RE: EOpriv: Dealing with privatization agencies

[jdoggett <jdoggett@kent.edu>]

Dan,

Attached is a paper that I wrote on privatization in Central and Eastern
Europe.  The point of the paper is that rapid privatization was promoted even
in the face of huge social, political, and economic turmoil.  The conclusion
that I reach is that privatizing slowly, with clear-cut goals and
expectations, is a better, more-balanced approach.  The paper, however, does
not address employee ownership directly.

Working within the logic of the paper, it would seem that utilizing an a
priori approach to privatization is the key to success when employee ownership
is the goal.  Having goals that achieve employee ownership when others simply
want to privatize quickly is likely to result in failure.  Privatizing with
employees rests on the realization and addressing of certain assumptions.
One, the employees take an interest in the firm they purchase.  Two, they are
not likely to have the money to out-right purchase the firm.  Three, they are
likely to have little capital in which to invest into the company.  Now, if
the goal is to get rid of the firm to someone who can buy it and fix it up,
then employee ownership is not the most likely option of transfer.  However,
if the goal is to transfer the company to operators who take an interest in
the firm's success for the long-term, then employee ownership does make sense.

Often, there are a whole set of assumptions that people make when discussing
privatization and employee ownership.  Sometimes these assumptions go
unstated, which is very problematic.  It is the kind of logic like: "Well,
everyone knows what the problem is; so, we will not waste time going over it."
 Perhaps not everyone is on the same page.  Perhaps there needs to be a
discussion of goals and objectives prior to embarking on a program of massive
change.

The point about educating is well taken.  However, education is a very
symbiotic process.  If the teacher believes in mass privatization to whomever
can pay, then the student is likely to accept this inculcation.  If the
teacher believes in a slow process of privatization that includes a review of
multiple options of privatization, then the student may accept this process.
However, I am somewhat leery whenever education is the answer given that the
outcome can veer drastically from the intent.

The point that I want to make, while staying within your framework of
discussion, is that employee ownership may or may not be the answer when other
goals may take precedence.  I am certainly not for rapid privatization.  The
outcome leads to disaster.  I think that privatizers need to have clear-cut
goals that they implement slowly to ensure success.  However, this may fly in
the face of reality when 10s of 1,000s of firms need to be privatized in small
countries alone.

Employee ownership through privatization is a transfer that needs to be
well-thought out.  Given the the existence of the assumptions stated above for
privatizing through employee buyouts--employees take an interest but they have
no money--the privatizing firm often must make the transfer to the employees
as congenial as possible.  In a book by Uvalic and Vaughn-Whitehead, they
detail how the former Yugoslav Republics privatized.  The primary vehicle was
employee ownership.  The agency for privatization took great care in ensuring
that employees had the right to first purchase, the agency acted as a holding
company of shares for a stipulated time period so as to allow the firm to earn
the money necessary to buy the shares, and the firm could apply for
extensions, if necessary, to earn an income sufficient to buy the shares.
This type of arrangement clearly took fore-thought.  Rapid privatization did
not occur in the sense of a quick transfer from the state to the private
sector.  Rather, there was a well-thought out plan to transfer.

I hope that this attached paper and e-mail aid you.  You asked a very large
question.  These are some thoughts and reactions to it.

Sincerely,
Joseph






At 11:57 AM 9/14/00 -0400, you wrote:
Dear participants of the "Employee Ownership in Privatization"
discussion group:

Last Spring, I posted a draft of a paper for this discussion
at http://cog.kent.edu/lib/privitization.htm

That paper describes some of the obstacles to using employee
ownership in privatization. In April at the COG meeting in
Chicago, participants brainstormed some strategies for over
coming these obstacles. I will be sending out a summary
of their ideas, one obstacle at a time. I would appreciate
your feedback, comments, ideas!

Here is the first one:

5.1     Overcoming the unwillingness of the privatization agency to consider an
employee bid

        Privatization agency decision makers opposed to employee ownership can 
be
categorized as either those using their position for personal gain or those
sincerely acting in the public interest. Where the public servants are not
serving the public, the options are to (1) remove them, (2) force them to
act appropriately, or (3) collaborate with them. Where the decision makers
are trying to do the right thing, two possible strategies are education and
helping to remove external pressures which control their actions.

        The Russians have a saying: cheloveka nyet, problemy nyet ­ remove the
troublemaker and the problem disappears. Where a rule of law exists,
exposing and prosecuting corruption may be an effective way of dealing with
bad public servants. Where democratic elections and a free press exist, the
voters themselves may be able to put pressure on elected officials to fire
corrupt bureaucrats. More often than not, though, where corruption is wide
spread, entrenched bureaucrats may be hard to remove.

        Where the players cannot be changed, the next option is to try and 
create
rules of the game which put constraints on their ability to misbehave.
Forcing transparency upon the privatization bidding process can help. Also
lengthening the time frame of the process of privatizing an enterprise and
informing the employees and the public early in the process will allow the
proponents of an employee bid to get organized rather than accepting a fait
accompli. Organized labor can also form coalitions that prepare themselves
in general to deal with privatization opportunities in order to be ready
when situations emerge.

        In some countries, changing the rules of the game may be unrealistic. 
Then
the final option is to build a relationship of trust with the entrenched
bureaucrat and identify ways in which employee ownership can be in his or
her self interest.

        Many people in privatization agencies truly want to do what they believe
is best for their community. In some cases, they may not personally be
against employee ownership, but they may be under pressure from
transnational actors who hold some leverage. For example, the International
Monetary Fund, the World Bank and the US Agency for International
Development all provide funds that can facilitate economic development.
Employees of these agencies sometimes impose their own views about the
"right way" to privatize and make their funding contingent upon
conformance. In these cases, convincing these international actors that
employee groups can be qualified bidders may can help, as well as
organizing political pressure on them.

        Education can be very important for privatization agency personnel. They
need to be made aware of the full process and impact of privatizing an
enterprise. Some view their task as narrowly as simply transferring assets
out of the state's hands, without any concern for how those assets are used
subsequently. Some have unrealistic expectations of the intentions of
buyers to transform the enterprise into an entity that contributes to the
economic well-being of their community. They may be ignoring the economic,
social and political costs of throwing the fate of thousands of employees
into the hands of a profit-seeking investor.

        Many privatization agents simply have not been exposed to the real world
of employee ownership. Well-targeted study tours to visit successful
employee owned companies, both abroad and in their own country, can help to
dispel unwarranted prejudices.

End
--
Dan Bell
International Program Coordinator
Ohio Employee Ownership Center
Kent State University
Kent, OH 44242
(330) 672-0333 << New direct number!
(330) 672-4063 fax
dbell@kent.edu
http://www.kent.edu/oeoc/
http://cog.kent.edu

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