1. Overview
Fair trade products have become enormously popular in recent years. On their surface, they appear to offer an unusual combination of benefits: they raise compensation for farmers who participate. People can assist others by an apparently more responsible consumption. They appear to better connect suppliers and consumers across the globe, etc.
For many these virtues hint at the Holy Grail or Fountain-of-Youth of trade: a mystical or mythical third way which magically, or miraculously manages to provide a more just method of exchange, a balance between the seemingly harsh ravages of savage capitalism and inefficiency of socialism. Should this be true, the fact that such arrangements are feasible would then indict the current globalization under the banner of free trade because no longer could proponents of free trade hide behind the necessity of open borders. How could one argue for free trade when fair trade offers a workable alternative?
And it does appear to work. Look at the brochures in the coffee shop: pictures of farmers involved in these programs beaming confidently and gratefully; stories of how X program has raised the earnings of participants in Y region. In contrast, under “non-fair-trade,” business as usual, Starbucks buys its coffee from growers for a measly fifty cents per pound then turns around and reaps enormous profits selling its gourmet coffee for $10 a pound.
What’s a Christian to do? What Would Jesus Drink? While I do not seek to attack fair trade arrangements per se, it must be pointed out that while they have some virtues, clear economic reasoning, and evidence, prove they simply cannot be interpreted as a third way so many wish them to be.
The following essay uses a number basic economic concepts:
- efficiency, not price;
- price taker markets;
- opportunity costs;
- fallacy of composition; and
- central planning and price setting.
to examine the question of fair trade products. It starts with the key error in fair trade reasoning: failure to realize that the fundamental problem is efficiency, not price. I then move through price taker markets, opportunity cost, fallacy of composition, and finally central planning. I hope this analysis helps readers understand not only the principles involved, but especially how application of those principles is critical for much moral analysis regarding material well-being.
