Getting ready for competition

Privatization — a frightening yet promising word. And also a cause of great upheaval for workforces and HR managers. For two decades the public and private sectors have pressed against each other like vast tectonic plates, the private sector occasionally grinding against and rising over the public one.

Both sectors espouse their own ideologies that can make the relationship between them difficult.

In the 1980s, the private sector ethos thrived largely because of the crumbling of the most visible and flawed example of the over-engineered public sector — the communist states of Eastern Europe. Suddenly the private sector was seen not merely as a social good — it was seen as the engine for all other social goods.

Underneath their ideologies the two sectors worked quietly together to conduct their respective businesses.

But since the 1980s, there has been change in the relationship between the two sectors. The most obvious and traumatic practical application has been privatization.

Privatization is not inherently good or bad, nor is the trauma it causes always regrettable. Shock therapy sometimes helps the patient. But the HR manager should understand privatization and work within it to preserve viable workforces.

The modern seed for privatization was sewn in the U.K. by Margaret Thatcher’s government, which developed a systematic program to transform Britain from a nation virtually paralyzed by public sector unions into (to quote Napoleon) a “nation of shopkeepers” again. Vast public sectors were tidied up for sale to the private sector. This produced a nation more adept at global competition, but some argue it also produced two nations economically and socially: a rich, optimistic south and an impoverished, bleak north.

Thatcher’s privatization initiatives attracted attention among the resurgent Republicans of the United States, and privatization embedded itself in the policies of international lending agencies like the International Monetary Fund and the World Bank.

Canada remained largely isolated from the tide of privatization until recently. Today its chief banner-bearers are governments in Ontario and Alberta.

Privatization, in Canada as elsewhere, takes several forms:

Deregulation: Removing government legislation and regulation that hamper the private sector’s ability to do business. This does not transfer assets from the public to the private sector, but it gives the private sector greater scope within its traditional sphere.

Competition: The removal of state-sanctioned monopolies. Few such monopolies have existed in Canada compared to other jurisdictions, but alcohol sales and the generation and distribution of electricity have been the most obvious monopolies. Several Canadian provinces are in the throes of introducing competition into the electricity sector. Ontario, for instance, has split the behemoth Ontario Hydro into parts, and one part will compete with private sector firms to generate and sell electricity to middleman buyers.

Transfer: The sale of public sector organizations to the private sector. Uncommon in Canada compared to other jurisdictions, it remains a possibility in sectors like electricity. Until recently the Ontario government was considering selling Ontario Hydro to the private sector.

Contracting out: This involves engaging the private sector in providing a service that had formerly been provided by the public sector. Examples are the operation of jails by the private sector, and toll highways built and operated by the private sector.

The most contentious field of conflict for supporters and opponents of privatization is Canada’s health system. Proponents of privatization argue, for instance, that privatization falls within the intent of the Canada Health Act as long as the overall system remains publicly administered (which the act requires), even if parts of it are privately administered.

Joining the fray are an array of civic organizations that government funded in the past and often still funds. They see the introduction of privatization as a threat to that survival. Ontario, for instance, created Community Care Access Centres (CCACs) several years ago. Each CCAC arranges community care for people, often after discharge from hospital. CCACs provide little care directly. They contract with external providers (home nursing services or homemaking services) to provide the care. Previously these organizations, provided these services through government-funded home care programs.

When CCACs had to negotiate their first contacts for services, however, Ontario required competition for service contracts to be opened to a wider range of applicants, including for-profit providers. Ontario also required CCACs to give particular weight to cost of services in the first round of contracting, so a number of for-profit organizations underbid traditional civic providers like the Victorian Order of Nurses, virtually eliminating them as a presence in some communities.

An irony of health-as-battleground is that health systems are already highly privatized. Most doctors are small business persons or groups operating in a regulated environment, the expanding pharmaceutical share of health costs is almost completely private sector, insurance companies are major private sector players in topping up services, and nursing homes often belong to for-profit chains.

Human resources managers that find their organizations coping with privatization will face HR challenges in several areas:

•HR managers in public organizations may oversee massive downsizing as their organizations are made to look more attractive to private sector buyers, or if the organizations are to survive in a competitive environment for the first time, they will downsize to compete.

•Civic organizations that will compete with for-profit organizations for government service contracts will need to incorporate a competitive edge to their organizational cultures, perhaps balancing off quality and cost more than they have done in the past.

•Workforces will remain apprehensive about potential job loss and deterioration in working conditions caused by competitive streamlining or loss of contracts.

John Butler is the president of The Agora Group, a Markham, Ont.-based HR and health care management consulting firm. He can be reached at (905) 294-9762.

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