The other side of Fair Trade

Hello all,

Over the weekend I listened to the podcast of a lecture* given at the LSE in the beginning of 2009, regarding the strength and importance of the Fair Trade logo. While the lecture itself was quite interesting and informing, what struck me most was Dr Teddy Brett’s – professor in two of my courses at the LSE last year – ‘critique’ on Fair Trade actions and products.

Citing Krugman’s “In Defense of Cheap Labour” – a highly contested publication in 1997 – in the process, Dr Brett argues that, while it might be pleasant to learn that big supermarkets are more and more switching large sections of their products towards fair trade-labelled products, this actually means that a high number of the producers formerly in business with these supermarkets are now either in financial difficulties or altogether out of business.
As argued by Krugman before him, Brett questions what the impact would be of a global public boycott on a specific brand of sports shoes, because the workers in these factories do not receive high wages and/or are children, i.e. that it is not an ethically run business. Boycotting this brand might stop the guilt at the (Western) customer’s side of the process, unfortunately at the production side of the process this will mean that the workers and child labourers will basically end up without a job. They will have to resort to their next best opportunity, which will probably mean prostitution, trafficking, and if they are lucky a similar job in a non-boycotted factory. Or how good intentions can lead to unwanted results...

Now, don’t get me wrong: I’m not quoting Brett, Krugman and the example above because I think low wages and exploitation are a good thing. In a perfect world, people would not be ‘exploited’ – probably not the right word in this context, because these workers often prefer this job to their next best opportunity – and would earn decent wages that are comparable to those in developed countries. However, we do not live in a perfect world (yet); we live in a very unequal world, dominated and bounded by political and market forces. These market forces minimise costs, and they form the constraints within which people operate. Brett then argues that “Fair Trade is only going to produce ethical results if it doesn’t impose conditions on people out there that make it impossible for them to actually deliver and supply goods and services effectively”.

That being said, if the “global market” was in fact a global market, freed from the political minefield of subsidies and tariffs, these 3rd world products and producers would probably not even need a ‘fair trade-intervention’. In this light, Brett states that the businesses in the UK that have been around for more than a century – Lloyd’s Bank, Cadbury – were more often than not operating on ethical principles (e.g. those founded by the Quakers).Brett’s conclusion sums up nicely what I personally took away from this podcast: while markets are not designed to result in ethically optimal solutions, in the long run “ethical business works better than non-ethical business provided that it operates within the constraints set by the market”.

Thank you.


* The lecture is called “Fighting the Banana Wars”, and the podcast is available for download on the LSE pages.