Should employee participation be part of privatization?

Employee participation in the financial and managerial aspects of firms has increased as governments and owners have tried to enhance productivity, broaden ownership, or facilitate privatization transactions. Many developed countries are experiencing rapid growth in schemes to introduce or enhance various forms of employee participation. For example, about 11,000 firms employing 11 million workers in the United States have some form of stock ownership for employees. An estimated 500,000 employee profit sharing plans exist in the U.S., and participatory plans are a major element in the industrial policy of such countries as Japan and Sweden. In developing countries, plans for employee participation have emerged only recently. The effect of employee participation schemes on firm performance is mixed. Without privatization, evidence is strong that combining employee ownership or profit sharing with some direct participation produces a positive impact on firm performance. Employee ownership and other forms of participation do appear to ease privatization. Employee ownership provides a sense of security to employees that the risk of redundancy in the firm after privatization will be less. Where layoffs do occur after privatization, share ownership may complement a severance package. Share ownership also may mute worker opposition to privatization in those countries where employees believe that they have some right to ownership in the firm.