The fact that economists overwhelmingly support free trade does not seem to stop the World Development Movement from making the truly remarkable argument that free trade is “discredited”:

"On international trade they [the Conservatives] remain wedded to a failed and discredited free trade agenda for Africa. Unfortunately this too they share with the Government. Overall there is very little to set the Tories and Labour apart on these key issues." (quote from the critics of free trade - ed.)

Members of the public who support the Trade Justice Movement must find it difficult to understand how something that is so discredited can be so widely accepted in Whitehall and Westminster. (Hahaha. Ain't that the truth! - ed.) Yet the truth is that free trade is only “discredited” among ideological campaigners and those who listen to them. Out in the global economy, free trade is the only trade policy that works.

The price mechanism is an important part of trade. It provides a signal to producers about what to produce. In the pursuit of profits, it provides an incentive to enter markets where they can make the most, and strive for efficiency and innovation. The Trade Justice Movement does not seem to care much for efficiency. They think efficiency causes poverty. This is unfortunate.

The constant desire by producers – in a free trade environment – to win customers encourages them to invest in new machinery and increase productivity. By increasing productivity and efficiency, prices are cut. As a result, consumers – including those in the poorest countries – are made better off. Moreover, increased efficiency enables wages to rise. The result is that during the 1990s, 81% of American companies’ foreign investment went to Western Europe, Japan and Canada. These countries have high wages, but because their workforces are highly productive, they win hands down over workers from sub-Saharan Africa. This contradicts all the claims being made by anti-capitalist campaigners about how Western firms only want to invest where they can pay ‘sweatshop’ wages. Africa’s share of world trade halved between 1980 and 2000. Despite having 10% of the world’s population, it now only accounts for 1% of world trade. This shows that trade is not a race to where wages and conditions are lowest.

Anti-free traders rarely celebrate on the winners. We hear a great deal about how certain coffee farmers are unable to compete, but we are never told to celebratethe success stories in Brazil (where farmers have mechanized) or in Vietnam where producers are very efficient. Both countries are catching up with the West. Nor do we hear much celebration of countries like Hong Kong or South Korea or the other Asian Tiger economies.

The fact is that free trade – through an invisible hand – encourages production towards the countries that are best at producing. I am not aware of any mobile phones being manufactured in Britain, because other countries are better at that. On the other hand, the intellectual design of the microprocessor in three-quarters of the world’s mobile phones comes from a company based in Cambridge, England. Traditional manufacturers in Britain have been decimated – and yet, we are a richer country that at any point in our past, and there are more jobs in Britain than ever
before.

It is a mistake for governments to assume that trying to keep everyone in traditional jobs is good for a country. While the Trade Justice Movement likes the idea of a static world where everyone stays producing the same things, those countries that do well are those that are continually changing and adapting to market signals. This is what increasingly China is doing and that is why it is growing.

Why is Africa Poor?

Western protectionism is not a principal reason why Africa is poor. Nor is Africa poor
because of colonialism. After all, many former colonies have prospered (e.g. Hong Kong,Singapore, New Zealand, Australia and Canada). Meanwhile, Ethiopia (except for six years) has been independent for forty centuries. ...

Africa is poor because of bad government. Key is that fact that Africa is undercapitalized: there is not much investment occurring. This is because most people do not have legal title over their property. Thus, in many African countries it is impossible to mortgage a home to gain the capital to create a business. For markets to operate, legal structures are necessary and many African countries are lacking these. Corruption and bureaucracy literally robs the poorest in Africa. Land reform – whether in Ethiopia in the 1970s or in Zimbabwe more recently – has caused starvation. Wars kill off a valuable economic input – labour – and create massive instability.

Tribal politics prevents the best from succeeding in life. But Botswana has shown the way. Through good governance, over the past 35 years it has grown faster than any other country in the world. “Yet,” says Robert Guest of The Economist, “cabinet ministers have not awarded themselves mansions and helicopters, and even the president has been seen doing his own shopping. Exchange controls were abolished in 1999, the budget has usually been in surplus (though this has slipped recently), and GDP per head tops $3,000.” That is not bad for a country that was one of the world’s poorest when granted independence in 1966.

North America
Global Exchange's Myth #1
By Luke Thomas
Apr 27, 2004

Global Exchange is a human rights organization based out of California. As an organization seeking to improve the human condition both at home and abroad, they advocate a number of solutions to the problems people face. Unfortunately, nearly all of them are appallingly ignorant and dangerous.

Simply because an organization advocates "human rights" as their mission does not mean the actions they take serve that interest. In fact, many of the "solutions" Global Exchange offers are woefully inadequate and in many cases, counterproductive.

Like most other human rights groups, Global Exchange's ideas hurt the very people they aim to help. According to Global Exchange, "fair trade" is an "economic right" (though we are not told from where this right derives) that would achieve both an economic and moral end. What is clear, however, is that fair trade would hinder the already depressed and restricted economies in poorest regions of the world.

In an ongoing series, DFN will highlight one of Global Exchange's policies toward improving human rights. In each case, we will clearly demonstrate their goal's ineffectiveness and potentially devastating consequences.

MYTH: Fair Trade practices would solve the "problems" of poverty brought about by free trade. "Fair Trade provides a sustainable model of international trade based on economic justice. It means an equitable and fair partnership between consumers in the Global North and producers in the Global South -- and is an alternative to sweatshop production."

REALITY: Fair trade is easily one of the worst policies than can be done for business, the struggling poor and consumers.

When individuals speak of "fair trade," the question that naturally arises is "Fair to whom?" The answer? Fair Trade hurts everyone, but particularly new companies, the poor and consumers.

Fair trade advocates believe by artificially placing restrictions or requirements on trading activities, certain social goods such as a higher wage or less working hours can be achieved. On some level, this is true. The problem, however, is that there are myriad negative effects, often times undercutting the very end trying to be achieved.

In reality, as Alan Reynolds of the Cato Institute points out, "Manufacturing suffers whenever politicians attempt to raise the cost of imports" and "tariffs and quotas restrict competition, restrict supply and raise prices." Global Exchange is not specifically asking for tariffs; instead, they seek to have companies purchase products in the Fair Trade system in long-term contracts. In the end, however, the result is nearly identical.

Fair trade acts as a price floor. When restrictions are made, cuts elsewhere have to be introduced. Advocates of this type of trade often believe that businesses, which run gigantic profits, can absorb these costs, so it does not matter; a dubious contention to say the least. The more likely scenario, which has been demonstrated innumerable times, is that unless coerced by the government, the businesses will not choose to incur these costs. If company A decides to buy from the Fair Trade system, it is certain that in the medium to long run, it will likely go out of business or be forced to leave the system. Incurred costs from Fair Trade do not just affect profits: it affects the entire business. Company B, buying from the free trade system, will have more money available to hire and pay more workers, improve conditions, pay out benefits, increase productivity, foster employee relations, and most importantly, provide a product at a lower cost to consumers. This naturally forces Fair Trade advocates to seek governmental regulation to enforce their beliefs, and so the theft that is Fair Trade becomes institutionalized.

Another complaint is that because companies run "large" profits (assuming that there is such a notion as large or small profits is symptomatic of the view that no one is entitled to wealth they earn), they can therefore afford to adopt Fair Trade practices. However, as aforementioned, the costs in terms of competition for any company to survive are far too high.

In the interest of argument, let us assume that the competition in a Fair Trade system would be no more than what is now expected. What would happen if company A entered into the Fair Trade system? Profits would obviously be cut, that is to be expected. But the costs on production, manufacturing, shipping and the price to consumers would jump significantly. That would in turn bring down profits. Global Exchange's model assumes that companies do not lose any profits, just incur a few more costs. Instead, we find that businesses will both lose money and incur cost. This, of course, is not even taking serious competition into account.

Seeking Fair Trade is attempting to do economics in the dark, with no regard to supply or demand. It is the market that sets the price of goods, and any obstructions that are artificially introduced to achieve an end will not only fall short, but also foment a whole new set of problems.

Economist James Bouvard, author of "The Myth of Fair Trade," says, "Fair trade is based on the doctrine that producers have rights and consumers have duties. Fair trade assumes that the consumer's freedom of choice is an injustice to the producer."

Fair Trade is the economic equivalent of alchemy. It sets out to engineer goals under the false pretense that the market can be rigged. Unfortunately for those affected, the system cannot be manipulated for their purposes.

The real solution would be free trade. The disparity in wealth between countries that have open markets versus those with controlled economies is alarming. According to the Fraser Institute's Economic Freedom of the World 2003 report, citizens in the most open economies have nearly 10 times the wealth and seven times the purchasing power.

Free trade allows for "comparative advantage," or the idea that one country can better produce a good over another country if its opportunity cost is lower. What this allows for is specialization and ultimately, trade, since the two countries can now trade their goods.

DFN's data on the effects of free trade speaks for itself. In our "Economic Freedom" article, the graphs clearly indicate that economies that adopt free trade practices perform demonstrably better. As Dan Griswold of the Cato Institute says:

Study after study confirms that nations open to international commerce grow faster and achieve higher incomes than those that are closed. That's because open societies can more readily specialize in what they do best, and take advantage of lower global prices to benefit families and producers alike.

October 26, 2005
Trade Justice or Free Trade?

By Penelope Hawthorne | 26 October 2005

On Wednesday 2nd November campaigners will be outside Britain's Houses of Parliament calling for "trade justice not free trade". But a GI report argues that free trade, not "trade justice", is the solution to world poverty. Trade Justice or Free trade? points out that countries that have followed 'trade justice' have stayed poor, while those - like Hong Kong - which have adopted free trade have become rich.

The report demolishes the argument that poor countries need to protect infant industries, and shows that while such protection might sound good in principle, such policies never work in practice. It points out the failure of such policies in India, and how infant industry protection was merely a way for the rich to profit at the expense of ordinary Indians.

The Trade Justice Movement's support for managed trade, with price supports and quotas, is shown to cause poverty by reducing the world economy's ability to create wealth. The Movement's ideas for controlling world trade are impractical and would lead to the Sovietization of the world economy.

The report concludes by arguing that "trade justice" is not just. The only truly just system of trade is based not on fixed prices and quotas, but on free trade.

October 12 2005
Fair trade 'will not stop poverty'
Indira Das-Gupta

A film denouncing fair trade, made by volunteers from the education charity Worldwrite, has been selected for screening at the Raindance Film Festival.

Worldwrite hopes the film will challenge the belief that fair trade is a panacea for poverty in the developing world. It claims that western consumers have been duped into thinking that fair trade is an effective poverty-alleviation tool, when in fact it does nothing to address the root causes of poverty.

The Bitter Aftertaste was made by a group of students from Northern Ireland and is their first film. The group spent six weeks filming in Ghana and produced the 17-minute film on their return.

The screening took place in London on Sunday. Worldwrite is now looking for funding to transfer the film from mini-DV to DVD so that it can be shown in schools.

An increasing number of schools incorporate fair trade into their curriculum as part of their citizenship classes on consumer responsibility.

The Department for Education and Skills' website, the Standards Site, includes guidance for teachers who want to talk about fair trade in their classes and carries links to the Fairtrade Foundation website.

Ceri Dingle, director of Worldwrite, said: "The group originally planned to make a film about education. But when they were in Ghana, they spent a lot of time talking to cocoa farmers and were appalled at their working conditions.

"They might get a few pence more under fair trade, but they are still essentially being used as cheap labour and forced to eke out a meagre existence.

"The Fairtrade Foundation doesn't even have a mechanisation policy, so its farmers are still reliant on hand tools."

She added: "We believe pupils are entitled to the truth - there are two sides to every story. The Bitter Aftertaste shows that changing your coffee preferences or buying a bar of chocolate might make you feel better, but it doesn't lift farmers in the developing world out of poverty."

The annual Raindance Film Festival is described on the London website Londontown.com as the "rebellious younger sibling of the London Film Festival". It is now in its 13th year.

- See Corporate Responsibility, page 19

KEY POINTS

- A film made by volunteers from Worldwrite has been selected for screening at the Raindance Film Festival

- The Bitter Aftertaste was produced to dispute the view that fair trade is a panacea for poverty in the developing world

- Worldwrite hopes the screening, which took place in London on Sunday, will attract funds to enable transfer of the film onto DVD.

Managed trade doesn't work

By Alex Singleton | 25 May 2005

From today's Times:

For Oxfam, fair trade really means fair subsidy, a rigged market in which the poorest get more for their produce or a bigger share of the market than their weak position might otherwise command. It sounds nice and the EU obliges with a fiendishly complex system of trade preferences to regulate which poor countries get the sweetest deals.

Unfortunately, the sweetheart deals and market rigging help no one. The poor stay poor and the prices stay high.

The evidence is in a report this week from the European Commission on access by poor countries to the EU market, Opening the door to Development. The Commission's research shows that decades of preferred access for the very poor under the Lome Convention and the more recent Cotonou Agreement have failed to improve their lot. They remain impoverished, single commodity exporters.

Madsen Pirie's take:

A more accurate name for [managed trade] would be 'managed poverty,' because it seeks to sustain existing producers in its favoured poor countries. Free trade, by contrast, offers opportunities to new and unknown producers in other poor countries to become richer by selling us their goods more cheaply.

As the free traders are winning the argument, and the EU itself moves to renegotiate its past agreements in favour of wider access, the NGOs raise strident voices against it. As with markets everywhere, the outcome of free trade is unpredictable. Some existing producers will lose their position to new ones elsewhere. But it is the countries that have seized opportunities and traded which have grown richer. Instead of maintaining a few clients in a secure poverty, we should be extending those opportunities to others.

Do you work for the WTO, by any chance? Most of what you post is nothing more that trite propaganda.

Why economists oppose "fair trade"

By Tim Worstall | 17 May 2005

Have you ever wondered why economists are so vehemently opposed to the idea of fair trade? Why there is this insistence that attempting to make sure that everyone is treated "fairly" is unworkable?

Don Boudreaux at Cafe Hayek, in his list of the twelve books that have had the most influence upon him, provides one of the answers. It's in a short monograph called I Pencil from back in 1958.

Very briefly, it is a look at the thousands, if not millions, of people who have to interact to make the (pre-inflation) ten cent pencil. One can read it as a tribute to the co-operation inspired by markets, as praise for the way in which the price system allocates resources or, if you were to use it to analyse fair trade as opposed to free trade, as identifying a major problem.

With even a simple product like a pencil, we find that there are tens of thousands of people involved in the production process. How are we to allocate "fairness" across these multitudes? Worse, there is no one person (or organization) which actually knows how to manufacture a pencil. We simply do not, in any centralized place, have all the information to actually analyze the process. So again, how, without such knowledge, can we allocate "fairness"?

This might sound a little harsh but it appears to me that the pursuit of "fair trade" is a fool's errand. We do not, and cannot, know enough to be able to allocate "fairness". So we should stop trying and return to the system which we know does work, that of free trade.