Thursday, December 13, 2007

Fair Trade?

James Bartholomew worries about the really poor.

"I have long been slightly resentful of "Fair Trade" labels because of the implicit suggestion that all other trade is unfair. The slogan has seemed anti-capitalist in making this implicit suggestion and since capitalism is the source of prosperity around the world and the reason that so much of humanity has been lifted out of absolute poverty, the suggestion seems to me both inappropriate and damaging.

"I have also suspected that the Fair Trade labelling could also more damage specific groups of poor people. Now, today, Andrew Alexander has provided an indication of how this could work:

"In fact, the Fair Trade doctrine is pernicious, for all its genuinely good intentions - such a common feature of "cures" for world poverty.

"The doctrine may bring satisfaction to a substantial bureaucracy and a sense of virtue to consumers, but it is positively harmful to the world's poorest.

"FT producer acquires his label by showing he is paying a "fair" wage, is treating his workforce well and ensuring that the children get education and medicines. Obviously, this favours those who have already moved out of the most basic poverty.

"The prospects for the very poor are thus made worse since they cannot compete on such terms. The right to undercut is the privilege of the poor - of poor individuals, poor countries, poor businesses. It should not be undermined.

"Moreover, to obtain a Fair Trade label, a producer must buy a licence and submit to inspection - in countries where corruption is notorious. To impose a licensing cost, a tax and a powerful bureaucracy on any producer hardly seems a natural way to help the poor. It is also a barrier to those wanting to start up on their own.

"Coffee production provides useful examples of cost. For coffee production co-operatives of under 100 workers, the Fair Trade people charge £1,500 for certification and annual renewal costs of well over £800. Since the average Kenyan income is under £200 a year, this is not negligible. The system also creates a significant travelling inspectorate."

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