Is free trade fair trade?

Why is "Fair Trade" the exception?

• "Fair Trade is a trading partnership, based on dialogue, transparency and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers – especially in the South. Fair Trade Organizations, backed by consumers, are engaged actively in supporting producers, awareness raising and in campaigning for changes in the rules and practice of conventional international trade. Fair Trade products are produced and traded in accordance with these principles — wherever possible verified by credible, independent assurance systems." Why isn't this the set of principals of all commercial exchanges? 1. Market Access for Marginalized Producers 2. Sustainable and Equitable Trading Relationships 3. Capacity Building & Empowerment 4. Consumer Awareness Raising & Advocacy Isn't this important in every trade? Why aren't all trades Fair? The is regular trade and "Fair Trade". Shouldn't we, as consumers, expect that all commerce is Fair, transparent, respectful, sustainable, environment friendly, according to the values of equity?

• Answer:

  I am an economist and the problem with Fair Trade is that many people would point out that it tends to be unfair. Very little of Fair Trade profits make it to the farmers. It is mostly a marketing gimmick. I will list the problems found in the literature: ---it tends to be environmentally unfriendly ---almost all funds are kept by the middlemen ---it is the opposite of "buy local" movements, particularly among farmers. It does cost more to transport things around the planet than locally. However "buy local" movements are also marketing gimmicks. Market access for marginalized producers are always present. Anyone, including you or me, can gain direct access to markets in the US, UNLESS the domestic government prohibits it. Because this is the norm in many poor countries it isn't that the markets are closed to them, it is that their government locks them out. It isn't the rich West that is keeping them out, but rather local politicians trying to control the local populace. Sustainable and Equitable Trading Relationships is a phrase without much meaning. If you lived in the United States in 1890 you may claim a right as a buggy maker to sustainable trade, but Henry Ford destroyed your business model. The problem of "sustainable" trade is that the world is moving so fast that the uneducated are getting increasingly marginalized. "Fair Trade" encourages employing the poor in marginal industries rather than educating them to work in more valuable work. Capacity building and empowerment is also a meaningless phrase. The first statement is about capital formation and capital formation is a local law issue. Most societies that lack capacity also have legal structures that prevent it. Empowerment cannot come from outside, see for example the Bush intervention in Iraq. If you have local political problems you have to solve them yourself. Consumer awareness---what is this except marketing. Most trades in the world are fair. There are trades that have terrible externalities, such as prostitution or those that pollute the environment, but those are really from a poorly structured law system rather than "unfairness," in the sense "Fair Trade" implies. *Edit* from your added post "Just one thing (from a non-expert), I don't agree that most Trades are fair. And some of the things that fair trade is about, are not the norm, they are the exception, in everyday commerce and industrie: 1 - men and whomen should be paid the same, when doing the same tasks 2 - children should not work 3 - there must be insurance covering working accidents 4 - people should not have to work for 16, 18 and + hours a day 5 - workers should have vacations 6 - salary must be reasonable" As to 1, you should read "Why Men Earn More." It is a very interesting work on gender differences in pay. The book finds 23 factors that determine pay in the United States, and probably the world. Your statement "for the same work" is very telling. The author, a former director of the National Organization of Women, argues that women receive equal or higher pay for the "same work," but that generally women do not do the same work. This is even true when the male worker and female worker sit side by side with the same job title and description. Although they are "pro forma" equal, if you watch their actual work you will find differences that lead to pay differences. I became aware of the book on BookTV where the author was giving a presentation on wages to a diverse group. In the talk the author went through the 23 reasons and asked people to stand up if they were doing it. With every question some people stood up, usually more men than women. Then he asked people to stand up if they did one of the behaviors. Most men stood up and some women. Then he asked how many do two and the bulk of the group sat down. When he asked for three behaviors no women were still standing. All of these behaviors lead to higher corporate productivity either directly or indirectly. If this were not true, and I could pay two people for equal work, but one would accept 80 cents and the other a dollar, then I would be a fool to hire the person who should be paid a dollar. If I could sell their labor for $1.20, I would make a 50% profit instead of a 20% profit. If that were true no one would ever hire a male worker, unless they were stupid beyond belief, because their competitors could hire women and drive them out of business. Generally if there are behaviors that both genders do, then it is a non-scarce behavior and so results in no pay difference. Pay is only affected by scarcity. There are behaviors that only men generally do, so only half the work force is willing to provide them, and as such, they are more valuable. The reason for the differences, mostly, are evolutionary in nature. They helped survival in the past. Males had to do them and females either could not because of children or would not because males would do them to prove their quality as a mate granting females a form of power since males would compete to alleviate the work from women. 2) I agree that as a principle children should not work. However children have worked since we were australeopithicus. Once a person can contribute to survival they do, unless survival in enhanced by their non-participation. Child labor is broadly illegal in the US, with tons of legal exceptions built in, because the society reached a point where the wages of adults would rise faster by legally excluding children than by permitting them to continue. Wages are non-linear in hours so losing one child worker, at some point of education, increases wages to the family at a higher rate than the child worker provides. If you want to end child labor DO NOT support Fair Trade, as it supports low skilled labor. Rather start sending donations to groups that build and staff school in poor countries. 3) Again, this is a local law issue. Workers compensation requires a very advanced infrastructure that most countries do not have. Most countries do not have fire insurance, let alone worker insurance. The legal structure of many countries would prohibit such insurance anyway. The Koran states that people cannot be held accountable for the sins of others. So if I order you to kill someone I am not accountable because the killer did not have to obey. They are, even as slaves, free moral agents. The world is not America or Europe. The rules in use determine what can or cannot happen. 4-Would you rather they starve??? These are exceedinly low skilled workers who have to work long hours because their marginal product is so low that in order to find customers willing to buy enough of their product to survive they must work horrible hours. See above for the comments on education. 5- Again see above on education 6--Study after study has shown that minimum wage laws increase poverty and worsen its effects. If you are a very low skilled worker and the minimum wage is above what your employer can sell your work to others for, then they cannot hire you. Because they cannot hire you, you do not acquire on the job training and experience, this causes you to fall even further behind yoru peers and you are an even less valuable worker than had it been legal to hire you at horrible wages. You correctly understand that such low wages are effectively a form of slavery. The solution is not a minimum wage but social security or welfare style payments combined with education and training to make the worker sufficiently valuable that they are not slaves. I suggest you start by reading the Federal Reserve Bank of Dallas' Annual Report in 2004. Page 12 will show very clearly the link between education and pay around the world. Remember the scale for salary is logarithmic.