Social Security Reform: Issues and Values

EXECUTIVE SUMMARY

Few dispute that Social Security faces a long-term financing crisis. The program's true condition, however, is even grimmer than many acknowledge. Beginning around the year 2017, Social Security benefits can be maintained only through higher taxes, cuts in spending or a return to budget deficits. Between 2017 and its "official" insolvency date of 2040, Social Security will require at least $2.5 trillion (in 1998 dollars) of additional revenue to maintain promised levels of benefits. Beyond 2040, deficits grow worse.

Social Security reform is about much more than simply balancing the books, or "quick fix" patches designed to keep a leaky ship afloat for a few additional years. Past reforms have taken that approach and failed, because they did not appreciate the true nature of the problem and because the underlying values the American people hold regarding Social Security had not evolved to a place that would welcome lasting reform.

The task facing reformers is two-fold: first, devise solutions to the structural problems Social Security faces while second, ensuring that these solutions mirror the core public beliefs and opinions that have made Social Security such an admired program. The second task is in many ways more challenging than the first. Therefore, two distinct issues are addressed:

Structural Problems: Social Security was established as a pay-as-you-go social insurance system, in which current taxpayers support current retirees. But pay-as-you-go financing depends upon a) high growth in workers' incomes, and b) a high ratio of workers to retirees. In the future, neither income growth nor growth in the size of the labor force will be sufficient to provide a good rate of return to a growing population of Baby Boomer retirees. The only way to avoid trillions of dollars of tax increases or spending cuts is to improve the rate of return from Social Security by making it a fully-funded pension program.

Public Opinion: As important as the structural problems facing Social Security are, an even more important component of reform is public opinion. In short, there are three core values or opinions around which public opinion revolves on the Social Security debate. They are:

*Security: A guarantee against poverty in retirement. Social Security provided it in the past, but doubts about its solvency mean that it no longer provides peace of mind.

*Return on investment: In Social Security's early years, workers contributed only 2 percent of their wages and the return was good. They now contribute 12.4 percent, and the return is much lower. Workers are not receiving value for their money, and oppose tax increases or benefit cuts that make the return from Social Security even worse.

*Distrust in government/Personal control: Failed reforms of the past caused deep public skepticism that the government can reform Social Security in a way consistent with their values and best interests. Doubts regarding Social Security caused individuals to plan for retirement on their own. The public wishes to shift more of the responsibility for retirement planning away from government and toward them. Proposed reforms should address these key issues and values. Those that do not will likely be unsuccessful.

Proposed reforms should address these key issues and values. Those that do not will likely be unsuccessful.

1. INTRODUCTION

What began as a relatively modest social insurance program to ward off poverty in old age has become the largest and most expensive government program in the world, upon which millions of Americans depend for their retirement incomes.

What began as a tax of only two percent of wages now takes over 12 percent. As a result, Americans have less money to save on their own and expect much more from Social Security than they used to.

A worker putting 12.4 percent of her wages and salary into a stock fund returning the historical average could retire with a nest egg providing an income three times what he had while working. Out of this, she could easily provide for retirement, disability and survivors expenses. The government depicts Social Security as a base for retirement income, as insurance against poverty. But 12.4 percent of wages should provide much more than a base, and workers have demanded more for their money.

As Social Security has changed, Americans' perceptions of it have changed as well. Former Speaker of the House Tip O'Neil called it the "third rail of American politics," which politicians could touch only at their peril. Yet today, the public says they are substantially more likely to vote for a candidate who favors changing the system than one who wants to keep it as it is.

Both political parties place Social Security reform at the top of their agendas. The most difficult challenges are not of high-level finance. It is easy to discuss subtleties of tax rates, salary ceilings, retirement ages and cost of living increases. More difficult is addressing the basic structure of Social Security, the core public values behind it, and the way that these basic values are no longer met.

In many ways, the answers to Social Security reform aren't nearly so hard as the questions:

*Some people count only the employee's payroll tax contribution while others count both employee and employer. This makes a big difference in computing the program's return.

*Some believe the Trust Fund can delay Social Security's insolvency, while others consider it a "polite fiction" filled with "phantom assets." On this question alone hinges whether financing problems are a speck on the horizon or a steam train just around the corner.

*Some see investment in the market as fraught with risk, while others see greater risk in remaining with the current system. The answer to this question can determine the safest route to reform.

Clarifying basic issues like these is essential. If we disagree on how Social Security works, how large a problem it faces, and what risks are included in the alternatives, we can use all the econometric models we want but will never agree on anything.

But Social Security's structure is merely a start. Social Security is as much an American ideal as a government program. Americans feel that Social Security belongs to them as much as to the government. Just as important as the questions above are the public's beliefs, values and opinions about Social Security.

*What do Americans want from Social Security?

*Whom do they trust?

*What risks are they willing to take, and who should take them?

*What tradeoffs will they accept?

Any reform must appreciate Social Security as an American ideal as much as a social insurance or compulsory pension program.

Politicians frequently hear the advice to "speak in terms of values." Here, we must think in terms of values as we consider and evaluate proposals to reform Social Security. Reformers should consider the public's core beliefs and opinions as well as Social Security's structural issues in ensuring that the program continues to protect the things Americans prize about the program.

2. UNDERSTANDING SOCIAL SECURITY

Much of the talk about Social Security — of how much money is in the Trust Fund, how long it will last, what rate is paid on the bonds in the Fund, and so forth — focuses on factors peripheral to its survival and success. It is only by breaking Social Security down to its essential factors — how it is financed, how it pays a return, what return it will be capable of paying in the future — that reformers can avoid past mistakes and ensure a secure future for the program.

Financing: Pay-as-you-go vs. Fully Funded

We must first distinguish between two methods of financing, "pay-as-you-go" and "fully-funded," which are central to understanding how Social Security works, why it faces problems in the future, and how it might be reformed.

Pay-as-you-go is a vertical system, where each working generation supports the generation that preceded it. Under a pay-as-you-go system, there is no saving or investment, merely the continual transfer of wealth from younger generations to older ones.

Pay-as-you-go financing is often dismissed as a "Ponzi scheme." Yet, Americans have long relied on pay-as-you-go without even realizing it. For generations, the elderly lived with their children. Their children would be supported by their own children when the time came. There is nothing inherently wrong or dishonest with this approach; under favorable conditions pay-as-you-go can continue forever, with each generation supporting the one that preceded it and being supported by the one that follows.

But if a family does not have enough children, or if their children do not have very much money, then pay-as-you-go financing becomes problematic. The same conditions apply when pay-as-you-go is applied to a national pension and social insurance plan, as we shall see.

Fully-funded financing is similar to the modern practice of saving for retirement. It is a horizontal system, in which each person or generation saves money while working, then draws upon those funds to cover retirement or other expenses. Unlike pay-as-you-go financing, in which there is an ongoing intergenerational transfer of wealth, in a fully-funded approach each generation saves for its own retirement.

Is Social Security Pay-as-you-go or Fully-Funded?

According to the Social Security Administration, Social Security is a mixed or partially-funded system, with elements of both a pay-as-you-go and a fully-funded approach:

"Since 1983, the program has operated under a "partial reserve" method of funding. The intent is to have the system take in more than it pays out in order to build up the large reserve funds needed to help pay for the benefits of an increasing number of retired workers."

Most payroll taxes immediately pay benefits to current retirees, survivors, or the disabled. In 1998, of an estimated $435 billion that American workers paid in payroll taxes, about $380 billion was spent on benefits.

The government uses the money left over to supplement general tax revenue, and gives the Social Security Trust Fund special Treasury bonds in exchange. Since the Baby Boomers are at the height of their earning years, Social Security is running a surplus and the Trust Fund is growing.

In the future, the Baby Boomers will retire. Social Security will be deprived of Boomers' taxes and will instead have to pay them benefits. Beginning around 2017 Social Security's cash flow will turn negative; it will take in less money in taxes than it pays out in benefits.

To supplement payroll taxes, the bonds in the Trust Fund will be redeemed. This will pay benefits until around 2040, when the Trust Fund will run out. From 2040 onward, payroll taxes will bring in enough money to pay only 75 percent of promised benefits. To maintain full benefits new revenue would have to be found, either through tax increases, spending cuts or new borrowing.

This is a rough synopsis of the "official" view of Social Security. As we will see, there are reasons to take issue with this description, as well as with assurances of the program's stability for the near future. The true prognosis for Social Security's future is decidedly less rosy.

So, What is the Trust Fund, Really?

The American Association of Retired Persons (AARP) claims "even if we just sit back and watch the program, without any kind of change at all, Social Security will be able to pay promised benefits until the year 2029."

The Century Foundation says that, "without the Trust Funds' reserves, the moment when the government would need to find a solution to the gap between payroll tax revenues and obligations to retirees would be moved forward by 19 years, from 2032 to 2013."

Similarly, Social Security Commissioner Kenneth Apfel says that while "demographic changes raise serious long-range solvency issues, Social Security is not a program in crisis. The projected shortfall in the system, while serious, will not happen for almost three decades, by which time the program will be almost 100 years old."

The truth is, the Social Security Trust Fund will neither delay the need for tax increases by a day, nor reduce them by a penny.

This is for a very simple reason: Treasury bonds -- the assets in the Trust Fund -- are nothing more than written promises by the government that at a certain date it will raise revenue sufficient to repay the bond. As the Congressional Research Service has said:

Perhaps the biggest misconception is that the Social Security Trust Funds represent actual resources to be used for future benefit payments, rather than what is in reality a promise by the Government to take steps necessary to secure resources from the economy at that time.

The Trust Fund cannot delay the need for additional revenue, because the bonds in the Fund are themselves promises to provide additional revenue. And ultimately, the only "asset" underlying a government bond is the power to tax.

How much would these taxes be? The projected payroll tax shortfall in 2014 is only $4.2 billion, but grows rapidly as the Baby Boomers retire. Between 2014 and 2030, the Trust Fund will redeem a total $2.49 trillion (in 1999 dollars), an average of $131 billion per year.

The question defenders of the Trust Fund never answer is: where is the government going to get the money to repay those bonds? It's not sitting in Fort Knox, so it has to come from somewhere. The accompanying tables show 1998 Federal spending and revenue by category, along with Social Security's funding shortfall from 2014 to 2031.

Covering the shortfall by raising taxes would require income taxes to increase by 17 percent or payroll taxes by 25 percent. Alternately, we could trim Social Security benefits -- if you consider a one-third reduction a "trim." Or we could reduce other government spending. That is, if cutting National Defense by half or eliminating all funding for energy, agriculture, natural resources, commerce and housing, transportation, and education is your cup of tea.

Of course, we could always borrow, bringing back the days of massive budget deficits. This is what the Trust Fund will bring us, and all of it before Social Security is scheduled to become insolvent.

Both President Clinton and Congressional Republicans state their opposition to increasing taxes to save Social Security. But relying on the Trust Fund burdens the public with $2.5 trillion of additional taxes without notifying them of that fact. In effect, Washington will be telling the public, "We're not raising your taxes to pay for Social Security; we're raising your taxes to pay for the bonds which will pay for Social Security." Given the size of the tax increases that would be necessary, this is a distinction likely be lost on the public.

If the Trust Fund were the backstop against tax increases its defenders claim, then an instant solution to Social Security's problems would be to issue more bonds to the Fund. But as A. Haeworth Robertson, former chief actuary of Social Security stated, "With or without a trust fund, the same amount has to be taken out of the taxpayers' hands."

This is not to say that the Trust Funds are being mismanaged, that money is being "stolen" from the funds, as some accuse. A Federal Trust Fund is different from an ordinary one, but a citizen would need to examine the fine print of the budget to figure that out. Ordinary people, upon realizing that the only assets underlying the Trust Fund are currently residing in their bank accounts, feel a sense of betrayal.

The True Return on Taxes "Invested" in Social Security

A standard approach in articles on Social Security reform is to contrast the return from stocks with that of the bonds issued to the Social Security Trust Fund, then show that over time an individual can earn much more in the market than with Social Security.

A writer to the New York Times recently made a similar point: "if the Government paid more reasonable interest rates for its access to the Social Security reserves, the whole idea of having to go to the stock market would evaporate."

But these comparisons are misleading. Whatever the interest rate on the bonds, the difference between what Social Security collects in taxes and what it pays in benefits will be met using general revenue. Therefore, we need to look closer.

An important first step is to differentiate betweenthe rate of return for individuals and the rate of return for the system as a whole. The chart at right shows the inflation-adjusted rate of return for different categories of beneficiaries retiring in different years. Clearly, those who retired early in Social Security's history received a higher rate of return. Part of the reason is simple: Social Security was founded midway through their working lives, so they received full benefits without paying a full lifetime's taxes.

In addition, different beneficiaries receive different rates of return. Single men, for instance, receive a lower rate of return, because they tend to have shorter life spans than women or married men. One-earner couples receive a higher rate of return because the non-working spouse receives benefits without having to pay taxes.

While important, individual rates of return do not help nearly as much as knowing the structural rate of return for the system as a whole. If the system produces a high rate of return then benefits for everyone can improve, even if some individuals still get a better deal than others.

For that reason, we will define Social Security's rate of return as the annual change in funds available per beneficiary. Three factors determine Social Security's annual rate of return:

*Growth of the labor force

*Growth of productivity

*Growth of the beneficiary population

Growth in the labor force increases the number of workers paying taxes. Growth in productivity increases workers' wages. Both of these factors increase the total pool of money available to pay benefits. Growth in the beneficiary population determines among how many people the pool of money will be divided.

If the labor force and productivity grow faster than the beneficiary population, the amount of money available to each beneficiary will increase. But if the beneficiary population grows too quickly, then there will be less money available per person.

The good news is that these three factors are predictable far in advance. Unlike the stock market, which goes up or down on a daily basis, we can have a fair idea of what the return will be from Social Security decades in advance. The bad news: if they combine to produce a low rate of return, there is little that can be done to change it.

Conclusion

Social Security's ability to continue as a self-financing program for the long term depends on these three factors: growth of the labor force, growth of productivity (which determines growth of workers' wages), and growth of the retiree population.

Looking at the Trust Fund is worse than useless. The bonds in the Trust Fund represent how much payroll tax money has been borrowed for other uses, but they cannot forestall the need for increased revenue in the near future.

Now that we have a general understanding of how Social Security is financed, we can look at how the factors that make for the program's success or failure have changed over time.

3. UNDERLYING PROBLEMS WITH SOCIAL SECURITY

Social Security produces a good rate of return only under certain advantageous economic and demographic conditions. The labor force and the productivity of the economy, which determine the tax base, must grow faster than the population of retirees and other beneficiaries, which forms the benefit base. In the early years of Social Security, these conditions were satisfied. The labor force grew quickly and the economy prospered, while the retiree population increased relatively slowly.

But the factors that made Social Security successful and popular in its early years have turned against it. Social Security is ill-equipped for an environment in which these conditions no longer hold true.

The Baby Boom and Bust

Following World War II, servicemen long separated from their spouses made up for lost time in building families. The "Baby Boom," in which birth rates jumped from 2.2 births per woman in 1940 to 3.6 per woman in 1960, created a demographic wave of new children.

Financing the health and education of the young Baby Boomers was a challenge. But as the Boomers reached working age, the labor force grew by over 2 percent per year and payroll tax revenue increased. As a result, the return from Social Security increased.

Following the Baby Boom, however, birthrates did not simply return to their previous levels. They actually fell as far below normal as they rose above it during the Boom. By the early 1970s, the birth rate had fallen below its 1940 level. It has never recovered since. This created what has been called the "Birth Dearth," the opposite of the Baby Boom.

While the labor force grew by over 2 percent annually in the late 1960s and early 1970s, present growth is only around 1 percent. By the year 2020, growth will be only around 0.1 percent. This means that almost no net additional workers will be paying taxes into Social Security.

As the Baby Boomers begin to retire in the early 21st century, they will stop contributing to Social Security and start collecting benefits. Meanwhile, low birthrates mean there will be fewer workers to take their place, and fewer workers means fewer contributors to the system.

Increased Life Spans

Not only are the Baby Boomers moving toward retirement, but thanks to improved nutrition and healthcare they will spend more years enjoying their retirements than any previous generation of Americans. This is good news for them. It is not so good news for Social Security.

In 1940, only 53.9 percent of males survived to collect benefits. By 1990, over 72 percent of males lived to collect Social Security.

In 1940, people who lived to 65 survived for an average of 12.7 additional years. By 1990, life expectancy at age 65 was 2.5 years longer than in 1940.

The benefit-years liability -- the product of the percentage of the population living to age 65 and life expectancy beyond that age -- nearly doubled between 1940 and 1990, and will continue to increase in the future.

As a result, the money Social Security takes in through payroll taxes must be divided up among a larger pool of beneficiaries. All other things being equal, this means less money available per person.

Lower Productivity Growth

Economist Paul Krugman says that "productivity isn't everything, but in the long run it is almost everything." What he means is that a country cannot reliably raise its standard of living other than by raising the level of output per worker. Employees can work longer hours or more people can enter the labor force, but only for so long. Productivity growth is and will continue to be the linchpin to increased national wealth.

Increased productivity is central to Social Security's rate of return. If productivity increases, wages also increase. If wages increase, workers pay more payroll taxes without having to increase tax rates. Increased payroll tax receipts make for a higher rate of return from Social Security, with more money available for each beneficiary. The U.S. has seen both sides of this equation.

The early post-war period was one of boundless optimism. In the 1960s, real wages per worker subject to payroll taxes rose by an average annual rate of 2.2 percent, and in 1967 Fortune magazine predicted that per capita income would rise by 150 percent by the year 2000.

Quickly, the optimists were proved wrong. In the 1970s, as productivity growth declined, wage growth slipped to 0.5 percent annually. It recovered to only 0.7 percent in the 1980s and 90s, less than one third that of the 1960s. For many lower income workers, wages actually dropped.

Slow productivity growth is serious business: had growth in the last quarter of this century been as high as in the first 75 years, current American living standards would be 25 percent higher than they are today.

High productivity makes it easier to overcome changes in the worker-to-retiree ration. If productivity growth slows, the effects of demographic changes are only exacerbated.

Economists debate the reasons for the slowdown in productivity and wage growth. Part may be that today's economy is based more upon services than upon manufacturing, and productivity increases are harder won in service industries than in manufacturing. As economists joke, we can produce millions more widgets than in days past, but a string quartet needs just as many workers as it did three hundred years ago.

A second reason for slower wage growth may be that a greater share of workers' total compensation is taken up by non-wage benefits, particularly health care. Even to the degree that total compensation is growing, wages subject to Social Security taxes may remain stagnant.

Whatever the reason for the slowdown in growth of productivity and wages, decreased wage growth plays a central role in the nation's ability to provide benefits for future retirees.

The Future Return from Social Security

Declines in labor force and productivity growth combined with increases in the retiree population mean that the future return from Social Security will be far lower than at present. Many individuals may not even get back all the money they put in, much less earn interest.

Social Security is a defined benefit plan, in which a worker is promised a given level of benefits, without regard to the return on the money he has paid in. If the return is insufficient to pay promised benefits, the plan's provider must make up the shortfall. In this case, the provider is the American public. If taxpayers make up the difference, there must be large tax increases or cuts in other programs. If the public chooses not to make up that shortfall, Social Security benefits must be drastically cut.

Since there is little that can be done in the short term to change these conditions, efforts must be concentrated on readying Social Security to weather the coming storm.

5. SOCIAL SECURITY AND QUALITY OF LIFE

Return on investment, security, skepticism about government and a desire for increased personal control all affect public views of the Social Security debate, often in confused, intertwining ways. To some degree, these variables are interrelated. In other ways, they are at odds. The goal is to balance these values in ways that achieve the optimal quality of life.

The selling point behind many reform proposals will no doubt be that they keep Social Security solvent. But we should be asking different questions:

*Does it raise Social Security's return on investment or does it simply pump more money into the system? Will workers have to pay more in while getting less out? In other words, is it reform or is it merely a bailout?

*Does it put Social Security on a sound footing to provide benefits for the future? Or is it a quick fix that will need to be revisited in years to come?

*Does it require blind faith in government, or will workers have real guarantees that their payroll taxes are being invested wisely?

*Does it depend upon optimistic economy and demographic assumptions, or is it built to weather whatever storms the future may bring?

*Does it give workers more control over their retirement planning, or does it maintain Social Security as a one-size-fits-all program?

Social Security is a commitment that covers one's entire adult life, beginning upon entering the labor force and lasting through old age. Reformers should look first to the values, beliefs and opinions that people hold regarding Social Security. No reform of a program as central to the public's quality of life as Social Security can succeed if it does not rest on a foundation of widely held values.

http://www.conginst.org/socialsecurity/issues/index.html

Action Alert: Send a Fax to Nike

On May 12, 1998, Nike's CEO and founder Mr. Phillip Knight spoke at the National Press Club in Washington, DC and made what were, in his words, "some fairly significant announcements" regarding Nike's policies on working conditions in its supplier factories.

During the last three years we have kept a close eye on Nike's practices all around the world and have come to the unfortunate conclusion that although Nike has taken some steps in improving the working conditions for the workers that make their products, Nike is still ignoring the fundamental issues that create sweatshop abuses. Thus far Nike has treated sweatshop allegations as an issue of public relations rather than human rights. The promises made by Phillip Knight in his May 1998 speech were an attempt by the company to switch the media focus to issues it was willing to address while avoiding the key problems of subsistence wages, forced overtime and suppression of workers' right to freedom of association.

The inaction of the last three years shows that we are justified in treating the company with suspicion and demanding that factory monitoring be both genuinely independent from Nike's control and publicly reported in full. While Nike touts itself as an "industry leader" in corporate responsibility, Nike workers are still forced to work excessive hours in high pressure work environments, are not paid enough to meet the most basic needs of their children, and are subject to harassment, dismissal and violent intimidation if they try to form unions or tell journalists about labor abuses in their factories. The time has come for the company to adopt the reforms demanded by workers and human rights groups. It is indefensible that activists, consumers and most importantly Nike factory workers are still waiting for Nike to do it.

Still Waiting For Nike To Do It

Nike's Labor Practices in the
Three Years Since CEO Phil Knight's
Speech to the National Press Club

May 2001
By Tim Connor
Published by Global Exchange

Executive Summary

On May 12, 1998, Nike's CEO and founder Mr. Phillip Knight spoke at the National Press Club in Washington, DC and made what were, in his words, "some fairly significant announcements" regarding Nike's policies on working conditions in its supplier factories.

The announcements received favorable treatment from the press, with a New York Times editorial suggesting that Nike's new reforms "set a standard that other companies should match."

Nike's critics were more cautious, expressing concern that Knight's promises represented an attempt to sideline their demands for decent wages and rigorous factory monitoring and replace them with a significantly weaker reform agenda.

This report represents a comprehensive examination of Nike's labor performance in the three years since that speech was made. That performance is first assessed against the commitments Knight announced and is then compared with the human rights standards and independent monitoring practices labor rights organizations have demanded of the company.

Knight's May 12 Promises: What Have They Meant for Workers?

Knight made six commitments:

1st Promise: All Nike shoe factories will meet the U.S. Occupational Safety and Health Administration's (OSHA) standards in indoor air quality.

Nike was the subject of considerable scandal in 1997 when it was revealed that workers in one of its contract factories were being exposed to toxic fumes at up to 177 times the Vietnamese legal limit. Although Nike claims that its factories now meet OSHA standards, it gives factory managers advance notice of testing, giving them considerable scope to change chemical use to minimize emissions on the day the test is conducted. Nike is also not yet willing to regularly make the results of those tests available to the interested public. Rights groups have challenged Nike to put in place a transparent system of monitoring factory safety standards involving unannounced monitoring visits by trained industrial hygienists.

2nd Promise: The minimum age for Nike factory workers will be raised to 18 for footwear factories and 16 for apparel factories.

Nike was severely embarrassed on the child labor issue in 1996 when a major story in Life magazine featured a photograph of a very young Pakistani boy sewing a Nike soccer ball. Evidence continues to emerge of young persons under the age of 16 employed in Nike contract factories. In the absence of economic development in their communities, however, excluding children from factories may force them into even more dangerous and degrading work. Global Exchange believes that payment of a living wage to adult workers would be by far the most effective means of benefiting children in areas in which Nike's goods are made.

3rd Promise: Nike will include non-government organizations in its factory monitoring, with summaries of that monitoring released to the public.

As far as rights groups are concerned, this was the most important of Knight's promises. Three years after it was made, Nike has contracted one non-profit organization to conduct one audit of one factory and is able to list a number of other NGOs with which it has held discussions which it claims will improve its monitoring program. What the company is still unable to say is which NGOs, if any, will be allowed to regularly monitor factory conditions and when summary statements of that monitoring will be released.

4th Promise: Nike will expand its worker education program, making free high school equivalency courses available to all workers in Nike footwear factories.

The education program has expanded, but wages paid in Nike factories are so low that the great majority of workers cannot afford to give up overtime income in order to take one of the courses. Payment of a living wage would give Nike workers with an interest in achieving a high school education the time and the means to do so.

5th Promise: Nike will expand its micro-enterprise loan program to benefit four thousand families in Vietnam, Indonesia, Pakistan, and Thailand.

It is much cheaper for Nike to give micro-loans to several thousand individuals outside Nike factories than to ensure that the 530,000 workers producing the company's product are paid a wage that would allow them to live with dignity. Nike's first responsibility is to the workers in its production chain. The company should commit to a living wage before it seeks public relations kudos by funding charitable programs like this.

6th Promise: Funding university research and open forums on responsible business practices, including programs at four universities in the 1998-99 academic year.

The company has refused reputable academics access to Nike factories to conduct research, and that research it has funded seems geared to providing private information to Nike rather than stimulating academic debate and increasing knowledge. If Nike is genuinely interested in investing in credible academic research into responsible business practices, the company should establish an independent committee made up of reputable and independent academics to determine which research should be funded.

Sins of Omission: What Labor Rights Groups Wish Knight Had Promised

The demands which rights groups have made of Nike but which Nike has deliberately ignored can also be grouped into six categories:

1st Demand: Protect workers who speak honestly about factory conditions.

Nike's track record in protecting workers who blow the whistle on sweatshop conditions is very poor. The company has turned its back on individual workers who have been victimized for speaking to journalists, and has cut and run from other factories after labor abuses have been publicized. Until this changes, Nike workers will have good reason to keep silent about factory conditions for fear that speaking honestly may result in them and their fellow workers losing their jobs.

2nd Demand: Regular, Transparent, Independent and Confidential Procedures for Monitoring Factories and Investigating Worker Complaints.

Activists have repeatedly asked Nike to allow rights groups to educate workers about their rights and to ensure workers can make confidential complaints to independent monitors when those rights are infringed.

Instead, Nike has made it the responsibility of each factory to educate workers about Nike's code of conduct and to establish a complaint mechanism. This deliberately ignores the interest factory owners have in keeping workers ignorant of their rights. All independent research indicates that the overwhelming majority of Nike workers do not understand their rights under Nike's code and do not believe factory owners can be trusted to resolve worker grievances.

Rights groups have also called for a factory monitoring program which is independent and rigorous. In response Nike has set up an elaborate array of different schemes for monitoring and factory assessment. While this variety of programs looks impressive in a public relations sense, Nike has deliberately set up each of these programs so that they fail two or more of the key tests of effective monitoring: independence, transparency, regularity and a relationship of trust with workers.

The quarterly program of S.A.F.E. (Safety, Health, Attitude, People, Environment) assessments, conducted by Nike staff, is obviously the least independent. There is no evidence that Nike staff actually interview workers as part of these assessments let alone attempts to establish a relationship of trust with them.

Nike's program of annual factory monitoring by PricewaterhouseCoopers also lacks independence. PwC was selected by Nike, reports to Nike and conducts a monitoring program designed by Nike. To the extent that independent observation of PwC's monitoring practice has been allowed, it indicates that PwC auditors fail to establish a relationship of trust with workers and that the quality of their monitoring can be extremely poor. Dara O'Rourke (an assistant professor at MIT) recently observed several PwC factory audits first hand and concluded that they had "significant and seemingly systematic biases" in favor of factory owners and against the interests of workers (O'Rourke 2000).

While there are elements of the Fair Labor Association's (FLA) proposed monitoring program that represent important improvements on Nike's current very poor system, the Association's ability to ensure that workers' rights are respected will be significantly undermined both by the questionable independence of its external monitors and by the long delays between factory monitoring visits--which will on average occur in each factory only once every ten years. The Global Alliance for Workers and Communities is an attempt by Nike to shift focus away from the human rights agenda promoted by the company's critics. The Alliance deliberately avoids investigating key human rights issues and its research methodology does not allow time for researchers to create a relationship of trust with workers.

Nike has vigorously opposed the Workers' Rights Consortium, a factory monitoring program that is independent, transparent and makes it a priority to build relationships of trust with workers. In contrast, Nike's monitoring and factory assessment programs are not independent, lack full transparency and have so far made very little effort to win workers' trust so that they can speak honestly about factory conditions without fear of reprisal.

3rd Demand: Decent Wages

Nike has rejected demands that it ensures that Nike workers are paid a living wage--that is, a full time wage that would provide a small family with an adequate diet and housing and other basic necessities. Instead, the company has used statistics selectively and in a misleading fashion to give the false impression that wages currently paid to Nike workers are fair and adequate. Meanwhile those workers struggle to survive on wages that are barely enough to cover their individual needs, let alone those of their children.

4th Demand: Reasonable Working Hours

Independent research indicates that in many factories Nike workers are still being coerced into working up to 70 hours per week and are being humiliated in front of other workers or threatened with dismissal if they refuse. Nike workers also frequently report that it is extremely difficult to obtain sick leave and that the annual leave to which they are legally entitled is often refused, reduced or replaced with cash without the worker having any choice in the matter.

5th Demand: Safe and Healthy Workplaces

Nike has made important progress in reducing the use of toxic chemicals in sportshoe production. Unfortunately, on the few occasions in recent years that genuinely independent health and safety experts have been allowed access to Nike contract factories, they have found serious hazards including still dangerously high levels of exposure to toxic chemicals, inadequate personal protective equipment, and lack of appropriate guards to protect workers from dangerous machinery. There is also considerable evidence of workers suffering stress from spending large amounts of time in high pressure and frequently abusive work environments.

6th Demand: Respect for Workers' Right to Freedom of Association

So far Nike's promise to protect this right has been largely empty. A considerable proportion of Nike's goods are made in countries like China where independent unions are illegal. Nike has refused to call on the Chinese government to allow workers to organize and has actively opposed calls for trade pressure to be put on the Chinese government to encourage it to improve its record in this area.

Nike has abjectly failed to prevent the suppression of unions in a number of its contract factories, including the PT Nikomas Gemilang and PT ADF factories in Indonesia, the Sewon and Wei Li Textile factories in China, the Formosa factory in El Salvador, the Natural Garment factory in Cambodia, the Savina factory in Bulgaria and factories owned by the Saha Union group and the Bangkok Rubber group as well as the Nice Apparel, De-Luxe, Lian Thai and Par Garment factories in Thailand.

On those few occasions when Nike has taken any steps to advance this right in specific factories, it has done so grudgingly and after considerable public pressure. While elements of Nike's eventual response to the current dispute in the Kuk Dong factory in Mexico have been positive, Nike's actions on the issue been characterized by unnecessary delays, lack of follow through and failure to actively promote the urgent need for a free and fair union election.

Conclusion

Thus far Nike has treated sweatshop allegations as an issue of public relations rather than human rights. The promises made by Phillip Knight in his May 1998 speech were an attempt by the company to switch the media focus to issues it was willing to address while avoiding the key problems of subsistence wages, forced overtime and suppression of workers' right to freedom of association.

The projects Knight announced have been of little benefit to Nike workers. Some have helped only a tiny minority, or else have no relevance to Nike factories at all. The most significant promise, to allow NGOs to monitor its factories and release summary statements of that monitoring, has simply not been fulfilled.

Health and safety is the one area where some improvement has occurred. But even here the company is not willing to put in place a transparent monitoring system involving unannounced factory visits. On the few occasions when independent safety experts have been allowed to visit Nike factories, they invariably have found very serious hazards.

The inaction of the last three years shows that rights groups are justified in treating the company with suspicion and demanding that factory monitoring be both genuinely independent from Nike's control and publicly reported in full. While Nike touts itself as an "industry leader" in corporate responsibility, Nike workers are still forced to work excessive hours in high pressure work environments, are not paid enough to meet the most basic needs of their children, and are subject to harassment, dismissal and violent intimidation if they try to form unions or tell journalists about labor abuses in their factories. The time has come for the company to adopt the reforms which rights groups have advocated. It is indefensible that activists, consumers and most importantly Nike factory workers are still waiting for Nike to do it.

Nike's New Game Plan for Sweatshops

SEPTEMBER 20, 2004(Business Week)

Unlike giants such as Wal-Mart, it now has a system to inspect -- and try to improve -- working conditions at supplier factories

For many years, Nike (NKE ) has been a lightning rod for criticism about sweatshop labor conditions in the low-wage countries that produce its sneakers. When Nike was getting pummeled on the subject in the 1990s, it typically responded with anger and panic. Executives would issue denials, lash out at critics, and rush someone to the offending supplier's factory to put out the fire before it spread.

Since then, Nike has constructed an elaborate program to deal with labor issues in the 900-odd supplier factories (none owned by Nike) that churn out its products in some 50 countries. Today, a staff of 97 inspects several hundred factories a year, grades them on labor standards, and works with managers to improve problems. Nike also allows random factory inspections by the Fair Labor Assn. (FLA), a monitoring outfit founded by human rights groups and companies such as Nike, Reebok (RBK ), and Liz Claiborne (LIZ ).

"DROP IN THE OCEAN." As a result, when most human rights groups and even student protesters find a problem at a Nike factory, they now deal with the company directly instead of pounding it with public demonstrations. That's one reason why you don't see Nike getting hit with ugly sweatshop publicity so much these days. "You haven't heard about us recently because we've had our head down doing it the hard way. Now, we have a system to deal with the labor issue, not a crisis mentality," says Maria S. Eitel, Nike's vice-president for corporate responsibility.

None of this means that Nike or any other businesses have come close to solving the sweatshop problem. Far from it. The monitoring systems set up by a Nike and handful of other Western outfits such as Mattel (MAT ) or Adidas have helped to address some of the more egregious problems at some factories, such as locked doors and unsafe chemicals, human rights experts say. But the inspections they do are limited and periodic and can't possibly catch all of even the most egregious problems.

In addition, only a handful of multinationals have serious monitoring efforts like Nike's in the first place. Most others, including retailers such as Wal-Mart (WMT ) and Target (TGT ), which have the most control over consumer prices, do virtually nothing, labor experts say. "What we do is a drop in the ocean out of the 90,000 or so factories that export to the U.S. from around the world," says FLA President Auret Van Heerden.

STILL UNDERPAID. What's more, even the best anti-sweatshop efforts like Nike's have done little to address the two most difficult issues in most cheap-labor countries: Low wages and unionization. The problem is only going to get worse next year, when the phase-out of U.S. textile quotas is expected to bring a massive global shift of production to China, where wages are the lowest and independent unions are illegal.

"Nike and others are making progress, but not on the harder things like underpayment of wages and freedom of association," says Heather White, the executive director of Verite, a nonprofit U.S. group that does extensive labor monitoring of companies around the globe.

Still, you have to give Nike some credit for trying. It has performed about 600 factory audits since it built up its in-house monitoring staff two years ago, including repeat visits to those with the most problems. Each inspected factory is given a score of 1 to 100 based on a wide variety of labor issues.

BROADER TESTS. The scores are used, along with interviews with management and other factors, to grade each factory. A relative few get an A, the best, or a D, a warning that Nike may yank production unless remediation efforts improve quickly. Most factories get a B, which means they have some problems, or C, which indicates that serious issues aren't being corrected fast enough.

This year, Nike plans to expand the grading process to include environmental safety and health issues. "Before, it was all anecdotal, but now we have a system to measure factory improvements," says Nike Compliance Vice-President Dusty Kidd, who heads its labor-compliance efforts. That may make for safer working conditions. But it won't help the wages of Chinese workers making only 20 cents an hour.

Nike Chronology

Jeff Ballinger from Press for Change has provided a chronology of the Nike Anti-Sweatshop campaign. His account focuses on Indonesia in particular but it is still useful for those studying the campaign in other areas of the world. 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 1988 Newspaper of Indonesian trade union publishes investigative report on South Korea-based shoe company producing for Nike. 1989 Articles appear in Indonesian newspapers about wage protests at Nike contractors Tae Hwa and Pratama Abadi. Most shoe factories illegally paid workers "training wage," which was less than the standard eighty-six cents a day. U.S.A.I.D.-funded study on minimum wage compliance finds major shoe companies persistent violators. Labor rights complaint against Indonesia submitted to office of US Trade Representative by International Labor Rights Research and Education Fund and Human Rights Watch. Calls for review of country's benefits under Generalized System of Preferences. 1990 Strike at Tae Hwa and protests at Sung Hwa. Latter action in response to workers killed in crash of overcrowded company bus. Rise of Setia Kawan (Solidarity) independent trade union -- subsequently crushed by Indonesian authorities after less than a year. 1991 (top) Strike at Hardaya Aneka (HASI) factory after fire kills two workers. Strike at Pratama Abadi. Indonesian daily Media Indonesia runs three-day report on abuses at shoe factories. Headline second day: World Shoe Giants Rape Worker Rights. Korean businessmen repeatedly warned in newspapers about abusive labor practices. Thames TV (UK) broadcasts investigative report on Nike contractor in Indonesia. The Economist reports on unrest at shoe factories producing for Nike. Departmental strikes at Tae Hwa and Pratama Abadi. Knight Ridder (US) wire report on Nike-producing shoe factories. Correspondent spoke with Indonesian workers. Institute of Technology (Bandung, W. Java) and Dutch Institute for Social Studies publish report on shoe industry in Indonesia. Leads to attack by Indonesia's Minister of Investment Coordination and subsequent restriction on press reports about low wages and abusive conditions at shoe factories. 1992 (top) Oregonian (US) newspaper prints lengthy article on Nike's Indonesia operations -- Phil Knight (Nike CEO) writes angry denunciation (which includes substantial factual inaccuracies). US State Department report to Congress on Human Rights highlights shoe factories' refusal to pay Indonesia's minimum wage. Strike at Sung Hwa. Nike formulates "Code of Conduct and Memorandum of Understanding" for contractors. Cover story of Far Eastern Economic Review looks at Nike's Asian operations -- cites "rough side" to Nike's "…Just Do It dream: the ruthlessness with which Nike pares its costs. The company is forever on the lookout for cheap production sites ". Harper's magazine publishes "Nike: The New Free-Trade Heel" by Jeff Ballinger. Los Angeles Times -- "New Shots Fired in Indonesia Wage War" (Nike and GSP) 1993 (top) Sung Hwa protest leaders sacked after ten-week investigation by local security forces -- included intimidation and interrogations. Twenty-four workers subsequently won case against contractor at Supreme Court of Indonesia (1997). Critical reports published in New York Times, The International Herald Tribune, The Economist and Jakarta Post. Sung Hwa protest leader (Sadisah) attends meeting in Paris hosted by advocacy group Agir Ici and travels to UK, Germany and Holland. Sneaker campaigns undertaken in Holland (IRENE & Komitee Indonesie) and Italy (Centro Nuovo Modello di Sviluppo). Nike Boycott launched in Germany by Evangelische Kirchengemeinde Duisburg-Neumuhl. Strike at Pou Chen (locally known as Nikomas). CBS-TV (US) broadcasts highly critical report on Nike contractors' labor practices in Indonesia. Press for Change organized to report on Nike shoe factories in Indonesia. Sports Illustrated cover story dubs Nike "The most powerful force in sports" owing to the marketing/promotion budget of several hundreds of million dollars. Indonesia's highest labor court rules in favor of Sung Hwa protest leaders. Nike contractor appeals order to re-hire workers and pay restitution. 1994 (top) Amsterdam-based SOMO (Center for Research on Transnational Corporations) completes study, "The Nike Method". New campaigns launched in UK (Christian Aid) and France (Agir Ici). Research grant from Press for Change to Jakarta-based Urban Community Mission provides information for first Nike in Indonesia newsletter. Criticism of Nike contractors in New York Times Op-Ed (Cavanagh & Barnett), ABC-TV (US) Prime Time Live and The Economist. Extensive Indonesia sweatshop report in The Rolling Stone (US). First meeting of ad hoc Sport Shoe Campaign Group at IRENE-sponsored conference in Brussels. Nike hires accounting firm, Ernst and Young to do "social audits" at Indonesia-based contract factories. Random House publishes Donald Katz' Just Do It. Katz characterizes Indonesian operations as "management by terror and browbeating." CEO Knight appears with Katz for Portland book-signing. IRENE newsletter reports on international campaign to pressure Nike's contractors. Press for Change study in Indonesia documents continued wage-cheating. Strikes at Nagasakiti Paramshoes (NASA) and Tae Hwa. Major investigative reports in Boston Globe and Los Angeles Times. Corrupt Indonesian Minister of Manpower overrules top labor court on Sung Hwa case, in favor of Nike contractor. Strikes at Pou Chen and Pratama Abadi. Press for Change runs ads in alternative weeklies in three major cities. Nike lawyers respond with libel action threats against two publications. Chicago Tribune report, "Wages of Shame", details struggle of workers making Nike shoes in Indonesia and quotes Nike's Indonesia manager, Tony Nava, who says company "can't know" if labor practices reports by contractors are actually true. Nava criticizes newly-formed independent trade union only weeks after Indonesian authorities jailed the group's leader. 1995 (top) Manager at Pratama Abadi lines up and slaps fifteen women from quality control section. (Press for Change interviewed witness who was herself slapped in a separate incident.) Nike offices in Jakarta and Oregon informed -- no response received. Ms. Magazine (US) publishes "The Globe-Trotting Sneaker" by Cynthia Enloe. US A.I.D.-sponsored research wraps up three-year research study -- 155,000 Indonesian workers interviewed at several hundred factories. Over 500 workers at Nike-producing factory in Majalaya, W. Java report problems such as forced overtime and illegal wage deductions. Canadian group, Developpment et Paix, begins two-year campaign to monitor and report on overseas production of Nike footwear and Levi's jeans. Director travels to Indonesia and interviews dozens of workers. Article in Marie Claire: "Worked to Death" mentions Nike's Indonesia production and "Code of Conduct." Administrative Court in Jakarta overturns Manpower Ministry's arbitrary and capricious ruling on Sung Hwa protest organizers. Ministry appeals to Indonesia's Supreme Court. Oxfam brochure "Made in Dignity" describes abuses in Nike-producing factories in Indonesia. Coalition for Development Action (Brussels) publishes report of IRENE's Peter Pennartz: "Competition Policies -- The Case of Nike" in ICDA Journal. Sisbikum, and Indonesian NGO, helps shoe workers to form new advocacy group (Perbupas) with elected leaders from rank-and-file. Developpment et Paix supports new research by Press for Change in Indonesia. Information sent out in two new Nike in Indonesia newsletters. The International NGO Forum on Indonesian Development (INFID -- Jakarta and The Hague) begins series of discussions on worker rights with New York-based Council on Foreign Relations. Nike rated "worst" U.S.-based multinational in worker rights area. Amnesty International publishes in-depth look at problems of women in Indonesia and E. Timor with lengthy examination of female labor activists' plight. Deborah Spar, Asst. Prof. at Harvard Business School (HBS) does study of impact of foreign investment on labor rights in Indonesia. Strike leads to dismissal of 13 activists at Pou Chen. Nike increases bloated advertising by 22% while The Economist quotes Korean contractor for Nike in Indonesia, "Wages go up, but the buyers still try to force costs down." (Referring to 30% increase in Indonesia's minimum wage -- now $155 a day.) Ballinger presents paper on Corporate Responsibility to conference on international development (jointly sponsored by HBS, Kennedy School of Government and Tufts). Conference in Pisa, Italy -- presentation by Press for Change on Nike in Indonesia and address by newly-released Indonesian independent union leader, Muchtar Pakpahan. Second meeting of Sport Shoe Campaign Group. Dutch "Fair Play" campaign is launched. In Switzerland, Declaration de Berne and Pain pour le prochain launch a study on sweatshops; researchers travel to Thailand and Indonesia. London-based Christian Aid commissions study of shoe factories in four Asian countries. Published report has tremendous media impact in UK. Australian researcher, Peter Hancock, does in-depth report on Nike-producing factory in Majalaya, W. Java. PhD candidate, Bama Athreya (University of Michigan), finishing field research for dissertation on Indonesian women workers, interviews dozens of workers from HASI and Pou Chen factories. Sydney-based Community Aid Abroad (CAA) contacts Press for Change and compiles useful bibliography on struggle of Indonesian workers making Nike shoes. Washington-based Multinational Monitor names Nike to annual "Ten Worst" list and publishes article by Jeff Ballinger. Students at U. Wisconsin battle proposed endorsement contract with competing shoe companies. Reebok ultimately wins deal, but an embarrassing "non-disparagement" clause is deleted because of student activism. Press for Change contacted by Interfaith Center for Corporate Responsibility (ICCR). 1996 First 6 Months (top) Portland organization, Justice, Do It Nike, begins regular protests at Nike store. Press for Change organizes first protest at Reebok's annual Human Rights Award ceremony. New research by Press for Change in Indonesia uncovers widespread violations of Nike's own "Code of Conduct". Reports in several Indonesian newspapers lead with "forced overtime" issue, due to death of worker at Reebok-producing factory (Dong Joe). Five NGOs in Indonesia form Independent Sportshoes Monitoring Group (ISMN) and pledge to increase pressure on shoe companies. Continuing discussions with Press for Change, ICCR and General Board of Pensions, United Methodist Church leads to submission of "anti-sweat" resolution to Nike shareholders meeting. Meeting covered by CBS-TV. Joint report on Indonesia's suppression of labor rights by Human Rights Watch and RFK Memorial Center describes shoe factory protest led by courageous young labor activist, Dita Sari. (She was jailed for unrelated protests organized six months later.) An AFL-CIO "Impact Project" in Indonesia surveys workers in factories producing for Nike and finds that 36% of them had been involved in strike actions. mid-1996 (top) National Labor Committee (NYC) brings unprecedented attention to sweatshop issue with Kathie Lee Gifford controversy. Almost overnight, Nike's labor record is examined in dozens of publications. This is due in part to the incredible media activism of Global Exchange, the protests coordinated by Campaign for Labor Rights and the tremendous archives documenting the struggle of Indonesian workers. Contributing to the archives were several European groups, a couple each in Australia and in N. America and, first and foremost, the brave workers and activists in Indonesia. Press reports from mid-1996 forward are far too numerous to mention; following is a brief description of NGO and worker activism: White House forms "Apparel Industry Partnership" to deal with the acutely embarrassing issue of U.S. corporations involved in labor rights violations in the world's most corrupt and repressive countries. Sacked worker from Nike-producing factory in Indonesia is denied chance to speak at AIP's founding conference in Washington. Rev. Jesse Jackson is refused visit to Nike-producing factory while in Indonesia. Community Aid Abroad publishes "Sweating for Nike" report, based on research in Indonesia. Press for Change confers with European groups and two Indonesians from ISMN group at IRENE-sponsored conference in Duisburg, Germany. Agir Ici distributes 150,000 post-cards in sport shoe campaign in France. Swiss groups, led by Declaration de Berne, undertake Indonesia sport shoe educational activities. Developpment et Paix undertake second year of research and educational activities; over 80,000 postcards are sent to Nike and, across Canada, newspaper ads are bought to draw attention to campaign. Fired Nike workers' lawyer, Apong Herlina, visits New York for CEDAW meeting -- reports that case of 24 workers now sits before Supreme Court in Indonesia. Brutal political crackdown in Indonesia leads to re-arrest of Muchtar Pakpahan and the suspension of most worker rights educational activities. Fired Nike worker tours U.S. Thuyen Nguyen, after consulting with Press for Change, organizes Vietnam Labor Watch, based in New York. Nike sends five-page letter to universities across N. America to "explain" child labor controversy. Chicago Tribune article: "Indonesia's Big Crime: Oppressing Workers -- U.S. Plays Role by Not Imposing Trade Sanctions." 1997 (top) Phil Knight, Nike CEO becomes sixth richest person in U.S. with $5.3 billion (all from shoes/apparel). Several Nike shoe contractors in Indonesia apply for exemptions from paying new minimum wage in Indonesia. Increase is from $2.25 to $2.46 a day. Massive protest march by HASI workers to regional parliament building. Australian CAA launches post-card campaign and inaugurates Nike campaign email list-serv. Strikes by thousands of Nike-producing workers in Vietnam. Canadian Auto Workers sponsor second N. American tour of Cicih Sukaesih, fired Nike worker. Nguyen of VLW meets workers in Viet Nam. Global Exchange organizes press conference for Nguyen -- also attended by Press for Change and AFL-CIO Vice-President, Clayola Brown. Portland's Jobs With Justice helps to organize big May Day protest at Nike store. Tiger Woods shrugs off sweatshop question at British Open. Nike hires former UN Ambassador, Andrew Young, to tour Asian factories. Young uses Nike translators and his report is viewed as shallow and unhelpful. Protests conducted at new Nike store openings in Seattle, San Francisco and Boston. 50,000 more postcards delivered to Nike from Canadians -- organized by Developpment et Paix. Massive protest and three-day strike at Garuda Indawa -- severance pay issue. Asian economic crisis brings Nike contractors' per-day labor cost down from $2.50 a day to $.70. Subsequent strengthening of Indonesian rupiah to dollar brings wage back to about $1.10 by year-end. Indonesian owner of HASI factory complains that Nike demanded all savings attributable to crash of rupiah. Campaign for Labor Rights organizes world-wide day of protest concerning Nike's labor practices. Actions in fifty cities. Centro Nuovo Modello di Sviluppo debate with Nike official before crowd of 300 in Rome. Joint report on Nike contractors in China by Hong Kong Christian Industrial Committee. and Asia Monitor resource Center. White House panel on sweatshops announces "standards" for apparel and shoe companies. Severely criticized by most anti-sweat groups. Study by NCOS (Belgium) about Nike production in Indonesia leads to 85,000 protest signatures gathered by union and community groups. Nike objects to second shareholder resolution by General Board of Pensions, United Methodist Church. U.S. Securities and Exchange Commission backs Nike objection, rules that resolution will not appear on the proxy statement. Berkeley-based Transnational Resource Action Center releases report documenting severe health problems at Nike shoe factory in Viet Nam. Student protests against Nike links with universities erupt at Univ. Illinois, Penn State, Univ. N. Carolina, Colorado, Florida State, Michigan and others. Nike official complains about modest rise in minimum wage in Indonesia (20 cents per day); veiled threat to move production. Nike announces 10-year $200 million deal with Brazil's national football team. International Confederation of Free Trade Unions issues report documenting Nike "Code" violations in Malaysia -- paying Bangladeshi "migrant" workers less than Malaysian co-workers. 1998 (top) Nike official tells Newsweek reporter that the company would like to raise wages in Indonesia, but the government had banned all pay hikes as "inflationary." Inflation reaches 80% in Indonesia so that shoe workers' real wages fall 40% behind 1997 (pre-Crash). This is taking into account Nike's emergency 30% pay increase for shoe workers. (The first time contractors there were ever forced by Nike to pay above the statutory minimum.) Nike CEO, Phil Knight, gives talk on Nike's Asian labor practices at National Press Club in Washington, D.C. Announces new initiatives such as education for workers and micro-enterprise loan programs. Vows to eliminate hazardous chemicals from shoe production. Pharis Harvey, head of International Labor Rights Fund, is denied tour of Indonesian factory by Nike officials. (ILRF has been Nike "partner" on White House panel for over a year, at this point.) CAA Sydney begins intensive effort to establish ties between campaign groups and worker advocacy organizations in Indonesia. Unions and Interfaith Center on Corporate Responsibility leave White House panel on sweatshops due to irreconcilable differences on monitoring and reporting compliance. Indonesia's Supreme Court rules in favor of 24 "Sung Hwa" protest organizers. Doson workers stage protest after Nike contractor reneges on meal allowance pledge. Universities under increasing pressure from students; "sweatshop" concern spreads to apparel made for college bookstores bearing university-licensed logos. Filmmaker Michael Moore, interviews Phil Knight for movie, "The Big One." Fired Nike worker Cicih Sukaesih honored by US-based "100 Heroines" group. Workers from NASA ("Nagasakti" Nike contractor in Tangerang) join "Greater Jakarta Labor Organization" to increase chances of effective collective bargaining. Nike announces second pay increase (25%) for Indonesian shoe workers. Wage now 250,000 rupiah ($23) per month. "Real wages" still 30% behind mid-1997 figure. First year, post-Crash wage savings for Nike exceeds $10 million -- even given the two "increases" above the Indonesian minimum wage. Michael Jordan, Nike's premier endorser, makes the first of several promises to visit Asian production facilities. Manager at Pou Chen factory in Viet Nam pours paint on the head of a worker for making a mistake. She is paid $15 compensation. Organizers at Nike apparel maker, PT Tainan are sacked. Both begin labor court cases. Julia, a worker at Nike-producing "Formosa" factory in El Salvador, is beaten and fired for taking a day off to care for her sick child. Hero of E. Timor independence struggle, Jose Ramos Horta, likens Nike contractors' operations in Indonesia to Japanese occupation of the archipelago. 1999 (top) Joseph Ha, a top advisor to Phil Knight, sends letter to highest-ranking labor official in Viet Nam portraying "anti-sweat" activists as enemies of the state with a "political" agenda. Par Garment (Thailand): the Pathum Thani provincial office of the Thai Ministry of Labor rules against the Nike contractor, and orders them to pay the 50% of back wages for 45 days to 161 employees. Par Garment contests the judgment. (There are also two other cases outstanding, one regarding fired workers and another regarding a dispute over the collective bargaining agreement.) Nike goes on trial in Australia for refusing to comply with "home-work" rules. It is the only apparel-maker to contest issue. Ms. Nurhayati, union activist at PT Doson is sacked (a strike had taken place six months earlier). Nike offers consumer advocate Ralph Nader $25,000 to endorse a running shoe. He declines. Launch of "The Global Alliance for Workers and Communities" -- Nike, Mattel, World Bank and the MacArthur Foundation. Do-gooder activities to be carried out by U.S.-based International Youth Foundation. Retired generals in Indonesia offer to sell intelligence information to foreign businesses. Viet Nam survey shows that worst manufacturing pay rates are in footwear sector. Nike refuses to allow local worker advocacy NGOs to accompany ILRF representatives on Indonesia factory tours. (Nike and ILRF are both members of "Fair Labor Association.") US students and activists meet Indonesian workers with Press for Change director, Jeff Ballinger. Group meets with surveyors about to undertake six-week study of workers in shoe and apparel factories. Nike increases advertising spending by 53% for coming year. Strike and protest over holiday bonus at Pou Chen factory and violent demonstration over same issue at PT ADIS. "Free Speech" lawsuit filed in federal district court in Manhattan against Nike and St. John's University. Former asst. coach of soccer team, Jim Keady, claims that head coach insisted he wear jacket with Nike "Swoosh" in order to continue coaching. Haryanto, fired former Nike worker, tours U.S. -- organized by Campaign for Labor Rights. He tells audiences about his attempts to inform fellow workers about their rights, which led to his dismissal. Efforts by CLR and CAA force Nike to insist that contractor re-hire him (a "first"). Nike signs new sponsorship agreement with the University of Texas for a reported $20 million. Nike factory in Viet Nam was scene of country's largest food-poisoning incident of the year. Urban Community Mission completes survey of 4,000 workers in Nike-producing factories near Jakarta. Protests in Seattle support efforts of workers in all countries to insist on the right to form independent unions and to demand that employers sit down in dignity for collective bargaining. New book, "No Logo; Taking on the Brand Bullies" by Naomi Klein (Picador, 1999) gives good review of rise of anti-sweatshop struggle. 2000 (top) Shoe-industry group in Indonesia makes publicity campaign against strikes in shoe factories. Wall Street Journal profile of Yue Yuen -- Nike's biggest contractor in the world --describes very profitable company. Indonesian official links bribe-taking by police and military to low wages paid to factory workers.