Antony: Let Rome in Tiber melt, and the wide arch Of the ranged empire fall!(1)
This article focuses on the strategic choices available to public sector unions facing privatization, and explores several alternative approaches that a union may wish to consider at the outset of a privatization.(2) There are many alternatives; the most common is for unions to oppose privatization.(3) In opposing privatization, the union will often apply political pressure.(4) Typically, this approach will result in conventional collective bargaining negotiations relating to severance and other similar issues.(5) A second option is to identify problems at the governmental level and remedy those problems by an internal restructuring.(6) A third approach is to contract out management.(7) For example, if one of the central issues to be addressed is poor management, then this rarely considered approach has significant potential.(8) A fourth approach is to negotiate a new collective bargaining agreement with the third party brought in as part of the privatization.(9) Finally, a fifth approach, not regularly pursued in a disciplined financial fashion, but which certainly should be, is for a union to pursue an employee stock option plan (ESOP) or joint venture, as a competitor to other bidders in the privatization.(10)
This article not only identifies these specific strategic choices, but also suggests a process for making these choices--one that unions may wish to include in their collective bargaining agreements well in advance of any contemplated privatization.(11) Unions in the public sector may consider this process in order to maximize their ability to protect their members and advance their interests.
This article is not an effort to provide a general set of analytical tools to analyze privatization plans from a financial perspective. The relevant analysis for privatization would always have to be case specific. Instead, this article will examine the public financial details of certain recent privatizations.(12) The public financial record in privatizations is often quite sketchy.(13) Accordingly, conclusions are tentative at best, but unequivocally demonstrate the importance of financial analysis for effective union decision-making.(14)
The specific cases cited in this article are representative of the variety of privatizations and are similar to the business opportunities discussed at conferences, such as the Office of Management and Budget (OMB) Annual A-76 Conference, which seeks to create commercial opportunities for federal privatizations,(15) and in periodicals, such as The Bidders Compendium, which lists privatization opportunities at the state and local level.(16)
This article suggests that privatizations are very similar to corporate restructurings, in which various stakeholders reformulate their relationship to the common entity.(17) Private unions have extensive experience in defending their interests in restructurings,(18) upon which public sector unions may wish to draw. In private sector restructurings, unions have come to recognize the importance of participating in the process on a fully informed basis.(19) This is the case whether they elect to oppose the restructuring, or whether they actively participate in the process. By taking the latter path, private sector unions have established both the conditions of their participation, and the specific processes by which they are able to participate in restructurings. This article examines those conditions and processes.(20)
To participate fully requires, at the outset, access to contemporaneous financial information that others use for their decision-making.(21) This article argues that unions must take into account all financial facts about the condition of their employer and the market that their organization serves.(22) Mastering such information will allow the union to make an informed decision where financial standards are the relevant standards by which others conduct their discussions and on which they base their decisions.(23) Moreover, unions can observe that other participants in these discussions will draw upon the expertise of specialists such as bankers, consultants, and others.(24) Unions would be well served also to seek this expertise;(25) otherwise, they unilaterally disarm themselves. Moreover, it is common for the government's financial advisor also to be a privatization proponent. This means that the union should not expect disinterested advice.
Unions should recognize that privatizations create new value.(26) It is frequent for additional value to come from labor savings.(27) effect, distribution of the new wealth goes to the new owners or operators,(28) and to the governmental entity.(29) Unions have typically not shared in that value.(30) From the perspective of unions, of course they should. The approach set forth in this article suggests a tested means to do so.
Brutus: And we must take the current when it serves, Or lose our ventures.(31)
Privatization has been much more frequent and significant Internationally(32) than it has been in the United States.(33) This reflects that federal, state, and local governmental units own few businesses, as compared to other countries.(34) Governmental entities in Europe and South America have had significant economic interests in many industries, including the telephone companies, banks, airlines, steel manufacturers, and other commodity producing businesses.(35)
Although governmental dispositions of stock or assets in the United States have not been common, there are a variety of forms of privatization.(36) For example, a public manager may elect to deliver a public service in any number of ways, and use various mechanisms to evaluate alternative approaches to the financing and delivery of public services.(37) These mechanisms include public-private comparison,(38) managed competition,(39) publicization,(40) asset sale,(41) franchising,(42) public-private partnership,(43) value capture transactions,(44) and voucher programs.(45) The most significant of these mechanisms, however, has been the contracting out of services to the private sector.(46) This mechanism has major consequences. First, it causes a significant loss of members to unions.(47) Just as importantly, it shifts jobs to the non-unionized private sector.(48) The labor movement must think of this issue in the broader context of its ability to fulfill its core functions in society. Unions represent a diminishing percentage of the private sector workforce.(49) In many private sector industries where union density had traditionally been strong(50) it is substantially less so now--under ten percent.(51) This state of affairs is a result of unions representing employees in declining or shrinking industries,(52) yet failing to organize new industries that have provided much of the recent employment growth.(53) Even aggressive union organizers expect that rebuilding union density in the private sector is a long-term project.(54) In contrast, the proportion of workers belonging to unions, and the union density in the public sector, have been much greater than that in the private sector--thirty percent to as high as eighty percent.(55)
All this is not to suggest that privatization efforts will succeed, but rather that the labor movement is at a critical juncture. It must replenish, not diminish, its ranks, or face the potential risk of losing its status as an economic and political force. As labor unions are beginning to refocus on strengthening their private sector organizing presence, they cannot afford to have union membership or density weaken in the public sector without calling into question the viability of the movement. Unions, which have been able to moderate certain excesses of capitalism,(56) and advance issues of social justice,(57) will be unable to fulfill those roles if they fail to represent a sufficient portion of workforce. Privatization has the potential to move jobs into the non-union column in large numbers.(58)
It is difficult to gauge the precise amount of privatization related Activity(59) because many of the recent efforts have not been reported fully. A number of municipalities,(60) however, across the United States have carried out privatizations.(61) Some, such as the privatizations in Indianapolis, Indiana,(62) were reported nationally. Others, however, went largely unnoticed in the national media--the auction by the City of Anchorage(63) of its municipal telephone company, and the privatization by the City of Atlanta(64) of its water and sewage facilities, the largest in North America.
Those interested in strong unions or perhaps just per se opposed to privatization efforts might want to reconsider their strategies that exclude privatization in light of recent developments.(65) Although some legal barriers to privatization(66) still exist in various jurisdictions, it is clear that the barriers are falling.(67) Legal barriers are a reflection of, and subject to the public's will and constitutional restraints; ultimately the force of economic and political reality are recognized in the law.(68) Indeed, both federal(69) and state(70) legislation increasingly permit or encourage privatization. This trend mirrors the increasing use of outsourcing by companies in the private sector.(71) Moreover, the effect of the internet on governmental operations is as yet terra incognita, but it is not unlikely to also have an impact in unpredictable ways that would affect unions.
Changes in the law underscore an important shift in the public discussion of privatization. The spectrum of activities presently performed by governmental entities now contemplated for privatization has dramatically expanded over the past decade.(72) This willingness to consider the use of private providers for traditionally public functions is reflected in the current debate regarding social security reform, where...