Should liberals back Fair Trade: an LDV debate

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

  • 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.

  • Liberal Eye 2nd Mar '09 - 6:37pm

    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.

  • “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.

  • Andrew Duffield 2nd Mar '09 - 11:44pm

    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.

  • Liberal Eye 3rd Mar '09 - 6:28pm

    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.

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