IO – During his first five years in office, President Joko Widodo, or Jokowi as he is more commonly referred to, staked his reputation and chances for earning a second term in the palace by spending tens of billions of dollars in a bid to modernize Indonesia’s antiquated infrastracture.
In many ways, Jokowi’s political gamble worked. By the time he was ready to campaign in the 2019 election, over 3,000 kilometers of conventional roads were paved and more than 900 kilometers of new toll roads were constructed. Bridges, large seaports and expansive railways were also built. Jokowi won plaudits not only from the electorate but the international business community as well: Indonesia was now spending more in line with the World Bank recommendation for developing countries, which is to spend five percent of GDP on infrastructure development. [In stark contrast, Jokowi’s predecessors only spent an average of three percent of GDP on infrastructure, while China and Vietnam has been averaging seven percent].
Now, in his final five year term in office, Jokowi’s priority of continuing infrastructure development should be seen as being, in part, of a proper strategy to make his country more competitive with its peers in the region.
Yet Jokowi and his economics team knows that while infrastructure is a critical component of economic competitiveness, other factors play a key role, as well. One that seems to have caught the attention of his cabinet is the role of labor laws.
Making sure that labor laws are sufficiently flexible and strike the proper balance between the needs of workers and businesses is crucial. Overly protective and expensive severance pay provisions in labor law can make it prohibitively costly for manufacturing companies to operate and compel them to invest in more investor-friendly countries. This is precisely the case with Indonesia, which has lost out to Vietnam– scores of companies, in textiles and garments, footwear and consumer electronics, have opted to invest in Vietnam because of its competitive labor laws.
Most blue-collar workers may not see the connection between labor law, investment and employment rates. This is obviously the case in Indonesia, where workers are now protesting against parts of Jokowi’s newest big idea, namely omnibus bills on taxation, employment creation and small- and-medium enterprises.
Recently drafted by members of Jokowi’s cabinet, the bills will be under discussion by the the House of Representatives, or DPR, for final passage into law. Members of labor unions are already out on the streets in protest: the new bill promises a thorough overhaul of severance pay, and there are concerns that if the bill is passed unamended that foreign workers will flood the domestic labor market through relaxations on work permits. Workers also see a danger in the bill’s provisions to reduce the number of restrictions on outsourcing and remove sanctions on companies paying salaries below the minimum wage.
Some of the workers’ concerns are valid, others not. Indonesia’s severance pay is among the highest in the world and must be changed in order for it to make economic sense for manufacturers to set up shop in Indonesia. Foreign workers are not a menace and don’t threaten employment opportunities as long as quotas for foreign workers in professions where there is a shortage of skilled domestic workers. And for outsourcing, again the practice does not necessarily pose a threat to the working classes– it is more a matter of for what services it is allowed.
How the protests will pan out, whether or not they will grow in size or simply dissipate is anybody’s guess. What the protests should be conveying to the government, however, is that they have failed to properly socialize the omnibus bills with the public. Jokowi says he would like the bills to be passed within 100 days. Given the enormous scope of the bills, their scale and potential impact on the people’s welfare, it is wrong headed for the government to set up an arbitrary deadline. It would be much wiser, and less stressful for everybody involved in the law making process, to step back and make sure all voices and concerns are heard. Perhaps Jokowi can take inspiration from Germany, where labor unions and industry associations make collective bargaining agreements that ensure worker rights are well-protected while, at the same time, German industries maintain their competitiveness. Such should the same for the president: if his big idea on how to make Indonesia a more attractive place to do business is to work, both sides of the table need to be heard.