Doing Business : New Shots Fired in Indonesia Wage War : U.S. labor is urging trade action against a land where daily take-home pay is measured in cents.


Suyatmi, a shy, 20-year-old factory worker, is too poor to know much about sneakers. She never heard of Bo Jackson and is too skinny to care about aerobics. Her world consists of a rented, five-foot-square room in a shantytown where she sleeps on the concrete floor with three other young women.

Every day at 7 a.m., Suyatmi begins work at P. T. Hardaya Aneka Shoes Industry, one of six companies in Indonesia making sports shoes for Nike Inc., the spectacularly successful U.S. sporting goods company. Her production “line” of 30 workers produces 350 pairs of Nike’s glitzy footwear a day.

Suyatmi and her co-workers earn a base salary of 1,900 Indonesian rupiahs a day, the equivalent of just 91 cents. Working a six-day week, with at least two hours of overtime each day, she takes home about $14 per week and is provided with lunch and a bus ride to work.


“Some days it’s hard,” she said. “But I’m just happy to have a job.”

Workers like Suyatmi are at the heart of a deepening controversy between the Indonesian government and American labor unions and human rights groups, which charge that manufacturing workers are routinely exploited here.

Last month, the Bush Administration surprised union activists by announcing it has agreed to review workers’ rights practices in Indonesia before deciding whether to continue granting Indonesian products a special import status called zero-tariff benefits. Losing the benefits would hurt Indonesian exporters.

The Indonesian government acknowledges the problem of poor wages but says that revoking its import status would only cost jobs and make life harder. Nike argues that it provides employment for thousands of workers and that its contractors endeavor to conform to local labor laws.

The controversy highlights a continuing debate not only in Indonesia but throughout Asia’s rapidly developing economies about the costs and benefits of developing export industries based mainly on the availability of cheap labor.

From South Korea to Taiwan and Thailand, industries that depend on low-cost labor--such as textiles and shoes--have helped these countries climb the ladder of industrialization, raised living standards and eventually propelled them toward more prosperous high-tech manufacturing. Now, countries such as Indonesia, Bangladesh and even Vietnam want to get a foot up the ladder, too.

Next month, U.S. Trade Representative Carla Anderson Hills will hold hearings on petitions filed by the human rights group Asia Watch and the International Labor Rights and Education Research Fund that accuse Indonesia of pressing development at the expense of workers’ basic rights.


“The right to freedom of association, the right to strike and freedom from forced labor are not guaranteed in Indonesia,” said the Asia Watch petition. “In fact, when workers have attempted to form independent unions or to carry out strikes, they have been hindered by excessively restrictive government regulations and by harassment, intimidation, intervention and beatings by members of the Indonesian security forces.”

With a population of 185 million and an economy dependent on oil exports, Indonesia faced a clear imperative to create jobs. The development of manufacturing has helped the country achieve breathtaking growth, with the gross domestic product, a measurement of goods and services, rising at more than 6% a year for the last decade. Textile and apparel exports grew 35% in 1991 alone, reaching $3.5 billion, while footwear exports rose 62% to $955 million.

Foreign investors have been attracted to Indonesia by its political stability, abundant labor and low wages. President Suharto’s ruling Golkar Party has governed with a firm hand since 1965, tolerating no political opposition or unrest. Until 1989, strikes were banned.

The other side of the export coin consists of the harsh conditions in which many workers toil.

“The situation here is similar to the end of the last century in America and Europe--half work and half slavery,” said Jakarta labor activist Indera Nababan, who closely monitors the shoe industry. “The workers are exploited for low wages. They are subsidizing the development of the country.”

A report prepared by the U.S. Embassy in Jakarta noted recently that while the gross domestic product has surged, workers’ real wages--pay after taking account of inflation--have been “basically flat” since the late 1980s.

Instead of using a national minimum wage, Indonesia sets minimum pay on a regional basis. In Tangerang, an industrial boom town an hour’s drive from Jakarta, the minimum wage is 2,100 rupiahs, about $1 a day, and that is set to rise to $1.20 next month. Only 75% of the minimum has to be paid in cash, however, and the remainder can be food or transportation.

By government estimates, the minimum wage here is equal to just 67% of what officials have termed the “minimum physical needs”--a marketbasket of expenses such as food and housing that is considered the basic poverty line.

In regions farther away from Jakarta, workers fare even worse. In Jogjakarta, for instance, the minimum wage is just 40% of the minimum physical needs.

“As far as take-home pay is concerned, this country is the worst I’ve ever seen--not even Haiti is as bad,” said Valentin B. Suazo, the local representative of the Asian-American Free Labor Institute (AAFLI), an arm of the American AFL-CIO.

Making matters worse, a survey by the Asian-American Free Labor Institute found that 56% of companies failed to pay even the legally mandated minimum wage, with reports of some workers taking home only 40 cents a day.

The number of strikes in the country has risen from 61 in 1990 to 112 last year. According to the U.S. Embassy report, the vast majority of strikes occurred at factories where employers refused to pay the minimum wage.

Payaman J. Simanjuntak, director general of the Ministry of Manpower for Industrial Relations, said in an interview that the American threat of denying Indonesia trade benefits would hurt exports and thereby reduce the number of jobs, not help workers. He said the government is hopeful that minimum wages will at least equal the poverty line by the end of 1994.

“We’re in a terrible situation,” Simanjuntak said. “If we raise the minimum wage, the factories will shut down and move to China or Bangladesh. Your companies give us no alternative.”

The AFL-CIO has waged a public relations campaign for several years against Nike and Reebok, another maker of expensive sports shoes, in an effort to shame them into raising factory wages. So far, the campaign has produced few results, although conditions at factories that produce Nike and Reebok products are generally better than at other shoe and garment manufacturers.

But one South Korean-owned company that produces Reeboks was shut by a strike last year because the workers complained that the food served for lunch was rotten four days in a row.

“We’re taking a lot of heat we don’t feel is right,” said John R. Woodman, general manager of Nike’s operations in Indonesia. “Rather than exploiting workers, we feel we are contributing to the economic conditions of Indonesia by indirectly employing 30,000 people.”

Woodman said the six companies making shoes for Nike are told when they sign a contract that they are expected to follow Indonesian labor law.

But an AAFLI-sponsored study of the six companies turned up two widespread violations of the law: payments below minimum wage to employees on “probation” for periods of up to one year and “compulsory overtime” that well exceeded the country’s 40-hour maximum workweek.

“We feel workers employed by Nike are better off than before they started working,” Woodman said. “They are better off than they would be without that job. That’s difficult for people who don’t understand Third World economics to understand.”

In its Indonesian operations, Woodman explained, the cost of labor actually constitutes only between 10% and 15% of the overall cost of making a shoe, with the bulk being imported materials.

Simanjuntak contends that, for each pair of shoes, Nike and Reebok typically pay $1 for labor and $1 for overhead, spend $9 on materials and take $59 for the company.

One American company, jeans maker Levi Strauss & Co., has issued a formal “code of conduct” that it requires Asian garment companies to agree to before they can win Levi Strauss contracts. The code prohibits wages below the legal minimums and all worker “exploitation.”

Nearly everyone agrees that poor treatment of workers in Indonesia is, to a considerable extent, the result of the weakness of the only legal labor union in the country, the All-Indonesia Workers Union, which is widely known by its Indonesian initials, SPSI.

Imam Soedarwo, general chairman of the union and also a member of Parliament for the government party, acknowledged that “we are not strong enough,” but he blames the problem on Indonesia’s demographics. “Each year, there are 2.5 million new workers looking for jobs. We’re creating a Singapore every year, so how can a union have any strength when there is such oversupply?”