Trade is Made of Win (video)

Great new set of short videos presented by Prof. Art Carden.

Trade is Made of Win - Part 1: Wealth Creation



Trade is Made of Win - Part 2: Cooperation



Trade is Made of Win - Part 3: Conservation

Fifth Rejoinder to Eerlijke Handel on Fair Trade or Free Trade

This is my response to Eerlijke Handel's latest post in our discussion.

We seemed to be making progress in terms of agreeing on definitions Eerlijke, but your latest post seems to be several steps backwards. What is this new thing you’re talking about: “economic power”? How can it be misused (except by allying with political power)? What is “exploitation”? How can a voluntary trade possibly be exploitative? What is slavery? How can a voluntary relationship be called slavery?

I defined slavery very clearly in my post, and subsequently elaborated it in responses to you. Do you have difficulty distinguishing between coercive and voluntary? Do you think consentual sex and rape are the same thing? Do you think boxers commit the crime of assault against each other when they fight? Do you think you inviting me to your home is the same as me breaking into it?

Clearly, the most important ethical distinction between two types of trade is whether or not both parties consent to it (i.e. whether or not it’s a voluntary trade). There is no such thing as slavery or exploitation except where there is coercion, i.e. one party threatening another with violence or using violence to make him comply. Impoverished people working voluntarily are not being “exploited” by their employers, no matter how little they are paid; they are choosing to work because it’s the best option available to them right now; otherwise they would discontinue the relationship.

Regarding your criticisms of my method (especially the use of ceteris paribus, and how economic analysis relates to “the real world”), I encourage you to investigate the Austrian School of Economics. The Mises Institute has a wealth of resources on all sorts of topics, including the epistemology of economics. A discussion about epistemology (which would be necessary for me to convince you that my economic method is valid) is perhaps too far from our core topic here.

Regarding the success of Fairtrade, this is not a “flaw” in the market at all. Lots of people demand Fairtrade and the market delivers it; it is a market success. What do you think this proves? How is it relevant to my critique at all? It sounds like a circular argument: you are saying that lots of people demand Fairtrade therefore more people should demand Fairtrade. What I am saying is that no-one who has the end of helping the poorest people of the world should demand Fairtrade, because there are more effective means of achieving that end.

Fourth Rejoinder to Eerlijke Handel on Fair Trade or Free Trade

This is my response to Eerlijke Handel's latest post in our debate about Fair Trade.

I have asked questions, that you have not answered.
1. Did you supply proof that Fairtrade competes with other charities? Yes or No?

If you think my statement requires some kind of “proof” then you’ve misunderstood the nature of my statement. Fairtrade obviously competes with other charities, because all ways of spending my income compete with all other ways. This is a logical statement, evident just by thinking about the nature of human action in a world of scarcity. It cannot be falsified by any empirical evidence.

2. Is the 10p in your critique solely based on the one 2005 article by Harford? Yes or No?

That is the article I cited for my claim. I note that you have not provided any evidence that contradicts this, despite my asking you to do so. So I’ll ask again: are you claiming that a higher percentage of Fairtrade money reaches their desired recipients than Oxfam money reaches their desired recipients? If you are, please provide a source.

I have already given you many reasons why Fairtrade does not necessarily have to be more expensive than other branded products.(*)
(*) I have given many reasons why from an economical point of view Fairtrade does not necessarily have to be more expensive. Look at the past blogs.

Where? Are you referring to your hand-waving towards “economies of scale”, “better negotiation position”, “shorter supply chain”, “long term commitment”, etc? Because I have responded to all of these showing why they are red herrings. It seems like you are unable to respond to my scenario without invoking one of these concepts, which are not unique to Fairtrade in any way, and violate the ceteris paribus condition that must be maintained for economic analysis.

I will respond to each of the quotes you provide.

Tim Harford 2005:
“The truth is that fair trade coffee wholesalers could pay two, three or sometimes four times the market price for coffee in the developing world without adding anything noticeable to the production cost of a cappuccino.”

This particular quote doesn’t mention the final price, so it doesn’t support your claim at all. A few sentences earlier however, Harford says “the premium paid to the farmer should translate into a cost increase of less than a penny a cup,” so this supports my claim, not yours.

Oxfam:
“There are now so many Fairtrade products available in the UK market that it is misleading to suggest that a product is more expensive simply because it carries the Fairtrade label – indeed, because Fairtrade staples such as tea, coffee and sugar have become so popular through consumer demand, the economies of scale now possible mean that they are usually no more expensive than their non-Fairtrade equivalents."

This also supports my claim, because it gives “economies of scale” as a reason that the increased production cost does not translate into a higher final price. (In other words, it explicitly says that ceteris paribus has been violated, so the implicit message is that if ceteris paribus were maintained, the final price would be higher.)

I say well done to the Fairtrade organization if they’ve found a more efficient way of producing (by utilising economies of scale), but this is something any organization can do, so it is irrelevant to any economic analysis of the essence of the fair trade model. There is no necessary connection between Fairtrade and economies of scale. That examples can be found where the final price to the consumer is equal for Fairtrade vs. non-Fairtrade demonstrates only that in the real world, all things are not always equal, and the world is in a constant state of flux.

So the Oxfam quote does not refute my claim that ceteris paribus, Fairtrade products have a higher price than non-Fairtrade products.

Ben & Jerry’s:
“The retail price of Fair Trade coffee is usually within the same price range as other gourmet coffee. Consumers should expect to pay about the same price as regular organic coffee. The main reason coffee farmers earn a better income under Fair Trade is that the farmer cooperatives export directly to importers, cutting out various intermediaries who typically capture more of the profit.”

This is another example of the same thing. This time it is “cutting out various intermediaries” that has meant that ceteris paribus has been violated. Again, I applaud the Fairtrade organization if they’ve found a more efficient production process, but any other firm could do this too, so it is not the essence of Fairtrade and irrelevant for an economic analysis of the fair trade model.

So your new question is not in line with my argument:
“Convince me personally to start buying Fairtrade chocolate… slightly more expensive than a non-Fairtrade brand?” “I have tried the Fairtrade bar an it tastes the same to me.”


I will answer nonetheless:
• If the price and the quality is the same, you might want to give Fairtrade the benefit of the doubt.

The price is not the same in the scenario I am asking you about. Anyway, even if the price was the same, I would still buy the non-Fairtrade product, because buying the Fairtrade product would send the wrong signals to the market: investment would be directed away from the neediest areas. 

• If Fairtrade happens to be slightly more expensive than your favorite (alternative) branded product,
then you might want to ask yourself the question:


Where does the non-Fairtrade branding money end up?

Why are you bringing up branding again? I am trying to do economics here, and that means assuming Fairtrade and non-Fairtrade pay the same for branding. Why do you keep violating the ceteris paribus principle? Let’s stick to economics, please.

So what will happen if you decided for non-Fairtrade rather than Fairtrade (all relative)?
You save a penny. The non-Fairtrade company will earn more… Fairtrade will earn less and a poor farmer will be paid less.

That’s right. And of course the farmer that produces for the non-Fairtrade company will (ceteris paribus) be even poorer than the Fairtrade farmer (remember that absent Fairtrade certification, investor-entrepreneurs are attracted to the very poorest areas). So by buying non-Fairtrade I will be benefiting the very poorest farmers (e.g. in Ethiopia) at the expense of those less poor (e.g. in Mexico). And of course I can donate the penny saved to a direct charity as well if I wish.

You are of course free to keep buying Fairtrade if you wish, but be aware that you would be helping the world's poorest people more by avoiding Fairtrade and encouraging others to do so as well.

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…

  

Second Rejoinder to Eerlijke Handel on Fair Trade and Free Trade

This post is a response to Eerlijke Handel’s posts here and here, which are part of an ongoing debate about my original post Fair Trade or Free Trade: An Economic Analysis.  Eerlijke’s words are indented and in italics and my responses follow them.

I understand you value definitions.

Yes. Clear and mutually understood definitions are essential for constructive debates. I’m sure you agree.

One important distinction you are failing to make is between Fairtrade (the organization) and fair trade (the concept). You seem to use the terms interchangeably and this makes it unclear what you are saying.

Using your definition: Fairtrade is voluntary, and therefore free trade.

The organization Fairtrade is certainly one that engages only in voluntary, free trade. But I think what you meant to say was “fair trade” (the concept).

The concept fair trade is, as I explained in my original post, an arbitrary label used by a third-party about certain trades. Here it is in diagram form:

[Some people might refer to coerced trades as unfair as well (hence the dashed line), but we may disregard that in this debate. We can leave coerced trades out of our discussion from now on, because neither of us is talking about using coercion.]

So for our purposes, yes, fair trade and unfair trade are both arbitrary labels used by third-parties about certain free trades.

Since you managed to single out Fairtrade from free trade, your statetement rests on two assumptions:
1. Your introduction of the concept “charitable donation”, and
Ad 1:
A donation is a gift, something that is given to a charity, especially a sum of money. It differs from a trade by lack of reciprocal action.
Fairtrade is not a donation, it is an exchange, a way of doing business.
Fairtrade is a form of free trade. Unless you prove that I am coerced to (pay for and) buy fair trade products.

I accept your definition of a gift as characterized by the lack of reciprocal action. A charitable donation is just a kind of gift, namely a sum of money given away with the intention that that money reaches a specific recipient in need of assistance (in this case a poor person overseas) chosen by the gift-giver / donator.

In diagram form:

Note that gifts are a form of trade. The distinction between reciprocated actions and gifts is actually quite blurry. If I buy a round of drinks at a pub, it is a gift for sure, but then I kind of expect the people I’m buying for to buy me a drink in future, so is it really a gift? If I give my wife a present, I at least expect her to say thanks. There is certainly a grey area here, but the distinction is still meaningful. The important thing is that the term trade transcends this distinction, referring to all interpersonal exchanges, including gifts.

Fairtrade is an organization that markets itself on the basis that it is an effective way of helping poor people, namely third-world producers. I believe that many people when they buy Fairtrade products do so because they believe that buying Fairtrade products actually is an effective way of helping poor people and alleviating poverty. This belief is the “target” of my critique, as it were. It is the idea that Fairtrade is an effective way of alleviating poverty that I am criticizing; I am arguing that there are more effective means of doing this.

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. He is paying extra because he believes the extra will reach or benefit in some way a chosen needy recipient: a poor third-world producer.

But let’s not let labels get in the way of the ideas we are discussing. I’ll come to a concrete example in a moment.

2. 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.

This is a conclusion, not an assumption. It is a conclusion based on economic logic and empirical evidence (according to the research cited in my original post, 75-90% of direct charity money reaches the desired recipients, while only 10% of Fairtrade extra money reaches the desired recipients).

You basically split the world in three parts: (1) Free trade, (2) Fairtrade and (3) Donations and then lump the latter two together. But according to the definition: Fairtrade (voluntary and reciprocal) should be put under Free trade.

If I view the world through your model:

Free Trade + Donations = Spending Power.

If we introduce a third component, we can either make it a part of Free Trade or a part of Donations.
Where you put it matters everything!
By definition Fairtrade should be put under Free Trade.
If Fairtrade competes with other forms of Free Trade, Donations stay the same (all else equal off course).

If that is the case: Free Trade should be split into: unfair trade + Fairtrade.

Free Trade= unfair trade + Fairtrade
I know you don’t like the wording, but something must give.
Then unfair trade must become less, the more people buy Fairtrade

So my argument runs as follows:
By definition Fairtrade is part of Free Trade, and the logical argument says that unfair trade must become less, the more people buy Fairtrade.

I’m afraid none of this makes sense to me. I hope you can see why from my definitions and diagrams above.

With respect to the definition “unfair” versus “fair”, I come back to the discussion we had about branding. The intent of the consumers is to buy something that they perceive to have more value than they pay for. The consumer perceives value for whatever (individual) reason. Generally a complex set of needs on which whole studies have been written.
Whatever consumers value, we are not the judge of that. Our opinion is, I quote: “arbitrary and subjective … it differs from person to person, place to place, and time to time”. Consumers weigh their individual (subjective) needs when making a purchase decision.
Every consumer can be their own judge about what they call “unfair” or “fair”.

I agree with all this. Note that what I am criticizing is not people’s choice of ends, but their choice of means.

It will be clear that I hope they choose for “fair”. Why?
Because I think that Fairtrade through long term commitment does help producers to make longer term decisions, that they would otherwise be unable to make. Simply by allowing them to see future revenues and accordingly make (capital) investments. The only way to climb the ladder, out of poverty towards wealth.

"Long-term commitment”? There is nothing in terms of “commitment” that Fairtrade can offer that other firms cannot. My original post explained how capital investment reaches the poorest people and communities more effectively when consumers make decisions without regard to the conditions under which laborers have worked to produce the goods. Nothing you have said challenges this economic conclusion.

My quick question to you in the comments of your post was an attempt to bring things back to a basic concrete example. I found your answer very interesting, and realized I had been taking some things for granted in my explanation.

"Eerlijke, do you agree that if someone switches to buying Fairtrade products, they have to pay more for them; and that if they cut back on their payments to Oxfam charity to be able to afford Fairtrade products, then less money overall will be delivered to poor people [due to the inefficiency of Fairtrade money reaching the poorest people, relative to Oxfam money]?"


Graham, good question. My answer is somewhat long, but I hope it answers your question.


I wonder: "pay more than what"? From where does your consumer switch?
Do they switch to Fairtrade from an identical unbranded product? Or do they switch from another branded product? It matters.


The consumer does not necessarily pay more. You must agree with me that there are many chocolate bars much more expensive than Fairtrade chocolate. They demand a premium because of the perceived brand value.

The consumer does necessarily pay more for Fairtrade products, than for equivalent products, assuming Fairtrade certification makes any difference at all to production processes. Let me explain this in some detail…

Consider two chocolate bars: SimpleChoc and FairChoc. In economics, we keep things constant to isolate individual effects (this is called the principle of ceteris paribus), so let us assume that these two chocolate bars taste, smell and look identical and are the same in every way except one: FairChoc has been produced according to the standards laid out by the Fairtrade organization.

All firms seek to minimize costs. The SimpleChoc Company does everything it can to keep all its costs down to the absolute minimum. But FairChoc, in response to a consumer fad for “fair trade” products, has chosen to incur extra costs by bringing its production facilities up to the standard required to get Fairtrade certified. In every other way, the production processes of the two firms are identical. (Otherwise we violate ceteris paribus). This one difference we have supposed necessarily makes FairChoc more costly to produce, because SimpleChoc by definition has found the least costly way of producing, so if Fairtrade certification makes any difference at all, it must increase production costs. Competition impels prices towards costs, ever-tending to eliminate economic profit, so it follows that FairChoc is necessarily more expensive than SimpleChoc.

The Fairtrade organization asserts that SimpleChoc treats its workers “unfairly”, using some arbitrary criteria for “fairness”. They try to convince consumers to buy FairChoc instead of SimpleChoc, on the basis that by doing so they will be helping to alleviate poverty. Since FairChoc is more expensive than SimpleChoc, this necessarily involves asking consumers to cut back on the amount they spend somewhere else.

Now let us consider some examples of where these cut backs may come from.

1. Adam buys SimpleChoc and decides to switch to FairChoc. To pay for this he will cut back his monthly donation to Oxfam. So here the Fairtrade advocates’ message to Adam amounts to “(1) stop helping the beneficiaries of Oxfam and (2) instead help the beneficiaries of Fairtrade”. I am glad we agree this would be counterproductive in terms of helping poor people.

2. Ben buys SimpleChoc and decides to switch to FairChoc. To pay for this he will cut back his spending on ice cream. So here the Fairtrade advocates’ message to Ben amounts to “(1) give up ice cream and (2) instead buy Fairtrade products to help the poor”.

3. Now consider LuxuryChoc, a high-quality brand of chocolate which is more expensive to produce than SimpleChoc. For simplicity, suppose LuxuryChoc is priced the same as FairChoc. Charlie buys LuxuryChoc and decides to switch to FairChoc. Since they are priced the same, the Fairtrade advocates’ message to Charlie amounts to “(1) give up high quality chocolate and (2) instead buy Fairtrade products to help the poor”.

In both Ben and Charlie’s case, you are asking them to lower their standard of living in order to help poor people. This is all well and good. But the question then arises: if Ben and Charlie have agreed to lower their standard of living, why not encourage them to give their saving to a direct charity, which is more efficient than Fairtrade? Ben should keep buying SimpleChoc, and if he wants to cut back his spending on ice cream, he should give his saving to Oxfam. If Charlie agrees to buy a lower quality chocolate, he should buy SimpleChoc, and give the money saved to Oxfam. This will be more effective for helping poor people.

4. Now consider TigerChoc. This chocolate is the same quality as SimpleChoc and FairChoc. It is produced using the same low cost methods as SimpleChoc, but the difference is that this chocolate is endorsed by Tiger Woods. Now obviously Tiger’s payment will mean TigerChoc has higher costs of production than SimpleChoc, so it will be priced higher. Again for simplicity, suppose TigerChoc is priced the same as FairChoc. Daniel buys TigerChoc and decides to switch to FairChoc. Since they are priced the same, the Fairtrade advocates’ message to Daniel is “(1) stop buying celebrity-branded products and (2) instead buy Fairtrade products to help the poor”.

Here you could argue that Daniel’s standard of living is not being lowered. But this would, strictly-speaking, be incorrect, because value is all subjective and revealed through action. Daniel must value the Tiger brand name (for some reason) so in fact it is lowering his standard of living if he gives this up. It is in essence no different from the Charlie case, except that Charlie’s decision to buy LuxuryChoc was based on “taste” and Daniel’s decision to buy TigerChoc was based on “coolness”. If Daniel agrees to give up this “coolness”, that is all well and good. But then he should buy not FairChoc but SimpleChoc instead and give the saved money to Oxfam. This will be more effective for helping poor people.

In short, Fairtrade certification imposes costs on producers, and therefore, ceteris paribus, Fairtrade products have a higher price than equivalent non-Fairtrade products. For a consumer to start buying Fairtrade products, he must cut back either on his direct charity donations (we agree this is bad), or by reducing his standard of living (whether this means cutting back on ice cream, eating lower quality chocolate, or giving up the coolness of celebrity-branded products, etc).

So given that you reject cutting back on charitable donations to pay for Fairtrade, you must recognize that you are asking people to reduce their standard of living in some way in order to help poor people. There’s nothing wrong with this, and in fact I support it. People should be more charitable in my opinion, and I would especially like it if people stopped valuing celebrity-branded products so much.

But this first part of the Fairtrade advocates’ message has nothing to do with Fairtrade per se. It is about persuading people to spend more money in general on helping poor people rather than spending it on themselves. I wholly support efforts to persuade people to be more generous.

The second part of the message is to take the money saved by reducing your standard of living and use it to buy Fairtrade products to help the poor. It is this part that I object to. Why not give the money saved to Oxfam? If you have successfully persuaded someone to reduce their standard of living in order to help poor people, then the money saved would in all cases be better spent by giving it directly to charity. When helping poor people is the desired end, there is simply no good argument for anyone to buy Fairtrade products as a means to achieving this, rather than donating to a charity that directly helps the poor.