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Have you ever talked with people about fair trade, the idea of branding certain commodities that have passed muster as delivering a fair and decent price to its third-world producers?  I have, and they are usually boisterously supportive of it, or at least passively not opposed to it on the grounds of why not?  I remember being a part of a discussion at a class at my church where a woman was espousing her belief in fair trade and what it does… and when I proposed some critiques of it, was looked at as if the Holy Spirit had just left my soul or something.  But I am more and more convinced of the bad economics of fair trade, and see its support as more to assuage peoples consciences more than assuage third-world poverty.  Cardus, a Christian think tank in Canada (yikes! – just kidding), has an article by Robert Joustra that briefly discusses some of the implications of the “Hollywood campaigns” that raise awareness of fair trade, but not enlightenment on fair trade.

Fair trade offers farmers (coffee and tea are the most traded) a higher price than the true market rate.  This defacto subsidy causes problems when it encourages farmers to stay in business, when perhaps they shouldn’t.  The article quotes Paul Collier:

The price premium in fair trade products is a form of charitable transfer… the problem with it, as compared to just giving people the aid in other ways, is that it encourages recipients to stay doing what they are doing. The fair trade brand exists because the global market somehow masks the true cost of production—which is to say the people who do the actual production do not receive the appropriate dividends. This is, in short, unprofitable work, and subsidizing unprofitable and undiversified economies is the surest recipe for ensuring that those economies remain dependent on that subsidy.

Collier is hard on fair trade, but is a huge proponent of third-world aid in general, which is a topic that the article addresses as well.  There is a great Munk Debate that the article links to (Be It Resolved: Foreign Aid Does More Harm Than Good) that I highly recommend you check out.  It features Collier and Hernando de Soto (whom I am very fond of) alongside two other colleagues as they debate the above resolution.  It is heady stuff and it serves as a reminder of a view of mine – that our emotions and feelings many times cause us to pursue policies that are destructive.  If you are a continued reader you may have seen me write many times before about the unintended consequences of certain policies.  That is why I continue to try and support as free a market as possible, with as few distortions, subsidies, tariffs, etc. as possible.

Well I believe fair trade is an unnecessary distortion.  We want to feel good about buying a product that may pay a farmer in South America more money for his work, but don’t consider that maybe that forces another farmer out of work, or keeps that farmer sowing a particular crop when maybe he or she shouldn’t.  We must always try and look at the big picture of our actions.  As Joustra says:

There is a danger in religious circles that as our consciences are reawakened, our intellects are not always so equally roused. These practices of fair trade and foreign aid have come under considerable attack in the last few years, mitigating the enthusiasm of fair trade and foreign aid advocates but also—importantly—pointing to a principle of social and cultural change that is much in need of recovery. Foreign affairs do not need Band-aids hastily slapped on by fringe grassroots populists, but long-term substantive critiques of the global social and political architecture.

I look forward to hearing any thoughts.  Like I said, I am more and more convinced that fair trade is not a valid solution, but I may be wrong.

coffee farmer

Happy... at others expense?

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