October 2004: Fair Trade vs. Free Trade

Principles of fair trade based on economic justice, human rights
October 1, 2004

While the principles of “fair trade” have been around for a long time, and are primarily based on ideas of human rights and economic justice, the fair trade movement is a relatively recent development. To a large degree, it is a response to the rapid growth in the global economy, in which  more and more of what we consume is being produced in Third World countries, where labour and environmental standards are low or non-existent.

    The public has become more aware of this issue as a result of some high-profile campaigns and stories in the media, e.g.:

  • factories in Asia where women and children labour in toxic and dangerous conditions for less than $2 a day;
  • cocoa farms in Ivory Coast and other countries where thousands of children have been sold by their parents into forced labour and are working in unsafe conditions for little or no pay; and
  • coffee farmers earning less than the cost of production because the global price for coffee has been driven down by the handful of corporations that control the market.

One response to this situation has been the effort by labour, environmental and human rights organizations to have minimum standards included in trade agreements. Sometimes described as the demand for “fair trade rules,“ these efforts have been vigorously opposed by the multinational corporations for the obvious reason that this is what makes production in Third World countries so profitable.

Fair trade is a parallel movement that targets consumers rather than governments. Global Exchange is a San Francisco-based social justice organization. Here are its principles for fair trade:

  1. Producers receive a fair price —a living wage. For commodities, farmers receive a stable, minimum price.
  2. Forced labor and exploitative child labour are not allowed.
  3. Buyers and producers trade under direct long-term relationships.
  4. Producers have access to financial and technical assistance.
  5. Sustainable production techniques are encouraged.
  6. Working conditions are healthy and safe.
  7. Equal employment opportunities are provided.
  8. All aspects of trade and production are open to public   accountability.
  9. air trade commodities are certified by non-profit organizations  and  bear the label of the certifying agency.

In addition to helping producers, fair trade benefits consumers. It gives them the satisfaction of knowing their purchases will help impoverished workers improve their standard of living. The growing demand for fair trade products also acts as a carrot to corporations to alter their practices so as not to lose their share of the market. At the same time, consumer boycotts are providing the stick that has convinced companies like Nike and McDonald’s to be more accountable for the impact of their operations.

Whatever the reason, the fair trade segment of the market is growing at a much faster rate than the non-fair trade sector. According to Rodney North of the fair trade organization Equal Exchange, North American sales of fair trade coffee doubled every year from 1998 to 2001. In 2002, the total was over 10 million tons, and companies like Starbucks and Folgers are getting on the bandwagon by offering fair trade choices.

It is not only Third World farmers who have become victims to the economics of globalization. Many small farmers in Canada and the U.S. have found themselves struggling to survive in markets dominated by giant corporations. One solution has been the development of a type of “fair trade” called Community Shared Agriculture, in which urban customers enter into agreements to have a local grower supply them with all their produce for the year. So far, over 1,000 farms in North America have made this arrangement.

For the producers, the advantage is that they are guaranteed a fair price for their crop. For consumers, there are a number of possible benefits. By supporting local farmers, consumers help insure the continued availability of a local, usually sustainably grown, food supply. They also have the satisfaction of knowing, often personally, who has produced their food.

Fair trade, however, still accounts for less than 1% of the North American market. And even though fair trade coffee benefits over 350,000 farmers organized into over 300 co-operatives in 22 countries, these farmers are still selling most of their crop outside of the fair trade system, because not enough companies are buying at fair trade prices. And yet, despite their relatively tiny share of total production, the fair trade movement is attracting considerable attention.

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Even though fair trade accounts for such a small proportion of international trade, its modest growth has drawn fire from neoliberal economists. Typical of this criticism is a recent paper in The Journal of Economic Education by Xavier de Vanssay and Dennis Yanchus. They argue, in The Myth of Fair Prices, using classical economic theory, that consumers willing to pay higher prices for fair trade goods are distorting  markets and adversely affecting farmers’ incomes.

So how is it that these economic laws and theories make doing what seems ethically right into something harmful? John Ikerd is a Professor Emeritus of Agricultural Economics. Now retired, he has thought about the inability of current economic thinking to deal with human motivation and behaviour.

“Contemporary economics assumes that society is nothing more than a collection of individuals,” he says. “It also assumes that these individuals naturally seek to maximize their material well-being —to acquire as much as possible while giving up as little as possible. Thus, anything that reduces the material well-being of individuals, in sum or collectively, diminishes the well-being of society.  Economic theory, in this sense, is nothing more than a tool for showing how to use resources to produce and consume as much as possible.”

The problem, according to Ikerd, is that “fair trade is not just about improving the material well-being of either Third World farmers or members of society in general. Fair trade is about improving the social and ethical well-being of people in both the developing and developed nations. It is about the pursuit of happiness rather than the pursuit of wealth. “And the pursuit of happiness,” says Ikerd, “has always been about improving social relationships among people and about moral and righteous living, not just the pursuit of material well-being.”

Ikerd notes that only within the past century have economists decided that the purpose of human activity is no longer the pursuit of happiness, but rather the pursuit of wealth. Early 19th century classical economists, including such notables as Adam Smith and Thomas Malthus, considered happiness to be the ultimate goal of all economic activity. And further, “one’s pursuit of wealth was not supposed to take precedence over one’s social responsibilities.”

Then, in the early 1900s, Alfred Marshall, following on the work of Vilfredo Pareto, decided that economics should no longer deal with human “well-being,” his term for happiness, but only with the material requisites of it. Later 20th century economists, like Paul Samuelson, didn’t distinguish between wealth and happiness, preferring to turn economics into a “hard science.”

“They needed objective, quantifiable, economic variables to accommodate their mathematical and statistical models.”

Ikerd reminds us that the nature of happiness has been the subject of discussion for thousands of years. “Hedonist” philosophers equated happiness with sensual pleasures and personal experiences. Another group of philosophers, including Aristotle, used the term “eudaimonia” to describe happiness that was essentially social in nature. It is realized by the individual, but only within the context of family, friendships, community and society. This happiness was not the result of actions taken to achieve sensory satisfaction, but was a natural consequence of positive, personal relationships.

To the extent that contemporary economics includes any remaining element of happiness, it is hedonistic rather than eudaimonic. Thus, the current pursuit of economic wealth is a pursuit of individual, sensory pleasure. And since the pursuit of wealth, by this definition, excludes the impacts it might have on others, it inevitably leads to the exploitation of people, the degradation of human relationships, and a decrease in social happiness.

As to why de Vanssay and Yanchus would bother writing about “fair trade,” Ikerd believes neoliberal economists would prefer to ignore and “nip in the bud” questions about equity and justice, as well as true ecological concerns, as these would place constraints on economic exploitation and thus limit growth. By a happy coincidence, the current theory also justifies continued corporate exploitation of the weak and desperate.

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The experience of Hugo Ciro offers the most effective answer to the critics of fair trade.  He grew up in the province of Antioquia, a coffee-growing region in Colombia. In 1990, he immigrated to Canada, studied business administration, and in 1997 founded the Level Ground Trading Company,”to put what I believe into action.”

Level Ground identified a community in the region where Ciro grew up, and established a relationship with a co-op that buys coffee from small growers. They are proud that the farmers who sell to the co-op are getting 40% more for their beans than the “market price.”

Ciro’s experience in Colombia and Canada is that trade is a better way to help people and to foster economic development than is dependence on foreign aid. In other words, a market has been created, it is being supplied, and producers and consumers are both benefiting. But such a win-win situation—the free market operating to provide greater consumer choice and an increased standard of living for producers—is considered unacceptable by the big corporations and free trade economists because it conflicts with a textbook theory of economics. And, rather than question whether there might be something wrong with the theory, they condemn fair trade for helping people in the Third World improve their living standards.

(Richard Tarnoff—[email protected] —is a writer and former commercial salmon fisherman living in Hedley, B.C.)