Liberalisation and privatisation of public services â€“ company

Synthesis report on case study findings (Workpackage 7)

Liberalisation and privatisation of public services – company reactions Jörg Flecker, Christoph Hermann Torsten Brandt, Nils Böhlke, Christer Thörnqvist Deliverable 15 for the Project

Privatisation of Public Services and the Impact on Quality, Employment and Productivity (PIQUE) CIT5-2006-028478 (June 2006-May 2008) funded by the European Commission’s 6th Framework programme

Workpackage Lead Partner: Forschungs- und Beratungsstelle Arbeitswelt

Dissemination level: Public

Vienna, December 2008 Forschungs- und Beratungsstelle Arbeitswelt A-1020 WIEN, Aspernbrückengasse 4/5 Tel.: +431 21 24 700 Fax: +431 21 24 700-77 [email protected] http://www.forba.at

Contents

I

CONTENTS

1. SUMMARY JÖRG FLECKER & CHRISTOPH HERMANN......................................................... 1

1.1. Market changes, company reactions and organisational change ................................................ 1

1.1.1. Mergers, acquisitions, privatisation, internationalisation and diversification................................................ 1

1.1.2. Price policy and cost pressure..................................................................................................................... 2

1.1.3. Organisational changes............................................................................................................................... 3

1.2. Employment, industrial relations and HRM .................................................................................. 6

1.2.1. Employment................................................................................................................................................. 6

1.2.2. Industrial relations ....................................................................................................................................... 7

1.2.3. Human-resource management.................................................................................................................. 10

1.3. Work organisation and working conditions................................................................................. 11

1.4. Productivity and service quality.................................................................................................. 14

1.5. The role of regulation ................................................................................................................. 15

1.6. Conclusions ............................................................................................................................... 16

2. INTRODUCTION AND RESEARCH METHOD.......................................................................... 19

3. ELECTRICITY CHRISTOPH HERMANN ................................................................................. 21

3.1. Introduction ................................................................................................................................ 21

3.2. Market changes, company reactions and organisational change .............................................. 21

3.2.1. Acquisitions, mergers, strategic alliances and internationalisation............................................................ 23

3.2.2. The restructuring of the electricity value chain .......................................................................................... 24

3.2.3. Marketing, customer service, price policy and cost cutting ....................................................................... 24

3.2.4. Organisational changes............................................................................................................................. 26

3.3. Employment, industrial relations and HRM ................................................................................ 29

3.3.1. Employment............................................................................................................................................... 29

3.3.2. Industrial relations ..................................................................................................................................... 32

3.3.3. Human resource policies ........................................................................................................................... 35

3.4. Work organisation and working conditions................................................................................. 36


II

3.6. Conclusions ............................................................................................................................... 39

4. POSTAL SERVICES TORSTEN BRANDT............................................................................... 43

4.1. Introduction ................................................................................................................................ 43

4.1.1. The process of liberalisation...................................................................................................................... 43


4.2.1. Market changes......................................................................................................................................... 45

4.2.2. Company strategies and organisational change ....................................................................................... 45

4.3. Employment, industrial relations and HRM ................................................................................ 51

4.3.1. Effects on employment .............................................................................................................................. 51

4.3.2. Industrial relations ..................................................................................................................................... 53

4.3.3. Human-resource management.................................................................................................................. 55

4.4. Work Organisation and working conditions................................................................................ 56


4.6. Conclusions ............................................................................................................................... 59

5. HOSPITALS NILS BÖHLKE ..................................................................................................... 63

5.1. Introduction ................................................................................................................................ 63

5.2. The Hospital Sector ................................................................................................................... 64

5.2.1. Increasing cost pressure and changes in the funding systems................................................................. 64

5.2.2. Hospital reactions ...................................................................................................................................... 67

5.2.3. Employment, Industrial Relations and HRM.............................................................................................. 72

5.2.4. Work organisation and working conditions ................................................................................................ 78

5.2.5. Productivity and service quality ................................................................................................................. 81

5.3. Conclusions ............................................................................................................................... 85

6. LOCAL PUBLIC TRANSPORT CHRISTER THÖRNQVIST ..................................................... 87

6.1. Introduction ................................................................................................................................ 87

6.1.1. Flexibility.................................................................................................................................................... 89


6.2.1. Germany.................................................................................................................................................... 91

6.2.2. Poland ....................................................................................................................................................... 93

Contents

III

6.2.3. Sweden...................................................................................................................................................... 94

6.2.4. United Kingdom......................................................................................................................................... 96

6.2.5. Market and organisational change: a comparative summing-up ............................................................... 97

6.3. Employment, Industrial Relations and HRM .............................................................................. 98

6.3.1. Germany.................................................................................................................................................... 98

6.3.2. Poland ....................................................................................................................................................... 99

6.3.3. Sweden.................................................................................................................................................... 101

6.3.4. United Kingdom....................................................................................................................................... 102

6.3.5. Employment, IR and HRM: a comparative summing-up ......................................................................... 104

6.4. Work organisation and working conditions............................................................................... 105

6.4.1. Germany.................................................................................................................................................. 105

6.4.2. Poland ..................................................................................................................................................... 105

6.4.3. Sweden.................................................................................................................................................... 106

6.4.4. United Kingdom....................................................................................................................................... 107

6.4.5. Work organisation and working conditions: a comparative summing-up................................................. 108

6.5. Productivity and service quality................................................................................................ 109

6.5.1. Germany.................................................................................................................................................. 109

6.5.2. Poland ..................................................................................................................................................... 109

6.5.3. Sweden.................................................................................................................................................... 110

6.5.4. United Kingdom....................................................................................................................................... 110

6.5.5. Productivity and service quality: a comparative summing-up.................................................................. 111

6.6. Conclusions ............................................................................................................................. 112

BIBLIOGRAPHY ....................................................................................................................................... 115

IV

LIST OF TABLES

Table 2-1: Matrix of company case studies ..................................................................................... 20

Table 3-1: Case study companies ................................................................................................... 21

Table 3-2: Electricity markets........................................................................................................... 22

Table 3-3: Major organisational changes......................................................................................... 29

Table 3-4: Impact on industrial relations .......................................................................................... 34

Table 4-1: Case-study companies ................................................................................................... 43

Table 4-2: Major stages of liberalisation and privatisation ............................................................... 44

Table 4-3: Importance of different client types in the mail segment of the Belgian incumbent ....................................................................................................................... 48

Table 4-4: Employees in the German letter market (annual average 2006) .................................... 52

Table 4-5: Wage rates of letter deliverers paid by incumbents and competitors in Austria and Germany in 2007 ......................................................................................... 54

Table 5-1: The case study hospitals ................................................................................................ 63

Table 5-2: The development of the sector and the funding.............................................................. 67

Table 5-3: Hospital reactions ........................................................................................................... 71

Table 5-4: Employment, Industrial Relations and HRM ................................................................... 77

Table 5-5: Work organisation and working conditions ..................................................................... 81

Table 5-6: Productivity and service quality ...................................................................................... 84

LIST OF FIGURES

Figure 6-1: Current organisation (including ownership) of local transports in ‘X City’ ....................... 92

Summary

1

1. SUMMARY Jörg Flecker & Christoph Hermann

1.1. Market changes, company reactions and organisational change

1.1.1. Mergers, acquisitions, privatisation, internationalisation and diversification

With liberalisation markets were gradually opened to competition. While in electricity all customers can now choose between two or more providers, in postal services the former monopolists still enjoy a limited monopoly (for mail weighing 50 grams or less) in Austria, Belgium and Poland (whereas postal markets in Germany, Sweden and the UK are fully liberalised). In local public transport the situation is different, as here corporations mostly do not compete for customers but for several-year service contracts. In the hospital sector, too, hospitals only compete for patients under exceptional circumstances. Yet hospitals are increasingly subjected to economisation processes caused by changes in funding schemes and stagnating or only slowly growing public budgets. Regardless of the duration and intensity of the liberalisation process, overall market changes in the liberalised public service sectors in which the case study companies operate have been limited. Former monopoly providers successfully defended their market positions, while new competitors are struggling to win significant market shares. Exceptions include parcels and express services and the German letter market, where a new competitor challenged the position of the former monopolist but has meanwhile run into serious economic difficulties. Even in Sweden, where the post market was fully liberalised more than 15 years ago, the former monopolist still holds more than 90 per cent of the letter market. Liberalisation, in general, seems to lead only rarely to a competitive market (see Hermann/Verhoest 2007).

While market changes were limited, public-service companies frequently changed ownership through privatisation and mergers and acquisitions. This is partly reflected in the sample of case study companies. In the electricity sector, all but one of the companies covered by the case-study analysis have changed ownership and all but one as result is now predominantly foreign owned. If the ongoing merger between the Danish and the Swedish post is successful, only one out of four post incumbents included in the analysis will still be fully publicly owned. While the examples from the electricity and postal sectors can be generalised due to the limited number of companies in these sectors, in local public transport and the hospital sectors generalisations are more problematic. However, both sectors saw a shift from public to private ownership.

Two of the case study companies in local public transport were privatised as a management and employee buy-out and one of these was later purchased by a multinational foreign-based company. In the hospital sector, where hospitals are confronted with increasing financial pressures, two hospitals were privatised, one of

2

which is now owned by a foreign investor the other by a national private hospital chain with overseas investments. The other two hospitals were part of a merger or integrated in a larger hospital group. In addition, companies from all sectors have acquired competing providers, including several public companies buying private competitors.

Apart from mergers and acquisitions, which in the extreme case let to the creation of national and increasingly even European public service oligopolies, the former monopoly providers have responded to liberalisation by internationalisation – i.e. investing outside their home markets – and by diversification – i.e. investing in related business activities. The two strategies are particularly prevalent in electricity and postal services. One of the post companies included in the sample prides itself on being the leading world logistics and post company and raises a large part of its revenue outside its home market. The new post competitors are also frequently foreign owned and several of them combine mail delivery with the delivery of newspapers. Electricity companies also diversify supply by combining the provision of electricity with the provision of natural gas. Rather than focusing on diversification, one electricity company has pushed for vertical integration and now generates, distributes and retails electricity, after the electricity value chain was initially broken up through privatisation.

1.1.2. Price policy and cost pressure

Another set of measures introduced by public-service companies in liberalised markets centres on the relationship between the company and its customers. Companies in liberalised public-service markets have allocated increasing resources to advertising and the improvement of customer relations. However, while the role and scope of call centre services has been greatly extended, other forms of customer contact, such as walk-in centres, have been cut back if not altogether eliminated. Some of the case study companies in the electricity sector have resorted to new and rather aggressive sales techniques and one company has been fined for talking electricity customers into changing their supplier. In addition to investing in advertising and introducing new sales techniques, public-service companies have also responded to market challenges by advancing customer differentiation.

Large customers can negotiate specific terms of service delivery, including individual prices, while small customers are treated according to general standards and charged standard tariffs. As a result large customers may gain price reductions, while small customers have more than once suffered from price increases after liberalisation and privatisation. Customer differentiation is less important in local public transport and hospitals. Hospitals may have an interest in increasing the number of privately insured patients or specialising in certain medical procedures, but the treatment in itself is meant to be the same for all patients.

While electricity and postal-services customers can choose between different providers, and the price of the respective service certainly plays an important role in these decisions, in local public transport and the hospital sectors price competition plays only a marginal role if any. Providers in these sectors have very limited influence on prices.

Summary

3

Prices instead are set by transport or health authorities. However, in both sectors there is competition in the sense that providers attempt to undercut competitors when competing for bids in public tenders or in the case of hospitals by pushing costs for individual treatments below the lump-sum rates paid by the funding organisations. In fact such forms of competition can be more effective than price competition, because they do not depend on sufficiently competitive markets. In some countries, electricity and post companies have had similar experiences with the regulators, who set mandatory prices for electricity distribution and for post services provided as part of the universal service obligation.

Regardless of the market situation and the nature and degree of competition, all case-study companies report growing cost pressure from the market, the regulator, the funding authority, or, as several trade union and works-council representatives have emphasised, the profit interests of the new private shareholders. And despite the fact that some companies have still managed to increase prices in liberalised public service markets, all of them have responded to liberalisation and privatisation by cutting costs. This has mainly been done on three levels: investment in cost-saving technology, reorganisation (concentration and outsourcing) and the reduction of labour costs through employment cuts, lower wages and intensification of work.

1.1.3. Organisational changes

Apart from changing their legal forms and becoming private-law companies, most companies introduced far-reaching organisational changes after liberalisation and privatisation. Some of them were driven by the implementation of new technology, others by regulatory requirements and again others by the objective of cutting costs. As a result there are two major tendencies that in one form or another have affected most of the case-study companies: the concentration of structures and activities and the outsourcing of certain parts or functions either by contracting with external suppliers or by setting up independent subsidiaries. The latter is particular widespread in the electricity industry, where the regulator has required providers to set up independent business units for generation, distribution and supply.

Several electricity companies, as a result, have set up independent sales departments and call centres, while one company was virtually split into two equal parts – although in the mind of many workers it is still one integrated employer (another company was also split up, but the newly created firm is much smaller and has to borrow workers from the sister company). In a similar way, municipalities have responded to legal concerns about the funding of municipal transport systems by converting parts of the service into independent companies (e.g. bus service). The result was the creation of sometimes rather complicated business structures with cross-shareholding among various actors. In postal services it is the new competitors that often rely on extensive networks of subsidiaries and partners in order to reach into areas where they do not have their own delivery network. In Germany, a major competitor of the post incumbent was in fact made up by a total of 91 independent firms.

4

As we will describe in the following section, organisational changes not only responded to regulatory needs; instead companies have deliberately exploited new regulations in order to escape ‘expensive’ public-sector collective agreements under the pretext of growing competition. In fact, reorganisation was to a large extent driven by the search for lower labour costs. Apart from creating independent subsidiaries, companies have also outsourced service functions to external contractors who can provide the service cheaper than the company could do with its own staff. As we will describe in the following section, the splitting up of companies, the creation of independent subsidiaries and outsourcing has created frictions within a previously rather homogeneous public-sector workforce and significantly increased administrative work (documentation, reporting etc.).

In electricity, construction work and services such as metering have been outsourced. In the case of a new competitor on the Belgian retail market, virtually all activities are outsourced except for management and a core administrative unit (some of the contractors, however, work on the company’s premises, which allows management to keep a close eye on them). As a manager notes, “Being lean and mean is a must to compete with the large European players” (cited in Vael/Van Gyes 2008a). In postal services, former monopoly providers have outsourced transport between sorting and distribution centres to private haulage companies, and in several cases at least parts of their post office network. The most extreme case is Sweden, where the incumbent has outsourced most of the retailing tasks to post partners such as supermarkets, petrol stations and convenience stores, while it continues to operate a small number of post stores mainly for bank transactions. According to a report by the German post regulator, Deutsche Post used more than 1,800 subcontractors in 2005, including taxi drivers commissioned to empty letter boxes (Brandt 2008a). For the Austrian post incumbent, outsourcing was not so much introduced to save costs – the impact on costs is in fact debatable – but to increase pressure on the core workforce. In hospitals, too, a large variety of activities and functions have been outsourced to external providers reaching from cleaning and catering services to building maintenance and IT, but so far no medical services have been contracted out in the companies included in this survey. The picture is similar in local public transport, with outsourcing mainly concerning services such cleaning, security, catering, ticket controls and the operation of vending machines. Public service providers thus adopt widespread restructuring practices as many services have been outsourced in the private sector and in public administration.

While outsourcing is still an important trend in public-service companies, some service providers have also started to insource activities. Examples include the electricity case-study companies in the UK and Austria and the Belgian hospital. While the British electricity provider brought services back in because contractors frequently did not live up to the standards expected by the company and management feared that the loss of skills for tasks performed by contractors would have negative long-term consequences, in Austria management reduced the number of external contractors because it needed to keep its non-sackable workforce busy. The Belgian hospital included in the case study sample insourced services such as cleaning and catering. Reasons included economies

Summary

5

of scale, which could be exploited after the merger and the cooperation with a public (re)employment programme that provided subsidised workers for these services.

Of course, outsourcing and the creation of independent subsidiaries can be seen as a form of decentralisation, but decentralisation as a deliberate strategy to reduce costs was pursued only in a few cases, including a German hospital where it was linked to extensive benchmarking by management. More often, public-service companies have responded to liberalisation by centralisation and concentration. As mentioned above, several electricity companies have closed down walk-in service centres and instead concentrated customer relations services in centrally operated call centres. In order to increase efficiency, post companies have dramatically cut the number of sorting and distribution centres. In Germany, of the 700 sorting centres that existed before liberalisation only 59 are left; in Austria the number was reduced from 36 to six, while the number of distribution bases was cut from 1,880 to 320. In both countries, furthermore, the number of post outlets has been reduced by about 40 per cent since the start of the liberalisation process. In the hospital sector, concentrations mainly take the form of hospitals being merged or integrated into a large hospital group, and departments spread out over a number of buildings are centralised in one large facility.

Concentration processes were partly linked to a reduction of hierarchical structures. Several companies have introduced ‘flatter’ hierarchies, with the result that individual managers assume more and direct responsibility. The new competitors in particular tend to have less penetrating hierarchical structures combined with new and less bureaucratic working cultures. As we will discuss below, some public-service providers have only recently created human-resource departments, whereas previously they were merely administrating civil-servant employment regulations. However, while hierarchical structures have become ‘flatter’ and permeable, at the same time public-service companies have stepped up control efforts through the introduction of new IT-based control and reporting systems. An employee from an Austrian electricity company assured us that the introduction of the business administration software SAP had had a greater impact on the company than the liberalisation of the electricity market. The introduction of new technology, indeed, played a major role in the restructuring of public service providers. This is not only true for electricity, where it changed billing and administration and the way companies interact with their customers, and post services, where IT was used to reorganise delivery routes and to track parcels and registered mail. The introduction of IT has also changed the organisation of hospitals: the introduction of digital patient files in the German case-study hospital, for example, has changed administrative work and led to a reorganisation of the administrative system.

6

1.2. Employment, industrial relations and HRM

1.2.1. Employment

The objective of reducing costs has often had a major impact on employment. Instead of improving efficiency by expanding the amount of output with a constant labour force, public-service providers in liberalised markets cut back on their staff numbers (Jefferys et al. 2008). Changes in employment levels vary according to sector and country depending but not determined by the degree of liberalisation and privatisation. In electricity and in postal services considerable job losses occurred at the incumbent monopolists, often combined with changes in employment status and forms of contract, while newly established competitors by definition gained employment. Of course, the overall net employment effects can only be assessed at macro level, but the case studies confirm that in electricity and postal services outsourcing to other sectors and the creation of new jobs by new competitors can hardly account for the job losses recorded by the former monopoly suppliers – especially if calculated on a full-time basis.

In the electricity sector the case studies reported employment reductions between of 25 and 50 per cent since privatisation or since the mid 1990s. In spite of the enormous scale of job losses, compulsory layoffs were avoided. ‘Downsizing’ was achieved through non-replacement of retirees, voluntary redundancy packages and early retirement. In electricity, employment was reduced in generation, maintenance and administration whereas employment expanded in trading, retailing, controlling and IT. This resulted in a shift from blue-collar to white-collar employment. Qualitative employment changes also include the move from civil-servant to private-sector employee status in the British case and the frequent use of temporary workers in the Belgian case.

Job cuts led to frequent overtime for the remaining workforce in the electricity industry in the British and in the Belgian cases. While in the UK this can also be attributed to the parallel reduction of working hours from 39 to 37 hours per week, in Belgium overtime grew in spite of the lengthening of the working week from 36 to 38 hours. In part, more flexible working-hours arrangements were introduced to extend customer-services operating times.

The postal services, too, saw a strong reduction of employment levels at the incumbent monopolists before and after liberalisation and privatisation. In Austria, Belgium, Germany and Sweden, between 15 and 37 per cent of the jobs at the former monopolists have disappeared. Poland is an exception, because competition in the Polish letter market is still insignificant and full liberalisation has been postponed to 2013. Again, not only were employment levels reduced, but also the contractual forms changed, with a marked increase of part-time and fixed-term jobs and other forms of atypical employment. The shift in employment to newly established competitors accelerated this development. While post companies in most countries have increased the number of

Summary

7

part-time workers, other forms of atypical employment, such as marginal or self-employment, are country specific.

However, if not prevented by labour regulations (labour law and collective agreements), the new competitors tend to rely particularly heavily on non-standard forms of employment. Hence while in Germany the new competitors employ about 60 per cent of their workforce on marginal part-time contracts or ‘mini jobs’, only four per cent of the incumbent monopolist’s employees have such a contract. In Austria, on the other hand, more than 90 per cent of the workforce of the new competitors in the letter market is self-employed and paid piece rates, and as such lacks any form of labour or social protection.

The case studies on hospitals show a varied picture: employment partly increased and partly decreased in these organisations. In contrast to case studies on former monopolists in electricity or in postal services, which in many cases still account for the major part of the respective markets, case-study findings on changes in employment levels of individual hospitals do not permit generalisations. The picture is also varied with regard to qualitative employment changes: job gains in the Austrian case are mainly due to the growth of part-time employment and thus the increase in employment in terms of full-time equivalents was marginal. In contrast, in the Swedish and in the Belgian cases the number of part-timers has actually decreased in recent years. The German case study shows that the most far-reaching changes in employment do not necessarily happen after privatisation: while ‘downsizing’ continued under the new ownership, the biggest cuts in employment occurred prior to privatisation.

In the local public transport cases the picture is similar. There have been job cuts in some of the cases and employment growth in others. Companies increased employment numbers where overall traffic grew, such as in the Swedish case, and where companies successfully tendered for bus-service contracts, such as in the Polish case. While part-time work only plays a marginal role in local public transport, companies resort to split work days and flexible working-hours arrangements to increase flexibility and to cut costs. In addition, the introduction of competitive tendering has fuelled an increase in fixed-term employment contracts adjusted to the length of the contract between the employer and the tendering authority. This can, for example, be found in the Polish case. However, decreasing employment security is partly mitigated by a lack of drivers.

1.2.2. Industrial relations

With few exceptions the restructuring of public services following liberalisation and privatisation has led to a fragmentation of labour relations and employment conditions. This means that bargaining systems are divided and coverage becomes less comprehensive, the number and variety of actor increases and the wage differentials grow. Differences emerge on a sectoral level between competing companies – often between the former monopoly providers and the new competitors – and within former monopoly providers between the core organisation, newly created subsidiaries and outsourced jobs, as well as between the longstanding workforce and newly hired

8

workers. In some sectors and companies the changes amount to the creation of two-tier or multi-tier labour relations systems (Brandt/Schulten 2008a).

In the electricity industry growing fragmentation is linked to the restructuring of value chains. As a result of electricity-sector regulation, companies are being demerged and activities outsourced. Legally independent subsidiaries figure under different and from the workers’ point of view often less favourable collective agreements or under specific regulations within the same agreements. In Belgium, call centre agents employed by independent call centres are excluded from the comparably favourable electricity agreement, while newly hired staff mostly employed in the new retail subsidiaries earn between 22 and 34 per cent less than the established workforce in production and distribution. In the Austrian case the wage difference between ‘old’ and ‘new’ staff is 13 per cent. In the British case, wages are the same, but workers hired after privatisation are not entitled to the comparably generous pre-privatisation company pension scheme. Poland stands out in this comparison because the established workforce earns less than the newly hired workers. While ‘older’ staff will most likely not find a new job if they leave the company, ‘younger’ workers are profiting from an increasingly tight Polish labour market.

In postal services, the German case also reveals differences between ‘old’ and ‘new’ employees. Workers hired according to the new post agreement earn up to 30 per cent less than those still covered by the old regulation. However, in the post sector differences between former monopoly providers and new competitors are more important, because the corporate strategy of the new competitors is often based on lower labour costs. The situation is particularly apparent in Austria and Germany where the incumbents and new competitors are covered by different agreements, or in the German case by none at all. Before the introduction of a sector-wide minimum wage, wages paid by the new competitors in Germany were only about half of those paid by the former post monopolist. In Austria new competitors largely operate with self-employed workers, who also earn half as much as the incumbent’s permanently employed staff.

While in Germany and Austria liberalisation in the post sector has fuelled wage-dumping and part of the service has become a low-wage sector, no such development was observed in Sweden, Belgium and Poland. In Sweden the former monopoly provider and the new competitor are covered by different agreements but they provide similar standards. As a result, competition between the incumbent and the competitor is not mainly carried out on the backs of the workers. Belgium, too, has a strong sector agreement, but new competitors, which are only just emerging on the market, may circumvent it by using self-employed workers. In Poland the former monopolist is still not privatised and competition on the letter market has only just started.

In the health sector, too, bargaining and wage determination have been fragmented in some of the countries. This applies to Austria, where the wages in private for-profit and non-profit hospitals are about 20 per cent lower than in public hospitals, and to the German case, where workers in auxiliary services such as cleaning, kitchen and laundry are not covered by a collective agreement, and medical staff had to fight to maintain their wage levels after the company withdrew from the federal employers’ association.

Summary

9

Similarly, in the Swedish case the unions only obtained a collective agreement that provides the same standards as in other still publicly owned hospitals after a period of difficult and intensive negotiations. In contrast, in the Belgian case study some workers actually profited from a merger between two hospitals, as their wages were up-graded to the higher standards that applied in the other hospital. However, in the cases covered in the research, only the UK has a single pay system negotiated at national level and applying to all directly employed NHS hospital staff. Only newly appointed staff at outsourced companies have different terms and conditions.

In local public transport, privatisation and introduction of competitive tendering have clearly challenged the existing industrial-relations systems. In the German case the industry-level collective agreement still covers nearly all municipal transport companies of the federal state where the case study took place. However, subsidiary companies and private companies are not covered. This implies high wage differentials for bus drivers, depending on the status of their employer. As in the electricity sector, former monopolists use the establishment of independent subsidiaries to lower their wage costs. In contrast, Poland lacks industry-level collective bargaining. However, in the case under investigation the union is optimistic on reaching a new company agreement. Yet the tendering system puts pressure for wage moderation on the union and it has resulted in a change from open-ended employment to fixed-term contracts in line with the duration of the contract. As elsewhere, London bus drivers, who had worked under the same terms and conditions before privatisation, now face highly varying wages and employment conditions depending on the company they work for, because bargaining takes place solely at company level. Both in the British and the Swedish cases the cost-cutting effect of the tendering systems became very clear and unions have repeatedly called strikes for higher wages and against the cancelling of work breaks.

The fragmentation of bargaining systems is in many cases underpinned by pronounced differences in unionisation rates. As a rule, union density among the former monopoly providers’ workforces is much higher than among the new competitors. In Germany about 80 per cent of the post incumbent’s staff is unionised, while hardly more than ten per cent of the competitors’ mainly precarious workers are union members. In several cases, union density is also markedly lower at the newly established subsidiaries and among the subcontractors providing outsourced services. Furthermore, privatisation and the continuous reduction of employment numbers present major challenges to the public-sector unions. In the UK, privatisation in more than one case was perceived as an explicit strategy to weaken the unions. But in other countries unions are also competing to win members among shrinking workforces. Consequently, liberalisation and privatisation have in some cases led to a decrease in strikes and other forms of industrial action, while in others the frequency of conflicts has actually increased.

Overall, the case studies illustrate the growing diversity of employment conditions, which leads partly to marked inequality between workers doing the same or similar jobs. The diversity in part goes back to strategies of reducing wages and worsening conditions for newly engaged workers – sometimes for an extended probation period but usually on permanent basis, partly it is the result of fragmented industrial relations

10

systems. As the case study findings indicate, both are the result of liberalisation and privatisation processes and the reactions of the companies to the new business environment. The fragmentation of bargaining occurs where the splitting up of companies, outsourcing and other forms of restructuring value chains is accompanied by, or happens in the context of a decentralisation of industrial relations and by a substitution of company for industry-level agreements. Among the rare examples of workers’ resistance against increasing wage differentials is a campaign that led to the introduction of a compulsory minimum wage in the post sector in Germany. Another example is a campaign that attempts to establish the similar pay and employment conditions across all London bus companies. Given the tendering system, the diversity there is not only a matter of inequality but also of job security.

1.2.3. Human-resource management

The restructuring of companies and their changing business strategies went hand in hand with the reform of human-resource management (HRM). Before liberalisation and privatisation, HRM in some cases meant little more than the administration of civil-servant employment regulations. Some companies hence only introduced special HRM departments and policies during the process of liberalisation and privatisation. As such, HRM policies relate to personnel development and training, management control and staff motivation. As a result, training was partly enforced, though not equally for whole workforces, partly it was cut as a direct consequence of privatisation and the restructuring of work. At the same time, reward systems have become more performance related. Promotion is also increasingly based on performance assessments rather than seniority. In at least one case management has attempted to improve control by introducing a system of management by objectives, which, in the final phase, will include individual objectives for each staff member. As a result the growing differences in employment conditions are reinforced by the changes in the HRM systems.

Some of the hospitals under investigation put more emphasis on HRM. The Austrian and the Belgian case studies showed the implementation of human-resource development guidelines and an improvement of training and job-mobility opportunities. In the Austrian case, however, activities are limited to the highly qualified core staff. In contrast, in the UK case training is also available for outsourced employees, although to a lesser extent and according to some interview partners at a lower quality. The German privatised hospital focuses training activities on diagnosis-related documentary work, because the classification of diagnoses is an important area in which the profit of the company can be increased.

Unequal access to training was also found in the electricity industry. The Polish case study reports that mainly managers and younger employees have access to training while older workers are excluded. In the UK case, privatisation has had an overall negative effect on training provision, because training was among the first areas in which the new private owners cut costs. In the British case study this has led to a severe skill shortage, because the skilled staff members are now approaching retirement age

Summary

11

and there is no appropriate replacement for them. In response the company has recently started to put more effort in training young workers, but the number of apprentices still falls considerably short of the pre-privatisation figures.

The Swedish case study in local public transport revealed a link between the tendering system and the reduction of bus drivers’ training. In contrast, in the Polish case the employer stepped up training efforts to confront an increasing shortage of bus drivers who had left the country to work in the UK or other western European countries after Poland’s accession to the EU. The company, together with the local employment agency, organised special driving lessons to encourage women to become bus drivers as well. In addition, it hired a group of bus drivers from the Ukraine.

As in the electricity sector, in postal services a substantial part of the human-resource management is the reduction of employment through non-replacement of retired workers, voluntary retirement and redundancy payments. In several cases the terms and conditions of such schemes are negotiated between management and the unions in the framework of wider employment pacts. In the Austrian case, employees who decline to leave the company but whose work is no longer needed are transferred to an internal employment organisation called a ‘career and development centre’. In the eyes of the trade union representatives, workers who end up in this organisation are deprived of any prospects and instead are forced to do nothing while waiting for retirement.

With declining career prospects in particular for postmen and growing part-time work, the internal labour market is losing importance, which also impacts on the forms of management control, with piece rates and close surveillance gaining ground (see further below). What is more, the vanishing of the public-sector ethos also requires companies to increase control. A perhaps extreme example is a German case in which the company established a special security department to investigate the theft of postal items. In contrast to improved training in other industries, deskilling and downgrading of delivery jobs seems to prevail in postal services. Pre-sorting and the use of GPS (global positioning system) devices are turning the occupation of qualified postmen into temporary jobs for easily replaceable young workers, with labour turnover in the case of the Swedish competitor reaching as much as 50 per cent of the staff per year.

1.3. Work organisation and working conditions

The reduction in employment as a consequence of liberalisation and privatisation makes itself felt in the ways work is carried out. In many cases, lower staff levels result in work intensification. In addition, work intensity has been stepped up through the introduction of new control mechanisms and the extensive use of benchmarking, that is the comparison with comparable units or services within the same companies or with competitors. Managers in several case studies pointed to the underperformance and lax working conditions before liberalisation and privatisation and the need to improve individual output. Workers and work council representatives, on the other hand, argued that intensification and flexibilisation have seriously undermined the quality of public

12

service jobs. Innovations in work organisation rarely released workers from growing workloads and instead often increased work pressure.

In postal services, case studies in all countries reveal increasing levels of work intensity and worse working conditions. As the Austrian case, for example, shows, the measures taken by management of the former monopoly company include the assigning of time values to individual tasks in a Taylorist tradition combined with Japanese-style teamwork, with delivery teams becoming responsible for covering the routes of absent colleagues. The barriers to this had been eliminated in recent years, however, leading to work intensity approaching physical limits and to shifts exceeding eight hours. In the Polish case too, delivery workers in many districts have problems to finish the job within the eight-hour-day. There, the incidence of sick leave is on the increase. In spite of deteriorating working conditions at the incumbent monopolies, case-study evidence from Austria, Germany and Sweden suggests that working conditions are even worse at the new competitors. This relates to the pace of work, unpaid overtime, night work and flexible working hours.

Restructuring in postal services relies heavily on new technology: highly automated sorting centres, technology to optimise delivery routes, portable communication devices, new software for universal post office counters and new monitoring and reporting systems – all these innovations have not only helped to reduce employment levels but also markedly changed the working environment. The Belgian case study illustrates how work is being simplified and becoming mentally less demanding while physical burdens increase: the sorting centres have taken over all sorting tasks and the mobile IT device prescribes the delivery route.

Increased workloads due to understaffing are also reported from the electricity industry. Respondents in the Austrian, UK and the Polish case studies in particular stressed the increasing intensity of work. Apart from the reduction in staff, the pressures come from the reorganisation of electricity companies. Workers at the Austrian company, for example, complained that unbundling led to an increase in bureaucratic work. The splitting-up of companies increases paperwork: maintenance work or other activities need to be charged as these are now carried out for a separate company.

Changes in work organisation may go in different directions, as examples from the electricity industry show: while previously specialists were sent in to carry out different jobs, now maintenance workers in the Austrian case have become generalists and carry out 95 per cent of the tasks. In the UK in contrast, management increased the degree of specialisation, leaving workers with little understanding of areas outside their immediate tasks. The most far-reaching change in work organisation took place in newly created departments in customer relations. Call-centre agents typically use standardised scripts to communicate with customers and they work under considerable time pressure, which is exacerbated by the widespread use of electronic control systems. However, workers at external call centres are said to be worse off in terms of workload and labour conditions.

Summary

13

Work intensification is also a general feature of the changes in work organisation introduced in virtually all of the hospitals included in the survey. In some cases the main reason is the patients’ declining length of stay, due to which the more demanding admission and discharge procedures make themselves felt more strongly. In others, altered processes and workflows have led to a speed up and a higher pace of work. In the German privatisation case, the nurse-to-patient ratio went down and administrative tasks were transferred from administrative staff to the nurses, further increasing their already high workload. In the Belgium case too, staff report an increase in non-patient-care-related tasks leading to growing job dissatisfaction. In the UK case the reliance on the private finance initiative to allocate new funds to modernise the hospital has demanded cost cuts at all levels within the hospital, which, in turn, has meant increasing workloads for large parts of the hospital staff.

Cost cutting is also a prominent issue in local public transport. In the Swedish and in the UK cases a clear link was revealed between the tendering system and work pressures. In Sweden, companies offer the services at the lowest possible cost, hoping to be able to exploit economies of scale in the long-term. Companies tend to eliminate all slack in order to win a contract. In practice, this means that not the slightest problem must occur if they are to fulfil their obligations. For drivers, who have always worked in a stressful environment, the result is more stress at work and more sick-leave. In the UK case, too, companies pass the pressure to increase productivity on to their drivers and they tend to contact people earlier than previously if they are off sick.

Apart from enhancing work intensity, restructuring mainly impacts on working hours: across the different sectors and countries, the case studies showed increasingly flexible working hours and a rise in overtime. Flexible working hours are among the main measures to cut costs. In local public transport working-time flexibility and split work days are used to adapt the drivers’ working hours to capacity needs. The breaks are paid in part, but at a different rate. In Poland, for example, interrupted working hours fall under a national regulation according to which workers have to be paid 50 per cent of the minimum hourly pay rate for the breaks between driving hours. Yet bonuses are not paid for such standby periods. The German case study on local public transport illustrates how bad working conditions in terms of flexible working hours with long breaks are passed on within outsourcing relationships: the workforce of outsourced companies has to serve the ‘bad lines’ with irregular, flexible working hours and long breaks between driving times.

In postal services company strategies led to new working-hours arrangements. In particular, part-time work has been used as a means to increase flexibility. As the German case study illustrates, the daily delivery time was brought forward by making the delivery districts smaller. This, in turn, leads to an increased demand for part-time workers and possibly to a phasing out of full-time employment in delivery.

Flexible working hours are also an important issue in the electricity industry. In particular the extension of operating hours of customer services into the evenings and weekends boosted the demand for flexible working hours. More flexibility is also achieved through increased overtime, which was reported in several case studies. The

14

Polish case reported that emergency field staff in particular are expected to work as long as it takes to restore power. Of course, the number of repair workers has been reduced as a result of liberalisation and privatisation.

Overall, the case study evidence makes it possible to trace back changes in work organisation and working conditions to restructuring processes triggered by liberalisation and privatisation of public services. One of the main aims of the companies is to cut costs. This aim is achieved by investment in new technology, by work intensification caused by job cuts and changes in work organisation and by reducing personnel costs through flexible working hours. Additional impacts on work organisation include the increase of ‘bureaucratic’ work through unbundling in electricity and tendering systems in local public transport and the standardisation of work in postal services and in electricity call centres.

1.4. Productivity and service quality

Most case studies report an increase in productivity. The result of continuous and substantial reductions of the number of employees is that fewer staff create roughly the same output previously produced by a significantly larger workforce (although the measurement of output is not without problems in public services). In hospitals and partly also in local public transport the objective can also be to fulfil an ever-greater demand with the same number of workers. Liberalisation and privatisation related productivity gains recorded at the company-level must not necessarily result in productivity growth for the entire sector let alone for the whole economy. The duplication of activities such as the creation of alternative delivery networks in postal services or of retail structures in electricity may slow down productivity growth, although the effect is difficult to be measured.

Productivity increases have rarely been an objective in themselves in the restructuring processes following liberalisation and privatisation. Instead, productivity gains are the by-product of a general attempt to cut production costs. This has two consequences: firstly, public-service providers in liberalised markets often combine an increase in productivity with the lowering of labour costs through the payment of lower wages or the use of atypical forms of employment (often in combination with outsourcing and the creation of independent subsidiaries). In labour-intensive services such as the post sector, wage cuts can ultimately be more important to survive on the liberalised markets than investment in greater efficiency that were of course also made (if wage cuts are not prevented by comprehensive and sector-wide collective regulations).

Secondly, many cases showed improvements in quality through speeding up processes, using new technology or enhancing responsiveness in customer care. However, measures to enhance quality have only been observed where they do not conflict with the aim of cutting costs and employment. In contrast, quality aspects that demand additional labour resources have often been compromised as a result of liberalisation and privatisation. Hence electricity providers may extend the operating hours of their

Summary

15

centrally operated call centres, while at the same time they close down the traditional walk-in centres where customer could talk to agents face-to-face. They have also reduced the number of repair workers, which increases the waiting period for power to be reinstalled after major breakdowns following storms or other disasters. In postal services, the post incumbents have put substantial effort into speeding up the delivery process and delivering much of the mail only one day after posting. At the same time, however, they have significantly reduced the number of post offices and the number of agents working in the post offices, making it more difficult and time-consuming for private customers to use the service (postmen, also, no longer have time to talk to residents).

Because they are highly labour-intensive services, the tension between increasing productivity and improving service quality is particularly apparent in hospitals and local public transport. True, there has been investment in new buildings, equipment and in the case of transport in new vehicles, but the intensification of work has also had negative effects on the quality of service. In several of the hospital cases, respondents voiced concerns that shorter patients’ staying times and increased numbers of operations not only increases the risks of malpractice but also leaves less time to spend with the individual patient (the German case reports a marked decrease in the nurse-to-patient ratio). In local public transport, productivity gains have mainly been achieved by the introduction of flexible working hours. In general this means greater workloads for drivers. The passengers may not notice a difference, but increasing drivers’ workloads can have a negative impact on security.

In some cases the negative impact on quality may only become apparent in the long term. In two of the electricity case studies, workers and worker representatives assured us that lower investment (as a result of profit interests or regulatory requirements) in network infrastructures will in the long-term lead to deterioration in the network quality and therefore in the security of supply. In one case study this view was shared by management.

1.5. The role of regulation

Regulation in more than one case had a significant impact on company reactions to liberalisation and privatisation and the outcome in terms of employment and quality. Therefore there are also country-specific differences although providers in liberalised and privatised public service markets tend to adopt similar strategies. As mentioned before the mandatory splitting-up of the electricity supply chain gave electricity companies the opportunity to establish independent subsidiaries and thereby circumvent existing electricity sector agreements. Additional regulation could have prevented the misuse of such requirements for undercutting wages. In postal services it is primarily new competitors that pursue a low-cost strategy based on the payment of low wages. The Swedish case shows, that in countries where such a strategy is prevented by employment regulations, competitors are forced to adopt an alternative strategy which is compatible with the provision of a minimum standard of employment and working

16

conditions. The recent introduction of the post minimum wage in Germany also underlines the importance of regulation. Apart from comparable employment and working conditions, detailed quality regulations and standards can also strongly impact on company strategies and practices as the example of the Belgian hospital case study shows. The hospital case studies more generally indicate that sufficient funding and the quality and extent of regulation is more important than the fact that the hospital is publicly or privately owned.

1.6. Conclusions

The case studies on the impact of liberalisation and privatisation of public services provided detailed insights into company strategies, organisational change, employment consequences, industrial relations, working conditions and service-quality aspects. The main purpose of the case studies was, first, to gain insights that can illustrate developments that are reflected in macro-level data and, second, to make it possible to establish causal relationships that cannot be inferred from macro analyses. In particular, they were intended to show the impacts of liberalisation and privatisation of public services on employment, work and quality of service.

The findings show that companies have responded in various ways to 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 advantage some groups of customers over others; a reduction of production costs through concentration, outsourcing and the introduction of new technology; the reduction of employment and the payment of lower wages (through lower wages for new employees, the creation of independent subsidiaries and outsourcing), as well the intensification of work; training has been stepped up for some groups of workers while being cut for others.

Overall, the case studies show that in many cases the main goal, the reduction of production costs, has been achieved at the cost of workers, many of whom have experienced liberalisation and privatisation primarily as deterioration of employment and working conditions. This has been achieved by a far-reaching fragmentation of labour standards. In some sectors and countries, such as postal services in Austria and Germany, liberalisation and privatisation even threaten to transform a public service into a low-wage sector. While most case-study companies have increased productivity, usually as a result of cuts in staff numbers, the consequences for the quality of services are mixed: there have been some improvements when it was possible to combine quality gains with investment in new and often labour-saving technology (e.g. the next-day delivery of post items). However, quality aspects that depend on large labour inputs, such as the care of patients or bus driving, have suffered as a result of liberalisation and privatisation.

Summary

17

In sum, the main objective of companies in liberalised and privatised markets is to make profits and they do so, among other things, by cutting costs. Not surprisingly, in doing so companies adopt practices, such as outsourcing, that have frequently been used, or are current management fashions, in the economy more widely. Frequently this has been combined with improvements in productivity, and in some cases also with improvements in quality. Often, however, cost reductions have been based on a deterioration of employment and working conditions, which more than once have had a negative effect on quality. Overall, the changes have clearly contributed to increases in societal inequality – both among citizens, affected by customer differentiation and discriminatory price policies, and workers who receive increasingly different wages for doing the same job.

Research Method

19

2. INTRODUCTION AND RESEARCH METHOD

This report describes company reactions to liberalisation and privatisation of public services. The objective is to understand how companies from the four sectors and six countries covered in the PIQUE project responded to the introduction of markets and competition in public service provisions and what role regulations play in this process. This, in turn, gives us a better understanding of the complex interrelations between liberalisation, privatisation on the one hand, and work, employment, productivity and the quality of services on the other. Accordingly, case study research has focused on company strategies in liberalised and privatised public service markets, organisational change as well as changes in employment in the case study companies, changes in industrial relations and human resource management, as well as changes in work organisation and working conditions. The case studies have also revealed information on the overall impact of liberalisation and privatisation on productivity and service quality. It was one of the aims of the PIQUE project to create knowledge about restructuring processes and the management of change at the company-level in the selected sectors. The objective was to produce 18 company-level case-studies, to assess changes in management, work organisation, working conditions, training and quality management practices in the respective establishments, to analyse the impact of the regulatory framework as well as the strategies and views of management and labour, and to pay special attention to changes in work organisation, training and worker-participation schemes. We define case study as a research strategy which focuses on understanding the dynamics present within single settings (Eisenhardt 1989) which, in our case, are public service organisations or companies in the context of liberalisation. Case studies are generally used to investigate a contemporary phenomenon within its real-life context; they are particularly helpful when the boundaries between phenomenon and context are not clearly evident; and they use multiple sources of evidence (Yin 2003). In the PIQUE project the case studies are descriptive insofar as complex restructuring processes and their impacts are described. They are, however, also used in an explanatory manner because they make it possible to establish causal links between complex developments both internal and external to the organisation. This means that the interpretative approach helps to understand the actual impact liberalisation and privatisation have on work, employment, productivity and service quality.

20

Table 2-1: Matrix of company case studies

Electricity Post LPT Health/hospitals

Austria 1 2 1

Belgium 3 1 1

Germany 2 1 1

Poland 1 1 1

Sweden 2 1 1

UK 1 1 1

The report is based on a total of 23 company case studies from the electricity sector (6 cases), postal services (8 cases – 5 incumbents and 3 competitors), hospitals (5 cases) and local public transport (4 cases) and from six countries (Austria, Belgium, Germany, Poland, Sweden and UK). The case studies themselves are based on a total of about 185 qualitative interviews conducted with managers, work council and trade union representatives and workers in the case study companies. The number of interviews per case study ranges between eight and 14 interviews. Exceptions are 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. Common guidelines had been developed for three different categories of interview partners (management, works council representative or trade unionist and workers). The interviews were conducted in 2007 and 2008. In two case studies – Austrian General Mail and British Londondrive – management declined to take part in the research. While in the case of General Mail management’s perspective was accounted for through interviews with two ex-managers, the findings of the Londondrive case study are solely on interviews with trade union and works council informants and workers. In addition to interviews the case study material included scientific literature, press coverage of the companies, company documents, and company internet presentations. All case studies have been anonymised even though it is sometimes impossible to conceal the identity of the case study company. This is obviously the case in sectors where had been only one monopoly provider before liberalisation and privatisation such as in postal services.

The report starts with a summary of the main findings from the case studies followed by four chapters analysing the case studies conducted in each of the sectors covered by the project.

Electricity

21

3. ELECTRICITY Christoph Hermann

3.1. Introduction

In this chapter we summarise the information from six company case studies carried out in the electricity sector. One case study was carried out in Austria, one in Poland and one in the UK, while in Belgium three case studies were conducted, including two traditional electricity providers and a newcomer. Table 3-1 summarises the main history and characteristics of the case-study companies. Five companies are active in generation, distribution and retailing and they are major players in their respective markets, while one company is only active in selling electricity and has only recently become a significant competitor on the national retail market.

Table 3-1: Case study companies

Austria Belgium Belgium Belgium Poland UK

Communal Power

National Power Mutual Electricity New Electricity Eastern Electricity

Capital Power

Regional provider (as part of the municipal utilities company); since 2001 private-law company but still 100% publicly owned

Incumbent; traditionally privately owned; still dominant market position (more than 90% in production and almost 70% in retailing)

Traditional competitor; formerly publicly owned, now mostly private; traditional focus on distribution and retailing; market share in production 7% in retailing 20%.

New competitor in retailing; subsidiary of foreign publicly owned electricity company; small market share but fast growth; has increased its market share in retailing to more than 7%.

Regional provider with national importance; converted into a publicly owned private-law company in 1993; sold to foreign electricity company in 2001

Originally a publicly owned regional provider, privatised in 1990 through a stock market flotation; acquired by foreign owners in 1997 and bought by other foreign owners in 1998.

Active in generation, distribution and retailing



Only active in retailing




While the liberalisation and privatisation of the publicly owned electricity sector in the UK was almost completed by the mid 1990s, in most of the other European countries the process started in the second half of the 1990s, with the adoption of the 1996 EC Electricity Directive. On the one hand the directive called for a gradual opening-up of retail markets for the largest customers (40 GW/year starting from 1999; 20 GW/year

22

starting from 2000 and 9 GW/year starting from 2003), while on the other it imposed the requirement to legally separate network maintenance from other activities, or at least to establish separate accounting systems in order to permit equal network access to competing providers. This was followed by the Second Electricity Directive, in 2003, which imposed the creation of fully liberalised markets for commercial users by 2004 and for residential consumers by 2007. It also included a number of additional unbundling requirements and the establishment of national electricity regulators.

Austria and Belgium largely followed the EC directives and implemented the changes through national legislation (the main Austrian electricity generator, Verbund, had been partly privatised in 1998 but with the majority shareholding remaining in public hands). However, while Austria had fully liberalised its electricity markets by 2004, Belgium waited until 2007 to abandon any remaining restrictions on market access. Furthermore, while in Austria the electricity industry has traditionally been publicly owned, the Belgian electricity industry has for a long time been dominated by private ownership. In Poland, the break-up of the state-owned electricity industry started in the early 1990s but it proceeded only slowly. Although markets were fully liberalised in 2007, unbundling processes still need to be completed. Furthermore, the process of privatisation in the Polish electricity sector has only recently gained momentum. However, as noted elsewhere (Hermann et al. 2007), restructuring of the electricity industry has actually been more successful in changing ownership structures than in enhancing competition. All four countries in which case studies were conducted show substantial degrees of market concentration (see Table 3-2), while in Austria and Belgium the market situation has hardly changed since liberalisation. However, as the following pages will show, all case-study companies have responded in some form to the challenges of liberalisation and privatisation regardless of the actual degree of competition.

Table 3-2: Electricity markets

Date of full liberalisation

Market share of the three largest companies in

generation

Market share of the three largest

companies in the retail market

Number of companies with a market share

over five per cent in the retail market

Austria* 2004 75% 60% 5

Belgium 2007 98% 92-100% 3/2

Poland* 2007 35% 47-50% 6

UK 2002 40% 59-65% 6

Source: Hermann et al. 2007

Electricity

23

3.2.1. Acquisitions, mergers, strategic alliances and internationalisation

A major outcome of the liberalisation of electricity provision in Europe was a wave of mergers and acquisitions and subsequently repeated changes in ownership structures. Companies were responding to competition and the creation of national markets – and in the field of electricity trading even supranational markets – by extending their market power. As a further result of this process, the electricity providers covered in this case-study sample have also become increasingly private and owned by foreign investors. In four out of the six cases, ownership has changed in the last ten years and in two cases – Capital Power (UK) and Eastern Electricity (PL) – ownership changes involved a shift from a fully publicly to fully privately owned enterprise. In 1991 the previously publicly owned Capital Power was first purchased by a consortium of British investors, which sold it to a US energy company in 1997 only for it to be re-sold by the Americans to a large French electricity provider in 1998. After repeated announcements of privatisation in the electricity industry, the Polish government finally decided to sell Eastern Electricity in 2002. 85 per cent of the shares were purchased by a foreign investor while 15 per cent remained in the hands of the company’s own staff. Most workers subsequently resold their shares to the foreign investor, which meanwhile owns 99 per cent of the company. All three Belgian case-study companies are foreign owned. The majority shares of National Power and Mutual Electricity were taken by foreign investors, while New Electricity is a 100 per cent subsidiary of a foreign electricity provider.

In sum, five out of the six companies investigated are predominantly or fully foreign owned, all by major European energy providers. As we will describe below, foreign ownership has caused some problems in management-labour relations, but at least in the British case the takeover by French investors has been welcomed by the trade unions and works council representatives. The exception to the rule is Communal Power (AT), which is still 100 per cent publicly and therefore nationally owned. As a side effect of foreign ownership, the privatised Capital Power (UK) is now again in public hands, although in those of a foreign state, while National Power (BE) which had been private long before the start of the liberalisation process, will be partly publicly owned if the planned merger between its private French majority-shareholder a public company from the same country is successful. Furthermore, while being purchased by foreign investors, National Power itself has acquired foreign electricity providers, mostly in Central and Eastern Europe, while Communal Power has become active in constructing and building power plants outside its home market. Mergers and acquisitions have not only taken place across borders but also within countries. Mutual Electricity (BE) merged with two new companies operating on the retail market. Communal Power, on the other hand, joined a national retail alliance of four regional providers (initially there were plans for more members) created mainly in defence of anticipated foreign competition and takeovers.

24

3.2.2. The restructuring of the electricity value chain

Before liberalisation the electricity value chain essentially included three major segments: generation, distribution and supply. In many cases all three parts were provided by one integrated and publicly owned company, which consequently had a monopoly in a particular region or country. Liberalisation has led to restructuring and reorganisation of the electricity value chain: through the adoption of new regulation, previously integrated companies were split up and legally independent units for the different value-chain segments were created. In several cases, the different segments were not only separated in legal terms but also transferred to different owners (in some cases they were sold to different private investors, while in others some parts remained in public hands while others were opened to private investors). Liberalisation, however, not only led to the segmentation of the value chain; at the same time, the chain was also extended: electricity trading became an entirely new business activity carried out in specifically designed institutions (electricity exchanges) and the supply segment was complemented by marketing and sales departments. Electricity trading has become an essential business activity even for municipal providers such as Communal Power (AT). While struggling to recover costs in an increasingly competitive retail market, the company makes profits by selling electricity on the European Electricity Exchange in Leipzig during times of particular strong demand (Lindner 2008).

Contrary to the general tendency of value-chain segmentation, there have also been attempts to reinforce vertical integration. The various segments of the British electricity industry had been kept separate in the course of the privatisation process. However, at the end of the 1990s the Labour government relaxed the rules on vertical integration, and Capital Power (UK), along with the other major companies in the sector, now generates, distributes and retails electricity (Paraskevopoulou/Pond 2008). In addition, companies that could no longer grow along the value chain have increased their revenues by expanding into related business activities. Following the model of the former municipal service suppliers, several companies combined the supply of electricity with the supply of gas and some of them have even expanded into water and waste management. Of the companies included in this analysis, Communal Power (AT), National Power (BE) and Capital Power, although through different business entities, are also active in the supply of natural gas. The restructuring of the electricity value chain has caused a substantial amount of uncertainty and anxiety among electricity-sector workers, and, as we will describe below, workers in some value-chain segments have consequently suffered a substantial deterioration of employment and working conditions.

3.2.3. Marketing, customer service, price policy and cost cutting

With liberalisation, marketing and sales have become crucial activities for electricity companies aiming to defend their market shares or gain stakes in new markets. As local, regional or national monopoly providers, electricity companies previously did not worry much about winning new customers, as anyone who moved into the respective area

Electricity

25

would automatically become a customer if they wanted to be connected to the electricity supply. With the possibility of choosing between different providers, companies suddenly found themselves in a situation where they had to convince potential customers to choose them as suppliers (although in many areas customers still tend to choose the traditional local or regional provider). Companies subsequently not only set up new retailing departments but also developed specific and sometimes rather aggressive sales strategies. National Power cooperates with the Belgian Post to reach potential customers through its post office network, while its competitor New Electricity cooperates with electro shops for the same purpose. New Electricity, furthermore, uses door-to-door sales techniques, telephone marketing and an internet website to expand its customer base, which has grown quickly since its arrival on the Belgian electricity market (Vael/Van Gyes 2008a). Capital Power (UK) was even taken to court after its sales agents talked 40 residents in Teesside into changing their supplier even though they did not know enough English to understand what the salesmen were saying. However, Capital Power was not the only company accused of using such sales techniques. The consumer protection group Energywatch reported that mis-selling was widespread in the UK electricity industry in 2002 (Paraskevopoulou/Pond 2008).

Liberalisation not only led electricity companies to develop new sales practices. Some companies, including Eastern Electricity (PL), modernised and stepped up customer service in anticipation of expected competition (Kozek 2008a). However, as we will describe below, improvements focused on telephone services while services offered by walk-in centres were severely restricted. Increasing marketing and sales efforts were linked to the establishment of new price policies. Communal Power (AT) introduced different tariffs for different customer groups. Large customers, including large factories, initially profited most as they were not only the first to receive a price reduction but also experienced the biggest prices cuts. If customers are large enough, prices are negotiated with special sales agents on an individual basis. Significant price reductions were temporarily also introduced for small businesses, while private households have profited comparably little in terms of electricity costs (Lindner 2008). Rising costs have meanwhile eaten up previous reductions for most customers. New Electricity (BE) has introduced a variety of schemes with fixed and flexible tariffs, while its competitor Mutual Electricity offers ‘green’ power from renewable sources and grants rebates if customers reduce their electricity consumption (Vael/Van Gyes 2008a). Some companies use special brand names to sell cheap electricity without reducing their regular prices. Communal Power together with its partners in the Austrian Electricity Alliance has created Swap as a special brand that offers electricity for a lower price than the parent companies (Lindner 2008).

While initially prices tended to fall, in most countries they have meanwhile outstripped pre-liberalisation and privatisation levels. The industry argues that increasing oil and gas prices are responsible for this development, but repeated waves of mergers and acquisitions and sluggish investments in new plants and better infrastructure may have increased the leeway of electricity companies to raise profit margins by increasing prices. In most cases, governments abandoned their influence on electricity prices in

26

favour of the ‘free’ play of market forces. Poland is an exception in this respect. Electricity companies there still have to apply for permission if they want to raise prices. Although the Energy Regulatory Office has rejected initial requests, Eastern Electricity has subsequently received permission to increase prices twice in 2008 and may increase them further in the rest of the year (Kozek 2008a).

Independently of price developments, all case-study companies have responded to liberalisation and privatisation by cutting costs. Subsequent measures widely applied in the industry include investment in new technology and the shift to new and more efficient electricity sources (e.g. gas instead of coal plants), reorganisation and outsourcing as well as cuts in employment and wages (more on this below). The latter plays a particular important role in the labour-intensive retail segment. Cost-cutting has also affected the maintenance of the distribution networks. While electricity prices with few exceptions are left to the free play of market forces, the newly created market regulators keep a close eye on transmission tariffs. Some have used their regulatory power to increase pressure on companies to reduce tariffs, partly to compensate for rising retail prices. Communal Power’s (AT) network tariffs are about 35 per cent lower today than they were ten years ago. Management warns that the network quality cannot be maintained on current tariffs (Lindner 2008). Capital Power (UK) is struggling with similar problems, although in this case pressure has come not from the regulator but from company management holding back investment in order to increase profits. As a trade union representative explained, with privatisation the main objective became maximising sales while reducing costs – sometimes even at the cost of compromising network quality (Paraskevopoulou/Pond 2008).

3.2.4. Organisational changes

The introduction of competition in electricity markets was followed by a far-reaching reorganisation of electricity companies. Changes on the one hand responded to new regulation demanding the establishment different accounting systems and legally independent business units; on the other hand the need to attract new customers led to the creation of new departments, while increasing cost-pressure triggered concentration and outsourcing processes. The application of new technology has played a major role in this process as it has enabled companies to save administrative jobs while allowing them to outsource work to various subcontractors. Communal Power (AT) responded to the need to separate electricity distribution from generation and supply by founding an affiliated company responsible for maintaining the electricity network. However, most of the assets and workers remained with Communal Power and are leased to the sister company. Only 37 of a total 1,200 workers employed on network maintenance are on the new company’s payroll. Management is currently contemplating shifting more personnel and material resources to the sister company, which would amount to the creation of two equally sized companies. Workers and works council representatives are worried about the impact on their work and about the ability of the two companies to survive as independent businesses. There have already been complaints that the separation has created divisions between former colleagues (Lindner 2008). In the case

Electricity

27

of Eastern Electricity (PL), unbundling has already been carried out to the extent that there are two equally sized companies with separate company agreements, as we will describe below. The workforce, however, still tends to perceive its employer as one integrated company owned by a large foreign electricity corporation (Kozek 2008a).

All case-study companies have created new retail departments. However, in Belgium national regulations and labour cost advantages have led electricity companies to set them up as independent retail subsidiaries. While National Power created its own independent retail branch with some of the established workforce transferred to the new organisation, Mutual Electricity took the infrastructure of one of the retail companies it had merged with and preserved it as the company’s new retail outlet. This, as we will describe below, has important consequences for pay and working conditions of the retail workers. The third Belgian case-study company, New Electricity, is in fact a retail subsidiary of a foreign electricity company (Vael/Van Gyes 2008a). The establishment of retail divisions was accompanied by a move away from face-to-face communication with customers to the use of call centres as the primary mode of customer interaction. All case-study companies use call centres to communicate with their customers. At Capital Power (UK) one of the new private owners’ first move was to relocate the call centre outside the city, where wages and property prices are much lower. As a result the majority of the former call-centre employees lost their jobs and customers were angry as the new agents were not familiar with the area and the people they were dealing with (Paraskevopoulou/Pond 2008).

While geographically separate, the call centre remained part of Capital Power (UK) as are the newly created call centres of Communal Power (AT), Eastern Electricity (PL) as well as Belgian National Power and Mutual Electricity. In the latter case, call centres, however, were set up as an independent subsidiary, mainly to save labour costs (see further below). New Electricity, in contrast, works exclusively with external call-centre providers (Vael/Van Gyes 2008a). Notwithstanding the potential savings from outsourcing call-centre activities, Communal Power argues that the operation of its in-house call centre with specifically trained and well-informed call-centre agents enables the company to maintain high levels of service quality and according to management is one of the most notable differences to its low-cost competitors (Linder 2008).

While liberalisation and privatisation have led electricity companies to set up new retail divisions and establish internal or external call centres, most of the case study companies have at the same time drastically reduced or entirely eliminated the traditional walk-in centres. These shops where typically located in the town centre or on particular busy streets and used by customer to make their enquiries or to pay their bills. According to a Belgian manager, operating such walk-in centres is “just too expensive in the current liberalised market structure” (cited in Vael/Van Gyes 2008a). While walk-in centres are still missed by some of the customers, especially those who do not use computers or the internet or those who prefer to have a more personal contact rather than enquiries over the phone, others actually value the fact that opening hours for these services have been extended as a result of the introduction of new technology. In the case of Eastern Electricity (PL), the walk-in centre employees have subsequently been

28

transferred to other jobs while some have been encouraged to leave and offered redundancy payments (Kozek 2008a).

The closing-down of walk-in centres was part of larger concentration processes with which electricity companies were attempting to improve their organisational efficiency. At Communal Power (AT), departments with similar objectives were merged in order to avoid the slack created by the existence of parallel organisations. Before liberalisation, each power plant had its own maintenance department. In order to save costs several plants are now looked after by one integrated maintenance division (Lindner 2008). Concentration processes not only allowed the company to save jobs but, as we will describe below, also led to a flexibilisation and intensification of work. Concentration processes were complemented by outsourcing activities. Electricity companies have outsourced various activities but none of the cases included in this analysis went as far as New Electricity (BE). Apart from management and a core administrative unit, virtually all activities are provided by external contractors. Some of these are located in New Electricity buildings and their workers are supervised by New Electricity employees. “In this manner”, as a manager points out, “the company can still make sure that the service meets our quality standards” (cited in Vael/Van Gyes 2008a). Its competitor, Mutual Electricity, is also putting considerable efforts into streamlining the organisational structure of the company. As one of the managers pointed out, “being lean and mean is a must to compete with the large European players” (ibid).

Initially, management of Capital Power (UK) also saw outsourcing as a viable method to reduce operational costs. Contractors were brought into various aspects of work, including metering and IT. However, outsourcing led to an accumulation of problems with regard to quality and costs. Subcontractors were not living up to the standards expected in the industry while charging for more than they had actually provided. In addition, over the years outsourcing also led to a loss of skills and knowledge. As a result the new management of Capital Power became more cautious with respect to outsourcing and in some cases outsourced tasks such as metering were even brought back in house (Paraskevopoulou/Pond 2008). Communal Power (AT), too, responded to increasing cost pressure by actually reducing the number of contracts signed with external providers and instead focused on internal provision – especially since the company had to keep its workers on civil-service contracts busy (Lindner 2008).

The introduction of information technology not only facilitated concentration and outsourcing processes. Similarly important was the increase in control through the introduction of new digital reporting systems and the establishment of new controlling departments. However, in exchange for increasing digital control, Communal Power (AT) reduced the number of workplace hierarchies. Capital Power (UK) has also introduced a ‘flatter’ company structure. Although the principal concept remains the same, that is the chief executive and executive board being the main decision makers “flatter structure helps [the] decision-making process so the business works swifter and quicker than before” (HR manager cited in Paraskevopoulou/Pond 2008). Management of New Electricity (BE) is convinced that its flat hierarchies and flexible work organisation is an important advantage – especially compared to the still more

Electricity

29

hierarchical structure of its competitor National Power (Vael/Van Gyes 2008a). However, the leaner organisational structures introduced after liberalisation and privatisation not only enabled companies to reduce staff numbers but in many cases also meant that workers had to cope with growing workloads and increasing stress levels.

Table 3-3: Major organisational changes

Communal Power (AT)

National Power (BE)

Mutual Electricity

(BE)

New Electricity

(BE)

Eastern Electricity

(PL)

Capital Power (UK)

Splitting-up of the company (as a result of unbundling)

X X X X

Retail departments or subsidiaries

X X X X X X

In-house call centres X X X X X

External call centres X

Concentration X X X X X

Flatter hierarchies X X X X

Outsourcing X X X X

Insourcing X X


3.3.1. Employment

As a result of outsourcing, leaner organisations and the application of new technologies, five out of the six case-study companies included in this survey have recorded significant employment losses since the start of the liberalisation process. The sharpest fall in employment numbers was recorded by Capital Power (UK), where approximately 50 per cent of the jobs have been eliminated since the company was privatised in 1991 (Paraskevopoulou/Pond 2008). Eastern Electricity (PL) experienced a 30 per cent reduction of employment after privatisation with a particularly sharp fall in employment numbers in 2001 (Kozek 2008a). Communal Power (AT) reduced employment by 25 per cent between 1994 and 2007 (Lindner 2008). Two of the three Belgian case-study companies have also reduced employment levels and have plans to further cut jobs, but because of the reorganisation of the company no clear numbers were available. The third Belgian company, New Electricity, is the only case in our sample that has actually recorded an increase in employment. This, however, should not come as a surprise given the fact that the company only emerged on the market a few years ago. The company started with ten employees in 2002 and reached about 150 employees in 2007 (Vael/Van Gyes 2008a). However, this falls considerably short of the thousands of jobs eliminated from the payroll of its competitors. Job cuts mainly took place in generation,

30

maintenance and administration, while new jobs were created in trading, retailing, controlling and IT. At the same time there has also been a shift from manual to mental tasks and hence from blue-collar to white-collar work.

With few exceptions employment reductions took place on a voluntary basis – although the voluntary character must strongly be questioned given the concentration and intensification processes caused by liberalisation and privatisation (e.g. the relocation of Capital Power’s call centre from the city to the countryside). Apart from not replacing retired workers, several of the case-study companies used early-retirement programmes and offered buyouts to induce employees, some with civil servant-status, to leave the company voluntarily. Communal Power (AT) started a programme that allowed employees to retire at 55 with some loss of pension entitlement (Lindner 2008). In the case of Eastern Electricity (PL), the new foreign owner signed an employment agreement under which management could not make compulsory redundancies for six years after privatisation. Notwithstanding the ban on forced layoffs, Eastern Electricity managed to cut the workforce by 30 per cent, mainly by offering attractive severance payments. These allowed the former employees to buy flats, build houses and start their own businesses. Interestingly, it was above all former managers with engineering skills but little knowledge in marketing and sales and problems in communicating in foreign languages who took the compensation packages. As a result of the employment cuts, Eastern Electricity actually has lower staff levels than common at its western parent company (Kozek 2008a). In the case of Capital Power (UK), too, management until recently followed a voluntary redundancy policy. Especially in the early stage of the privatisation process, workers who wanted to leave were offered generous packages. However, more recently management has changed its policy. A non-compulsory redundancy policy is no longer seen as “an effective way of managing people …this is a policy that trade unions do not accept, but the company has put many steps in place before a compulsory redundancy occurs” (cited in Paraskevopoulou/Pond 2008).

In some case-study companies the reduction of employment was accompanied by changes in employment contracts. Employees hired by Communal Power (AT) since 2001 have been employed as regular private-sector employees while their longer-serving colleagues enjoy civil-servant status. However, since the company was very reluctant to replace retired workers, 90 per cent of the workforce still have a civil-servant status (Lindner 2008). Communal Power and Eastern Electricity (PL) both employ a small number of temporary and part-time workers, in the latter case mostly in the company’s own call centre (Kozek 2008a). Capital Power (UK) has seen a significant increase in temporary and part-time workers (Paraskevopoulou/Pond 2008). However, both companies still fall short of the widespread use of temps in the Belgian electricity industry. Interestingly, this is true of the incumbent monopolists as well as the new competitors. About a quarter of National Power’s workforce is employed on temporary contracts. Mutual Electricity and New Electricity also rely heavily on temporary workers, mostly to cope with temporarily increased workloads, and in the case of New Electricity with the rapid need for additional labour power during the company’s initial growth phase. Given the fact that the ratio of temporary workers in

Electricity

31

the electricity industry is significantly higher than for the average Belgian economy, a worker representative from Mutual Electricity notes that “although the sector agreements say that indeterminate contracts are the rule and temporary contracts the exception, the situation is changing to become exactly the other way around” (cited in Vael/Van Gyes 2008a).

In addition to the large number of temporary workers, the Belgian electricity industry is also characterised by an above-average proportion of workers with a ‘cadres’ employment statute. While enjoying a range of additional benefits and greater employment protection, these mostly highly qualified workers are partly exempted from collective regulations such as regulations on working hours (Vael/Van Gyes 2008a). In the UK, too, liberalisation and privatisation has fuelled the individualisation of employment contracts in the electricity sector. While employees were previously employed according to standard contracts, individually negotiated contracts have become increasingly common. These contracts mainly apply to senior management and they are typically based on salary reviews, bonus payments and other benefits (Paraskevopoulou/Pond 2008).

In connection with the increase in individual agreements there is also a trend to flexibilise working hours. At Capital Power (UK) weekly working time for regular staff has been reduced from 39 to 37 hours while at the same time overtime hours and part-time work has increased since privatisation. According to trade union representatives, there is a particular demand for more flexible working hours to further extend operating times of customer services into the evenings and the weekends (Paraskevopoulou/Pond 2008). At Communal Power (AT) working hours for ‘new’ employees with private-sector employment status have been reduced from 40 to 37.5 hours but, if we take into account the paid breaks granted to the ‘older’ employees with civil-service status, working hours have hardly changed (Lindner 2008). In Belgium, in contrast, average working hours in the electricity industry have increased from 36 to 38 but not so much as a result of liberalisation as of the introduction of a general 38-hour week by a national social-partner agreement in 2000. Regardless of the collectively agreed working hours, trade unions complain about an increase in overtime, which according to union representatives is becoming the norm in the industry (Vael/Van Gyes 2008a).

Increasing overtime is the result of the reported cuts in employment. Yet partly it is also linked to the establishment of a new working culture. While in the ‘old system’ electricity workers typically worked from 9 am to 5 pm, in the ‘new system’ they tend to work as long as it takes to complete an urgent task. This attitude is particularly common at New Electricity. As management points out, “our employees are very motivated and do not bother about working a bit longer sometimes” (cited in Vael/Van Gyes 2008a). And even the worker representative confirms that nobody has a problem with putting in some additional hours. “We only have young and ambitious people here. If you want to be a valuable employee you cannot work to restricted time tables, as is the case in the old sector culture” (ibid). Similar tendencies can also be observed in the newly established retail departments of the former monopoly suppliers. However, while workers at National Power are expected to clock in when they come and go, at New

32

Electricity there are no official working-time records. As a result, trade union representatives assume that there is not only growing overtime but an increasing amount of this overtime is unpaid (Vael/Van Gyes 2008a). At Eastern Electricity (PL) overtime hours have also been increasing as emergency workers, whose numbers have decreased, are required to finish their job before they go home. However, since working hours are averaged over a month, the additional hours may not qualify for overtime supplements (Kozek 2008a).


Electricity workers are traditionally among the best paid workers in their countries. The reasons for their leading bargaining position include high trade union membership rates, strong works council representation and the establishment of sector-wide labour standards. Liberalisation and privatisation presented a major challenge to the traditional electricity labour-relations regimes. Five out of the six case study companies have developed two-tier employment systems with different regulations applying to workers carrying out the same tasks. The only exception is New Electricity (BE), which as a newly established company has no employees that qualify for the better conditions granted to ‘older’ electricity workers in Belgium. However, New Electricity, at the same time, is an example of the increasing sector-wide fragmentation of employment and working conditions. Outsourcing and the restructuring of the value chain have created substantial differences in wages, working hours and other benefits granted by competing electricity companies. These differences and the resulting possibilities of lowering labour costs are at the same time important drivers behind the restructuring processes.

Communal Power (AT) employees who were hired after 2001 receive about 13 per cent less than their colleagues who joined the company before this date (Lindner 2008). Since 2001, new employees have also been covered by a company collective agreement negotiated between Communal Power’s parent company, the Communal Services Holding, and the Union of Municipal Workers (while the wages of the ‘older’ workforce are determined in provincial and federal negotiations). Company agreements are highly unusual in the Austrian bargaining system but Communal Power is an exception insofar as most of the electricity companies are covered by a special sector-wide collective agreement (Hermann 2008a). In the case of Communal Power the deterioration of payment conditions was introduced without major opposition by trade unions and workers. In contrast, National Power’s (BE) demand for lower wages for newly hired workers, which it put forward to the unions in exchange for refraining from forced layoffs, was met by fierce resistance. The ensuing conflict became a major subject in the 2001 sectoral bargaining round with some unions threatening to call for a strike if National Power stuck to its plan. As the company did not give in, the unions shut down several of its power plants. The subsequent strike could only be settled by external mediation. The agreement finally signed by two out of the four main trade unions allows electricity companies to pay workers hired after 2002 between 22 and 34 per cent less than the established workforce. The agreement also applies to Mutual Electricity and New Electricity, but the latter has no ‘older’ workers. Yet while there are

Electricity

33

no statutory differences among its employees, New Electricity’s employees on average earn less than the workers at National Power and Mutual Electricity (Vael/Van Gyes 2008a).

At Capital Power (UK) employees who were hired after privatisation do not suffer from lower entry-wages, but they have lost the comparably generous pre-privatisation pension scheme. The US investor that had owned the company for a year before it resold it to a French electricity corporation closed down the company pension scheme (which itself was the result of a transformation of the pre-privatisation sectoral pension scheme). While the old scheme remained in place for workers who joined the company before privatisation, ‘new’ employees had to rely on public pensions. Only recently, after consultation with the unions and works council representatives, has the new owner announced the establishment of a new final salary scheme, although not as generous as the original one. Changes in company pension systems and cutbacks in benefits are common results of privatisation in the British electricity industry and not only affect Capital Powers’ workforce (Paraskevopoulou/Pond 2008).

While newly hired employees are in most cases employed on worse conditions than their longer-serving colleagues, in the case of Eastern Electricity (PL) it is the other way round. Here new employees are paid significantly higher wages than workers hired before privatisation. The reason is that wages set out in a company agreement have not been increased in real terms for a number of years. At the same time labour supply in Poland has become increasingly tight as many young and skilled workers have left the country to work in western Europe. As a result the company cannot find younger workers at collectively agreed wages and therefore has to pay considerably more to attract new staff. In contrast, older workers have to accept the collectively agreed wages as they probably would not find new jobs if they left the company. Management would certainly not dissuade them from leaving, as older workers are regarded as being less productive and less susceptible to the company’s new work ethic (Kozek 2008a).

Changes in wage schemes following liberalisation and privatisation have not only fuelled differences among workers but also between departments and between competing companies. In Belgium the introduction of lower wages for employees hired since 2002 has meant that retail workers on average earn less than production and maintenance workers, because most retail departments were established after this date. This comes in addition to the fact that retail workers are typically assigned to lower wage categories because their skills are rated lower than the technical skills or production and maintenance workers. National Power is an exception in this regard, as 20 per cent of its retail workers are still paid according to the old statute. As a result, labour costs of its retail subsidiary are significantly higher than those of its competitors. However, the lower wages for employees hired since 2002 has allowed New Electricity – which according to management as new and small company had problems paying the high electricity-sector wages – to comply with the sector agreement (Vael/Van Gyes 2008a).

Further differences exist between electricity-sector workers and call-centre agents employed by the electricity companies’ call-centre subsidiaries or by subcontractors.

34

Call-centre workers in Belgium are covered by a residual collective agreement mainly established for the new service-sector jobs. Wages are even lower than the reduced wages for new employees provided by the electricity agreement. The management of New Electricity does not deny the cost advantage of subcontracting call-centre work: “Subcontractors offer the cheapest short-term price and minimise costs of long-term commitments … They also have other employment conditions because they do not resort to the expensive energy joint committee.” (HR manger cited in Vael/Van Gyes 2008a).

Table 3-4: Impact on industrial relations

Communal Power (AT)

National Power (BE)

Mutual Electricity (BE)

New Electricity (BE)

Eastern Electricity (PO)

Capital Power (UK)

Lower wages for employees hired after 2001 (minus 13 %)

Lower wages for employees hired after 2002 (between 22 and 34% less)

Lower wages for call-centre agents employed by an independent subsidiary

Lower wages for employees hired after 2002 (between 22 and 34% less)

Lower wages for call-centre agents employed by an independent subsidiary

Same wages but lower than those of the competitors

Differences between employees and outsourced workers?

Higher wages for new employees

No or less generous company pension scheme for new employees

Liberalisation and privatisation has not only fuelled differences between workers but has also caused an increasing fragmentation of the traditional sector-wide bargaining system in the electricity industry. In the UK, privatisation was typically followed by shift from sector to company bargaining. The further splitting-up of the companies in the liberalisation and privatisation process meant that separate bargaining bodies were set up for the different business segments of the same company. Negotiations, as a result, are no longer determined by the nature of the job but by the segment of the business (Paraskevopoulou/Pond 2008). In Poland the sector agreement only sets general terms of employment while wages are negotiated at company level. In the case of Eastern Electricity there are meanwhile separate negotiations for the network maintenance branch and the rest of the company (Kozek 2008a).

Given the changes it should not be surprising that liberalisation and privatisation have weakened trade union representation in the sector. In the case of Capital Power (UK), union membership has decreased from 100 per cent before privatisation to less than 50 per cent. Since almost 50 per cent of the jobs have been cut since privatisation, there are now five trade unions fighting for a decreasing number of union members. It should not come as a surprise that the relationship between the unions has become more difficult (Paraskevopoulou/Pond 2008). Similar developments took place at Eastern Electricity. Here, too, trade union membership accounts for hardly more than 50 per cent of the workforce and unions have increasing problems attracting younger workers (Kozek 2008a). British managers do not deny that one of the main impacts of privatisation was the limitation of the trade unions’ ability disrupt the sector through strikes and other

Electricity

35

militant action (Paraskevopoulou/Pond 2008). But even at Communal Power (AT), where labour relations have traditionally been highly consensual, the influence of the works council on company decision-making has decreased significantly since the start of the liberalisation process (Lindner 2008).

Compared to Britain and Poland, membership rates in Austria and Belgium are still high, but in Belgium there are substantial differences between the incumbent monopolists and the new competitors as well as between the parent companies and the retail subsidiaries. Only recently, the trade unions achieved the election of a works council at New Electricity. However, while in Britain privatisation and the subsequent weakening of the trade unions has led to a decline in industrial conflicts, Belgium has shown a marked increase in social unrest, especially during the biennial sector-bargaining rounds (Vael/Van Gyes 2008a). As a side-effect of the mergers and acquisitions and the increase in foreign ownership that followed liberalisation and privatisation, workers at several of the case study companies benefit from the establishment of a European Works Council. In the case of Capital Power (UK), the European Works Council has influenced some of the decisions taken by the French owner of the company, including, among other things, the introduction of a new company pension scheme (Paraskevopoulou/Pond 2008). At Eastern Electricity (PL) the trade unions used the European Works Council to lodge a complaint against the anti-union policy of a former CEO (Kozek 2008a).

3.3.3. Human resource policies

Human-resource policies in electricity companies changed in various ways after liberalisations and privatisation. Before liberalisation, the personnel department at Communal Power (AT) mainly ensured that the civil-service employment regulations were followed. With liberalisation the former personnel department was replaced by a department for human-resource management and staff development. At the same time the company introduced a management system based on management by objectives. These are developed for different management levels and units and are then translated into individual goals for each employee. In connection with the introduction of management by objectives, the company is also gradually changing its promotion and bonus systems. Both are planned to become more performance based. The new system has met some reservation and criticism as workers are worried about a lack of transparency and unequal treatment, especially since there are worries that a certain proportion of the workforce will be excluded from the bonuses in order to create sufficient incentives to do better (Lindner 2008). At Eastern Electricity (PL), a new promotion system has been developed between management and trade union representatives since privatisation. However, trade union representatives criticise the fact that the system is largely ignored by management. Instead mostly young employees with computer skills and foreign language knowledge are promoted, while the experience and knowledge of the long-serving staff is neglected. The company has significantly stepped up the budget for training compared to the pre-privatisation period,

36

but here, too, it is mostly managers and younger employees that have access to training while older workers are excluded (Kozek 2008a).

At Capital Power (UK) privatisation had the opposite effect on training. Before privatisation there was a sector-wide training system with advanced training centres and appropriate programmes. Even skilled employees received refresher training every three years. However, training was one of the first areas where the new private owners cut costs. This long term under-investment has caused a serious skill shortage at Capital Power as the skilled members of staff are near retirement age and there are no suitable replacements for them. The new owner has acknowledged this shortage and introduced training schemes and graduate recruitment programmes. However, despite these efforts the 67 apprentices currently being trained still falls considerably short of the 300 who were trained prior to privatisation (Paraskevopoulou/Pond 2008).

While restructuring following liberalisation and privatisation has opened new opportunities and challenges for some employees, reorganisation has also fuelled discouragement and sometimes even frustration. At Capital Power (UK), employees report a widespread staff demoralisation since the privatisation process, not only because of the large-scale redundancies but also because of some management practices, including attempts to put pressure on workers by using false performance figures from competing companies – which workers discovered after Capital Power merged with the competitor concerned (Paraskevopoulou/Pond 2008). At Eastern Electricity (PL) employee-attitude surveys showed that workers’ perception of the changes introduced after liberalisation and privatisation were quite negative (Kozek 2008a). In addition, in some companies staff motivation has suffered from mergers and the following conflicts caused by different company cultures. This is a problem Mutual Electricity (BE) is still facing (Vael/Van Gyes 2008a).

In some cases, conflicts also emerged in connection with foreign takeovers. The new foreign CEO appointed by Eastern Electricity’s foreign investor repeatedly clashed with the Polish trade unions and instead of negotiating controversial issues used the law to force through his standpoint. This was met by widespread anger and an official complaint was lodged through the European works council. The same CEO was even unpopular with senior staff. Since he had no family and few friends in Poland, he used to work until late at night. As none of his senior managers dared to go home before him, this created serious problems for their family lives. His successor travels for business reasons, which makes the problem much less severe (Kozek 2008a).


The widespread restructuring of the electricity industry was reflected in a series of changes in work organisation. Generally, changes were more pronounced in the newly created parts of the electricity companies, but unbundling and concentration processes also had an impact on generation and network maintenance. At Communal Power (AT) field workers carry out 95 per cent of the tasks involved in maintenance work, while

Electricity

37

previously specialists were sent for the different jobs. As one worker interviewed noted, “15 years ago it was imaginable that this is possible” (cited in Lindner 2008). At Capital Power (UK) the separation of network maintenance from generation had the opposite effect. Here management responded to the changes by increasing the specialisation of work. Workers and works council representatives interviewed reported that prior to privatisation the divisional structure of work was such that it enabled employees to work in all areas of the system. This contributed to a more rounded understanding of the way the sector operated. In post-privatisation work organisation, employees tend to work in their own specific areas and have no or little contact with other parts of the business. Management is aware of this issue, as it features highly in an internal staff survey, and plans to respond to it by educating people from other areas of work (Paraskevopoulou/Pond 2008). Workers at Eastern Electricity and Communal Power, on the other hand, complain that unbundling has led to an increase in bureaucratic work (Kozek 2008a; Lindner 2008). A lot of the maintenance work out must be charged from the sister company responsible for network maintenance. Additional bureaucratic work in network maintenance is created by the detailed requirements of the regulator (Lindner ibid).

Even more radical changes have taken place in the newly created departments. While employees in the walk-in centres responded individually to a large range of enquiries from customers, call-centre agents typically respond according to standardised question-and-answer protocols. In the Belgian case studies, callers who have more specific questions are redirected to the company’s back-office staff. However, while questions are answered according to standard protocols, agents are nevertheless urged to interact with customers in order to make sure that they have chosen the ‘best’ individual plan. As a team leader at New Electricity explains: “Even within the billing and collection department we train people to act commercially. We ask them to actively create a bond with the client. More concretely, by not just explaining the different elements of a bill, but by suggesting other and more fitting formulas” (cited in Vael/Van Gyes 2008a). In any case, phone conversations with customers are subject to random control by supervisors. As a trade union representative at Mutual Electricity explains: “When the phone call has ended, employees have two minutes … to finish the documents related to the call [before taking the next call]. If you need longer you can be sure that a supervisor will be standing behind you” (ibid). The electronic control system, furthermore, registers such details as the number of calls answered by an agent and how often he or she went to the toilet during his or her shift (ibid).

More generally, while several case study companies have introduced flatter hierarchies they have at the same time stepped up control through the introduction of new information and communication technology, including special business software such as SAP. At Communal Power (AT) the introduction of SAP called for a far-reaching adaptation of tasks and work process. As one worker explained: “SAP has changed everything. Maybe even more than liberalisation did” (cited in Lindner 2008). In connection with the introduction of new digital reporting systems, workers in Belgian

38

electricity companies are also increasingly subjected to quantifiable targets. (Vael/Van Gyes 2008a).

The reorganisation of electricity companies together with a significant cut in employment was accompanied by an extension of workloads and an increasing intensity of work. At Communal Power (AT) management, the works council and the workers interviewed all agreed that workloads in all departments and for all workers had increased substantially since the start of the liberalisation process. Particularly affected are older workers. Previously it was a common practice for employees performing particular strenuous physical work to be transferred to less strenuous office jobs when they reached a certain age. This is no longer possible, since there are not enough new workers to replace them (Lindner 2008). Workers and trade union representatives at Capital Power (UK) and Eastern Electricity (PL) also report that workloads have increased due to permanent understaffing (Paraskevopoulou/Pond 2008; Kozek 2008a). Electricity companies partly use overtime or temporary workers to tackle the problem of understaffing. However, the situation of workers in outsourced services can even be worse. As a manger at New Electricity (BE) concedes, “the workload in those call centres is rather high, with labour conditions and job satisfaction rather low. So the turnover is proportionately high as you can imagine” (cited in Vael/Van Gyes 2008a).


The move towards leaner organisations, the redesign of work processes, the introduction of new technology and the use of more efficient energy resources has certainly had a positive impact on the overall efficiency of electricity companies – although without the breaking-up of companies required by unbundling regulations efficiency gains may have even been greater. The fact that similar or even higher levels of output are created by substantially smaller workforces means that productivity must have increased even though some of the jobs have only been outsourced and not eliminated. Electricity companies had introduced new technology and thereby shed jobs before liberalisation and privatisation. However, with liberalisation and privatisation, job losses are not only an outcome of increasing productivity but anticipated employment reductions have become a major driver for increasing efficiency. Hence, as a British trade unionist pointed out, “productivity was forced as a result of privatisation in order to increase profitability” (cited in Paraskevopoulou/Pond 2008). The focus on profitability at the same time meant that increases in productivity were linked to increasing workloads and stress levels and, similarly importantly, that the reduction in employment is only one of several measures to cut production costs. Other measures include the payment of lower wages to certain groups of workers or for certain jobs, the use of temporary work and the outsourcing of work to external providers with significantly lower labour costs.

With respect to quality, all case study companies report increasing efforts to improve customer service quality through an extension of call-centre operating times, friendly staff and specially designed bills that are easily understandable (which is not so easy given the sometimes rather complex billing information demanded by the regulator).

Electricity

39

Differences exist between in-house call centres with a specially trained workforce or external providers with general call-centre agents. Quality is measured by regular customer-satisfaction surveys and employees are tested by mystery calls in which callers investigate how they react to certain questions. However, while customer-service workers are trained to be friendly, the time they can actually spend responding to customer inquiries is restricted by special incentives to keep calls as short as possible and by the requirement to handle a certain number of calls per day. In addition, employees maybe more friendly but companies are also quicker to cut power if customers do not pay their bills. While previously there were attempts to help customers who had problems paying their bills, companies have become more rigorous in demanding outstanding payments. As a worker at Communal Power (AT) states: “Since we are in a liberalised market … corporate thinking has become more important … you can simply no longer afford [social thinking]” (cited in Lindner 2008).

Whereas managers argue that surveys show a continuous improvement in service quality, workers and trade union representatives paint a less rosy picture. While in some aspects customer care has indeed improved, in others it has suffered from liberalisation and privatisation. A frequently mentioned example is that the closing down of walk-in customer-care centres has deprived customers of the possibility of face-to-face conversations. In general it seems that service quality is improved if it does not threaten to compromise efficiency – that is if it does not demand for additional manpower. Furthermore, while electricity companies are very concerned about customer satisfaction, there is less concern about the quality of network maintenance. At Capital Power (UK) the rapid staff reductions, the increasing use of contractors and the cuts in adequate staff training at the start of privatisation process led to cases where vital network work was neglected or not finished adequately (Paraskevopoulou/Pond 2008). At Communal Power (AT), too, the cost pressure exerted by the electricity regulator makes it impossible for the company to maintain the current quality standard. For the time being, investment from the pre-liberalisation and privatisation period is ensuring that the number of power cuts is so low that customers hardly recognise it as a quality problem. However, in the long term, systematic under-investment will probably increase the incidence of power cuts (Lindner 2008).

3.6. Conclusions

Electricity companies responded to the abolition of territorial monopolies by a wave of mergers and acquisitions, including takeovers by foreign companies. Five of the six electricity companies included in this report have changed ownership in the past ten years and all five are largely foreign owned. The only company that has not changed ownership and is still 100 per cent nationally owned has entered a strategic alliance with other national providers in order fend off competition from foreign electricity multinationals. At least one company, although foreign owned, has itself acquired electricity providers outside its home market. Electricity trading has become a new business field, with companies attempting to make profits by selling electricity at time

40

of particularly strong demand. Even municipal electricity providers are active on European electricity exchanges. At the same time, electricity companies have stepped up marketing efforts, sometimes including rather aggressive sales techniques, and have changed their pricing policies. Prices have not only become more flexible but in some countries there are also growing differences between small and large customers, with the latter being the main beneficiaries of liberalisation and privatisation. Although management has argued that competition has increased pressure on prices, recent price increases at least to some degree may also be a strategy to raise profits on liberalised electricity markets – especially after mergers and acquisitions have reduced the number of effective competitors. Regardless of the development of prices, all case-study companies have made substantial efforts to cut costs. Cost reductions were based on the introduction of new technology, but similarly important were cuts in employment as well as the payment of lower wages, outsourcing and the use of temporary workers. Partly they were also based on holding back investment in networks and power plants.

With regard to their organisational structure, regulation introduced in order to regulate the liberalised electricity markets forced electricity providers to split up electricity companies and to create new legally independent units – e.g. for retailing and network maintenance. Partly, companies used the splitting up of the value chain to outsource work and/or pay workers in newly created subsidiaries lower wages. Independently of mandatory regulations, all electricity providers created new retail departments and call centres to communicate with their customers (whereas walk-in centres were often closed). In connection with the introduction of new information and communication technologies, companies have also tended to concentrate activities while at the same time introducing flatter hierarchies. Several companies have made use of outsourcing and used external contractors to provide some of their services. In one case, the retail subsidiary of a foreign electricity provider, most of the activities are provided by subcontractors. Yet there are also cases where companies have started to ‘insource’ services.

Cost-cutting efforts and the introduction of new technology have caused electricity providers to cut staff numbers. In five out of the six case studies, employment have has fallen since the start of the liberalisation and privatisation process. Reductions typically account for between 25 and 50 per cent of previous levels. Only in one case has employment actually increased, but this was a newly established retail branch of a foreign company and the creation of new jobs falls significantly short of the losses recorded by its competitors. With few exceptions, employment reductions took place on a ‘voluntary’ basis. While employment has been decreasing, overtime has become more frequent, and the Belgian case-study companies are heavily reliant on temporary workers. In addition to the reduction of employment, companies have also cut labour costs by introducing lower wages for newly hired employees and for workers in newly created subsidiaries or by outsourcing work. The result is the emergence of a two- or multi-tier labour-relations system with different wages paid to workers with comparable jobs within companies but also between competing providers. Liberalisation and privatisation have not only led to a fragmentation of bargaining systems but also to a

Electricity

41

weakening of the trade unions, with union density in some cases only being half the level it was before liberalisation and privatisation.

Companies have also responded to liberalisation and privatisation by the introduction of new management and controlling systems. Promotion and salaries are increasingly based on performance rather than on seniority. While in some cases management has stepped up resources for training, in others cuts in employment numbers and outsourcing have led to a loss of valuable skills. The division of work has also changed but again in two different directions: in one case there is evidence of an enrichment of tasks while in another case the break-up of the value chain and the creation of independent departments are perceived as devaluation of work. In addition there are also complaints of growing bureaucratic efforts caused by the creation of independent units within the same company and by requests from the regulator. Above all, liberalisation and privatisation have caused increasing workloads and stress levels.

The fact that the same or higher levels of output are achieved by significantly smaller workforces is a clear indication that productivity levels have increased since liberalisation and privatisation. However, productivity increases are only one of several strategies to lower production costs. Other strategies include outsourcing and the payment of lower wages. In terms of service quality, electricity companies have expanded the availability of their service centres but the possibility to make enquiries other than by phone or the internet has been reduced. Accordingly, differences in quality are reduced to the status of the call centre (in-house or external) and the understandability of bills. While companies have made efforts to improve customer care, the quality of the network and of other infrastructures has attracted less attention. In the long run the holding back of investment, caused either by an effort to maximise profits or by directives from the regulators, may create serious quality problems. In addition, the long period of non-replacement of workers following liberalisation and privatisation, the tendency to outsource parts of the work and reduced efforts in training may create problems in the future, as electricity companies may lack workers with the skills to maintain a high-quality service. In the UK, where the process started earlier than in the other countries, companies are already facing this problem.

Postal Services

43

4. POSTAL SERVICES Torsten Brandt

4.1. Introduction

This chapter highlights the main results of a total of eight case studies carried out in the postal sector. Five of the case studies in Austria, Belgium, Germany, Sweden and Poland focused on former monopoly providers, three additional case studies in Austria, Germany and Sweden also looked at new competitors in national letter markets.

The following table gives initial details on the company cases investigated:

Table 4-1: Case-study companies

Country Company Status Comments

Universal Mail Incumbent A private-law company since 1996; in 2006 49% of the shares were privatised

Austria

Fast Mail Competitor Founded in 2001 as a joint venture between a local publisher and a foreign incumbent postal operator; delivers newspapers and advertising leaflets

Belgium Standard Mail Incumbent A private-law company since 2000; in 2005 49.9% of the shares were sold to a foreign national incumbent and a private investment fund

Global Post Incumbent A private-law company since 1995, since 2005 predominantly privately owned

Germany

Instant Mail Competitor Founded in 1998; nationwide delivery network for addressed private and business post

General Mail Incumbent A private-law company since 1994; still 100% publicly owned (may change in the near future)

Sweden

New Mail Competitor Founded in 1991, active in addressed mail delivery in urban centres; owned by a foreign post incumbent

Poland Primary Post Incumbent State-owned public company since 1992 with special legal status

4.1.1. The process of liberalisation

The European Union has played an important role in the reorganisation of European postal markets. For most EU member states the starting signal for initiating a restructuring process was the adoption of the First European Postal Directive in 1997. This first directive was followed by a second one in 2002 and a third in 2008. With these three directives, postal markets were gradually opened to competition. The area in which the national postal-service providers continued to hold a monopoly was reduced first to post items weighing 350 grams and less (1998-2002), then to 100 grams and less (2003-2006) and then to 50 grams and less (2006-20011/13). Initially full liberalisation

44

was planned for 2009 but due to resistance from some member states it had to be postponed for the majority of countries until 2011 and for some countries, including Poland, until 2013.

While promoting competition, the directive at the same time acknowledged the need for a universal postal service, giving everyone access to mail services at a specified and equal quality regardless of where they live. To meet the universal service obligation each member state was required to allow for at least one universal provider, which, in turn, profits from the monopoly position it maintains in the reserved area. How the universal service will be financed after full liberalisation is still not clear in many countries.

Two of the five national markets on which the case-study companies are operating are already fully liberalised. The Swedish government abolished any access restrictions to the national post market in 1994; Germany followed suit more recently, in 2008. By contrast, the incumbent postal providers in Austria and Belgium still profit from the maintenance of a monopoly for post items weighing 50 grams and less until 2011, while the Polish incumbent has time to prepare for full competition until 2013 (see Table 4-2).

Table 4-2: Major stages of liberalisation and privatisation

Austria Belgium Germany Poland Sweden EU Directives

1991-1995

1995: formal privatisation*

1993: full liberalisation


1996-2000


1998: reserved area: 350 g

2000: formal privatisation

1998: reserved area: 200g

2000: initial public offering**

1998: installation of a reserved area restricted to postal items weighing not more than 350g

2001-2005


2003: reserved area: 100 g



2005:private in-vestors with ma-jority of shares


2003: reserved area was restricted to 100g

2006-2010




2006: reserved area 50g, but exemptions for special services



2006: reserved area was restricted to 50g

2009: initially planned full liberalisation

2011-2015




2011/2013: full liberalisation

Comments: *Formal privatisation means the transformation from a public- to a private-law company. **Majority of shares remained in public ownership.

Source: Brandt/Schulten 2007:6 (modification).

Postal Services

45


In the process of liberalising postal markets, companies have pursued various strategies in terms of corporate transformation, reorganisation and product diversification and in search of new markets at home and abroad. Nonetheless, a concern shared by all of these companies is the need to reduce costs (Regalia 2007:30). This section first focuses on market changes – following the different steps of liberalisation of the letter markets in the analysed countries and its effects on markets shares. Second, and based on this context, the company strategies of the incumbents and new competitors will be analysed.

4.2.1. Market changes

While the number of companies has increased as a result of liberalisation in all five countries, the incumbents still account for the major share of the postal markets. Even in countries where the markets have been fully liberalised, the incumbents still hold more than 90 per cent of the letter markets. Notwithstanding the high degree of market concentration, Germany and Sweden are among those countries with the highest degree of competition in letter markets in Europe. In Germany, the incumbent, Global Post, still held 91 per cent of the letter market in 2006 but, following a process of consolidation, there are now two main competitors attempting to take market shares away from the incumbent (Brandt 2008a). In Sweden, General Mail still accounts for 93 per cent of the letter market more than 14 years after liberalisation. There is one main competitor with a market share of 6.5 per cent (Harmark/Thörnqvist 2008).

In contrast, the Austrian, Belgian and Polish incumbents still have a monopoly for mail weighing 50 grams or less. While in Austria and Belgium full liberalisation is planned for 2011, the Polish government has time until 2013 to lift the remaining restrictions to the Polish postal market. As a result, the incumbents in all three countries dominate the market even to a greater extent than in Germany and Sweden. However, in Austria two main challengers are active in the distribution of unaddressed mail and advertising leaflets and they are prepared to enter the market for addressed mail after full liberalisation. In Poland some competitors have tried to challenge the incumbent by adding additional weight on their customers’ mail to circumvent the weight limit (Kozek 2008b). In contrast to the letter market, competition in courier, express mail and parcel services is highly intense in all five countries (Brandt 2007:18).

4.2.2. Company strategies and organisational change

The following section will first describe the different stages of privatisation, changes in company strategies and organisational change in the investigated incumbents and then go on to summarise the strategies adopted by the competitors.

46

From public to private law and privately owned companies

Except for the Polish case, all national incumbents included in the case-study sample already changed their legal status from public to private before a meaningful liberalisation step (i.e. at least 100g) was introduced. In view of the expected increase in competition due to liberalisation, adopting a private legal form (formal privatisation) was helpful for the (partly new) management as it facilitated reorganisation measures without too much governmental control. In Poland, Primary Post is still a state-owned company with a special legal status it had acquired after transformation in 1992 (Kozek 2008b). The other incumbents were converted into private-law companies between 1994 and 2000.

Two out of the five incumbents included in the sample are still a hundred per cent publicly owned, yet Swedish General Mail is in the process of merging with the Danish incumbent postal-service provider and the newly created company will have a minority private shareholder (Harmark/Thörnqvist 2008). The Polish government has also disclosed plans to transform Primary Post into a single-treasury company and subsequently float its shares on the stock market but any such plan is believed to meet strong opposition from the Polish parliament (Kozek 2008b).

The remaining three incumbents have already been partly privatised. Shares of German Global Post were floated on the stock exchange in 2000 (Brandt 2008a). Since 2005 the majority of the universal service provider is held by private investors, many of them international institutional investors. The German state still holds about a third of the assets. The decision to privatise German Global Post was strongly influenced by the alleged success of the privatisation of the telecommunications division of the former post and telecommunications monopolist. As one interview partner pointed out, the general attitude was, “what is good for one part must also be good the other” (quoted in Brandt 2008a). The fast German privatisation process was certainly driven by the clear perspective of the management to fully open the letter market in 2008, i.e. a full year before the European Commission’s initially scheduled date for the full liberalisation of the European letter market in 2009. Full liberalisation was believed to give the company a better starting position to expand abroad – especially when the postal markets in other countries will also be liberalised in 2011(Brandt 2008a).

Austria followed the German example and floated parts of Universal Mail’s stock in 2005. The decision was highly controversial and initially management favoured a merger with another incumbent national postal provider. However, in contrast to the German example, the Austrian government retained 51 per cent of the shares and therefore the majority of the company (Hermann 2008b). In Belgium, too, the postal incumbent was partly privatised but the government retained control over the universal service provider. In this case 50 per cent minus one share of Standard Mail were sold to a foreign postal service incumbent with a private shareholder (Vael/Van Gyes 2008b). Yet, whereas in Austria privatisation took place after the company had invested large amounts of money in the modernisation of its infrastructure, in Belgium privatisation was used to allocate resources and knowledge to prepare the incumbent for competition.

The case-study examples indicate that there is no clear link between liberalisation and partial or full privatisation (but between liberalisation and the change of the legal status of the incumbents). Although Sweden was the first country to fully liberalise its postal

Postal Services

47

market, General Mail until recently was still hundred per cent publicly owned. In Austria and Belgium, where the incumbents still profit from a monopoly on mail weighing 50 grams or less, both, Universal Mail and Standard Mail, have been partly privatised. Only Poland seems to be an outlier as here a state-owned company is operating on a hardly liberalised letter market.

Internationalisation and diversification

Apart from privatisation, another response of postal companies to liberalisation was internationalisation. The planned merger between the Swedish and the Danish incumbent postal operator will create the first truly multinational postal provider. In Belgium, it was a deliberate strategic decision to look for a foreign investor: the joint venture with the foreign incumbent postal service provider was purposefully chosen because Danish Post had the resources and knowledge to assist the Belgian incumbent in the anticipated restructuring process. However, of all the companies of the case-study sample it was the German incumbent that very early and very successfully pursued a strategy of internationalisation. From 1998 onwards Global Post started to acquire foreign companies and as a result now prides itself being the world’s leading logistics provider (Brandt 2008a). As such, the German incumbent owns a leading international express service and through several low-cost subsidiaries competes with other former monopoly providers on their home markets (ibid.). Global Post’s management perceived the liberalisation of the postal market primarily as an opportunity to be a successful new global market player, while the incumbents on the significantly smaller Austrian and Belgian markets saw it more as a threat.

However, meanwhile even smaller companies such as Universal Mail in Austria have started to invest abroad. While in 2006 three per cent of the company’s total turnover was generated outside Austria, a year after privatisation the proportion increased to 27 per cent (Hermann 2008b). Universal Mail is also an exception in so far as it not only invested in postal companies abroad but also acquired its main competitor in the home market. Until now the subsidiary is mostly active in the delivery of advertising leaflets and unaddressed mail but according to plans revealed by Universal Mail management it will become active in the distribution of addressed mail after 2011 (ibid).

While investing in foreign postal companies, national incumbents have expanded into related business services in their home markets. Global Post, for example, now owns one of the leading German haulage companies. Universal Mail has even acquired local free-of-charge newspapers which it can distribute through its delivery network.

Another reaction to liberalisation and privatisation adopted by the incumbents on national postal markets was a diversification of costumer relationships. At Universal Mail in Austria one of the first changes introduced to prepare the company for competition was the creation of special departments to deal with large customers such as mail-order retail services or large banks and insurance companies (Hermann 2008b). While these customers were thus able to negotiate price discounts, the bulk of postal service users were confronted with an increase in standard post tariffs after liberalisation. As a former Austrian postal manager notes, non-corporate clients make

48

up less than five per cent of the company’s total turnover. “Private clients are important for politicians, but they are almost negligible for the company” (quoted in Hermann 2008b). At Standard Mail in Belgium, too, management focuses its activities on keeping the big clients (Vael/Van Gyes 2008b). The hundred largest clients are responsible for almost half of the company’s turnover (see Table 4-3). However, these clients, including mail-order firms, large insurances and banks, telecommunication companies and government agencies are at the same time highly sensitive with regard to prices and they are specifically targeted as potential customers by the new competitors (see further below). In Sweden and Poland, too, large business clients have gained importance and benefit from lower prices and/or special services. In Germany, prices for business clients have gone done but prices for private customers have not increased either, due to the resistance of the German post regulator, who has to confirm price increases of mail covered by the universal service obligation.

Table 4-3: Importance of different client types in the mail segment of the Belgian incumbent

Type of client (sending mail) Number of clients Turnover

Top Clients 100 45%

Institutional/corporate clients 900 20%

SMEs 925 000 25%

Residential customers 4400 000 10%

Source: Vael/Van Gyes 2008b

Organisational change at the incumbents

In order to prepare them for competition, the former state-owned post and tele-communication companies were broken up before privatisation. The telecommunication and post divisions became independent business entities in newly created private-law companies and later independent firms. Additional business activities such as financial services were also frequently hived off from the postal companies and sold to private investors. Organisational change, partly fuelled through the introduction of new technology, has focused on the modernisation of infrastructures, the reorganisation of distribution networks and delivery routes as well as outsourcing.

New sorting centres with automated sorting processes have been built in all five countries. At the same time, the distribution networks were subjected to radical concentration processes. In Austria the number of sorting centres was reduced from 36 to six, while the number of distribution bases was cut from 1.880 to 320 (Hermann 2008b). In Germany the number of sorting centres was cut from 700 to 59, and while they were previously located near train stations, now most of them are on greenfield sites near major auto routes (Brandt 2008a). In addition to sorting and distribution centres, the number of post offices has also been cut. In Austria and Germany the

Postal Services

49

number of post offices was reduced by as much as 40 per cent since the start of the liberalisation process (Hermann/Brandt/Schulten 2008).

The restructuring of the distribution network also included the reorganisation of delivery routes. Yet whereas in Austria delivery routes have been extended to the point that deliverers have problems to finish their routes within an eight-hour shift, in Germany and Belgium attempts have been made to shorten routes. As we will show below, this has a major impact on employment and the working conditions of the deliverers.

The concentration of the distribution networks was complemented by outsourcing measures. In Austria, Germany and Poland the transport of mail between sorting and local distribution centres has partly been outsourced to private haulage companies. In Germany, the emptying of letter boxes is now mostly handled by local taxi drivers. According to a report from the German post regulator, Global Post deployed more than 1,800 subcontractors in 2005 (Brandt 2008a). In all four countries, furthermore, services offered by the post offices have been outsourced to private partners. In Sweden, for example, General Mail operates 436 post offices, while 2,039 offices are operated by private partners in supermarkets and filling stations (Input Consulting 2006:137).

In several incumbents (Austria, Germany, Sweden) reorganisation included the introduction of flatter hierarchies and subsequently the decentralisation of responsibilities and an empowerment of local units. This process, however, was combined with the imposition of detailed targets regarding output and turnover. Through the introduction of new information and communication technologies company headquarters can easily compare the results of each individual unit. At Universal Mail in Austria individual post offices are constantly monitored in terms of turnover and results from customer surveys and then ranked internally (Hermann 2008b).

Company strategies of the competitors

Large business clients are not only important for the incumbents. They are also the focus of the business model of the new competitors in the letter markets. Bulk mail from large clients can directly be delivered to the new competitors’ sorting centres (some of it perhaps even pre-sorted by the customers) and does not require the maintenance of a costly post-office network. While focusing on lucrative business clients, the new competitors also save costs by limiting their activities on highly populated urban areas. While partly extending their reach by cooperating with other local distribution networks, the manager of Fast Mail has made clear that the company does not intend to cover the whole country. Instead it plans to use the universal service provider to deliver mail to remote areas (Hermann 2008b). New Mail in Sweden also focuses on lucrative markets segments and on highly populated areas. There is no service for residents who want to send mail. The main business idea, according to the head of human resource department, is to win large business clients by offering them a more specified and efficient way to access potential costumers (Harmark/Thörnqvist 2008). New Mail offers to sort mail according to specific criteria and thereby make sure that the mail is

50

only distributed to those recipients that might be interested in the content of the mail. Of course this helps the client to save a lot of waste and costs (ibid).

While New Mail pursues a market-niche strategy, the German competitor, Instant Mail, attempted to challenge the German post incumbent by creating a full-fledged low-cost mail delivery service. Founded in 1999 the company experienced a phase of rapid growth after 2005 mainly through takeovers of local distributors and the attraction of investments from some of Germany’s leading newspaper publishers. By 2007 the company had created a nationwide distribution network. Instant Mail even printed its own stamps, has partly installed letter boxes of its own and set up counter services in a few large cities (Brandt 2008a). However in 2007 and 2008 the growth phase came to an abrupt end as a number of subsidiaries had to file for insolvency. Management’s official explanation is that the company could not afford to pay the recently introduced sector-wide minimum wage (see further below). According to market observers, however, the company’s growth strategy may have been too fast and went too far. At the end of the insolvency process the company may refocus its activities on lucrative clients and areas (ibid).

The Austrian competitor, Fast Mail, is still struggling to win a significant share in the letter market. While the delivery of post items weighing 50 grams and less still falls under the incumbent’s monopoly, the competitor also has problems accessing the letter boxes in apartment houses in Vienna and other urban centres. These letter boxes are owned by Universal Mail and have not been replaced despite a legal provision to do so mainly because it is unclear who has to pay for the replacement (Hermann 2008b). Management hopes that the situation will change with full liberalisation in 2011. Until then it can survive because it combines the delivery of advertising leaflets and unaddressed mail with the delivery of newspapers. As management points out, the delivery of newspapers accounts for a minimum capacity utilisation which justifies the maintenance of the delivery network. Without newspaper distribution the creation of a sufficiently large distribution network would be very difficult and risky (ibid). In Germany, too, new competitors have combined the delivery of mail with the delivery of newspapers. This has, however, not only happened to increase efficiency. As a German trade unionist assures: “The competitor has a strategic interest in organising a mixed distribution of addressed and non-addressed items: deliverers who deliver newspapers, unaddressed letter items and in addition addressed letters can be defined as newspaper deliverers and as such they don’t have to be paid the higher minimum wage for postal deliverers” (quoted in Brandt 2008a). As we will describe further below, in both countries the business model of the new competitors not least also heavily depends on the exploitation of cheap labour.

Given the specific business model of the competitors, which largely focuses on lucrative market segments, the universal service obligation of the former monopoly supplier is often seen more as a burden than a business opportunity. According to a former manager at Universal Mail in Austria the universal service has no advantages from an economic point of view. On the contrary: “The universal service is just a burden. We have to deliver to all areas . . . as a private service-provider, on the other hand, one can say, I am concentrating more on the cities” (quoted in Hermann 2008b). Standard Mail in Belgium, too, is not entirely sure if it will continue to fulfil the universal service

Postal Services

51

obligation after liberalisation. According to management much will depend on regulation and compensation for universal service provision (Vael/Van Gyes 2008b).


In this section, firstly the changes in employment during the process of privatisation and liberalisation will be synthesised. Then the transformation of industrial relations and effects on wages will be analysed based on the company report results. Finally the changes of the principles of human resource management will be outlined.

4.3.1. Effects on employment

The post incumbents have typically reacted to liberalisation and privatisation with a substantial reduction of employment. The reduction amounts to between 15 and 37 per cent in Austria, Belgium, Germany and Sweden. At Austria’s Universal Mail, 22,500 jobs or 37 per cent of its staff, were cut between 1998 and 2007. At Standard Mail in Belgium the cuts amount to almost 13,000 jobs or 27 per cent between 1996 and 2007. German Global Post eliminated about 29,100 jobs in the letter market between 1999 and 2006. In Sweden job losses between 2001 and 2007 amounted to more than 7,000 jobs or almost 30 per cent of total employment. Only in Poland, where the incumbent is still fully publicly owned, job losses have so far been insignificant (but there are plans for substantial reductions). In all four countries employment reductions have mainly taken place through non-replacement of workers after retirement. In addition, management has used early-retirement schemes and buyouts to induce workers to leave the company voluntarily – although given the intensification and relocation of work, the voluntary character of such measures must strongly be questioned.

While previously postal workers were employed as civil servants or with a similar employment status (Brandt/Schulten 2007), since liberalisation and privatisation they have usually been hired as regular private-sector employees. At the German Global Post about half of the workforce had a civil servant status before privatisation. In 2006 the proportion decreased to twelve per cent (Brandt 2008a). The change in employment status implies a significant deterioration of employment security. While cutting staff numbers, postal incumbents have also transformed full-time jobs into part-time positions. The exception is the Swedish incumbent where the number of part-time jobs has actually decreased (Harmark/Thörnqvist 2008). As we will describe further below, in Belgium and Germany the rise in part-time jobs has been linked to a reorganisation of delivery structures. In addition, the German and Polish incumbents make increasing use of temporary staff, while the Belgian incumbent has raised the number of agency workers. However, while in relative terms the proportion of agency workers at Standard Mail in Belgium is still rather small, the proportion of temporary contracts at Primary Post in Poland rose from 12 per cent in 2003 to 18 per cent in 2006 (Kozek 2008b). Employment relations may also have deteriorated as a result of outsourcing. Workers in outsourced services, some of them self-employed, with few exceptions have less

52

employment security and lower wages than postal workers, as noted by the German post regulator (Brandt 2008a).

Employment at the competitors

Not surprisingly, the new competitors included in this survey have recorded increasing employment numbers. Yet their growth can hardly make up for the losses of the former monopoly providers, especially if calculated in full-time equivalents. The new competitors, furthermore, tend to provide jobs with significantly less employment security and income. New Mail in Sweden employs well above a thousand full-time delivery workers and hires approximately a hundred new employees every six months. But about half of the staff is replaced every year (Hamark/Thörnqvist 2008a). The Austrian competitor Fast Mail has more than 3,000 workers, more than 90 per cent of whom are self-employed. In Vienna, most of the self-employed deliverers are of South-East-Asian origin and many have uncertain residency status – e.g. asylum seekers with an asylum application pending. As self-employed workers they are not covered by employment legislation and collective agreements and they are also exempted from mandatory social security (Hermann 2008b). Instant Mail in Germany has employed at least 9,000 workers until 2007. Since then the company has filed for insolvency and, as of March 2008, cut about a third of its workforce (Brandt 2008a). Instant Mail uses a large variety of employment contracts but the dominant form is part-time work, with a majority of these jobs marginal part-time or mini jobs. Instant Mail is no exception. In 2005, almost 60 per cent of the workforce of the competitors in the German letter market were employed on such marginal part-time contracts or ‘mini jobs’ – compared to only four per cent of the incumbent’s employees (Brandt/Drews/Schulten 2007:269). As we will describe further below, self-employed workers and mini jobbers employed by the new competitors in Austria and Germany earn significantly less than postmen employed by the incumbents.

Table 4-4: Employees in the German letter market (annual average 2006)

Global Post Competitors Total

Full-time 92,413 62.4 % 8,618 17.9% 101,031 51.5 %

Part-time 50,116 33.8% 11,625 24.1% 61,741 31.5 %

Mini jobs 5,566 3.8 % 27,928 58.0% 33,494 17.0 %

In total 148,095 100% 48,171 100% 196,266 100%

Source: Bundesnetzagentur (2007:40, 41); own calculations.

As a result the overall employment balance after the liberalisation that is the balance between decreasing employment at the incumbents and increasing staff number at the competitors in the postal sector has been negative in Austria, Germany and Sweden (Jeffreys et al. 2008:5).

Postal Services

53


Before privatisation and liberalisation, employment relations in the postal sector were characterised by public-law employment, centralised collective bargaining and, in addition, partly by civil-service wage regulation (Austria, Germany). In the course of liberalisation and privatisation processes, the employees of the incumbent postal operators were separated from national public-sector collective bargaining or wage regulation in favour of new collective agreements at company level. In the case of the Belgian incumbent, Standard Mail, bargaining takes place at the company level but is still within the framework of public-sector industrial relations. In general, liberalisation and privatisation have led to a growing fragmentation of collective bargaining. There are not only different agreements applying to the independent parts of the former post and telecommunication monopolists but there is also a lack of a sector-wide agreements in the postal sectors and even in the liberalised letter markets. In Austria, not only Universal Mail has its own agreement but the competitors in the letter market, too, are covered by different collective agreements (Hermann 2008b).

The Swedish case stands out in the comparison as here the agreements covering the incumbent and the competitor establish at least similar employment standards (Harmark/Thörnqvist 2008). In contrast to the Swedish competitor, the Austrian and German competitors deliberately exploit the lack of a sector-wide agreement (apart form the minimum wage regulation for letter services in Germany since 2008) and pay significantly lower wages than those provided by the incumbents. As Table 4-5 shows, in both countries the hourly wage rates in 2007 paid by the incumbents are almost twice as high as those paid by the competitors – at least until the introduction of a mandatory minimum wage in the German postal sector (more on this further below). In the case of the Austrian competitor, Fast Mail, deliverers are paid on a piece-rate basis, depending on the number of items they have delivered. In Belgium and Poland there is also a lack of sector-wide employment standards, but in both countries competition is only evolving and wage-dumping therefore is, if at all, only a minor problem.

In addition to growing fragmentation at the sector level, liberalisation and privatisation has also created new differences within the incumbents’ workforces. As mentioned before, new workers are hired as private sector employees with less job security than those hired under public employment regulations. In the case of the German incumbent, furthermore, ‘new’ employees hired after privatisation tend to earn less than their longer serving colleagues (Brandt 2008a). Blue-collar workers hired after 2001 and white-collar staff hired after 2003 are covered by new agreements with wages up to 30 per cent lower than those still covered by the old agreement. The wage concessions accepted by the service-workers union, Verdi, was part of a deal in which Global Post’s management in turn agreed to abstain from forced layoffs until 2008 (ibid).

54

Table 4-5: Wage rates of letter deliverers paid by incumbents and competitors in Austria and Germany in 2007

Hourly wage incumbent (lowest level in €)* Hourly wage competitors (average in €)

Germany 11,43 5-6

Austria 9,50 4-6

* guaranteed (gross) hourly wage, i.e. including holiday and vacancy pay, but without bonus payments; Sources: Hermann/Brandt/Schulten 2008.

The growing fragmentation of postal sector bargaining systems is underpinned by considerable differences in trade-union membership and hence in bargaining power. Generally, union density is still rather high at the incumbents – between 60 per cent in Poland and 97 per cent in Sweden – but extremely low in most of the competing companies. In Germany, about 80 per cent of Global Post’s workforce is unionised while less than ten per cent of Instant Mail’s mostly precarious workers have joined a union. Similarly, while the incumbent’s workers in Germany periodically elect works council representatives, only four per cent of the incumbents’ staff is represented by an independent works council (Brandt 2008a). In Austria the dependent employees of the new competitor are represented by elected works councils. However, the large majority of the workforce is self-employed and therefore lack any collective representation either by trade unions or by works councils (Hermann 2008b).

In Germany, the Service Workers’ Union, Verdi, has made some inroads in organising the workforce of the competitor, Instant Mail. The organising drive met strong opposition from management. Elected works council representatives are reported to be recurrently harassed by Instant Mail’s management. In some cases, management even went as far as closing down subsidiaries where works councils had been elected (Brandt 2008a). In addition to campaigning for the election of works councils, Verdi has launched a public debate on the working conditions at the new competitors. Government agencies, such as Berlin’s city senate, subsequently threatened to no longer use Instant Mail’s services, partly because they realised that some of the saving they made due to lower price of postal services were used to pay additional social benefits to the marginally employed deliverers (ibid).

The ensuing public debate on working conditions in the German postal sector let to the introduction of a sector-wide minimum wage in 2008. The minimum wage is based on a collective agreement concluded by an employer organisation dominated by the incumbent, Global Post, and Verdi. According to the agreement, the minimum wage for the letter market varies between €8.00 and €9.80 an hour depending on job content and region (ibid). The minimum wage, hence, is clearly above the average wages paid by the competitors (€5 to €6) but clearly below the lowest wages paid by the incumbent (starting from €11.43 and €16.78). The main competitors responded to the agreement by concluding an agreement with a newly founded ‘yellow’ trade union, which offers significantly lower wages (€7.5 per hour for West and €6.5 for East Germany; ibid).

Postal Services

55

Despite pressure from some of the largest German newspaper publishers (which had stakes in some of the new competitors), the government extended the initial agreement to apply to the whole postal sector via the German Posted Workers Act. Instant Mail argued that it cannot afford to pay the minimum wage and subsequently filed for insolvency (ibid).

Trade unions representing postal workers have repeatedly fought against liberalisation and privatisation and the deterioration of employment and working conditions associated with this process. In Germany there was a long strike against privatisation in 1995. In Belgium wildcat strikes against the reform of postal services took place in 2003, 2004 and 2006, and in Poland in 2006. In Austria and Sweden trade unions have threatened to strike but have so far not called for industrial action. Independent of their strike record, most postal workers’ trade unions have in one or another form engaged in concession bargaining on the terms of restructuring, employment pacts and incentives offered to workers who voluntarily leave the companies.

4.3.3. Human-resource management

In the incumbent postal-service providers much of human-resource management in the past years has focused on employment reduction. As mentioned before, such staff cuts were mostly achieved through the non-replacement of workers after retirement, early retirement schemes and redundancy payments. At Universal Mail in Austria, redundant employees, that is, employees whose jobs were lost in reorganisation or who could not keep up with the new pace of work were moved to an internal employment organisation euphemistically called ‘career and development centre’. According to the works council representative interviewed, workers ending up in this part of the company are largely deprived of any prospects and instead are forced to do nothing while waiting for retirement (Hermann 2008b).

The postal sector in all countries offered stable employment careers based on on-the-job-training and work experience. In Germany postmen and -women were even trained in special apprenticeships. With the restructuring of incumbent postal companies, career perspectives have become increasingly fragile. Young workers who have completed their apprenticeship at Global Post in Germany are only offered part-time contracts if they want to stay at the company (Brandt 2008a). The erosion of career perspectives is linked to a deskilling of the delivery job. With completely sorted mail deposited in local depots and GPS systems displaying the delivery routes, the job of an experienced deliverer can increasingly be done by inexperienced and easily replaceable workers. The new competitors to a large extent rely on inexperienced staff. The average age of the workforce is rather young and turnover rates are high. At New Mail in Sweden the average age is 25 and half of the company’s staff is replaced within one year (Harmark/Thörnqvist 2008). Management at Austrian Fast Mail, too, reports high labour turnover rates among its self-employed deliverers but vacant positions are easily filled with new immigrants or asylum seekers (Hermann 2008b).

56

Deskilling and the lack of career prospects means that direct forms of management control dominate while staff motivation only plays a secondary role. Direct forms of management control typically takes the shape of payment on a piece-rate basis, a system widely used by competitors in the postal service market but increasingly by the incumbents as well. However, control can also be stepped up by means of new information and communication technologies that allow management to measure individual work performance (e.g. through mobile recording devices). Perhaps an extreme example of establishing a new control regime can be found at Global Post in Germany, where a special security department was established to control theft by its own workers (Brandt 2008a).

Increasing control efforts notwithstanding, there have also been some attempts to motivate staff. Austrian Universal Mail, for example, spends ten per cent of its earnings before interest and taxes on special bonuses paid to its staff (Hermann 2008b). Universal Mail and its German counterpart, Global Post, furthermore introduced regular staff interviews, in which workers are questioned by their supervisors. In the case of Standard Mail in Belgium, employees with a particular high rate of absenteeism are invited by management for individual consultation. This is part of an overall scheme aimed at cutting absenteeism, which has been on the decrease in recent years but is still rather high. In addition, Standard Mail has created a special department with the objective of improving overall employee well-being (Vael/Van Gyes 2008b).

4.4. Work Organisation and working conditions

The introduction of new technology and the reorganisation of the delivery system had a lasting impact on work organisation and working conditions. At the Belgian incumbent, Standard Mail, the increased automation in the new sorting centres has meant that employees’ tasks have become less varied, mentally less challenging and physically more demanding (Vael/Van Gyes 2008b). The fact that final sorting is increasingly completed at the sorting centres rather than at the distribution bases and the simultaneous use of GPS systems (Geo Route) to plan delivery routes has also had major consequences for the deliverers. What used to be done by experienced postmen and women is increasingly done by unqualified and inexperienced deliverers.

The German incumbent, Global Post, is also shortening delivery routes, with the objective to have all mail delivered by 1 pm at latest. As a consequence, full-time jobs are increasingly converted to part-time positions, with the effect that the traditional full-time deliverer will probably no longer exist in future (Brandt 2008a). In Austria, by contrast, the number of delivery routes was reduced by Universal Mail and routes were extended in an attempt to increase productivity. The number of delivery points included in an average delivery route has doubled since the start of the liberalisation process. As a result, it has become increasingly difficult for deliverers to finish their delivery route within an eight-hour shift, while before fast deliverers could easily finish their routes within six hours (Hermann 2008b). In Sweden, too, deliverers claim that the number of households on their delivery routes has increased by up to 50 per cent

Postal Services

57

(Harmark/Thörnqvist 2008). Interestingly, the reorganisation at Austrian Universal Mail was based on a simultaneous fragmentation of work, with management assigning individual time values to each task involved in the labour process and the introduction of teamwork with delivery teams becoming responsible for covering the routes of absent colleagues – while previously, when routes were still much shorter, the company would have paid overtime to an employee to take over an additional route (Hermann 2008b). While sorting and delivery work has been subject to deskilling processes, work tasks in the post offices have partly been enriched by the introduction of new universal counters. At Universal Mail in Austria there were previously different counters for different services (e.g. individual counters for letters, parcels and banking transactions). Today universal counters provide a range of different services. As a result post-office agents now have to cover a variety of tasks. Yet because of the simultaneous cuts in staff numbers, workloads and stress levels have also increased. As an interviewed worker notes, if there are a lot of customers, post office workers are sometimes unable to take their mandatory breaks (Hermann 2008b).

With the exception of Standard Mail in Belgium all incumbent case studies report increasing workloads. As mentioned before, in the Austrian and Swedish cases the workload of delivers has almost doubled. A former manager at Universal Mail admits that “in many areas the limits have been reached.” Many staff, some of whom are no longer the youngest, are reaching their physical limits. “This is really strenuous . . . to carry these parcels. I did it two or three times. In the evening I was finished” (quoted in Hermann 2008b). At the German Global Post works-council representatives and workers stressed that the deliverer’s job has become physically demanding. As a result, workers from the sorting centres do not want to switch to delivery even if they would earn significantly higher wages as deliverers (Brandt 2008a). At Primary Post in Poland, workers feel that they are working beyond their limits and in many areas are unable to finish their tasks within the regular eight-hour shift. The deteriorating working conditions have led to an increase in sick leave and labour turnover (Kozek 2008b).

Despite the deterioration of working conditions at the incumbent postal companies, working conditions are often worse at the new competitors. In the case of Fast Mail in Austria, deliverers are paid according to piece rates and many of them work night hours (work starts at 4 am). As a visible minority, deliverers of South-East Asian origin are often subjected to harassment and sometimes even physical abuse. Support from their employer is very weak. Quite on the contrary, as one interviewed worker noted, they are seen as trouble-maker and risk to be sacked if they address any problem (Hermann 2008b). Workers at the German competitor, Instant Mail, were also partly paid on a piece-rate basis. According to trade-union representatives, workers who address the poor working conditions get less work and risk to be sacked (Brandt 2008a). In some subsidiaries there was also a special health bonus, which is part of the regular wage and not paid if employees take sick leave. As a result, workers continue to work even if they are ill (ibid). In Sweden workers employed by the competitor, New Mail, work under considerable work pressure. This explains some of the 50 percent yearly labour turnover

58

and the fact that about 18 per cent of all paid working hours are worked by substitutes (Hamark/Thörnqvist 2008a).


All interview partners in the company case studies refer to massive productivity gains of the incumbents. However, the interview partners in the different company case studies have a different understanding of productivity. Thus, for instant, answers refer to increased revenues at Standard Mail in Belgium, continuous profits at Global Post in Germany and at Primary Post in Poland and to a continuously rising turnover at Universal Mail in Austria. Indeed, as expressed in the company case study from Sweden, “productivity” in postal services rather seem to be a matter of “maintaining a high quality of universal services at lower costs”.

With regard to this interpretation of productivity, it has to be stressed that the universal service obligations of national governments with regard to postal services define more or less concretely the quality of services (especially the regulators’ stipulation that e.g. 95% of letters must be delivered one day after posting), whereas lower costs at the incumbents were mainly achieved by the managements by the building of new fully automated sorting centres, the introduction of new technologies, the continuous intensification of work and employment reduction. Concerning the new competitors no information on productivity is available but the low-tech standard of the delivery network gives reason to assume that productivity is much lower than the level attained by the incumbents.

Generally, the objective of cost cutting was not questioned by any of the interview partners, but the future of universal services was interpreted as an open question and linked to financial preconditions, i.e. direct or indirect subsidisation. This can be seen as a paradigm in the debate about the future of postal services. There are exceptions, however. Thus, for the first time the non-privatised Polish incumbent, Primary Post, is likely not to make profits but losses in 2008. This was linked to pay increases. Regardless, pay rises have been recognised by the decisive political actors and by the management in Poland to be necessary in order to improve the quality of services.

The future of universal services will depend on new regulations defined by the national governments and regulatory bodies. But in most countries it is still unclear what will happen to the universal service obligation after the reserved areas are lifted in 2011 or 2013. What are the results of liberalisation, privatisation and new quality regulations on service quality until now? On the whole, the level of postal-service availability decreased (concerning counter services and postal boxes) almost everywhere, but delivery times have been reduced. Prices for household clients stayed relatively stabile while prices for business clients decreased.

Respondents of the Austrian company case study particularly stressed the decrease of delivery times but also the reduced number of post offices, the outsourcing of counter services and reduced costumer contact times in counter services. In the German case,

Postal Services

59

too, results included a deterioration of service availability, a decrease in delivery times and cheaper prices for business clients. The Swedish report argues that in Sweden postal services have not improved because of the closing of all post offices (and outsourcing counter services to private partners), a decreased number of post boxes and unchanged distribution times since the liberalisation in 1995 whereas prices for business customers have been reduced compared to private service users.

In contrast to Austria, Germany and Sweden, the company case studies from Belgium and Poland present a rather positive picture of the impact of the reorganisation of postal services for customers. The Polish case study particularly highlighted the modernisation of post offices, friendlier counter service, technical modernisation, a decrease in delivery times and a diversification in services on offer. And the findings of the Belgian case study, emphasised the decrease in delivery times, the - still - highest concentration of post boxes in Europe, the closing of post offices – however offset by outsourcing services to ‘post points’ – and improved customer satisfaction.

4.6. Conclusions

Regarding the empirical results of privatisation and liberalisation in postal services, all company reports compiled for this study indicate that the employees are the big losers of the process, with cuts in employment, wage dumping and worsening working conditions.

The unions are also often the losers. Due to privatisation, the employees of the national postal companies have been more or less cut off from national public-sector collective bargaining or wage regulation, in favour of new collective agreements at company level. Because of the fragmentation of the incumbents into different units and because of outsourcing, there is often a multitude of company agreements, often with lower wage levels for new employees. Generally, union density and the collective bargaining power are extremely low in most of the new competitors. The new competition has had negative effects on the solidarity of the employees at branch and company level. As a result, and due to the fragmentation of collective bargaining structures at company level, in Germany and Austria wage dumping has emerged between the incumbent and new competitors in the letter market.

The effects on the consumers vary somewhat in the countries analysed. In all of them, large institutional or business clients have benefited from price reductions and to some extent from special services. After privatisation, the incumbents’ major aim was to make profit rather than to fulfil their universal service obligation. For this reason, large clients have been much more important for these companies as they are much more relevant to the turnover compared to small household clients. While this has led to a commercialisation of postal services, governments still feel responsible to ensure universal services are provided. In general, the reduction in delivery times is positive for all consumers. In contrast, the availability of services for regular household clients

60

(fewer letter boxes, fewer post offices – partly compensated by outsourcing of counter services) has decreased everywhere.

Apart from large institutional and business clients, who else has benefited? Of course the management, because of higher earnings, and the shareholders in the case of profits. But what about the net effects for the governments and the (welfare) states in the different countries? These have generated (non-sustainable) revenues from the privatisations. Moreover, state bodies and institutional clients can profit from lower postage prices. Currently, governments still have to subsidise universal services, either directly (e.g. in Belgium, Poland) or indirectly by collecting lower turnover tax on universal services (Germany). In any case, the governments are faced with new and costly social problems. In Germany, the wages paid by the competitors have had to be partly subsidised by the municipalities, which is why, as large institutional clients of these new competitors, some of them (e.g. the City of Berlin) have demanded that they raise their employees’ wages. Staff reductions at the incumbents have often been associated with indirect cost due to early retirement or, especially due to lower employment levels, with a negative impact on social security households. In particular, new atypical forms of employment – which can predominantly be found at the new competitors – lead to disadvantages for social-security schemes (e.g. mini jobs or the self-employed). Liberalisation (and de-regulation) is also linked with an increase in new regulations. These can give rise to new political conflict (e.g. introduction of a sectoral minimum wage). New regulatory bodies are only theoretically autonomous actors. In practice, there are often close links between new regulatory agencies and the management of the companies, resulting in intransparent, undemocratic deals on regulations (Raza 2008; Hood et al. 1999).

Regarding the theoretical results of the company case studies, what causal relations do we find between liberalisation and privatisation on the one hand and changes in employment and service quality on the other hand?

A reduction in labour costs has often mainly achieved by massive job cuts, compensated for by new technology. As new company aims, lowering labour costs and making profits are a direct result of liberalisation. The alternative would be not to open the markets.

In general, liberalisation was the driving force behind the reorganisation measures and privatisations. Liberalisation can be linked to the companies’ expectation and strategy to make higher profits abroad as well as with the fear that their own national monopolies may be sold off to a larger foreign incumbent. In any case, the new competitive environment has forced the public owners to give management more autonomy in business activities (e.g. by formal privatisation) in order to become more competitive. As a result, liberalisation has been more important for company strategies than ownership relations. Publicly owned postal incumbents have had to act in ways very similar to completely privatised companies. In other words, public ownership does not automatically mean that the universal service obligation is given priority over profit or that postal services are regarded as a public rather than a private service. Nevertheless, public ownership can exert a limited amount of democratic influence on company

Postal Services

61

strategies. But due to liberalisation the need for growing competitiveness has given rise to severe strain between the universal service obligation and the profit motive.

If the national governments do not assume their responsibility to regulate universal services and working conditions after liberalisation, it will culminate in a much more visible disaster for the European welfare states. Liberalised markets need strong regulation of social and consumer affairs. The German case in particular seriously challenges the whole purpose of privatisation and liberalisation and sends a warning signal to countries planning to open their markets. In addition, minimum wage regulations as such can only limit competition based on wage dumping, and they do not lead to competition based on quality (after liberalisation).

Hospitals

63

5. HOSPITALS Nils Böhlke

5.1. Introduction

This synthesis report is based on case studies completed on Austria, Belgium, Germany, Sweden and the UK for Workpackage 7 of the PIQUE-Project. Unlike in other sectors investigated for the project, in the hospital sector privatisations have not taken place in all of the countries. Hence the described cases are quite diverse. In Austria (Papouschek 2008), the private not-for-profit confessional hospital, True Faith Hospital, merged with a private-law not-for-profit hospital holding and management company, the St. Mary Group. The private not-for-profit orthopaedic hospital offers 280 beds and has 590 employees. In Belgium (Vael/van Guys 2008c) three private not-for-profit confessional hospitals merged with a public hospital into a not-for-profit private conglomerate, Goodwill Hospital, with 1,100 beds and 2,400 employees. The German case study (Böhlke 2008) describes the purchase of 74.9 % of the shares of the public Harbour Hospitals by the private for-profit City Clinic GmbH and thus represents a stronger form of privatisation. In the privatised hospitals 8,850 employees are in charge of 5,000 beds. The Swedish case study report (Anderson-Bäck/Thörnqvist 2008) discusses the development of the privatised North-Central Hospital. At the North-Central Hospital 1,500 employees are in charge of 275 beds. Since almost all hospitals have remained within the public National Health Service (NHS) in the UK, the UK case study (Paraskevopoulou 2008a) does not describe a privatisation but the reaction of the Markshire General Hospital Trust, with 7,000 employees and 1,100 beds, to the reforms of the NHS. However, all these cases describe results of changes in government hospital policies and thus reflect the marketisation and liberalisation of this sector.

Table 5-1: The case study hospitals

Name Case

Austria True Faith Hospital Private not-for-profit confessional hospital merges with a private-law not-for-profit holding and management company

Belgium Goodwill Hospital Three private not-for-profit confessional hospitals merge with a public hospital to form a private not-for-profit conglomerate

Germany City Clinic Purchase of 74.9 % of the shares of a public hospitals by a private for-profit company

Sweden North-Central Hospital Development of a materially privatised hospital

UK Markshire General Hospital Reactions of a NHS hospital trust to the reforms of the NHS.

64

5.2. The Hospital Sector

According to prior research carried out for the PIQUE-project, the healthcare sectors in the studied countries can be divided into those following a ‘Bismarck model’ and those having adopted a ‘Beveridge model’ (Brandt/Schulten 2007). The former is based on “sickness funds” and collective health insurances and is in use in Austria, Belgium and Germany. In these countries, private investors have always had the possibility to open private hospitals and patients have always had the possibility to choose between different hospitals. The latter is a tax-funded healthcare system and can be found in Sweden and the UK. In these countries, private for-profit hospitals have played a marginal role. Since the 1990s, all of these countries have experienced significant changes of the government policies for this sector. However, the concrete developments differ hugely.

5.2.1. Increasing cost pressure and changes in the funding systems

According to the findings of the PIQUE project in all observed countries, the hospital sector is faced with new market challenges, such as high pressure to reduce costs as well as growing costs for investments and medical services (Hermann et al 2007).

5.2.1.1. Evolution of the hospital sectors

In Austria, the change in the sector began in the 1980s, when municipalities sold their hospitals to the Austrian Provinces to form larger hospital groups or holding companies. Almost all of these are managed under private law. However, the public owners still assumes liability for any losses. As well as the public hospitals, many private not-for-profit confessional hospitals have reorganised to become more economically efficient. The differences are that losses incurred by these hospitals are not covered by the local authorities and that employees in supporting services earn lower wages. This is true for the case-study hospital as well. While privatisations of entire hospitals are rare in this country, outsourcing of particular services to private companies happens frequently. In the case-study hospital, the cleaning sector has been outsourced. Besides, many services were incorporated into subsidiaries of the hospital.

Traditionally there was local competition between hospitals in Belgium. The basic principle of this competition is the free choice of the patients. This still usually means there is a choice between religious not-for-profit hospitals and public hospitals. Private for-profit hospitals are still rare. Recently, though, the country has seen a growing number of hospital mergers and joint-ventures. At the local level, this has led to a greater concentration of the hospital sector. The mergers include combinations of public and private not-for-profit hospitals, as in the case-study hospitals, and thus transcend the public/private divide.

The most significant change over the last years has taken place in Germany. Even though there has always been a broad range of hospital operators, the recent development marks a fundamental shift. Between 1991 and 2006, the share of private

Hospitals

65

for-profit hospitals increased from 14.8 to 27.8 per cent, while the share of public hospitals decreased from 46 to 34.1 per cent. The proportion of private not-for-profit hospitals has remained relatively stable. During this period, three German corporations have become the biggest hospital companies in Europe, creating huge market power within those conglomerates. One of these companies has bought 74.9 per cent of the shares of the investigated case-study hospitals. Additionally the share of public hospitals run under private law has risen significantly and is now higher than the share of public hospitals run under public law.

Whereas county councils are responsible for the financing and provision of health services, municipalities are responsible for nursing homes and home-based care in Sweden. This leads to significant variations within the country and – during the first half of the 1990s – a significantly increasing share of patients transferred into the responsibility of the municipalities. Like other European healthcare systems, the Swedish system faces challenges such as a lack of resources, high costs, inefficiencies and an ageing population. Additional problems include insufficient access and a low ratio of physicians. Since 2007, 6 out of 91 hospitals have been privatised. Additionally outsourcing happens more and more frequently.

The situation of the hospital sector in the UK is profoundly different since most major hospitals are part of the National Health Service (NHS) and treatment is free at the point of use. Although there are over 300 private hospitals, these only compete with the NHS in terms of those individuals who are willing or able to pay for treatment or who are covered by employer-provided private medical insurance. However, over the last 20 years reforms of the government have led to major pressure for changes within this system. According to national media, several hospitals are struggling financially because of these changes.

5.2.1.2. Changes in the funding systems

For the Austrian market, the reform of the funding system has been crucial. Since 1997, part of the operational running costs are billed on the basis of a case-fee payment system called “Leistungsorientiertes Krankenhausfinanzierungssystem” (LKF) [Performance-Oriented Hospital Funding System]. This diagnosis-related-groups system (Austrian DRG) is divided into a nationally uniform core area and a fund control area that can be modified in the individual Provinces in order to take structural differences into account. Thus in seven of the nine provinces, religious hospitals, including the one described for the case study, receive less money for the same services.

The Belgian government further encouraged mergers, and thus local market concentration, by cutting social-security spending and restricting funding of the clinics. Moreover, local authorities made it possible to merge public and private not-for-profit hospitals to form entities with private not-for-profit status. Nevertheless, under the new rules the public authorities retain a veto right power on certain issues, such as equal access, and gave all parties involved the right to decide whether to continue their participation. The main objectives of these regulatory measures include creating higher

66

cost-efficiency by fighting overcapacity of beds and maintaining high quality standards by means of economies of scale, standardisation processes and political regulation. The latter was achieved by obliging hospitals to establish new quality management systems.

Developments in Germany were interdependent with several measures adopted by the federal and local governments. Particularly important in this context was the discarding of the cost coverage principle (“Selbstkostendeckungsgesetz”) within the Health Structure Law (“Gesundheitsstrukturgesetz”) in 1993. Until then, legal provisions ensured that the costs necessary for treatments and personnel were covered by the health insurances. The new law opened up the possibility to make profits or debts, thus increasing the financial pressure and the pressure to create more efficient structures. Almost equally significant were the introduction of a case-fee payment system and the lack of investments into the hospitals by the federal states. The total investments in the case-study hospitals declined to about two-thirds in the eight years preceding the privatisation. Additionally, the local government in charge of the case-study hospitals changed from Social-Democrat to Conservative a few years prior to privatisation. This new government was determined to privatise and even a successful referendum initiated by the local unions and other groups opposing privatisation could not prevent them from selling the hospitals to a private investor.

Since 1982, Swedish governments have implemented one of the most vigorous cost-containment programmes, including cost-saving plans, wage freezes and cuts in investments. This development continued in the 1990s, when, amongst others, new payment schemes and internal markets were implemented. The competition of these markets focussed on access and quality but not on price. In 2000, the Social-Democratic government liberalised the healthcare sector in order to encourage the establishment different kinds of management. Acute and emergency hospitals, however, were not to be privatised. The new centre-right government passed the decision on privatisation on to the counties in 2007, which resulted in the already mentioned privatisations.

Despite a significant increase in NHS funding since 2000 in the UK, many local NHS Trusts1 still face financial difficulties that can be traced to a range of factors, such as many years of under-funding, the increasing costs associated with more sophisticated medical technology and changes associated with several major reforms of NHS organisation since the early 1980s. The introduction of internal markets in 1990 and the promotion of Private Finance Initiatives2 (PFI) in 1992 by the Conservative government have already intensified the liberalisation process of the NHS. Although PFI was initiated by the Conservative government, it has been widely adopted by the Labour government so that it has become the leading form of finance for capital projects across all public services. The development of private participation in the sector was further strengthened with the introduction of Independent Sector Treatment Centres (ISTCs) in 2002 and of Foundation Trust Hospitals3 in 2003. However, the internal market within

1 For NHS Trusts see: Pond 2006:6ff. 2 For Private Finance Initiatives see: Pond 2006:12f. 3 For Foundation Trust Hospitals see: Pond 2006:9ff.

Hospitals

67

the NHS is still no real market, according to one of the respondents, as the system is managed from above, although the same interviewee advocated that Foundation Trust status could give more freedom to the Trusts in terms of decision making.

Table 5-2: The development of the sector and the funding

Sector Development Changes in funding

Austria Formal privatisations, frequent outsourcing New funding system

Belgium Growing amount of mergers, market concentration on local level

Cost cutting in the social security, restricting funding, public authorities remain veto power, fight overcapacity, obligatory establishment of quality management

Germany Material and formal privatisations, development of huge hospital companies

Several reforms of the funding systems

Sweden A few cases of material privatisations, outsourcing

Cost-containment programs, several steps towards the permission of privatisations, Internal markets

UK NHS runs almost exclusively the hospitals Internal markets were introduced, Public Financing Initiatives (PFI) promoted, private participation supported

Table 5-2 shows that, despite significant differences in the healthcare systems, all case-study hospitals investigated are subject to government measures aimed at reducing costs. The different structures and political contexts have resulted in a number of different strategies at the regulatory level to achieve cost savings. For this reason, the markets have developed in rather dissimilar ways.

5.2.2. Hospital reactions

The developments taking place in the countries investigated have obviously had a major impact on the hospitals. Still, the degree of autonomy of the case-study hospitals differs tremendously and thus the reactions of the hospitals on company level as well as within the hospitals are quite diverse.

5.2.2.1. Hospital reactions on company level

In many ways, the St. Mary Group, which the True Faith Hospital in Austria is now part of, has been reacting to the growing financial pressure in much the same way as a regular privately owned company. This is not only reflected by the merger itself but also by outsourcing activities and the creation of subsidiaries. However, according to the interviewed responsible trade-union secretary, the Association of Religious Hospitals behind it puts the Group in an awkward position that “is neither fish nor fowl”. Still, the Group is opposed to private for-profit hospitals.

The new Belgian private not-for-profit conglomerate, Goodwill Hospital, has attempted to achieve the objectives of higher cost efficiency and improved quality by means of a

68

merger and has turned the case-study hospital into an award-winning organisation. All respondents confirmed that, as a result of the challenges posed by the described changes in the sector, a totally integrated and centralised merger was the only possible way to stay profitable in the long run. First, the three not-for-profit hospitals merged in January 1998. After the local municipalities amended the law accordingly, the local public hospital joined the merger in September 2000 and all hospitals obtained private not-for-profit status. The city’s entire hospital infrastructure is now regarded as a single general hospital. The former public hospital thus is a first mover in a new phase of mergers. In 2012, the hospitals will move to a single location on the outskirts of the city. In fact, this planned move turned out to be more controversial among local politicians than the merger itself since it is feared to affect accessibility.

In Germany, the privatisation of Harbour Hospital Enterprise, which was a lot more controversial, was conducted in two phases. In 2005, 49.9 per cent of the shares and the management were handed over to the new investor (City Clinic GmbH), followed by another 25 per cent two years later. At the same time, the hospital’s legal status was changed to that of a limited liability company (GmbH). The fixed assets, debts and the responsibility for payments to retired personnel remain in a holding company owned by the local municipality while the operating company was sold. The fixed assets were leased to the private company without rent for the next 60 years. City Clinic GmbH operates 74 hospitals in Germany and is active in several other countries. However, until the purchase of the majority of the shares of the case-study hospitals, it exclusively ran smaller hospitals in rural areas, which provoked a debate about their ability to run larger hospitals like the Harbour Hospitals.

In Sweden, the situation provoked a number of reactions in the investigated hospital. North-Central Hospital was first converted into an independent public company in 1994 and, in 1999, sold to a multinational company by the local conservative government. Interestingly, the social democrats intended to retransform the hospital into an ordinary public hospital, when they won the elections in 1994 but the trade unions opposed the plan, fearing that the hospital’s huge debts might eventually lead to its closure. The change to another conservative government in 1998 led to the privatisation, though. It was the first and most outstanding example of privatisation within Swedish hospital care. In 2000 the multinational company was sold to an American company in a friendly acquisition. Most Swedish hospitals, however, have remained in public ownership. That does not mean that they have not undergone organisational changes.

For the Markshire General Hospital in the UK, the PFI agreement for the building of a new hospital in 2002 represented a major change for the hospital, especially because it resulted in huge financial problems. The hospital’s executive team has changed several times in recent years, partly due to their failure to achieve financial balance. In an effort to manage the financial problems arising from the PFI, the hospital applied to become a Foundation Trust hospital, a status that would also have allowed the hospital to achieve greater independence from the national framework.

Hospitals

69

5.2.2.2. Changes of the hospital structure

The financial pressure in Austria creates a necessity to become efficient and to serve the interests of private patients more adequately. Besides of the outsourcing this is encountered with a concentration process, raising productivity and intensifying work as well as staff-cost reduction. The merger of the True Faith Hospital is part of the concentration process. In 2000 it became part of the St. Mary Group (holding and management Ltd) and is since run as a private limited company. In addition to this organisational change the St. Mary Group Service Ltd with four subsidiaries was founded a few years ago. Both the economical and the patients’ interests are supposed to be served with specialisation and patient differentiation.

Even before moving the clinics to a single location, the new Belgian Goodwill Hospital has incorporated supporting services in distinct business structures within the company to increase efficiency. Interestingly some of these services had been outsourced to external providers before the final merger but were reincorporated eventually. However, even though the pressure on the hospital to remain efficient is high, less profitable units are not abandoned. Another new strategy the company pursues is extending its cooperation with other hospitals and care professionals, especially to optimise the provision of specialised treatments. Such developments were significantly facilitated by new IT technology. Generally speaking, the hospitals invested considerably in new medical technology.

For the City Clinic GmbH in Germany, respondents identified three general strategic approaches: first, a decentralisation of management responsibilities into the different clinics; second, a withdrawal from “social-partnership” policies; and third, extensive benchmarking. These strategies are reflected in a variety of measures adopted by the privatised hospitals. The new benchmarking systems compare the hospitals’ performance data, putting high pressure on the management of the individual hospitals to achieve above-average results. In hospitals that fail to meet the expected targets, turnover among management staff is considerable. City Clinic GmbH also set up a new service company, which competes with the support services that were transferred into subsidiaries before the privatisation, thus reproducing the pressure exerted on the management at the lowest level of the hospital staff hierarchy.

Since the new owner of the North-Central Hospital in Sweden is listed on the stock exchange, the hospitals are forced to spend a lot of time on compiling data for the quarterly reports. This bears the obvious risk that a focus on quarterly results might replace the necessary long-term perspective. The local employers’ and the employee representatives, who still had considerable influence over the company’s board and CEO during the first years after privatisation, stated that this changed with stock market floatation. Instead, the employee representatives stress the establishment of a European Works Council (EWC) as a recent success.

Due to PFI repayments of £58 million a year for the next 35 years, financial pressure on Markshire General Hospital in the UK has increased tremendously, prompting a restructuring process geared towards greater efficiency. Staff numbers were reduced,

70

and “soft services”, such as catering, and other services as well as the construction and the maintenance of the new hospital building were outsourced. Outsourcing has affected 800 staff employed in “soft services” and 125 personnel working in other services. The success of this measure is questionable. Thus, the cost of some of the services provided is said to have increased after outsourcing. In addition, some wards were closed, although some of these closures resulted from mergers due to technological advancements.

5.2.2.3. Changes in the working processes

To achieve the objectives of the Austrian St. Mary Group, several organisational changes were adopted within the company as well. The group’s uppermost decision-making body is the so-called upper management circle, consisting of the managers of the group and of the hospitals within the group. The circle decides on company objectives and strategies as well as guidelines and basic tasks. In parallel, additional network structures – among others for quality management – have been established. Even though the department structure was retained, changes in working processes were introduced. Most notably the workflow in the operation area was adapted to increase the number of operations. Thus, anaesthesia is now administered in the pre-op room to reduce the times in which the operating theatre is not used. Furthermore, administrative work is planned to be centralised in one department within the hospital. Administrative tasks include compiling detailed performance reports as well as controlling of both the individual hospitals and individual employees, in terms of activity as well as illness and sick days reported by staff. One of the main effects of these changes is a reduction of the average staying time in the hospital from 7.4 days in 2004 to 6.6 days in 2006.

After the merger, decision-making processes at the Belgian Goodwill Hospital were adapted as well. A more top-down oriented approach was adopted and after a short period centralised. A new board of directors and general assembly were established in accordance with the regulations for hospital mergers. The composition of both the number of board and assembly members were based on the number of beds each hospital provided before the merger. Additionally, the care process was standardised to decrease staying time. Care programmes are becoming more and more concentrated and tasks are clustered. In a first step, this was organised in a relatively short period of time (six months). The new structure will endure until the relocation of all units to a single campus will make the concentration total. Difficulties arise because the doctors and surgeons are self-employed and co-financed: they have considerable veto power within the hospitals and can interfere into decisions from top management effectively by independent decision-making in their wards.

The new general management of the German City Clinic GmbH sets great store by closely cooperating with IT companies. Thus, the so-called “future hospital” established at one of the clinics has laid the entire medical process in the hands of a computer-based patient file. In addition, the company tries to cut costs by reducing staying time, thus intensifying the workload. The average staying time in the privatised hospitals is more than one day shorter than the average staying time in other hospitals in the country.

Hospitals

71

Astonishingly, however, almost all respondents reported that the City Clinic GmbH does not seem to have an overall strategy to establish a more efficient workflow. Much rather, the only visible strategy seems to be “cutting costs wherever possible”.

The North-Central Hospital in Sweden has changed the work organisation within the hospital. The main objective was to increase the number of patients and save time, thus reducing costs. The management adopted concepts from the manufacturing industry, such as centralising as well as decentralising decision-making processes under such names as lean hospital.

For the Markshire General Hospital in the UK the move to new premises in July 2006 represented a major organisational challenge. Interviewees described the move as highly efficient in financial terms and also reported on the increasing cooperation between the employees. Even though the new facilities are a financial risk should be replaced with they are also viewed as an opportunity because they are better equipped and the training of the staff has improved and increased the awareness of care standards. Especially the introduction of new IT systems has altered the workflow in the hospital.

In terms of company reactions and organisational change, the main trends observed for the case-study hospitals are summarised in Table 5-3.

Table 5-3: Hospital reactions

Company reactions Changes of the hospital structures

Changes of the working processes

Austria Merger of private not-for-profit hospitals into private law company

Concentration process, staff-cost reduction, outsourcing, insourcing

Establishment of network structures, change of the workflow in the operation area

Belgium Merger of three private not-for-profit and one public hospital into one general private not-for-profit hospital; move to a single location

Insourcing (sometimes of recently outsourced services), no abandonment of units, cooperation with other hospitals, investment in new technology

Greater emphasis on top-down decision-making, concentration and standardisation of the care process

Germany Purchase of 74.9% of the shares of a public hospital enterprise

Decentralisation of management, extensive benchmarking, introduction of internal competition in the outsourced services

Decrease of staying time, increase in the number of cases

Sweden Purchase of a hospital, acquisition of the company by an American company

Focus on quarterly reports for the stock market

Increase in patient numbers, implementation of an industrial “lean hospital” concept

UK PFI has financed a new building, application to become a Foundation Trust Hospital to become more independent

Staff reductions, outsourcing Improved training, new IT systems introduced

The overall direction of company reactions shared by all cases seems to be basically a shift from the public authorities to the private sector. However, as was shown in the

72

previous section, the regulatory constraints are more (UK) or less (Germany) limited, resulting in different company reactions. In view of these differences, the measures adopted by the hospitals are rather similar. The Goodwill Hospital in Belgium is the only hospital to place greater emphasis on the aspect of enhancing quality by means of new investments. In all other countries, the management of the hospitals studied primarily focused on either reducing the number of employees or intensifying the workload, or both at the same time.

5.2.3. Employment, Industrial Relations and HRM

The diversity of the cases is predominantly reflected in the industrial relations. Even though financial constraints come to bear on all the cases investigated, this did not automatically result in staff reductions everywhere: In some cases, even the contrary has happened. Just as diverse are the industrial-relations and HRM strategies adopted: While in some cases, the situation has even improved for workers’ representatives, their colleagues in other countries experienced a sharp decline in recognition and power.

5.2.3.1. Employment

There have been no staff reductions in recent years in the True Faith Hospital in Austria. On the contrary, staff numbers have risen since 2005. Even the employees in the subsidiaries were all taken over by the St. Mary Group. However, since the amount of part-time workers has risen by 30 per cent, the increase in full-time equivalents is rather marginal (3.4%). Among the new part-time workers, the biggest group are the physicians. Most of them opt for part-time work because they also have private surgeries of their own, which offer higher incomes. In administration, too, working part-time is the employees’ own choice. Here, the main reason given for voluntarily lowering working hours is childcare. Newly employed staff, however, does not have a choice. New posts are almost exclusively advertised as part-time jobs.

Like in Austria, the Belgian case-study hospitals did not see job reductions but an increase of employment. This was due to a boost in jobs in direct care. Between 2001 and 2006, total employment increased from 2,297 to 2,449. In full-time-equivalents the increase was even more pronounced, from 1783.13 to 2017.99. However, some employees had to be relocated to other units of their choice. Even though less than twenty per cent of the relocated employees were transferred to a unit other than that of their choice, there were some voluntary resignations by unsatisfied employees. Fixed term, interim and part-time contracts also increased while longer shift breaks disappeared. Especially cleaning staff is no longer given full-time contracts. Support-service employees will probably see jobs cuts once the new hospital building is taken into use.

A surprisingly high number of employees working in the German case-study hospital stated that the more fundamental changes occurred during the restructuring processes of the late 1990s rather than after privatisation. Indeed, the number of employees in full-time equivalents fell from 15,491 in 1995 to 10,716 in 2000. After 2000, downsizing

Hospitals

73

slowed down but did not come to a halt entirely. When the management was handed over to the City Clinic GmbH in 2005, there were 9,082 full-time equivalents left. Although the investor hired some doctors and nurses, this number further decreased to 8,855 in the first year after the purchase. Administrative staff was particularly affected by the downsizing activities of the new owner. When the City Clinic GmbH received further 25 per cent, and thus the majority, of shares in 2007, 1,960 employees declared that they wanted to make use of their right to return to the public service. This right was part of the results of lengthy negotiations over the independence of the Harbour Hospital Enterprise from the local authorities in 1995. While this was a welcome opportunity for the City Clinic GmbH to further reduce staff, it was rather costly for the city. Unlike the other hospitals investigated for this study, part-time work did not increase significantly in the German clinics after privatisation. However, the amount of subcontracted labour rose.

The North-Central Hospital in Sweden employs a staff of 1,500. There was a general trend towards part-time work in the healthcare sector until the 1990s. This trend changed thereafter. As a consequence, the number of part-timers working at North-Central Hospital actually decreased from 2006 to 2007. Momentarily, the employees’ right to a say in their working time is debated between the unions and management; both see it as a way to attract and maintain staff at this hospital. This seems necessary since there is a shortage of physicians in the country.

The Markshire General Hospital in the UK employs 5,540 employees across all occupations. Financial constraints have led the management to announce a cost-cutting target of £30 million, which could eventually lead to the reduction of 200 jobs. 53 voluntary and three compulsory redundancies have taken place so far. Additionally, there have been job cuts in most sectors due to the redeployment of staff – especially nursing staff – instead of new hiring or due to not replacing retired staff. There have always been full-time and part-time contracts in the hospital. Recently full-time contracts have even increased slightly. There has also been an introduction of flexible working hours, which is a reflection of the general trends in society. The majority of outsourced employees were able to retain all terms and conditions of their agreements as their contracts remained with the Trust. Only a small minority has an agreement with the private contractors and work under their terms and conditions.

5.2.3.2. Wages

The fragmented collective-agreement landscape in Austria has led to minimum wages in the private for-profit and not-for-profit hospital sector that are 20 per cent below the wage level in public hospitals. However, the company agreements in place in most private hospitals offer additional bonuses to qualified care personnel and staff working in senior medical services (physiotherapists, ergo-therapists and dietologists) to provide income levels close to those in place at public hospitals. Almost all doctors are paid on the basis of individual contracts. In the case-study hospital, the management has been trying to cut wage costs by reducing extra payments and other supplements. To enforce

74

these cuts, employees are threatened with dismissal if they do not agree to the changes in terms.

In the hospitals involved in the merger in Belgium, wages were rescaled and levelled on the basis of sector wage agreements. The different pay schemes within centralised units created the awkward situation that some employees earned more than their colleagues doing the same job. Thus most wages were upgraded to the highest existing pay level within their unit. In return, the Goodwill Hospital abolished some additional voluntary benefits for its employees.

While the number of employees decreased in all clinics of the Harbour Hospital in Germany, wages developed differently. Workers in subsidiaries are not covered by the collective agreement and thus receive lower wages. While the cleaning personnel benefits from the minimum wage in place for their industry, the kitchen and laundry workers earn significantly less than previously. As the company withdrew from the federal employers’ association and founded a new one at state level, they also withdrew from the sector agreement. Instead they wanted to sign an own agreement with significantly lower wages and conditions. Thus the medical staff was threatened by wage reductions as well but long and tough negotiations combined with industrial action helped to maintain public-service pay levels.

Like in Germany, after tough negotiations, the Swedish unions managed to secure a collective agreement that is not worse than the agreements in place in other hospitals. In addition, decent compensation for overtime and the same rights to holiday as in public hospitals were agreed on. When the private company took over management of the hospital, they established a system of employee participation in the profits of the hospital.

The wages of the majority of the employees in the UK are negotiated at the national rather than hospital level. There is a single pay system applying to all directly employed NHS staff with the exception of doctors, dentists and some senior managers. Recently a new system that defines wages and career progression has been introduced – an ‘Agenda for Change’. This was favourable for the majority of the employees. In this respect, Markshire General Hospital is a common example within the UK. For some of the outsourced employees, the situation changed, though: Parts of the staff, mainly managers and supervisors, were transferred to private companies under the protection of the TUPE transfer regulations. The majority of the staff was seconded to private companies under the retention of their employment agreement (ROA), so that they effectively remain NHS employees. However, some employees – managers and some technical staff – are not covered by the ROA and are being directly employed by private contractors. The trend here is that staff newly appointed by the outsourced companies will have different terms and conditions from those transferred from health service so creating a two-tier system within the hospital.

Hospitals

75

5.2.3.3. Industrial Relations

At the Austrian True Faith Hospital, the ratio of trade-union members is estimated at around 30 per cent. Union membership has seen a decline in recent years, mainly due to union scandals. Membership dues and recruitment strategies may also be a factor. The influence of works councils has diminished since the hospital’s incorporation into the St. Mary Group. The group does not have a supervisory board and is not willing to involve shop stewards into the decision-making process. As a consequence, the conflict between works council and management has worsened and the amount of legal disputes has increased.

The relative number of unionised staff working for the hospital studied in Belgium rose from 60 per cent in the public hospital to 60-70 per cent in the new Goodwill Hospital. This is partly due to the uncertainties during the merger phase. Participation rights seem to be at the same level as before the merger. The new collective agreements are viewed as favourable by all sides. It is perceived as combining the most positive parts of the agreements previously in place in the four hospitals involved in the merger.

The success of workers and their unions in negotiating a collective agreement at the German case-study hospital was partly a result of their previous fight against the hospital’s privatisation. The support rallied against the purchase of the hospitals revived union activity and led to relatively strong active support during the industrial conflict. The workers’ representatives interviewed stated that, in general, the City Clinic GmbH shows a very hostile attitude towards co-determination. The management has repeatedly denounced co-determination as one of the hospital’s main problems. Workers felt threatened by these attacks, and as a consequence unionisation of the personnel rose from 20-30 per cent to 30-40 per cent after privatisation. Furthermore the amount of legal disputes has increased dramatically.

Like in Germany, the Swedish union responsible for the employees of the North-Central Hospital organised protests against the privatisation. Unlike in the German case, however, when the privatisation has happened, the management started to talk to the worker representatives on several levels. Thus the hospital staff is involved in decision-making processes. Interestingly, the physicians actually opposed the relatively broad participation system since it was viewed as a problem that all occupational groups discussed highly advanced medical and technical issues.

In all NHS organisations in the UK there is an elaborate system of worker representation. Currently there are thirteen unions representing different professions operating in the hospital. The participation rights of union representatives include decisions about new policies and ongoing change. Interviewed representatives perceive this as very positive. The process of applying for Foundation Trust status was not perceived as negative by the union representative interviewees. Outsourcing, however, has affected union involvement as the new companies were not engaging with the unions, although the situation was improving at the time of the interviews. At the same time some transferred employees also felt that the unions could have done more for the outsourced members.

76

5.2.3.4. Human Ressource Management

The St. Mary Group in Austria has been trying to implement instructions and guidelines for human resource development. Especially management is trained to adhere to strict standards. The hospital’s HRM policy is based on a ‘divided’ staff: one the one hand, the highly qualified core personnel, who receive further training and participation opportunities and are closely tied to the company; on the other hand, the non-specialised employees, onto whom the increased work pressure, standardisation and central instructions as well as the threat of sanctions is piled. Equal opportunities policies and equal opportunities measures were and are not an issue in the hospital.

Since hospital work is becoming more and more technically complex, the recruiting of young qualified employees is among the key priorities of human resource management in the Goodwill Hospital in Belgium. The importance of HRM has increased significantly since the merger. Both training and job mobility possibilities have improved. Additionally a diversity plan that focuses on kitchen, cleaning and logistics staff was developed in 2004 to ensure the hiring of disabled persons, migrant workers and older workers.

The City Clinic GmbH in Germany does not focus on developing HRM strategies for the majority of the employees. However, there is extended training for medical and administrative staff on documentary work. As the most favourable classification of the diagnosis is one of the company’s opportunities to maximise profits, this is the main focus of this training.

The North-Central Hospital in Sweden has adopted several HRM strategies and policies. However, the management is not willing to accept additional expenditure on these measures. Furthermore, the management of North-Central Hospital also tried to bind the hospital’s staff more closely to the company by offering recreational events to its employees. The private hospital has also installed committees for health and safety issues as well as for the improvement of working conditions, working time, holiday, education and personal development.

HRM strategies at the Markshire General Hospital in the UK include systems for the people made redundant. The training, pensions and redundancy packages on offer are considered excellent by the interviewees. Training is also available to staff still working at the hospital and, according to the interviewees, has improved. Training opportunities still exist for outsourced workers but, according to one respondent, they are not as good as and much shorter than NHS training. Additionally, employee-protection rights as well as the recognition of diversity, gender equality, rehabilitation for ill employees and the flexibility of working hours for families have improved.

Hospitals

77

Table 5-4: Employment, Industrial Relations and HRM

Number and status of employees

Wages Industrial Relations HRM

Austria Increase of staff numbers, rising amount of part-time workers (partly voluntary)

20 per cent lower wage level in the merged hospitals than in the public sector, qualified staff receive bonuses to compensate for losses

Unionisation declined to 30 per cent, diminishing influence of workers’ representatives

New HRM instructions implemented, HRM supports a division of the staff into qualified and non-specialised personnel; no equal-opportunity measures

Belgium Increase of staff numbers (especially in direct care) at least until the move to the new building, fixed- term, part-time and interim contracts on the increase (partly voluntary)

Wages in the involved hospitals were upscaled to the highest existing level in particulars unit, less favourable extra benefits

Increase of unionisation, co-determination rights did not change, all sides praise the new collective agreement

Recruiting young and qualified employees is a priority of HRM, training and job mobility has improved, a diversity plan for employees in the supporting services was introduced

Germany Staff cuts, employees return voluntarily to the public service to leave the new employer, no increase in part-time contracts, the amount of subcontracted labour rose

Diverse developments, lower wages for service staff, core staff maintained pay level

Revitalisation of industrial actions due to the privatisation, increase of unionisation to 30-40 per cent, hostile attitude of new employer towards co-determination, amount of legal disputes increased

No focus on HRM for the majority of employees, training focuses on more beneficial documentation

Sweden Amount of part-time workers decreased recently

No wage reduction in the case-study hospital

Involvement of workers’ representatives and employees in the decision-making process

Several HRM strategies, such as the installation of committees on several issues concerning the working conditions

UK Staff cuts, slight increase of full-time contracts

Since wages are negotiated on national level there has been no change, creation of a two-tier workforce within the outsourced companies

Elaborate system of worker representation, influence of unions for outsourced workers declines

Training and redundancy packages for dismissed employees, focus on diversity and gender equality, rehabilitation of ill employees and the flexibility of working hours has improved

The differences between the cases are obvious in every single criterion that has been investigated in the studies. While in Austria and Belgium staff numbers have recently increased, they decreased in Germany and the UK. While in Belgium the wages went up

78

for a majority of employees, they remained stable for all the employees in Sweden and for qualified staff or the core staff in Austria, Germany and the UK. Outsourced employees in the latter three countries have even seen wage reductions. Industrial relations improved, or remained stable, in Belgium, Sweden and, for the core staff, in the UK while they worsened in Austria, Germany and, for the outsourced employees, in the UK. HRM on the other hand, has become a priority in all case-study hospitals except in Germany, where HRM strategies were only implemented to increase profits. The enhanced focus on HRM can thus be perceived as an overall development in the hospital sector.

5.2.4. Work organisation and working conditions

The reorganisation within the hospitals is described in detail in section 1.2.2. Many case-study hospitals have set up new clinical and patient paths to enhance efficiency and thus reduce costs. Additionally, the national frameworks within which the hospitals have to perform have supported this trend. This had led to a range of consequences for work organisation and the working conditions of the employees.

5.2.4.1. Work organisation

The new pre-op processes implemented in the Austrian case-study hospital (anaesthesia in the pre-op rooms) reduced the duration of breaks during working time and, since the operation theatres are used longer, the total working time has now increased. This is especially the case for the nurses, whose number has remained stable while the number of doctors has risen by ten per cent since 2005. The introduction of a “performance-oriented hospital funding system” (LKF) in 1997 has shortened the length of patients` stay in the hospital which has led to an intensification of work as more patients have to be cared for in a shorter time period. The new system also produces more documentary work. Especially the time assessment scheme for staff activities introduced at the True Faith Hospital has led to additional paperwork.

In Belgium the centralisation as well as the formalisation and specialisation in combination with an increased workload due to the reduction of staying time has led to higher work pressure and at first sight probably lower job satisfaction. Due to the introduction of new clinical and patient paths, the time of transfer to the revalidation and ergonomic divisions has decreased. Combined with increasing specialisation, this is necessarily correlated with skill enhancements. Centralising decision-making also requires increased communication and consultation procedures.

The experiences made during the liberalisation and privatisation processes by the employees of the privatised hospital in Germany were rather diverse. For the nurses, one of the most important changes was the shift to a “3-2-1” shift scheme. This means that in every ward three nurses work the early shift, two the late shift and one the night shift. According to the members of the works council, trainees were included in this system as full employees. In addition, a lot of administrative work was transferred from administrative staff to the nurses. Stripped of their functions, these administrative

Hospitals

79

workers were assigned to offices but were forced to sit at their desks without any work. This strategy was used to increase the pressure on workers that were superfluous for the City Clinic GmbH to resign. However, the introduction of a DRG (diagnosis-related-groups) system further enhanced the importance of administrative work since under this scheme the documentation of every single task carried out by the hospital is vital for funding. The DRG system was introduced in all hospitals in Germany but since the emphasis on profit is much stronger at City Clinic GmbH, the priority shifted further from adequate medical treatment towards profitable documentation. These documentations are now assigned to the nurses.

The investigated hospital in Sweden has put great emphasis on designing and describing new work processes, for which it gained widespread public recognition. The hospital introduced concepts to integrate the departments in order to curtail physicians’ responsibility. Detailed descriptions of the new processes were necessary to implement a workflow that every employee can be held responsible for. The patient flow was adapted to these new processes. After the diagnosis is made, the patient is now transferred to the relevant department a lot faster. Skilled doctors are needed to work with this patient flow and have been employed by the hospital after privatisation. North-Central Hospital claims that these measures have reduced the time spent in the emergency department by 50 per cent.

At the Markshire General Hospital in the UK, work organisation primarily has changed at the department level. Some of these changes were the result of advancements in the areas of medicine, IT and management systems but the majority were perceived to relate to the financial constraints posed by the PFI. At all levels within the hospital, cost-cutting measures were implemented. There were centralisations and closures of departments, staff was redeployed or outsourced. However, as information on performance and service quality is publicly available now, the emphasis on patient care has risen. The NHS as a whole is putting much more emphasis on workflow. In the Markshire General Hospital the structure of the newly built hospital building was perceived by some employees to have also had an impact on the workflow since there are longer distances between the departments now.

5.2.4.2. Working conditions

The nurses employed by the St. Mary Group in Austria consider their working conditions as increasingly unbearable. The demands of the job are too high in relation to the pay as well as quantitative (staff numbers) and qualitative (personnel qualifications) resources. Nurses also complain about a lack of support by operators and managers within the hospital and about insufficient social recognition. The best strategy to improve the situation would be greater recognition for the nurses by offering them better pay and more opportunities for participation.

Interviewees in Belgium feel they have less time for psycho-social support now and report feeling part of an ‘economic chain’. According to some studies, nurses have less and less time to build up relationships with their patients. Other studies, however,

80

suggest that clear procedures and standardisation can enhance the nurses’ autonomy from doctors. Furthermore, skill enhancement can also have a rewarding effect. Higher wages might strengthen this effect. In the smaller hospitals, however, head nurses used to have more central and coordinating roles and now feel they do not have the time to fulfil their tasks properly. The question of whether working conditions have deteriorated thus is still undecided. Indications in favour of the management are that there has not been any industrial conflict and absenteeism is not problematic. On the other hand, non-patient care-related tasks have increased, leaving some nurses sufficiently dissatisfied to give up their jobs.

Changes in working conditions within the German case-study hospital were just as diverse for the different occupations as those in work organisation. Administrative staff claimed their situation to have improved before privatisation due to an increase in responsibility and to have worsened afterwards, when many of them were assigned to offices without any actual work to do. For the non-medical staff, the situation got worse with every step of the development before and after privatisation. This was mainly due to the outsourcing of staff before privatisation and the introduction of internal competition afterwards. The medical staff already experienced a loss of responsibility before privatisation. After privatisation, the new shift rota described above as well as stripping administrative staff of their functions led to an increase in the nurses’ workload. And the physicians also lamented the rising amount of administrative work.

Physicians in Sweden felt ignored due to the rising importance of nurses. All employees had experienced ups and downs in work intensification since the 1980s, but recently the ups seem to be here to stay while the downs have become far and few between. The most fundamental change for the employees of the North-Central Hospital in this respect was the formation of an independent company and not the actual privatisation. Several interviewees stated that the increased independence led to a higher influence of changing routines in other workplaces.

In general, the employees of the Markshire General Hospital in the UK feel more under pressure to meet productivity targets than in the past. Workload has increased across all sectors of the hospital because of job cuts and the increasing demands. Due to that development staff morale has declined dramatically, particularly among the outsourced personnel, who felt isolated from the other employees. The interviewees stated that the overall working conditions have deteriorated with the introduction of overall tight targets but partly also because of the structure of the new building, which some patients call “the prison” because of its unwelcoming and institutionalised interior. However, medically the new building is often praised for its improved facilities, state-of-the-art equipment and thus working environment.

Hospitals

81

Table 5-5: Work organisation and working conditions

Work organisation Working conditions

Austria Decreased duration of breaks because of new processes in the operation area, declining length of stay has led to work intensification, more documentary work

Too few quantitative and qualitative resources, lack of support for nurses

Belgium Introduction of new clinical paths, the transfer time of patients decreased, increased communication and consultation processes

Less time for psycho-social support increases the feeling of being part of an economical chain, development still open because the skill enhancement might lead to an increase in work satisfaction

Germany Worse nurse-to-patient ratio, increase of administrative tasks for care personnel, administrative personnel stripped of their functions

Diverse developments for different occupations, especially the situation of non-medical staff worsened, increase of the workload for all employees (apart from the admin staff stripped of their functions)

Sweden Departments were integrated, a new process flow was developed, focus on the admission

Work intensification

UK Development primarily on the department level, closure and centralisation of departments, change of the workflow due to the new building

Increase of the workload, perceived deteriorated conditions are partly blamed on the unwelcoming atmosphere of the new building

All case-study hospitals apart from the one in Germany have developed and introduced new clinical pathways and workflows to become economically more efficient. The observed German hospital only tried to reach this goal by increasing the pressure on the employees. However, all hospitals have increased the workload and thus intensified the pressure on the staff. Except for the Belgian case, it seems clear that working conditions for the employees have deteriorated due to the processes observed for the hospital sector.

5.2.5. Productivity and service quality

Many of the described measures implemented by the case-study hospitals have focused on an increase in productivity. To evaluate the success of restructuring processes, however, it is important how to define productivity. For patients as well as the work satisfaction of the employees, service quality is even more fundamental.

5.2.5.1. Productivity

At the True Faith Hospital in Austria, demands for increased productivity have risen in recent years. Productivity here is measured in personnel costs per LKF point. The bundle of measures described in the previous sections which were implemented to

82

increase productivity have either solely focussed on personnel costs rather than the performance of the clinic or have affected both variables (such as reducing average staying time or increasing the number of operations).

In contrast, the financial situation of the Goodwill Hospital in Belgium is rather good. The financial constraints it is exposed to are limited; the merger was not undertaken for cost-cutting reasons but to enhance quality and productivity. Quality has been a key priority but since the aim of improved productivity has also been a major trigger of the merger, the three major organisational changes – centralisation, specialisation and standardisation – can be linked to productivity requirements. Key indicators for rising productivity include higher occupancy rates and shorter average hospital staying times since financing is primarily based on “justified” days in hospital care. While the occupancy rate actually decreased because of intensified standardisation practises, average staying time also fell. Although productivity was a major motivation for the merger as well as the measures introduced after it, a homogenous productivity standard is still missing within the involved hospitals. The communicated concept to reach the standard of the best hospital in every single ward of the hospitals involved in the merger has not yet been successful.

Even before privatisation, productivity played a key role at the Harbour Hospitals in Germany. This did not change with privatisation. For the City Clinic GmbH productivity and quality are the two main factors required to provide universal access to good medical treatment. Since the introduction of the DRG system, productivity can be measured because the classification variables of this system link the costs with the required effort. In this respect, the Harbour Hospitals were already above average before privatisation and has further improved since with to the introduction of new technology.

The North-Central Hospital in Sweden claims that there was an increase in productivity in certain departments. This assumption is based on an increase in patient turn-over and efficiency.

In the UK, the Markshire General Hospital has introduced productivity measures as well. All departments and areas now aim to meet certain targets. The majority of these targets are derived from national guidelines. The hospital has received “excellent” ratings from the Healthcare Commission because it has systematically worked towards achieving the targets and because the new building facilitates achieving them. In addition to the national targets the clinic has made productivity an imperative for future development. They have introduced several measures such as new technology and training. Several interviewees stated that productivity review meetings were too frequent and took time away from medical care. It was also claimed that due to productivity targets the workload in terms of the number of patients to be cared for is sometimes too high, thus compromising the quality of the services.

5.2.5.2. Service quality

While the management of the St. Mary Group in Austria does not see any impact on service quality, nursing staff and shop stewards point out that the increasing pressure on

Hospitals

83

the personnel might lead to a higher risk of mistakes. The Management defines quality as the service delivered at the quality the patient needs based on the symptoms and that he understands what is happening with him. The establishment of standards has made this quality “measurable”. The results of the measurements are also used for internal benchmarking. According to the nurses these standards do not necessarily mean that the quality is really rising. For them these standards mean primarily more documentary work as well as limited ability to react to individual problems differently.

Since enhancing quality was the main goal of the merger in Belgium, the management of the Goodwill Hospital stresses that they do not just aim at reaching the standards of other hospitals in the country but that they want to set higher standards. To reach this goal, the hospital therefore experimented with different methods. The management defines quality as patient-friendly care. This includes permanent skill increases, the consideration of individual preferences and a transparent information policy. Equal access is considered as a necessary quality standard for hospitals as well. While equal access to quality medical treatment is provided in Belgium’s entire hospital sector, there are differences with regard to room care comfort. In the Goodwill Hospital an ombudsperson has been installed to react to quality problems. This person is responsible for handling complaints in a way that they can be used to improve the quality. Even though some interviewees complained about the lack of time to address patients’ needs, such as psychological care. Generally it seems rather improbable that the Goodwill Hospital has significant quality problems. Neither patient surveys nor external control procedures detected any major threats to the service quality provided.

In Germany, the impact of privatisation on service quality has not been assessed scientifically. However, a major health insurance company has conducted patient surveys and compiled a comparison of German hospitals. The results show that the insurance company’s clients rank the hospitals of City Clinic GmbH below the average hospital in the country. However, some of the experts interviewed stated that the method of patient surveys is controversial since patients tend to overemphasize the “hotel component” (i.e. room care comfort). City Clinic GmbH’s management claims that rising patient numbers are sign of improved quality. This is controversial as well, though, as out-patient physicians are contractually obliged to send their patients to the hospitals and out-patient medical treatment centres have been created that are run by the company as well. Several interviewees have identified indicators of declining service quality. Particularly shorter staying times are seen to have brought about a so-called “revolving door effect” and “bloody dismissals”. Possibly the most meaningful indicators of declining quality in the investigated hospitals were comments by the city’s consumer advice centre indicating that the amount of complaints has increased significantly since the privatisation.

The North-Central Hospital in Sweden is measuring different aspects of service quality and patient satisfaction. There is a board that presents a report on quality issues. This kind of report is published in the Andnor-sjukhus as well. It might be questioned, however, if these reports really focus on the most important aspects of service quality.

84

The Markshire General Hospital in the UK has also won an “excellent” rating for the quality it provides in terms of clinical safety and effectiveness, lowering waiting times and reducing infections. Consequently, interviewees pointed out the high quality of care in the hospital. Moreover it was mentioned that the competitive climate has even led to improved quality. However, not all interviewees shared this view. Especially the strong emphasis on patient numbers, the reduction of training and staff’s workload were perceived as compromising service quality. Still a number of measures have been introduced to increase service quality. However, the financial situation is perceived as a major threat for the quality in the hospital.

Table 5-6: Productivity and service quality

Productivity Service quality

Austria Productivity is measured by means of the new funding system, measures focussed on personnel costs

The management does not detect an impact on service quality, employees point out higher risk of mistakes due to the rising pressure

Belgium There are indicators for rising productivity like occupancy rate and staying time, standardisations have led to decreasing occupancy rate and staying time, a homogenous productivity standard is still missing

The management has set the goal to reach above-average quality standards, quality is defined as “patient-friendly care”, equal access is a necessary quality, ombudsperson has been installed, patient surveys and external control did not detect major quality problems

Germany Productivity can be measured by means of the classification variables of the new funding system, in this respect, the private owner has improved the situation of the hospitals

Not assessed scientifically yet, patient surveys of health insurances and consumer-advice centre statements indicate a decline in service quality, interviewed employees support these assumptions, while the indicators for rising quality provided by the management are questionable

Sweden Claims of increased productivity in certain departments

Reports on service quality and patient satisfaction are published but their focus are questionable

UK All departments and areas achieve certain productive targets that derive from national guidelines, the hospital has received “excellent” ratings, employees stated that the focus on productivity might compromise the quality

The hospital has won an “excellent” rating for the provided quality as well, some perceived the competitive climate as a trigger for service quality, other employees saw the financial threat as a major threat for the quality

All case-study hospitals focus on productivity and have introduced measures to enhance it. Every hospital that provided data was successful in this regard. Usually productivity was defined as the financial effort undertaken in relation to the cases that were treated. However, this definition of productivity can be criticised as it identifies standardisations as a major means to improve productivity. In the healthcare sector the ability to react flexibly to different needs can be considered a sign of good quality. In this respect, standardisations would decrease the quality. Since almost all hospitals declare quality as a major objective to attract patients and to raise the turnover it seems inappropriate to define productivity without the consideration of service quality. Service quality has

Hospitals

85

developed differently in the observed countries. While the case-study hospitals in Belgium and the UK seem to have experienced no quality problems so far, there is a controversial debate about the developments in the hospitals in Austria and Germany. For obvious reasons, the management of these hospitals describes the development as stable or even as improved while employees and sometimes the patients doubt this. The employees identify the growing pressure resulting from the financial constraints as a major threat to quality.

5.3. Conclusions

In all countries involved in this study the hospital sector is in a process of restructuring for which the investigated cases provide some examples. There is a general trend towards an increasing involvement of private (for profit and not-for-profit) actors in the provision of hospital services. This is mainly the result of rising financial difficulties at the level of the public owners such as municipalities, provinces or federal states and the widespread perception that private companies operate more efficient than public authorities. Thus the involvement of private companies has been justified by the provision of new financial resources and an assumed higher cost effiency.

However, the patterns towards more private involvement are rather diverse. While Germany has seen an increasing number of sales of entire public hospitals to private-for profit investors, such a development is either still rather rare as in Austria or Sweden or alsmost unknown as in Belgium or the UK. Instead, private involvement can take many different forms. In Sweden, there have been some privatisations of hospitals but they a still an exception. In Austria many public hospitals have changed their legal status and are now run under private law. In the UK the private involvement is mainly focused on public-private partnerships, while in Belgium the private involvement means that several public hospitals merged with private-not for profit hospitals to become private-not for profit conglomerates. Finally, in all countries, there is a more or less widespread tendency toward contracting out of certain hospital services such as cleaning, laundry, etc.

The growing financial constraints have led to political reforms which put pressure on hospitals to save costs and to become more efficient. As a result in all cases investigated here, there is a focus on improving productivity. However, the concept of productivity as used in the private industry is not very adequate for the hospital sector. In a sector that focuses strongly on individual needs output cannot be justifiably reported solely in industrial terms of economical performance efficiency. Hence service quality is the more meaningful indicator for the performance of hospitals.

In the case studies the service quality was perceived somewhat better in Belgium and the UK than in the hospital in Sweden, while in the Austrian and German cases it was much more worse. Accordingly, the situation of the employees in terms of industrial relations and HRM has been better in the UK and Belgium than in the other investigated

86

cases. As the Belgium case study has shown it is the strong focus on service quality that can also make hospitals economically successful.

The restructuring of the hospitals has far-reaching consequences for the employees, in particular. Since labour costs still counts for about 60% of all costs in hospitals cost-cutting measures are mostly at the expense of the workers. There is an overall trend towards much higher wage dispersion. The highly qualified professions gain more while less qualified staff has to suffer significant decrease in salaries. More generally, industrial relations seem to be less favourable for employees in Austrian and German hospitals. Workers felt threatened by the deterioration of participation rights and complained a more hostile atmosphere at the workplace which leads to an increase of legal disputes.

The comparison of the case studies also shows some significant differences which are grounded in the different national health care systems. Interestingly, the degree of government involvement in the health care is especially high in those countries were the quality is perceived as superior. While the Markshire General Hospital in the UK is required to reach nationally controlled quality standards and stays within the NHS and the public authorities in Belgium remain a veto power on several substantial issues, the case-study hospitals in Austria and Germany can perform largely independently. Consequently, there is a controversial debate about the quality in Germany and Austria.

Thus there is a strong argument that a higher degree of regulation and improved involvement of the employees in the decision-making processes lead to superior performances of the hospitals. According to the findings of the case studies, it can be assumed that less controlled hospitals show fewer tendencies to combine economic efficiency with service quality. The Belgium case study shows that a decent combination of an adequate degree of regulation, good working conditions and a general focus on service quality can lead to superior performances of the hospitals despite of the general financial challenges all hospitals are facing. Therefore more regulation and the support for an enhancement of the participation rights should be a major objective for local as well as federal authorities in the respective countries.

Local Public Transport

87

6. LOCAL PUBLIC TRANSPORT Christer Thörnqvist

6.1. Introduction

This synthesis draws on four case studies of local or regional transport authorities and bus companies in Germany, Poland, Sweden and the United Kingdom. The size of the firms and business preconditions differ considerably, so comparisons must be handled carefully. Yet, all four countries have experienced an internationally fuelled liberalisation drive over the last few decades and therefore several features are well worth studying in a comparative perspective. This first section describes the companies and sources of the case studies. For the sake of anonymity, all important actors have been given pseudonyms.

The German case study (Brandt 2008b) focuses on local public transport in the city of X. The transport authority, X-werke, has authorised a local firm to, together with three subsidiaries, be responsible for bus and sky-train transport services4 in an urban agglomeration of about 450,000 people. The main company, X-bus, is not privatised, but the marketisation process has made a great impact on the firm. The study is mainly based on ten face-to-face interviews and telephone interviews with five more persons. Management is represented by two persons: the labour director of two subsidiaries of the company; and a manager of three subsidiaries. The trade unions are represented on different levels. One interviewee is leader of the local branch of the United Services Union (ver.di) and also a leading local politician for the Social Democrats and a board member of two of X-bus’s sub-companies. Two other ver.di interviewees report on/are in charge of collective bargaining for all public transport companies in the region and national bargaining for private road and rail-bound transport respectively. Further two local trade unionists and works council representatives have been interviewed, in all nine people, of whom five works council members still work as bus drivers. Finally, the city treasurer of X, who is also a board member of X-bus, was interviewed. The interviews took between 45 minutes and two hours. All of them were conducted in April 2008.

The subject of the Polish case study (Kubisa 2008) is a so-called ESOP,5 that is a jointly employee- and management-owned company, Alpha-Poland. It is a service provider in the city of W and has won a tender for the bus routes in W, commuter routes to W as well as in and around two small satellite towns. The basic sources are interviews with people connected to the firm. Three persons represent management: the company president, the transport department manager and the head of the HR department, a former trade-union chairperson currently employed as the company president’s

4 Not rail-bound transport services, though. 5 See also the ESOP Association, www.esopassociation.org.

88

secretary, trade unions and employees. One interviewee is the trade union chairperson, who also presides over the supervisory board and is a specialist in the payments department. Another interviewee is a specialist from the transport department (who turned out to also be the son of the company president) and finally three bus drivers with different lengths of service were interviewed, two of them driving in the city of W and one longer routes outside the city. The interviews lasted between 50 minutes and two hours.6

In the Swedish report (Hamark/Thörnqvist 2008b) the empirical focus is on bus transport organised and conducted by a county transport authority in Western Sweden, Western Traffic. Since 1989, a special transport authority is responsible for all coordination of urban transport within a county, including the number of routes, the frequency of bus services on each route, prices and other services as well as for deciding which company should operate the transport routes. Besides official and internal documents, the study draws largely on five longer interviews, two with employer representatives in leading management positions, two with trade union activists at regional level in Western Sweden and one with an ombudsman employed by the Municipal Workers’ Union (Kommunal) in Stockholm. All interviewees are male. The interviews were made by Jesper Hamark in late autumn 2007 and January 2008, except for the interview with the full-time ombudsman in Stockholm, which was conducted by phone and complemented by email correspondence with Christer Thörnqvist in July 2008. Each interview took 45 minutes to one hour. These five interviews were completed and followed up by contacts, both formal and informal, with local and central trade union activists and other people involved.

Finally, the British case study (Paraskevopoulou 2008b) was undertaken within the London bus company Londondrive. Londondrive operates various routes from eleven garages across London. Public transport in London is integrated under Transport for London (TfL), which in turn is part of the Greater London Authority. Public transport in the London area is a rapidly growing business and consequently highly lucrative (Mayor of London 2008). London bus traffic was opened for privatisation in 1994 and today there are six major companies that run about 80 per cent of the routes. Londondrive is one of them. The company was privatised already in 1994 as a management and employee buy-out and later purchased by a foreign-based multinational company. The case study took place in June and July 2008, yet under such problematic circumstances that the quality of the sources suffered. When the study was designed, none of the companies approached agreed to participate in any interviews. Reasons given for this reluctance included busy working schedules, a general rule not to participate in research studies but also a perception that participating in research could have negative consequences. The management of Londondrive declined to participate on the grounds that the company does not participate in research. Consequently, the source material consists of eight one-hour semi-structured interviews with trade-union members at

6 Contact with the company was first established by telephone and in writing. Permission to carry out a

case study was obtained only after a meeting with the company president.


89

various garages across London. One interviewee is a woman who gave her views on working in a male-dominated environment, and one ethnic minority member of staff did also participate in the study. All interviews were taped in confidence. The majority are new employees and have experience only in the privatised industry but some were employed in the sector when it was public and were therefore able to provide a more comparative perspective. All interviewees work or have worked as bus operators, as bus drivers are officially called.

6.1.1. Flexibility

All four countries share a key feature that somewhat separates local transport from the other sectors studied for the PIQUE project and must therefore be addressed here. The vast majority of routes, no matter the country, are operated by the company that has submitted the ‘best’ tender to a regional or local transport authority. The authority then closes the route for all competing firms, in other words, ‘the winner takes it all’. There are exceptions from this general rule, most notably in Poland, but even in these cases it is still highly important to offer the best tenders to control as much as possible of the bus transport in the area. On the one hand, the winner of a route contract is free from competition but, on the other hand, the firece competition between tenders always reduces the profit margins; prices, the number of tours, etc. are normally decided solely by the transport authority granting the contract to the winning enterprise. If profits are to be made, it is therefore not primarily through expansion by, for example, attracting more passengers, since this is already calculated in the tender and extra profits largely go to the transport authority. Instead, the main source for profits above the minimum calculated in the tender is cost-cutting. As in any market today, the main tool for a company to cut costs is greater capacity flexibility. In fact, this measure is so important that before turning to the empirical country evidence, we must in brief outline the theoretical concept of (capacity) flexibility.

The search for flexibility in work organisations has more or less always existed; even Taylorist approaches such as MTM or UMS were in some respect means to achieve ‘numerical’ or, in particular, ‘financial’ flexibility, even though it was not talked about in that way. The theoretical concept of ‘flexibility’ was instead coined by John Atkinson in 1984. Business and working life had taken a new turn in the early 1980s, Atkinson argued, that had forced enterprises – and their employees – to consider a wide variety of new ways to perform tasks. Drawing on British evidence, Atkinson in particular pinpointed market stagnation, economic uncertainty, technological change, and reductions in working hours. In some respect, all these variables are relevant for this PIQUE study of local transport. As a result of these new challenges, Atkinson (1984:28) claimed that a ‘new employment model is emerging which involves the breakup of the orthodox hierarchical structure of the firm so that radically different employment policies can be pursued for different groups of workers’. The buzzword was thus flexibility and the strive for flexible work organisations could take basically three different forms: functional, numerical and financial. Later, in cooperation with Nigel Meager, distancing was added as a fourth strategy (Atkinson/Meager 1986).

90

Functional flexibility is achieved by using employees who are ready to alternate between different work tasks and to accept training and retraining. The more tasks the employees can handle, the greater the potential for flexibility. Consequently it presupposes a core of multi-skilled workers with skills – often firm-specific – that make them hard to replace and these core workers therefore have secure employment. Numerical flexibility implies an aim to perfectly match the number of employees to current demand. A workplace achieves numerical flexibility by contracting temporary employees, by using agency work, or by subcontracting manufacturers and entrepreneurs. The work tasks do often not require highly skilled workers, but also skilled employees such as electricians, welders and data system programmers can be objects for numerical flexibility, since their skills are seldom firm-specific. These employees are thus easy to replace and become a peripheral group, to be hired and fired depending on the business. Fixed-term contracts, part-time jobs and job-sharing are also common in this peripheral group. Financial flexibility, Atkinson (1984) states, reinforces both functional and numerical flexibility. In today’s debate it is often referred to as wage flexibility. Different forms of pay systems, such as extra bonuses given to multi-skilled workers, are key factors for financial flexibility. Distancing, the fourth strategy, implies outsourcing and/or subcontracting. Atkinson and Meager (1986) however view this more as an alternative to flexibility than an independent flexibility form. On the other hand, it can be discussed if variation in working and operating hours to meet current demand should be treated as a separate form of flexibility. Atkinson and Meager include such means in numerical flexibility (Atkinson/Meager 1986:3-4), while the Swedish researchers Håkansson and Isidorsson (2003) argue for treating flexible working time as a separate strategy since it renders different results for individuals than numerical flexibility normally does. In this analysis of local transport, I shall follow Håkansson and Isidorsson’s recommendation and use working time flexibility as a separate category; in particular the problems enterprises face to distribute the capacity between rush hours and hours of more relaxed traffic speaks for this. It should further be noted that since Atkinson developed his concepts in the 1980s, ‘flexibility’ has more and more become an integrated part of Human Resource Management (HRM), in particular strategies for functional flexibility. An up-to-date definition of HRM flexibility that is more precise than Atikinson’s functional flexibility definition, stressed by Tracey, Way and Tews, is: ‘the capacity of HR systems to hire, develop, coordinate, and deploy employees who possess competencies to respond quickly to meet or generate a variety of dynamic demands’ (Tracey 2008:430). Such flexible HR systems may in turn be divided into two general categories, resource flexibility and structural coordination flexibility, but a description of these subcategories are not necessary here.


91


6.2.1. Germany

A municipal utility body – X-werke – traditionally combined transport services, electricity, gas, and water distribution. Profits from the lucrative electricity distribution financed local transport, which itself was not a profitable business and the transport system’s need for public allowances was never disputed. The dominating firm, X-bus, thus had no competitors. Yet, the opening-up of the electricity market was followed by a fear of decreasing revenues from electricity distribution by local politicians. In the mid-1990s, the city of X therefore decided to cut costs in the transport segment. Still, though, an attractive public transport system in the urban agglomeration was viewed as a competitive factor. A legal uncertainty complicated the situation; it was not clear if a municipality could award routes to its own company. The new EU Directive on local public transport of 2007 solved the problem by stressing the freedom of choice for public authorities; a municipality could award public service contracts directly to its own public transport firm without public tendering, as long as the own company was not more expensive that any comparable enterprise.

In 1994 X-werke founded its own transport company, X-bus1, today owned to 90 per cent by X-werke. X-bus1 operates regular routes, school bus lines, security services and ticket inspection. Since the foundation of X-bus1, new jobs for bus drivers are no longer available in the other parts of X-werke’s transport segment. According to interviewed trade unionists, X-werke’s motivation to outsource transport services to its own subsidiary is to circumvent existing, more expensive collective agreements X-werke has settled with X-bus; wages and, accordingly, labour costs in the new company are at a much lower level. The city treasurer and X-werke management claim that only the average cost of all transport companies is decisive, not wage differences. From the trade union interviewees’ point of view however the wage differentials between companies are still too extreme to believe that wages are not a highly competitive factor of tenders. Moreover, X-werke is bound to a special collective agreement (Tarifvertrag-Versorgung) that states that companies with lower wages than is established in X-bus’s agreement may never operate more than 27 per cent of the local market taken together. Wage cost is therefore an important means in the competition for these 27 per cent.

In 2002 X-werke and three other regional actors jointly bought a private company, X-bus2, which was originally a small firm for vacation trips but also a subcontractor for some bus lines of large cities. The strategic motivation for the acquisition was first of all to prevent a large global actor from entering the market, but it was also an attempt to test if a regional cooperation in the transport segment was possible, e.g. by a subsequent founding of joint subsidiaries of the different municipal transport companies. After the foundation of X-bus1 and the takeover of X-bus2, X-bus1 got its own subcontractor, X-bus3. Since 2005, X-bus1 has owned 49 per cent of the stocks, while the city of X owns the rest. Both X-bus2 and X-bus3 get their transport contracts through public tender processes organised by X-werke or X-werke’s counterpart in the neighbouring cities.

92

Moreover, in December 2005, X-werke was reshaped into a holding company. The result was a new complex holding structure, launched in October 2007, which in practice meant the division of the group into three separate companies, one with its focus activities in energy and water supply, one for waste disposal services and the third one in charge of local transport. To keep things simple, this report uses the name X-werke for the company that buys tenders and assigns routes. To give a brief overview of a complicated organisation, the present local transport structure is described in Figure 6-1.

Figure 6-1: Current organisation (including ownership) of local transports in ‘X City’

Source: Brandt (2008); shaded elements indicate transport companies.

’X City’

X-werke (Holding)

X-bus1

X-bus3 X-bus2

(Neighbour city)

Another city

Another city

Another company

Other interests

X-bus (Disposal company) (Energy and water company)

(Subcontractor)


93

6.2.2. Poland

After a reform in the early 1990s, local governments took over the responsibility for local transport. A competition mechanism was introduced by allowing smaller carriers to provide transport services and consequently a number of small operators appeared. The weaknesses of the state-owned enterprises established in the communist era lay in overstaffing and inefficient management. Alpha-Poland was originally part of a state-owned bus company founded in 1950. In 1990, following a central government decision, this nation-wide operator split up into independent companies. From then on, there have been various strategies of adaptation to the new market demands. Alpha-Poland’s choice was to follow a popular privatisation path in Poland, particularly in SMEs, and form an ESOP, in Alpha-Poland’s case through a joint buy-out by management and employees, but with a control package of 30 per cent held by the board, i.e. in practice by the management. The transformation was effected in 2001, but the restructuring process started already in 1995 and the buy-out was preceded by debates and a company referendum. The provincial governor the company was subordinated to (voivode) pressed for privatisation on ideological grounds. The present-day company President (its CEO at that time) instead argued that an employee/management-owned firm would free the board and the staff from political pressures that were highly tangible at that time. With time it turned out that this successfully protected Alpha-Poland from short-term strategies. The company had to downsize in the mid-1990s, but largely by using the ‘soft’ approach of early retirements. The employment then increased over the following decade and today over 300 people work for the company, of whom some 200 are shareholders. Neither shareholders nor non-shareholders think that shareholding distinguishes employees in any way. Shareholding does not translate into higher earnings and employees, particularly those outside the city of W, are more interested in job stability. Most profits are re-invested, e.g. in replenishing the company fleet, so that shareholders do not earn a lot on their shares.

Alpha-Poland operates on both the expanding market in the city of W and on a regional market around the city and in and around the cities of B and G. In W Alpha-Poland offers tenders; on its regional market it is granted permits from the relevant local governments. A rich local government as a rule regulates the local market, whilst a poor one allows all and sundry to transport passengers, as it does not want to have to pay part of the price of the services. Management argues that an unemployed person can buy a minibus and transport passengers without licences and permits, using red petrol (i.e. petrol exempt from the excise tax); thus the market makes sense only if it is regulated and the law is enforced. The Road Transport Inspectorate (Inspekcja Transportu Drogowego) scrutinises transport services better and better from a technical point of view, but the Tax Office does not monitor VAT and social security contribution payments. Some companies pay social security contributions on the minimum wage only. Alpha-Poland pays the contributions due on the whole amounts, as it is a major company and cannot afford to cheat. Major companies are more thoroughly scrutinised

94

compared to small ones. Management interviewees even state that unlicensed carriers cannot be subject to scrutiny by the Road Transport Inspectorate.

The pricing policy depends on the place of service provision. In the city of W, the company offers tenders called for by W Transport Authority, ZTM (Zarząd Transportu Miejskiego). ZTM responsibilities include ticket pricing, scheduling and setting the quality standards that the carriers have to meet. In B and G and on commuter routes to W, the pricing policy is different; here Alpha-Poland can fix ticket prices itself. Yet, there is stiff competition on these routes from small operators, which have often managed to get their buses to arrive just before the Alpha buses, and so Alpha-Poland can barely raise ticket prices for fear of losing its competitive strength.

Alpha-Poland’s headquarters is located in the small town of G, and the firm has bases for drivers, including accommodation, in W and in B. The employees are divided into drivers, administration and technical support. Importantly, there is no separate marketing department, and employees responsible for this area work in the transport department. Nor is there any specialised unit responsible for company strategy. A culture of spontaneity and devotion to the company is to be seen among the staff, and an ability to mobilise in the face of new challenges (e.g. employing workers from Ukraine). This spontaneity means that the company is not trying to work out any objective quality or public responsibility criteria, such as a company code of ethics; seemingly such matters are dealt with as they arise and the employees do not need to have the rules written down. Nonetheless, given the company’s rapid expansion, such a need may soon arise, when the company gets more employees from other places who do not know each other.

6.2.3. Sweden

Transport has never been a total state monopoly in Sweden. Yet, public transport was even more competition-exposed in the 1980s and 1990s, due to an economic paradigm inspired by neoliberalism. The most notable change was a new system for awarding licences to enter the markets (Månsson 2006). Furthermore, in the mid-1980s, the Traffic Authority Ombudsmen (TA) stated that they had got the responsibility and the legal power to make a change but not the financial means to carry the reforms through in a proper way. To cope with the problem, the TA’s role was extended in 1989 to handle planning and organisation of both the need for and the price-setting of new public transport within the area in which it had authority. In 1997, the regulation for TA responsibilities was replaced by a new law, the Responsibility for Collective Passenger Transport Act (Lagen om ansvar för viss kollektiv persontrafik); yet the changes were not very radical but rather a means to precisely define the TAs’ powers and responsibilities (SOU 2001 # 106:17-21).

According to Månsson (2006), a majority of market operators are now private-owned. Yet, there are still several 100 per cent public-owned companies in the markets. In particular the municipalities’ monopsony makes it difficult to tell whether the new private-owned firms are permanent competitors in a market or just active temporarily


95

because they got one lucky tender. Western Traffic today is the second largest company in collective passenger transport in Sweden, operating about half a million fares per day with a total length of 240,000 kilometres and serving 22,000 stops. Western Traffic runs 1,700 vehicles, including buses, train, trams, taxis and boats.

Tendering system with a preference for the lowest bidder exists in most European countries’ infra-structural sectors, but the Swedish system has its peculiarities. The guiding rule is that the lowest bidder that can guarantee a certain quality for the customers, i.e. the inhabitants of an area, should get the monopoly on that market. It must further be noted that ‘quality’ is only one among many parameters and, for instance, occupational health/environment/safety are also part of that parameter. It is possible to reject an offer that is considered ‘absurdly low’, even if in practice this is difficult. §23 of the Open Purchasing Act (Lagen om upphandlingar) states that a rejection can only be made (translation Thörnqvist): ‘on objective grounds, such as construction or performance costs, the technical solutions, and the originality in the tender’s proposal.’ In other words, quality is only considered as part of ‘the originality’. Western Traffic’s official policy is that price and quality shall be weighed together for each tender so that price decides 60 per cent of the total measure. The management interviewees state that quality does have an influence but since almost all tenders meet the required standards, price is in practice decisive for the outcome. A way for improvement would be to rank tenders according to quality, not just see if they meet a minimum standard. The trade unionists, though, argue that Western Traffic would not dare to introduce such a ranking for judicial reasons. Saying that a company’s performance is of lower quality than another company’s might lead to lawsuits against Western Traffic. Be that as it may, such a ranking system is under development in Stockholm, but it has not yet materialised.

An often claimed problem with regulation is that it does not encourage improvements. Once an entrepreneur has been granted a licence for a certain bus route/distance, there is no real need for any further improvement, since in practice the profit is already decided by the contract with the buyer. The enterprise cannot set fares and higher passenger numbers do not much improve the entrepreneur’s benefit either (SOU 2001 # 106:22-23). Still, both management and trade unions agree that several things have become better organised. Especially the coordination of ticket systems and timetables across county borders has improved since Western Traffic got full responsibility for the planning of timetables and fares. Normally the entrepreneur is paid by the number of kilometres, as set out in the agreement between the firm and Western Traffic. There are however bonuses available if the company does a good environmental job or, to some extent, attract more passengers than expected. Yet, methods to measure passengers number usually underestimate the people who pay ‘in advance’ i.e. by monthly or season tickets or other forms of discount coupons. One thing the winning company can decide without any interference, though, is the number of vehicles in use. Whether there are, for example, eight or nine buses operating on a route is none of the buyer’s concern, as long as the entrepreneur delivers according to the agreement. This has, our trade unionists argued, led to cuttings of the drivers’ breaks; company profits come at the

96

expense of the drivers’ number of short breaks, which has led to growing absenteeism due to stress-related illness. Since an entrepreneur cannot increase profit through expansion, ‘cost-cutting’ (kostnadspress) was a frequent buzzword in all our interviews; or to be more correct, a buzzword in management’s mouth but a portent of worsening working conditions for the trade union representatives.

Finally it must be emphasised that the whole industry suffers from profitability problems. Several operators have survived only due to capital flowing in from the owners’ other businesses. Still, external factors speak for a growth of local transport, both the increasing gasoline prices and more ideological concerns about the environment.

6.2.4. United Kingdom

London bus transport is also based on a system where routes are awarded to operators after competitive tendering. This system is based on a range of indicators including scheduling, performance indicators such as mileage, quality of service indicators such as waiting times, and most importantly, cost effectiveness. Routes are awarded every four to five years. This bidding process has been described by the majority of interviewees as a major change since privatisation. There was also the feeling that despite quality of service being part of the process, tendering still meant that there was pressure on wages as the main cost factor that could influence whether a company would win a new route. Londondrive’s acquisition by a multinational bus company meant that it expanded further and acquired two smaller bus companies in London in 2004. Londondrive has been successful in bidding for routes and one interviewee noted that a particular area in North London is exclusively served – apart from one route only – by the company. The majority of interviewees mentioned that the company’s main goal has been increasing profits for its shareholders. In terms of employees there is more focus on equal opportunities policy, although this is not a result of privatisation but of a general shift in society. Londondrive has targeted recruitment on ethnic minorities, including the recruitment of drivers from Poland and female drivers.

As Londondrive’s management declined to take part in the case study, information about the organisation of the company is quite limited and is based on general information obtained during the interviews or available on the company’s website. Employees are structured according to their responsibilities as following: Bus drivers and bus engineers: both specialisations work in bus garages; Administrative staff: also in the garages; Supervisors: work both in the garage and on the road; Managerial grades at various posts and most also work in garages;

o garage managers o operation support managers o service delivery managers o area managers


97

Directors: work in head offices.

There are opportunities for promotion within the company. Most drivers’ promotions are to the level of service delivery managers and several interviewees mentioned that, to their knowledge, only one conductor/driver had been promoted to an area manager. All vacant posts and training opportunities are internally advertised and made available to all staff.

When problems occur, they are mostly dealt with at garage level and very seldom go above. All interviewees noted that this was the best way of solving problems. The trade union convenor interviewee mentioned that increasingly individuals approach the union first. This might be an indicator of a widespread ‘blame culture’ that used to exist within the company.

Various areas of work have been outsourced to other companies. These include cleaning contractors, some engineering, catering and vending machines. As a result some garages have lost their canteens and interviewees also commented on inadequate cleaning both in buses and garages. One garage occasionally uses engineers supplied by agencies but otherwise there is very little use of agency work and the union believes that the company would not make any significant use of agency workers without consulting the union first.

6.2.5. Market and organisational change: a comparative summing-up

In conclusion, the main market change in all four case studies is the growing importance of new systems to award tenders, which give little room for development outside strict frameworks. We can see some expansion through acquisitions in the Polish and the British case, where the markets are still growing, but not so in Germany or Sweden, where the industry’s overall profitability problem is highly tangible. It is also in the latter two countries that cost-cutting is most crucial for the business. In the German case, organisational restructuring to meet market changes has led to an encompassing use of financial flexibility; the lower wages in the three minor companies’ collective agreements compared to the agreement in place for X-bus are no doubt a means to achieve wage flexibility within X-werke’s total business area. In the Swedish case, each entrepreneur submitting a tender must accept Western Traffic’s one-sided decision-making regarding price-setting, mileage, etc., which has led to a managerial urge for increased numerical flexibility as part of the reduction of vehicles in traffic. It should be emphasised that in neither the German nor the Swedish case do the used means increase labour productivity which was one of the targets for the marketisation reforms of the 1980s and 1990s; each driver is not supposed do more or better work per hour, just to take fewer breaks (Sweden) or to be replaced by cheaper labour (Germany).

Alpha-Poland competes on two different types of markets but has not developed separate strategies for them. In fact, it is rather difficult to find any more sophisticated business strategy than to present good tenders to be awarded more route and problems are still largely solved by ad hoc solutions. Quality is, at least implicitly, a more

98

important competitive means than for the other studied companies, in particular when it comes to competing with small carriers in the open market outside the city of W. There are no obvious managerial measures to increase either productivity or flexibility; to fire employees in an over-staffed company is not a question of numerical flexibility, it is just common business sense. Londondrive is maybe as much a victim of the changed tendering system as the Swedish companies under Western Traffic’s hegemony, but the London bus market is expanding and Londondrive has managed to be a part of that expansion, in particular after its acquisition by a multinational. Still, it is possible to track some first signs of an attempt to increase flexibility. The system for promotion and training opportunities might well develop into a greater use of both functional and numerical flexibility, and the recruitment of drivers from Poland and of female drivers can easily be turned into a means for both numerical and wage flexibility. Londondrive is further the only studied enterprise that has used distancing, Atkinson and Meager’s (1986) fourth variant of capacity flexibility.7

Thus far, however, we have only seen the overall business strategies adopted to face the new deregulated markets. We shall therefore go on to see how these strategies materialise in practice.

6.3. Employment, Industrial Relations and HRM

6.3.1. Germany

The number of employees in all utility companies in the city of X, also including facilities such as local transport, was reduced from 2,750 in 2002 to 2,488 in December 2006, that is, by 9.5 per cent. Concerning X-bus, it has to be stressed that, because new employment for bus drivers is no longer possible since the foundation of X-bus1, X-bus is a dying company. On the one hand, there has been employment growth in the minor companies and former subsidiaries but on the other, the number of drivers in total has decreased. At the time of its foundation X-bus1 started out with 110 employees, which in 2008 had grown to about 360 people. In some firms staff reductions only took place in the overhead area, though, which did not concern the drivers. It should also be noted that the number of part-time jobs is very low.

In almost all German federal states there is an industry-level collective agreement, Tarifvertrag Nahverkehr (TV-N), which regulates public-owned companies active in the local public transport sector within the state. These sector agreements currently cover about 50 per cent of all public employees in local public transport services. However, the public-owned transport companies decide individually if they want to join the sector agreement of their federal state or not; they are free to conclude their own company agreement. An important factor is the tendering quotes, that is, the amount of transport

7 In the German case, outsourcing does not really mean ‘distancing’, since X-werke is in control of the

demand-side for both X-bus and the three smaller companies.


99

performance within the territory of a municipality that is open for competitive public tendering beyond the TV-N (Brandt/Schulten 2008b). The TV-N is further only a framework agreement; specifications of wage conditions are additionally bargained. One interviewee estimates that there are 600-700 different wage specifications in the special applications of the TV-N concluded with municipalities in Germany. Accordingly, the TV-N has a limited market regulatory function. The vast majority of subcontractors have company agreements based on the minimum level of the private bus industry or they have no agreements at all. Furthermore, it is possible that bus drivers at the same location are paid by different collective agreements and consequently have different wage rates, e.g. if a municipal public transport company has hired a private enterprise only for single bus lines within its territory.

Different unions compete for collective bargaining responsibility. The most representative union regarding road-bound public urban transport is ver.di, which is also responsible for short-distance railway transport companies. In some federal states, collective bargaining carried out by ver.di has been foiled by a Christian union, Gewerkschaft Öffentlicher Dienst und Dienstleistungen (GÖD), which often accepts much lower wages. Similarly, there have been problems with TRANSNET (270,000 union members), a union mainly bargaining for long-distance railway transport (supplied by the public-owned Deutsche Bahn AG) but which has also concluded collective agreements in at least one federal state with private bus carriers (Brandt/Schulten 2007). Hence wage pressure – and partly wage dumping – is possible on the basis of different collective agreements. In the state where X-werke is active, the TV-N is currently the relevant framework agreement for 95 per cent of all municipal transport companies, however not for private or public-owned subcontractors. Still there is a wage difference of 35 per cent, even up to 50 per cent, between the highest paid X-bus drivers and the lowest paid drivers working for X-werke’s own subsidiaries. According to the labour director of X-bus, the wage increase negotiated for the TV-N was 5.1 per cent in 2008. At some 80 per cent, trade union density at X-bus is very high while its competitors barely have union members. The city of X is well recognised for its innovative framework collective agreements in infrastructural industries, concluded to establish homogeneous shop-floor working conditions and representation. Nevertheless the interviewees emphasise that there have still been conflicts between the works council members – and partly between drivers – of the different transport companies. Differences in wages, working conditions and power resources concerning the tendering procedure by X-bus are the main issues of conflict.

6.3.2. Poland

Alfa-Poland has about 300 employees and has hope of hiring more if forthcoming tenders turn out well. Most office workers are over 40, and indirect production, i.e. technical support employees are senior workers, over 50 years of age; the only younger group are drivers, who are mostly in their 30s. There are only 28 women among the employees: office workers, cleaning ladies and several female drivers. 16 per cent of the employees have university degrees and the drivers are often vocational school

100

graduates. Even though Alpha-Poland expanded, unemployment in the industry was still very high in the early 2000s and many drivers could not find a job. The situation changed when Poland joined the EU, which led to a mass emigration of bus drivers to the UK. Ever since, transport firms have suffered from labour shortage. Recently, Alpha-Poland, together with the local Employment Agency, has began to offer specialised driving lessons for women to become drivers, but they also encourage job seekers of both sexes by organising driving lessons for candidates for D category driving licenses. It has further employed a group of drivers from Ukraine.

There are no collective agreements above company level in Polish road transport. In Alpha-Poland, an agreement was signed in the mid-1990s, which formally expired six months after the enterprise was formally transformed in 2001. Nevertheless, both sides continue to invoke the agreement, though it is formally no longer valid. At present the trade union is working on a new collective agreement to be submitted to the CEO. The new agreement, drafted on the basis of the old one, will most probably be negotiated, but the trade union is certain that it will be accepted. In the past, there were three trade unions in the enterprise but, due to organisational problems and lack of employee interest, the Independent Drivers’ Trade Union (NZZ Kierowców) is the only one still active. The union is affiliated to the PKS Trade Union Federation but it does not show any activity within this structure and only pays membership fees. It has now 60 members, mostly senior employees who count on the union’s protection in the case of layoffs. Interviews with former trade union chairpersons show that they believe that the lack of interest in trade union membership is the result of a generation gap rather than of a wrong trade union policy. Moreover, the growing percentage of young people in the structures of the Self-governing Solidarity (Solidarnosc), which targets the private sector, seems to indicate that young people are interested in trade union activism after all. Membership is further geographically biased; employees from the city of W are completely out of touch with the trade union and union activists do not encourage them to change this.

Management believes it offers the employees fair-play rules in line with the Labour Code, as confirmed by the employees. Even though their earnings are not high, the employees are aware that this is the price to be paid for job security and that lower labour costs are a main factor making the company competitive. In the case of administrative workers, Alpha-Poland may cover 40 per cent of the tuition fee if an employee enrols for higher education and upon graduation the employee is offered a pay rise if the degree has raised his or her professional qualifications. Mechanics can take part in courses organised by bus manufacturers. The company offers its employees day-long integration tours and sightseeing tours, with family members paying about five Euros for the whole event. Recently, Alpha-Poland has bought a plot of land on a lakeshore in the vicinity of W to build bungalows there for the employees as weekend accommodation. For Christmas and Easter, the company offers its employees vouchers worth about PLN 350 (about 100 Euros). In the city of W, the company has further built a hostel next to its bus base for employee accommodation and a similar one is being


101

built in B. Accommodation is free of charge, yet the living conditions are very poor there.

The W drivers may get as much as a 200 per cent bonus for excellent work quality, while drivers in the towns of G and B have an extra income: a commission on the tickets sold. Given the circumstances, employees in W are satisfied with their salary, particularly those who live in a company hostel and do not have to pay rent. The drivers from around W, however, are not satisfied with the commission system offered to them. The administrative workers get a bonus for avoiding going on leave (e.g. sickness leaves). Accordingly, in the case of a light sickness they rather take some days off, using up their holiday leave. A negative change is a shift from open-ended employment contracts to fixed-term contracts for a period equal to the time it takes to carry out a given order (i.e. six or ten years).

6.3.3. Sweden

There are more bus drivers today than before the deregulation, both nationally and in the studied region. As an ombudsman points out, though, new companies are set up and others disappear and it is meaningless to compare the number of employees in different firms. The sole reason why there are more drivers today is that traffic has grown; the number of drivers has not increased in relative figures. Moreover, the number of drivers employed short-term or hired on an hourly basis has increased. Trade union interviewees state that this has not just lowered the quality but has also led to more silent workplaces, where people are afraid to speak their mind. They further question the economic gains from the growing amount of work on hourly basis. All the companies think about are lower labour costs, without considering that the overhead costs grow instead. The main actors in the industrial relations system today are the Municipal Workers’ Union (Kommunal) and the SKL (the Swedish Association of Local Authorities and County Councils). Private firms usually belong to a minor employers’ association, Bussarbetsgivarna, which in turn is a member of Transport-Gruppen, which is affiliated to SN.

Ever since the open purchasing system was launched, a most crucial item on the trade union agenda has been the regulation of working hours. People working in offices or factories do seldom have to plan when to go to the lavatory already when the workday begins. Bus drivers, though, have been thinking quite a lot about this issue over the years. ‘It was worst when the open purchasing system took off’, in the words of one trade unionist interviewee; ‘all slack, or “air”, should be squeezed out of the system and thus the drivers should work five hours in a row, that’s it!’ Suddenly there was no time for ‘pee breaks’. After a strike for better working hours among bus drivers in Stockholm in 1999, Kommunal managed to have a special clause amended to the nation-wide agreement with SKL. Privately owned companies have to affiliate to this agreement through a ‘Hängavtal’ (overarching agreements, see Thörnqvist 2006:246-49). The clause states that for transport routes shorter than 50 km, the driver has the right to a break of at least ten minutes after every 2.5 hours. The breaks shall further ‘normally’

102

be at a bus stop offering a toilet. Bus routes of more than 50 km are not regulated directly by the central agreement but shall be decided by local negotiations between unions and individual companies. In practice, this clause gives Kommunal a very strong bargaining position and no new actors on newly unbundled routes can circumvent the ‘ten minutes rule’. Still, however, the agreement does not literarily cover commissioned bus driving, i.e. bus drivers who do not work on regular routes. Yet in practice, ever since the notorious ‘pee break strike’ of 1999, Kommunal has managed to add a clause to the existing ‘quality’ legislation, saying that every contract must guarantee drivers a minimum break of ten minutes every second hour.

Despite the union’s strong bargaining position, a new work-time related strike broke out in July 2008, once again in Stockholm, which after about a week widened to also encompass Västerbotten in the north of Sweden.8 Even this strike can be seen as a result of the open purchasing rules and the cost-cutting efforts they have led to. The two companies the strike was directed against were both private-owned and members of Bussarbetsgivarna, who bargain directly with Kommunal. Normally these agreements closely follow the ones concluded by SKL but this time there was strong disagreement over working hours – or rather resting hours. The union demanded the right for each driver to a minimum of 11 hours rest between two different work shifts. It also demanded a maximum working day of 13 hours, that is from the start of the first tour to the end of the last. The latter was difficult for the employers to accept; there is always more traffic in the mornings and evenings than at about noon and therefore drivers often got long breaks in the middle of the day. After two weeks and notices of a further widening, the strike ended in a compromise: the drivers got the right to 11 hours of coherent rest and a maximum of 13 hours from first start to last stop but instead the wage increase was modest.

Another effect of the open purchasing system might be a possibility for entrepreneurs to circumvent the Employment Security Act. If a new company wins a tender for a route previously operated by another firm, the new company is obliged to provide for the old firm’s personnel if necessary. Some recent legal cases have however put this obligation under question. It is still too early to say how strong the precedential effect of these cases is.


A most important development in London since privatisation has been the rapid and considerable reduction in the wages of bus driver, accompanied by increasing workloads and responsibilities as a direct result of privatisation. The average pay is below £30,000 and the wage has not increased in line with the general cost of living in London. An interviewee at one garage explained that a main change was the removal of unsocial hours payments, which meant that evening work and weekend work was paid at the same rate as normal day work. Many drivers explained that before privatisation

8 Western Traffic was not directly affected by the strike.


103

bus drivers earned considerably more than their colleagues working for the Underground and therefore their job was considered more attractive. Nowadays, Underground jobs are much better paid and many would aspire to switch. Moreover, before privatisation, drivers across London worked under the same terms and conditions. With privatisation, terms and conditions are shaped by each company separately and therefore there is wage variation across the sector. Interviewees reported that as a company Londondrive was in the middle in terms of payment as well as terms and conditions.

The main union for bus sector employees is Unite, T&G section. Since privatisation, bargaining has been taking place solely at firm level. Industrial relations in Londondrive are described as reasonable although tensions resulted in strike action in 2006. The major issues were a campaign for pay rise, employee treatment and management-employee relations. One interviewee noted that there was suspicion amongst employees whether drivers from particular ethnic groups would take part in the strike. However, on the day of the strike the majority of employees did participate, which was seen as a double success as it proved that the workforce was unified and that they were able to take action. The strike action was commented by all interviewees as a successful way of pressing their demands. Joint management and union training followed. In the words of the convenor, Londondrive had a particular ‘blame culture’ and employees were increasingly being treated as mileage targets. This management position could also explain the success of the strike as all employees demanded changes in their treatment. Currently the relations with management are described as heading in the right direction. All interviewees, however, talked about the fragmented company level bargaining as the main reason for differences in wages and conditions across different companies. These differences are the focus of a union campaign currently taking place across London bus companies. The main demands call for a new strike action to come to terms with London’s wide pay differentials and differences in conditions such as sick-pay, holidays and pensions. This action is an important issue for drivers on routes that could be lost under the tendering system.

Union membership has always been strong in the bus sector and continued to be strong after privatisation too. The convenor reported a membership density of over 90 per cent across Londondrive and this figure includes both the young and older workforce. Most are recruited to the union during their induction day. Strike actions usually increase membership because people can see that the union is active. One interviewee felt that the high level of trade union membership did not necessarily reflect the strength of the union. He thought that the laws introduced by Conservative governments in the 1980s and 1990s, particularly those restricting solidarity action by trade unions in different workplaces, had weakened the unions and that the union should have been more proactive in dealing with the privatisation and liberalisation. He added that the strike in the company in 2006 was important in helping the union re-establish its influence in the firm and that the union’s role in tackling health and safety issues ensured that it continued to be taken seriously by management. Legislation has changed frequently

104

since privatisation and employees need to be more and more aware of these changes. These include equal opportunity policies and family friendly policies.

Another development is the creation of a two-tier system. New employees to the company are in probation for a year – some enterprises have probation periods of three or four years but in Londondrive it is one year – which includes reduced wages called the ‘start rate’. The union would like to see a common payment to all and ‘probation to be on performance not as an excuse for cheap labour’ (convenor interview). Furthermore, employees with less than one year on the job do not qualify for sick or holiday pay and it is only after one year that an employee can apply for the full amount of sick or holiday pay. The union campaigns for a new rate of pay for wages, sick and holiday pay across all companies. One interviewee explained that they had managed to negotiate away one of the main pay differences – that between drivers of double-decker buses and of single-deckers. Apart from the lower pay rate for new starters there was not other evidence of a two-tier workforce among the directly employed staff – drivers, engineers and administrative and clerical staff.

6.3.5. Employment, IR and HRM: a comparative summing-up

A closer look at the German case strengthens the impression that X-werke manipulates the industrial relations system to achieve financial flexibility. The direct impact on employment is difficult to tell by only a case study of one minor area. It seems very clear, though, that X-werke does not primarily try to cut personnel costs by reducing the staff (either by numerical flexibility or by simply reducing headcount) but rather by taking advantage of the possibility to let its subordinated companies settle collective agreements below the TV-N level. This might of course also be a way to reduce costs without affecting the quality; bus drivers barely perform worse in the smaller carriers as long as there is an overall labour surplus in the industry.

The British and the Swedish cases both bear evidence to a very clear negative effect of privatisation and in particular the tendering systems. As hinted at in the introductory section of this report, cost-cutting is the only way for an enterprise to achieve better profits, and the easiest way to cut costs is by increased capacity flexibility. The Swedish bus drivers’ strikes of 1999 and 2008 were most obviously protests against the extreme use of working time flexibility the had experienced. Even though the conflict at Londondrive in 2006 was in some ways a more ‘traditional’ strike against wage reduction, several of the measures intended to, in practice, cut pay levels can no doubt be also described as means for more financial flexibility. Some o these measures continued after the strike, for instance the introduction of the two-tier system.

Once again, the Polish case is the exception. Employment has fluctuated, however not due to changes in the sector but because of EU affiliation. Alpha-Poland has not had any serious need for a reduction of labour costs (numerical flexibility) since the transformation because the enterprise has been expanding continuously. Moreover, numerical flexibility is rarely popular with employees or trade unions and would most certainly be difficult to carry through in an employee/management owned company. On


105

the other hand, there is a frequent use of functional flexibility, by promoting education beyond vocational training, as well as financial flexibility, by the use of bonus systems both for increased skills and better performance. This is what can be expected from an enterprise that is jointly owned by management and employees, as long as the business is not too bad. Further, functional flexibility might well be the best competitive means to confront small carriers that do not ‘play by the rules’ in terms of scrutinising and so on. It must, however, also be noted that overtime for drivers is a solution favoured by middle management. In many cases, overtime actually exceed Labour Code regulations.


6.4.1. Germany

The system of competitive tendering has already been described above. Some interviewees criticised that ‘bad’ bus routes are distributed from X-bus to X-bus2 and X-bus3, which have the worst working conditions. Such bad routes involve unsteady, flexible working times and long breaks. A serious, probably even the main problem in the German case is the wage differentials, a problem that has also been discussed above. The wages at X-bus are the highest compared to all other bus drivers in the region because of the TV-V; the wages in its subcontractors are up to 50 per cent lower.

6.4.2. Poland

Working hours follow a duty roster adapted to the requirements of a given route. There is also a system of ‘interrupted working hours’; that is, the driver has a break between driving hours, during which s/he is paid 50 per cent of the minimum hourly pay rate set by the government for all employees in Poland. No bonus is given for standby hours. The interrupted working hours are being questioned by PIP (Państwowa Inspekcja Pracy), the National Labour Inspectorate, and Alpha-Poland fears the next inspection. Overtime is accounted for on a monthly basis and is paid in accordance with the Labour Code, based on the minimum wage in the national economy rather than an individual hourly wage rate. On Sundays, the drivers get a 100 per cent bonus; yet every third Sunday must be free. The system is rather complex, and drivers sometimes misunderstand it and complain.

Depending on experience, the drivers have different workloads and responsibilities. Less experienced junior drivers work on routes outside the city of W. In W, the most experienced drivers are employed as substitute drivers, on standby for eight to nine hours a day. Similar systems exist in the cities of B and G too, as well as on the routes outside the three cities. The ‘substitute’ drivers also run school and work transport, etc., which means that during their 12-hour working day they complete about five journeys and spend the rest of the time on standby. There have been no working accidents in the

106

company; this may be partly due to its adherence to overtime limits and to frequent road-worthiness checks.

The policy to promote formal education has led to somewhat awkward situations for many of the older drivers. Experienced senior drivers now cooperate with junior ones who have little practical experience but higher formal qualifications. Accordingly, senior drivers do not lose their jobs but are in due time transferred to lower positions within the company. As mentioned, Alpha-Poland offers to cover 40 per cent of the tuition fee for employees who enrol in higher education. According to both management and drivers, this measure has greatly improved the atmosphere at work, an improvement further fuelled by the signing of a new ten-year contract for routes in W. A mere 60 per cent of new staff won by means of the driving lessons offered to prospective bus drivers mentioned above remain with the company, while the others either seek jobs elsewhere or emigrate to the UK. All women drivers employed at Alpha-Poland have completed the above-mentioned driving course. The employees leave not only for the UK; some quit due to the high stress involved in a driver’s job. About 30 per cent leave within the first two years of employment, mostly complaining about low pay, a complicated motivation system or family problems due to shift work. Yet, drivers who have stayed with the company for two to three years normally stay for good.

6.4.3. Sweden

A work day can start at any hour, but the most frequent time is between 4.30 and 7.00 a.m. The driver collects the vehicle and the driver’s badge that goes with each bus. The driver further has the responsibility for the safety on board and thus has to check everything from lights and doors to the functioning of the ticket system, a check that normally takes about 20 minutes. An average work day is between 8.5 and 10.5 hours long, breaks included. Due to rush hours in mornings and afternoons, many enterprises prefer split work days, i.e. a long break for the drivers at noon. This was a hotly debated issue during the 2008 strike. A management interviewee emphasised that there is a difference between local city transport and regional transport in this regard, even though the collective agreement is the same. In city transport, the rush hour problem is solved by schemes according to which all drivers must accept some long, often awkward work periods and in return get other periods of better working hours. In regional transport, such schedules are more difficult to apply because the ‘traffic humps’ are usually much higher. A telling example is school buses, which run in the early mornings and in the afternoons but leave ‘a big nothing’, as a management representative expressed it, in between. Moreover, some holidays have disappeared and average working hours have changed from 36.25 to 38.25 hours per week.

Since deregulation, the drivers’ training has weakened. To be a bus driver, one must be at least 20 years old and have a driver’s licence. The next step is a seven-week course to get a certification for heavy vehicles, organised by transport companies, employment agencies or arranged by ordinary schools for second level graduates. Above this, the companies organise mandatory internal training about routes, communication systems


107

and ticket systems. The rest of the vocational training is mainly hard practice. Besides the driving, the driver handles the sale of tickets and information to the passengers. This is nowadays computerised, with each vehicle equipped with its own computer that the driver logs on to in the morning to get the correct information for the route. Both management interviewees emphasised that shortening the bus driver training is nothing but a short-sighted strategy aimed at immediate cost-cutting and might be damaging in the longer run. Companies that give their bus drivers time for occupational training risk to lose the fight for new contracts and thus the time invested in training is seen to be worthless. A most crucial consequence is that most young people who have qualified to drive heavy vehicles prefer long distance truck-driving and public transport has consequently lost many potential bus drivers as well as skilled mechanics. The social status of the job has declined and many drivers have quit. Older drivers quit and the only new recruits are ‘middle-aged immigrants’ who have had difficulties to find other jobs.

Every open purchasing scheme asks for tenders for big service volumes in a long term perspective, which means that the companies competing for the tenders find themselves in a ‘win-or-lose-situation’ and are forced to opt for extreme cost-cutting measures. At the end of the day, the winning tender might therefore not be able to fulfil its obligations if even the slightest problem occurs. The result for the drivers has been higher stress and more sick-leave. Our management informants agreed that a bus driver’s work is very stressful. It is not unusual that the driver feels that the situation is running her/him, not vice versa. Moreover, modern transport itself creates stressful environment, especially in terms of the problem with ‘traffic humps’. Each employee must be ‘an overachiever’ and tolerance towards people who do not fit the norms is steadily shrinking.


The work for the operators is based on shifts and rotas and there are lists of spare drivers. Night shifts are paid marginally extra and regarded as difficult work. All interviewees remarked on heavy time schedules. A bus driver averages 39 hours spread over duties. However, as work is based on shifts drivers can work up to 60 hours some weeks whilst other weeks require less hours. Overtime is on top of this and most drivers take it when available to supplement their income. One interviewee mentioned that since shops are open all week now there is more work on Sundays. A female bus driver commented on how difficult it is for people, mostly women, with family obligations to work on buses because of the shift patterns the job requires. Additionally, rush hour work lasts longer: in the past, it ended at 7:00 pm while now it finishes at 8:00 or 9:00 pm (steward interview). As society has become busier, the bus driver’s job has become more unsociable. One issue frequently highlighted in all interviews is the lack of toilet facilities at the end of each route. Comments were also made about the design of the new buses. The driver’s cubicle is not considered as comfortable for the driver compared to older buses, although in other aspects it is better equipped. As a result of what has been perceived as a deterioration of working conditions, poor wages and a low status job there was a significant workforce turnover across the company of 23 per cent.

108

However, as the company’s working conditions and wages have improved again in the last few years, staff turnover has declined to 15-16 per cent (convenor interview).

When Londondrive was under public ownership the working environment was more relaxed. Companies are themselves under pressure to show increased productivity, such as running a certain amount of mileage, which is passed down to the employees and reflected in a much stricter approach to sickness absence and early retirement due to ill health. Companies are quicker to contact people if they are off sick and tighter medical rules mean that it has become much rarer for workers to get an early pension for reasons of ill health. The convenor mentioned an increase in long-term health problems, such as strokes, in the bus sector. Some have commented that there has been a change of status in being a bus driver. One driver explained how his father was also a bus driver and that it was considered to be a good, well-paid position. Lower wages and tougher working conditions now mean that the job is no longer regarded in this way. The pressure on the operators has also increased as a result of the general changes in society, most notably the dangers of being attacked by violent customers; although the driver’s cubicle is well protected the driver is always wary of passengers who may carry a weapon. Large sport facilities for the drivers are no longer available and some garages do not have a canteen. Other benefits that have been reduced include Christmas vouchers, meal vouchers and social clubs. New benefits, on the other hand, include access to local sport facilities, trips to Euro Disneyland, beer festivals and Eurostar tickets at discounted prices.

6.4.5. Work organisation and working conditions: a comparative summing-up

The most obvious theoretical lesson to be learnt from this section is the overall more frequent use of working time flexibility. In some respect, this can also be seen as a means to increase productivity, since it often means that each driver, due to more rush hour work, transports more people per drive, even though the mileage is the same. Since there is little to gain from having more passengers, in particular in the Swedish case but, because of the tendering systems, also in the other countries, the need for working time flexibility must be seen as more important than the quest for higher productivity. It is further very clear that employees in all four countries are deeply dissatisfied with what they experience as more stress and lower status. This is true even in Alpha-Poland, despite the company’s more popular overall HRM policies. Alpha-Poland is, among other things, the only of the studied firms that prefers functional over numerical flexibility; the other organisations do not spend money on vocational training, etc. but rather accept a development that makes bus drivers more and more replaceable.


109


6.5.1. Germany

The deficit of the bus transport segment within X-werke was reduced from 38.3 million Euros to 28.2 million Euros between 2000 and 2006. It is however difficult to say how much, if any, of this was due to growing productivity. In 2006, the total revenue of the transport segment of X-werke increased due to both rising prices and growing passenger numbers. Personnel costs were reduced to 2.7 million euros. Concerning the innovative ‘product policy’, it always has been the aim of the city of X to make the local public transport system more attractive – that is, not only for school children and pensioners but also for business people. The number of bus lines and frequencies of buses have increased. As well, there is a range of special fares for different consumer groups, e.g. day tickets, monthly tickets, special student or pupil tickets, etc. Moreover, new services have developed, for example, special night buses, taxi services and so on. Regular customer surveys always come to the conclusion that the clients are pleased with both the services and prices of the transport companies. This concerns, for example, information management, security aspects, cleanliness, the frequency of buses and punctuality. In the case of problems with transport services, customers have the possibility to dispose information, which is used to upgrade the transport system.

6.5.2. Poland

In the case of drivers, it is difficult to speak about improving productivity; they have a specified number of journeys to make daily. They can work overtime, but exceeding overtime limits involves a risk to the company, as it is subject to frequent Road Transport Inspectorate checks. The company wants to expand its operations and ‘become the topmost PKS in Poland’. To this end, however, it must above all hire new drivers and expand its bases in the city of W. A novelty is that an intranet with the drivers’ working hours is being introduced. The programme calculates tax and social security contributions and helps staff to manage the equivalent working time system. With regard to the market around W, one can conclude that it is major companies, such as Alpha-Poland, that set certain quality standards and may be a point of reference for smaller operators. The ticket price is however the basic competition factor, while matters such as better passenger comfort are still of secondary importance, although the competitive importance of such quality issues is growing. In setting norms and standards, a disquieting and negative role is played by the Road Transport Inspectorate, which does not treat big and small carriers equally but tends to accord a much more lenient treatment to the latter. All Alpha-Poland employees have employment contracts and the social security contributions paid by the company are based on their actual earnings. Yet, according to management, this policy makes the company vulnerable in its competition with smaller operators that do not comply with the Labour Code, since the Road Transport Inspectorate does not scrutinise small carriers properly enough.

110

Alpha-Poland’s drivers are inspected regularly; a dispatcher makes sure that the timetable is adhered to, that the vehicles run punctually and that also other service quality parameters meet ZTM’s demands. All drivers are familiar with these standards and know that non-compliance is punishable by bonus reduction. Still, the quality standards are more rigorous in the city of W than in B and G; in W there is even a dress code for drivers and a ticket sales procedure. About 80 per cent of the buses have radio communication (in B this form of communication has been eliminated to cut costs), and about 60 per cent are subject to camera monitoring. The radio communication devices ensure closer scrutiny and allows the driver to stay in touch with the dispatcher, who can thus control punctuality at any given time. The firm’s status as an employee/management-owned company is essential. Both the management and the non-managerial employees emphasise the major differences between companies of this kind and private firms. In the latter, employee abuses may occur.

6.5.3. Sweden

Before deregulation, a trade union informant said, there could be a couple of drivers playing cards while there were buses ready for departure outside in the yard. There was an over-capacity, which was however useful in case of a traffic jam; new resources could be brought to bear immediately. ‘You may call it slack, but you can also call it preparedness.’ Management confirms the picture but underlines that the old system is nothing to wish back. The higher costs resulting from customer complaints and sometimes even fines must be compared to yesterday’s higher costs for extra personnel and the number of buses not in use. Today the daily use of the vehicles is about 95 per cent, compared to 80-85 per cent before deregulation. The trade unionists, on the other hand, argued that cost pressures together with the tendering rules have led to a lagging behind in maintenance. They feel that any short-term gains will sooner or later result in even bigger costs, when the company must do something to get the vehicles in shape. Management partly confirms this picture too; maintenance has become too focused on immediate needs, not long-term preparation. According to one management representative, this is however not because of worse planning but rather due to a lack of resources compared to some years ago. The bigger companies definitely need to change their maintenance routines, he stated. Customer quality has improved since marketisation. Both city and regional transport has expanded and it has been easier to find satisfying transport between different municipalities. A trade union informant however questioned the number of customer complaints as one of the measure of ‘quality’. The main question, he said, should be what can be done even better, instead of passive reactions to grievances.


Performance targets are set by TFL and are the same all across London. Productivity in the bus sector is mainly linked to mileage. On routes where there is a maximum of four buses an hour, the major performance target is the time of departures. On routes with


111

five or more buses per hour, performance targets are based on measuring gaps in service, i.e. if there is a bus every six minutes, a bus is expected to run every six minutes. This performance is linked to financial reward by TFL. If buses fail to achieve the agreed minute gap, companies are penalised by TFL. One interviewee said that performance had improved as a result of much tighter monitoring, both internal and by TFL. The number of passengers in the capital has also increased, partly as the result of the Mayor of London’s significant investment in public transport. Londondrive’s performance does not differ much from other large operators. The company is in fourth position in timetabled services on time, an improvement from the sixth position it held in 2006. Other performance measures – secondary to mileage – include safe driving, running on time and the ‘mystery traveller’s survey’, when unmarked inspectors go on buses and monitor driving standards and driver’s behaviour towards customers. Services are run better than before because they are better monitored and because drivers do become aware of this scrutiny from the beginning of their training. Still interviewees remarked on the new pressures that drivers face: ‘From the drivers’ point of view there is an element of pressure for drivers to meet these targets and throughout the whole system the pressure is felt to meet these targets … this is regarded – by employees – as unnecessary’ (senior steward interview).

There is also an increasing use of new technology on the buses. One is the Oyster card, a smart card ticketing system introduced by TFL, use of which increased on buses from 28 per cent in 2004 to 85 per cent in 2006. There is also a new Intelligent Route Information System (IRIS), which uses GPS and GPRS mobile communications technology to track buses, inform drivers of their position in relation to other buses on the route and provide automated intelligent control messages to drivers. Moreover, CCTV is now installed on all London buses for crime prevention, and all buses are equipped with wheelchair access. Transport for London data suggests that there is a slight improvement in overall service satisfaction from the bus service in London although in comparison to other regions London scores the lowest. Service quality to most employees in Londondrive translates to the provision of good passenger experience, comfortable ride, safe driving and for the driver to possess good customer service skills. Interaction with customers presents its own problems, as customers do not usually understand the problems that a bus driver faces and tensions may rise when a bus is very late.

6.5.5. Productivity and service quality: a comparative summing-up

There is little doubt that the quality for the passengers/customers has increased in the German case, and at the same time profitability has grown too. This is not due to higher labour productivity, however, but at the expense of working conditions for the drivers. As we have seen above, X-werke has relied heavily on financial flexibility, but also on numerical and/or working time flexibility, by relocating drivers to new routes that do not have the same working hours or working conditions as the older ones. Yet, it must be emphasised that X-werke has managed to both raise prices and attract more passengers at the same time, and since the market itself does not seem to grow, as

112

discussed in the second section of this paper, this can only be explained by better quality. In the other three cases, both productivity and quality seem to have improved. Alpha-Poland, which still aims for a serious expansion, has not really improved the quality for the customers; on the other hand, it has improved its productivity thanks to new technology, largely by eliminating slack. The introduction of new technology might further go well together with the search for functional flexibility we have met in previous sections, though the two features are not dependent on each other. Even Londondrive, which is also active in an expanding area, supported by governmental campaigns, has gained productivity due to new technology. Another peculiarity of the British case is that TFL’s means for measuring quality coincide to a very high extent with productivity measures. It is therefore rather difficult to analytically separate the two. Seemingly, overall quality has increased, but once again at the expense of the drivers’ working conditions. We have already seen that the Swedish tendering system has led to a heavy use of working time flexibility, which in turn has worsened the working conditions considerably. In this section, we have further seen that Western Traffic, in the inevitable choice between increased productivity and better quality, the company chose productivity. The means to do this was numerical flexibility, i.e. to reduce the number of drivers on standby.

6.6. Conclusions

The PIQUE project studies in particular three items: quality, employment and productivity, but also industrial relations. The local transport sector is somewhat more limited than the other industries studied for PIQUE due to strict frameworks set by tendering: once an enterprise has been awarded a route, other bidders are excluded from the market and the profit depends on regulation, not on genuine market competition. The profitability problem is most accentuated in Sweden and Germany, while the Polish company, Alpha-Poland, reagards the competition with small carriers, both regarding the tendering process and, in particular, in the open market outside the largest city, unfair since small firms are not scrutinised as rigorously as the large ones. This synthesis of four case studies cannot claim to have found reliable scientific generalisations; the case designs are too heterogeneous, but it can be stressed that the focus on different forms of flexibility has provided a good tool for better understanding the mechanisms behind the changes.

In conclusion, we can state that there is reasonably good evidence for both increased quality and productivity. The effect on employment is very difficult to measure, drawing from only case studies. It is further hard to tell if more or less employment in the sector is the best measure of success. Higher employment may be evidence of an expanding industry, but , irregardless of the country, a main idea behind marketisation was to cut costs, for instance, by eliminating over-staffing.

A recurrent issue in all the countries and items, however, seems to be that the gains for customers and owners have come at the expense of the employees. The only exception is Alpha-Poland: The company has managed to expand and there has been a labour


113

shortage as a result of emigration caused by the EU affiliation. Perhaps even more crucial is the fact that the enterprise is owned jointly by management and employees. Even if some unsuccessful tenders in the future can change the picture and force Alpha-Poland to reduce labour costs (numerical flexibility), the enterprise has this far relied on a frequent use of functional flexibility, by promoting education beyond vocational training, and also of financial flexibility, by the use of bonus systems both for increased skills and better performance. This might well also be the best competitive means to confront the small carriers that do not ‘play by the rules’. This is most notable in the big city of W.; in comparison, drivers living in G can expect lower wages than those living in W. There are also several complaints about the stressful job and many employees quit during the first two years. Seemingly the stress in the industry at large is growing; Alpha-Poland can not be blamed for the increased work-pace after deregulation and the transformation of over-staffed companies from the communist era.

Functional flexibility is very easy to accept for employees and their unions. In the other three cases the market situation has been more strained, which has led to other, less driver friendly forms of flexibility. In the German case the transport authority, X-werke, has used the tendering system and what might be seen as loopholes in the collective bargaining system to achieve a negative form of financial flexibility; the lower wage costs in the three minor firms compared to X-bus is no doubt a means to achieve wage flexibility within X-werke at large, in particular by not hiring new employees for the ‘expensive’ X-bus but only its subcontractors. In the Swedish and British cases, extensive use of numerical and working time flexibility has led to complaints from the drivers, and in both countries (though not within Western Traffic’s area) to extensive strikes against worsening working conditions and for higher pay in return. The tendering systems themselves bear more responsibility for this than individual authorities. There are further clear signs of work degradation, i.e. descending status, in both countries, which is often a first step towards a more frequent use of numerical flexibility.

It should finally be emphasised that the increases in labour productivity we have seen is largely due to new technology. This is, of course, related to both productivity and different forms of capacity flexibility, but the search for flexibility might just as often be a supplement to productivity growth, or, as we have seen here, frankly a substitute for it. The quality for customers has improved because the employees work harder, and not in a more ‘productive’ way. It has become more comfortable to ride a bus but more inconvenient to drive one.

Bibliography

115

BIBLIOGRAPHY

Anderson-Bäck, M. & C. Thörnqvist (2008): Health, how to care? Swedish hospitals in focus of privatisation and working processes description. Hospital case study Sweden.

Atkinson, J. (1984): Manpower strategies for flexible organisations, in: Personnel Management, Vol. 16 (8), 28-31.

Atkinson, J. & N. Meager (1986): Changing working patterns: How companies achieve flexibility to meet new needs, London: National Economic Development Office.

Böhlke, N. (2008): The sale of a public hospital. Hospital case study Germany.

Brandt, T. (2007): Liberalisation, privatisation and regulation of postal services in Europe – First international experiences in the run-up to new European regulations, PIQUE discussion paper, Düsseldorf: download: www.boeckler.de/pdf/wsi_pj_piq_post_europe.pdf.

Brandt, T. (2008a): Global strategy and local competition. Postal services case study Germany.

Brandt, T. (2008b): Fragmentation of labour conditions and regional cooperation as challenges in a liberalised local public transport market. Local public transport case study Germany.

Brandt, T. & T. Schulten (2007): Liberalisation and privatisation of public services and the impact on labour relations: A comparative view from six countries of the postal, hospital, local public transport and electricity sectors . www.pique.at/reports/pubs/PIQUE_028478_Del8.pdf.

Brandt, T. & T. Schulten (2008a): The impact of liberalisation and privatisation on labour realtions. PIQUE Policy Paper 2. www.pique.at/reports/pubs/PIQUE_PP2_15_10_2008.pdf

Brandt, T. & T. Schulten (2008b): Auswirkungen von Privatisierung und Liberalisierung auf die Tarifpolitik. Ein vergleichender Überblick, in T. Brandt, T. Schulten, G. Sterkel & J. Wiedemuth (eds), Europa im Ausverkauf: Liberalisierung und Privatisierung öffentlicher Dienstleistungen und ihre Folgen für die Tarifpolitik: Hamburg: VSA-Verlag, 6-91..

Brandt, T., K. Drews & T. Schulten (2007): Liberalisierung des deutschen Postsektors – Auswirkungen auf Beschäftigung und Tarifpolitik, in: WSI-Mitteilungen, Vol. 60 (5), 266-272.

Bundesnetzagentur (2007) Lage und Entwicklung auf dem Gebiet des Postwesens. Tätigkeitsbericht 2006/2007 der Bundesnetzagentur für Elektrizität, Gas, Telekommunikation, Post und Eisenbahnen, Bonn, Dezember 2007. www.bundesnetzagentur.de/media/archive/12185.pdf

Eisenhardt, K. M. (1989): Building theories from case study research, in: Academy of Manage-ment Review, vol. 14, n° 4, 532-550.

Håkansson, K. & T. Isidorsson (2003): Flexible times: Dynamics and consequences of company strategies for flexibility’, in D. Fleming & C. Thörnqvist (eds), Nordic management–

116

labour relations and internationalisation: Converging and diverging tendencies, Copenhagen: Nordic Council of Ministers, Nord 2003:015, 131-52.

Hamark, J. & C. Thörnqvist (2008a): Post Modernism or post mortem? Postal services case study Sweden.

Hamark, J. & C. Thörnqvist (2008b): Buses and buzzwords: ‘Cost-cutting’ and ‘open purchasing’ as the keys to understand liberalisation and privatisation of Swedish local and regional transports. Local public transport case study Sweden.

Hermann, C. (2008a): Durch Privatisierung zum Ausnahmefall: Fragmentierung der Arbeits-beziehungen in öffentlichen Dienstleistungen in Österreich’, Brandt, T., T. Schulten, G. Sterkel & J. Wiedemuth (eds.) Europa im Ausverkauf. Liberalisierung und Privatisierung öffentlicher Dienstleistungen und Folgen für die Tarifpolitik, Hamburg: VSA-Verlag, 212-232.

Hermann, C. (2008b): Preparing for full liberalisation: incumbent and competitor strategies on the Austrian postal market. Postal services case study Austria.

Hermann, C. & K. Verhoest (2007): Varieties and variations of public service liberalisation and privatisation. PIQUE Policy Paper 1. www.pique.at/reports/pubs/PIQUE_PP1_15_10_2008.pdf

Hermann, C., K. Verhoest, M. Andersson, T. Brandt, I. Hofbauer, T. Schulten & Christer Thörnqvist (2007): Varieties and variations of public-service liberalisation and privatisation in Europe – Synthesis report on liberalisation and privatisation processes and forms of regulation. www.pique.at/reports/pubs/PIQUE_028478_Del4.pdf

Hermann, C., T. Brandt & T. Schulten (2008): Intensification, casualisation and commode-fication of work in liberalised European postal markets, in: Work organisation labour & globalisation Vol 2 No 2 (Autumn 2008).

Hood, C. et al. (1999): Regulation inside government: Waste-watchers, quality police and sleaze-busters, Oxford.

Input Consulting (2006): Im Gleichklang? Befunde zur Liberalisierung und Regulierung des Postsektors in ausgewählten EU-Mitgliedsstaaten. www.input-consulting.com.

Jefferys, S., R. Pond, R. Kilicaslan, A. Tasiran, W. Kozek, B. Radzka & C. Hermann (2008): Privatisation of public services and the impact on employment and productivity, PIQUE Policy Paper 3. www.pique.at/reports/pubs/PIQUE_PP3_14_10_2008.pdf

Kozek W. (2008a): ‘It was supposed to get better and it’s only harder…’ Electricity case study Poland.

Kozek, W. (2008b): We will not allow ourselves to be robbed. Postal services case study Poland.

Kubisa, J. (2008): From the outskirts into the city: The case of Alpha-Poland. Local public transport case study Poland.

Lindner, D. (2008): A local provider in a liberalised electricity market. Electricity case study Austria.

Bibliography

117

Månsson, J. (2006): The Swedish urban transport sector, Mimeo, CAFO, Växjö University.

Mayor of London (2008): Transport Strategy – Facts and Figures, www.london.gov.uk/mayor/transport/facts-and-figures.jsp#oyster.

Papouschek, U. (2008): Religious hospitals with rights in public-law – part of a faith-based business group. Hospital Case Study Austria.

Paraskevopoulou, A. (2008a): The privatisation of bus transport in London. Local public transport case study UK.

Paraskevopoulou, A. (2008b): Private financing in a public hospital: Hospital case study UK.

Paraskevopoulou, A. & R. Pond (2008): 18 years after privatisation. Electricity case study UK.

Pond, R. (2006): Liberalisation, privatisation and regulation in the UK healthcare sector/ hospitals, Country report on liberalisation and privatisation processes and forms of regulation. www.pique.at/reports/pubs/PIQUE_CountryReports_Health_UK_November2006.pdf

Raza, W. (2008): Zukunft öffentlicher Dienstleistungen in Europa. Politische Ansätze und Alternativen von Gewerkschaften und sozialen Bewegungen, in: Brandt T., T. Schulten, G. Sterkel & J. Wiedemuth (eds.) Europa im Ausverkauf. Liberalisierung und Privatisierung öffentlicher Dienstleistungen und Folgen für die Tarifpolitik, Hamburg: VSA-Verlag, 373-394.

Regalia, I. (2007): Industrial relations in the postal sector, Report for the European Foundation for the Improvement of Working and Living Conditions, Dublin.

SOU 2001 # 106 (2001): Kollektivtrafik med människan i centrum, Stockholm: SOU.

Teuscher, S. (2008): ‘Post’, in Brandt T., T. Schulten, G. Sterkel & J. Wiedemuth (eds.) Europa im Ausverkauf. Liberalisierung und Privatisierung öffentlicher Dienstleistungen und Folgen für die Tarifpolitik, Hamburg: VSA-Verlag, 108-120.

Thörnqvist, C. (2006): ‘Hannibal ad portas! Quanto può resistere il sistema contrattuale svedese quando la sfida giunge da fuori’, In: Quaderni di Rassegna Sindacale, 2006:4, 239-58.

Tracey, J. Bruce (2008): Accounting for human resource flexibility, in: Cornell Hospitality Quarterly, Vol. 49 (4), 428-31.

Vael, T. & G. Van Gyes (2008a): The creation of a Flemish retail market: organisational challenges and the impact on work and service. Electricity case study Belgium.

Vael, T. & G. Van Gyes (2008b): Preparing for full liberalisation: recent organisational changes in the mail division of a post company and the impact on work and service quality. Postal services case study Belgium.

Vael, T. & G. Van Gyes (2008c): Privatisation of a public hospital as the result of a merger process. Hospital case study Belgium.

Yin, R. K. (2003): Case study research: Design and methods, Sage, Thousand Oaks.

Documents

Liberalisation and privatisation of public services â€“ company