The Pin Factory Blog

Today the ASI publishes its latest report, Unfair Trade by Marc Sidwell, to mark the beginning of Fairtrade Fortnight.

Fairtrade is a nice idea, and it is great that so many consumers want to help the poor in the developing world. But it is important that we ask whether Fairtrade really helps. After all, 'Fairtrade' does not mean anyone who gives better terms to third-world farmers. It is a particular brand, which competes with other ethical schemes and charities for people's money.

There are a number of inconvenient truths about Fairtrade. Indeed, on closer inspection it may not be that fair at all. It only offers a very small number of farmers a higher fixed price for their goods. Given the way markets work, these higher prices come at the expense of many other farmers, who – unable to qualify for Fairtrade certification – are left even worse off.

More importantly, the Fairtrade scheme does not aid economic development. It sustains uncompetitive farmers on their land, holding back diversification, mechanization and moves up the value chain. In doing so it denies future generations the chance of a better life.

The fact that will surprise consumers most, however, is that only 10 percent of the premium they pay for their Fairtrade products actually gets to the producer. The rest goes to people further along the retail chain.

Fairtrade's success rests on its skilful advertising and its ability to persuade corporations, schools, towns and even nations to 'go Fairtrade'. But when you look at the evidence it is clear that for all its good intentions, Fairtrade is not the only way to make a difference, and it is not the best way either.

The Rainforest Alliance operates a similar certification scheme to Fairtrade, but without many of its drawbacks. Café Britt helps its farmers add value by processing and packaging its coffee in Costa Rica. Consumers could even buy bargain products from their local supermarkets and loan the money they save directly to farmers through a microcredit agency like kiva.org. These are just some of the options available.

You can download the whole report here as a PDF.

This story about Debbie Hirst and her cancer treatment has even hit the NY Times. To recap, the NHS does not pay (upon the grounds of cost effectiveness) for the use of Avastin, a breast cancer treatment. Ms. Hirst decided to pay for it herself and then was told that if she did so she would also have to pay for all of the other treatment from the NHS, something that of course she had already paid for once through the taxation system. Alan Johnson said:

Patients “cannot, in one episode of treatment, be treated on the N.H.S. and then allowed, as part of the same episode and the same treatment, to pay money for more drugs,” the health secretary, Alan Johnson, told Parliament.

“That way lies the end of the founding principles of the N.H.S.,” Mr. Johnson said.

Quite so, the founding principle seeming to be that it's is better that some die so that we can all be more equal. Greg Mankiw asks an interesting question:

Should a parent who hires an after-school tutor for his child be barred from sending the child to the public [i.e. State] schools?

Or the parent who teaches a child to read at home? Or the patient who pays for gym membership, or better food, or vitamin supplements, perhaps those who buy their own paracetamol should be denied the care they have already paid for? As the Professor points out:

Some people like to think of health care and education of basic human rights. Maybe they are. But they are also normal goods. That is, the income elasticity of demand is positive. It is hard to escape the conclusion that the right cost-benefit calculation for providing the good depends on the income of the consumer. Achieving both efficiency and equality in the provision of these goods is impossible.

As both are impossible we must make a choice. Should people be allowed to spend their own money as they wish, over and above the care that the NHS provides? Or must we have the equality of the grave? You won't be surprised to find out that I am for the former: it's your money, do as you wish with it.

45. "Speculators are parasites who produce nothing."

Speculators have had a bad press. Along with landlords, corn merchants, and tax gatherers, they have been the whipping boys of demagogues. They are often thought of as drones who "buy in the cheapest market and sell in the dearest," adding nothing of value in the process. Typically the speculator buys up something they think will be in short supply later, and can therefore sell for more than they paid.

Yet the speculator helps to smooth out uncertainty. The farmer who plants in the spring does not know what prices might be like when the harvest is in. He might prefer a guaranteed price than face that uncertainty. Someone who buys the crop now offers a sure price; the crop might sell for more than that, but it could also be less. The speculator can carry that risk instead of the farmer, and profit from it if he is right.

This is what speculators do; they handle risk. They live and trade by being able to call the future more accurately than others. They give people certainty and security now, in return for a higher return for themselves in the future if they are correct. Speculators can lose. The goods they buy now at a guaranteed price might plunge in value later. Unlike many farmers and merchants, the speculator can carry those losses.

Speculation in currencies is similar. A manufacturer planning to sell in another currency might prefer the certainty of a fixed value, rather than take chances on the future exchange rate. The speculator will sell him that currency now, at a price he thinks it will exceed in the future.

As long as speculators are right more often than wrong, they can prosper, and they smooth market volatility in the process. So far from being unproductive drones, speculators actually offer a valuable and skilled service: they manage risk.

It is a popular delusion that the government wastes vast amounts of money through inefficiency and sloth. Enormous effort and elaborate planning are required to waste this much money.

– P.J. O'Rourke

An excellent outlining of the problems with ethanol and biofuels. Of course, our Masters took the decision to insist upon them before they found out anything about them. Par for the course.

As, for example, with the proposed rules about ISPs and their policing of file sharing. Not technically possible. 

Looks like the euro (if it doesn't collapse first) could supplant the dollar as the international reserve currency of choice in the next decade. Not that this actually means very much of course....

How to get around the smoking ban.

A look at the British medical blogging scene. 

When picture captioning goes wrong. 

And finally, an Italian confession and humour in typography. 

John Kampfner has recently been thrown out resigned as the editor of the New Statesman. My assumption is that even the highly partisan readership of that magazine got  bored of being offered inaccuracies of the following sort:

It is strange to remember that a Labour government has presided over
the phenomenal transfer of wealth and assets into the hands of the very
rich.

I could understand if he said a transfer of resources from the productive, private, sector to the less productive State one, for taxation and government spending have indeed risen over the New Labour years. But a transfer of wealth from the poor to the rich? How does that work then?

Leaving aside the sarcastic point that the poor, by definition, don't have any wealth worth taking because, by definition, they're poor?

A requirement for this to be true would be that the poor now have less wealth (and we should distinguish between wealth, a stock, and income, a flow) than they did ten years ago.  There's no evidence that this is in fact true: quite the contrary, every level of society is now wealthier than they were ten years ago. So there has been none of the transfer that he complains about.

What is true is that of the growth in wealth in the past decade more of it has gone to the top of the distribution than was formerly the case. But this is a function of the way in which the benefits of growth are distributed, not a transfer from one group to another. And even there it's hardly phenomenal: in 1999 the top 1% had 34 % of the wealth in 2003 they had, err, 34% (adjusted for housing, and yes, I'm cherry picking).

I've no objection to someone complaining about the distribution of newly created wealth (I might disagree but it's a legitimate concern) but I do have an objection to someone insisting that if some have become richer then others must have become poorer: that simply isn't true, the economy and the wealth it can create are not zero sum games. All can benefit, as they have been, rather than more for some having to mean a transfer to them from others of a set amount. 

Now we've put him straight all we need to work out is why this guff is appearing in The Telegraph rather than tucked away in a magazine no one reads. 

44. "Business should be forced to be socially responsible."

People in business have moral obligations to others, just as teachers and lift operators and everyone else does. Nothing about the activity excuses them from these, which include behaving in a responsible way to others, and respecting their rights, too.

Business people have the additional burden which trust imposes. They engage in transactions and contracts, and have a moral duty to keep their side of the bargain. Of course they have a legal duty as well, but that is not why they behave honourably.

They already perform services to society by making goods and services available, by creating employment, and by contributing to society's maintenance by paying the taxes and levies it imposes. Some suggest that they have the additional obligation of contributing to charities and the arts, to funding neighbourhood community schemes, and to supporting causes they deem worthwhile.

Some businesses engage in such activity to boost their public relations and their reputation. If being seen to do such things makes them sell more of their product, these are legitimate business actions, calculated to improve the financial position of the company. It can be good business practice to maintain excellent employee and community relationships.

People invest in companies, lending them money in order to generate a yield from it. It is a company's duty to use that money with due diligence for the purposes for which it was lent to them. If they misapply it to themselves, we rightly castigate and even prosecute them. If they apply that money to causes they approve of, perhaps because it makes them feel good, this can be a misuse of funds lent to them in good faith. It was not lent to them to support good causes, however noble. The lenders could have done that themselves. If it aids the business it is a valid use, otherwise it is not.

Yes, tax competition does pose problems for politicians who buy votes with other people's money. Tim Worstall points out on the GI site that "if people are able to pay lower tax rates elsewhere then they might just leave and go and do precisely that." Thus the presence of more tax-attractive places restrains the big spenders. More to the point, though, as Tim emphasizes, is that tax competition brings choice and with it the opportunity for people to satisfy different preferences simultaneously.

Some prefer the greater State services (however incompetently delivered) that higher taxation brings, there are even those who prefer greater regulation. Excellent, let those who desire such things have them. And thus the point and value of having competition in such tax and regulatory jurisdictions: people get to choose which they prefer.

Of course tax competition does tend to make one choice more difficult: that of living where there are high levels of state services, but where someone else pays the taxes to sustain them.

The great non sequitur committed by defenders of the State, is to leap from the necessity of society to the necessity of the State.

– Murray N. Rothbard (1926-1995),

An excellent general and theoretical result undermined by an individual and anecdotal incident. Ain't that always the way?

Those who can, those who teach and those who teach the teachers: now one more recursion, those who administer the teachers. 

And photographic evidence of how at least one of those groups of administrators operates. 

Surfing a 66 foot wave. Eeek!

A good question, why does the Treasury get the fines? Shouldn't it be the consumers who were (allegedly) ripped off?

What happens when a lawyer gets a blog. Not pretty.

And finally, just why is the Antiques Roadshow so popular?