Third Rejoinder to Eerlijke Handel on Fair Trade or Free Trade

This is part of an ongoing debate between myself and Eerlijke Handel which started with my post Fair Trade or Free Trade: An Economic Analysis.  This post is a direct response to this post by Eerlijke.


Eerlijke, this reply is in three parts. The first part is about things that I thought we had already agreed upon, but which your latest post appears to call back into question, so I am attempting to understand more what your position is to try to find common ground. The second part is a brief response to your three direct questions. The third part is where I try to move the discussion forward.


1 a) I thought we had agreed that direct charities are more efficient than Fairtrade at getting money into the hands of poor people. You previously said:

I agree that consumers cutting back on their donations to Oxfam (and not donating to another charity, all else equal) is not a good thing for poor people

But now you say:

The conclusion you reach is:
“Fairtrade products will tend to lower the overall amount of charity that is delivered, all other things (i.e. the total amount of charity) being equal.”
You base this conclusion on “research” that says that 70%-95% of charity money reaches the desired recipients.


There must be very few if no companies that can make 70%-95% of their returns end up with poor people.

And:

Your critique rests wholly on the claim that just 10% reaches the recipient. …


I hope that your claim rests on more “research” or a more extensive study by Harford.

So are you now questioning the magnitude of these figures? Are you claiming that the Fairtrade recipient receives a higher percentage than the Oxfam recipient? (The source for my 70-95% claim, by the way, is a quick survey of large charities on charitynavigator.org). Please make your case if so, because I would like to hear it.

b) Also, I thought we had reached agreement that voluntary trades are never extortion or slavery, because both sides consent and are exchanging because they expect to benefit. Yet you now say:

The Laborers and/or their children could be subject to the following demand: you work longer for less pay, or we will take away your job. (And I am not yet talking about exposure to physically dangerous situations, toxic materials, sleep deprivation, other unwanted situations, etc.) The Laborer sees that people who do not have a job starve to death and has no choice but to comply with all requirements. Whether or not you define this as coercion, does not matter, it happened, happens and has been reported as slavery, extortion, prostitution, forced labor, etc.

Of course, the employer could just walk away, so he is literally saving the laborer from starving to death by offering him a job at all, and yet you call him an extorter and a slave-master?!! I don’t even know why you brought this up again.

I thought we had agreed that coercion is very easily definable – it is where only one party to the trade consents, i.e. it is where there is a threat of violence involved – so we can leave coercion, slavery, etc, out of the discussion. We are only talking about the kinds of trade where both parties consent to the trade, i.e. free trades.

c)

The unequal bargaining position of the two parties (one party without options and the other with many options) and The Company doing all to keep costs down to the absolute minimum, will tend to make this trade end on the very right side of the spectrum.

I don’t know what you mean by “very right side of the spectrum”, but this unequal bargaining position idea is a red herring. The market routinely solves or reduces problems relating to unequal bargaining power: for example, the forming of trade associations. This has no bearing on the Fairtrade argument at all. What I would say is that if “The Company” is able to bargain for itself a “great deal” and get very low cost labor, this would simply signal to other companies that they can get cheap labor too by just outbidding the first company. And so wages would be bid up through competition, and soon laborers will have plenty of options available to them and any issues with unequal bargaining power simply dissolve. If anything, it is more risky to make the producers dependent on Fairtrade income, as you propose, than to simply let this market process take place.

d)

I do not even have to mention that the donation money (because it is not linked to trade) can be taken away at will, without warning, further damaging the already unequal position of The Laborer.

Why do you “not even have to mention” this? You have mentioned it, and your point is invalid. Fairtrade can give no firmer guarantees than any other purchaser, or any charity for that matter. There are no absolute guarantees in this world. What if consumers stop demanding Fairtrade? What if consumers stop demanding coffee or chocolate entirely? Then the farmers are screwed whether or not they have a “guarantee” from Fairtrade. Again, there is nothing special about Fairtrade here, and to assume otherwise is to violate ceteris paribus.

e)

Fairtrade STRUCTURALLY improves the (negotiation) position of the people with whom it is working. Calling on its suppliers to take matters into their own hands, to earn their way out of poverty, by stimulating entrepreneurship, by having them take ownership of their situation and be responsible for their destiny, making investment decisions first then building capacity that moves more of the “value added” towards them and by helping them to rely on Trade, rather than (arbitrary and incidental) Aid.

It is free trade in general that does all these good things, and the free market process works most effectively when consumers buy without regard to the conditions under which the products they buy have been produced. Fairtrade directs investment away from the neediest areas and towards less-needy areas, as I argued in my original post. If you want to argue against this, please address my argument about the changed incentives for entrepreneurs, as outlined in that original post.

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2. I just want to respond to your questions quickly, and then I will try to move the discussion forward.

4. Your “opinion, using the definitions” or Science?
The following opinions I think are very important with respect to your critique:
1. “SO in my opinion, using these definitions, such a person buying Fairtrade products IS making a charitable donation with part of the money he pays.”[Capitals yours, not mine].


As an economist, scientist or educator it should be easy for you to backup or check the validity of an Opinion.


Why do we have to rely on “Opinion” for such an important issue in your critique?
Do you have research whether people buying Fairtrade products really see this as a donation?
A simple questionnaire might lead to significant results about what consumers say they think when they act and why?

You’ve again misunderstood the whole point of my critique I think. Note my words “such a person”, by which I was referring to a person buying Fairtrade because he thinks it is an effective means of helping poor people. If you can show me that absolutely no-one buys Fairtrade thinking “hmm… I’ll buy this Fairtrade chocolate bar so that I can help poor people, rather than this non-Fairtrade chocolate bar” then my argument is not wrong, but merely irrelevant. The starting point for my whole critique is the common perception (and I believe it is common; I know a few people who hold this view) that buying Fairtrade is an effective means of helping poor people. As you noticed early on, without this starting point, my whole argument is no different to an argument against celebrity-branded products, for example. It would be a relatively pointless criticism of people’s values or ends. But my starting point here makes my criticism much more important and different in kind: I am NOT criticising people’s ends but people’s choices of means to satisfy their end of helping poor people.

So my criticism only applies to the extent that people view Fairtrade as a means to helping the poor. If you view Fairtrade products as an end in and of itself, then my critique simply does not apply to you. But you have made it clear that you DO see Fairtrade as an effective means for helping the poor, so my critique does apply to you, at least. I hope this makes sense.

5. Your economic reasoning sounds like an accountant counting certain costs, rather than an entrepreneur seeking uncertain profits

Hmm… perhaps you have got this impression because I use the Austrian economic method of ceteris paribus. I am looking at costs because the nature of Fairtrade is that it increases production costs; the producers get paid more. I am keeping everything else constant, which is the standard mode of analysis for economics (at least Austrian economics, that is). I don’t see how anything you’ve written below this heading addresses what I’ve said, and I do not see a question there.

6. What is the definition of “Standard of living”?

There is nothing controversial about my definition of standard of living. It is subjectively determined by each person, of course. As a formal statement, we can say people act to increase their standard of living relative to what it would have been had they not acted, or made a different choice. Taking choices away from people necessarily lowers their standard of living.

You make it sound as if The Rich Consumer in the West is giving something up. Doing something to lower their “Standard of living”, whatever that may be.

They are necessarily giving something up. This is a logical necessity. See below.


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3. You did not respond to any part of the scenario I presented involving SimpleChoc and FairChoc, which was unfortunate because if we focus on that, perhaps we can move the discussion forward and not get bogged down in definitions. So let me re-state the point of that whole scenario and ask you a more direct question…

However we want to label certain kinds of trades, I think we can agree on one thing: all possible ways for me to spend my income compete with all other possible ways. If I want to spend my money on one thing, it means I cannot spend that same money elsewhere. Agreed?

To make this really simple, as a Fairtrade advocate, I would like you to try and convince me personally to start buying Fairtrade chocolate. In my local store, there is a Fairtrade chocolate bar and it is slightly more expensive than a non-Fairtrade brand. I have tried the Fairtrade bar and it tastes the same to me. So because the non-Fairtrade brand is slightly cheaper, I always buy that.

So you think I should buy Fairtrade chocolate? Then my question to you is: where will I find the money to pay for it? Logically I must spend less elsewhere if I am to start buying Fairtrade chocolate. Do you agree? Perhaps you can make a suggestion for where I might reduce my spending, and we can go from there…