Comments for Common Error No. 101 at http://www.adamsmith.org , comment 1 to 2 out of 2 comments http://www.adamsmith.org Thu, 20 Nov 2008 12:11:35 +0100 FeedCreator 1.7.3 http://www.adamsmith.org/blog/globalization/common-error-no.-101-200804251282/#comment-118 Stewart; That all sounds very nice but it is unfortunately not quite how it works. The problem is that not a single country has ever managed to achieve any significant level of development whilst selling primary goods. The only way for a country to develop, or at least start the process of development, is by developing secondary industries and exporting. This is what all the Asian Tigers did and have benefited hugely. Such a move can only be achieved if individuals stop subsistence farming and which, unsurprisingly, will only ever keep individuals on a subsistence income (the whole point of development being to get individuals not just to subsist but to prosper). The problem therefore with fair trade is that it encourages such farmers to stay in markets they quite clearly should have left a long time ago. If the market Price is low it means costs need to be cut if a profit is going to be made, this will only be achieved through using technology which will vastly improve the efficiency of farming making it far less labour intensive and more profitable. This will lead to structural changes in the economy, as farming becomes mechanised and less labour intensive less jobs will be available in the farming sector whilst demand will go up in the secondary sector which produces the machines the remaining farmers need. These remaining farmers will earn significantly more than their former subsistence income, whilst the development of a manufacturing sector will lead to the rise of higher paid jobs and wide scale development (so long as trade barriers are lifted). So while the sentiment of fair trade is right (in that it recognises that countries will only develop as part of a global market, not by aid alone), its naive benevolence ends up doing more harm than good, by stopping the economies involved transforming into economies with a reasonable chance to prosper. - Nick Kaplan Tue, 29 Apr 2008 15:41:56 +0100 http://www.adamsmith.org/blog/globalization/common-error-no.-101-200804251282/#comment-92 As I understand it, Fair Trade is as much about working conditions as it is pay. It almost doesn't matter if no more money is getting to the producers - what matters is that we know their employees enjoy a certain level of safety and respect at work. Anyway, If I pay 50p more for Fair Trade, I don't expect all of that 50p to direct to the producers. I just expect the producers to be paid fairly for their work. The rest goes to Cafe Direct for the value added in bringing me this service. Furthermore, companies like Cafe Direct are not "setting the price it thinks more appropriate than the market price". They are selling their goods to the same market as Nescafe - it is consumers who are willing to pay more to guarantee the working conditions of those who have grown the coffee. This is a good example of the market putting a value on something as intangible as labour rights -- free market economics at its best! So yes - in fact, buying Fair Trade does benefit third world producers. If you had instead titled this 'common error' as "We should help third world economies by buying Fair Trade goods", I think you would have a much stronger case. - Stewart Fri, 25 Apr 2008 15:40:25 +0100