The unfairness of fair trade

I’m intrigued by the idea of so called fair trade as a development mechanism. Two of the most developed countries in the world (Canada and the U.S.) were initially heavily exploited and saddled with “unfair” terms of trade and yet here we are, near the top of the list in term of standard of living. Thus it can’t be a simple fact that unfair trade prevents development.

Let’s take a closer look at “fair” trade. In many cases fair trade involves the purchase of a product at a premium, if there were no premium it wouldn’t have to be marketed differently from plain old trade (I’m always amused when people tell me having to pay more is a good thing). The basis for the premium is that the trade is fair and the consumer gets to feel good about giving extra money to someone deserving (read less well off than they are themselves). So you’re really buying two goods, the coffee, knick knack, or what have you, and the belief you’re a good person. A large part of what you’re purchasing when you buy fair trade coffee is the warm feeling of doing good while getting your daily caffeination. So far no harm, no foul.

Here’s the catch, you only get the good feeling of helping someone who’s worse off. This means you’ll only be willing to pay the premium so long as the people on the other side of the exchange are poorer than you are. Think about it, have you ever seen anything promoting “fair trade” with the U.S. or France?

What’s the result? The people producing the good generally make just enough to keep them producing but not much more. With coffee you keep people working small plots using expensive (inefficient) techniques with little or no hope of improving their lot in life beyond what it is now.

Lots of people who promote fair trade argue that it improves the lives of the people actually producing the good compared to the opportunities offered by the heartless multinational corporations. And in general they’re right, in the short run. In the long run the people producing the fair trade good will remain stuck at a low level of absolute and relative income – they can’t change their techniques or increase the size of their operation to capture more of the value of their good – they won’t qualify for fair trade any more. Further they will always be dependent on the good will of those of us in the rich world. So keep buying your “fair” trade goods if you like the idea of making sure there’s somebody in the world less well off in the long run than you are.

But hey, in the long run we’re all dead anyways, right?