We’re midway through Fairtrade Fortnight (23rd February – 8th March), and so today and tomorrow Lib Dem Voice is running two articles asking the question, ‘Should liberals back Fair Trade?’, putting two opposing viewpoints to our readers. Today, Lib Dem MP John Pugh makes the case for fair trade.
Why Liberals Should Back Fair Trade
There is no such thing as free trade. All trade is conditioned and controlled by regulation, convention, norm and even tradition. It is a process of social exchange.
Historically, Liberals have seen little benefit in insisting that people buy goods only from a given nation or buy at a price fixed for some socially defined purpose. They argued that the individual would lose out thereby getting goods that were inferior in quality and quantity Suppliers who wanted the terms of trade tilted in their favour were in all probability less capable suppliers and there was no real merit in, or indeed prospect of, keeping these suppliers in business.
This last and disputable claim is where free trade and fair trade part company. There is merit in allowing a less capable supplier – particularly in a developing country – to thrive. A fledgling African utility company is no match for a transnational, utility company with evolved technologies for handling water supply or electricity generation. It can be bought out or out-traded on a unit cost basis. However, the net impact of that will be that there will be no fledgling African utility industry that can grow up to compete toe-to-toe with the multi-national conglomerates – and why is that a good thing? It makes power and water supply dependent on multi-national conglomerates and security of supply less certain.
Similar cases can be made for maintaining agricultural diversity and preventing dangerous, widescale monoculture by international companies. Sri Lanka did not become a more sustainable land by being given over by colonial regimes almost entirely to the harvesting of tea and its erratic world price.
Now, of course, if for good or bad reasons nations insist on cocooning every enterprise their nation engages in there is a serious downside. Goods may be poor and time will be wasted – especially if other nations produce the same or superior tradeable goods with far less trouble. Extrapolating from this we can see that nations that are hopelessly given to protectionism may well beggar themselves before they beggar their neighbour.
However free trade as the path to economic prosperity has never been more than a rule of thumb. It is not an iron law even if it can be made into a dogma.
Consider the hypothetical case of a nation trading with a country where much of the population is kept in servitude, or even slavery, thereby making its labour costs unusually competitive. Free trade will generate strong export growth, loss of domestic jobs elsewhere, cheap goods, etc. Such a social outcome is not obviously a good thing but clearly in line with free trade principles – just as suggesting we buy from a country where labour practices are better conflicts with them.
Free trade dogmatists will respond by pointing out that the slave country will accumulate surpluses that will be spent elsewhere, that the importing countries will specialise in doing what slaves do not do well, etc – and all in the great scheme of things will work out for the best. In the long term enslaving your population may turn out not to pay.
However not only are we all, as Keynes said, in the long term dead, but arguing like this is turning ‘free trade’ in to an irrefutable dogma not a sound empirical generalisation. The unconvinced can only walk away from such a dangerous dogma.
A case can be made for some kinds of free trade generating positive outcomes and some forms of protectionism worsening life for many but that does not excuse Liberals from examining whether in particular cases that actually happens. That is why we can and morally must ask whether free trade is fair trade.
The deification of market forces, the worship of mammon, the free and unregulated movement of labour, capital and trade across the globe prompted only by commercial instinct has not only failed to deliver the universal blessings promised but stands revealed in current times as a special kind of stupidity and abnegation of thought.
* John Pugh is Liberal Democrat MP for Southport.
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23 Comments
Consider the hypothetical case of a nation trading with a country where much of the population is kept in servitude, or even slavery, thereby making its labour costs unusually competitive.
Surely, though, this is not free trade at all – such labour policies are protectionist.
And ultimately it is the country selling these cheap goods that suffers surely, because national wealth, if you like, is in the goods you can import – so the buying country will do well out of cheap imports, but the selling country will do badly because selling cheaply means that they cannot then buy so many quality imports themselves.
So the economic incentive, other than perhaps as a loss leader to try to hook people into trading with you, will be to maximise your sale price not minimise it, surely?
The deification of market forces, the worship of mammon, the free and unregulated movement of labour, capital and trade across the globe prompted only by commercial instinct has not only failed to deliver the universal blessings promised but stands revealed in current times as a special kind of stupidity and abnegation of thought.
…and I’m really getting tired of this criticism that people who wanted unfettered free markets should now be acknowledging they were wrong by what’s been happening recently. The western banking system is far from a free market. They operate in our currencies with backing from the state which needs to defend its currency often from the excesses of the very bankers it has allowed to play with its currency in the first place. The central bank and fiat money system was invented by rich bankers to preserve their position of privilege and they are the only ones that are winners. Many of us who want truly free trade have been saying this since long before any trouble in financial markets. It is systemically flawed, corrupt even.
Now, those criticisms of the article itself John, as a proud Free Trader of the Henry George and 1906 Liberal government tradition, I do myself support “Fair Trade” – heck I’m even reminded that I was supposed to go up and invest in my local shop today as my birthday present to myself! But I do so precisely because the rest of the market is not free. The global commodities companies that control the IMF and World Bank structural adjustment programs have raped whole countries, but that is protectionist, not free trade.
I look forward to being able to buy goods direct from quality indigenous manufacturers thanks to the global communications revolution and finally being able to ditch the intermediates – conglomerates and states – that so adulterate free trade!
Oops – this bit in the above:
“The deification of market forces, the worship of mammon, the free and unregulated movement of labour, capital and trade across the globe prompted only by commercial instinct has not only failed to deliver the universal blessings promised but stands revealed in current times as a special kind of stupidity and abnegation of thought.”
Should have been quoted – it is of course John’s words not mine!
You start by saying that there’s no way an African company can be as good as a non-African one, and conclude by listing various ways in which the African one is, in fact, better. This makes no sense – and I rarely accuse people of making no sense and am often tempted to give people the benefit of the doubt, but given how convinced you seem to be of your point and your combative desire to describe anyone who disagrees with it as “stupid”, prompts me to disagree strongly.
This proves nothing. Not a single thing, and either you a) know this and are being mendacious or b) do not know this and are merely somewhat hard of thinking. Yes, if slavery were allowed in some countries, this would make those countries able to export cheap goods. This is why we have numerous international conventions against slavery. This has nothing to do with free or fair trade, and everything to do with having laws against slavery. These are obviously logically separate points, and to confuse them in this way is a cheap debating trick of the kind I might expect to see of one of the regular trolls here, but not in a published article.
I think your fingers must have slipped – you typed “free market dogmatists” when you meant to type “immoral shits”. I can see how it happens, the keys are practically right next to each other. I’m puzzled that you don’t even bother with the moral counter-argument and instead attempt to argue that slavery is bad on purely instrumental grounds (that it “might not pay”).
As for the rest of the piece, it’s full of equivocation dressed up as deep thought and pointless posturing about what “liberals” ought to think. Well, we ought not to be in favour of slavery, and I thank you for bringing that to our attention!
I submit that there is nothing wrong, and quite a lot right, about free trade amongst people and nations which respect fundamental human rights, and where there is a problem it is not caused by trade, but is caused by the lack of respect for human rights (and it’s only because of trade and interconnectedness that we even know or care about these).
If you’re arguing that we should use our power and influence in the marketplace to insist on ethical standards then I agree. You’ll find few who disagree. But that action, choosing the supplier who most reflects my personal ethics or our collective ethics as liberals, is a free choice made possible by free trade. Remove that choice, and the moral dimension disappears entirely, and we’re left with these decisions in the hands of national governments. And who is more susceptible to corruption and crony protectionism – national governments of various types, or freely-acting groups of liberals and friends around the world? I know which one I’d bet on to stand up for ethics.
I’m spending a few years living in Canada and I’ve recently been trying to set up an outlet for Fair Trade cotton clothing here. I believe in Free Trade — I think it would be a good idea — but I don’t see a contradiction between that and what I’m doing.
There is no free trade in cotton. The USA cotton industry is heavily subsidised. As a result the US farmers over-produce and dump their surplus in developing countries. It is estimated that the world pricer of cotton would be 30% higher without the US subsidy.
Critics of Fair Trade claim it distorts the market, but given the already huge distortion created by the USA how could they tell? They are ignoring the elephant in the room and complaining about the mouse in the corner.
I believe in the market and what I like about Fair Trade is that it gives consumers a choice. I choose to buy cotton produced by people I know have been given a fair deal. That’s the market in action.
Jane:
I choose to buy cotton produced by people I know have been given a fair deal.
…but actually, how do you know. The Fair Trade (and TradeCraft) marques do not actually guarantee that. I don’t know about cotton, but certainly in cocoa, one of the other biggest fair trade commodities, I heard that the farmers who are registered with the Fair Trade scheme can often only sell a tiny fraction (like 3%) of their output to Fair Trade buyers – the rest they end up selling to Nestle or Cadbury or whoever on the usual “not so fair” terms.
As you rightly say, the whole trade environment is a corporate welfarist’s dream; also the international discussions on trade such as GATS and WTO seem to be organized around the needs and desires of the already advantaged in world trade terms (companies and countries) and are roundly and rightly I suspect distrusted by the very people that truly free trade should help.
One thing is sure – buying Fair Trade may be a “coping strategy” but it should never be a substitute for campaigning for genuinely free trade.
Jane Leaper hits the nail on the head. This is a consumer choice and in no way incompatible with real free trade (by which I do not mean the Western protectionism that passes for ‘free trade’ in the current world order).
I agree with Jock that fair trade options are no substitute for true free trade, but I don’t see how they are a threat to it either.
Jock says: …but actually, how do you know.
I don’t know about the coffee either Jock, but if I want to find out about the producers’ conditions, it will be a lot easier than with non Fair Trade.
As far as cotton is concerned you can get a lot of information from the Agrocel website: http://www.agrocel-cotton.com/english/en_home.html
The trouble with “free trade” is that it has come to mean two completely different things as Michael Hudson eloquently explains.
“Exactly what does “a free market” mean? Is it what the classical economists advocated – a market free from monopoly power, business fraud, political insider dealing and special privileges for vested interests – a market protected by the rise in public regulation from the Sherman Anti-Trust law of 1890 to the Glass-Steagall Act and other New Deal legislation? Or is it a market free for predators to exploit victims without public regulation or economic policemen – the kind of free-for-all market that the Federal Reserve and Security and Exchange Commission (SEC) have created over the past decade or so? It seems incredible that people should accept today’s neoliberal idea of “market freedom” in the sense of neutering government watchdogs, Alan Greenspan-style, letting Angelo Mozilo at Countrywide, Hank Greenberg at AIG, Bernie Madoff, Citibank, Bear Stearns and Lehman Brothers loot without hindrance or sanction, plunge the economy into crisis and then use Treasury bailout money to pay the highest salaries and bonuses in U.S. history.”
See – http://counterpunch.org/hudson02232009.html
Keep this vital distinction clear and the whole debate comes into focus. I see fair trade as a worthy attempt to restore free trade of the proper sort, albeit on a small scale, in the face of the destructive force of free trade of the ‘free for predators’ variety.
Lib Dems like to think that ‘fairness’ is intrinsic to their philosophy but it always seems to remain a curiously disembodied concept. I look forward to the day when it gains traction by tackling the unfree trade posing as free. In my book this should rank high in campaigning priorities.
Basically what the others have said.
Plus:
There is no such thing as free trade. All trade is conditioned and controlled by regulation, convention, norm and even tradition. It is a process of social exchange.
Opening with nonsense does not bode well.
Free trade does exist (at least as a concept, and it could in reality)- it is voluntary trade without anyone else sticking their nose in and forcing you to act differently. True, people may stick to convention and tradition, but that does not make it unfree.
Now, say we don’t have free trade now and we’ve never had it globally, then I will agree. Start fighting for free trade against the corporate welfare which masquerades as free trade and I will march with you.
On Fair Trade, I’d personally, urge liberals to be skeptical of Fair Trade (it being a monolithic organisation with its own aims, which are not necessarily aligned with those they claim to want to help). Look at it carefully and make up your own mind. If you think it does help and is a good use of your resources then buy Fair Trade products, just don’t try to force it upon others or imply that others are somehow morally inferior for not agreeing with you.
Also bear in mind there are alternatives to Fair Trade.
Support these as well and try and foster competition for better standards.
Free trade and Fair Trade are not mutually exclusive. On any market people act to maximise value to themselves. Even in today’s unfree market which makes the majority poorer than they’d otherwise be, many people choose to spend their money on Fair Trade and similar products, obviously the value of these products is higher to them. In a free market and under free trade, there’s no reason people would not do similar things, in fact they’d probably do so even more thanks to increased opportunities to do so.
Would that I were quoted with the reverence given to Michael Hudson who is one of the foremost Georgists/geo-libertarians around today!
The point is he tells us what it should be like if we dismantle the monopolies that the classical liberal economists railed again. Nice chap too.
“Also bear in mind there are alternatives to Fair Trade.”
My two favourite tea brands are Dilmah and Clipper.
Dilmah is quite openly not Fair Trade though is Sri Lankan owned & operated.
Clipper is sometimes – though my prefered varieties are the organic ones which aren’t branded as fair trade. The fair trade brands aren’t organic so my ethical purity has to be compromised somewhere.
I don’t buy Fair Trade as it subsidises overproduction in export agriculture at the expense of local food crops, which then need supplementing by western imports / dumping / aid.
As regards John Pugh’s Free Trade critique, the bigger utilities problem is not the supplier, but whether the government socialises any economic rent. This is an issue in developed countries too – regional monopolies in water being one of many such UK scandals – born out of governmental ignorance and complicity in free market manipulation/”regulation” for corporate gain. (Banking is another rent-seeking scandal of course, but let’s not go there.)
John Pugh “can and morally must ask whether free trade is fair trade” if he likes, but the un-free trade we currently have is patently un-fair, and that’s what needs addressing. In a truly free-trading, free-market world, there would be many more small and more local firms. Prices would be lower, wages higher and productive output (and quality) better.
Markets represent economic democracy. Unfortunately, thanks to state-sponsored corporate welfare, economic rotten boroughs remain rife – and Fair Trade subsidies continue to be part of the problem, not the solution.
Andrew Duffield. Can you tell me what you mean by a “fair trade subsidy?”. I don’t know what you mean. Fair trade producers are not paid a subsidy.
We need to separate two concepts here:
1) Fairtrade: a brand-name and marketing technique which encourages consumers to voluntarily pay a premium to subsidise farmers. This is entirely a private matter between customer and producer and is effectively a form of charity;
2) Fair Trade: an attempt to interfere in free markets using regulation to affect the terms of trade (e.g: allowing developing countries to erect tariffs and subsidise their industries while preventing developed countries from doing the same). This is extremely dangerous because it reduces the total flow of trade, harms developing country consumers disproportionately and retards the development of the poorest nations.
It is interesting to note that Jane Leaper is talking about the former, which is a matter of personal consumer and philanthropic choice.
John Pugh, by comparison, appears to be referring to the latter – a sad departure by a Lib Dem MP from our liberal, welfare-maximising principles.
Jane,
“Can you tell me what you mean by a “fair trade subsidy?”.”
I think Andrew is referring to the fact that producers are paid over the market price.
It does not matter if the premium is paid by the consumer voluntarily or required by regulation. It still subsidises what otherwise might be an unprofitable exercise.
Hywel, I tend to go for organic over fairtrade too. Although I am soppy enough to go for both if it’s available.
I think Tom has hit the nail on the head, though. There is a distinction between Fairtrade as a brand being available and Fair Trade being enforced through regulation.
Surely it’s not “Liberals should buy Fairtrade” or “Liberals should not buy Fairtrade” but “Liberals should fight for a diverse market so that people can choose to buy fairtrade or not as their conscience/wallet dictates”
What liberals and conservatives alike need to back is not “fair trade” or “free trade,” but sensible trade policy that eliminates the trade deficit.
Our enormous trade deficit is rightly of growing concern to Americans. Since leading the global drive toward trade liberalization by signing the Global Agreement on Tariffs and Trade in 1947, America has been transformed from the wealthiest nation on earth – its preeminent industrial power – into a skid row bum, literally begging the rest of the world for cash to keep us afloat. It’s a disgusting spectacle. Our cumulative trade deficit since 1976, financed by a sell-off of American assets, exceeds $9.1 trillion. What happens when those assets are depleted? Today’s recession is the answer.
Why? The American work force is the most productive on earth. Our product quality, though it may have fallen short at one time, is now on a par with the Japanese. Our workers have labored tirelessly to improve our competitiveness. Yet our deficit continues to grow. Our median wages and net worth have declined for decades. Our debt has soared.
Clearly, there is something amiss with “free trade.” The concept of free trade is rooted in Ricardo’s principle of comparative advantage. In 1817 Ricardo hypothesized that every nation benefits when it trades what it makes best for products made best by other nations. On the surface, it seems to make sense. But is it possible that this theory is flawed in some way? Is there something that Ricardo didn’t consider?
At this point, I should introduce myself. I am author of a book titled “Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America.” My theory is that, as population density rises beyond some optimum level, per capita consumption begins to decline. This occurs because, as people are forced to crowd together and conserve space, it becomes ever more impractical to own many products. Falling per capita consumption, in the face of rising productivity (per capita output, which always rises), inevitably yields rising unemployment and poverty.
This theory has huge ramifications for U.S. policy toward population management (especially immigration policy) and trade. The implications for population policy may be obvious, but why trade? It’s because these effects of an excessive population density – rising unemployment and poverty – are actually imported when we attempt to engage in free trade in manufactured goods with a nation that is much more densely populated. Our economies combine. The work of manufacturing is spread evenly across the combined labor force. But, while the more densely populated nation gets free access to a healthy market, all we get in return is access to a market emaciated by over-crowding and low per capita consumption. The result is an automatic, irreversible trade deficit and loss of jobs, tantamount to economic suicide.
One need look no further than the U.S.’s trade data for proof of this effect. Using 2006 data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the trade deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided equally around the median population density, the U.S. had a trade surplus in manufactured goods of $17 billion with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!
Our trade deficit with China is getting all of the attention these days. But, when expressed in per capita terms, our deficit with China in manufactured goods is rather unremarkable – nineteenth on the list. Our per capita deficit with other nations such as Japan, Germany, Mexico, Korea and others (all much more densely populated than the U.S.) is worse. My point is not that our deficit with China isn’t a problem, but rather that it’s exactly what we should have expected when we suddenly applied a trade policy that was a proven failure around the world to a country with one fifth of the world’s population.
Ricardo’s principle of comparative advantage is overly simplistic and flawed because it does not take into consideration this population density effect and what happens when two nations grossly disparate in population density attempt to trade freely in manufactured goods. While free trade in natural resources and free trade in manufactured goods between nations of roughly equal population density is indeed beneficial, just as Ricardo predicts, it’s a sure-fire loser when attempting to trade freely in manufactured goods with a nation with an excessive population density.
If you‘re interested in learning more about this important new economic theory, then I invite you to visit either of my web sites at OpenWindowPublishingCo.com or PeteMurphy.wordpress.com where you can read the preface, join in the blog discussion and, of course, buy the book if you like. (It’s also available at Amazon.com.)
Please forgive me for the somewhat spammish nature of the previous paragraph, but I don’t know how else to inject this new theory into the debate about trade without drawing attention to the book that explains the theory.
Pete Murphy
Author, “Five Short Blasts”
Sounds interesting and I’ll give it a look but…given that Ricardo also spent some considerable effort discussing the nature of rent (which is a substitute, if you will, for population density), do you not think he might have covered it?
Certainly what us Georgists have been saying for over a hundred years is that free trade is not possible at all without resolving the land question, because all surplus production gets absorbed into rent – at high densities then, where rent is highest, the biggest protion of peoples’ real production is being taken from them in rent. It seems to me that that’s what reduces wealth at those high densities.
Tristan,
I must defend JP when he says,
There is no such thing as free trade. All trade is conditioned and controlled by regulation, convention, norm and even tradition. It is a process of social exchange.
To which you respond,
Opening with nonsense does not bode well.
Free trade does exist (at least as a concept, and it could in reality)
I agree that free trade exists as a concept but I have real doubts (as you appear also to have) about whether it is ever to be found in the real world. Creating a simple model, admitting that it does not correspond well to the real world but sticking with it nevertheless is hardly good practice.
As when tossing a coin it could land on an edge but it’s such an unstable and improbable outcome that I wouldn’t bet on it.
Human nature is such that even if we started off in an ideal Garden of Eden world some exceptionally ambitious, clever, ruthless etc. individuals would soon find a way of subverting it to their own advantage. Free trade would inevitably be an early casualty.
The conclusion has to be that there is a constant risk of sliding into a special interest swamp. (Indeed the last few years can be seen as a masterclass of just how easy this is). The only defence, as Michael Hudson explicitly says in the extract I quoted in my earlier post on this thread, is to push back against these monopolistic forces.
Failure to do so is to leave the field open by default to the monopolistc forces which do not want a free market and adds greatly to the confusion about whether advocates of free markets support freedom FROM predators or freedom FOR predators.
I don’t think that the rent argument is quite the same. My contention is that, regardless of whether or not the scarcity of land drives housing costs higher, per capita consumption will decline decline because of the lack of space. Perhaps the effect upon employment is the same if the net result is a decline in per capita consumption.
Well, okay, it would be unfair of me to comment too much more without reading more of your thesis I think.
On the surface I’m not entirely sure I agree because whilst I see a superficial sort of attraction to the idea it seems to me that higher densities actually increase consumption. People get more and more gadgets, they spend more on things like food (partly because there is more choise arising out of agglomeration effects of many nationalities and so on living together and partly because they do not grow their own). Urbanization seems to promote competition – you don’t have to “keep up with the Jonses” in rural Norfolk cos you rarely see them on the next farm sort of thing.
The effect you are writing about then may kick in at very high densities – something more akin to what we see in Mumbai or Manila rather than whole country densities such as in the UK? In those circumstances I can see a lot more sharing going on.
It seems to me that materialism played a very big part in the recent creation in China of an urban middle class, and much of that was at far higher densities than we know here.
Oh – my bad – I think I’ve got the effect back to front! I’ll think about it a bit more.
Jock, just a couple of comments:
1. Actually, my theory does apply to larger geographic areas like whole nations – not just cities. Regardless of the population density of any country, there will be cities and rural areas because of the need for farm land, the need for forests to provide lumber resources, and the need to concentrate people to man factories and businesses. My theory deals with the overall population density.
2. Regarding the consumption of “gadgets” as population density increases, I thought the same thing but was surprised to find that even the per capita consumption of personal computers declines slightly with population density. I suspect this is because they are shared by more people as the number of people sharing dwellings increases. And the per capita consumption of phones (fixed and mobile) is unaffected by population density. It tends to hold constant at about 1.35 phones per capita, regardless of density.
3. Regarding food: if anything, per capita food consumption may decline very slightly in more densely populated nations, but only because the average size of the people is less. Think about it. It’s a matter of calories in vs. calories burned. No one can consume more food on a consistent basis without becoming morbidly obese.
Also, be careful about comparing poor nations to wealthy ones. Naturally, per capita consumption is dramatically affected by income, more so than population density. But, when comparing comparably wealthy nations – like Japan and the U.S. – the effect of population density on per capita consumption is dramatic.
Pete