By Raihan Woodhouse
Image Credit: Bloomberg
Chaos, the epitome of 2020, has engulfed the streets of every major Indonesian city across the vast archipelago. In response to economic and demographic challenges presented by the COVID-19 pandemic, President Joko “Jokowi” Widodo and his administration implemented a 905-page omnibus legislative measure which amended more than 75 national labor laws. The legislation aimed to eliminate excessive bureaucracy across Indonesia’s industrial and service laws in an attempt to attract foreign direct investments [FDIs] for future economic growth. Although President Jokowi had anticipated favorable reactions to the legislation, it was an ill-timed attempt to stimulate an economy already deep in a recession. The bill was met with instantaneous criticism, especially by university students, activist groups, and trade unions. In its essence, the omnibus bill abolished the sectoral minimum wage in favor of minimums set by regional governors; as well as reduce severance pay from 32 months to a maximum of 19 months. Moreover, businesses will only be required to grant workers one day off per week instead of two and allowable overtime will be restricted to a maximum of four hours in a day and eighteen hours a week. Citizens argued that the legislation fueled the socio-economic classes divide, advancing a system whereby the rich get richer and the poor get poorer. Thus, Indonesians must now confront the age-old argument surrounding modern capitalism: to what extent should economic growth be prioritized over the living and working standards of citizens? As an Indonesian watching the situation unfold from afar, I cannot help but perform my duty as a citizen to address the questions surrounding the issue.
Before discrediting Jokowi’s decision to amend labor laws, we must understand the full scope of the issue to respond appropriately to the situation. First, it is important to note that during a time of economic uncertainty, the amendments intend to stimulate both short-term and long-term domestic economic growth. For the past decade, Indonesia’s GDP growth rate has remained stagnant, failing to realize Jokowi’s campaign promise of attaining 7% growth per annum. Critics argue the quest for a 7% growth is unrealistic in consideration of the challenges introduced by the US-China trade war and the COVID-19 pandemic, which together, registered a 9.2% unemployment rate. Contrary to popular belief, however, since Donald Trump implemented tariffs on Chinese goods in 2018, Indonesia has been presented with a grand window of opportunity. This is because China, the industrial machine of the modern world, has displayed signs of stress given a decline in economic growth since 2007. While the US has counteracted China’s international economic influence to a certain extent, the trade war has shifted the center of manufacturing towards the region of Southeast Asia, most notably to Malaysia, India, Thailand, Indonesia, and Vietnam [MITI-V]. The omnibus bill aims to mimic China’s cheap and flexible labor policies to attract FDIs. This is Jokowi’s bold strategy to transform Indonesia into the next global manufacturing center: to take advantage of the current global economic climate.
However, such growth would cost the working class their quality of life. Nowadays, it seems as if the only way a nation can generate wealth is to cater to the demands of foreign institutions. As a characteristic of modern capitalism and hyper-globalization, the demands of High-Income Countries [HICs] and Transnational Corporations [TNCs] are, to say the least, inhumane. This is because they strive to search for cheap labour. They have prioritized their profit margins over the safety and security of workers in foreign nations to which they have outsourced their manufacturing. For example, after China entered the World Trade Organization, technology-giant Apple increased global interactions by outsourcing its assembly operations to Foxconn, a Taiwanese multinational firm. As the TNC collects greater profits due to larger profit margins, the workers in China are forced to work under non-transparent management for 12-hour days every day in conditions where “exploitation is routine and depression and suicide have become normalized,”. The introduction of this omnibus bill essentially incentivizes the occurrence of unethical social activities in Indonesia. Overall, the working class’ motivations for protests is palpable and has become a topic of international debate. Sharan Burrow, the Secretary-General of the International Trade Union Conference, commented, “it is staggering that … the government would seek to further destabilize people’s lives and ruin their livelihoods so that foreign companies can extract wealth from the country.” Jokowi responded to the nation and international community by (re)stating that he would like “to simplify the licensing and bureaucracy [process] … so that Indonesia would be faster to respond to every world change.” To that end, whilst the bill has received overwhelming criticism, it is important to reiterate that the legislation is prioritizing long-term prosperity.
Even though the legislation would introduce largely unpopular social changes in the short-term, it is necessary to look at the bigger picture. Citizens work and commit sacrifices in the present so that future generations can prosper. Economic prosperity will allow for everyone to attain a higher standard of living—a possibility neglected by the opposition. Indeed, there are alternative ways to accumulate wealth, but becoming the manufacturing center of the world almost guarantees economic prosperity. It has been observed time and time again from Europe to North America, and now Asia. The bill is Jokowi’s conscious decision to become the next manufacturing center of the world. Without the pandemic, cheaper labor resulting from lowering the minimum wage would help support the economy. According to Paul Krugman, a distinguished Professor of Economics at the Graduate Center of the City University of New York, “higher wages reduce the quantity of labor demanded and hence leads to unemployment.” Advocates for hiking the minimum wage refuse to accept the practicality of human capital as a market item—a concept priced simply by the economic notion of supply and demand. Unfortunately, the perception surrounding minimum wage has become less practical and rational towards macro-level implications. This is because we are accustomed to focusing on the micro-level where the minimum wage is an easy way to earn money by the hour. The greater the minimum wage, the better, right? Not entirely. In a study investigating the effects of raising the minimum wage in multiple nations including Indonesia, David Neumark, a Professor of Economics at the University of California, and William Wascher of the Federal Reserve Board, evinced that a steady increase in the minimum wage would reduce employment and the skill-level of less-skilled young workers, create an unequal distribution of wealth, and increase the price of general goods and services. For example, a 2003 study found that while the impact of raised minimum wages was inconclusive in regards to large domestic firms, large foreign firms were negatively affected. Additionally, for smaller businesses, the estimated effect on employment is negative overall as wealth is concentrated unevenly over a specific area despite a significantly faster rate of employment in Jakarta. The evidence points towards a greater extent of negative impacts, especially for foreign firms, the main target audience of Jokowi’s omnibus bill.
The question regarding minimum wage is one of morality: whether the government is willing to confront a possible uprising, wide criticism, and risk a loss in overall productivity. Nevertheless, Jokowi has reassured Indonesians that wages would not be cut. Coupled with cheaper labor, the bill hopes to remove red tape across Indonesia’s complex business and labor laws to progress into the top 40 of the “ease of doing business index,” in which it currently ranks 73rd, significantly behind competing MITI-V nations. An improved placement in the aforementioned index would reflect an objective improvement of the business environment enticing more foreign investors.
Jokowi has set his sights on further propelling Indonesia’s status as an emerging international superpower by exerting greater economic influence on the global community. The omnibus bill reveals that, while attaining potential economic growth is certainly within Indonesia’s reach, it requires agreement at all levels of society. Therefore, while Jokowi’s intentions are for the country’s benefit, his policies are excessively harsh on workers. A promptly crafted new omnibus bill must be introduced—preferably when the crisis of the pandemic is resolved—by Jokowi and his administration with laws suggesting reasonable changes to work environments, compensation, hours, and severance. Moreover, the new bill should consider the environment alongside the continued reduction of unnecessary bureaucracy. Altogether, the possibility of capturing potential long-term economic growth in Indonesia can be achieved with a national consensus.