The Unfairness of "Fair Trade"

Posted: November 13th, 2009 by Militant Libertarian

by Prateik Dalmia

Hopkins’s Pura Vida Café prides itself on being the first “fair trade, certified organic Pura Vida coffeehouse in the Baltimore area,” as its Web site declares. Fair trade, as opposed to free trade, demands that trade is only permitted on terms that meet certain economic and environmental conditions.

Hopkins is not alone in joining the fair trade bandwagon. It seems to be Hollywood’s latest fashion as celebrities such as the members of Coldplay, Angelina Jolie and Bono talk frequently about making trade “fair.”

Their intentions appear to be noble and humane – a grand effort to lift developing countries out of poverty and “protect” them from the ups and downs of the free market.
However, as Nobel-winning economist Milton Friedman said, “One of the great mistakes is to judge policies and programs by their intentions rather than their results.” And the results of such a policy of “fairness” are, most often, cruel unfairness.

Unlike free trade, which is by definition a mutually beneficial agreement, fair trade cannot help but harm every party involved.
It is harmful, first, to the American consumer because it ignores the laws of supply and demand. It hikes up prices under the assumption that government officials can establish a price fairer than the market. But who is to say what price is fair? If countries freely choose to make a trade because they believe it in their best-interest, is that not fair?

As Cato Institute associate policy analyst James Bovard said, “Fair trade means government officials decide what Americans should be allowed to buy and what prices they should be forced to pay. Fair trade is paternalism in international commerce.” The American consumer is robbed of a fair price. And as a consequence of this, he will have less money to invest in productive industries, resulting in an overall decline in the American economy.

Proponents of fair-trade would say that wealthy nations such as America can afford to suffer a little if it means the development of less fortunate nations. But this too proves to be false as fair trade protectionism harms developing countries significantly more than it helps.

Artificially raising wages means that international companies can afford to employ fewer developing country workers and are more likely to look elsewhere for labor. There will be fewer opportunities for hard-working, impoverished workers just looking to make a decent living.

Not only does fair trade diminish opportunities in developing countries, but it lures workers into pursuing opportunities which are not “the most productive use of their energy,” as economist Gene Callahan puts it. How does this happen?

Today, there is an overabundance of coffee growers competing and thus the market price for coffee is extremely low. Jerónimo Bollen, Director of a Fair Trade coffee cooperative in Guatemala, complains of this and said that this is why, “we need fair trade now more than ever.”

Actually, this is why we need free trade more than ever. As Callahan says, “By paying more than the market price for coffee – the authentically fair price – fair traders send a signal to people in developing countries to join an already overcrowded field.” Fair trade leads to an overabundance of coffee farmers and of coffee which leads to lower prices and wages. Fair trade increases the problem for which it claims to be the solution.

Callahan adds that artificially-set wages, “lure coffee farmers away from pursuing better-paying jobs that would enrich the diversity of a developing country’s economy.” Fair trade is a policy that “undercuts the very sustainability it wants to promote.” Every cup of coffee bought at Pura Vida Café works to prevent developing countries from climbing out of poverty. If you are concerned with the environment, buy shade-grown coffee – a free market variety sold frequently by Starbucks that saves approximately 2.3 square feet of rainforest per cup (according to an article by Arbor Day Foundation in The Daily Green).

In the long-run, protectionism and government involvement in the free market is never in anyone’s best interest. Fair trade proponents fail to see this because, as Friedman said, “underlying most arguments against the free market is a lack of belief in freedom itself.” People turn to the government out of fear of the “oppression” of corporations and the ups and downs of the markets. In reality, however, people should fear the oppression of the government itself.

The lesson to be drawn is, to quote Friedman one last time, “A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.”

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