Can the country resolve its ongoing clashes between labor and management?
Discussions of Cambodia’s 2013 election tend to revolve around the violent clashes that took place between protesters and the armed forces. The widely cited reason for such widespread discontent is that many people, especially the poor, have been unable to see significant improvements in their living conditions, notwithstanding the rapid pace of Cambodian economic growth in recent decades, which has lifted millions out of extreme poverty.
What took place in the aftermath of the 2013 election was a clear signal that the status quo needed to be re-examined. Emboldened by the government’s refrain from the use of force to disperse the Cambodia National Rescue Party’s (CNRP) protests, labor unions and other groups came out en masse in the hope of forcing the government to accept their terms. Although some might have been affiliated with the opposition, many were simply trying to make their voices heard.
For instance, tens of thousands of garment workers went on strike across the country for several months, demanding minimum wage increases. Initially, the workers sought $160 a month, but this soon increased to $177, before gradually being reduced to $150 and finally $140. These demands were met with a strong reaction from garment factory owners. Worse, the minimum wage issue has become deeply politicized, making it that much more difficult to offer a viable solution.
The protests presented the government with a serious dilemma. Rejecting the demands outright was politically impossible – the government would stand accused of favoring business at the expense of the poor. But bow to the pressure too easily, and there was no guaranttee that protesters would not come back seeking another rise. The government also needed to resolve the issue swiftly, before the protests spread to other sectors of society.
Yet another concern was that if the minimum wage rises too quickly, it might prompt an exodus of garment factories to other countries competing to offer cheap labor. Since the garment industry provides around 700,000 jobs for Cambodian workers, the collapse of the sector would be catastrophic. And already garment manufacturers were making noises about relocating.
The ongoing strikes were also a body blow to the country’s appeal as a destination for foreign direct investment. For example, the violent clashes between protesters and security forces in early January 2014, which left four dead and several injured, forced a number of garment factories to temporarily close. According to some estimates, the cost to the economy was hundreds of millions of dollars.
It came as no surprise, then, when the Labor Advisory Committee voted to raise the minimum wage from $100 to $123, and the government decided to provide an additional $5, putting the total figure at $128. The move sought to help ease the burden on garment manufacturers and, at the same time, improve conditions for workers. Still, union leaders were not satisfied with the increase, which fell short of their $140 demand.
Although the government managed to diffuse the tension and restore stability, labor protests will not go away anytime soon. With the economy continuing to enjoy annual growth of around 7 percent in the coming years, inequality will widen. There will be increasing pressure on the government to provide some forms of welfare support for the poor and vulnerable. The problem is that it may not have the resources to meet all needs.
Valuable Lessons
Of course, Cambodia is hardly an exception. This sort of tension is commonly found in poor countries during the early stages of their development. For example, when Deng Xiaoping returned to Beijing as China’s preeminent leader in the late 1970s, one of his top priorities was to revive the dormant economy. While he was promoting the four modernizations, he worried that people might have unrealistic expectations, thinking that they would all equally benefit from strong economic growth.
This concern was succinctly expressed in one of his slogans, suggesting that some people could get rich first. Deng’s view came under considerable fire from dissidents, who accused him of favoring a small group of the rich and powerful. Despite these objections, the Chinese leader pushed ahead with his reform agenda, and he was not afraid to crack down on those who sought to derail his plans. He could do that because China does not have elections. A democratic China may have been a very different story.
Another example is Singapore under the late Prime Minister Lee Kuan Yew. With little in the way of natural resources, Singapore has to rely on its people to survive. After being ejected from Malaysia, Singapore has invested heavily in world-class education and training in order to attract multinationals from the West and Japan. However, turning the people into a productive workforce would be of little value if labor unions were having endless strikes to force wage increases.
Lee believed in “a fair, not welfare, society.” Thus, the major role of the government is to provide people with the right skills and high quality education so that they can effectively compete in the labor market. In his view, other basic needs such as housing, public health, and retirement benefits are very important, but people also have to make a contribution, so that they will not become overly dependent on the government.
These two cases provide Cambodia with some valuable lessons. In contrast to China, it would be political suicide for Cambodian politicians to publicly declare that inequality is inevitable during economic takeoff. Since a large majority of voters are poor, political parties are under pressure to roll out some populist policies if they want to get elected. This explains why some of the CNRP’s election promises are so appealing to the masses.
As the saying goes, “good policy is not always good politics.” Politicians know that populist policies have some serious repercussions, as they divert productive resources from sectors that support economic growth. They just choose to ignore that knowledge. Another unintended consequence is that the rhetoric of class division can engender enmity between the urban rich and rural poor, polarizing a country still further.
Industrial Peace
The most challenging task for Cambodia right now is to resolve its industrial relations. Raising the minimum wage alone is not the answer. More importantly, workers and union leaders should understand that they must not kill the goose that laid the golden egg. They cannot simply threaten to use strikes or work stoppages to force employers to agree to higher pay or more benefits, regardless of the consequences to the company.
Of course, workers must be able to make a decent wage, so that they can live with dignity. They should be able to put enough food on the table, have adequate shelter, receive health care. The government and employers should not wait for protests to respond to these needs. They should work together with union leaders to develop a credible framework to determine appropriate wage rates. But wage increases should not exceed productivity gains.
It is important for workers and union leaders to know that the long-term solution depends very much on the government’s ability to create enough quality jobs. To achieve this goal, it is essential that Cambodia have industrial peace to create a climate conducive to foreign direct investment. A confrontational approach is counterproductive and dangerous. The main role of unions is to work in the interests of their members, not to fight with employers and the government to the bitter end.
There is no doubt that the conduct of some employers has contributed to the ongoing industrial strife. Besides the low minimum wage, several reports have revealed poor working conditions and safety standards in a number of factories, leading to health issues and even fatalities for workers. There are also complaints that workers face unfair conditions on overtime pay, working hours, compensation, leave, and absences, among other things.
The cost of frequent strikes and work stoppages surely outweighs the cost of complying with labor laws. For years now, private companies in Cambodia have been seen – accurately or not – as exploiting their workers. Distrust between labor and management is persistent and deep. It is time for employers to take a long, hard look at these issues and proactively address workers’ concerns. Peaceful industrial relations are in the best interest of both parties.
The government has the most critical role to play here. Although it has been working very closely with employers and workers to reach a compromise, the real task is to increase the minimum wage without putting private companies out of business. Tellingly, the wage increase agreed to late last year has many factory owners thinking that they may not be able to afford another wage hike.
But perhaps the single most important task is improving workers’ productivity. The government needs to work with the private sector to identify the skills and knowledge workers need to excel. Moreover, both the government and employers should provide training to workers and union leaders in management and leadership skills, encouraging them to develop new attitudes that will help them to deal with industrial issues more effectively.
The long-term solution to the minimum wage issue is to create more jobs. As a poor country with relatively low savings, Cambodia relies heavily on foreign direct investment to drive economic growth. Creating a climate that encourages foreign companies to invest is a matter of survival. Besides industrial peace and skilled labor, the government must address investors’ concerns, most notably infrastructure, connectivity, electricity, predictability, and security.
Despite budget constraints, there are several steps that the government can take to ease the burden for poor workers, but it must ensure that this support will not make them too dependent on the state. A lack of nutrition and poor heath affects productivity, and will require creative solutions. Improving working conditions and providing subsidies, is one thing but raising awareness among workers is also crucial.
Initiatives
In fact, the government has already introduced a number of initiatives to help poorer workers enjoy better living conditions. For example, Electricite du Cambodge has provided an electricity subsidy to garment workers, reducing the price to $0.15 per kilowatt for consumption of less than 50 kilowatts a month. Further, the Water Authority is seeking to expand independent water connections to the rented houses of garment workers and charge them state prices.
Meanwhile, the government also raised the tax threshold from $125 to $200 a month, a move welcomed by garment workers and industry leaders. There has also been serious discussion on a new rent control law that would protect garment workers from frequent housing price increases. Other issues like transportation, food and health care might also feature in the agenda.
Another contentious issue is poor governance. Unsurprisingly, if private-sector companies face additional outlays, they will find a way to cut other costs, and workers’ benefits and welfare are often the first to be targeted. Worse, some employers might attempt to take advantage of loopholes to avoid fully complying with labor laws and safety standards, creating new headaches for the government.
Cambodia’s government is aware of the seriousness of these problems. During the first cabinet meeting in late 2013, Prime Minister Hun Sen sounded a stern warning to government officials at all levels that they will face severe punishment if found guilty of corruption and other malpractice. Since then, several ministries have rolled out reforms, aiming at restoring trust and confidence in government institutions. This is a step in the right direction, but still more needs to be done.
Solving these issues is not an impossible task. What is needed right now is strong public support for reforms. In addition, political parties should go beyond personal interest and speak frankly about what is good for the country and Cambodians. Playing up the rhetoric of class division to win votes is dangerous, as history has shown only too well. The current industrial disputes require a realistic solution, not a populist one. Cambodia cannot afford to be a welfare state.
Kung Phoak is Co-founder and President of the Cambodian Institute for Strategic Studies.
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