Wednesday, December 21, 2005

"Fair trade"

Fair trade is typically contrasted with free trade. I know what free trade is. Lots of people do. It's being able to transact without discriminatory regulations or fees against foreign trade as such. So it doesn't mean dropping all sorts of regulations - say, regulators can still coerce manufacturers to put seat belts in cars under free trade; however it will not implement one set of seat belt standards in foreign-made cars, and one in domestically-made cars.

What about fair trade, what is that all about? Beats me. Take a look at one of the more popular fair trade proponents, Oxfam: "Fair Trade is about paying poor producers a fair price, and helping them to gain the necessary skills and knowledge to develop their businesses and work their way out of poverty." The problems is defining "fair price". For centuries, writers from Aristotle down have been discussing the idea of a "just price", and tying themselves in metaphysical knots over the idea. Then came the smart scholars of Salamanca: a just price is just what is naturally established in the market. Modern economics would rephrase that in terms of competition, etc., but it was the Salamanca school that underscored the practical role of the market in discovering that just price.

The "fair trade" jargon is a thinly-veiled attempt to resurrect ye old "just price" debate. Of course they will wind up tying themselves, over and over, in metaphysical knots. What's that old saw again about ignoramuses who don't know their history?

Even value-laden economics, called "normative economics", has largely moved away from airy-fairy discussions about a just or fair price. The focus of the discussion is a just or fair distribution of wealth. That's where the action is. Debates about the fair price are stuck in the Middle Ages. Me, I'm moving on.

2 comments:

cvj said...

Over at marginalrevolution.com, they have a working definition of
fair trade. Using coffee as the example, they say that fair trade can result in splitting the market and prolonging the exploitation of workers which this policy is supposed to help.

Econblogger said...

Thanks for the tip. Another perverse effect from a well-intentioned action - love it.