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PIQUE — Result In Brief

Project ID: 28478
Funded under: FP6-CITIZENS
Country: Austria

The darker side of privatisation

Liberalisation and privatisation are perceived as modern mechanisms to upgrade old-style government sectors. New studies on their impacts and effects unveil a surprisingly different story.
The darker side of privatisation
Policymakers and economists generally believe that privatisation of public services brings a number of benefits to society. This includes better working conditions for those employed within the sector and better services for everyone. The EU-funded project 'Privatisation of public services and the impact on quality, employment and productivity' (PIQUE) put this belief to the test by studying privatisation of electricity, post, transport and health in various European countries.

The project investigated several case studies to analyse the effects of privatisation at the company level and impact on work, employment and service. The case studies involved 185 problem-centred interviews with managers, employment unions, workers and other stakeholders. Interestingly, results showed that privatisation and liberalisation had only modest effects on competitiveness.

The studies also revealed that without regulation and competitive markets, companies could set any prices and service standards they wanted, creating their own private monopolies or oligopolies. In essence, liberalisation brought changes in ownership but public service obligations were not necessarily met. In light of this, the project team recommended laws that would maintain the quality and regulate public services in Europe.

Another cause for concern is that production costs after privatisation were reduced at the expense of employees whose work conditions declined. Labour relations were also affected with noticeable negative consequences on employment and working conditions. Moreover, evidence showed that such moves led to employment reduction rather than employment creation, favouring part-time rather than full-time work as well.

In line with employee fears, PIQUE also found that liberalisation and privatisation often led to reduced pay levels and substandard working conditions. As a result, the project identified an urgent need for social regulation in liberalised and privatised sectors. It also shed doubts on the viability of dismantling monopoly public services that are generally bound by law to provide effective national services.

Any added value to these liberalised sectors mostly came from upgraded technology and increased growth in the overall economy. In the meantime, an increase in productivity seemed to come mostly from job reductions. While citizens were satisfied with the changes overall, the advantages behind liberalisations and privatisations are not as rosy as they are made out to be. The results and recommendations of this project will serve as major food for thought for European policymakers and governments.

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