Re: Why EO in Privatisation

[Shann Turnbull <sturnbull@mba1963.hbs.edu>]

Dear EO Group

I would like to suggest that the reason EO in privatisation has had such
a dismal record is ignorance by participants and their professional
advisers on the six necessary conditions for worker ownership to be a
success as outlined in my 951 word article on "Employee
Governance" in the COG library
http://cog.kent.edu/lib/turnbull3.html 

The Russian experience clearly reflects this problem as the US model of
corporate control through a unitary board was blindly adopted. The
ignorance of US scholars of the inherent defect in both the theory and
practice of the US form of capitalism is outlined on page seven of my
survey of corporate governance in the COB library 
http://cog.kent.edu/lib/turnbull4.html 
The most relevant part is extracted below:

The lack of research in comparing different
systems of corporate control was only recognised in the US in the
1990's.  This neglect was explained by Gilson (1994:132) who noted
that 'the American system seemed to represent the evolutionary pinnacle
of corporate governance, so other systems were either less far along the
Darwinist path, or evolutionary deadends; neither lagards nor
neanderthals made interesting objects of study'.

This view was exacerbated by the US being the most powerful economy in
the world, the 'citadel of capitalism', and a widely recognised role
model for other countries seeking to better themselves.  The
importance of Porter's (1992) study is that it provided a counter view
for academics and policy makers.  The US has also dominated the
development of the theory of the firm which was based on the assumption,
some might say paradigm, that 'in the beginning there were markets'
(Williamson 1975:20) and that  firms exist because markets fail,
i.e.. 'suppression of the price mechanism' (Coase 1937).  

US scholars developed the theory of the firm during the height of the
ideological contest between capitalism and communism.  It would have
been unpatriotic to entertain the possibility that markets were not the
natural order of a free society.  The failure of communism has
reinforced the hegemony of market ideology with widespread political
interest in privatisation based on the US model of a firm.  The
problems of using this model in the US are identified by Jensen (1993),
in Russia by Blasi & Gasaway (1993) and in Australia by Turnbull
(1993a; 1995a,c,f).  The problems of the US model in either the US
or former socialist economies are outlined by Shleifer & Vishny
(1996).  However, faith by political ideologues in replicating the
dominant, but flawed US governance model, has so far been little
inhibited by scholarly research, empirical evidence or the competitive
success of other approaches.

Amen and regards

Shann

At 05:19 PM 5/1/2000 , you wrote:

Dear Dave:

        I have specialized for the past 20 years in representing unions involved in employee ownership situations. The majority of them have gotten involved for the reasons you described in your email. One of the consequences of getting into employee ownership as a last ditch solution is that most unions go in poorly prepared and do not negotiate for institutional protections within the new company at the time they are most likely to have the necessary bargaining clout - at the time the deal is first done. I have created a variety of training materials on this and related subjects for labor. Please see the labor section on my website www.esoplaw.com.

Best regards,
Deb Olson
At 09:43 PM 12/26/99 +0000, you wrote:

Dear EO Privers
I believe of all the sources of EO, Privatisation is the worst one to promote it.
I say that mainly for the global abuse and the failure rate that has resulted in using this source.
 
 However there are many empirical and successful examples of EO through Privatisation non more so than the Herend Porcelain Manufactory in Hungary.
 
Form a Worker's point of view Privatisation World Wide has been a disaster, particularly in Labour Intensive Industries which most invariably are. As a worker if you don't lose your job you can bet your wages and conditions will be under attack in a bid to put profits before people.
 
Little wonder then that workers and their representatives i.e. Trade Unions oppose privatisation so strongly. The problem is that when a situation is inevitable the TUs do not have a plan "B" which is to get involved in the process in order to get the best out of the situation for their members. Even if initially it is viewed as a damage limitation exercise that can only be a good thing, the positive thinking can come later.
 
The way forward for workers is to join the flow and become owners themselves in order to influence (even to some degree) what is happening and some would say to try and protect them from the corruption and mal-practice that seems prevalent in privatisations.
 
Once having reached that conclusion we can address the questions posed by Dan Bell
 
Having been in and witnessed many Privatisation situations where the workers were given the option of EO they took it for the following reasons.
 
1. to protect our jobs and conditions as much as we could
2..to be able to control our own destiny as much as we could.
3. we could see what management and outsider buy-outs were doing to their workforces 
    and we didn't want that.
4  the accumulation of capital was not something we were concerned with at the beginning
   this was developed over a period of time and we did turn £800 investment into 
   £1600 in 5 years
 
I hope this has answered a few questions as far as how workers see EO in Privatisations
 
What is clear is that you cannot expect to move from one culture to another overnight, some protective programme has to be developed to make the transition smooth and successful     
 
 
Dave Wheatcroft
01246 233438 -Tel

Deborah Groban Olson
Project Co-ordinator
Capital Ownership Group Project
Ohio Employee Ownership Center
Kent State University
c/o Shared Equity Strategies, Inc.
3163 Penobscot Building
Detroit, MI 48226
(313) 331-7821 or (313) 964-2460
(f) (313) 331-2567
email: dgo@esoplaw.com
web site: http://cog.kent.edu

Shann Turnbull

P.O. Box 266 Woollahra, Sydney, Australia, 1350

Phone: 02 9328 7466 office; 02 9327 8487 home

Fax: 02 9327 1497 home & office.  Mobile 0418 222 378

Outside Australia, replace first "0" with "61" after international access code

Life long E-mail: sturnbull@mba1963.hbs.edu  Alternate:sturnbull@optusnet.com.au

http://members.optusnet.com.au/~sturnbull/index.html