Does Fair Trade Help Poor Workers?

by on July 29, 2015 at 7:05 am in Data Source, Economics, Food and Drink | Permalink

Does Fair Trade help poor workers? Probably not says Don Boudreaux in this excellent, short video from the Everyday Economics series at Marginal Revolution University.

As is well known, however, Don is a rabid, free-market economist with ideological blinders who has been captured by corporate interests. So let’s ignore what Don says and consider what William MacAskill, author of Doing Good Better (reviewed earlier this week) has to say. No one can fault MacAskill’s charitable bona-fides:

MacAskill’s own pledge is to donate everything he earns above about $35,000 per year, adjusted using standard economic measures for inflation and cost of living, to the organizations that he believes will do the most good. Since his bar is roughly at the UK median income—such that half the population earns more each year, and half the population earns less—he’s certainly not condemning himself to a life of hardship; rather, he is pre-committing to staying roughly in the middle of the national income distribution even as his earnings go up over time.

That said, his pledge means giving away 60 percent of his expected lifetime earnings.

When I ask him the inevitable questions about whether this isn’t rather a lot to sacrifice for one person, MacAskill shrugs modestly and smiles broadly. “Imagine you’re walking down the street and see a building on fire,” he says. “You run in, kick the door down—smoke billowing—you run in and save a young child. That would be a pretty amazing day in your life: That’s a day that would stay with you forever. Who wouldn’t want to have that experience? But the most effective charities can save a life for $4,000, so many of us are lucky enough that we can save a life every year through our donations. When you’re able to achieve so much at such low cost to yourself…why wouldn’t you do that? The only reason not to is that you’re stuck in the status quo, where giving away so much of your income seems a little bit odd.”

So what are MacAskill’s views on Fair Trade? Why they are the same as Don’s!

…when you buy fair-trade, you usually aren’t giving money to the poorest people in the world. Fairtrade standards are difficult to meet, which means that those in the poorest countries typically can’t afford to get Fairtrade certification. For example, the majority of fair-trade coffee production comes from comparatively rich countries like Mexico and Costa Rica, which are ten times richer than the very poorest countries like Ethiopia.

….In buying Fairtrade products, you’re at best giving very small amounts of money to people in comparatively well-off countries. You’d do considerably more good by buying cheaper goods and donating the money you save to one of the most cost-effective charities…

1 T. Shaw July 29, 2015 at 7:30 am

MacAskill’s pledge is exemplary of Christian Charity.

Outside religion, the poor seem to have low priority, except for demagogues that use them to amass power.

2 Just Saying July 29, 2015 at 7:43 am

Yes, Christian charities have *such* high performance, outside of the most of them are out and out scams and pedophilia rings and occasional meth with male hookers issues.

3 TMC July 29, 2015 at 9:18 am

A ridiculous comment, the UN has never identified as Christian.

4 Dean July 29, 2015 at 12:33 pm

No church has ever used poor people to amass power.

5 Wayne July 30, 2015 at 4:03 am

Dean are you serious? “No church has ever used poor people to amass power” really?

6 dragonfly August 1, 2015 at 8:35 pm

it is not ‘poor’ people who are used by religions to amass power – it is unimaginably STUPID people who actually believe the religious fairy-tales told to them by the con-artists (priests, pastors, evangelists, etc.) running the scam… there are lots of middle-class and even wealthy people sucked into religion – and they collectively give much more money (power) than the poor people do…

7 Noontime Spender July 29, 2015 at 7:30 am

Good thing you mentioned that Mr. Boudreaux was captured by corporate interest, no way he could have afforded that haircut if he wasn’t.

8 Cyrus July 29, 2015 at 8:00 am

If Robin Hood steals from Central American peasant farmers to give to African subsistence farmers, he has made the Africans better off more than he has harmed the Central Americans. But Will would probably not endorse highway robbery as the means of redistribution.

The Fair Trade advocate’s premise is that the market in certain agricultural commodites is not sufficiently volitional to be distinguishable from theft. Now this may or may not be true. But pure utilitarianism does not address the point.

The person convinced by both arguments abstains from coffee altogether and gives the savings to effective charity.

9 Mark Thorson July 29, 2015 at 11:21 am

I buy my coffee from the daughter of the farmer in Nicaragua who grows it. That bypasses the supply chain, with considerable savings to both me and the supplier. I doubt if anybody feels exploited, and this maximizes income for the farmer.

http://mypapascoffee.com/

She sells lots of green coffee on eBay, where I buy it. Her seller name is “mypapascoffee”, though there’s nothing offered right now. She told me the 2015 crop would be arriving this month, so I assume we’re between crops right now.

It is very good coffee. I roast a batch about every four days.

10 JWatts July 29, 2015 at 1:59 pm

Well that’s pretty cool.

11 Sonia July 29, 2015 at 8:22 am

Where is the second quote from? I’d like to reference the original.

12 Sally July 29, 2015 at 9:33 am

“That said, his pledge means giving away 60 percent of his expected lifetime earnings.”

Or perhaps he doesn’t intend to work very hard on his career. Just stay under 35k and drink beer more often. 🙂

13 Invisible Middle Finger July 29, 2015 at 6:24 pm

This is a fairly rational response to the world.

14 asdf July 29, 2015 at 9:42 am

“The only reason not to is that you’re stuck in the status quo.”

Can he not think of any other reasons? Why is it that nearly all people throughout all of history have been so mistaken?

15 Dana July 29, 2015 at 9:43 am

$35,000 is “roughly” the UK median income? How “roughly”? That seems low.

16 Jay July 29, 2015 at 10:59 am
17 Nick July 29, 2015 at 9:44 am

There is a difference, though, between saying what ‘fair trade’ means in practice now doesn’t work and endorsing completely unregulated free trade. As such, MacAskill could easily have different views on trade than Boudreaux.

18 Cliff July 29, 2015 at 11:03 am

Nick they are talking about fair trade certifications, it actually has nothing to do with trade

19 Affable Chap July 29, 2015 at 9:46 am

Certification of the ethical flavour seems to crop up often with problems.
I recall a similar occurrence here in Australia with Aboriginal artworks, where a controlling certification group used their middleman position to collect a significant profit – and pay artists very little.
Come to think of it, that’s more or less how the art world has always worked.
Better to buy art from the guy on the side of the road and know they’re getting the benefit.

20 Uninformed Observer July 29, 2015 at 9:51 am

Clearly he misunderstands the point of the Fair Trade label. It was never about making a meaningful impact on the lives of poor people, but rather about appearing to be more high-minded than knuckle-draggers who buy their coffee at places like McDonald’s. I mean, can you imagine?

21 Bob from Ohio July 29, 2015 at 10:40 am

Fair Trade and Free Range and similar labels are merely signaling about the virtue of middle/upper middle class American liberals.

22 Axa July 29, 2015 at 9:58 am

I don´t recall anyone selling me fair-trade products under the assumption that it helps the poor. It helps the producer by reducing the profit from the middleman (in theory). Any self-employed producer that cares enough to get a fair trade label is not poor.

Fair trade allows small producers to stay on business competing with more productive industrialized producers. I.e. fair trade coffee is not produced by the poor, but if fair trade disappears and producers don’t have skills to find a job somewhere else they will be poor and become clients of MacAskill’s type of charity.

So, what do you prefer? Give your money to: a) someone who is not very productive compared to more developed business but at least produces something like organic coffee or b) someone who does not produce anything at all. What do we win by reducing the number of people in group “a” and increasing the people in group “b”?

Perhaps I’ve drank too much FairTrad koolaid. I think FairTrade producers are not brain dead and will develop other business or at least help to develop other business in their communities by consuming services. I like to believe in this positive cycle of development.

However, if I understand well MacAskill´s idea……I think EU agricultural subsidies and borders closed to foreign food products impact more the “poor” that can’t afford an organic label in their products.

23 Slocum July 29, 2015 at 10:29 am

So, what do you prefer? Give your money to: a) someone who is not very productive compared to more developed business but at least produces something like organic coffee or b) someone who does not produce anything at all. What do we win by reducing the number of people in group “a” and increasing the people in group “b”?

The seems like quite a false choice. First of all, it’s clear that it’s possible for small-scale producers of high-quality, ‘artisanal’ products to succeed in the marketplace without any kind of fair trade organization or certification — even though those craft producers are less productive than industrial producers. But even more to the point, as the changes in China over recent decades demonstrate, the alternative to small-plot farming is not ‘producing nothing’ — after all, hundreds of millions of Chinese gave up the peasant life not to starve but to join the global middle class.

24 Bob from Ohio July 29, 2015 at 10:43 am

give my money to (c) the most efficient producers who can provide quality at the best price

Social justice purchasing I will leave to you.

25 Axa July 29, 2015 at 11:11 am

Thanks, I forgot the very real option “c”. Producers that depend on FairTrade consumers, may leave their not very productive activities and join the industrial revolution.

However, this topic is not 100% reason as you claim. Giving money to the most efficient producers collides with agricultural subsidies. The government takes the VAT or other tax money to give it to ag producers. At least FairTrade make the transfer and pricing transparent.

26 Arjun July 29, 2015 at 11:06 am

Alternatively: instead of trying to solve issues of poverty and marginalization through charity and “voting with dollars”, how about trying to give concrete assistance to peasants trying to seize land from local oligarchs and elites? So much of agriculture today is tied in with highly unequal, extremely violent class conflicts, particularly in places like Colombia and Honduras and India. *Any* kind of trade within current global market structures is going to be far less effective than political and social mobilization against inequality and monopolization and state violence.

This paper gives some good insight into the “land-laundering” and land conflicts in Colombia, and how it ties in with “sustainable development” discourse

http://www.sciencedirect.com/science/article/pii/S001671851300170X

27 Kris July 29, 2015 at 2:42 pm

how about trying to give concrete assistance to peasants trying to seize land from local oligarchs and elites?

Because it’s tantamount to invading the country (or at least violating its sovereignty.) The US has done that a few times in the recent past, with the results not being particularly impressive.

Also, peasants who violently overthrow the upper classes of their societies do not have good track records of producing functional governments. Turns out oppression does not inspire wisdom, judgment, or competence.

28 Jeff R. July 29, 2015 at 5:53 pm

It worked so well in the Soviet Union, I say go for it!

29 Anonymous July 29, 2015 at 7:44 pm

I really hope this is a parody account

30 chrisare July 29, 2015 at 11:27 am

That more fair trade coffee comes from middle income countries than low income countries is not necessarily a knock against fair trade. Those countries may anyway produce more higher quality coffee that fair trade consumers would buy anyway.

31 Urso July 29, 2015 at 12:31 pm

Yes, I think many people see fair trade as a stamp of quality – the idea that it’s somehow more “artisinal” as opposed to regular coffee. And of course there is the signaling aspect.

32 zbicyclist July 29, 2015 at 9:50 pm

Possibly of interest:

“, I observe retail coffee prices for 21 brands before and after a brand becomes Fair Trade Certified. Since the only thing changing over time is certification, I can hold constant the fact that more expensive coffees from the start are more likely to become certified. Comparing this time series change in prices with the changes that occur over time for other coffees, this model finds Certification to cause a minor increase in the price of coffee of about $0.12, a change of 1.1 percent, — a substantially smaller estimate than has been found in the past. These results suggest that consumers are willing to pay only a small premium for Fair Trade coffee.”

This is an unpublished paper by Adam Carlson,
https://economics.nd.edu/assets/31977/carlson_bernoulli.pdf

So whether it’s a signal of quality (per Urso) or of equity/fairness/charity it’s not a strong signal.

33 Al July 29, 2015 at 11:29 am

” … the majority of fair-trade coffee production comes from comparatively rich countries like Mexico and Costa Rica, which are ten times richer than the very poorest countries like Ethiopia.”

Should we shift the balance so that more people from Ethiopia, and fewer from comparatively rich countries, immigrate to the US?

34 Suburbanist July 29, 2015 at 11:34 am

Does MacAskill have children? What do they think of this?

35 prior_approval July 29, 2015 at 11:37 am

Well, we know that anybody who has inherited vast wealth – and kept it – thinks of the idea in practice.

But then, there is this pithy statement seen on a number of upmarket American luxury vehicles – “We are Spending our Children’s Inheritance”

36 Axa July 29, 2015 at 11:51 am

Do you mean MacAskill paying the education of children more intelligent than his own? It will be a better investment.

37 prior_approval July 29, 2015 at 11:34 am

‘In buying Fairtrade products, you’re at best giving very small amounts of money to people in comparatively well-off countries.’

And bypassing the middlemen of the global commodity markets –

‘How did the concept of Fair Trade originate?

A: The Fair Trade movement began in the late 1950s as alternative trade organizations (ATOs) emerged in Europe and the US to promote grassroots development through direct, equitable trade. These ATOs bought directly from Third World producers, eliminating the middlemen, and paid the producers a fair price while providing assistance in developing trading experience and market contacts. Such experiences helped producers raise their incomes while reducing their dependency on commercial middlemen. These first ATOs were primarily “Third World shops” which dealt mainly in handicrafts. Today, there are 3,000 of these shops in Europe organized in the Network of European World Shops, and about 100 in the US, organized in the Fair Trade Federation.’ http://www.globalexchange.org/fairtrade/coffee/faq#4

However, as noted by a certain browncoat – ‘It wasn’t a bad idea, Wash, but eliminating the middleman is never as
simple as it sounds. …. 50% of the human race is middlemen, and they don’t take kindly to being eliminated.’

38 JWatts July 29, 2015 at 2:07 pm

Well kudos for quoting the highly Libertarian Firefly.

39 Bill July 29, 2015 at 11:36 am

You just convinced me that I should not give a tip to my waiter because I am distorting signals in the wage market.

The employer should be seeking out employees who best perform the service. My tip distorts the market, just as a payment to a fair trade coffee roaster distorts the market.

40 Urso July 29, 2015 at 12:33 pm

Surely you are not so naive as to think that 100% of this money is passed directly to the farmers, the way a tip goes directly to a waiter (although, to be fair, many waiters are also required to tip out to various other positions).

41 Bill July 29, 2015 at 2:34 pm

Well, if you believe that the money is not passed back to the farmer or its cooperative, and they make the claim that it is, you should have an unfair deceptive acts or practices claim, or their competitor who doesn’t make such a claim could have as well, unless you do not believe in the market for litigation.

42 Urso July 29, 2015 at 4:38 pm

Move to strike, counsel, as your answer was non-responsive. 100% of the money, Bill?

As to lawsuits, I’m not a purchaser so – alas! – no standing. But I’m sure they’ve been filed, probably in California. The “market” for this kind of shakedown litigation is quite robust in the People’s Republic, although I’m sure the Maker’s Mark decision from earlier this week was a bit of a downer for you guys.

43 Bill July 29, 2015 at 6:23 pm

Why should it be 100% passed back. I assume you know of a thing called price elasticity, and I assume you also know the formula involving lost volume from a relative price increase and how that is related to margin to end up with how much a seller (who raises input prices to its supplier) loses from such an act. Therefore, it is conceivable that a fair trade seller, who passed back some, but not all, of the added margin is simply being made whole for promoting the product and losing sales that he would have made at a lower price. If you have trouble understanding this, I will elaborate.

44 Urso July 29, 2015 at 7:45 pm

You’re the one who initially compared it to tipping a waiter. I was simply pointing out that It is not remotely similar. You appear to have conceded.

45 Philo July 29, 2015 at 11:44 am

“You’d do considerably more good by buying cheaper goods and donating the money you save to one of the most cost-effective charities . . . .” But the symbolism, and thus the accompanying feeling, would be wrong. You’d be involving yourself in the *exploitation* of the poorest workers; your act of buying goods produced by them (under “appalling” conditions) would not itself be *expressing your concern* for them. True, you might later make a contribution to a good charity, but this seems like an independent, unconnected act, and it might benefit *other* poor people, not the workers who made your product. By buying products made by exploited workers you would be *defiling yourself*; by refusing such purchases you keep yourself undefiled. (Unfortunately, you can never be sure about the provenance of the products you buy; but *knowingly* participating in the exploitation of the powerless is much worse than doing so unknowingly.)

46 Yancey Ward July 29, 2015 at 11:59 am

As is well known, however, William is a rabid, free-market economist with ideological blinders who has been captured by corporate interests.

47 JCW July 29, 2015 at 5:49 pm

The problem with critiquing choices like Fair Trade purchasing based on utilitarian grounds is that you can always critique everything on those grounds. You could always do better. Pointing to some other guy and chortling about how he isn’t really as ethical as he thinks he is says more about the speaker than about the subject.

48 Bernard Yomtov July 29, 2015 at 6:28 pm

Where does the argument stop?

Suppose the cheapest coffee is produced by slave labor. Should I buy it anyway and donate the savings to a cost-effective charity?

49 Saint_Fiasco August 3, 2015 at 11:38 am

If it’s that bad, depending on the difference in price between Free Trade and Slave coffee, buying Free Trade might *be* the most cost-effective charity.

You have to actually do the calculation, though, not just go by gut feeling. Without information on how much it would cost to abolish slavery using other means, it’s hard to say.

50 Mort Dubois July 29, 2015 at 9:35 pm

Boudreaux’s logic reminds me of this:

http://videosift.com/video/Troy-McClure-stars-in-MEAT-YOU

51 liberalarts July 29, 2015 at 11:17 pm

By committing to a $35,000 consumption, what does that do to the charitable margin of MacAskill? Within that $35,000, there is no room to switch from Fair Trade to free market cheaper coffee, because they would mean something like $34,900 consumption plus an additional $100 donation. Thus, he has to decide whether to buy Fair Trade or not, without the additional donation option. No?

52 Bernard Yomtov July 30, 2015 at 2:36 pm

when you buy fair-trade, you usually aren’t giving money to the poorest people in the world.

Very few charitable contributions go to the poorest people in the world. Does that make them worthless?

In buying Fairtrade products, you’re at best giving very small amounts of money to people in comparatively well-off countries. You’d do considerably more good by buying cheaper goods and donating the money you save to one of the most cost-effective charities…

So what? Does that mean it doesn’t help “poor” workers – not the poorest, but still poor – at all? And what if the small incremental price paid is in addition to other giving? I doubt most who buy fair-trade coffee mentally subtract $.12 from their charity budget every time they buy a pound.

53 M July 30, 2015 at 3:31 pm

….In buying Fairtrade products, you’re at best giving very small amounts of money to people in comparatively well-off countries. You’d do considerably more good by buying cheaper goods and donating the money you save to one of the most cost-effective charities…

Eh. I figure what happens is comparatively rich Mexicans export coffee under Fair Trade, buy cheap Ethiopian coffee and everyone’s better off anyway. It doesn’t really matter, except inasmuch as it sends the message that people in rich countries should by goods that reimburse workers as much as they can (and screw “efficiency” where it just means the rich getting what they want for the lowest price possible).

54 jacob July 31, 2015 at 3:09 pm

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