PRIVATIZATION
AND LABOUR MANAGEMENT RELATIONS
By:
MAHMOOD ABDUL GHANI
Advocate Supreme Court of
Privatization wave has stirred the entire
In the history of
industrial development of this Country, there have been period of economic
growth. With a growing realm of State intervention in the economy and
experimentation and self-reliance, comprehensive development planning was
preceded nationalization in Latin America, Asia and
No doubt when law
entrust power to an Authority, it has to be exercised by the said Authority and
the Apex Court cannot substitute it with its own decision as compared to the
said authority, unless authority betrays total disregard of the rule and the
relevant material. Most of the macro economy policy of the Government is aimed
at economic, political and social objectives. These policies are evaluated only
in terms of economic and political objectives ignoring at times social
objectives. Many a times, the impact of Privatization on labour have been
under-estimated, despite the fact that they are considered the ultimate
beneficiaries of any policy. Privatization is not only one of the major
economic policy but also brings within its hold all major social aspects of the
matter. In most of the country including, developing countries, Privatization
provides funds used almost exclusively for social sector development
activities. Unfortunately so far in
Privatization no
doubt plays a key role in offering individuals with knowledge, skill,
competence to participate more effectively in the society. A well conducted and
well drawn work Privatization is important for the social and economic well
being of country and individuals. Labour is a burning issue in Privatization. Unless
this issue is analyzed, it is difficult to evaluate the overall performance of
Privatization in a country. Labour is the major stock holder in the society,
although they receive the same as what society receives. However labour
constitute an integral part of the society which determines success or failure
of any policy. Awareness and communication about Privatization are the major
issue in the Privatization process. This awareness indicates labour literacy
and awareness going on in his enterprise, as well as at the national level. Communication
about Privatization in this context refers to the organization effort to
disseminate and discuss with labour, regarding the change of ownership. Labour
have a right to information, to learn the change of local form of enterprise
where they are working. This aspect of the matter is clear for those concerns
who not only change simiplicitor but are involved in change brought about as a
result of change in ownership, contractual obligation, working condition and
labour conditions. Unfortunately labour are kept away from informing and
discussing their fate at advent of Privatization which is assumed as being
effected to dilute response of labour and employees union.
Prior
to Privatization, labour becomes aware that their enterprise is going to be
privatized. Due diligence is effected and records made available to prospective
bidders. No doubt labour are scared of Privatization due to the fact that
labour, at times, are injected by the labour unions or their federations and
with Privatization the same will reduce the role of the Collective Bargaining
Agent and as a consequence thereof their bargaining strength. There is also a
possibility of mass retrenchment as an aftermath of Privatization if the
privatized enterprise preferred down sizing in its labour force. In other words
job security is at stake as they are required to work at the most challenging
situation. Finally labour, in a State-owned enterprise is used to a “Rein”
approach towards employees.
Privatization
entail restructuring and change in the wage and salary structure and incentive
system in the enterprise. It is normally accepted that private enterprise
offers attractive salary as compared to state-owned enterprise. However this
overlooks the basic fundamental fact that a private enterprise believe in
efficiency and performance. This fact is normally overlooked due to a number of
considerations, the major being political consideration in a State owned
enterprise, which however does not mean that no sooner a State owned enterprise
is privatized there is a substantial increase in wage and salary structure
after Privatization. This has been noticed especially in the case of
Privatization of Banks in the country. Having a reasonable wage and salary does
not necessarily means existence of guarantee of performance based on such
incentives. Performance based on incentives known as “Payment by Results”
should necessarily be introduced no sooner Privatization is effected. Private
enterprises are famous for such kind of introduction with a view to stimulate
the employees to work hard in the presence of good incentive plan, labour will
be happy to work with cooperation and labour loyalty will be more pronounced. Productivity
output may be set up and quality can be improved. In other words the committed
labourers can be expected to be rewarded in addition to the normal pay, salary
or wages, unlike the State-owned enterprise where labour are paid almost the
same wage regardless of individual performance.
Job
security is the most important motivating determinant in administering labour
among all factors. Labour participate in a high degree of fulfillment in
respect of adequate salary and job security owing to the situation with labour
in this country, either are at the minimum wage level or subsistence level and
barely at the fair wage level. However it can be said that the overall results
may present job security of many employees working in the private enterprise. Privatization
restructures enterprises in terms of working hours and loads. It is often
accused that private enterprise mount pressure to work hard which may be beyond
the maximum physical ability and environment and may deteriorate health of many
employees. Unfortunately because of lack of research and lack of statistics
being not available nor any interest shown either by the Privatization
Commission or for that matter the Ministry of Finance, no statistics so far is
available to rebut the allegations which we presume are more political oriented
then otherwise that are made by labour leaders or disgruntled element. Working
hours under the labour laws of
Advantages
of labour laws will determine the degree to which the labour rights and
employment conditions are protected. The less adherence to labour laws, the
more labour rights tend to be at risk which can damage industrial relation and
peace.
Relationship
between labour and management is one aspect which needs to be assessed in the
wake of change of ownership. Labour relationship with the management, by and
large has improved after Privatization, except in cases where, with the change
of the Government, political interference is effected. This aspect with
specific examples will be discussed hereinafter.
Privatization
as a policy is expected to generate employment in the short-run, if not in the
long-run as a major objective with other economic, political and social
objectives. The privatized enterprise have to operate objectively and not
subjectively. During the previous government a major agitation so effected
against Privatization, particularly for the cause of employment, which means
that the employees by at large are indifferent about Privatization. However,
unconsciously, and for which a benefit of doubt should be given, the Government
after taking office without realization of the impact of its statement have
made claims. This is bound not only to effect foreign investment in this
country but also the existing stake holders will be threatened and alarmed. No
doubt foreign Privatization creates more new jobs as compared to domestic
Privatization. Foreign Privatization, as the experience has shown, has
performed less in new job creation and have relatively slowed down retrenchment
of the labour but reduced employees lead count to the process of golden Hand
Shake offers for voluntary retirement. It goes without saying that it is not
the function of Privatization to retain existing strength of labour, nor
discourage improved capability to retain as much labour as needed. Thorough
insight about labour issues reveals two different results in terms of
micro-economy and macro-economy aspects. Likely labour issues are raised
amongst the labour in the privatized private enterprises. These issues are very
much well recognized as well as limited in the scope requiring more of
bargaining and negotiations, whereas macro issues are those issues concerned
with employment generation and retrenchment which can somewhat decide the
enterprise affecting society in particular and economy in general. The above
discussion will reveal that a satisfactory approach of Privatization towards
labour issues can be achieved provided such a right of labour to know their
transfer to another domestic firm or enterprise, is known and communication
with the Labour and unions are well handled prior to and post Privatization. Fear
towards Privatization is generally, about scale of pay amongst labour. A common
perception is that if such a Privatization is effected, and effective
management is transferred to any foreign enterprise, it will reduce the element
of fear as compared to transfer of enterprise to domestic entrepreneur. This
perception has proved not well-founded. Reasons for the same are being analyzed
and after research a separate paper on this aspect will be made available in
due course of time.
No doubt, after
Privatization the overall wage/salary structure and incentive plans have
relatively improved at least in a large number of companies. Labour in domestic
enterprises tend to be more satisfied as compared to labour in foreign
enterprises. Jobs security which is a major job factor and perceived to be
uncertain is now gradually receding in the background. No doubt working hours
and load of work has increased after Privatization, but adherence to labour
laws and getting enforcement of the same, is better in case of foreign
enterprise than domestic enterprise. The most revealing aspect of the matter is
that labour generally view, by and large privatized working conditions as fair
and good. Relationship with the employer is found to be encouraging in most if
not all privatized enterprises which helps Privatization. It is good for the
economy. However, unfortunately effects of Privatization on the economic issues
of the country are negative since labour has been reduced in the name of
re-structuring, though invariably, in almost all cases through the process of
“Golden hand-shake”. New market oriented management practices demand new
managerial outcome and strides. Profitability is one of the managerial issues
and burdens the efficiency of total management system. Classic illustration of
this is the Privatization of UBL prior to its Privatization when it was known
as a sick Bank of Pakistan but after Privatization it has made a turn around
and is now a largely private-oriented organization. It is suggested that the
Privatization Commission should conduct seminars inviting all the privatized
institutions, and request Human Resources Heads to explain in details as to how
they managed to bring about by and large industrial peace and harmony in their
organization after Privatization. This will enable the Privatization Commission
to formulate a plan and future policy of Privatization, making common grounds
and reasons for the success of labour management relations, as the key notes
points in the process of future Privatization. Perhaps exception to this is the
Privatization of Karachi Electric Supply Corporation Ltd which, unfortunately,
has been forced to bleed with huge financial loss. Reasons for these losses are
too elaborate and need to be analyzed before any comments are offered..
Privatized
enterprises profitability has however improved after Privatization in some case
manifold inspite of decline in the return on investment. Reasons for such
diverse relationship between profitability and return on investment should be
ascertained and it be ensured that enterprise retain a substantial portion of
profit for the development of future business in
In Muslim
Commercial Bank, it has been claimed that certain employees were dismissed for
service after issuance of charge sheet, enquiry conducted and dismissal
effected both before and after Privatization. Such employees approached
No doubt the
Federal Government has now made an announcement that in all future, prior to
privatization at least ten percent of the shares will be first offered to the
workers. This perhaps be one of the positive move. However there should be a
caution. Ten percent interest stake, the worker should not be permitted to
interfere in way in working of the privatized organization and then frustrate
the very purpose and spirit for which the Privatization has been effected. An
alternative to this problem is a planned labour policy in the context of
Privatization. Efforts should be made not only by covering Tripartite Labour
Conference, but by constituting a National Commission on Labour. In
Even if the
Government of Pakistan is not prepared to establish a National Commission on Labour,
the least that can be done is to constitute a Committee of Technocrats and
Businessmen and those who deal with Labour Management Relations, who should
examine current state of affairs in the private enterprises and submit its
report suggesting the remedial measures, which can also be possible with active
support and cooperation of the management of the already privatized
enterprises.
Most of the
developing countries during 1980’s had began to review their Telecommunication
Sector Privatization. There are three inter-related factors viz: economically
bad performance of the pubic owned telecom providers, fundamental changes in
technology, making less effort to defend the argument that telecommunication is
an international monopoly and financial pressure from the market and other
international organizations is required to make it competitive. Globalization
of the economy should drive the Government to strengthen adjustments at all
levels. It should be based on certain principles namely market category Efforts
made wherever feasible, encouraging competition will lead to efficiency and
customer orientation. Individualism and individual choice should take
preference over collective choice and State intervention be kept to the barest
minimum. Telecommunication is regarded as key component in the infra structure
of development of any country driven by under-rating technological and market
force. Telecommunication is now one of the most dynamic sector. Business
activities depend on telecommunication and information processing base leads
which include financial services, committees, markets, media, transportation
and tourism. Communication has fast link amongst manufacturers, whole-sellers,
retailers etc. High quality system and services have become critical determinant
of economy competitiveness. No sooner the Pakistan Telecommunication
Corporation was privatized it was expected that foreign investors will not only
invest in the industry but introduce high-tech technology. So far this has not
been done leading to a feeling of despondency. De-regulation and de-investment
of “poll system” in the
|
Network
Expansion and Labour Productivity Before and After Reform (Average
Annual Growth rates, and Lines per Worker respectively) |
||||||
|
Country |
Period |
Network Expansion |
Labour Productivity |
|||
|
|
Pre- Reform |
Post- Reform |
Pre- Reform |
Post- Reform |
Pre- Reform |
Post- Reform |
|
|
1981-90 |
1991-92 |
5.3 |
9.4 |
58 |
96 |
|
|
1981-86 |
1987-92 |
7.5 |
14.3 |
48 |
26 |
|
Jamica |
1981-87 |
1988-92 |
6.2 |
18.8 |
35 |
26 |
|
|
1981-86 |
1987-92 |
17.6 |
12.3 |
26 |
54 |
|
|
1981-89 |
1990-92 |
7.0 |
12.8 |
95 |
122 |
|
|
1980-85 |
1986-92 |
7.2 |
4.9 |
35 |
36 |
|
|
1981-90 |
1991-93 |
6.5 |
11.8 |
68 |
83 |
|
Source: International Telecommunication |
||||||
National Governments of various countries have
adopted various methods for Privatization of their telecom industry as follows:
1.
Direct
sale of entire company to public: Sometimes countries chose to transfer
ownership of industries or companies, swiftly and completely.
2.
Partial
sale of company to Public: Most Privatization have been gradual. For example,
in the case of British Petroleum, partial Government ownership dates back to
1914. In 1977, the government reduced its ownership share from 66% to 51% and
46% in 1979, and finally to 0% in 1995. In addition, Governments have often
sold shares of state-owned firm while retaining a portion of the company (a
golden share) thereby, maintaining a limited degree of control over the
company. This has become widespread, both in OECD and non-OECD countries.
3.
4.
Deregulation:
Another form of Privatization involves deregulation. Deregulation has been the
most prevalent form of energy Privatization in the
5.
Removal
of Subsidies: The removal of a subsidy can also be viewed as a form of Privatization.
The removal of subsidies for European Coal operations, for example encouraged a
large shift in coal investment from European mines to mines in the
6.
Voucher
Schemes: Another aspect of Privatization concerns the methods by which public
ownership is achieved. In many formerly communist countries, voucher schemes
have been adopted whereby, ownership in an industry is simply transferred to
the general public, with no cash exchanged. A lack of developed equity markets
may have encouraged voucher schemes (International Labour Organization, 1999).
One of the
leading firm Meginnson & Nash compared the pre and post Privatization
financial and operating performance of 61 companies from 18 countries and 32
industries during the period 1961 to 1990. The conclusion of its report is that
countries took share issue as dis-investment technique . The four types of
sales shares were as follows:
(a) Flotation’s,
where the government initially had majority and made an initial public offering
of its entire ownership stake, or of a majority-voting share;
(b) State sold enough
shares in a secondary offering, to lower its stake below 50%;
(c)
The
government had voting control and allowed the firm to make a primary share
issue, in which it did not participate and thereby losing voting control; and
(d) The government
had voting control, both before and after the initial public share issue and
simply sold a minority stake to private investors. The first three types of
share sales were called as ‘control Privatizations’, and the last type as
‘revenue Privatizations’.
The objectives of the government should be
(1) increase the firm’s profitability, (2) increase the firm’s operating
efficiency, (3) increase its capital investment spending, and (4) increase its
output without lowering down the employee levels. A defined non-competitive
industry, is one involving the sale of highly regulated product, and/or
service, which does not face significant foreign or domestic product market
competition.
The aforementioned Research Company
computed the proxies of sample firms that were drawn from the World Bank,
listing of privatized firms for seven years. Three years before Privatization
and three years after Privatization. They used Wilcoxon signed rank test and
proportion test, to test the significant changes in the variables:
1. Profitability changes: Profitability
is measured by return on sales, return on assets and return on equity. By either
using net income or operating profit, both measures showed dramatic
profitability increase after Privatization for firms operating in competitive
industries for both fully and partially privatized firms, for both control and
revenue Privatizations and for both OECD and developing country’s firms. But
for the firms divested into non-competitive industries, the increase in return
on sales was insignificant.
2. Efficiency changes: By opening the
market competition, in state owned enterprises, governments’ hope that these
firms will employ their human, financial and technological resources more
efficiently, because shareholders (including employees) suffer most, if
efficiently is not improved. Both of the efficiency measures,
inflation-adjusted sales per employee, and net income per employee, showed
significant median increases following Privatization for the full sample. Sales
per employee went from mean (median) 95.6% (94.2%) during –3 to –1 year
pre-Privatization period, to 106.2% (105.5%) in the post Privatization period. This
median increase in inflation adjusted sales per employee, was significant for
competitive industry firms, for full and partial Privatizations for control
(but not for revenue) Privatization and for companies in OECD countries.
3. Changes in capital investment spending: Privatized firms
increase capital spending after Privatization because:
(a)
After their initial public offering these firms have
far greater access to public debt and especially equity markets;
(b)
If deregulation and market opening accompany
Privatization, the former state-owned enterprises would face very large
investment spending needs, in order to become competitive with other private
firms. During the 1970s for example, British Aircraft was forced to purchase
British made Tridents, Concordes and other aircraft, instead of only preferred
Boeing airplanes. During the 1980s, Britain Aircraft’s re-equipment plans were
driven in part by the need to replace these non-competitive airplanes, with
more modern aircraft;
(c)
State-owned enterprises tend to stress labour over
capital inputs, in their production processes, and the power of politicians,
labour unions, and other interest group tends to leave state-owned enterprises’
employees rich, and capital poor;
(d)
Removal of government control over the state-owned
enterprises also reduces, or eliminates, the government ability to force
state-owned enterprise managers to overproduce politically attractive but
economically wasteful goods; and
(e)
To the extend that Privatization promotes
entrepreneurship, former state-owned enterprises would have the incentive and
the means to invest in growth options (such as launching new products and
services), both at home and abroad.
Meginnson & Nash (1994), computed
investment intensity by using Capital Expenditure divided by Sales (CESA) and
Capital Expenditure divided by Total Assets (CETA). Sample firms increased
capital investment relative to sales from 11.69% of sales (6.68%), before
Privatization, for control Privatization, and for companies in OECD countries,
but this increase was smaller for firms in non-competitive industries, for
partial Privatization, and for revenue Privatization.
4.
Change in output: Better incentives, more flexible
financing opportunities increased competition and greater scope for
entrepreneurial initiative increased real sales after Privatization. They
computed -3 to -1 (pre Privatization), and compared it to the three years
average level for the post Privatization period +1 to +3. Both the Wilcoxon and
proportion tests showed that real sale increase after Privatization, and that
the change was significant at the 1% level under both measures.
5.
Employment: They computed average employment levels
for the three year periods –3 to –1 (pre Privatization), and +1 to +3 (post
Privatization). In the analysis, employment actually increased by mean (median)
2,346 employees (276 employees). after Privatization, and the proportional
tests was significant at the 10% level. They plotted the path of mean and
median employment for 30 sample companies, with seven full years of data,
beginning three years before the year of Privatization and ending three years
after Privatization. These data are graphed in Figure 2.2 and B. They found an
almost continuous increase from year –3 (pre Privatization), to year +3 (post
Privatization), for both mean and median employment.
The major policy change was initiated in
the industrial sector in
(a)
Deregulation of the licencing system;
(b)
Automatic approval for technology imports;
(c)
Easy access to foreign direct investment; and
(d)
Import relaxation.
Salient features
of reforms in the industrial sector in 1991 were:
(a)
The
number of items, in respect of which industrial licencing remains reduced to
nine.
(b)
The
number of industries reserved for the public sector reduced to six, viz.,
defence products, atomic energy, coal and lignite, mineral oils, railway
transport, minerals specified in the schedule to Atomic Energy Order, 1953. Private
participation in some of these sectors was also permitted on a case-by-case
basis.
(c)
More
and more private initiative encouraged in the development of infrastructure
like power, roadways, telecommunication, shipping and ports, airports and civil
aviation.
(d)
The
manufacture of readymade garments – an item reserved for exclusive manufacture
by the ancillary/small scale industrial undertakings opened to large scale
undertakings, subject to an export obligation of 50 percent and investment limit
of Rs.3 crores.
(e)
Automatic
approval of foreign investment up to 51% and foreign technology agreements
permitted for 35 priority industries, which account for about 50% value added
in the manufacturing sector.
(f)
Foreign
investment was liberalized in many other sectors.
It is therefore suggested with all
respect that policy makers in Pakistan should examine these changes suggested
in our neighboring country and if found feasible the same be adopted by
Privatization sector in laying down future major policy change in
Privatization. It is also suggested that a National Telecom Policy be announced
by the Federal Government. It should include the following range of services:
1.
Fixed
line voice services: local, national, international, pay phones, voice mail and
home direct,
2.
Fixed
line non-voice: telegraph services, telex, ISDN, leased line circuits and
packet switched data networks,
3.
Value
added services: mobile telephony, radio paging, VSAT, internet, video
conferencing, inmarsat and intelligent networks.
It will be useful to reproduce the
abstract of Research Work by Dr. Poonam Mittal on Indian Telecom Industry in
relation to employee efficiency which are reproduced with all respect as under:
“Employee
Efficiency: With nearly half-million employees on its rolls,
The telecom competitive structure
consists of four distinct profile of players:
1
Government
owned/controlled large undertakings called PSUs,
2.
Integrated
private service providers that are regional or national level players,
including joint venture companies with foreign telecom enterprises,
3.
Smaller
players offering one or more value added services, but are non-integrated in
the value chain, and
4.
Equipment
manufacturers, including foreign companies operating in
Indian Telecom industry was valued
at Rs.630 billion and grew by 13% in 2002-03. This growth was largely
attributed to mobile services and carrier equipment, both of which grew by 30%.
Paging and radio trunking customers started opting for cellular services, which
resulted in a negative growth for these two segments.”
Labour productivity is always measured in
terms of Revenue per employee, expenditure per employee is to be measured as
compared to revenue earned per employee and expenditure incurred on every
single employee. Productivity is one of the universal standard of good
management and offer all objective instruments of measuring good performance.
If the Government is to succeed, it is but essential that it must have research
and statistics available, so that any decision made is not hypothetical and
based on speculative consideration, whimsical in nature, but based on research
and statistical data. Attempt once made has to be adhered to and followed. Arbitrary
announcement will make us not only a laughing stock in eyes of the world, but
before our own people. The Government of
The above Report therefore show that
where the Government has transparency, it adopts a policy of publishing reports
in official Gazette, preceding Privatization publishing its policies. The
Government in brief, should make an effort for transfer aimed at Privatization
on the basis of which fair market values of this aspect can be achieved. If
Privatization is effected initially in a very arbitrary despotic and whimsical
manner with ulterior motives, the end results will be the Decision of the
The Government of Pakistan in its Trade Policy
2008-09, has encouraged Trade with in
Workshop was also held in
Useful International Journals have
published various articles pertaining to their experience in Privatization
including post Privatization work. It is imperative that Pakistan Embassy in
all major countries should be asked to provide to the Ministry of Privatization
all reports and journals which deal with Privatization, its effects and
remedial measures for our improvement. World Bank have also conducted survey in
this behalf and have produced reports time and again. This can be obtained from
the World Bank. Discussions and also papers on Privatization in so far as
employees are concerned should likewise be obtained. The humble author is prepared,
as a National duty, to provide details of such discussions and policy papers as
available with him. Seminars and Conferences have been held in which
discussions and papers have been read in matters pertaining to Privatization
and its impact on labour etc. Newspapers and magazines have published
periodically Articles pertaining to Privatization and their experiences have
been mentioned. There are even Websites on Privatization in some of the major
countries of the world, where experience on Privatization in different
countries have been discussed. Impact of slow Privatization in certain
industries have been examined.
All these suggestions are being made as
following the Privatization of the Pakistan Telecommunication Company Limited,
and the recent labour unrest, the Federal Cabinet had to spend its valuable
time to find out ways and means of avoiding labour unrest. Needless to mention,
once Privatization is effected then role of the Government could be minimized. However
before any Privatization is effected, it is imperative that due diligence of
labour is made by the prospective buyers. A Cell in Privatization Commission be
established on Labour who should conduct a survey and prepare a report and only
circulate it amongst prospective bidders. No doubt, this may discourage,
certain bidders from entering the ring. However, it is far better to go with
clean hands rather than face labour unrest, as Pakistan Telecommunication
Company is facing currently requiring State interference to resolve the same.