Privatisation and labour-management relations - I
Mahmods Abdul Ghani
ARTICLE (July 25 2008): Privatisation wave has stirred the entire Pakistan economy. Its impact has influenced society a great deal. We are at the threshold of a momentous change in our society, and our economy. The performance of state level public enterprises has remained puzzling.
It is essential, therefore, to discuss the overall performance of the State level establishment/enterprises in order to appreciate the impact of Privatization. No doubt privatisation has become an instrument for achieving the policy and objectives and have become a major user of funds allocated in the Federal Government Budgets.
In the history of industrial development of this country, there have been periods of economic growth. With a growing realm of State intervention in the economy and experimentation and self-reliance, comprehensive development planning was preceded by nationalisation in Latin America, Asia and Africa.
Privatisation has been adopted in a number of countries as economic reforms as a part of structural adjustments or as a measure towards greater involvement of the private sector in the growth process. Privatisation, in broad terms, encompasses involvement of greater market force to ensure higher competition and reduce the role of the government in the economic sphere.
In a strict sense, privatisation means divestiture or de-nationalisation that is to say transfer of ownership from State to private entity. In other words it means sale or transfer of majority operations to the shares in public enterprises who have private entity. One of the motives behind privatisation is to ensure a greater efficiency in the system as a whole.
In some countries, the privatisation has emerged because of political will to bring about reform in the public sector. In Pakistan, privatisation is covered by the Privatisation Commission Ordinance 2000. The leading case is Wattan Party Vs Federation of Pakistan (PLD 2006 SC 697) wherein it has been held by the Apex Court that Privatisation Commission Ordinance 2000 is not ultra vires of the Constitution. However, in accordance with Article 153 and 154 of the Constitution, establishment and working of the Council of Common Interests was a cornerstone of the federal structure.
The rights are of the federating units and since this institution was not functioning, the Supreme Court directed the Federal Government not only to proceed with the process of making the Council of Common Interests functional but still further directed that approval be given for privatisation by the Council of Common Interests.
No doubt when law entrusts 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 time, the impact of privatisation on labour have been under-estimated, despite the fact that they are considered the ultimate beneficiaries of any policy. Privatisation 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 countries including developing countries, privatisation provides funds used almost exclusively for social sector development activities. Unfortunately so far in Pakistan, no separate record is available as to how and in what manner the privatisation proceeds have been used in social sector development. Privatisation 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 privatisation is important for the social and economic wellbeing of country and individuals. Labour is a burning issue in privatisation. Unless this issue is analysed, it is difficult to evaluate the overall performance of Privatisation 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 privatisation are the major issue in the privatisation process. This awareness indicates labour literacy and awareness going on in his enterprise, as well as at the national level.
Communication about Privatisation in this context refers to the organisation 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 the advent of privatisation which is assumed as being effected to dilute response of labour and employees union. Prior to privatisation, labour becomes aware that their enterprise is going to be privatised. Due diligence is effected and records made available to prospective bidders.
No doubt labour are scared of privatisation due to the fact that labour, at times, are injected by the labour unions or their federations and with privatisation 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 Privatisation if the privatised enterprise preferred downsizing 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.
Privatisation entails 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 believes 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 privatised there is a substantial increase in wage and salary structure after privatisation.
This has been noticed especially in the case of privatisation 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 privatisation is effected.
Private enterprises are famous for such kinds 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 co-operation 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 fulfilment 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.
Privatisation restructures enterprises in terms of working hours and loads. It is often accused that private enterprise mounts 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 Privatisation 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 Pakistan are 48 hours in a week. If there is any sector that has been provided with working hours that are less than the statutory working hours, the same if, arbitrarily modified, may result in labour unrest. Alternative to this is raising of industrial disputes and getting the matter resolved through the process of industrial adjudication by court of law.
Just as workers have a right to strike and get their demands adjudicated either in the National Industrial Relations Commission or the Labour Court much in the same way, the employers of a privatised enterprise for scheduling his right can go for a lock-out or get their demands adjudicated from the court of law. This alternative if effected will go a long way in ensuring that the revised terms and conditions of service receive statutory recognition in law.
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 privatisation, except in cases where, with the change of the government, political interference is effected. This aspect with specific examples will be discussed hereinafter.
Privatisation 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 privatised enterprise have to operate objectively and not subjectively. During the previous government a major agitation so effected against privatisation, particularly for the cause of employment, which means that the employees by and large are indifferent about privatisation. However, unconsciously, and for which a benefit of doubt should be given, the Government after taking office without realisation 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 stakeholders will be threatened and alarmed. No doubt foreign privatisation creates more new jobs as compared to domestic privatisation. Foreign privatisation, as the experience has shown, has performed less in new job creation and has relatively slowed down retrenchment of the labour but reduced employees lead count to the process of golden handshake offers for voluntary retirement.
It goes without saying that it is not the function of privatisation 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 privatised private enterprises.
These issues are very much well recognised 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 privatisation 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 privatisation.
Fear towards privatisation is generally, about scale of pay amongst labour. A common perception is that if such a Privatisation 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 analysed and after research a separate paper on this aspect will be made available in due course of time.
No doubt, after privatisation 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 have increased after privatisation, 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 privatised working conditions as fair and good. Relationship with the employer is found to be encouraging in most, if not all privatised enterprises which helps privatisation.
It is good for the economy. However, unfortunately effects of privatisation 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 handshake". 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 privatisation of UBL prior to its privatisation when it was known as a sick bank of Pakistan but after privatisation it has made a turnaround and is now a largely private-oriented organisation. It is suggested that the Privatisation Commission should conduct seminars inviting all the privatised 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 organisations after privatisation.
This will enable the Privatisation Commission to formulate a plan and future policy of privatisation, making common grounds and reasons for the success of labour management relations, as the key notes points in the process of future privatisation. Perhaps exception to this is the privatisation 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 analysed before any comments are offered.
Privatised enterprises profitability has, however, improved after privatisation, in some cases manifold in spite 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 Pakistan.
Management philosophy is one of the managerial issues which may as well determine efficiency of an enterprise. This proceeds on the assumption and analysis that managers in the state-owned enterprise are politically bond giving them enormous force through political influence which obviously converts them as an authoritarian.
It is accepted that on the eve of privatisation, private enterprise switch over from arbitrary to democratic philosophy as this will get work done effectively. In MCB Bank, it has been claimed that certain employees were dismissed for service after issuance of chargesheet, enquiry conducted and dismissal effected both before and after privatisation.
Such employees approached Labour Court, High Court and the Apex Court. Most of the cases were dismissed and their dismissals were upheld. Only a few cases are still pending in the High Court, although their reinstatement has not been allowed by the Labour Court.
Unfortunately, because of political interference, some workers no more in the employment of the company and with no case pending in any court of law have succeeded and initially after paralysing the road traffic by leading procession in Karachi and subsequently for locking more than 120 branches by locking the gates and preventing work demanding reinstatement of the workers whose termination has been upheld by Courts of law.
In a situation like this it is the duty of Federal Government as also provincial government to make in depth analysis as to the demand for reinstatement of number of workers involved. The state of their pending decisions by the courts of law and those already decided thereafter try to evolve a solution.
If one of the objectives of the government is to grant employment, irrespective of the fact that the employee has been dismissed on proven act of misconduct, then there are still available state-owned enterprises like State Bank of Pakistan, National Bank of Pakistan where such persons can as well be absorbed.
Labour unrest in Pakistan Telecommunication Corporation Limited (PTCL ) is yet another example which requires to be handled with a certain degree of care Merely expecting that foreign investor recall his earlier decision is not conducive to future foreign interest for privatisation in this country.
No doubt the Federal Government has now made an announcement that in all future, prior to privatisation at least ten percent of the shares will be first offered to the workers. This perhaps is one of the positive moves. However, there should be a caution.
Ten percent interest stake, the worker should not be permitted to interfere in way in working of the privatised organisation and then frustrate the very purpose and spirit for which the privatisation has been effected. An alternative to this problem is a planned labour policy in the context of privatisation. Efforts should be made not only by covering Tripartite Labour Conference, but by constituting a National Commission on Labour.
In India one such National Commission on Labour was constituted in 1967. It was presided over by a retired Chief Justice of Indian Supreme Court Mr P.B. Gajendragadkar. Labour legislation in India are now framed, keeping in view the conclusion and recommendations of this Commission. In 2002 a Second Commission on Labour was constituted and its recommendations have now been made. Need for establishment of National Commission on labour in Pakistan has been dealt by the author in a separate and elaborate article to be published soon.
The humble author, without any obligation can provide to the proposed commission, recommendations made by their counterpart in India provided the commission is not politically oriented and consists of retired Supreme Court or High Courts Judges and representatives of employees and workers.
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 co-operation of the management of the already privatised enterprises.
(To be continued)
Business Recorder [Pakistan's First Financial Daily]
