2-Year Treasury Note would decrease through the start of next spring and then increase
• The return on a 30-Year Treasury Bond would decrease throughout all scenario phases
• The Fed Discount Rate would increase through the end of this year and then decrease thereafter.

Again, in none of the nine cases did the group consensus predict a cumulative swing of more than ten percent, reflecting the overall positive tone of the workshop regarding the ability of markets to manage the global risk presented by Y2K.
 

Spotlight: Have We Asked Too Much of Emerging Economies Lately?

All our research to date suggests that the Emerging Economies of note (e.g., Argentina, Brazil, China, India, Indonesia, Mexico, Poland, Russia, South Africa, South Korea, and Turkey) represent a sort of "swing vote" for Y2K's ultimate global economic impact.  There seems little doubt that the most advanced economies will largely do well and that the least advanced economies will largely do poorly, so the key question remains, "What happens with the Emerging Economies?"

What troubles us and some on Wall Street with regard to this Y2K "referendum" on Emerging Economies is that it comes right on the heels of a number of other challenges that we in the West has tossed in their general direction (see Slide 32).
 
 

At the beginning of the 1990s we asked most Emerging Economies to democratize their political systems--and be quick about it!  The Berlin Wall had fallen and most in the West had rather unrealistic expectations in this regard, despite some heroic (and not-so-heroic) responses to this huge challenge by key states.  Once President Clinton came into power in 1992, the U.S. (largely led by then National Economic Council director Robert Rubin who later became Secretary of the Treasury) pushed an aggressive agenda overseas to have the Emerging Economies open themselves up dramatically to U.S. financial markets.  Succeeding in this effort dramatically over the next 5 to 6 years, the Clinton Administration provided rocket fuel to the course of globalization, freeing up the global movement of investment funds in unprecedented ways and, by doing so, creating some of the conditions that led to the Global Financial Crisis of 1997-98.  Once the Asian Flu had started, the West, again led by the U.S., pushed hard to have many Emerging Economies "clean up their acts" and reform economic practices almost overnight.  And then comes Y2K in 1999, and once again the Emerging Economies are being asked to "fix things up" and be damn quick about it!

In short, it has been one tough "row to hoe" for most Emerging Economies across the 1990s.  The amount of change they been asked to endure and promote is immense.  To the extent that Y2K proves to be a "separation point" between IT- or New Economy-competents and incompetents, one is tempted to ask whether or not too much has been asked of Emerging Economies as of late, and whether the West is really setting itself up for dangerous economic times ahead by adding Y2K compliancy to what already is an overstuffed and overly ambitious agenda of reform for these relatively fragile states.
 

Y2K As a Sped-Up Market Period: Winners and Losers

One of the themes of the workshop was the notion that Y2K represented a sort of deadline for entry into the New Economy of the 21st Century, with the natural question for any country being, "Are you ready?"

To the extent that one can speak of winners and losers or a "global scorecard," Wall Street definitely has some opinions about who they'd expect to do well or poorly with Y2K, which we've summarized below in Slide 33.
 
 

The first thing we can say about probably winners is that they'll look more like the U.S. than different.  By "like" we mean they'll tend to have some or most of the following characteristics:

• Proficiency in English
• Former English colony
• Democracy; federated political structure
• Distributed economic structure; free market orientation
• Wide open social scene that's accustomed to processing a certain amount of "chaos" with aplomb
• Distributed network systems (more "parallels" than "sequentials")
• Problem-solving culture that enjoys challenges as "finest hours."

Obviously, the countries that tend to have the most difficult relationships with the U.S. tend to be the states least like the U.S., so there's where you might look for countries destined for harder Y2K experiences.

Another key attribute of probable winners is lots of transparency and rules regarding domestic and international economic behavior.  The more Thomas Friedman's Electronic Herd can access in terms of good information about your national economy, the more likely it is that you'll be treated fairly (i.e., according to objective economic criteria), whereas the worse the access to good information, the more likely the Electronic Herd will interact with your economy on the basis of half-truths, rumors, and false information.

Since Y2K is considered part and parcel of the New Economy (i.e., the sort of system perturbation one just has to get used to in a globalized, IT-driven economy), the more you've mastered the skill set associated with the New Economy (e.g., ability to swap out partners at the drop of a hat, strategic alliances to hedge against uncertainty, rapid adaptation to market shifts) the better off you'll be with Y2K.  Conversely, the more your economy is based on long-term relationships that do not easily change or adapt, the harder Y2K is likely going to be for you.

Wealthier states or firms will, in general, do better with Y2K due to the resources they can free up and bring to bear in terms of both remediation pre-010100 and consequence management post-010100.  But even more important that resources is IT-savvy, since competency is the "long pole" in the tent, so some less wealthy states such as Ireland, a rising "virtual tiger economy" in its own right, should do well.  On the other hand, poor and IT-backward economies are far more likely to be blind sided by Y2K.

Finally, among the emerging economies (about 80 percent of the global population), those who have learned most and best from the 1997-1998 Global Financial Crisis (basically moving more in the direction of the previous four bullets above) will do far better than those who suffered much during the crisis and have done little to change.  In short, Wall Street views the 1997-98 crisis as a wake-up call for having your house in order regarding Y2K in that the skill sets required to deal with each crisis are similar (i.e., the "basic fundamentals").

To sum up, there's not a lot of mystery, as far as Wall Street is concerned, regarding likely winners and losers with Y2K.  Scorecards are already being prepared in global financial super-markets, and judgments are likely to be swift.