Privatisation, Restructuring and Employee Retrenchment in Brazil: Issues and Policy Responses Armando Castelar Pinheiro Brazilian Development Bank (BNDES) Conference on “Privatisation, Employment and Employees 10 – 11 October 2002, Ataköy, Istanbul, Turkey ”
Stage I: Small SOEs in competitive sectors Stage II: Industry Steel Petrochemicals Fertilizers Mining(CVRD - 1997) Stage III: Infrastructure Rail Electricity (partial) Telecom Highways Stage IV: Banking Infrastructure Non-controlling shareholdings
Annual distribution of privatisation results (1991 -2001)
Total Employment in Six Largest Metropolitan Areas (Number of Workers)
Unemployment and Productivity. Mnfg) in 1981 -2002 (
Number of Employees and Salary Expenditures (1994) In 1994, employment in Federal. SOEs represented less than 2% of the overall non-agricultural employment,
Ratio of Salary to Investment Expenditures: 1980 -94 (%)
Investment by Federal-Owned SOEs: 1980 -94 (% of GDP)
Short-Term Impact of Privatisation on Employment F Overall employment fell by a third, comparing the pre- and post-privatisation periods F Three-fourths of this downsizing took place prior to sale, while preparing the companies for sale F Downsizing was less pronounced for employees working in production lines
* Total salary expenditures/number of employees.
CSN: Employment and Productivity
Embraer: Productivity (US$ 1000/employee/year)
CVRD: Employment and Productivity
Railways: Employment 50, 000 44, 601 40, 000 24, 603 30, 000 20, 000 13, 607 10, 000 0 Before Adjustment Period After
Railways: Productivity
Impact on R&D Employment 19
The impact on overall employment varied from one sector to another F In mature sectors (steel, petrochemicals, etc. ), the rise in productivity tended to prevail. F In infrastructure, privatisation led to a major increase in supply, often compensating for the rise in productivity. F Moreover, in infrastructure privatisation allowed for regulatory reform that brought new players (and jobs) into the market. F Taking all these effects together, privatisation has had a positive impact on employment
Anecdotal evidence
Critical management problems in privatised companies
Structure of share sales in the case of CVRD 26 23
Often, employees ended up accepting privatisation without much opposition F Although there was the perception that bloated work forces would need to be downsized, employees favoured privatisation for various reasons: F In some companies (e. g. , CSN and Embraer), there was the perception that the alternative to privatisation was closing the company down F State ownership was perceived to limit management flexibility, access to finance and competitiveness F Privatisation offered the possibility to make a financial gain F For younger employees, privatisation offered a greater opportunity to advance in the company
F It was often the case, though, that employees did not hold on to the shares they bought. F In most of the cases in which employees kept their shares, they participated in investment clubs with important shareholdings in the company, often participating in the controlling group. F Although there is no systematic evaluation of how well SOE employees did with privatisation, anecdotal evidence suggests that G For employees who kept their jobs, privatisation seems to have been in general positive G For those who left the company, the evidence is mixed, with many former workers engaging in unsuccessful businesses of their own
Main conclusions F The promises of privatisation were, broadly speaking, fulfilled, contributing to limit the growth of the public debt, raising investment and efficiency and, through the attraction of FDI, helping to close the external accounts. F The impact on employment has been mixed. F The workforce of the SOEs has declined, with the rise in productivity more than compensating that of output. F In some sectors, notably in infrastructure, though, the overall increase in sector output has led to higher employment levels. F Overall, however, privatisation played a minor role in labour market dynamics, due to the relatively small size of the SOEs’ workforce
Main conclusions F Employee opposition to privatisation was successfully mitigated by selling SOE shares to employees at subsidised prices. F With privatisation human resource policy changed to reduce the number of management levels and make promotion schemes more merit sensitive. F Pension schemes were also geared towards defined contribution schemes and sounder management.
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