New Nike Wage Scam

On March 19, Nike gave itself a clap on the back and announced that it was increasing the pay of its Indonesian shoe factory workers by six percent, to more than 256,000 rupiah per month. With all those zeroes, the new numbers sound impressive and the move was adoringly recounted in numerous press reports. Even more astonishing to anti-sweatshop organizers was Nike's somewhat damning boast that it was now paying its Indonesian shoe workers "a living wage." To back up this claim, Nike cited a study by one of its chief critics, the San Francisco-based Global Exchange.

Having closely covered Nike's labor practices for the past few years, we were stunned by the news. This didn't sound at all like the Phil Knight we had come to know and revile. Has the company really turned over a new leaf? We called Global Exchange to quiz this odd new flack for Nike.

"What's really encouraging is that this company is making an effort to do something to treat its workers fairly and humanely," Jason Marks, Global Exchange's communications director, told us smoothly.

But when we translated those rupiahs to U.S. dollars, what did we find? The vaunted pay increase amounted to about a penny an hour. Nike's conception--based on the Global Exchange report--of a living wage in Indonesia was about $6.07 a week or a little more that $315 per year. That's almost enough money to buy three pairs of Nike basketball shoes.

Is $1.20 per day a living wage? Again, we put the question to Global Exchange. "You could certainly live on that if you were a single young woman," Marks told us. But he did concede that $26 a month probably wouldn't support a family. "Older workers and workers with families will need more," Marks admitted. "The move is encouraging, but Nike's still got a ways to go." Global Exchange is backpedaling on its own standards. Last May, the group's executive director, Medea Benjamin, told the New York Times "a sweatshop is a sweatshop is a sweatshop unless you pay a living wage. That would be $3 a day."

Over the past two years, the Indonesian economy has been in a tailspin, ravaged by hyper-inflation and currency devaluation. The afflictions of the rupiah have combined to erode Indonesian workers' pay by more than 70%. So even with the incremental wage increase to 15 cents an hour, Nike shoe factory workers will be making about half as much money as they did two years ago. Indeed, even under the most optimistic scenario, Nike's workers will see their real wages continue to be eaten away by Indonesia's roaring inflation rate.

The pay boost doesn't take much of a bite out of Nike's bottom line. The average retail price of a new pair of Nike basketball shoes (none of which is made in the United States) is $90. But the direct labor costs are about $1.20 per shoe or less than 1.5%. The devaluation of the rupiah certainly aided Nike, saving the company an estimated $40 million in labor costs. The company's third quarter profits rose by 70%, to $120 million on sales of nearly $2.2 billion.

Increasingly, Nike is getting better press coverage, including public pats-on-the-back from some of its critics. "Nike's improvements can be used to prod other companies, like Reebok and Adidas," Marks told us. "Any positive move by Nike is big for the entire industry."

Jeffrey Ballinger of Press for Change and Nike's most experienced and trenchant critic, is skeptical. "Nike hasn't changed, it's just handling its public relations in a more sophisticated way," Ballinger says. "They've come to realize that with a few minor changes they might be able to placate some of their critics and divide and conquer the anti-Nike campaign." Certainly Global Exchange's bizarre conversion to Nike admirer is a huge coup for the company. We will be watching how this new cooperation matures and with what advantages to Global Exchange.

The person at Nike most responsible for the new spin is Maria Eitel. Eitel is the unctuous former Microsoft executive and Bush administration press official who Knight put in charge of "human rights and labor issues." It seems Eitel has soft-talked several of Nike's former foes into believing that there is a "cultural schism" developing inside the Beaverton, Oregon-based company and that reformers are beginning to get the upper hand. Eitel has urged groups such as Global Exchange to muffle their public attacks and work with the company.

"Nike's CEO hasn't changed and neither has its labor strategy," Ballinger says. "They are going to pay their workers as little as possible. This move is merely tokenism." As evidence, he points to a comment made by a Nike manager earlier this year regarding a possible increase in the Indonesian minimum wage. "There's a concern what that could do to the market," James Small, Nike spokesman, said. "Whether or not Indonesia could be pricing itself out of the market." A month earlier Nike had paid $200 million to the Brazilian soccer team.

It is also important to understand that the meager pay increase only affects Nike shoe workers in Indonesia, not those in Vietnam or China--it's unconscionable that an outfit presuming to call itself Global Exchange should not be remembering this. Nike favors authoritarian regimes that can be counted on to repress the company's critics. In January, a telling memo to the Vietnamese government from Nike Vice-President Joseph Ha surfaced in the Vietnamese press. Ha, widely regarded as Phil Knight's right-hand man on Asian matters, warned the Vietnamese authorities that anti-Nike activists were attempting to impose a new form of government on Vietnam. Ha singled out Thuyen Nguyen, courageous head of the Vietnam Labor Watch, telling the Vietnamese that Nguyen and his group "are not friends of Vietnam."

Nike's new policy also only applies to the 70,000 shoe factory workers, not the tens of thousands toiling in the company's apparel sweatshops. "There are lots of garment workers in Indonesia," Trim Bissell, director of the Campaign for Labor Rights, tells the AVA. "But we don't know how many, because Nike still refuses to disclose where its apparel factories are."

Meanwhile, none of Nike's factories in Indonesia permit workers to join independent unions and the company refuses to allow independent Indonesian human rights organizations to inspect its factories. Human rights dissidents and labor organizers languish in Indonesian prisons. One of the most prominent of the jailed leaders is Dita Idah Sari. Sari was arrested after she led a demonstration calling for an increase in the minimum wage. She was convicted of "sowing hatred" and sentenced to six years in prison. Unlike Reebok, whose president has recently called on the Habibie regime to free Sari, Knight and Nike have remained silent, despite repeated pleas from American labor and human rights groups for the company to exert its pressure on Sari's behalf.

Similarly, Nike refuses to fully compensate 24 Indonesian workers who were illegally fired in 1992 after leading a demonstration against brutal labor practices at the Eltri factory. In the summer of 1998, the Indonesia Supreme Court ruled that the workers had been illegally terminated and needed to be repaid their lost wages. According to Cicih Sukaesih, one of the fired workers, the company has attempted to get away with paying only 10% of the wages owed for the past 5 years.

The Eltri factory is operated by the Astra conglomerate, Nike's leading supplier in Indonesia. Astra is controlled by Indonesia's leading timber and banking tycoon, Bob Hasan. Hasan is a political intimate and golfing pal of Suharto. When Hasan acquired Astra, he forked over 10% of the company to Nusamba Corporation, a front for Suharto. Nike's Dusty Kidd brushed aside the company's association with Hasan and Suharto, telling the Portland Oregonian: "That's the way it works in Indonesia."

Anyone who believes that Nike has changed should scrutinize closely a speech given by Michael Spence in Indonesia on March 24, five days after the company announced its new wage policy. Spence told the Indonesians that companies like Nike remain profitable because they use cheap labor in places such as Indonesia and Vietnam. "You don't sit in North America or Europe thinking you're doing just fine and not look around the world," Spence said. "You need to be ruthless and not tell people you can do it in-house when out-sourcing would do a better job." Spence is the Phillip H. Knight Professor of Business at Stanford University. His position is endowed by the CEO of Nike.