Politics Trump Economics in Promised Wage Hike

A week ago last Sunday, Prime Minister Hun Sen rolled out an unprecedented package of new benefits for the country’s army of garment workers, topped off by the promise of a handsome raise next year, just in time for July’s critical national election.

—News Analysis—

The government’s sudden moves to expel a U.S.-based pro-democracy group and shut down a clutch of independent radio stations at about the same time grabbed most of the top headlines. But economists, analysts and labor rights groups see an equal measure of shrewd politics behind the premier’s new embrace of garment workers, only with the potential to hurt the very industry it’s meant to serve.

Women leave the Hoyear garment factory in Phnom Penh in February. (Siv Channa/The Cambodia Daily)

“Hun Sen’s regime is certainly putting short-term political gain ahead of long-term economic development,” said Miguel Chanco, lead regional analyst for the Economist Intelligence Unit. “Lucky for him, the government is in a position where it has enough in the tank to weather through some turbulence in the near term. However, there is no doubt in my mind that its current policy trajectory is unsustainable.”

In benevolent benefactor mode, Mr. Hun Sen unveiled his garment sector campaign to an auditorium full of mid-level factory workers in Phnom Penh: pensions by 2019, employer-covered health insurance by next year, free rides on the city’s shiny new fleet of public buses starting this month. To top it off, he promised a monthly minimum wage next year of no less than $168, guaranteeing a salary bump of at least 10 percent for Cambodia’s 700,000-plus garment workers.

Economists and policy analysts said the sector, which contributes the bulk of Cambodia’s export earnings and has continued to grow briskly year on year, can probably weather another big raise. Though the minimum wage has nearly doubled since just before the last national election in 2013, they took off from a low base, said Jayant Menon, a lead economist at the Asian Development Bank. “Cambodia remains an attractive site for garments production in the region due mainly to competitive wages and preferential access to developed markets,” he said.

Mr. Chanco said the premier’s promised raise would still leave Cambodia an attractive destination to place orders, especially for brands still shifting out of China, which continues to dominate the global garment export market.

However, a $168 monthly wage would put Cambodia just over China’s lowest minimum wage, which varies by region from $162.70 to $315.30, according to the latest figures from the International Labor Organization. It would also crest Vietnam’s top minimum wage of $164.70.

One of five protesters killed by the military police during a garment workers’ protest in Phnom Penh’s Pur Senchey district lies bloodied on the ground in 2014. (Siv Channa/The Cambodia Daily)

Matt Cowgill, the labor organization’s lead technical adviser on the region’s labor standards in the global supply chain, noted that wages in Cambodia’s main rivals could also rise next year. But next year’s minimum wage in Cambodia might also pass $168. Mr. Hun Sen hinted that it could end up higher.

The past few years of raises appear to have left Cambodia largely unscathed, Mr. Cowgill said. Its share of the global garment market, though small, has continued to grow, but the run might not last. “It is possible that future increases may have negative effects,” he said.

While the sector would likely survive the prime minister’s raise, Mr. Chanco said it was sure to drive at least some of Cambodia’s customers into the arms of its cheapest competitors.

“Would a rate of $168 a month be the death of Cambodia’s own industry? Not necessarily,” he said. “Would more firms at the margin start to source out of more competitive markets, such as Bangladesh and Myanmar? Most definitely.”

In theory, the government, factories and unions are supposed to set each year’s minimum wage after months of careful negotiations. The Labor Ministry, which heads the talks, insists that’s still the case and that the prime minister merely set the floor of what next year’s wage could be.

Last month, the ministry also said the government’s National Institute of Statistics would be wrapping up a study of garment workers’ “living conditions” by the end of this month, just in time to inform the final stages of this year’s negotiations.

But as of last week, the study had not even begun.

The institute’s director, Hang Lina, said her office had asked both the Finance Ministry and international development partners for money to do the survey—to no avail. At the Finance Ministry, secretary-general Meas Soksensan said he did not know about it and referred the question to a deputy at the ministry’s budget office who could not be reached.

Phay Siphan, spokesman for Mr. Hun Sen’s Council of Ministers, said he had no idea how the premier came up with $168. Labor Ministry spokesman Heng Sour ignored the question and maintained that next year’s minimum wage would be decided by the ongoing negotiations.

Michael Dickison/The Cambodia Daily

The Garment Manufacturers Association in Cambodia, which represents the sector’s 600-plus exporting factories, says the prime minister’s raise will cost the country orders without further government concessions to blunt the hit.

Kaing Monika, the association’s deputy secretary general, said a $168 minimum wage would cost the factories more than $10 million a month. The government’s order that employers pay the full cost of their workers’ health insurance, which they currently split, will cost them a few million more. By 2019, they’ll also have to start paying their workers pensions, which Mr. Hun Sen just this week set at 80 percent of their last salary.

Mr. Monika said the prime minister might not have used any studies but did appear to be sticking to a rough formula the government laid out in 2014 for setting the minimum wage based on seven broad factors, including inflation, productivity and competition. He said inflation and productivity gains alone over the past year added up to roughly half of a 10 percent raise.

“So it’s not being irresponsible,” he said.

Moeun Tola, director of the Cambodian non-government labor rights group Central, said next year’s wage should be even higher. In 2013, a state-sponsored study concluded that to earn a living wage garment workers should be making as much as $177. By next year, Mr. Tola said, after five years of inflation, it should be higher still.

But he said Mr. Hun Sen’s decision to pre-empt the wage negotiations by putting a floor on next year’s raise was pure politics.

“The prime minister just said it in advance, without a chance for the employers and unions to have some say, so it’s clear to see it has a political motive,” Mr. Tola said. The negotiations, he said, were “just a show.”

“It’s totally politics over economics,” agreed Sophal Ear, author of “Aid Dependence in Cambodia: How Foreign Assistance Undermines Democracy.”

“A guaranteed 10 percent wage increase?…. It has politics written all over it,” said Mr. Sophal, an associate professor of diplomacy and world affairs at Occidental College in Los Angeles. “But that wasn’t the tune being sung years back. People died because they wanted to go up from $80 in 2013.”

Amid the taut political climate that followed that year’s national election, which the opposition CNRP accused Mr. Hun Sen’s long-ruling CPP of stealing, nationwide strikes brought the garment sector to a near standstill. The strikes came to an abrupt end the following January when military police opened fire at a protest that had turned violent outside a factory in Phnom Penh, killing at least five workers. The minimum wage has been on a steady rise ever since.

Ou Virak, director of the Future Forum, a Cambodian public policy think tank, is skeptical that economics has ever had much sway over the minimum wage, describing Mr. Hun Sen’s promised raise and raft of new benefits as “very political.”

“I’m not sure economics has a play in any of these things,” he said.

Mr. Virak said garment workers only had a minimum wage to begin with—they’re the only private sector employees in the country to have one—because of the pressure unions were able to put on international brands sensitive to their reputations, not because the government cared.

A $15 bump in wages was risky, he said. While garment exports have continued to grow with each raise, the rate of growth fell by half last year. But he also said it was only natural for politicians to pander to voters with populist policies that sometimes sacrificed economic sense for political gain.

“Is it dangerous? Yeah, probably. But, unfortunately, that’s how democracy works,” he said. “I don’t blame politicians for being politicians.”

It’s anyone’s guess whether it will work.

In the absence of detailed political polling, no one knows for sure how garment workers vote. But they did feature prominently in the mass demonstrations the CNRP mounted in 2013 to protest that year’s disputed election results. An opinion poll commissioned by the CPP last year also found that “workers” in general were the least likely to vote for the ruling party compared with farmers and business owners.

If the promised raise and new benefits don’t prove enough to peel some of them away from the opposition, the Economist’s Mr. Chanco said they could at least help the CPP hold on to the garment worker voters it has.

“Hun Sen’s latest remarks and pledges are only a continuation of a trend that pretty much began in earnest after the disputed 2013 election,” he said. “I think these sorts of moves will continue to persuade many to stick with the CPP. After all, Cambodia remains one of the poorest countries in the world and so many will continue to rationally vote on their pocketbooks.”

Just this week, as if to prove the point, Mr. Hun Sen promised garment workers that he would lean on landlords around their factories not to raise their rents next year. He even promised them free medical checkups and treatment at any state hospital, also starting next year.

But Mr. Tola, of Central, said many garment workers would weigh more than their wages when it comes time to vote. Mr. Ear said some might find it too hard to shake off any bad memories of the fatal force the government used to put down the protests and strikes after the last elections. The Future Forum’s Mr. Virak said concerns about corruption and safety were also likely to figure large in their calculations.

They all agreed, though, that there was no coincidence in the broadside Mr. Hun Sen has launched against Cambodia’s independent media at the same time, the counterpoint to the charm offensive he has aimed at workers.

Since the start of last week, the government has shuttered at least 19 radio stations that have regularly carried critical programing. It is also threatening to shut down The Cambodia Daily, one of the country’s few independent newspapers, unless it pays a disputed tax bill topping $6 million by Monday.

It has already expelled the foreign staff of the National Democratic Institute over allegations that it was plotting the prime minister’s downfall. On Saturday, a woman from Banteay Meanchey province was the latest Cambodian to be arrested for criticizing Mr. Hun Sen online.

“They want to control the message,” Mr. Virak said. “It’s a two-point approach: Cut out some media, but you have to please the workers at the same time.”

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