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CRITIQUE OF DARTMOUTH STUDY

In October, two days before a major international protest of Nike's sweatshop abuses, the company released a summary of a study (a class project) by some business students at Dartmouth College. This was a wage-and-needs study to determine whether the pay received by Nike workers in Vietnam and Indonesia is adequate to meet the workers' basic life needs. According to the Dartmouth study, Nike factory wages are more than adequate and provide workers with considerable discretionary income after paying for necessities.

In spite of requests from many quarters, Nike waited for up to two months before releasing the study itself. As, doubtless, was the company's intention, in the absence of the full study, analysts were at a disadvantage in trying to critique its methodology. Now that complete copies of the report have begun to circulate, we are in a position to look at the reality behind Nike's hype.

The following analysis of the Dartmouth study was conducted by Australian researcher Peter Hancock. Before passing along his critique, Campaign for Labor Rights consulted with Jeff Ballinger of Press for Change. Ballinger considers the Hancock analysis fundamentally sound and accurate, with one reservation: the statements about wages in section 6. Ballinger feels that there are flaws in the way that Hancock calculated Nike wages in Indonesia and offers an alternative calculation.

Contrary to Nike's claims that Campaign for Labor Rights and other human rights organizations deal in sensational, unsubstantiated claims, it has consistently been our policy to withhold exposes of Nike until we can verify them with sources in whom we have complete confidence. No one can claim never to make an error. However, we would much rather pass up the short-term advantage of publicizing something damaging to Nike than to engage in reckless criticism.

BALLINGER ON WAGES:

According to Jeff Ballinger, Hancock's calculation of Nike wages in Indonesia is flawed. Hancock mixes two sets of figures, inflation in Indonesia and the declining value of the Rupiah (the Indonesian currency) relative to the U.S. dollar. Since the Asian currency crash occurred after the timeframe in which the Dartmouth students did their research, the Dartmouth wage figures should not be faulted because of changes in currency exchange rates which subsequently took place.

Moreover, the declining value of the Rupiah vs. the dollar is not a reliable indicator of changes in real purchasing power for Nike workers - at least not immediately. In the longer run, yes, the difference in exchange rates does show up as a difference in the value of the Rupiah, internally, in Indonesia. (More about that later.)

Looking at the real purchasing power of Nike factory workers in Indonesia, adjusted for inflation, Ballinger believes that Nike wages have risen by a good 50 percent since 1994 or 1995. This translates into a real improvement in the workers' standard of living. Even with this substantial increase in purchasing power, Ballinger notes that Nike wages remain woefully inadequate to meet these workers' basic real-life needs. To the extent that wages have improved, the credit goes to Nike's critics and not to the company. For very improvement that Nike has made in its labor policies, Nike management have been dragged into it, kicking and screaming. Only through consistent international pressure from the critics whom Nike tries to vilify has the company been willing to make changes, however inadequate. With each begrudging improvement, Nike then seeks to portray itself as the industry leader.

While the official inflation rate in Indonesia is 9 percent, a more realistic figure would be 20%. Once the fall of the Rupiah against the dollar makes itself felt in real purchasing power in Indonesia, the inflation rate there will rise to something like 50%, says Ballinger. Ballinger's source for that figure is Indera Nababan, head of the Urban Community Mission, one of the 9 non-governmental organizations in Indonesia which have banded together as the Independent Sports-Shoe Monitoring Network (ISMN). NOTE: The ISMN for some time, without any cooperation from Nike, has been conducting off-site interviews of Nike workers. Nike has refused the ISMN's offer to provide truly independent monitoring of Nike factories in Indonesia.

In the short-term, the falling Rupiah means a windfall for Nike's contractors in Indonesia, as fewer of the dollars they receive from the company have to go for wages. In the longer term, when Nike renegotiates contracts with its Indonesian manufacturers, the windfall will go to Nike. Unless Nike is willing to raise wages commensurate with declining real purchasing power, the company will have to shell out many fewer dollars to pay the current number of Rupiahs to its Indonesian workers. When Indonesia's new minimum wage went into effect early last year, Nike workers received the equivalent of $2.46 - per day. (Contrary to Nike claims, the minimum wage is what their Indonesian workers are making, not some multiple of the minimum.) Due to the currency crash, the minimum wage is now the equivalent of 80-85 cents per day according to Ballinger. With Nike making 50 million pairs of shoes a year in Indonesia, the shift in exchange rates could save the company $30 million in labor costs.

HANCOCK'S ANALYSIS OF THE DARTMOUTH STUDY:

This critiques focuses only upon the Indonesian side of the survey as that is my research expertise, however the critique will be useful to analyse the objectiveness of the Vietnamese study.

My Qualifications:

I have spent the last four years researching the industrialisation process in Indonesia, specifically in West Java, the same area in which the Dartmouth study was completed. I lived in West Java for 11 months in 1996/97 and interviewed over 500 factory workers, government officials and factory management. I surveyed 24 large factories of which Nike constituted two. One third of the workers surveyed worked in Nike factories and I found that in terms of wages, working conditions, payment of worker entitlements (sick pay, transportation allowances, food allowances) and community perceptions the Nike factories were by far the worst of all factories surveyed. Further, based on the analysis of all the Nike workers pay slips, 25% of their wages were deducted from the workers every month at Nike factories. Most of these deductions were illegally constructed by the factories with the aid of the Indonesian Ministry of Manpower. My findings completely contradict those of the Dartmouth study. My research was justified as being objective when Nike closed one of the factories I studied based on my published criticisms.

The Dartmouth Study:

I have no intention of discussing the findings of the Dartmouth study because the methodology used to collect the data which led to the conclusions and findings made by the Dartmouth team are in my opinion completely unsound for the following reasons:

1. Nike paid for the study and therefore there is a conflict of interest which weakens the reliability of the study.

2. The literature search, which should be the basis of any research, is completely biased and based upon the report is quite pathetic. Literature reviews should be a mainstay of the research to prove that the study was objective from the beginning. However, in the report the literature search is 'glossed over' and obviously relies on Indonesian government publications which are highly dubious.

3. Meetings with NGOs did not include any with pro labour groups in Indonesia and instead focused on government and international agencies. For example, the Indonesia ministry of Manpower (DEPNAKER) provided significant assistance to this study. However, Depnaker is not a reliable agency and does little for the benefit and protection of workers rights and in fact works to oppress workers in Indonesia. Depnaker supplies one labour inspector for every 4,000 factories in Indonesia and the factory management I interviewed stated that if a labour inspector arrived at their factory it was easy to distract him/her with bribes. G Mihaley, one of the team leaders stated that Depnaker takes workers rights very seriously. He also claimed to have 30 years experience in Indonesia. I suggest Mihaley brush up on the role of Depnaker. One labour inspector for 4,000 factories does not sound like a serious concern to me and most other observers.

4. The report claimed that factory work is in high demand and this implies that it is good. The researchers provide no understanding of the agrarian problems facing Indonesia or the high levels of unemployment coupled with a population of 200 million people. Of course factory work is in demand because there is very little other work. This naive argument is not convincing.

5. The factory managers selected the workers for survey, most of whom were surveyed in groups and on the factory grounds. This is one of the biggest flaws in the research. Firstly, having management select workers means that anonymity is not assured despite claims to the contrary by the Dartmouth team. Secondly, surveying workers in groups means that the same answers will be copied from worker to worker. I attempted group surveys and found this problem contaminated the data. Further, interviewing workers at their factory is simply not plausible given the repressive nature of the state and management in factories in Indonesia.
   
6. Dusty Kidd, Nike's PR officer, claimed that Nike workers are better off today than two years ago. He claimed workers wages had tripled. In the last three or four years the wages in Indonesia have almost doubled and have certainly not tripled, but based upon high inflation and the currency crisis these increases are actually decreases in real terms based upon the US exchange rate and inflation levels. For example the daily wage in 1996 of 5,200 Rupiah which was equivalent to US$ 2.50 is today only equivalent to US$ 0.70.

7. The researchers did not look at the workers pay stubs. This is a fatal mistake for any researcher. Instead they relied on the management, Depnaker and the memories of the workers. I checked 323 pay stubs during my field work and found that the deductions mentioned above seriously eroded the workers wages, Nike factories were the worst in this regard.

8. Language is a problem to the methodology. The Dartmouth team evidently had no Indonesian language skills and relied on local interpreters. This is a problem in Indonesia as I found most interpreters to have very poor English skills and commonly made up answers to please the researcher. It was only because I developed my own Indonesian language skills that I found this bias in any research carried out in Indonesia.

9. Workers in Indonesia commonly provide standard answers to the same question. They live in fear of their own state and factory management who can dismiss them without reason. I found that many workers lied about many questions out of fear of reprisal and it was only after in-depth interviewing of workers that I found out the reasons for their dubious answers. For example, all the workers I sampled provided the same answers to questions about working conditions, wages and their working age. I found after polite and intensive investigation that the Nike workers I sampled were commonly underage, underpaid and treated illegally.

10. The survey claims that Jamsostek (the Indonesian social security system) which all workers pay a levy provided benefits to workers. All the 323 workers I surveyed paid a levy to Jamsostek called ASTEK. However, in late 1997 the government was caught illegally using these funds to bribe ministers to pass a Bill to further repress workers rights. Over $US 2.5 million was illegally taken from ASTEK funds to bribe ministers to pass a labour law designed to oppress workers rights. This point highlights the naivety of the Dartmouth study as it does obvious flaws in the Literature search. ASTEK is a fund paid for by workers and designed to protect them, not to bribe ministers to pass laws to oppress them.

11. Finally, the study was based on quantitative data and state rhetoric. No qualitative analysis was forthcoming, no cultural understanding provided and no mention was made of the repressive role the state plays in workers' status in Indonesia. Further, Nike employs mainly young women and this point was not mentioned in the study. I found Nike factories are the worst offenders in terms of employing underage, uneducated and poor women, who are eminently more prone to exploitation.

During my doctoral research I surveyed over 700 different pieces of literature to provide a sound and objective methodology. Of these over 200 pieces were rejected due to flaws in their methodology and consequent findings. The Dartmouth study would be one that I would reject, it is flawed by the its own methodology and the fact the Nike paid for the study. I suggest MBA students avoid carrying out research for which they are not qualified as they have shown to be in this study.

- Peter Hancock 8/1/98

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