Selective enforcement of labor rules cuts job opportunities

Selective enforcement of labor rules cuts job opportunities

Daniel Kingsley, Jakarta

Indonesia's recently promulgated labor regulations have
created a discerning attitude in the private sector towards
export-oriented sectors.

Informal research shows that foreign and domestic
stakeholders are not optimistic about maintaining current
investment and new investment given the effect these laws are
having on production costs and delivery schedules.

This applies to both foreign direct (FDI) and domestic
investors, but the impact on employment may be most significant
in institutions supported by FDI in export-oriented sectors, as
these investors tend to also bring market access for exports.

To compound this problem, these regulations have been shown to
be arbitrarily implemented. Foreign investors will look for other
alternatives in the Asian region, add the unseen costs after
careful risk evaluation and will research hidden costs associated
with an arbitrary regulatory environment that is selectively
enforced.

The private sector emerging from the reformation period should
now be in a position to create employment as the government
promotes macroeconomic stability. However, given that it is
mostly consumer spending and repatriation of Indonesian capital
that has fed a 4 percent growth rate over the past two years, it
is necessary to evaluate the acute problems facing businesses and
sectors that should be generating increases in employment.

Although the well-publicized issues of judicial reform and
legal uncertainties are keeping some investors from choosing to
invest in Indonesia, it is the over-regulated and selectively
enforced labor laws that are a major factor in the decline in
employment opportunities over the past two years.

We have conducted informal research by surveying commercial
law offices, business associations, public accounting firms and
public organizations, and the consensus is that the private
sector has become over-regulated, and this has forced companies
to stop operations and led to huge job losses in many sectors.

Now it is time for an end to the selective enforcement and the
proliferation of new labor laws and regulations that stymie the
private sector. An effort must be made by the government to focus
on the short-term, realistic and obtainable goals that can
support the number one need in Indonesia today: Jobs.

Workers rights are important in any democracy, but the
practical reality is that the opportunity to have a job is one's
most important right. If excessive labor regulations cause
companies to close down or transfer operations to other competing
nations, it is the employed worker who loses. The investor,
entrepreneur and businessman lose as well, due to increased labor
costs and declining profits.

A priority of the government should be to measure regulatory
transparency and inequitable selectivity in regulatory
enforcement. To measure the degree to which highly visible
companies, such as international joint ventures and export-
oriented firms, which are traditionally involved in high
employment enterprises, are forced to deal with the new labor
regulations.

In general, these regulations are increasing labor costs, but
selective enforcement of these regulations are forcing companies
in key sectors with high employment to close down.

In other words, the most transparent companies, those that
follow best business practices, are choosing to leave Indonesia.
Selective enforcement places a high burden on those companies,
while those that are able to evade these regulations, are capable
of continuing in business, but will generally not follow best
business practices.

These will not be the foreign investors that Indonesia so
desperately needs, namely those that operate with: A high number
of employees; well established export markets; principles of
international best business practice and a history of successful
foreign/domestic partnerships.

Potential investors are waiting for equitable legal reform of
the recently enacted laws and regulations that have forced so
many companies to leave Indonesia.

Improving the environment for employees is important in an
emerging democracy, but not at the expense of a decreased number
of job opportunities. As additional new regulations are
introduced and arbitrarily administered, those seeking new jobs
will suffer the most -- usually the young and recent graduates.

It should be a government priority to allow these
entrepreneurs and enterprises to operate competitively with their
counterparts in other Southeast Asian countries and this requires
equal enforcement of laws.

This is the challenge facing the Indonesian private sector in
the globalization era. And to meet this challenge, the government
must face the reality that legislative best practices and
equitable enforcement of policy affecting the private sector are
necessary to keep the private sector competitive with other
developing economies.

The politicians should understand the power of the people's
vote. The people proved this in 1999, and again in 2004. We have
seen this in the recent legislative election, and the polls
indicate that they are not satisfied with declining employment
opportunities. Let's hope that the new legislatures and President
note this as well: Jobs, and reversing the tide of unemployment
will get them re-elected

The writer is a Managing Director of Trade Management and
Development Services Ltd. and a private sector development
consultant.