Freeport's Lesson
Due to extensive news coverage, the rioting by indigenous Irianese last month at PT Freeport Indonesia earned the American Freeport-McMoran Copper and Gold subsidiary a bad image worldwide. The incident also brought home the stronger message that a business has social and moral responsibilities to a local area and its people.
Freeport's turbulent experiences show that it is no longer enough to be a good corporate citizen in the eyes of the government. A big company should behave like a decent neighbor to its local community. This is especially so with a venture like Freeport which, due to the nature of its extractive business, needs a large concession area. Otherwise not even security officials will be able to protect such a company from acts of hostility by its surrounding community.
True, Freeport and its chairman rank among the top 25 tax payers in Indonesia. Yet the local tribespeople -- most of whom still live a Stone Age existence -- simply do not care much about the large royalties, fees and taxes paid by the company to the government. The blunt reality discernible by their simple way of thinking is that since 1973, Freeport has extracted a great deal of wealth from their land but has contributed very little to their development. And in so far as Irian Jaya is concerned, the impact of Freeport's ignorance has been exacerbated by the tribespeople's perception that the central government in Jakarta has not returned to them a fair share of the revenues from Freeport's operations.
It is hard to understand why it has taken almost 24 years and mass rioting to rudely jolt Freeport into realizing that setting up a modern and prosperous enclave amid the jungles of primitive tribespeople requires extra effort and patience to help develop the local community. Its smooth, peaceful operations over the previous 23 years, facilitated by the full support of its private security personnel, seems to have blunted the business common sense of Freeport's top executives, who after all come from a country which often boasts of being the world's conscience of environmental and human rights.
They took their prosperous corporate operations for granted, assuming that as long as Freeport fulfilled its contractual obligations and had the support of the central government and local administration that there was no need to worry about the company's moral and social responsibilities to the people. They apparently did not realize that even primitive tribespeople would not forever tolerate what they perceive to be an unjust distribution of wealth.
Now that Freeport has been taught a lesson, admittedly a costly one, it should act immediately to realize its social and moral responsibilities to the local people. Social development, however, does not mean simply pumping money into the local community. That would only create short-lived, artificial prosperity. Nor does it mean giving special preferences to local suppliers at the expense of quality and long-term development of sound entrepreneurship.
What is urgently needed is well-managed programs to develop local businesses, human resources and infrastructure and to protect the environment. This requires serious, long-term commitment and a great deal of patience because what the local people really need is social, technical and business competence. Only competent people can comprehend the meaning of modern, competitive business and become good, supportive hosts to modern business operations.
Other businesses or investors, notably those in resource-based ventures, should also learn from Freeport's experience. They should do away with the arrogance that appears to come with the securing of licenses from the government, as though the licenses give them the right to do whatever they like. They should implement from the outset their social and moral responsibilities to their surrounding communities. Good behavior is always good business.