Nicholas Kristof, a renowned human rights advocate and New York Times columnist, raised eyebrows years ago with an article defending sweatshops in Cambodia. How could a human rights defender do such a thing?

In the piece, Kristof shared the stories of people working as scavengers at a Phnom Penh garbage dump. One of them, earning less than US$1 a day, told him that “its dirty, hot and smelly here, a factory is better”. For some of us, working in a factory is probably a nightmare, but for millions who scrape a living without formal jobs, it’s the dream.

This is something we lose sight of in our heated discourse over the job creation omnibus bill. Currently, there are around 7 million unemployed people in Indonesia. We should, of course, try to improve the wellbeing of existing workers, but we cannot just sweep millions of our jobless people under the rug. That is what the omnibus bill is about, to help create jobs for the jobless.

First, we need to put the bill in perspective. The bill has been criticized for its provisions on labor issues, but they constitute only a fraction of the entire bill. The bill encompasses the overhaul of 1,244 articles in 79 laws, fewer than 100 of which are in the 2003 Labor Law.

The overwhelming majority of amendments in the bill are aimed at streamlining regulations and investment licensing that have jeopardized Indonesia’s business climate for way too long. This reform enjoys popular support. Despite criticism on its labor clauses, more than 60 percent of Indonesians supported the omnibus bill in a survey last month. While we should not overlook a certain cluster in the bill, we cannot assess the bill exclusively on its labor rules.

Now let’s get to the heart of the contention: Is the bill anti-labor? Contrary to what some argue, the bill does offer some benefits for workers, including upfront bonus for current workers. More importantly, the bill also provides an unemployment benefits scheme for workers who lose their jobs, including cash assistance and job training.

Having said that, the detractors do have some legitimate concerns about changes in the bill regarding outsourcing, layoffs, working hours and remunerations that seek to make the labor market more flexible. Indeed, these changes would be ill-advised if we live in an ideal world where all countries uphold the same basic labor standards.

Unfortunately, we live in a region where other countries grant much less protection to their workers. For instance, weekly work hours in Ho Chi Minh City or Hanoi in neighboring Vietnam exceed those in Indonesia by more than eight hours, but the minimum wage there is only around half of that in Bekasi and Karawang, West Java.

Moreover, between 2015 and 2018, our labor productivity only grew by 3.2 percent, whereas Vietnam’s grew 5.5 percent. Simply put, our workers are too expensive but not productive enough. Against such a backdrop, maintaining the same rigid labor regulations would not help our laborers, it would only incentivize investors to relocate to other countries where rules are more flexible and workers more productive. The victims of factory relocation are other voices that are often unheard in the debate about the bill. The omnibus bill seeks to prevent more worker layoffs due to business relocation.

The big question then is, how important are these labor rule changes to attract investment? According the 2015 World Bank Enterprise surveys involving 1,320 firms in Indonesia, the second-biggest obstacle for foreign-owned businesses in our country is labor regulations.

Moreover, according to a recently published survey of Japanese companies in Indonesia, 84 percent of Japanese investors identified wage hikes as a problem, making it the single largest problem for them. These surveys demonstrate that labor rule stringency is indeed a major constraint for firms in our country. Hence, reforms that address this bottleneck are likely to contribute to making our economy more attractive for investors.

The omnibus bill is necessary, but it might not be sufficient in itself to attract investors. The government should earnestly foster special economic zones outside Java such as Batam Island in Riau, or Sei Mangkei in North Sumatra, as magnets of investment. Their potential is immense; compared to Java, they have a labor cost advantage and are closer to Singapore as the trade hub.

The government should also harness more assertive industrial policies to compel foreign investors to come. The 4G smartphones local content requirements and nickel ore export bans are two examples of industrial policies that somewhat succeeded in bolstering domestic industries. Going forward, the government should identify the niche sectors (e.g. automotive) that will be the target of selective industrial policies.

When all is said and done, we all agree that we cannot afford business as usual. Ditching the omnibus bill will not help our workers, who face the growing threat of business relocation. It will only leave millions of our unemployed compatriots out in the cold.

The omnibus bill and the wellbeing of our people are not antithetical, they are two sides of the same coin.

________

Trade and industrial policy analyst, studying for Master in public policy, Harvard Kennedy School

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