S&P Global buys IHSMarkit -- Full Circle in a Half a Century

Commercial economic forecasting started with two companies that were formed out of research that began in the United States just after the end of World War II.  Wharton Economic Forecasting founded by Larry Klein out of the University of Pennsylvania and DRI (Data Resources, Inc.) founded by Otto Eckstein out of Harvard.  Rumors have it that both Otto and Larry were investors in each others companies, but they were less rivals and more friends.  At about the same time as they were building models of the US economy using the brilliant help of their best students, Mike Evans claims to have built the Wharton model and Alan Sinai the detailed monetary relationships in the DRI model, others were studying the post-war World Economy including Hollis Chenery at the World Bank and of course the links between industries Wassily Leontief out of Harvard with his IO models. 

What made DRI special came from the integration of the release of government data in a form that could be modeled and the availability of the EPS software to link company activity to the broad based forecasts that DRI's model was making available.  An army of Harvard MBAs went forth to the business community to sell this new service and to teach economists in the large, Fortune 500 companies, to integrate their own company sales information with the detailed forecasts coming from the DRI model.  Otto's great innovation might have been to produce not none economic forecast but four each month -- Control, Optimistic, Pessimistic, and the one that I thought was most innovative, cyclical.  This insured that DRI's money making computer could earn more money as the Army of users had to run and print out alternative sales forecasts for their companies.  Otto also allowed users to interact with their model.

I first encountered DRI when I went to work one summer at the Treasury in 1971.  The United States was running a large deficit on its BOP.  Gold was flowing out and Nixon and his Secretary of the Treasury, Connolly, wanted to have an excuse to take the US off the gold standard (The Smithsonian Agreement).  So they broght in a few graduate students, loaded up data on US imports and exports (about 100 categories), added a teletype machine, and divided the products 20 to each of us, and said, here's data on the US and its partners and make equations on trade to show what the deficit will be next year and five years.  

Later, I was reintroduced to DRI in 1977-78 when I was trying to leave Switzerland and the UN.  I was recruited to interview for positions in the company when I was still in Switzerland.  Returning on home leave, I interviewed with a number of groups only to learn, years later, that I was too much a threat and didn't get a job.  But for the company, it is fortunate, I just didn't hold a grudge for when I did move back to America, to the Pentagon, to reestablish economic analysis after in the Office of the Secretry of Defense, I hired DRI and WEFA.    

So in 1978, just before DRI was being sold to its new master, McGraw Hill and later to be merged into the growing portfolio of companies under S&P, I ended up as the Pentagon's Senior and only Economist with a mandate to do whatever the hell I wanted.  Joe Kasputy's engineered McGraw-Hills purchase of DRI for $ 100 million dollars and moved from the Washington office to Lexington.  Before he left he had installed George Brown as my contact for the large, and growing contract I had with the company.  Brown moved into Kasputy's spot as head of the Washington office, and when Kasputy's moved up at McGraw-Hill/S&P, Brown moved to Lexington.

In 1985 I finally made it to DRI to build the World Sea Trade Service that led to the current set of models that I still control and build on.  By this time DRI was a large, money losing part o the S&P franchise  due to its own success.  As the company added more and more data and services, it needed more disc space and the computer system they had was unable to host more storage.  So just as the PC was entering the business community, the company was still invested in time share computing.  The steady decline in revenues coming from simple operations meant that ultimately the business model that had started so well was into the terminal phase of the decline.  DRI waited too long to move to the PC, to port the EPS software to the smaller machines.  At one time in order to do an update of the World Sea Trade Service bilateral trade models it took up 40% of the main frame capacity. 

Just as DRI was floundering as it tried to manage the transition, the other competitor WEFA was also having problems.  It had transitioned to the PC earlier, but the competitive space for DRI and WEFA was the same set of Fortune 500 companies.  George Brown left, taking with him the Trade Group, but the writing on the wall was that both WEFA and DRI needed to merge.  DRI's new leader had proposed to buy WEFA and close it down, to this end he had acquired the WEFA client list.  But as he was waiting for the answer to the McGraw-Hill offer, or at least this is the story I was told, the news came over the wire that Bain had sold WEFA to Primark, the company that Joe Kasputy's now ran.  And so, after all that it was Primark that combined DRI with WEFA to produce Global Insight.   This leads us directly to the sale of Global Insight to IHS, then IHS merges with Markit, and finally IHS Markit merges with S&P, so Otto's creation, the company that changed the way we use data (electronically) and how how we interact with economic data through models and multiple forecasts of the future is once again, safely, within the S&P family of companies.