Get Paid to Reform?

Anyone who has tried to provide a plan to a minister for implementing reform (market-based ones) in the public sector will soon run into the thorny issue of labour unions. It is a tough nut to crack! Ironically, West Bengal seems to have have found a way, and that too by making somebody else pay for it.

West Bengal's state-owned handloom promotions company, Tantuja, ... employs 1,100 people. No one can remember when the government enterprise set up in the 1950s to serve "the marginal weavers in villages in West Bengal" last made a profit. Last year it lost 80m rupees. Tantuja is almost certain to be closed down using taxpayers' money from Britain. ... In an unprecedented move, the UK's Department for International Development (Dfid) will spend 15bn rupees (£200m) in West Bengal to fund generous retirement packages for employees of loss-making state-owned companies, which make up almost two-thirds of the state's 90 public sector units (PSUs).

Read more about it in the article Reform or perish: Marxist state's sunrise tinges red rupee pink on the Guardian.

The remarkable aspect (if one depends on the anecdotal evidence) is the reluctant acceptance of it by the employees. Perhaps there is a lesson hidden in it. In terms of realpolitik it is probably easier to let the loss-making organisation "bleed" and then convince them to tread on the path to reform. Especially if somebody is willing to pay with no strings attached!

Cross-posted on the Indian Economy blog.