Experience shows that labor restructuring can proceed smoothly if stakeholders are involved and there are good communication mechanisms in place. The fears and concerns of workers can be significantly reduced when explicit efforts are made to inform them about the objectives, timing, and methods of PPI, as well as the packages and incentives that will be developed to minimize the social impact. To ensure a smooth process, governments also need to define implementation arrangements and create the capacity to carry out labor programs.
Privatization is almost everywhere a highly controversial process opposed by various stakeholders, including labor. For the following reasons labor opposition can be greater for infrastructure enterprises than for other state-owned enterprises:
Share transfers are best seen as an addition to rather than a substitute for voluntary departure or early retirement.
The lack of labor involvement in the process has been a further contributing factor. Although there is a trend toward more openness, some governments are still reluctant to engage earlier and more openly with stakeholders. They recognize both the advantages and disadvantages of engagement (box 1.12) and will weigh the benefits and costs of engagement as summarized in table 1.2 below.
Stakeholders have more concerns over the involvement of the private sector in infrastructure than in other state-owned enterprises.
Malawi's experience is that labor opposition to privatization escalates if the labor movement is not involved early in the process:
In many African countries labor unrest occurred because of lack of consultations. Our experience is that an explanation of the government's plans assures labor unions that sacrifices will be balanced with measures to allow the employees to share in the benefits of privatization...Two problems [however] emerge with regards to consultation with labor unions in general. The first is that most employees consider privatization as a means of forcing redundancy offers... There is yet another dimension to involvement of unions in the process. As we discovered in Malawi it could–and often does–lead to a significant complication and lengthening of the transaction. In addition, employees who have access to privileged and sensitive information tend to use it to their advantage in the bidding process, thereby undermining the integrity of the transaction (Sauti-Phiri 2002).
The implementing agency may first need to convince colleagues of the need to engage with labor and other stakeholders.
Three of the most common concerns for governments are that:
Those concerns have some validity in experience. But experience also shows that failure to involve stakeholders can have significant costs, can fuel conflict and suspicion, and may further delay PPI or lead to problems down the line. Instead, a well-managed process involving stakeholders can facilitate PPI. Equally important, it can encourage adaptation of labor and working practices suited to local circumstances and thus improve outcomes. If properly planned and managed, the involvement of stakeholders can play an important role in strengthening the fairness, transparency, and accountability of the PPI process.
| Potential Benefits | Potential Costs |
|---|---|
|
|
An inclusive process is more likely to lead to approaches that are tailored to local circumstances.
Key message: the challenges of engagement can be successfully managed.
Stakeholder analysis informs labor approaches.
There are many different stakeholders, defined as groups or institutions that may be affected by or may influence the design, implementation, and outcomes of labor restructuring and PPI more broadly. A good stakeholder analysis can identify these groups and provide information about and understanding of their interests and concerns. It is also a tool to inform the design of labor approaches and the process of engagement with workers.
Stakeholder analysis worksheets.
Further information on stakeholder analysis is set out in module 6, and stakeholder analysis worksheets are included on the accompanying CD-ROM. Some key points are outlined in box 1.13.
For any PPI scheme, there are five principal groups of stakeholders:
Government is not a monolith–there may be pro- and anti-PPI factions.
Investors' views may not be heard until late in the PPI transaction.
Table 1.3 summarizes the stereotypical concerns of these stakeholders. The stereotypes are only a starting point, however. Stakeholder analysis will most likely reveal other interests as well as differences within these groups, under the unique circumstances of each PPI transaction.
| What customers want | What investors want | What government wants | What workers want | What unions want |
|---|---|---|---|---|
| Dependable service Affordable tariffs |
Tailored service for the poor Steady, long-term returns Market share, reputation, geographic presence Mitigation of risks not under their control, or profits commensurate with risks Clear regulatory frameworks and adequate freedom to manage the business |
Budget savings, reduced liabilities for the state Tax, fee, or sale revenues Happy customers and consumers Fast environmental cleanup Jobs for domestic firms |
Security of employment, livelihood, and remuneration Satisfactory pay, working conditions, and work practices Training, enhanced skills |
Retained bargaining position and status Involvement in consultation Maintained membership No shift to "atypical" work No loss of worker rights Evidence of future jobs |
Source: Adapted from Saghir and Taylor 1999.
Stakeholders can be engaged at different levels in the labor restructuring process through four main forms of engagement: communication, consultation, negotiation, and cooperation.
Communication is mainly a one-way transfer of information from government, the implementing agency, or redeployment counselors to the stakeholder audience.
Consultation and negotiation are both two-way processes, but the expectations of outcomes are very different. Participants in consultation expect their views to be heard and taken into account, while those in negotiations expect that mutually binding results will be the outcome.
Negotiation is a distinct form of engagement that arises from the contractual employer–employee relationship between government and work force.
Cooperation can be seen as a more mature form of engagement where both sides expect to participate actively and are committed to win–win outcomes. This distinguishes it from negotiation, which can be adversarial. Cooperative approaches often have longer term and broader perspectives than negotiation.
A key question is which type of engagement should be used, and when. It is rarely the case that all stakeholders need to be communicated with at the same time. Engagement activities are therefore often sequential and, depending on the circumstances, usually include steps to:
One particular risk is premature activities. Hasty and ill-prepared communications can damage the credibility of government and delay PPI if they expose uncertainty in the government's approach. The implementing agency should be able to advise government officials and politicians about how and when to sequence engagement events and about the key messages to be conveyed. The basic rationale for why work force restructuring is essential for the PPI plan must be clearly articulated and understood within government before any efforts are made to communicate it.
Hints and tips on communicating with workers.
Module 6 outlines how to develop an engagement strategy and an engagement plan, with detailed guidance on communication, consultation, negotiation, and cooperation, and the CD-ROM includes guidelines on communicating with workers and guidance on the use of tools such as focus groups and videos.
The actual process of engagement is likely to have starts and stops, periods of progress and setback. It may not always be possible to follow a precise, neatly sequenced plan. As the discussion of Côte d'Ivoire Railways illustrates (box 1.14), a commitment to engage on work force restructuring issues can lead to mutually acceptable solutions and improved outcomes for the implementing agency, the workers, and other stakeholders.
Consultation and negotiation are very different processes.
The importance of the way in which labor issues are handled in the context of restructuring and privatization was demonstrated in the case of Côte d’Ivoire railways. In the early 1990s the railway was restructured without union consultation. The union was unprepared for the challenge of restructuring and lacked the know-how and experience to effectively respond to it. The work force was reduced by about a third, but it soon became clear that there had been too many redundancies in some key areas–notably in signaling and security– and this caused operational difficulties. As a result of this and other deficiencies, the company found itself having to pay some of its remaining work force overtime, so that much of the potential of the process to put the railway on a more sound financial footing was undermined.
By contrast, a second phase of restructuring from 1993 onward, with which the union was more effectively engaged, produced better results. The company's 1993 activity report highlighted changes in commercial attitudes, reduction of fraud by 30 percent, and a 60 percent increase in availability of locomotives–a good sign of maintenance efficiency. The second phase also created a labor relations climate more conducive to the effective implementation of the privatization process, which began in earnest in 1995.
Subsequently, however, a breakdown in communications and consultation among government, management, and labor again produced avoidable problems. When the union asked for information about how further labor restructuring would be carried out, the request was ignored. This led to a strike and to direct actions, such as blocking the center of Abidjan with a locomotive. Details of the redundancies envisaged were provided eventually, but the union had managed to negotiate severance terms equal to 14 months of wages, double the initial offer. In addition, the number of years of contributions required to entitle an employee to an early retirement package was reduced from 20 to 15.
During the negotiations the union also proposed a plan to enable workers to establish their own businesses after retrenchment. Sitarail, the concession company that took over operational responsibility for the railways, agreed in principle to favor companies created by former workers when looking for subcontractors. Since then, track maintenance, company car fleet management, and printing of timetables and tickets have been contracted out to firms set up by former workers. Sitarail has also agreed to give preference to workers made redundant in 1995 when recruiting new staff, albeit on terms different from those that obtained before privatization.
These measures have helped mitigate the adverse effects of retrenchments. At the same time, workers who remained with Sitarail have gained from privatization. For example, although on paper the terms of the company's health insurance program is worse than before privatization, in practice employees have more confidence in it because the company now meets its reduced obligations, whereas before the larger commitments were not honored. In addition, the rail workers' union reports that working conditions have improved since privatization because of investment in workshops, equipment, and uniforms.
Source: Martin and Micoud 1997.
Two major requirements for a successful labor program are clear implementation arrangements and the capacity to undertake the various aspects of the program. For major PPI transactions this usually means the creation of a labor unit within the PPI implementing agency. Arrangements vary among countries but common institutional homes for the implementing agency are the national- or state-level privatization agency; the relevant sectoral or line ministry; the PPI enterprise itself; the central ministry of finance, economics, or planning; or special units set up to support sector or individual enterprise reforms (examples are British Coal Enterprise and Brazil's Port of Santos Labor Fund).
Once the agency is created, the government will need to assemble a team for implementation. A sample organizational structure for a PPI team is shown in figure 1.1. The implementing agency will need to include labor experts as part of the team for the labor restructuring program. The structure of the labor team will vary depending on the size and scope of the labor program.
In large PPI programs with a major labor component, and where there is little capacity elsewhere in the government to deal with labor, a small labor unit may have to be created within the PPI agency. In smaller programs, and where other groups in the government such as the ministry of labor have the required capability, it may be necessary to recruit an individual labor expert in the agency to coordinate implementation.
If there is an enterprise with a large labor restructuring program (as in many railways enterprises), labor experts may be recruited at the enterprise level (rather than at the implementing agency) to help carry out the restructuring process. In other cases, private sector management contractors have been engaged to implement enterprise or work force restructuring as part of the overall preparation process for PPI. Such arrangements enable the implementing agency to bring in additional capacity to deal with the short- and medium- term workload associated with the restructuring. And in yet other cases, special units or funds have been set up at the enterprise level to implement the labor program. Some are wholly financed by the central government budget, others by levies or with funding from local governments. One example is the Port of Santos Labor Fund (box 1.15).
Aspecial port workers' fund is being set up in Santos that should resolve years of bitter confrontations between stevedores and port operators at Brazil's leading port. The real 80 million (US$47.73 million) fund will be used to soften the impact of cutting the labor pool in Santos to about 4,500 dock workers from a current total of 11,500 employees. Money from the fund will be used to retrain port laborers employed by the administrator of the casual labor pool for alternative work within new high-tech and light industries that will be encouraged to locate to Santos. The project is also backed by the São Paulo State Federation of Industry, the Santos Port Council, local importers/exporters, state and municipal governments, and national governmental bodies dealing with dock labor. Rules for dismissals and claims are to be worked out. The local and central governments are expected to help bring high-tech and small businesses to Santos within three years or so. The technical plans are being presented to the unions for discussions, and following their agreement the plans will be presented to the national body coordinating the modernization and privatization of Brazil's ports and to the government in Brasilia.
Source: World Bank 2000 (Port Reform Toolkit, Module 7, p. 16).
The labor unit (or individual expert) is usually responsible for overall implementation, and the relevant tasks cover the full range of activities in the labor program:
PPIAF provides a quick-mobilizing grant facility for small inputs by PPI and sector specialists (see http://www.ppiaf.org/).
In order to build capacity and support for developing labor programs, the implementing agency can seek technical and financial support for organizing study tours and workshops in the early stages of the reform program. As with other aspects of PPI, international donors are one source of such support. One international facility is the Public-Private Infrastructure Advisory Facility (www.ppiaf.org), a multidonor facility that offers rapid disbursing of grants for specific inputs by PPI, sector, and labor specialists.
Analytical and technical capacity is needed to carry out initial staffing and feasibility assessments, to design and implement the various aspects of the labor restructuring program, to analyze the financial and economic viability of the program, and to monitor and evaluate the net impact of the labor program.
When the labor restructuring program is completed, the labor teams or labor funds will be wound down, and this needs to be taken into account during project design. The case of British Coal Enterprise is relevant at this point because it shows how a significant redeployment support service can be closed down and privatized (see box 1.16).
One of the potential concerns about setting up large sector- or enterprise-specific redeployment units is that their services are only needed for a short time. How will the closure of those redeployment units be handled? One answer is to privatize them, too. This was the case with British Coal Enterprise (BCE). The fact that it could be privatized indicates the commercial worth of the assets and skills that BCE developed in support of former mining communities. Each of BCE's main areas of activity was privatized separately.
Source: British Coal Enterprise, Tawney and Levitsky 1997.
