7. Fair Trade Writ Large Is Socialism
This last conclusion points us to the danger of extending such an approach across the economy. At its heart, fair trade seeks to raise returns to a narrowly defined group of producers by insuring that they get a higher price. If this is such a great idea, why not give every producer, worker, or favored group a higher price? If true, we could simply force all prices to double (or triple!) to insure that everyone received twice as much. But unfortunately, such schemes to raise the compensation of all people via higher prices paid on the production end (without productivity increases) have already been tried. If we extended the logic of fair trade to all products, we would need to determine the prices for all goods. And at the society level, setting all prices has a name. It is called socialism.
The ramifications of this are enormous. The experience of socialist countries in the last century illustrated the dangers—for the poor—of destroying the price mechanism, eliminating profits, and undermining the incentives for entrepreneurs to discover ever new and more efficient ways to deliver products which were more valuable for less cost to the poor and all of society. In addition, this involves the massive social cost of bureaucracies of vast numbers of people squandering their human capital on jobs whose purpose is to determine what would constitute “just” prices based upon limited information rather than improving productivity. And if that is not enough, try to ponder the socially wasteful rent-seeking behavior which would accompany the political jockeying to be awarded those “just” prices, or the best of them. A worldwide system of price arrangement would be a politically messy and socially wasteful disaster.
