Nowadays the Fair Trade label is becoming increasingly coveted. Why? Surely, isn’t something fair better than something not? The intent is admirable, but the means are misguided. Look deeper, and the “Fair” label is deceiving.
Indeed, Fair Trade touts values such as fairness and justice. Fine, but asking someone if they support Fair Trade over free trade is one rhetorical step from asking, “Do you support basic decency?” In other words, the “Fair” label is just an ethical trap to garner support. Those less familiar with international economics can only assume Fair Trade is the right type of trade.
The basic tenets of Fair Trade are to give foreign producers a price for their goods above their actual market value, provided they meet predetermined standards regarding labor and production. It is often quipped that Fair Trade affects the individual as much as the global economy (assumedly in a positive way). Yet astonishingly little evidence is ever provided for this claim, likely because in the big picture actual data refutes it.
First, Fair Trade does not even attempt to address the very problem it seeks to correct. In fact, it exacerbates it. The “unfair” low price of commodities (coffee, to use a common example) Fair Trade seeks to remedy is not due to some corporate scheme, but to global overproduction. Supply far exceeds demand. The artificial price that Fair Trade promises attracts more farmers into an already inflated market. In turn, aside from lowering the actual price of the product, the value of non-Fair Trade certified farmers’ crops are floored, hurting their livelihoods. How is that fair?
Second, poor incentive to improve quality is a problem endemic of subsidized markets. Anyone who has tasted Fair Trade coffee can attest it can range from quite good to outright terrible. Shielding markets from competition creates stagnant quality. Poor quality discourages consumers, again depressing prices. Similarly, Fair Trade gives farmers poor incentive to diversify their crops. Dependence on a sole crop is dangerous practice, for if that particular market collapses – as is possible once the economy becomes healthy again – farmers are left with few means of earning income.
The proportion of Fair Trade certified producers is relatively small. The certification process is pretty discriminatory. Fair Trade aims to protect the small producers, and misses the majority of poor workers who work on plantations, which do not meet Fair Trade “standards.” To that end, Fair Trade is merely the promotion of a political agenda, and quite prejudiced.
Finally, the most powerful example of Fair Trade’s (unintended) ineptitude is the very premiums meant for farmers. In theory, the extra money goes to the farmers. In practice, very little of it does. The Fair Trade Certified label is very much a marketing ploy that makes poverty alleviation out to be too easy. Experts calculate that only 10 percent of the money actually reaches farmers. Indeed, precious little gains for risking economic failure.
To be sure, trade advocates have done a poor job of making their case palpable to the masses. As it happens, Fair Trade is not the only example of poor trade policy. Even the casual observer has noticed the anti-trade rhetoric by the Democratic candidates, which is just populist nonsense on stilts. Sen. Barack Obama is actually considered trade friendly, and his economic advisors even more so. Hillary Clinton is no different. Trade is a politically convenient thing to pin the blame for economic woes. Ohio, a rustbelt state and key to the Democratic nomination, has seen its manufacturing sector decline significantly. But despite the rhetoric, trade is not to blame.
In point of fact, employment actually increased in the two years following NAFTA’s signing. Job loss is actually attributable to business as usual; lack of patents, innovation, and investment, and 70 percent of PhDs leaving the state. Similar for the entire nation, technology, changing consumer tastes and poor business has made American firms lose out. But by historic standards, U.S. manufacturing thrives. With U.S. exports at all-time highs, Ohio is actually the fourth largest beneficiary.
Trade is misunderstood, and therefore it makes an easy evil to feed people. Yet Trade is overwhelmingly positive. Food prices are on the march with no end in sight. There are many international agricultural powerhouses, like Brazil, that must be tapped in order to keep shelves stocked at reasonable prices. The current state of the economy means people desire low cost options for food. Trade is the means to lower prices.
The world also benefits from greater access to U.S. exports. Eschewing trade is just another form of unilateralism, and restricting it is tantamount to supporting economic injustice. Inequality is best combated by rising living standards. Trade offers capital, training, information, advice and better access to credit for emerging producers, helping them effectively confront the global market as opposed to being shielded from it.
People have the right to seek the lowest price for their goods as much as the right to buy Fair Trade products. Buying certain products on fairness is an expression of fighting poverty. Admirable, but that is best done through normal political processes as much as if not more than “voting with your dollar,” which is far more likely to make a difference.
With the sober recognition of lingering problems, it needs to be recognized that free trade is bringing prosperity to places that lacked it, and in record time. Indeed, there are always setbacks, but there are better policies to solve them than those such as Fair Trade. For a nation to develop beyond the third world, trade is ranked in the top three as most necessary. The world is, and will be, better off for greater wealth. Trade is not evil; it needs to be better understood. No free trade advocate endorses the hardships that some suffer from trade, but evidence shows the negative effects actually are very small (only 3 percent of American unemployment is due to trade, for example) and overall the effects are very beneficial. And by all rights, think your correspondent naïve for saying so, but opinion needs to be guided by fact, never the other way around. So if the defense and advocacy of global prosperity is worthy of criticism, then bring it on.
St. James’ Street welcomes comments at [email protected].
