Pavlos (pavlos) wrote,

G8: Fair Trade

Fair trade means two things. Trade according to rules that apply to everyone (free trade), and trade with charitable elements (ethical trade). This is a rant about the first kind of fair trade, and why I think it is wrong to demand it on behalf of the world's poor nations.

It is acknowledged that both the US and EU do not employ fair (as in free) trade either at the high end (e.g. defence) or at the low end (e.g agriculture) of the market. An argument commonly raised in WTO trade negotiations by poor countries is that rich blocks should stop protecting their agriculture markets and industries so that, firstly, agriculture industry in poor countries could develop without crippling competition and, secondly, poor countries could make a better living by selling food to rich ones. Progressive people mostly seem to think this is a worthy goal, and one of the pleas made to the G8 leaders is that they grant fairer (less protectionist) trade rules to the third world.

I'm no economist, but this worries me. I'm not convinced that this type of fair trade could do Africa any good, while it could easily destroy what's left of the continent's ability to sustain its people. Here are the reasons.

  1. The whole argument about fair (as in free) trade is a monetary argument. If implemented, it might improve the economic welfare of some trading classes. This tells us nothing about the material welfare of populations.
  2. Removing barriers to interaction between two parties of vastly unequal power tends to result in the stronger party abusing the weaker. What you want is to install barriers so that the parties can interact only in ways where the stronger one can't use its advantage. I'm not clear why Africa would want fair (free) trade in this context.
  3. Rich countries use protectionism. Furthermore, they use it in areas that you might describe as strategically important (agriculture, culture, technology, defence) and not in areas that you might describe as luxuries or commodities. If the clever and powerful guy uses a strategy, it might be good.
  4. Imagine you're a carpenter from Cameroon. You fashion stools, chests, etc. and sell them in your small shop. You use the money mainly to buy staple foods and occasionally to buy imported tools. Your neighbours are farmers. Would you prefer them to be shut out of the global system so they grow yam and cassava, or enthusiastically integrated so they grow coffee? Remember, you're a carpenter, not a geek.
  5. If your neighbours become export farmers, you might at least be able to extract some currency from them and buy staple foods in the global market (we'll suspend disbelief for the moment). In that case, subsidies are your friend. If American and European taxpayers subsidise grain production to the point where you can afford it, why would you want to change that?
So, I don't understand the demand to make fair, as in liberalise, agricultural trade. As I say I'm no economist and I'm unable to do any kind of quantitative analysis, but it seems like a misguided or cynical application of free market ideology. In the end of the day, food is made out of land, a declining amount of labour, and an increasing amount of technology. Global free trade is sure to cause consolidation of these resources and repurposing them to the needs of the richest consumers.

I would argue that what Africa and other poor countries need are huge amounts of protectionism and managed agricultural policy. By that I mean poor countries should use their agricultural resources for feeding their people, and I'm guessing that the most efficient way to do that is to limit exports and grow local staple foods. Similarly for other kinds of essentials. Of course, this is a very paternalistic attitude: Protectionism consigns people to their lot. Africans would have to live with African foods and mostly African goods, rather than aspire to be members of the global middle class. This may be a choice of survival over freedom, when freedom is a utopia for the majority. This kind of marginalisation is a real problem, though, both materially and subjectively.

I can see two ways out of the confining effects of protectionism. One is block formation, so that people are still economically enclosed but in a large block with diverse resources, including culture. Between parties of generally matched economic power, liberalised trade is a great idea. It works wonderfully in the US and Europe. I'm not sure how far groups of poor countries might be in efforts to create trading blocks, and I'm certainly eager to see something resembling the EU appear in Africa or Latin America. Of course it's unlikely, partly because the politics of these countries are not as advanced and partly because their elites do aspire to be individually members of the global elite, or at least middle class, and therefore should hate regional block formation.

The second way out of regionalism is managed convergence. In other words, a deliberate policy to transfer wealth from rich countries to poor ones, either for ethical reasons or for the self-serving reason of wanting to live in a stable and prosperous planet without groups of starving desperate people. The EU is the most ambitious project of this kind and I think it has been quite successful in making its poorer south converge with the north. Given that the EU is a diverse organisation representing both profit and social interests, I think this is hugely encouraging. The EU does it by strategic planning and enormous amounts of money (large fractions of state budgets) flowing from north to south never to be seen again. I think this is right, and I think some similar plan would be the only realistic way to lift the Third World out of poverty. It would be expensive, of course; about as expensive as, I don't know, defence.

Tags: g8, politics

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