Privatisation and industrial relations

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Since it began in 1989, privatisation has transformed the Polish economy, with large numbers of state-owned enterprises passing into private hands. This feature examines the privatisation process up to 2002, outlining the methods used, the extent of changes in ownership, the public perception of the process and the effects on industrial relations.

Initiated in 1989, privatisation of the economy is the main economic component of Poland’s transformation process, fulfilling a number of functions and bringing changes in areas apart from the economy itself. The most important effect of privatisation has been a change in the structure of the national economy, which used to be subjected to state interventionism and governed by politics. Privatisation first of all involves denationalising the economy and passing state-owned enterprises into private hands. Ownership transformation has also entailed changing the system of industrial relations, for example altering the structure of corporate governance, weakening employee representation structures, and creating new economic attitudes among the workforce. Below, we examine the privatisation process and its effects.

Methods

The Law on Commercialisation and Privatisation of State-Owned Enterprises of August 1996 allows for privatisation to be carried out either directly or indirectly. Direct privatisation involves disposing of the tangible and intangible assets of a state-owned enterprise by selling them, allocating them to another company or transferring them to another entity for use against remuneration. Indirect privatisation is preceded by 'commercialisation', which involves the creation of a 'single shareholder company of the State Treasury' (SSCST). The aim of commercialisation is to:

  • create a transparent structure of decision-making and supervisory bodies;
  • adjust the legal status of state-owned companies to the needs of prospective investors; and
  • abolish workers' councils (employee representative bodies with a range of powers in state companies - PL0208106F) which are not permitted under the Commercial Code, which governs commercial enterprises.

An enterprise is transformed into a SSCST by the Minister of the State Treasury. A newly formed company of this type, whose only shareholder is the State Treasury, can initiate the privatisation process, which it must complete within two years. These companies can be offered for sale either by way of capital privatisation or as part of the Public Privatisation Programme (PPP) through National Investment Funds (NIFs). Both of these methods are permitted under the law.

In accordance with the assumptions of the PPP, each adult Polish citizen received a share certificate, automatically acquiring the right to participate in the privatisation programme. Only a handling fee had to be paid for these certificates. When NIFs have been floated on the stock exchange, the certificates have been converted into shares and their holders have become owners of fund units, acquiring all shareholder rights, including the right to dividends.

As part of this programme, which was initiated in 1994, 15 NIFs were established as joint-stock companies in 1995. The state-owned enterprises which agreed to be covered by the programme were transformed into SSCSTs. A total of 60% of the shares of each company were allocated to the 15 NIFs, one of which received a so-called 'leading package', while the others obtained 1.93% of the shares each. Furthermore, 15% of the shares of each company were distributed free to their employees. The remaining shares were kept by the State Treasury.

Privatisation through the NIF programme was intended to cover mainly large and profitable enterprises. In 1991, the target number of enterprises to be covered by the programme was 1,000, but this figure was reduced to 450 in 1994. At the end of 1995, 99 enterprises joined the programme. As they were still, in the opinion of analysts, small and weak, they became a burden to the Funds. When it was finally launched, the programme comprised 512 enterprises of diverse economic standing.

Privatisation over 1990-2001

A total of 6,845 state-owned enterprises had undergone ownership transformation by the end of 2001, amounting to more than 78% of those in existence at the time the process began in 1990. Of these enterprises, 22.1% were commercialised, 28.2% underwent direct privatisation, 25.4% were liquidated for economic reasons and 24.2% were state-owned agricultural holdings, which had been liquidated and made part of the resources of the Agricultural Property Agency of the State Treasury (Agencja Własności Rolnej Skarbu Państwa, AWRSP). Privatisation proceeded dynamically until 1996 when it started to slow down - see the table below.

Privatisation over 1990-2001
Years Privatised SSCSTs State-owned enterprises
Directly privatised Liquidated for economic reasons Made part of the resources of the AWRSP
1990 6 15 3 -
1991 24 228 30 -
1992 22 305 90 720
1993 46 215 103 618
1994 36 158 92 307
1995 25 127 108 9
1996 24 184 110 -
1997 41 158 102 -
1998 16 127 72 -
1999 16 142 47 -
2000 21 132 43 -
2001 32 47 10 -
Total 309 1,838 810 1,654

Source: Central Statistical Office ( Główny Urząd Statystyczny , GUS).

More than one-third of the indirectly privatised SSCSTs were privatised with the participation of foreign capital. A majority of these enterprises operated in the area of industrial processing (73.5% of the total) and, in particular, food and beverage production (13.3%). Directly privatised enterprises included those operating in the area of industrial processing (37.4%), construction (23%) and commerce (17.2%). The assets of privatised enterprises were usually transferred to employee-owned companies for use against remuneration (65.9%). The largest number of enterprises liquidated for economic reasons were those operating in the area of industrial processing (32.6%) and the construction industry (19.4%). The entities undergoing privatisation employed 1,078,800 persons at the end of 2001, one-third of which were employed by SSCSTs.

There were 1,572 state-owned enterprises in Poland at the end of 2001. Because of their poor financial situation, more than half of these enterprises were undergoing bankruptcy or settlement proceedings. No steps had been taken to reorganise 18% of state-owned enterprises, and only 3.3% of them had been submitted to direct privatisation. Some 43% of all state-owned enterprises were in the industrial processing sector. Excluding those in liquidation, state-owned enterprises employed 231,900 persons at the end of December 2001.

Public perception of privatisation

Although generally perceived to be a necessary measure for the revival of the Polish economy, privatisation is a controversial issue for the public, raising, hopes, fears and doubts about its scope, costs and effects.

It has become a common practice in social surveys in Poland to investigate three dimensions of the public response to privatisation. People are asked to evaluate how privatisation has benefited: the economy as a whole; themselves; and the employees of privatised enterprises. The most frequent response is that privatisation is most favourable for the economy as a whole, less favourable for employees, and least favourable for the ordinary citizen.

The surveys demonstrate that privatisation is mostly supported by the economic 'elites', including entrepreneurs, managers, professionals and educated and young people, while a reserved attitude is adopted by farmers, unemployed people, poorly skilled workers and the inhabitants of small towns.

People’s response to privatisation is to a large extent determined by their workplace, the type of enterprise they work for, and the economic condition of that enterprise. Individuals employed in the private sector, particularly in companies with foreign capital, as well as the employees and managers of employee-owned companies, are more likely to evaluate privatisation positively. This corroborates the findings of many surveys, which suggest that how people evaluate privatisation depends on how they participate in the process. The tendency to evaluate the economic effects of privatisation more positively than the social consequences has remained stable for years, reflecting a fear that privatisation brings unemployment. The number of Poles who perceive unemployment as the most important of the negative effects of privatisation has been steadily increasing.

Influence of privatisation on industrial relations

Apart from its macroeconomic effects, such as an increase in the economy’s efficiency and the fear of growing unemployment among the workforce, privatisation has had a tangible influence on the character of industrial relations. These effects are predominantly seen as negative, mainly because of the weakening of institutions representing employee interests.

Research carried out at the end of 1990s (by J Gardawski, B Gąciarz, A Mokrzyszewski and W Pańków) demonstrated that the presence of trade unions in enterprises depends strongly upon their form of ownership. It was found that state-owned and employee-owned enterprises had the highest rate of trade union presence (100%), followed by the SSCSTs and municipal enterprises, with rates of 86% and 88% respectively. It should be remembered that these enterprises are either at the threshold or on the margins of privatisation. Comparing SSCSTs with the traditional state-owned enterprises, the researchers concluded that a slow erosion of trade union structures was taking place in SSCSTs (which, as a rule, used to have trade unions in the past). Another category includes enterprises owned by NIFs and the former state-owned enterprises sold to private investors, in which the rate of trade union presence ranged from 65% to 75%. According to the researchers, the erosion of trade union structures is more advanced in these enterprises than in SSCSTs. The lowest rate of trade union presence is found in enterprises founded entirely by private capital.

These findings led the researchers to conclude that the form of ownership was a factor determining the presence of trade unions in enterprises. In Polish conditions, the movement from state-owned enterprises towards purely private entities means abandoning the model of an enterprise with trade unions in favour of an enterprise without trade unions.

Privatisation not only erodes trade unions, but also marginalises them. The first visible symptom of this process is that the pay of trade union activists varies depending on who owns the enterprise. Analysing the average pay in specific enterprises, the researchers found that being a member of a trade union did not have any impact on pay in state-owned enterprises. At the opposite pole were newly-founded enterprises, in which union members earned less than non-member workers (this also affected workers with low qualifications, who earned much more in state-owned enterprises than in private firms). In between these poles were SSCSTs, NIF enterprises and privatised companies.

Another symptom of the marginalisation of trade unions in the privatisation process is the increasing imbalance in corporate governance relationships. This process is heading in the same direction as the erosion of trade unions; the further we move away from state-owned enterprises towards private firms, the more powerful management boards become and the less relevance trade unions retain.

Privatisation entails not only the erosion and marginalisation of trade unions, but also the abandonment of such forms of employee representation as workers' councils, which are being replaced by employee representation on supervisory boards. These representatives, however, are widely perceived as playing only a 'puppet' role (PL0208106F).

Commentary

It is undeniable that the privatisation of the Polish economy was a necessity. The economy could not be modernised without ownership readjustments. This process, now slowly declining, was and still is a subject of many controversies concerning its scope and direction.

Privatisation has had a serious impact on industrial relations. On the one hand, new methods of business management and work organisation have been introduced, while on the other hand the employees have to a large extent been deprived of the organisations that had represented their interests. Two factors have contributed to this situation. First, there have been no effective initiatives to create new forms of employee representation that could serve as alternatives to trade unions. Second, trade unions have made little effort to adapt to the new economic reality. Recently, they have been attempting to regain their role in the companies in which they were dissolved after privatisation. This remains, however, a difficult task and is rarely undertaken. (Rafał Towalski, Warsaw School of Economics (Szkoła Główna Handlowa, SGH) and Institute of Public Affairs (Instytut Spraw Publicznych, ISP))

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