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Privatisation of Public Services and the Impact on Quality, Employment and Productivity

Final Report Summary - PIQUE (Privatisation of Public Services and the Impact on Quality, Employment and Productivity)

The PIQUE project lasted from 2006 to 2009 and was funded under the European Commission's Sixth Framework Programme (FP6). Research was conducted in six public service sectors - electricity, postal services, local public transport and health services / hospitals - and four countries - Austria, Belgium, Germany, Poland, Sweden and the United Kingdom.

The project's main hypothesis was that decent employment and working conditions impact positively on productivity and service quality while the provision of decent employment and working conditions depends on the regulation of liberalisation and privatisation processes and the resulting market and ownership structures. A series of case studies was conducted to analyse the impact of liberalisation and privatisation at the company level and to better understand the consequences for work, employment and service quality.

The project has pursued a number of research objectives:
- A description and analysis of liberalisation and privatisation processes, changes in market and ownership structures and forms of regulation.
- An assessment of the impact of liberalisation and privatisation on the quantity and quality of employment, on the development of productivity and on public service labour relations.
- An understanding of how companies respond to liberalisation and privatisation; what are main strategies and organisational reforms, and what are the consequences for employment and working conditions as well as productivity and service quality.
- An exploration of the perspective of public-service users, including users' perception of liberalisation, privatisation, competition and choice, perceptions of quality and the role of public service obligations.

The case studies themselves were based on a total of about 185 qualitative interviews conducted with managers, work council and trade union representatives and workers. The number of interviews per case study ranged between eight and 14 interviews. Exceptions were the three case studies with new competitors in the post sector which were initially not foreseen in the work plan and therefore are based on fewer interviews. The method of the problem-centred interview was used.

Analysis has shown that, in terms of the creation of highly competitive market structures, the outcome of liberalisation and privatisation was rather modest to say the least. In the absence of comprehensive regulation and competitive markets, the companies have gained freedom to set prices and service quality at their own discretion. This is the more problematic as liberalisation was actually much more successful in changing ownership structures and in expanding the share of private ownership. However, rather than leaving it to the Member States to make sure that citizens have access to affordable high-quality public services, the European Union should consider making public service obligations an overarching principle of its liberalisation policies. For this matter, a directive that clarifies the nature and role of public services in Europe would certainly be helpful.

Companies have taken different approaches in tackling the liberalisation and privatisation of public services and the threat of competition. Reactions included:
- mergers and acquisitions, investment outside their home markets and the diversification of supply;
- the diversification of customer relations, including new pricing policies that favour some groups of customers over others;
- a reduction of production costs through concentration, outsourcing and the introduction of new technology; a reduction of employment and the payment of lower wages (through lower wages for new employees, the creation of independent subsidiaries and outsourcing) as well as an intensification of work;
- training has been stepped up for some groups of workers while it has been cut for others.
The case studies show that in many cases the main company objective, i.e. the reduction of production costs, has been reached at the cost of workers, many of whom have experienced liberalisation and privatisation primarily as a worsening of employment and working conditions.

The liberalisation and privatisation of public services has led to a fundamental transformation of the established labour-relations regimes in the public sector with far-reaching consequences for employment and working conditions. From an employee's point of view there is a strong belief that liberalisation and privatisation primarily threaten established standards and lead to a significant deterioration of pay levels and working conditions. The PIQUE project may indeed have found some evidence for such a view. In order to avoid a downward competition at the expense of the employees and to focus on a more innovation and quality-oriented model of competition, there is a pressing need for social (re-)regulation in liberalised and privatised sectors.

The commercialisation, liberalisation and privatisation or marketisation of public services aims to introduce the benefits of competition to the resource allocation process. However, there are some major doubts as to the feasibility of dismantling monopoly public services whose characteristics include the necessity to provide national services. The balance of evidence suggested that liberalisation and privatisation have been primarily associated with employment reductions rather than with employment creation and that, at the same time, employment within the target sectors has become increasingly part-time, often having greater recourse than when they were publicly delivered services to self-employed, and perhaps also temporary, workers. The research could not find evidence suggesting that marketisation itself has driven any significant long-term upward shifts in the levels of added value produced in the target sectors. Instead, it appears that the drivers of increased added value primarily arise by changes in technologies and the rate of growth (and demand level) in the overall economy. Yet, if liberalisation and privatisation had a significant impact on productivity, the more efficient resource allocations mainly stem from job reductions.

From a satisfaction perspective, one can conclude that citizens are generally satisfied with the quality of services. When looking at the quality components of the public services studied, time and reliability issues emerge as key components of these network industries. The surveyed citizen groups show moderate support for the liberalisation policies. Competition policies will also need a demand-side pillar involving:
a) the design of a consumer-choice architecture as part of market creation; and
b) social policies as corrective instruments.

The PIQUE project has shown that liberalisation and privatisation of public services have largely negative effects on employment and working conditions and varied effects on productivity and service quality. Positive effects and better performance as compared to other countries were mostly the result of superior regulation rather than of competition or private corporate initiative. The PIQUE project has also shown that liberalisation and privatisation has fuelled inequality - among public sector workers who are paid different wages for the same jobs, as well as among consumers depending on their consumer power or the place where they live.

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