Globalization and social dialog in Indonesia

The following article is based on a paper presented at a seminar on globalization by Iftikhar Ahmed,director of the International Labor Organization (ILO), Jakarta. The seminar, which was held in Jakarta from Aug. 24 to Aug. 26, 1999, was organized by the International Labor Organization, the Japanese Embassy and the Indonesian Ministry of Manpower.

JAKARTA (JP): Social dialog means an exchange of views among organized interest groups in the labor market on social policies. Voice mechanisms include both informal ad hoc as well as permanent institutions for discussion and negotiations. Participants of social dialog broadly speaking include organized civil society groups in addition to the traditional trade union and employers' organizations.

As we are all aware the phenomenon of globalization broadly consists of the widening and deepening of the integration of national economies through international trade and increases in financial flows among nations.

In this sense, the mutually beneficial interlinkages between the process of globalization and the promotion of social dialog could be enormous.

Globalization in Indonesia is virtually synonymous with the export-led growth period beginning from the mid 1980s.

One important way in which globalization has contributed to social dialog is through the mobilization of international support for the ratification of the fundamental human rights conventions of the ILO. As we are aware the ratification of convention 87 on the freedom of association has led to a proliferation of trade unions.

This provided the basis for social dialog which led to the subsequent ratification of the three core conventions concerning forced labor, discrimination in occupation and employment and minimum age of employment.

Simultaneously, the labor law reform process including the formulation of the trade union bill and the labor dispute settlement bill was propelled by social dialog.

The process of globalization (which coincides with Indonesians export boom era from the mid 1980s until the present crisis), the acceleration of urbanization, industrialization and formulization of the labor market promoted high levels of employment, reduced income inequality, narrowed wage differences in term of gender and skills.

A 1995 survey of industry covering nearly 23,000 establishments employing over 400,000 workers, revealed that foreign-owned companies (covering electronics, garments, toys and footwear) hired a larger proportion (more than one-half of total employment) of women workers as compared to that of privately- owned industries and wages paid to all of their workers are twice as high as that of those paid by private companies to their employees.

That globalization is favorable to women's employment is revealed by the same survey which found that the larger the fraction of a company's output was for exports the larger the fraction of women in the company's total workforce.

The benefits of globalization are also accompanied by hazards as the country becomes more susceptible to external shocks through the volatility in the flow of international financial capital.

The set back in the short-term to socio-economic progress as a consequence of the economic crisis should be distinguished from the longer-term benefits of globalization as discussed above.

Emerging empirical evidence from the post-crisis period in Indonesia suggests that manufacturing companies involved in massive retrenchment of women workers at the initial stages, hired younger women workers with lower wages when they reopened their business subsequently. Compared to male workers, it appears that the women are the last to be hired and the first to be fired.

As we are all aware, much of the world's cheap labor is female. As globalization permits footloose corporations investing wherever labor is cheapest, there are many examples of multinational companies moving from country to country and leaving thousands unemployed and driving down wages. This nightmare is now a reality as foreign investment relocates for instance, from Indonesia to Vietnam in search of even cheaper labor.

Furthermore, profits from foreign investments are not always directed to higher remuneration or improved working conditions of the lowly paid toiling workers.

Indeed, one major footwear multinational company did not hesitate to pay a sports super star a fee for advertising its shoes which amount was the equivalent of what this company pays its entire Southeast Asia workforce, mainly female in one entire year.

The process of social dialog could help minimize such adverse impacts of globalization. Indeed, trade union participation in the independent civil society monitoring of the social safety net program in Indonesia will improve the targeting and extension of social protection to the poor affected by the recent negative impacts of globalization.

The adverse social impacts of the crisis born out of the globalization process (sudden reversal of the flow of short term capital) has strengthened social dialog which needs to be consolidated by making permanent the social institutions for social dialog.

Indonesia has to guard against repeating the experience of other crisis-hit countries of East Asia where collective bargaining coverage is low and smaller than trade union representation which is also weak.