Will the U.S. be prepared for the challenges of the year 2000 computer problem? Yes, according to a Senate committee investigating the matter. But the panel also warns of some problems. Following a background report, Elizabeth Farnsworth and guests discuss the panel's findings.

JIM LEHRER: And to Elizabeth Farnsworth in San Francisco.

ELIZABETH FARNSWORTH: And with me now are the co-authors of the Senate report: Robert Bennett, Republican of Utah, and chair of the Special Committee on the Year 2000 Technology Problem; and Chris Dodd, of Connecticut, the senior Democrat on the committee. Joining them are Bruce Webster, chief technology officer of Object Systems Group, a Dallas software development consulting firm. He recently wrote the "Y2K Survival Guide," a personal preparation manual for the year 2000. And Lou Marcoccio, Y2K research director at the Gartner Group, a technology and business advice company in Stamford, Connecticut. The Gartner group served as a consultant for the report released today. Senator Bennett, expand a little on your "Paul Revere-Chicken Little" remarks, please. What is your view of the overall risk Americans face right now because of the Y2K problem?

SEN. ROBERT BENNETT, Chairman, Special Committee on Year 2000: I think America as a whole will be all right. I think we'll have some problems but they will be localized, and how seriously they disrupt your life will frankly depend on where you live and where you work. If your employer isn't compliant or if your town isn't compliant, you might have water problems or other problems, where most Americans say, gee, this is no big deal. But I think the main infrastructure issues that we face are frankly going to be all right. And if I may, I think our committee can take some of the credit for that in the Paul Revere role. But we do have to worry about the Chicken Little because some people will panic and the panic will end up being more disruptive in their lives than the Y2K problem would be.

ELIZABETH FARNSWORTH: So Senator Dodd, just being as specific as possible, do you not expect widespread disruption of electricity, telephones, that sort of thing?

SEN. CHRISTOPHER DODD, Vice Chair, Special Committee on Year 2000: You know, if I can try and synthesize this, the three areas where we at least at this juncture don't see any widespread problem at all, in fact we see a lot of compliance, generally speaking, there are some exceptions here, but financial services are in very good shape and our estimation at home, the issue of utilities are in good shape, with exception of maybe some smaller utilities, some smaller grids could be a problem. We also see the telecommunications field to be primarily in good shape in the country. Again, there may be some exceptions here; there are problems we've got to watch for; but based on our interim assessment here, we think they're on the right track. The areas where we see a problem are in health care, in the area of international relations, if you will, problems offshore that need to be dealt with. We see problems, as well, within the business community, smaller businesses that haven't complied as much, some transportation in government services. Those are the problem areas and those are the areas I've mentioned that are in pretty good shape.

ELIZABETH FARNSWORTH: And, Senator Dodd, specifically what's the problem with health care?

SEN.CHRISTOPHER DODD: Well, you've got 6,000 hospitals, about 800,000 doctors, 50,000 nursing homes. Right now, Our assessment is that about 64 percent of the hospitals in this country are lagging behind. I'll use that terminology. That number is actually higher when you start looking at inner city, urban hospitals or rural facilities that don't have the financial wherewithal to either do the remediation or to buy new equipment. We see in doctors' offices somewhere between 80 and 85 percent of doctors' offices don't have any assessment of whether or not they're going to have a problem with this Y2K issue. You need to get ahead of that. There are other areas here, such as the -- we discovered -- Bob and I did -- in the last 24, 48 hours that 80 percent of the ingredients in all US-manufactured pharmaceutical products come from offshore. That proposes some serious problems in a sense that we're having difficulties offshore getting those products to make the pharmaceuticals that are needed; 40 million Americans require some prescription drugs every day and that could pose a serious risk as well.

ELIZABETH FARNSWORTH: Okay. Bruce Webster, help us understand the timing of this. You've been looking at it and still are very carefully. Is -- the disruptions that would occur, however minor or major would they occur early January 1st? How will Americans experience this?

BRUCE WEBSTER, Information Technology Consultant: Well, actually, I think that January 1st will be a bit anti-climatic. There is a lot of progress being made. The more spectacular failures have either been overblown or have been repaired. The danger, partly as the Senators have eluded to, is that of panic or market reaction leading up to January 1st. And then on the far side of Y2K, I think the real danger there is economic. I think far more Americans will feel Y2K in their pocketbooks than will find, you know, problems with power or water supply or whatever.

ELIZABETH FARNSWORTH: How so? What do you mean?

BRUCE WEBSTER: Well, I see a number of factors that can contribute to an economic slowdown and recession. These can be disruption in oil supply, it can be issues of supply chain and manufacturing, it can be issues of a worsening of the current global economic problem. It can be a problem of simply corporations which are already doing record layoffs finding themselves having to scale back even more as Y2K problems sort of bleed them from a thousand cuts or as a friend said the other day, you know, torment by a thousand flea bites from Y2K problems that weren't caught.

ELIZABETH FARNSWORTH: Lou Marcoccio, do you share that worry that the domestic economic problems are really the biggest concern?

LOU MARCOCCIO, The Gartner Group: Yes, I do. Actually, the domestic problems, as Senator Dodd said, are mostly focused on the -- some of the smaller hospitals, some of the local city and town governments, smaller businesses. Most of our infrastructure here in the US is in very good shape. From a timing perspective of when these things will occur, basically we're going to see a wrap of up even before January 1, 2000, associated with system failures. These systems basically will start failing as more and more companies and service companies enter their fiscal years in July and in October. We have a number of date anomalies that are built in software code that will be affected throughout the second half of 1999. And the failure period of when we will actually experience these system failures is going to last from about mid 1999 through the end of 2000 into the first quarter of 2001. We will have more volume during the January time frame of 2000, but the overall failures are really a longer issue, about an 18-month issue. Luckily, they're not all going to happen at the same time. They're going to happen when companies run certain transactions in the operation of their company. And these things are run at different times over that 18-month period.

ELIZABETH FARNSWORTH: Senator Bennett, what did your committee find about risks to the domestic economy?

SEN. ROBERT BENNETT: I think the major risk to the domestic economy will come from failures overseas paradoxically. One of the things that has hit all of us on this committee is the discovery of just how interconnected the global economy is. And we talk to each other around the world by computers now. The computer is everywhere. It's ubiquitous. And as there are problems overseas, either in the supply chain that's been referred to, so that we can't get material that we used to get in the same time frame we used to get it, or the collapse of markets where we can't sell things that we used to sell because the things can't be processed, something as simple as Customs forms that will control the shipping of goods across national borders are all controlled by computers. I think it's true that you will hit January 1 and things -- the world will still be there and you'll say, oh, this behind us. And then systems will start to deteriorate. Supply chains, infrastructure systems in some other countries, and then there will be interruptions and I think the economic impact will probably hit a little later in the first quarter or maybe even the second quarter of 2000. If I had a really god crystal ball, I'd be rich but that's where I think things are going to be.

ELIZABETH FARNSWORTH: Senator Dodd, I want to move on now to the national security issues here. This will interest Americans a great deal. What about the dangers of something like a mistake in missile launch because of this problem?

SEN. CHRISTOPHER DODD: Well, we think the risk of that is pretty low. So we first of all to follow our admonition here, and that is that we don't want to create any language here. It's very important and panic in itself can create a whole new issue that - as Senator Bennett has said - could be more problematical than the Y2K problem. So we think it's a low-level problem. One of the ideas that's being suggested and we think has a lot of merit is to establish in Colorado Springs where there is a facility a sort of a window where representatives, teams if you will, from nations that possess a nuclear weapon capabilities, obviously Russia, possibly Pakistan and India, possibly China, to come together here during this period of time when you could have computer failure, satellite failure, causing a nation in a sense to be blind for a period of time; not able to determine whether or not it's under any threat. This way by being in that facility, the nations that have these weapons would be able to watch, as we would watch, during periods like that and minimize the threat of a nuclear - of a premature nuclear launch or someone overreacting to a situation. So that's a very positive suggestion, one that we think actually Senator Moynihan has wisely raised the suggestion that out of this Y2K problem, maybe some more permanent ideas that could offer some stability in the area of nuclear weapons proliferation in the 21st century might emerge. Aside from the bad news of the potential Y2K problem, maybe some ideas will come out that can be helpful. Let me mention, if I can, one thing that Bob wanted to - has talked about that's very important on the economic front and the national security front, and that is one of the things we want to make sure doesn't happen is many countries around the world where the Y2K issue is more of a problem, there's some concern people may decide to move currencies, resources they have out of their own countries, then bring them here, figuring this would be a safer place to be. We would urge people not to jump at that at all. One of the things that would hurt us economically, be a real problem internationally, is if we had a drain of resources out of developing countries to the United States, thereby depleting their resources, hurting our ability to sell into these markets, that could create an economic problem that we haven't anticipated.

ELIZABETH FARNSWORTH: Bruce Webster, are you finding that potential in your research?

BRUCE WEBSTER: Yes, the wealth transfer issue is one that Senator Bennett actually raised very early on in this, and it remains a big concern. We are, as I said, so tied together that we can't always see what the chain reaction is. Simple issue, another economic impact; a lot of corporations wisely for their contingency planning are stockpiling goods. This in and of itself could depress consumption the first half of 2000 and hit issues there. What we face is a discovery of the complex systems that we have built or that have evolved worldwide. They tie us together in ways we don't fully understand and we discover those connections only as we tug at strings, trying to untie the proverbial Gourdian knot.

ELIZABETH FARNSWORTH: Lou Marcoccio, has there been a lot of progress in the past year on preparing for this?

LOU MARCOCCIO: There has been phenomenal progress actually. We still have many areas that need to be focused on and especially areas that are lagging behind. But the progress has been phenomenal. Companies like banking and quite a few countries like in Mexico, here in the US and in a number of other countries has moved forward exceptionally well. We have large pharmaceutical companies, many large discrete manufacturing companies, many, many companies throughout the world have really focused, spent an awful lot of money, time and effort and there's been tremendous progress -- especially during the last two quarters of 1998. And we see even more of a shift occurring, even in the start of 1999, such that companies are actually spending a lot more money in the areas of business risk assessment as far as their dependencies overseas and in other areas and implementing contingencies to stave off some of those risks and some of those issues.

ELIZABETH FARNSWORTH: Senator Bennett, what is your committee recommending for individuals and the nation?

SEN. ROBERT BENNETT: For individuals I recommend take charge of your own Y2K problem. Don't sit around and read the newspapers and say this is going to happen nationwide and therefore I'm going to panic. Whatever happens nationwide is less important to you than what's going to happen in your hometown. Talk to your own banker. Talk to your own city hall. Ask the question of whether or not your city is going to have water supply. I've done that with the mayor of Salt Lake City and she assures me everything is going to be all right. That's where I expect to be on New Year's Eve. Look at your own records, look at your own pharmaceutical needs, talk to your pharmacist, understand what you need and take charge, make your own contingency plans and you'll be fine. For the nation, we're just going to continue to do what we've been doing for the last year and keep holding hearings, keep running investigations, keep having interviews. I think the mere fact that someone gets a phone call telling him or her you're going to be invited to testify before the Senate of the United States on the status of Y2K preparedness in your company or your industry or your city or your state stimulates activity that frankly wouldn't have taken place otherwise. And I think the committee -- the committee will continue to do that, and I hope play a positive role.

ELIZABETH FARNSWORTH: Senator Dodd, do I have something to add about what's recommended?

SEN. CHRISTOPHER DODD: No. Bob Bennett has done a great job with this. We've got wonderful members of the committee. I mentioned Pat Moynihan and Gordon Smith, John Kyle, Susan Collins, a new member John Edwards joining us, and a member from North Carolina. People are really committed to raising the profile. We have no legislative authority. Today the Senate gave us some additional resources to work between now and March 1 of next year. We just want to urge people, as Bob Bennett said, the best effort here can be made by individual people raising the questions, talking to people at home, talking to their municipalities, people in their states, not to panic about this; there's no reason to around stockpiling and buying large quantities of food or other things. That's not necessary here at all. There are going to be some problems, we think, but they have shouldn't be too pronounced. I think the Gartner Group has suggested - you can correct me here if I'm wrong -- that most of the problems, about 90 percent of them, if are there are any, will be resolvable in somewhere around 72 hours and that 10 percent of the problems that go on, they will be a few days more than that potentially in some areas. So, this doesn't have to be as big an issue at home. And the more work that's done in the next 300 days will even minimize those risks.

ELIZABETH FARNSWORTH: Well, thank you all four very much for being with us.

SEN. CHRISTOPHER DODD: Thank you.