The issue of fair trade arouses many emotions. However, for all the good it does, many of its successes are mediocre in comparison with what could be achieved by allowing free markets.
Fair trade is very cheap and relatively easy to implement. This is because its aim is relatively simple: to provide a ‘fair wage’ to third world producers. Admittedly, the phrase ‘fair wage’ can arouse suspicion, but, in general, this is a sensible estimate based on standard prices in the place or region the products are being imported from.
A good example of fair trade at work is with coffee; especially considering that many coffee companies now proudly proclaim that they only use fair trade products. A fair wage for the average coffee plantation and its workers is approximately double the price for each bag of coffee beans. To the average coffee shop consumer, this works out at about an extra penny on each cup of coffee. Although this probably seems suspect, when one considers the number of coffee beans in a bag, and the number used in the average cup of coffee, one can appreciate that this figure is correct.
As a result, we can see that fair trade is very cheap for the average consumer, and relatively easy to implement. However, it is legitimate to ask two questions: (1) Is this really the best solution we can provide to help third world producers; and (2) Does the implementation of economic controls maximise the potential economic benefits? The answer to both questions is no.
If we want to provide producers with the best possible opportunity to maximise their economic potential, it is necessary to provide them with free trade, not fair trade. It is a sad fact, but we do not live in the capitalist world that those on the Left blame for many of the world’s problems. The prime example is, of course, the European Union. Its range of protectionist measures, epitomised by the Common Agricultural Policy, undermines the global markets, not to mention ripping off the consumer. Every year, hundreds of tons of food is destroyed in order to keep prices artificially high. At the same time, market competition from outside the EU is restricted. Is it then any wonder that third world consumers do not have the opportunity to earn a decent wage?
Ultimately, fair trade is part of the problem rather than the solution. This is because it seeks to use the same type of protectionist measures that makes it necessary in the first place to provide producers with a decent standard of living. Free trade can ensure that producers get the proper price for their products. If this proves to be too low, the producers can then change their economic activity to meet the needs of the consumer.
As it is, even if producers receive a ‘fair wage’ through fair trade, it does not maximise their potential income, and does not guarantee useful economic activity. What is more, because of the nature of fair trade, it legitimates and provides added precedent for the protectionist economic policy of various countries, and institutions like EU. It is ironic that it is these protectionist policies that make fair trade necessary to ensure a decent wage for third world producers. How can we stand by and let this sort of social injustice continue by failing to allow free markets? It is time that we acknowledged that it is time to dispose of fair trade in favour of real free trade.
Tags: economics, EU, fair trade, free trade
I just finished Paul Collier’s “The Bottom Billion”, a book about why the poorest countries in the world are stuck, or even becoming absolutely poorer, and what can be done about it.
His conclusions are that more aid is not the answer (it must be targeted better), but also that the problem will not be fixed automatically by growth. Growth is the answer, but we have to kick-start it.
He has an amusing section about how, while the west is not completely responsible for Africa’s problems, some people do have to take a fair amount of responsibility: Christian Aid.
Their campaigning against capitalism and free trade is not going to help anyone. Sean Gabb has a neat write-up on fair trade. http://www.seangabb.co.uk/flcomm/flc135.htm
The biggest problem with fair trade, as I can see, is that it locks people into a particular market. It stops them from changing from coffee to another crop or job that the country may have a comparative advantage in, or that they may ultimately make more money from.