Day 325 – Two Types of Fair Trade

November 21, 2009

I realized tonight that there are two different, commonly accepted meanings of “Fair Trade,” and only one meaning I support.

The first type focuses on paying producers a higher price for goods, typically raw materials, raw food, etc. (This is the meaning I am against.)

The second type is against products that use slavery anywhere along the production line.

I am against the first meaning and the first meaning only. The reason I am against the it is because even though it sounds like a noble idea, it actually does more harm than good. First of all, it is based on bad ideas. What is a “fair price”? In the absence of using force in a trade, the notion of a “fair price” does not mean anything. Surely, if someone was using force to make someone accept a low price, that would be wrong and unfair. That is not happening here, though. “Fair Trade” proponents advocate paying producers a higher price when the producers are willing to accept a lower price. Now, before you leave nasty comments calling me a terrible person, let me explain briefly why this is harmful. Prices send signals to both producers and consumers. Artificially bidding up prices sends distorted signals to both groups; essentially telling producers to supply more, and telling consumers to buy less. Also, it encourages other producers to enter the market, which further encourages excess supply. While this might benefit a small group of producers in the short run, in the long run it hurts both them and the entire economy, slowing growth and long-run development. Typically, harmful protectionist (redundancy, I know) legislation is used to encourage “fair trade practices.”

I obviously am in full support of the second type, though, as I believe slavery is always and everywhere wrong.

The only trade I support is free trade: trade without coercion, whether for or against the trade. (The second definition of fair trade falls into this category, the first does not.) I believe you should not be forced to buy or sell anything, nor should you be forced not to buy or sell anything, given that the seller has ownership over the given item.

If you want to help people in developing countries, the best thing to do it get rid of protectionist policies and trade with them. Trade without coercion is always mutually beneficial. Also, check out microlending. This can do a great deal more to help developing countries than the “fair trade” movement can.

(Note: Don’t quote me as being a proponent of “Fair Trade” unless you clarify what meaning of the phrase you are using. It is best to say that I support trade without coercion.)

If you want to discuss fair trade with me, please email me at: cagrimmett@gmail.com