Property forms in public service enterprises in Poland in 1989

1. Introduction

In 1989, I was a leader of the Solidarność trade union in Olsztyn and for the latter fulfilled functions in the district government committee for the restructuring of ownership forms of enterprises (privatisation). Thence my knowledge of the matter. In 1989, privatisation was considered in Poland a panacea to all the problems. The following arguments were adduced by the supporters of privatisation in its favour:

– the greater interest of the firm in the results of its activity;
– the easier introduction of new technologies, both in the technical as well as in the organisational area;
– additional financial ressources available for modernisation;
– better quality of labour.

Of course, there were more of these arguments, but these were the most frequently used to convince the public:

As a result, the property reform seized all sectors including those of local public service provision. They were led down to the water supply, local communication, energy and heating, the whole sector of what was called then communal/municipal/local economy.

In 1989, the enterprises of the local economy were transformed first of all into provincial structures that were formally in state ownership. That had a certain impact on the influence of the workers' council in the administration of the firms.

The process of restructuring from then on had two typical stages:

1) commercialisation – that served to prepare the firm for sale and to introduce organisational structures similar to those in the EU countries
2) privatisation

as to 1) In the framework of commercialisation there took place the restructuring of the firm into either a state or a local/municipal stock company, in our case it was a local stock company. That meant the restriction of the rights of ownership to the municipality, or respectively its workers and citizens. The restructuring could stop at this stage of creating a local enterprise, and privatisation was not obligatory.

as to 2) Privatisation meant the sale of parts or of stocks of the firm by public tender or at the stock market. Here, the influence of the workers was limited to the expression of an opinion. The statutes foresaw 10% of the shares or stock for the workers and in the small firms this right was really enforced. The workers could become the masters of a so-called workers' cooperative. Unfortunately, many legal restrictions were introduced that made this form of privatisation difficult to realise. The banks did not give enough credit to the workers. That led to the pathology of what became known as “managerial privatisation“. The cooperatives became dependent on credits being given to the directors and on the preferences of the ministry of privatisation which had to express its opinion on the suitability of a workers' cooperative project.

II- Forms of restructuring

The restructuring of local firms nevertheless left the following forms for choice:
a) workers' cooperatives
b) managerial buy-outs
c) transfer of the firm to the state or to a natural person
d) municipal ownership

In Olsztyn we were interested in a form that would allow us to follow the form of privatisation and on that basis we chose municipal ownership. We so to say kept the matter of privatisation in our hands.

as to a) It turned out to have the following disadvantages:
– not so many workers were ready to buy stocks on the basis of their wages,
– the wealth at issue turned out to be a bit big to be managed as a whole by workers' councils, and in case of subleases, costs were deemed to high
– the municipality wanted to keep its authority over the water price which yielded some profit
– the history of other workers' cooperatives showed that they either tipped over completely to one side to become managerial companies or that at least stocks were bought from the less clever workers
– we took into account the unwillingness of the establishment to sponsor this kind of privatisation
– and the difficulty to find credit. In this situation we gave up this idea.

as to 2) Managerial company: It was the form most liked by the banks and the Ministry of privatisation and burnt down to the transfer of the assets of the firm into the hands of its management. The banks gave them good credits.
We did not like this form because it meant higher payments and lower returns. Moreover, we really didn't want the city to let the determination of the water price out of its hands. We were backed up by real-life developments. Wherever managers came to appropriate their firms, working conditions deteriorated and nobody cared about the labour code any more. The citizens-customers were also not pleased, because wherever this form was introduced, water quality fell and necessary repairs were no longer carried out. In fact, this led to the destruction of wealth.

as to 3) Transformation into another state enterprise or lease to a physical person seemed to pose the same problems as the managerial teams. Maybe it would have been cheaper than to keep the firm. Yet, there would have been other problems. The manager would be a hired gun. This would lead to the same problem as the workers' cooperatives given the short time horizon for which decisions were taken.

as to 4) Municipal property: Once we had given up the idea of workers' cooperatives, this seemed to us the most attractive solution because it allowed
– continued influence of the local level and maintenance of the workers' council
– helped to shape better industrial relations (power of the trade union etc.) for the duration
– this guaranteed channels of influence on the local authorities
– there was a certain wage guarantee and guarantee of good management-worker relationship

For the citizens, this was also the best deal
– it kept the prices at a bearable level and gave them influence on their setting
– same for quality of water for instance
– it assured every citizen access to water and services

It had disadvantages, too, because while the city resisted to the temptation of privatisation, it came to practice its negatives (that will be dealt with more in the conclusion) itself. It was really not possible to exercise real influence on municipal power neither by the workers nor by the women and men citizens. The city government refused the costly democratic procedures and negotiated with the workers from a position of strength. As a result, some sectors of services were sold anyhow. Moreover, the community experienced the dearth of credits for the not-so-private forms too, and had to try to negotiate for means of the European Community so as to put them into the starved communal enterprises.

III- Conclusions

Now what can we say, after this brief overview, about the results of privatisation in municipal services? It turned out that the arguments of the privatisers were absolutely not correct:

a) It turned out that the buyers of the properties were generally not interested in their development. Even in the case of municipal ownership that was not a given. In fact, starting in 1989, the newly rich worried only about their consumption and how to earn as quickly as possible and at any moral price the money needed to finance it;
b) The same turned out to be the case with view to care to the needed repairs and working conditions
c) How to introduce new technologies given that the municipality was lacking funds?
d) The quality of work did not improve in the least. From the beginning on, work-time was not paid to the full extent. Later on, full-time workers started to be fired and replaced by time workers. The wages dropped, the quality of relations between administrators and workers as well. In the final analysis, all of this led to a real devastation of wealth and the need for the local community to look for ways to keep its last bits alive or to get rid of it.

Finally, I would like to say something about the financing of these measures that has become both quicker and more expensive. The uncontrolled market favours exploitation and allows its realisation by any means, at the same time it leads to the growth in social differences. It turns out that an ever smaller part of the population can cherish the fruits of progress. Moreover, we have gotten to a point of destruction of the natural environment at which it is unclear whether progress is still taking place for us or for its own sake. Today, it is ever clearer that one of the reasons of the crisis is uncontrolled growth and that the way to its development is in fact to master it better. And this means that the goal must be a systematic limitation of the role of the market in social life.

Ryszard Prątkowski,


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