A-Infos (en) Nike/Dartmouth study criticized

["Shawn Ewald" <shawn@wilshire.net>]

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------- Forwarded Message Follows -------
Date:          Thu, 15 Jan 1998 11:49:39 -0800 (PST)
To:            clr@igc.org
From:          Campaign for Labor Rights <clr@igc.apc.org>
Subject:       Nike/Dartmouth study criticized

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CRITIQUE OF DARTMOUTH STUDY
January 15, 1998

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:

Critique of Nike's Dartmouth Study "Survey of Vietnamese and Indonesian
Domestic Expenditure Levels" 
By Peter Hancock, Centre for Development Studies, Edith Cowan University.

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.

*************************************
Please see Ballinger commentary on section 6
*************************************

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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