The ‘integrative approach’ and labour regulation and Indonesia: Prospects and challenges

Abstract

In contrast to theories of regulation which bypass the state and cede regulatory authority to private regimes, the scholar Kevin Kolben makes a cogent argument for the state to be brought back to centre stage in labour regulation, but envisages that private actors can develop and strengthen its capacity. This article considers the utility of what he terms an integrative approach for Indonesia. In line with what the approach advocates, the article examines the relationships between private actors and the state and considers the extent to which the former can communicate, interact with and incentivise the latter in ways which strengthen its regulatory capacity. Several challenges are identified. Finally, the potential of the Better Work Programme in Indonesia to further the goals of the approach is assessed.

Keywords

Comparative industrial relations deregulation of industrial relations economic democracy institutions labour history

Introduction

The ways in which worker rights can most effectively be protected in developing countries continues to attract scholarly attention, prompting, recently, the introduction of various ‘regulation’ frameworks to regulate labour in these countries (Braithwaite, 2006; Kolben, 2011; Sabel et al., 2000). A pressing problem in these countries, often under-emphasised (e.g. Braithwaite, 2006), is that of overcoming the limited capacity of the state to regulate labour. Weak adherence to the rule of law, a lack of enforcement capacity, opposition from business in implementing labour regulations and high levels of corruption are particularly severe and contribute to regulatory failure (e.g. Graham and Woods, 2006). Many developing countries are also unwilling to regulate, anxious to offer cheap unregulated labour as they compete for foreign capital. This unwillingness is further encouraged by the continual emphasis on deregulation by international organisations such as the IMF, WTO and the World Bank. In response to the inability and unwillingness of these states to regulate labour, scholarly discussion has shifted, in the last 20 years, to questioning the potential of ‘soft’ law and non-mandatory measures to safeguard workers’ rights; e.g. compliance with Codes of Conduct, certification of firms observing international ‘ethical’ auditing standards, compliance with international disclosure requirements and promoting corporate social responsibility (CSR).

An ‘integrative approach’ to labour regulation

In a recent article, Kolben (2011) notes the emergence of transnational private regulatory regimes (TPLR) in developing countries which seek to substitute or supplement what the state, by virtue of its institutional and structural deficiencies, cannot provide. Various forms of private regulation have replaced what has been the traditional regulatory role of the state. But these kinds of private regulation are subject to various criticisms and may be insufficient, even destructive, responses to deficiencies in national labour law enforcement. Unlike public law and enforcement mechanisms in democratic societies, they are unresponsive to political and democratic processes and pressures (TPLR is a top-down, managerialist and privatised form of governance in which the regulated subjects, i.e. workers, have little input into its content or application), are far less stable (because TPLR is dependent on consumer preferences and the actions of civil society) and the quality of various systems is highly variable and does not necessarily prioritise the protection of core labour standards (Kolben, 2011: 408, 409). Kolben also notes that the emergence of TPLR has coincided with the rise of several governance theories of regulation which move away from relying on the state as regulator. They have been applied to labour regulation and development and global supply chains. Kolben casts doubts on the helpfulness of these theories on the basis that they investigate and discuss regulatory phenomena that take place in the context of developed countries (and so, are unsuitable for regulation in developing countries), cede regulation to private regulatory regimes, leapfrog over dysfunctional states and are agnostic about the traditional goals and values of labour law (2011: 427, 428). He proposes an alternative approach to labour regulation, what he terms an integrative approach.¹ In contrast to the theories he critiques (systems theory, responsive regulation, new governance), this approach brings the state back in and places it centre stage in regulating labour. Unlike these theories, it emphasises a pivotal role for the state in labour regulation and in the development of democratic governance in developing countries. It thus seeks to develop state capacity where it is lacking and where there are compelling pragmatic or social justice reasons for doing so (2011: 405, 437).

In his article, Kolben sets down the parameters for an integrative approach. He argues that an integrative approach ought to be implemented on a case by case and context-specific basis, to take into consideration differences in law and legal culture. It takes into account the fact that workplaces in developing countries often contain marked power imbalances. Thus, regulation which relies completely on deliberation and benchmarking at the expense of rights and citizenship (‘top-down’ approaches such as reliance on international organisations or Codes of Conduct or law to regulate labour) is unsatisfying. The approach further focuses on state capacity building and links labour regulation and other developmental goals such as democracy building and human rights (Kolben, 2011: 433 and 434). Significantly, Kolben presses the point that private and public regulatory regimes can operate in complementary fashions. He envisages systems of communication and interaction between private and public regulatory actors with the explicit goal of developing public regulatory regimes where those regimes are weak (2011: 434–436). He envisages that interaction between state and private actors may be deliberate (where engagement between the private and public is done willingly and self-consciously as part of an intentional regulatory strategy; 2011: 435) as well as unintentional (where actors do not intend to, or actively desire to, engage in communication/coordination; 2011: 435). Both types are capable of developing state regulatory capacity.

Making a case for the ‘integrative approach’

In making a case for the ‘integrative approach’, Kolben drew from three case studies. He referred to Amengual (2010), who examined labour practices of a multinational in the apparel sector in the Dominican Republic. Amengual noted how private actors (the multinational ‘ABC’) were able to increase state involvement (Secretaria de Estado de Trabajo or ‘SET’ labour inspectorates) in labour regulation. With different styles of regulation and varying types of competencies, state and private actors had distinct comparative advantages in identifying poor labour standards. For example, there was an increased demand for state inspection services by factories required by ‘ABC’ auditors to provide certain documents or state certificates. The state tended to focus on freedom of association issues whilst auditors concentrated on health and safety. Further, the state relied on complaints from workers and requests from management for inspections, whilst auditors concentrated on issues in Codes of Practice. In all cases, as state and private actors pursued similar goals, their different ways of tackling issues, together with their comparative advantages, widened the range of problems they could remedy, even where express coordination between them was lacking.² Nonetheless, Amengual cautioned that ensuring that the comparative advantages of one regulator complement those of another in a way which would widen the sphere of regulation in the way described may not be always possible in countries with extremely weak public and private labour actors (Amengual, 2010: 413).

Kolben also drew from the work of Seidman (2007: Ch. 5), who, in discussing the success of transnational labour activist networks in monitoring labour standards in Guatemala, noted that the work of the Commission for the Verification of Codes of Conduct (COVERCO) was regarded not as ‘an alternative to oversight by state institutions but rather as a key part of trying to strengthen and democratise them’ (Seidman, 2007: 124). COVERCO’s strategic and philosophical commitment (aiming, through private regulation, to develop state capacity and democratic institutions) allowed it to shift the focus of attention away from multinational corporations (MNCs) towards local concerns (even conducting training for the Guatemalan labour inspectorate to improve their capacity). Thus it strengthened state capacity to intervene on behalf of vulnerable citizens at work. Kolben notes Seidman’s argument that activists should focus their efforts on shoring up weak states and reinforcing national institutions (Kolben, 2011: 432).

Finally, Kolben referred to research conducted by Barenberg (2008) on the Workers’ Rights Consortium (WRC) in Mexico and Indonesia. Barenberg (2008: 41) explained that the WRC had a paradoxical attitude toward the privatisation of labour rights enforcement: that:

The WRC seeks to develop an intensive model of private monitoring, but it opposes the displacement of legitimate sovereign authorities and workers’ organisations by private organisations. It therefore seeks to cooperate with and build the capacity of local labour ministries and tribunals, just as it and other private monitors attempt to build the capacity of local NGOs.

The WRC aspires toward a democratic model of monitoring. Its assessment teams (which includes local workers’ representatives, rights advocates and experts) works with workers, managers, public officials and global brands with the aim of enabling public authorities, workers’ organisations and other collective actors to engage in long term, self-sustained monitoring (Barenberg, 2008: 42, 63).

Kolben’s attraction to Seidman’s and Barenberg’s case studies lies in their conceptualisations of private regulation as state-focused and democratic (Kolben, 2011: 432). On Amengual, Kolben draws attention to the ways private and public enforcement regimes engaged with and impacted each other on the ground (2011: 430). He asserts: ‘What is needed, therefore, is an approach to the new private developments in global labour governance that, rather than leapfrogging over dysfunctional states as some governance theories seek to do, aims instead to develop state capacity and calls for state action in realms where private regulation lacks legitimacy, or where it is likely to fail in the longer term’ (2011: 433).

The integrative approach and Indonesia

If we are persuaded by the integrative approach to labour regulation for developing countries, a natural step would be to make a case for its adoption in countries notorious for poor labour standards and dysfunctional states. An example of such a country is Indonesia. Indonesia is one of the world’s leading exporters of textiles and apparel products and host to many foreign multinationals. With 240 million people, it is the fourth most populous country in the world and an important economy in employment terms. Yet fewer than 40% of its 150 million working population are in formal employment, with the great majority working in the informal sector with inadequate legal protection. Women are treated as flexible and expendable workers. The exploitation of child labour is a serious problem (ILO; Informal Economy in Indonesia). Indonesia has been the target of several international petitions criticising its failure to meet internationally recognised labour standards, although it has ratified all eight ILO core labour conventions. Labour law enforcement remains weak and inconsistent, because of a lack of resources, high levels of corruption between state and business and a desire to attract foreign capital. Its slow economic recovery since the Asian financial crisis has pushed more workers into the informal sector, reducing their protection and creating fertile conditions for child labour. The Indonesian government faces several challenges simultaneously: securing economic growth, raising living standards and improving labour conditions. Indonesia is also a prime example of a country where private labour regulatory regimes have failed to protect workers (see discussions in the sections below). It is therefore a suitable country to test Kolben’s theory. In tackling this task, this article will examine how private and public labour regulatory regimes in Indonesia engage with each other in its regulatory environment. It will also ask to what extent the former incentivise, encourage and put pressure on the state to improve its regulatory capacity (whether deliberately or unintentionally). Finally, it analyses the potential of recent efforts by the international community to improve labour standards in Indonesia – the Better Work Programme (BWP). Promisingly, the programme reflects elements of the integrative approach where employers, international buyers (MNCs), unions and the state collaborate to improve labour standards. An interesting question is the extent to which it is possible for BWP to contribute to developing state regulatory capacity in ways envisaged under the approach.

Indonesian employment relations

We take, as a starting point, employment relations in Indonesia post-Soeharto (1967–1998), as this period signified the start of democracy and new opportunities for workers to organise. Under Soeharto, unions were systematically suppressed, and they had virtually no influence in the policy-making processes for economic development. Although workers inherited a series of protective legislation enacted after independence in 1945, they were not implemented in practice. Acting in the name of ‘economic development’ and with a strong military at his disposal, Soeharto did not see any need to change the law where it could simply be ignored. Until the end of his dictatorship, the SPSI (Serikat Pekerja Seluruh Indonesia, or All Indonesia Workers Union) was the only union allowed to operate throughout Indonesia and its leaders were generally picked by Soeharto himself. Its role was to assist with controlling the workers in line with his labour policies and was known for its pro-management stance (Hadiz, 1997; Tjandra, 2009, 2010).

Post-Soeharto, the Habibie government (1998–1999) introduced laws which favoured trade unions and workers’ participation, in part, to change the authoritarian image of the Soeharto era. Since the relaxation of labour laws in 1998, unions have grown phenomenally: from only one in early 1998 to 100 national federations in late 2009, including four national confederations, and thousands of non-nationally registered plant-level unions. Indonesia was also the first country in Asia Pacific to ratify all core conventions of the ILO, including Conventions No. 87 and 98 on the rights to associate and collective bargaining. Many imprisoned labour activists were released and several former trade unionists were appointed as government ministers. These appointments are symptomatic of a major shift in government policy towards greater support of labour rights and standards (Rupidara and McGraw, 2010; Tjandra 2010).

Yet workers have not benefited in the way they had expected. The 1997 financial crisis brought down the Soeharto regime, but it also paved the way for economic liberalisation. As with many other developing countries, Indonesia had spiralled into an economic crisis in 1997–1998, and it was forced to concede to the neoliberal prescriptions of the IMF in exchange for a $43 billion bailout loan. Alongside laws enacted to protect workers after 1998, were those which also promoted labour market flexibility. The use of private employment agencies to recruit workers allowed employers to bypass their legal obligations to these workers. They also led to the creation of more non-permanent jobs (in an economy with an already huge labour surplus). Despite unions having greater freedom to organise, many firms refused their involvement in the workplace. With numbers of regular workers diminishing, unionism declined. Significantly, there are benefits to be gained from low level regulation of labour, especially if countries are competing for foreign capital. Graham and Woods (2006: 868, 869) note that developing countries have limited capacity to regulate labour, but that equally, many lack the political will to regulate, hoping to attract investors favouring countries with weak regulatory systems. In this regard, Indonesia is no exception. In addition, poor enforcement of labour laws, the reduced role of the state and the behaviour of exploitative employers in a more liberal economy all exacerbated the position of workers (Juliawan, 2010; Rupidara and McGraw, 2010, Suryomenggolo, 2009, Tjandraningsih and Nugruho, 2009).

It is against this background of weak state structures and institutions, pursuit of economic growth at the expense of labour rights and weak bargaining power on the part of workers that Indonesian labour relations must be understood. It is also within this context that the prospects and challenges of moving towards an integrative approach to labour regulation need to be discussed.

Private actors developing state regulatory capacity in Indonesia

Can private actors in Indonesia serve a more dynamic role than they do currently and build state regulatory capacity? Kolben was explicit about private actors doing this by willingly and self-consciously engaging with the state to develop its capacity, but that the same results could be achieved even where no such deliberate engagement existed, where communication and coordination between the private and public was unintentional and informal (as in the Amengual case study). The following sections consider the ways in which three private actors, namely, unions, non-governmental organisations (NGOs) and MNCs, engage with the state in the regulation of labour and evaluate their potential to identify, target and remedy deficiencies in state regulatory capacity.

Unions

Unions can encourage and motivate the state to expand its regulatory capacity in the realm of labour in several ways. They can, for example, promote a culture in which the regulation of labour is expected in the workplace, thus putting pressure on the state to intervene. Because of their continuous presence in the workplace, they can complement the monitoring activities of labour inspectors by presenting to the latter information about labour violations which are not easy to detect. They can also join forces with their affiliates to, collectively, lobby against the state to reform and enforce labour laws to benefit workers.

Some observations on the potential of unions to work in ways which can develop or strengthen state regulatory capacity may be made. Unions in Indonesia are generally under-developed, lack political influence and suffer from low levels of competence. It was noted above that, in theory, unions were, after the Soeharto regime, better placed to represent workers and that many independent unions were formed in the post-Soeharto era. In reality, however, unions have not been able to capitalise on the new opportunities. Many were in the earliest stages of organising and had not developed strategies for defending workers’ interests. They were thrust into a situation where they had to respond to labour law reform programmes with little experience, few resources and even less political power. Suryomenggolo (2009) noted that in the labour law reform process post-Soeharto, unions in fact received little information about the process and were not consulted. Their lack of political power meant that they could not fully articulate and promote their interests at the outset, and worse still, laws were consequently passed which imposed greater constraints on their future responses and strategies (2009: 2,11). Tornquist’s (2004) account of the democratisation process in Indonesia also revealed the marginal role of labour, emphasising its lack of capacity and influence. Changes in politics were influenced by middle-class politicians and intellectuals, neither of whom drew on the labour movement for support. Ford (2006c) suggests that prospects for effective trade unionism post-Soeharto have been limited by external constraints on unions and weaknesses in their internal structures. Although Indonesia’s employment relations climate appears more conducive to trade unionism, ongoing economic difficulties mean that unions have little strategic bargaining power either nationally or on the shop floor. Other factors, such as knowledge differentials between union leaders and members, the lack of ability on the part of workers to communicate effectively and participate in union activities also contributed to weak trade unionism. Finally, the generally low organisational capacity of unions, coupled with high unemployment and a chronic labour surplus have eroded their role in labour relations. Although the fall of Soeharto provided workers with more political space and the numbers of unions have increased greatly, they have also shown a strong tendency to become embroiled in infighting, and are marked more by fragmentation and division than effective cooperation. Consequently, it is unsurprising that they have not been able to mitigate the effects of large-scale liberalisation of labour laws which legitimised exploitative labour practices (Heryanto and Hadiz, 2005; Juliawan, 2010; Rupidara and McGraw, 2010). In sum, it is arguable that their weak and fragmented state, lack of political influence and generally low levels of competence pose great challenges for unions to strengthen state regulation, or incentivise or put pressure on it to improve its regulatory capacity.

NGOs

Labour standards monitoring by NGOs are expanding rapidly in developing countries (O’Rourke, 2003; Wells, 2007). NGOs help workers in a variety of ways, from monitoring firm compliance with Codes, to representing workers in disputes against employers, meeting their welfare and recreational needs and helping them form unions. To what extent are NGOs, as private actors, also able to develop and strengthen state regulatory capacity in the realm of labour? For example, can they, through their interactions with workers and the international community, put pressure on the state to take a more active role in enforcing labour laws? Can they complement the efforts of labour inspectors to detect labour violations? Can they and the state coordinate their mechanisms to regulate labour?

Empirical research reveals that the weaknesses of NGOs limit their ability to expand state regulatory capacity. O’Rourke (2003: 21) notes that the ability of firms to move production quickly among factories and hide behind multiple layers of ownership makes systematic inspections of compliance with Codes by NGOs a difficult task. NGOs are also liable to miss many of the largest issues faced by workers because they do not have continuous workplace presence. Moreover, as NGOs typically focus on workers in first-tier suppliers and large factories, they rarely reach down to informal-sector workers. Even worse, monitoring by NGOs crowds out the efforts of workers’ organisations (2003: 22). In analysing NGO monitoring of firm compliance with Codes in supplier factors in the ‘global south’, Wells (2007) noted the following problems: NGOs suffered from limited monitoring capacity relative to size and complexity of chains, could not fulfil the large demand for their work and were constrained by firms moving locations to avoid detection. He opined that an NGO-centred, ‘soft law’ policy approach to labour regulation was simply ‘too weak for the job’ (Wells, 2007: 51, 63-66). Similarly, in the flower export industries in Colombia and Ecuador, Korovkin and Sanmiguel-Valderrama (2007) noted that although firms and NGOs had the same goals, conflict arose because both wanted monitoring processes to be carried out in line with their own preferences. Firms avoided the issue of worker organisation and concentrated on less controversial aspects of labour standards. NGOs, on the other hand, regarded the existence of independent trade unions as a prerequisite for ensuring compliance with labour norms.

Last but not least, many NGOs capitalise on the language of human rights to improve working conditions for labour, a strategy which might not be entirely appropriate. Human rights and labour rights are different both as concepts and as movements. While human rights seek to limit the power of the state, labour rights aim to limit the power of private actors in the market. While human rights revolve around individuals and seek to achieve outcomes such as better working conditions, labour rights are more collectively orientated, with worker mobilisation and negotiations processes taking precedence. The language of human rights does not necessarily examine and question fundamental economic relationships in society, nor is it committed to direct action as a method, or workplace democracy as a goal, to the same extent as the labour movement (Kolben, 2010a: 452, 484).

The post-Soeharto era brought new opportunities to NGOs to participate in politics and society (Ford, 2003, 2006a, 2006b; Hadiz, 2001; Nyman, 2006; Rupidara and McGraw, 2010). In the workplace, Ford noted that labour NGOs fulfilled a range of functions which lay both outside and within the traditional ambit of unions. These included activities associated with grassroots labour organising (education, establishing community workers’ groups, providing legal services, encouraging strike actions) as well as research and policy advocacy (documenting the living and working conditions of factory labour, lobbying government and firms to increase the minimum wage, improving health and safety, campaigning for changes to labour legislation). Further, many NGOs built networks with each other, with unions and with international organisations to advance worker rights. Ford contended that so crucial are NGOs to the improvement of labour standards that they should be regarded as a movement in their own right (Ford, 2006a, 2009).³

Nonetheless, the fact remains that Indonesia is a relatively young democracy, with weak administrative and governance structures. Whilst the number of NGOs has grown significantly post-Soeharto, many still struggle to engage with government, the business community and other stakeholders, diminishing their influence on the state in the regulation of labour. Hadiz (2001) noted that relations between NGOs and unions tend to be one of proliferation rather than consolidation. Unions also sought to limit the role of NGOs in their activities, in order to encourage rank and file leadership to emerge (Hadiz, 2001: 122). Such tendencies restrict NGOs and unions from successfully collaborating together to lobby the state to improve labour standards. There is also evidence of inter-rivalry among NGOs’. In a recent study of attempts of NGOs to improve labour standards for women workers, for example, Yazid (2008) noted that their collaborations and networks with each other and with the state were hampered by rivalries, different perceptions on how to interact with the government, unwillingness to share information and intense competition for funding. Weak coordination and different approaches to the same problems caused networks to become stagnant and weak. As a result, many of their activities did not progress beyond mere information sharing, conducting joint research and issuing press statements. Further, the lack of an umbrella organisation for NGOs means that there is no central body which functions as a representative in promoting the existence and the interests of NGOs to outside parties and to help with internal capacity building purposes (Antlöv et al., 2006).

Finally, the lack of capacity building limits the potential of NGOs to influence the state (Antlov, 2008; Fanany, et. al 2011).⁴ Many are temporary, set up quickly in response to funding availability for a specific project, but collapsing after funding becomes unavailable. This leads to a high degree of impermanence and transfer of staff between established and newly formed NGOs. Work within an NGO is also often regarded as a stepping stone to something else or as a way of becoming employed in society (Fanany et al., 2011: 97). Consequently, few employees stay on for long periods in NGOs. Finally, the vast majority of Indonesian NGOs consists of middle-class individuals who are university educated and know little about the community or grassroots mobilisation. NGOs thus tend to be micro-oriented and elitist and are not necessarily sensitive to issues at the local level (Fanany et al., 2011; Hadiwinata, 2003).

MNCs

Finally, to what extent can MNCs, as private actors, develop and strengthen state capacity to regulate labour? MNCs such as Reebok, Gap, Nike, Adidas and Levi Strauss have resided in Indonesia for many years. Many MNCs rely on internal compliance with Codes of Conduct as a way of improving labour standards. Can MNCs, through compliance with these Codes, strengthen and develop state regulatory capacity? Such Codes may, for example, place an obligation on MNCs to enhance the competence of labour inspectors, tribunals and labour ministries to expand state regulation. Codes may also encourage union presence in the workplace so that, consequently, pressure is put on the state by unions and their affiliates to improve labour standards. Finally, they may be drafted in a way which encourages the state to formalise practices which benefit workers, for example, if Codes guaranteed that workers could participate in decision-making on specified issues, this may, over the long term, incentivise the state to translate these same practices into law.

As a type of private regulatory mechanism, however, Codes of Conduct are also subject to various criticisms. For example, Seidman (2003), in discussing the effectiveness of the Sullivan Principles in improving the behaviour of MNCs in South Africa, noted that the monitoring process was problematic because the definition of ‘good corporate citizenship’ was guided not by substantive concerns, but by what those who designed and monitored them perceived were important’. It was not until enormous pressure was generated by activists that firms were persuaded to accept even moderate restrictions on their behaviour. She questioned the viability of the voluntaristic, stateless character of TNC Codes of Conduct in regulating labour standards (Seidman, 2003: 402). Vogel (2010) shows that while private regulation (e.g. Codes which address labour practices, environmental performance and human rights policies) has resulted in improvements in corporate behaviour, it cannot be regarded as a substitute for the more effective exercise of state authority. He contends that ultimately private regulation must be integrated with and reinforced by more effective state-based and enforced regulatory policies at both the national and international levels. Similarly, Locke et al. (2007) and Locke and Romis (2010) contend that whilst Codes can lead to an improvement in general standards, in themselves, they may not be sufficient. They are but only part of a larger mosaic in efforts to improve working conditions. To be effective, Codes and their monitoring systems also need to be, for example, integrated into management structures, operations, strategy and HRM, operate within an environment in which laws are effectively enforced and be supported by HR systems and unions or other institutions which provide workers with a voice in production and employment. In other research, it was explicitly noted that many MNCs may be eager to monitor labour standards. However, labour violations continued to occur because of structural deficiencies in the monitoring system: flawed factory audit processes, inadequate training of auditors and resource constraints, all of which conspired to produce incomplete information about existing working conditions in supplier factories. A compliance-focused approach to the improvement of labour standards is insufficient. In contrast, a commitment-oriented approach can lead to sustained improvement in working conditions and labour rights: repeated interactions, joint problem solving and trust building among the key actors (Locke et al., 2009). In her research on the implementation of CSR and Codes of Conduct in Indonesia, Kemp (2001) noted the non-involvement of the state in the drafting of Codes. Codes are designed in the head office and rarely in consultation with other labour relations actors. Codes also place MNCs outside the national regulatory system. The process and outcomes of monitoring are confidential. Perhaps surprisingly, she also pointed out not only that unions and workers were unaware of Codes or their contents, but that many government officials responsible for labour standards had not heard of Codes and even mistook them for collective agreements (Kemp, 2001: 12).

More generally, CSR is a new concept for the majority of businesses in Indonesia. For several decades, the country was cut off from international influence and virtually no foreign investment was allowed. Isolated from the influence of international standards, its business culture has been marred by corruption, rent seeking and a lack of CSR activism, all of which have persisted to this day. The country also struggles with high levels of poverty and unemployment. Where vast segments of the population struggle with day-to-day survival more than anything else, CSR is simply an intangible concept (Kemp, 2001). The influence of cultural norms, in particular the acceptance of one’s fate, means that poor working conditions are grudgingly accepted by the majority of workers. Many are simply grateful to have any form of income and would happily work harder if it meant more earnings (Kemp, 2001). While many foreign MNCs have introduced labour-related CSR policies, many other businesses have failed to do so, due to a lack of understanding of the concept, unstable business environment, corruption and weak law enforcement (Koestoer, 2007).

Recent studies carried out in Asian countries (including Indonesia) on the potential of CSR to improve labour standards shows its downside in two ways (AMRC, 2012). First, it is generally understood as corporate activities to compensate for social and economic injustices. This perspective has led to the belief that it is the obligation of the business community (MNCs) to meet social, economic and environmental requirements, providing a justification for the government to escape its obligations towards society. In other words, it undermines rather than strengthens state regulatory capacity. Second, CSR has been used to manipulate workers to avoid unions in order to safeguard their rights. Research carried out in four MNCs in Indonesia revealed that CSR was primarily utilised to build their image. A good public image helps firms gain the trust of society, which in turn legitimises their operations, increases sales, attracts investors and secures greater profits. But there was also a darker side. MNCs discouraged the formation of unions by persuading workers to form a workers’ forum instead, through enticing them with many CSR programmes. CSR was thus covertly used to weaken unions’ influence and to persuade them to be cooperative with management. Where this was not forthcoming, discriminatory action was taken against union leaders and workers (exclusion from training and development opportunities, scholarships and promotion, non-payment of wages and allowances). In sum, CSR was a divisive strategy and instead of advancing the interests of workers, was used to promote those of the MNCs themselves.

In an effort to persuade the business community to be more responsive to the needs of society, the Indonesian government enacted the Indonesian Corporation Law No. 40/2007, and Law No. 25/2007 which requires firms in the field of natural resources and capital investment to engage with CSR (Tamam, 2006). Non-compliant firms incur sanctions. These laws were regarded as controversial and have become the subject of heated debates, since they contradict the general concept of CSR, which stresses the element of voluntarism. The business community challenged the laws on the basis that they created uncertainty, were unjust and discriminatory and undermined the voluntary basis of CSR, although their action was unsuccessful (Waagstein, 2011: 456). However, government regulations which were supposed to be extensions of Law No. 40/2007 were never enacted, causing further confusion in the implementation and monitoring of CSR (AMRC, 2012).

As a private regulatory mechanism to improve labour standards, CSR is both unstable and unreliable. It has been argued that CSR serves the interests of the capitalist classes, and political parties hungry for control over the economic resources generated by the activities of major firms (Rosser and Edwin, 2010). Instead of encouraging MNCs to work with the state to improve its regulatory capacity in the realm of labour, it has been used in a self-serving manner by MNCs to further their own interests.

Better Work Indonesia: An integrative approach?

The discussion of the extent to which key private actors may develop and strengthen state regulatory capacity in the realm of labour in Indonesia has, so far, revealed several factors which discourage this from occurring. A recent important and favourable development in the regulation of labour in Indonesia, however, may bring the goals of the integrative approach to fruition. In his works, Kolben (2004; 2007; 2010) considered the success of the Better Factories Cambodia (BFC) programme in improving labour standards in the garment industry in Cambodia. BFC is an example of how private governance systems collaborate with public regulatory regimes and enhance state capacity to improve labour standards. BFC has now developed into programme called Better Work (BWP) (c.f. Kolben, 2010b: 490, 491).

The Better Work Programme (BWP) is a partnership programme between the International Labour Organisation and International Finance Corporation to improve compliance with labour standards and promote competitiveness in global supply chains (specifically, in the apparel and garment industries). Launched in 2007, BWP is today operational in eight countries (Bangladesh, Cambodia, Haiti, Jordan, Lesotho, Indonesia, Vietnam and Nicaragua) and has attracted much publicity regarding the role it has played in improving conditions for workers.⁵ Better Work Indonesia (BWI), part of BWP, began operations recently, in 2011, with the initial geographical focus on the Greater Jakarta area.⁶ Teams have been trained and pilot assessments carried out in a number of factories. BWP adopts an integrated approach to improve labour standards through strengthening cooperation between governments, employers’ and workers’ organisations and international buyers.⁷ Its approach is three pronged and is tailored to the needs of the local context. First, it helps factories identify areas of non-compliance with international and national labour standards. Second, it provides specifically tailored advice to address specific needs of each factory through the establishment of Performance Improvement Consultative Committees (PICCs) which consist of both management and union/worker representatives. BWP guides the PICC in the development and implementation of an improvement plan, which addresses both non-compliance issues and management systems. Finally, it offers customised training to support workplace cooperation. The training topics range from ILO core labour standards and workers’ rights to HRM, supervisory skills and occupational safety and health and a highly participatory approach is encouraged.⁸ Participating factories agree to be subject to a monitoring regime in which BWP, using its own Code, inspects their labour standards. It will then create a general database which consolidates compliance and remediation data from each factory, and facilitates sharing that information with international buyers. This in turn allows buyers to reduce their own auditing and redirect resources to fixing problems and devising sustainable solutions. The benefits BWP offers to governments are manifold, and include increased market access, a stronger reputation for safer investment and improved capacity in labour administration.⁹ What is noteworthy is that BWP reflects elements of the integrative approach. Private actors (international buyers, employers, trade unions) and the state collaborate with each other with a view to improving labour standards. Implicit within the programme, however, is also an effort to strengthen state capacity in the regulation of labour.

BWI and the integrative approach

At the time of writing, the evidence reveals high levels of non-compliance with labour standards in participating factories. Evidence collected from 918 workers in 42 factories (between September 2011 and February 2012) to form the baseline against which the impact of BWI will be measured in future years, revealed several concerns amongst workers in relation to occupational health and safety, overtime, wages, job security, abuse and sexual harassment (Huq, 2012). BWI’s own two synthesis reports (October 2012 and April 2013), reporting assessments in 20 and 35 factories respectively, reveal many non-compliance issues, indicating that significant challenges lie ahead in improving working conditions under its programme, even within this small cluster of factories (BWI, 2012; BWI, 2013).¹⁰

Three observations regarding the potential of BWI to improve labour standards may be made. First, BWI is a voluntary programme, which relies on the stakeholders’ (unions, international buyers, employers associations and the state) commitment to improve compliance with labour standards. As noted, the BWI evolved from the BFC program. Yet, the origins of the latter are unique; it grew out of a trade agreement between the United States and Cambodia, under which the US promised Cambodia better access to US markets in exchange for improved working conditions in its garment industry. It was only after the agreement demonstrated the effective use of independent monitoring that international buyers participated formally in the partnership. The lack of a precursor trade agreement (itself dependent on conducive political and economic conditions) in other countries may not lead to the quality of partnerships such as that between international buyers, apparel producers, and the state in Cambodia (Wetterberg, 2011). Secondly, its voluntary nature might also serve to downplay the urgency of its goals among its stakeholders, who may continue to occupy opposite camps instead of finding common ground. Thirdly, if BWI is to facilitate the strengthening state capacity in ways envisaged under the approach, then specific strategies must be developed which encourage this. Some guiding questions might be: In what ways can BWI promote collaborations among stakeholders to emphasise the legitimacy of the state in labour regulation? How can stakeholders with opposing interests work together to balance each other’s efforts to, say, improve the efficiency of state labour regulation mechanisms such as labour inspectorates, labour dispute resolution procedures, legal aid system? How might the experience and expertise of, for instance, international buyers, complement the efforts of the state (whether deliberately or otherwise) in monitoring labour standards? Absent an emphasis on the central role of the state in BWI policies, there will be little to distinguish it from many other international efforts to improve working conditions in global factories.

Conclusion

The integrative approach seeks to recapture the importance of the state in labour regulation in developing countries. Instead of leapfrogging over dysfunctional states, it re-emphasises the state in labour regulation and asks how private regulatory regimes might serve to strengthen public regulatory capacity. If we are persuaded by its promise and value, is there scope for its adoption in Indonesia? A discussion of the labour regulatory regime in Indonesia shows that this is an ambitious task. An analysis of the relationships between the state and three private actors (unions, NGOs, firms) in Indonesia reveals the challenges in incentivising interactions and communications between them in ways which can strengthen state labour regulatory capacity. There is little evidence that the private and public complement each other’s actions or build interdependent relationships. The relationships between private actors themselves are also complicated, which reduces the prospects of joint efforts to expand state regulatory capacity. This article has, however, also discussed the potential of the recent BWI programme in fulfilling the goals of the integrative approach. An outline of broad strategies which can expand state regulatory capacity within the parameters of the BWI programme is offered. Despite the significant challenges which lie ahead, BWI presents an ideal opportunity to nurture the seeds which have been sown. If successful, it would provide a model for further and more ambitious initiatives.

Footnotes

Funding

This research received no specific grant from any funding agency in the public, commercial, or not-for-profit sectors.

Notes

Author biography

Lilian Miles is a senior lecturer in the Leadership, Work and Organisations Department at Middlesex University. She is interested in exploring the impact of legal and political systems, and culture and religion on employment relations policies and practices. She is familiar with employment relations systems in many Asian countries and is currently looking at ways in which workers’ capabilities in the Asian workplace may be expanded.

References

Amengual

(2010) Complementary labour regulation: The uncoordinated combination of state and private regulators in the Dominican Republic. World Development 38(3): 405–414.

AMRC (Asian Monitor Resource Centre) (2012) The Reality of Corporate Social Responsibility: Case Studies on the Impact of CSR on Workers in China, South Korea, India and Indonesia. Hong Kong.

Antlöv

Ibrahim

Van Tuijl

(2006) NGO governance and accountability in Indonesia: Challenges in a newly democratising country. In: Edwards

Jordan

Van Tuijl

(eds) NGO Accountability: Politics, Principles and Innovations. London: Earthscan, pp. 147–166.

Antlöv

Brinkerhoff

Rapp

(2008) Civil society organizations and democratic reform: progress, capacities and challenges in Indonesia. In: 37th Annual Conference of the Association for Research on Non Profit Organisations and Voluntary Action, Philadelphia, 20–22 November 2008.

Barenberg

(2008) Toward a democratic model of labour monitoring. In: Bercusson

Estlund

(eds) Regulating Labour in the Wake of Globalisation: New Challenges, New Institutions. Oxford: Hart Publishing.

Braithwaite

(2006) Responsive regulation and developing economies. World Development 34(5): 884–898.

BWI (2012) Garment industry 1st compliance synthesis report. Available at: betterwork.com/global/wp-content/uploads/Better-Work-Indonesia-Synthesis-Report-EN.pdf.

BWI (2013) Better Work Indonesia: Garment Industry 2nd Compliance Synthesis Report. Available at: betterwork.org/global/wp…/synthesis-Report-II-BWI-English-final-1.pdf

Fanany

Kenny

(2011) The meaning of capacity building in Indonesia. Community Development Journal 46(1): 89–103.

10.

Ford

(2003) Substitute trade union or novel form of labour movement organisation? Understanding Indonesia’s labour NGOs. The Economic and Labour Relations Review 14(1): 90–103.

11.

Ford

(2006a) Labour NGOs: An alternative form of labour organising in Indonesia, 1991–1998. Asia Pacific Business Review 12(2): 175–191.

12.

Ford

(2006b) Migrant labour NGOs and trade unions: A partnership in progress? Asian and Pacific Migration Journal 15(3): 299–311.

13.

Ford

(2006c) Barriers to trade union democracy in Indonesia: A preliminary analysis, In: 21st Century Work: High Road or Low Road, Proceedings of the 20th AIRAANZ Conference, Volume 1, 169–178 2006.

14.

Ford

(2009) Workers and Intellectuals: NGOs, Trade Unions and the Indonesian Labour Movement, South East Asia Publication Series. Singapore: University of Hawaii Press.

15.

Graham

Woods

(2006) Making corporate self regulation effective in developing countries. World Development 34(5): 868–883.

16.

Hadiwinata

(2003) The Politics of NGOs in Indonesia: Developing Democracy and Managing a Movement. London and New York: Routledge Curzon.

17.

Hadiz

(1997) Workers and the State in New Order Indonesia. London: Routledge.

18.

Hadiz

(2001) New organising vehicles in Indonesia: Origins and prospects. In: Brown

Hutchison

(eds) Organising Labour in Globalising Asia. London and New York: Routledge, pp. 108–126.

19.

Heryanto

Hadiz

(2005) Post authoritarian Indonesia: A comparative South East Asian perspective. Critical Asian Studies 37(2): 251–275.

20.

Huq

(2012), Indonesia baseline report: Worker perspectives from the factory and beyond. International Labour Organisation and International Finance Corporation. Available at: http://betterwork.com/global/wp-content/uploads/Impact-Research-Indonesia-Baseline-Report-Worker-Perspectives-from-the-Factory-and-Beyond.pdf.

21.

ILO, Informal Economy in Indonesia, http://www.ilo.org/jakarta/areasofwork/informal-economy/lang--en/index.htm

22.

Juliawan

(2010) Extraction of labour from its owner: Private employment agencies and labour market flexibility in Indonesia. Critical Asian Studies 42(1): 25–52.

23.

Kemp

(2001) Corporate social responsibility in Indonesia: Quixotic dream or confident expectation? Paper No. 6. UN Research Institute for Social Development.

24.

Koestoer

(2007) Corporate social responsibility in Indonesia: Building internal corporate values to address challenges in CSR implementation. In: Seminar on Good Corporate and Social Governance in Promoting ASEAN’s Regional Integration, ASEAN Secretariat, Jakarta, Indonesia.

25.

Kolben

(2004) “Trade, Monitoring and the ILO: Working to Improve Conditions in Cambodia’s Garment Factories” Yale Human Rights and Development Law Journal, 7, 79–107.

26.

Kolben

(2010), “The WTO Distraction” Stanford Law and Policy Review, 21, 461–291.

27.

Kolben

(2007) Integrative linkage: Combining public and private regulatory approaches in the design of trade and labour regimes. Harvard International Law Journal 48(1): 203–256.

28.

Kolben

(2010a) Labour rights as human rights? Virginia Journal of International Law 50(2): 449–484.

29.

Kolben

(2010b), “The WTO Distraction” Stanford Law and Policy Review, 21, 461–291

30.

Kolben

(2011) Transnational labour regulation and the limits of governance. Theoretical Inquiries in Law 12(2): 403–437.

31.

Korovkin

Sanmiguel-Valderrama

(2007) Labour standards, global markets and non-state initiatives: Colombia’s and Ecuador’s flower industries in comparative perspective. Third World Quarterly 28(1): 117–135.

32.

Locke

Romis

(2010) The promise and perils of private voluntary regulation: Labour standards and work organisation in two Mexican garment factories. Review of International Political Economy 17(1): 45–74.

33.

Locke

Kochan

Romis

Qin

(2007) Beyond corporate codes of conduct: Work organisation and labour standards at Nike’s suppliers. International Labour Review 146(1–2): 21–40.

34.

Locke

Amengual

Mangla

(2009) Virtue out of necessity? Compliance, commitment and the improvement of labour conditions in global supply chains. Politics and Society 37(3): 319–351.

35.

Nyman

(2006) Democratising Indonesia: The Challenges of Civil Society in the Era of Reformasi. Copenhagen: Nordic Institute of Asian Studies.

36.

O’Rourke

(2003) Outsourcing regulation: Analyzing nongovernmental systems of labour standards and monitoring. The Policy Studies Journal 31(1): 1–29.

37.

Piore

Shrank

(2008) Toward managed flexibility: The revival of labour inspection in the Latin world. International Labour Review 147(1): 1–23.

38.

Pires

(2008) Promoting sustainable compliance: Styles of labour inspection and compliance outcomes in Brazil. International Labour Review 147(2–3): 199–229.

39.

Rosser

Edwin

(2010) The politics of CSR in Indonesia. The Pacific Review 23(1): 1–22.

40.

Rupidara

McGraw

(2010) Institutional change, continuity and decoupling in the Indonesian industrial relations system. Journal of Industrial Relations 52(5): 613–630.

41.

Sabel

Fung

O’Rourke

(2000) Ratcheting Labor Standards: Regulation for Continuous Improvement in the Global Workplace, KSG Working Paper No. 00-010. Available at SSRN: http://ssrn.com/abstract=262178 or https://dx-doi-org.web.bisu.edu.cn/10.2139/ssrn.262178

42.

Seidman

(2003) Monitoring multinationals: Lessons from the anti apartheid era. Politics and Society 31(3): 381–406.

43.

Seidman

(2007) Beyond the Boycott: Labor Rights, Human Rights, and Transnational Activism. New York: Russell Sage Foundation Publications.

44.

Suryomenggolo

(2009) Labour, politics and the law: A legal political analysis of Indonesia’s labour law reform program. Labour and Management in Development 9: 1–16.

45.

Tamam

(2006) The sociological context of corporate social responsibility development and implementation in Indonesia. Corporate Social Responsibility and Environmental Management 13(5): 300–305.

46.

Tjandra

(2009) Understanding workers’ law reform in Indonesia: 1998–2004. Labour and Management in Development Journal 9.

47.

Tjandra

(2010) Disputing labour dispute settlement: Indonesian workers’ access to justice. Law, Social Justice and Global Development Journal (LGD) 1. Available at: www.go.warwick.ac.uk/elj/lgd/20010_1/tjandra.

48.

Tjandraningsih

Nugroho

(2009) The flexibility regime and organised labour in Indonesia. Labour and Management in Development 9: 1–14.

49.

Tornquist

(2004) Labour and democracy? Reflections on the Indonesian impasse. Journal of Contemporary Asia 34(3): 377–399.

50.

Vogel

(2010) The private regulation of global corporate conduct: Achievements and limitations. Business and Society 49(1): 68–87.

51.

Waagstein

(2011) The mandatory corporate social responsibility in Indonesia: Problems and implications. Journal of Business Ethics 98(3): 455–466.

52.

Wells

(2007) Too weak for the job: Corporate codes of conduct, non-governmental organizations and the regulation of international labour standards. Global Social Policy 7(1): 51–74.

53.

Wetterberg

(2011) “Public-Private Partnership in Labour Standards Governance: Better Factories Cambodia” Public Administration and Development, 31, 64–73

54.

Yazid

(2008) Activism of Indonesian NGOs on the issue of women migrant workers: Engaging in national and international cooperation. In: 17th Biennial Conference of the Asian Studies Association of Australia, Melbourne, 1–3 July 2008.