Does Fairtrade help the poor?

Forbes reports:

This will come as a surprise to those who have bought into the marketing malarkey about Fairtrade products and not as a surprise to any of those who have really looked at the issue. Which is that there doesn’t seem to be any great benefit in the system for the poor peasantry that it’s supposedly designed to help. In fact, it actually seems to make people worse off, not better off. This isn’t I hasten to add, the result of a study done by some hateful neoliberal like myself. No, this is the result from a four year long research program by the impeccably liberal (and veering over into Marxian third world nonsense at times) School of Oriental and African Studies in London.

So what did they find?

What did surprise us is how wages are typically lower, and on the whole conditions worse, for workers in areas with Fairtrade organisations than for those in other areas.

Careful statistical analysis allowed us to separate out the possible effects of other factors, such as the scale of production. Still, the differences were in most cases, and especially for wages, statistically significant. Explaining why it should be that workers in areas dominated by Fairtrade organisations are so often worse off than workers in other areas is a complex and challenging task. 

Indeed. A good reminder though that good intentions often have perverse consequences.

Forbes looks at why this might be:

The first is implicit there, in the way that they talk about the scale of production. Fairtrade is really only open to people working at the level of an individual peasant. Indeed, some of the various schemes insist that mechanisation should not be allowed as one example of the resolutely small scale that they insist everyone work at. And in agriculture (where almost all Fairtrade is) is one of those sectors where there are huge, vast even, economies of scale. This matters, this matters a lot.

For the maximum amount that labour can be paid is of course the value of the production from that labour. And it might be all very well to insist that people using the most basic hand tools to grow something should get a bit more money. But their productivity is still going to be that of someone growing something using only hand held tools. Whereas mechanising the production process (which inevitably means much larger scale production) will mean vastly more productive labour and thus at least the potential for much higher wages for that labour.

So the insistence that there’s a bit of extra money but only if you stick with the inefficient methods therefore means that Fairtrade is putting a cap on the possible earnings. For they’re resolutely ruling out the possibility of using some more efficient production method. Fairtrade might make the poor peasantry marginally better paid but at the price of insisting that they remain poor peasants.

The second thing is that about the community projects. Some of that Fairtrade premium is meant to be spent on public goods in those areas. Which is just absolutely great, assuming (as in the case described, it isn’t) that the public good is actually available to those it is supposed to benefit. But even then we come back to the same old problem. They might now be poor peasants with free toilets. But they’re still poor peasants, free toilets or no. And this is something that hateful neoliberals like me have been saying for a long time now. Fairtrade is simply a vastly inefficient method of making the lives of the poorest people in the world better.

Liberalising markets has been beyond doubt the best way to lift people from poverty. China and India have shown this with several hundred million people.

All of which leads us to one final difficult question. There is a substantial premium paid for Fairtrade products. If it’s not going to those peasants and the community projects aren’t all that much either, then where is it all going? The answer being that there’s an awful lot of Sebastians and Jocastas being employed on western world middle class wages to run these schemes. And that’s where the money is going. Sure, non Fairtrade products have marketing systems too but which do you think is going to be more efficient? That of Nestle or that of some well meaning and not very driven do-gooders?

To be frank about this Fairtrade simply doesn’t do what it says on the tin. Imagine that you are worried about the poor of the world (I am, it’s a morally good thing to worry about, to try to do something about). And that you’d like to do something about it. The best answer is to go buy things made by poor people in poor countries. And if they’re not charging you enough, if you want to pay a premium over their price, then simply bundle up that extra money and send it to one of the better development charities.

It’ll make the world a better place both more efficiently and more quickly if you do that.

Good advice.