Garment Industry Development in Cambodia - Essay Example

The Policy Process Steps on Minimum Wage in Cambodia Garment Industry in the country of Cambodia Kim, Pan-Suk Chia, Sok-Pheng This research starts with a brief narration about wage protests in the Cambodian garment industry, which began in December 2013. Studying the cause of the protests in Cambodia’s largest industry, researchers considered the minimum wage policy and realized that at the beginning of the protest, the lowest wage for garment workers was revised and set at US $100. Despite the revision, the wages did not stop the protest, so the authors investigated the policy process of the garment industry minimum wage change by inquiring about three important questions: (1) does this wage policy deliver what it intends to achieve; (2) why do workers continue to protest against this wage decision; and (3) how could the crisis be resolved? The authors reviewed the literature and news from local and international sources to analyze what motivated the wage protest and how it evolved. The analysis is organized and explained systematically by using the extended policy analysis model amended by Bill Jenkins (1978). The result of the study leads us to conclude that the recently set US $100 minimum wage did not address the minimum needs of the workers in the industry. The failure is attributed to the unfulfilled workers’ socio-economic needs and interference of political interest in the wage protest. It was concluded that the wage protest was captured by politics because the opposition party in Cambodia was able to argue rhetorically against the government about corruption, a collaboration between government and employers, and monopoly practice by the Garment Manufacturers Association in Cambodia (GMAC). I. Introduction Cambodia is a country with a constitutional monarchy. The King is head of state without political roles, and the Prime Minister is head of the executive branch. Legislative power is held by the National Assembly and the Senate. Cambodia is a unitary state, with its organizational structure divided into national and sub-national levels. Cambodia has a total population of approximately 16 million who live in the rural areas. Cambodias per capita income is rapidly increasing but is relatively small compared to other countries in the South Asian region (Kim, 2009, 2010, 2011). Garment factories are the major manufacturing industry in Cambodia. Currently, there are 428 companies absorbing 437,181 country’s workforce (ILO, 2014) and creating 150,000 more associated jobs in Cambodia (Burns, 2007). Most of the labor force reside and work near factories in the Capital Phnom Penh. Currently, the leading investors are from China (Mainland China, Taiwan, Hong Kong, and Macau), making up 60 percent of total investment in the industry, and followed by Korea, Cambodia, Malaysia, Singapore, Japan, Thailand, and other nations (GMAC, 2014). The industry is worth US $5.32 billion and is composed of 16.1 percent of the country’s GDP. Annually, it grows at approximately 8 percent, maintaining roughly 80 percent of the country’s export industry (Maresca, 2013). Percentage of Garment Investors in Cambodia China 28.54 Germany 0.66 Taiwan 20.43 Macau 0.66 Korea 11.96 India 0.33 Hong Kong 10.63 Israel 0.33 Cambodia 7.81 Italy 0.33 Malaysia 3.16 Sweden 0.33 Singapore 2.81 Vietnam 0.17 Japan 2.33 Bangladesh 0.17 Thailand 2.16 Indonesia 0.17 England 1.83 Irish 0.17 USA 1.66 Netherlands 0.17 Canada 1.00 Spain 0.17 France 0.83 Swiss 0.17 Australia 0.66 Turkey 0.17 Source: GMAC (2014). Despite its contribution, the garment industry is not good in its relations with workers and working conditions. Strikes have rises by nearly 250% because of: (1) wages and bonus payments, (2) discipline and termination, and (3) occupational safety and health. Currently, the minimum wage issue has heated up as trade unions mobilized workers and went on strike to request a minimum wage of US $160. Workers claim that they could not compensate their living costs and inflation with the pay rise offered through the tripartite body last year (ILO, 2013). However, the issue is deemed to be politicized because before the national election in July 2013, one union threw its support behind the opposition party that had proposed a minimum monthly wage of US $150 for the factory workers. Following the involvement of the opposition political party, analysts are examining the prospect of Cambodia’s maintaining its competitive edge by outsourcing cheap labor (Maresca, 2013). The continued deteriorating labor relations and escalating crisis have aroused public inquiry into what went wrong. Meanwhile, Cambodia’s labor laws rule that the Labor Advisory Committee should recommend the minimum wage. Since the minimum wage is recognized by Prakash (government decree) and enforced by government, it could be regarded as policy and if the minimum wage is the center of the crisis, it is essential to study the policy process: (1) does the wage policy deliver what it intends to achieve; (2) why do workers continue to protests; and (3) how could the crisis be resolved for good? This paper aims to understand the nature of the wage conflict by tracing its source and key developments that accelerated the conflict into crisis. The author tries to become as objective as possible since the sources of information are mostly from secondary sources and previous research. II. Literature Review on Minimum Wage Policy 1. Minimum Wage Definition The minimum wage is the minimum sum payable to a worker for work performed and service rendered within a given period (ILO, 1992). Minimum wage should guarantee basic living standards, to provide wage protection, to create an incentive for work, and to ensure income equity. In many countries, governments devise minimum wage legislation (government decree) to protect vulnerable workers, but theoretically, there have been on-going debates about the impact of the minimum wage on the economy; particularly on employment. For this reason, the minimum wage is politicized so as to score political points in most countries. 2. Theory of Minimum Wage There are three major theories given to explain the effect of the minimum wage on employment. The most dominant one, Neoclassical Theory, assumes there is perfect competition in the labor market and indicates there is an adverse relationship between minimum wage and employment. The theory describes the wage-employment relationship through labor exchange in which wage growth increases labor supply at the cost of energy demand. For homogeneous labor, the minimum wage will result in unemployment if it is set over the equilibrium. For heterogeneous labor, a unified minimum wage could lower demand for unskilled workers and undermine the labor supply of skilled labor. Overall employment, therefore, will fall (Herr and Kanzandziska and Silke, 2009). Therefore, a minimum wage should be introduced to protect the underdog and level the playing field. 3. The Minimum Wage in Cambodia Ninety-one percent of countries around the universe have statutory minimum wage (Herr and Kanzandziska and Silke, 2009). Introduced in 1997, Cambodia’s labor law authorizes the Ministry of Labor (MoL) to govern all types of employment, working conditions, collective labor rights, and conflict resolution. However, until now, only the garment industry is protected and overseen with a minimum wage (EIC, 2008). Since being crowned with authority, the MoL has set and raised minimum wage several times, US $40 in 1997, US $45 in 2000, US $50 in 2006 (Kang and Liv, 2009a), US $80 in May 2013. Lately, it has been increased again to US $100 in November 2013. In addition to a wage floor, a regular worker in Cambodia’s garment industry currently enjoys extra benefits such as seniority bonus (beginning with US $2 for 1 year seniority to US $11 for more than 10 years seniority), US $10 attendance bonus, US $5 health care allowance, and US $7 housing/transportation allowance (ILO, 2005 and 2014). 1) Wage Setting Mechanism There is no explicit mechanism for wage setting in Cambodia. Generally, the employer and employee negotiate to determine a wage based on the internal rule of each private firm (EIC, 2008). However, procedurally, wages could simply be set by Prakash (government decree/ministerial regulation) of the Ministry of Labor after discussions with (LAC). Its mission is to study labor related issues and provide recommendations and advice to the Minister of Labor so that the collective agreement on regulations pertain to employment conditions as well as minimum wage could be informatively applied (EIC, 2008). Between employer and employee, each side seems to be entrenched in a the zero-sum position which necessarily requires mediation from a third party. 2) Wage Dispute and Resolution Disputes in the workplace are classified into individual and collective disputes (Heron and Noord, 2004). Another categorization is between rights and interest disputes (CLEC, 2004). The resolution could follow five steps, namely negotiation, conciliation, arbitration, strike/lockout, and court action (ILO, 2005 and 2014). In addition to resolution, there are precautionary measures to prevent disputes from emerging in the beginning. The measures include workplace cooperation, collective bargaining, and labor inspection (Heron and Noord 2004). 4. Wage Policy’s Analytical Framework There is no magic wand capable of solving this wage dispute since it has already escalated into a crisis in which political interests are woven. Any recommendations should begin with understanding of why it happens and how it evolves. Therefore, there needs to be a clear analytical framework that distinguishes influence in the process of minimum wage policy. Wage decisions made by the labor ministry could be regarded as wage system. It comes into existence because the government is obliged to create consensus in the exchange of labor that is respected by both employer and employee. Policy Analysis Framework Source: Jenkins (1978). The system model of policy analysis is shown in Figure 1. The public policy system has several steps: identification of a problem, agenda setting, formulation proposals by various stakeholders, selection and enactment of the policy, implementation of the chosen policy, and evaluation of policy. Bill’s extended system model of policy analysis features major developments and intercepts of policy in a systematic process. In the input stage, demand for policy (in this case, the higher minimum wage) could be distorted by groups (labor unions or NGOs) or political parties that mobilize and organize people (workers) to acquire the policy. After it becomes output, whether or not the policy delivers the outcomes demanded is determined by the characteristics of the policy input as well as the quality of implementation. At all stages of the policy process, the changing nature of social, economic, cultural, and political environments constantly influence the policy and environmental variables including socio-economic, physical, and political ones. III. Minimum Wage Conflict The violent crackdown on garment factory workers, which caused at least three deaths and 23 arrests on January 3, 2014, is as the result of a wage reviewing mechanism lacking objectivity. For this reason, this section summarizes key events and information pertaining to minimum wages and the crackdown in Cambodia by reporting from local and international information sources. The report has two sections: 1. Before the Crackdown The problem has become more and more serious since 2008 because the growth of the minimum wage was largely found to be insufficient for the majority of the workers (GNAD, 2010). To see what exactly drove the strike, it is necessary to examine three important factors. To begin with there is the socio-economic situation of the garment factory workers. Several studies, including those of the Ministry of Labor and the National Institution of Statistics, indicate that a garment factory worker needs at least US $150 monthly salaries to live a decent life (Kang and Liv, 2009b, McMullen, 2013, Mount, 2014). Even though the minimum wage has been raised to US $100 now, this amount is confirmed by ILO and World Bank analysts that it is relatively equal to an inflation-adjusted minimum wage of 2001 (ILO, 2014). Another factor is related to the external influence of the global economy. The growing export of garments from Cambodia could be attributed to favorable trade agreements such as (TATA) with US and the Europeans, etc. In addition, it has also been said that the BFC program lacks transparency, and Cambodian workers have lost faith in the BFC program. This is due to the facts that protects brands’ and factory owners’ interests while paying no attention to employees concerns such as health and safety issues, low wages and job security (Thomasson, 2013). Along with pressure to attract and retain an investment in the economic globalization era (Paul, 2014), unfaithful labor relations and lack of legal enforcement have stimulated workers to demonstrate for better treatment. Last but not least, the wage strike could also have been fostered by political motivation. Some labor unions in Cambodia are recognized as pro-government while others are not (GNAD, 2010). The December strike was made in collaboration with protesters of the opposition party who demanded re-election, and wider democratic reforms following unresolved circumstances in the electoral process (Paul, 2014). 2. After the Crackdown After the crackdown, three people were killed while many others were injured. The Government also imposed a ban on demonstrations under the justification of restoring public order (Lips, 2014a). The violent crackdown, detention of protesters, and a ban on public gatherings and demonstrations were critically denounced by human rights groups and international buyers of Cambodia garments. Following the deadly crackdown human rights group LICADHO (Cambodian human rights organization) and Amnesty International called on the Cambodian government to rein in its security forces (Prak, 2014c).The UN’s human rights agency urged the Cambodian authorities to launch an investigation and to ensure full accountability all security forces found to have used force (Prak, 2014d). International buyers of garments produced by manufacturers in Cambodia also issued an open letter to the Cambodian Prime Minister, his Government, the Garment Manufacturers’ Association, and six workers’ unions, expressing strong opposition to all forms of violence, calling for an immediate and peaceful resolution, and urging them to support a regularly-scheduled wage review mechanism (Lips, 2014b). The crackdown and its criticism slightly affect the garment manufacturing sector, but do not seem to damage the potentiality of Cambodia’s industry as a whole. Despite strikes in (especially late) 2013, which were estimated to cost US $200 million, exports of Cambodia’s garment increased by 20 percent. The growth was welcome but given the number of factories increased by 30 percent. Despite this, the 20 percent export growth did not satisfy GMAC at all (Styllis, 2014). IV. The Policy Analysis of the Garment Industry and the Minimum Wage Crisis The Cambodian government’s decision to set the minimum wage at US $100 in late 2013 is at the center of this analysis because it was supposed to ease the protest. Three questions should be asked regarding the minimum wage situation: (1) does the wage policy deliver its promise; (2) why do workers continue protests; and (3) how could the crisis be amicably resolved? 1. Implementation of the Wage Policy The primary objective of devising a minimum wage is to guarantee basic living standards, to provide wage protection, to create an incentive for work, and to ensure income equity. In fact, the ministry tried to justify its decision claiming that most workers will get US $160 that they were demanding if they work overtime and fulfill requirements for bonuses and extra benefits (Aun and Blomberg, 2014). Nevertheless, the justification did not appeal to workers because in reality it seems to reflect the Ministry’s bias toward employers. In mid-2013, a local company HR Inc., which is managed by a vice president of an employer association, CAMFEBA (Besant, 2014), exaggerated the average income of garment workers to US $178, while Jill Tucker of ILO’s Better Factories Cambodia criticized the figures and confirmed that majority of the workers received US $120 to 130 a month (Hruby and Hul, 2014). Since the Ministry of Labor’s appeal to workers did not yield much compliance, shortly after the official announcement of US $100 minimum wage, protests broke out and spread rapidly into a nation-wide protest. If assessed on the general objective of minimum wage policy and government’s purpose in setting US $100, it is understandable that Ministry of Labor’s decision to set the minimum wage for the garment industry at US $100 failed because it did not protect the workers, it did not enable employees meet their basic needs, and it did not motivate workers to work. 2. Workers’ Protest against the Wage Policy The outbreak of the protest and its escalation could be due to the unfulfillment of socio-economic needs and political interest into the wage protest. To explain this interests, a policy analysis framework by Bill Jenkins (1978) is used to identify stakeholders and their evolving interests in the three stages of the policy process. 1) Agenda Setting The interference of a political element into the wage protest could be seen initially when workers rose up in demand for higher minimum wage. Since an employer is required to not pay below the minimum wage, many employees rarely manage to get paid higher than minimum wage (except for the extra benefits they are entitled to). Even though workers complain about insufficiency (through legal procedures) and sometimes demonstrate in front of their individual factory, they are not forceful enough to affect their demand for wage negotiation. When workers are mobilized and collectively demand a higher wage through their representative unions, their voice and demonstrations become stronger, and occasionally, the unions manage to achieve the demanded negotiation with the employer association (GMAC) and government representatives in the Labor Advisory Committee. At this stage, two key points deserve much attention. First, unions that represent workers could divert the primary objective of workers’ wage protest into something else. In early 2013, trade unions were demanding US $120 minimum wage but were willing to accept US $100 (Lipes, 2013) (Worrell and Mom, 2013). The most concerning accusation of all is related to monopsony of GMAC in the Cambodian garment industry. With support from some high-ranking officials in government, GMAC suppressed its own members who were willing to pay higher than GMAC’s wage (Sam, 2014). This tactic, no matter whether it is true practically or not, deserves much attention because it could increase employment at the cost of the minimal wage growth to the workers. 2) The Formulation of Minimum Wage Policy Even though Cambodia does not have a clear mechanism for setting minimum wage, its labor law recognizes the authority of the Ministry of Labor, under which the Labor Advisory Committee (LAC) studies and recommends the wage. Since LAC’s study should be conducted independently and the recommendation should be made based on a compromise that leads to consensus and harmony in industrial relations. However, the decision to raise the minimum wage to US $100 in late 2013 might have been influenced by the politics of the country as well. Firstly, studies and recommendations by LAC could be swayed by power relationships within the committee as is the case in Cambodia. Secondly, the recommendation of LAC could also be made under pressure from the ruling party government. It is believed that the opposition could gain more leverage and support from not only garment factory workers, but also public employees if the wage were really raised to US $160. Together with protests by the opposition party, this poses a real threat to the position of the Prime Minister who was repeatedly called by protesters to resign. 3) Implementation of Minimum Wage Policy Implementation stage puts the policies into practice and enforcement by the government such that it could produce policy outputs that, in turn, are assessed and judged as to whether or not the policy achieves its outcome. The US $100 minimum wage was decided in late 2013 and began its implementation in February 2014. Until now, there have been few assessments of how successfully it is in practice. There follows in Table 1 the percentage of selected work benefits that employers have complied with the government decree over 5 reporting cycles of ILO Better Factory Cambodia (ILO, 2014). Legal Compliance on Minimum Wage by Employers in Cambodia Legal Requirements 31St report 30Th 29th 28th 27th Payment for maternity leave 76 75 77 83 78 Only one payroll ledger that accurately reflects wages paid to workers 60 52 55 61 67 Payment of $10 attendance bonus when workers take annual leave 66 63 58 61 62 Minimum wage for regular workers 98 97 97 97 98 Minimum wage for casual workers 85 92 92 90 84 Minimum wage for piece-rate workers 92 91 95 98 93 Correct overtime rate for regular workers 97 97 97 100 93 Correct overtime rate for casual workers 94 92 100 100 100 Correct overtime rate for piece-rate workers 81 81 71 87 93 Voluntary overtime 86 86 89 86 87 Lack of compliance over a long period of time suggests an ineffective enforcement of labor standards by the monitors of the Ministry of Labor. The ineffective wage policy implementation could further erode trust in the industry and lead to more conflict in the future. On the conflict resolution, Cambodia has a respectable arbitration council that has successfully resolved many conflicts with garment workers. However, this council does not have the power to enforce its ruling (judgment), so in some conflicts, workers do not get compensation from employers even though workers’ demands are found legitimate by the arbitration council (RFI, 2014). 3. Solutions The cause of the wage protests is the lack of an objective wage reviewing mechanism. According to an explanation by a social analyst (Kem, 2014), the minimum wage in the Cambodian garment industry was stagnant for seven years and the real wage fell from US $45 in 2000 to US $28 in 2007 (the actual salary is the salary adjusted for inflation). It has been confirmed that the current minimum wage of US $100 is equivalent to real wage in 2001 (US $45). Since there is no annual review of the minimum wage based on an objective study, the diminishing value of the minimum wage in the garment industry has triggered workers to protest many times. To solve the standoff, it is, therefore, important to have an annual review of the wage based on a reliable study. In fact, following the intensive calls for an annual salary review by buyers of garment products, researchers, and development partners, the government of Cambodia created a committee to study the wage increase about changing socio-economic conditions. However, this review might not rebuild trust, restore industrial relations, and stop prospective protest if it does not take into consideration the political interference and noncompliance of the existing legal system. Politicians from the opposition party made three appealing arguments against the government’s wage decision: (1) corruption , (2) the collaboration between the government and employers, and (3) the monopsony practice that explains the impossibility of a wage increase in the face of the existing system. Some business people can operate their business without much obstruction because they give an ownership share of their business to influential and high-ranking officials in Cambodia. If there is an obstruction to the company, the employer gets an intervention from the high ranking officials (Sam, 2014). Given their motive, politicians of the opposition party hit to the heart of this wage issue because their arguments point to a loophole in the Cambodian legal system as well as misconducts of authority by a high-ranking government official. It is logical to point out that some reformative changes should be introduced immediately. There should be an annual study of garment workers’ socio-economic and a yearly review of minimum wages (Kem, 2014). The study should become the reliable evidence on which to base the adjustment of the minimum wage. The government might consider substituting its role in the LAC with independent members of academia because this group of people does not have an explicit interest in the wage set; they can write an annual wage report (Herr and Kazandziska, 2011). Finally, the government has to improve its ability to enforce policy and regulation so that workers get the benefits and wages for which they have consensually bargained. Also, the enforcement under the auspices of Arbitration Council should ensure full compliance with the judgment. Last but not least, a trustworthy wage negotiation has to be held under conditions where no party or no one is under pressure to accept any practices. The gathering of many employers under one association (GMAC) is a convincing trait of monopoly (Herr and Kanzandziska and Silke, 2009). Therefore, government must take action to guarantee that (1) employers disclose shareholders information; (2) no government official could abuse their authority; and (3) employers do not have to pay GMAC’s set wage, they can offer higher than minimum wage to workers if there is mutual consensus. V. Conclusion and Policy Implications Protests and the crackdown in Cambodia could be due to the inability to fulfill the socio-economic needs as well as the invasion of political interest into the wage protests. The policy process has found that; (1) the workers’ original concern about socio-economic needs distorted increase of minimum wage and politicized by opposition political party; (2) in the policy formulation stage, the political influence of the government by the ruling party on the US $100 minimum wage decision provoked the garment workers to nation-wide protest; and (3) in the implementation stage, there are so many frauds in the implementation of labor policy and the existing mechanism to resolve labor conflicts. The involvement of high-ranking officials in those frauds has led to protests before and still can if there is no reparation. To solve the conflict, it is necessary to unearth the cause of the wage protest. Study on the minimum wage issue should be done objectively, reliably, and should be acceptable to every party, especially employer and employee. To rebuild trust, an objective, reliable, and acceptable annual salary review must take into consideration the political interference and incompleteness of the existing legal system. The Government of Cambodia should:(1) alleviate corruption and take action against perpetrators; (2) make sure that the decision on minimum wages is based on the results of an annual salary review; (3) consider substituting its role in the Labor Advisory Committee with independent members of professional experts such as academia and civil society and (4) improve the quality of rule and agreement enforcement, and if possible, ensure that judgment by the Arbitration Council yields the greatest compliance. Finally, there should be no abuse of power by government in garment industry by getting employers to disclose information about their shareholders, punishing any high ranking officials who act as protectors of employers, and guiding companies who could pay higher than minimum wages to do so, to motivate workers. Despite this, continuous wage increases may stimulate business owners to move their production facilities to other countries, where little wages are possible. If labor disputes continue, it could worsen the business environments, which may lead to garment manufacturing companies moving out of Cambodia, which could significantly hurt the Cambodian economy and may hollow out garment manufacturing areas. Therefore, the Cambodian government needs to develop a “sustainable industrial development policy” including reasonable wage policies. The core of the wage management policies and systems needs to prioritize worker’s rights. Works Cited Herr, Hansjorg and Kanzandziska, Milka and Silke, Mahnkorf-Praprotnik. (2009). The Theoretical Debate about Minimum Wage. Global Labor University. Read More