[OccupyCU] Article recommended by Adolph Reed

[David Johnson]

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The new multinationals and the commodification of public sector work

Ursula Huws

Ursula Huws is director of Analytica Social and Economic Research and Professor of international labour studies at London Metropolitan University, London, UK. 

ABSTRACT

This article describes the growth of the new 'public services industry' and outlines the way in which government-provided services can be transformed into commodities and opened up as new fields of activity for private companies. Pointing out that many of these companies have become major transnational enterprises, it then goes on to introduce the other articles in this collection, which focus on the commodification, corporatisation and privatisation of a range of public and government support services, including health, education, transport, energy and water supply, telecommunications, waste disposal, customer services, IT support and postal services. Many of these articles focus on the impact of restructuring on industrial relations, labour processes, working conditions and occupational identities and conclude that these developments are associated with the intensification and casualisation of work, derecognition of unions and continuing elaborations of the international division of labour. 

We are used to thinking of the growth of capitalism as a process of voracious expansion. In order to feed its insatiable appetite it is engaged in a constant quest for new sources of raw materials and new markets. It also needs new products to make and new workforces to make them. In a self-enforcing cycle, these new workforces use their wages to become new consumer markets for the new products, and the profits that accumulate from these processes are invested in the development of infrastructure, the acquisition of more raw materials, research and development and other speculations which, in turn, provide the basis for opening up even more fields for expansion. 

This expansion is usually thought of in spatial terms, often pictured historically as an epic quest by heroic adventurers into unknown wildernesses from which, if they were lucky, they would return with the makings of new fortunes and the foundations of new industries - gold, rubber, furs, tobacco or oil, to name but a few. After a couple of centuries of such activities, there are few parts of the globe left where the soil has not been probed for its mineral content, the vegetation examined for what it can yield in the way of food, drugs or building materials, and the population drawn into the economy in such a way that survival without money is impossible.

The new gold rush: the new multinationals and the commodification of public sector work

One may wonder, then, what scope there is for further expansion. Is there anywhere left for a new breed of explorers to start a new gold rush? And what sort of material will the next wave of industries be made of?

This issue of Work Organisation, Labour and Globalisation starts from the proposition that a new gold rush is actually already well under way. But it is not taking place out of sight in some underexplored corner of the globe but right under our noses, in the heartlands of the developed economies, albeit unnoticed by many. 

In July, 2008, the British government published a report (Julius, 2008) which anatomised a new industry. This industry 'has grown to become a significant part of the economy, accounting for nearly six per cent of GDP and directly employing over 1.2 million people' (ibid:i). Its turnover in 2007-8 was £79 billion, an increase of 126 per cent from 1995-6, when it was £31 billion (ibid:11). In terms of value added, this sector 'is significantly larger than "food, beverages and tobacco" (23bn in 2006), "communications" (£28bn), "electricity, gas and water supply" (£32bn) and "hotels and catering" (£36bn)' (ibid:ii). What is it? The report names it as the 'public services industry' (PSI).

To the founders of many European welfare states in the post-war period, 'public services industry' would have seemed to be an oxymoron. Public services were something that was generally counterposed to industry in the discourse of the day; industry made a profit, public services didn't and, many would have argued, couldn't, since they were delivering what Marxists would have called 'use values' directly to their recipients. So what does this new 'public services industry' consist of? First, it is important to emphasise that the report's author excludes many of the services that might first come to mind - the targets of Thatcher's wave of privatisation during the 1980s. PSI, it is explained, does not include, for instance, water, telecommunications, gas or electricity. Neither does it include transport, except 'where there is a subsidy to franchised services, such as trains, this subsidy element is included' (ibid:5). It also excludes pensions. This huge and rapidly-growing sector covers only 'private and third sector enterprises that provide services to the public on behalf of the government or to the government itself' (ibid:5). 

The virgin territory that is being mined by this new generation of intrepid adventurers turns out to be the very operations of our own government - the inner workings of the democratic machine and the services that citizens expect to receive from the governments they have voted for in return for the taxes and national insurance contributions they pay. These services are classified in terms of their function. The largest category, estimated at accounting for 44 per cent of all UK PSI, is 'managed services', a category that covers the delivery of a wide range of services directly to the public, from nursing to prisons and from employment services to the training of airline pilots. Five other functions are identified: 'ICT (Information and Communications Technology) services', 'BPO (business process outsourcing)', 'construction services', 'facilities management' and 'professional services'. The latter, according to the report, 'cover a vast range of consultancy or advisory service activities in the areas of human resources, financial, legal and general management consultancy'(ibid:22). 

These functions are supplied to a range of different national and local government departments, including activities that are related to health, social protection, defence, Work organisation, labour & globalisation Volume 2, Number 2. Autumn, 2008 

education, economic affairs, public order and safety, environmental protection, recreation culture and religion, general public services and housing and community amenities (ibid:16).The fastest growing of these services, or, from the point of view of PSI companies, the most rapidly growing markets, are education (growing at 8.1 per cent per annum), environmental protection (7.9 per cent) and health (7.0 per cent) (ibid:ii).

This phenomenon is not peculiar to Britain. As a share of GDP, the PSI sector is even higher, at just over 6%, in Sweden and Australia. In absolute terms, the UK PSI market, at £79.4bn, is second only to that of the USA (at £393.bn) but it is nevertheless significant in scale elsewhere, standing, for instance, at £44.8bn in France, £32.2bn in Australia and £24.7bn in Spain (ibid:62). If a somewhat broader definition were to be applied, encompassing former public utilities like post, telecommunications, water and energy, these figures would be considerably larger.

The companies involved are typically large, many of them global in scale. The UK report remarks that:

PSI is becoming a global industry. Many international firms already operate in the PSI in the UK and they report few barriers to entry. Service provision models that are proven to work in one country are transferred to others. Rising per capita incomes in the emerging economies are driving an expansion in their demand for services such as health, education and transport and many of their governments are increasingly able to afford such improvements. (ibid:iv-v)

This picture is confirmed by a glance at the lists of leading companies across different functional groups. The leading suppliers of ICT (Information and Communications Technology) services, for instance, include EDS, Fujitsu, Capgemini, BT, Capita Group, IBM, Atos Origin, Logica, Microsoft, Accenture, Sun Microsystems, Serco, Oracle and more. Most of these companies also figure as the leading suppliers of BPO (Business Process Outsourcing), but here they are also joined by some more specialist companies, such as Vertex, a global supplier of outsourced call centre services. Serco and Atos are active in 'managed services' too, where they are joined by other more specialist companies, such as Group 4 Securicor(ibid:22).

This new sector, then, is highly developed, rapidly expanding and increasingly global in scope. Indeed, the report, which is endorsed by John Hutton, the UK Secretary of State for Business Enterprise and Regulatory Reform, argues that one of the main reasons that it should be supported by the UK government is for its potential as a new export industry:

There is significant export potential in this growth industry. Encouraging and assisting UK firms to make the most of these opportunities will generate substantial benefits not only for UK firms but also for the UK economy. The Review concludes that the best way that government can support the PSI abroad is through maintaining a competitive framework for public services which fosters a dynamic and thriving PSI in the UK. (ibid:v)

Such a strategy implies that it is no longer even necessary to justify the outsourcing of government services to global transnational companies by arguing that this will improve their quality or efficiency. It is enough simply that it boosts the growth of these companies. Just as it becomes a patriotic duty for citizens to shop, in order to help The new gold rush: the new multinationals and the commodification of public sector work 

the national economy out of the credit crisis, it also appears to be a patriotic duty to encourage privatisation, as a means of supporting its export growth.

Perhaps it is just as well, from the government's point of view, that this new rationale for outsourcing from the public sector has emerged. In the UK, which was one of the first countries in the world to privatise state-run services on a significant scale, the original arguments for doing so - that it will improve efficiency, increase quality and reduce costs - have worn a little thin over the years. The British public have become used to reading in their newspapers about fiascos concerning major government outsourcing contracts, including problems with over-runs, incompetent administration, results that are judged 'not fit for purpose' and breaches of data security. 

In June 2008, a USB computer memory stick was lost in a pub car park containing the highly confidential personal details of thousands of prisoners held in British jails. It had been lost by an employee of PA consulting, which had a £1.5 million contract with the Home Office for its 'JTrack' system which allows users to search a database to establish which persistent offenders are being released from prison (Computer Weekly, 2008). 

A month later, in August, 2008, the UK Government had to terminate another outsourcing contract after a public outcry. This time it was with the US-owned company ETS Europe which had been awarded a five-year contract, worth £156 million, to mark the English, Maths and Science test papers for 1.2 million schoolchildren. These test results should have been delivered to schools in July but a series of blunders by the company meant that many schools were not expected to receive their pupils' scores until September. As a newspaper reported,

Errors included delays in training markers and faults to an on-line results system, which led to huge backlogs. Some pupils were also marked as 'absent' in the tests despite sitting them in May. Exams for 14-year-olds were worst hit. Some 100,000 English results - one in six - were not included in national figures which were published earlier this week. Around 36,000 maths and science papers were also missing. (Daily Telegraph, 2008)

Another of the supposed benefits of outsourcing is that it exposes these activities to the competition of the market, which ensures value for money. However this argument too is difficult to sustain in situations where the suppliers are so big that they occupy what are effectively monopoly or near-monopoly positions in the market. This can be illustrated by another recent example from the UK: the referral to the Competition Commission of Capita, after its acquisition of another public sector software and services supplier, IBS Opensystems, by the Office of Fair Trading, prompted by concerns that 'the takeover would leave only two significant players in the revenue and benefits software services market' (Silicon.com, 2008).

Such stories have done much to dent public faith in outsourcing, but there is little knowledge of the sector and how it operates, and still less of how it might be possible to intervene to influence this seemingly unstoppable trend.

How has this state of affairs come about? What are the strategies that have enabled this new breed of miners to extract such wealth from the public sector? This is one of the questions that is addressed in this collection. A key part of the process involves the transformation of services into standard, replicable commodities Work organisation, labour & globalisation Volume 2, Number 2. Autumn, 2008 

(Huws, 2003). In the case of complex personal services involving a large body of tacit knowledge, communication skill and 'emotional work' (Hochschild, 1983) this is no easy task, involving many steps during the course of which: tacit knowledge is progressively codified; tasks are standardised; output measures are agreed; management processes are reorganised; organisations are broken down into their constituent parts; these constituent parts are formalised, sometimes as separate legal entities; and market-like relationships are introduced between them. All this may well be preparatory to a change of ownership or an opening up for external tender. Once the activity has been thus actually or potentially tranformed into something that could be made or sold by a profit-making enterprise, the stage is set for further restructuring in ways which form part of the normal practices of multinational companies: mergers, acquisitions, reconfiguration of parts in new combinations and the introduction of a global division of labour.

Within this broad pattern, many variations are possible. Indeed, following the process in relation to any given function within a particular organisation typically involves a tortuous process through a labyrinth of acronyms, management jargon, signposted along the way by a confusing and ever-changing array of 'policy initiatives', 'projects', 'competitive dialogues' (Julius, 2008:58), 'due diligence procedures' and 'consultation exercises'. The very difficulty of comprehending all these may in part account for the relative dearth of research in this field. Certainly it can mean that the results are not always easy to follow, with the reader struggling to remember the acronyms and follow the twists in the progress whilst still retaining a grasp of the main thread of development.

One pioneer in this field has been Colin Leys (2001) whose anatomisation of the commodification process in the broadcasting and health sectors in the UK introduced an analytical approach that can be applied elsewhere. 

Market-based provision of services is just another way - allegedly more efficient - of providing public services. To be marketed they must be commodified, and commodification first transforms them into 'products' and then further transforms these into different products, serving different ends.(Leys, 2001:211-2)

For this process to take place, Leys argues, some other prerequisites are necessary: standardisation, the creation of demand, persuading the workforce to accept the changes, and the transfer of risk.

Whilst the standardisation of work processes is a prerequisite of the commodification process, as many of the articles in this collection illustrate, the result of this process leads to further standardisation, accompanied by a routinisation and intensification of work, casualisation of employment, reductions in the proportions of workers covered by collective agreements and a general deterioration in working conditions. In most countries, public sector workers have historically been amongst the best protected, often achieving levels of employment protection, benefits and working conditions that have acted as models or benchmarks for workers in other parts of the economy. Losses to the public sector workforce can therefore have an impact that spreads beyond the scope of the organisations in which they are, or have been, directly employed.

In this collection, in an article co-written by Leys with Stewart Player, the sequence of events outlined above is described in an analysis of the manner in which standard The new gold rush: the new multinationals and the commodification of public sector work 

treatments supplied by the UK's National Health Service were opened up to the private market, in which each of these prerequisites can be identified. That the situation they describe is not unique to the UK is amply demonstrated by Nils Böhlke, whose account of the privatisation of Hamburg's hospitals does not only chart a very similar development in Germany but also shows how this contract became a crucial stepping stone enabling what had been a small-scale supplier of rural health services (Asklepios) to become a global company, supplying hospital services in three continents.

The earliest wave of neoliberal privatisation involved public utilities such as telecommunications, energy, water and, more recently, postal services. Judith Clifton and Daniel Díaz-Fuentes describe here how the formerly public organisations that ran these utilities in Europe have now become some of the world's largest transnational companies. Whilst they may still behave in a manner resembling their traditional role as the national service provider on their home territories, when they venture abroad, these companies exhibit the same sort of ruthless aggression as competing companies with an exclusively private sector history. 

This is graphically illustrated by Christoph Hermann, Torsten Brandt and Thorsten Schulten in their analysis of the commodification of work in liberalised European postal markets and the attendant decommodification of labour, in a sector where public sector workers had previously, in many countries, managed to establish that postal delivery work was a 'job for life', sometimes even with civil service status, with working conditions that were significantly better than those for equivalent manual workers in other parts of the economy. Their analysis does not only show the common trends that emerge when national 'incumbents' start acting as multinational companies; they also reveal that national policies still make a difference to how they behave in any given context. The state still plays a shaping role in the outcomes in any given case. 

This point is illustrated very clearly by Chris Dixon in his article on the relationship between the Vietnamese state and private companies. Here, privatisation does not involve a straightforward handing over of power from the public to the private sector but a complex 'reformatting' of state control, exercised both directly and indirectly in the formation of state enterprises and joint ventures and the restrictions placed on the operations of foreign companies. The relationship between the power of the state and that of the foreign companies is not one-way, however. Foreign-owned international consultancies play an important role in helping the government formulate its privatisation strategies, thus, contributing to the opening up of markets from which these same companies, or their private sector clients, may benefit in the future.

The changed relationship between governments and the trade unions that represent the formerly public workforce is the topic addressed by Ruth Barton and Peter Fairbrother in their analysis of the corporatisation and privatisation of railways in two Australian states. This article too demonstrates the way that these relationships can only be understood by taking into account the specifics of the local context and its history. It reveals that, somewhat paradoxically, where trade union organisation remains strong, its relationship with the new, private employer may under certain circumstances become clearer after the restructuring - with a simple, direct bargaining relationship replacing one that may have been confused in the past by party-political allegiances.Work organisation, labour & globalisation Volume 2, Number 2. Autumn, 2008 

Birgit Mahnkopf focuses on education services, arguing that privatisation of public services does not just have implications for workers and for the users of services but constitutes a more general attack on social cohesion and democracy. As individuals are reconstituted as consumers and small shareholders they cease to be able to function effectively as citizens and are disempowered. 

Most of the remaining articles in this collection look more closely at what these changes mean for labour. Melanie Samson shows how the privatisation of waste management in South Africa led to a regendering of work organisation, in which the company gave a new high priority to revenue-generating services, meaning that the highest cost of the restructuring (in terms of work intensification, increased stress and increased danger at work) was borne by women workers in the non-revenue-generating activity of street cleaning.

Annika Schönauer describes the restructuring of customer services in the public sector and their transformation into call centres. Whilst also drawing attention to national variations in different European countries, she shows that there are also some general trends. In nearly all the countries studied - Austria, Italy, Sweden, the Netherlands and the UK - though in different ways and to different degrees, this has led to a casualisation of employment, intensification of work, changes in skill requirements and loss of trade union representation, especially when these call centre services are outsourced.

Simone Dahlmann draws on in-depth interviews with IT professionals in the UK to tease out what it means to be abruptly transformed from a public sector worker to the employee of a global IT company. This change, as she clearly shows, is much more than a simple change of job but involves a fundamental shift in values and in professional identity. These workers had made a conscious decision to work, as they saw it, for the good of local communities of which they felt themselves to be a part, choosing a friendly working environment and good work-life balance over high earnings and career ambitions. Whilst their new employers could, in theory, offer them much greater chances of advancement, taking these up would involve uprooting themselves from these communities and adopting a set of values which they saw as alien and which they emphatically rejected.

The final article in this collection, by Nicole Mayer-Ahuja and Patrick Feuerstein, takes us inside a global IT company and looks at its international division of labour from a different perspective. Although their case study involves the software product division of one of these companies, rather than the type of service division which would be involved in providing IT services to the public sector, as the article makes clear, IT production and IT service supply operate in the same global IT labour market and are often delivered by different divisions of the same global companies. This article, however, shows that these IT companies' strategies of seeking low-wage skilled labour in locations like Bangalore, in India are not without their contradictions. In yet another illustration of the argument that 'place still matters' they point out that the very features of the Bangalore labour market that attracted the company to locate there in the first place (its abundant supply of highly trained software engineers and relatively low salary costs) also create problems that challenge the company's ability to act in a truly global way, with 'one size fits all' HR policies and a seamless movement of work between teams The new gold rush: the new multinationals and the commodification of public sector work 

in different parts of the world. This is because the Bangalore labour market has many specific features that have led to an extremely high rate of staff turnover with employees hopping from one IT company to another 'for the sake of a few rupees'. The company's strategies for managing these high attrition rates force managers to adopt policies which run counter to those they have developed in Germany, where their employees typically have a long experience with the company and are used to being managed with a relatively light hand. In attempting to bridge such gaps, they can either increase the level of control and standardisation in Germany, which will lead to a loss of loyalty among the workers there, or raise the salaries and improving the promotion prospects of the Indian workforce, thereby eroding precisely those competitive advantages of 'place' that drove them to select Bangalore as a location in the first place.

The workers described in these last two articles - the settled middle-aged citizens of medium-sized towns in Britain, and the ambitious young software engineers at the heart of India's booming IT sector - may seem to be worlds apart. However, as the other articles in this collection make clear, their working lives are increasingly likely to be intertwined in the future, as employees of the new transnational companies for whom the welfare states of the developing world are simply one of the many sectors in which profits can be made. Like their fellow-citizens, they are also increasingly likely to find themselves on the receiving end of the policies of these companies or others like them in all aspects of their lives, in childhood and old age and in sickness and health.

© Ursula Huws, 2008.
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