PPI takes place in a changing global context that affects all businesses and national economies. There is, however, widespread concern regarding its impact on workers.
Public service workers and their unions often distrust PPI, fearing that it will have negative effects on employment numbers, pay, terms and conditions, and relationships with management. Set against a background in which many state-owned enterprises have provided their staff with employment security, and terms and conditions much better than those enjoyed by equivalent workers in the private sector, such anxieties are understandable. Moreover, there is no shortage of documented examples to show that these fears are well grounded.
Labor reductions in the enterprise are a reality, and some workers retained in some post-PPI enterprises have also experienced reductions in income and benefits, especially those with skills for which supply exceeds demand. Workers and unions have therefore generally opposed privatization, concessioning, contracting, and other forms of PPI. And it is not only union leaders who believe that privatization has had a negative impact on labor and– more broadly–on income and wealth distribution. According to a recent study, such beliefs are growing and becoming more widespread (see IDB 2002 and box 2.1).
Does the evidence support such perceptions? In general, yes–but much depends on the initial conditions. In some cases workers have gained from privatization because new investments and dynamic expansion have resulted in new job creation at the enterprise or sectoral level, and because productivity improvements have led to better terms and conditions of service. Moreover, workers are also consumers and their households will benefit from improvements in access and services.
Impact assessment also should take account of the counterfactual: what would have happened anyway in the absence of PPI?
At the heart of much of the criticism is a perception that privatization has been unfair–hurting the poor, the disenfranchised, and in some cases beleaguered workers, and benefiting the already rich, powerful and privileged. Privatization is seen as throwing large numbers of people out of work or forcing them to accept jobs with lower pay, less security and fewer benefits; as raising the prices of goods and services sold; as providing opportunities for the enrichment of the agile and corrupt, and generally making the rich richer and the poor poorer.
The complaint is that, even if privatization contributes to improved efficiency and financial performance (and some contest this as well), it has a negative effect on the distribution of wealth, income and political power.
The negative perception is widespread and growing: 63 percent of people surveyed in the spring of 2001 in 17 countries of Latin America disagreed or strongly disagreed with the statement, "The privatization of state companies has been beneficial...." The extent of disagreement was much greater than in 2000 (57 percent) or 1998 (43 percent). Over 60 percent of Sri Lankans interviewed in 2000 opposed the privatization of the remaining state-owned firms. It would not be hard to find other expressions of popular dissatisfaction with privatization, of a similar magnitude, from the transition countries in general and Russia in particular.
Source: Birdsall and Nellis 2002, p. 2.
The review of sector impacts in subsequent sections of this module also indicates that PPI itself is not necessarily the only cause of adverse impacts on labor. Any counterfactual assessment of the impact of PPI on labor must take account of levels of labor adjustment that would have taken place anyway, perhaps as a result of new technology or structural change in the economy through a shift to services. Overall, the experience of the impact of PPI on labor is more varied and nuanced than is suggested by the stereotypes.
There are significant differences between sectors, and underfunded public service organizations have often been unable to provide their employees with the capital investment and new technology to enhance their work and productivity. Many public employers have held back improvements in salaries and wages rather than reduce staffing and pay more to those who remain, and that practice has often had an adverse effect on their ability to recruit and retain key staff. Some employers have difficulties paying salaries at all, and a few have even looted employees' pension contributions.
By introducing new capital and by restructuring human resources PPI can improve the earnings and working environment of many workers, albeit often by reducing the number of people directly employed, at least in the short term. In addition, efficiency improvements often lead to longer term security of employment, and–in some sectors– employment expansion.
Although it is important to be aware of the potential and negative impact of PPI on labor, it is no less important to be aware of the wider picture so that costs and effects can be accurately assessed and fairly attributed. Moreover, without fundamental enterprise reform, infrastructure services will continue to deteriorate in many cases, at high cost to consumers and users.