Top-Down Reform Versus Bottom-Up Restructuring

F. Top-Down Reform Versus Bottom-Up Restructuring

The transition from an inefficient public operating port to an efficient, commercially operated landlord port can follow different paths but will generally lead to the same conclusion, a number of private and mixed public-private companies providing port services under contractual relationships with the owner of port land and infrastructure. This transition takes place at two levels, the divestiture of individual port services and the commercialization of the port administration. Efforts to reform the port sector can follow one of two approaches, a top-down reform of basic port institutions and a bottom-up restructuring of port activities.

The top-down reform from a government department to a public authority or corporation and finally to a commercial, limited-liability company involves considerable time and changes in legislation. It requires a rethinking of government policy towards ports and public service. This reform is usually done without the support of the port bureaucracy or the political appointees who benefit from both the power and inefficiency of the existing institutions. 57

The top-down approach is not only slower but produces a corporate structure that continues to perform port operations. It changes the institutional structure but not the management. One of the remarkable elements of the transformation of the port sector in Malaysia through corporatization of its ports is the low turnover in management personnel. This is not unreasonable since the pool of persons experienced with port administration is limited but it also means that many practices and attitudes remain unchanged. There have been changes but these are the same as might have occurred with public port administration. This phenomenon can also be seen in the UK management buyouts.

The bottom-up approach provides a more rapid and dramatic form of institutional change. Most port legislation allows, either explicitly or implicitly, for the transfer of port activities and assets to the private sector for a limited period of time. This transfer allows for a complete change in management and working conditions. The pace of change can be adjusted to local conditions, in particular the willingness of labor to accept change and the development of local capacity to manage port activities, but the pace will be determined by a new management. Of equal importance, this approach allows for some experimentation in developing new contractual relationships between the public and private sector and allows the process to build upon its successes.

Since the top-down reform of the port institution is a slower process, it can often proceed in parallel with the bottom-up transfer of port activities. In this case, transfer of port activities represents the critical path. By the time that the decision is made to corporatize the port or to transfer its responsibilities to an independent national agency, all port activities should have been transferred to the private sector. The objective would then be to select the institution best suited to hold title to public land, administer contracts between the government and the private sector and enforce regulations with regard to health, safety and anti-competitive behavior.

Although the experience with reform of the institution responsible for management of the port sector remains limited, best practice supports a bottom-up approach.