Is free trade fair or should fair trade be free?
I attended a very interesting debate yesterday at the Old Building on the LSE campus. In one corner was the president of UK fairtrade foundation (owned by OXFAM), Harriett Lamb and in another corner was professor Tony Venables from LSE and Alex Singleton, the head of the UK globalization organization.
Free trade is an interesting concept. When ideal conditions are met, no one can refute the immense potential of free trade to maximize the utility of participants in the equation. Everyone benefits in a true free trade environment. The issue is not whether free trade works but whether it really exists. Professor Venables mentions 6 issues which need to be dealt with prior to using free trade as a poverty alleviation device:
1) Pursuade consumers to consume more goods from low income countries (remove people's concepts that buying locally is somehow patriotic)
2) Remove the trade monopolies in domestic and external markets (remove the number of transfers between parties before it arrives to end user... In some cases, coffee will touch over 50 different parties before arriving to your home)
3) Trade liberalization from all parties concerned (removal of all import and export duties, tariffs or other trade-distorting policies)
4) Develop key infrastructures in all markets concerned including developing countries (roads, health centers, education)
5) Remove all subsidies, direct or indirect, that distort the true value of the transactions
6) Account for externalities such as impact on environment in transactional costs
Who can disagree with this? Even non economist see the intrinsic value of commercial trade. You have two parties with 2 values each (one for the good they wish to exchange and another one for the good they wish to purchase). Each party agrees upon the price of exchange and both parties are left with a higher utility from the transaction. What I fundamentally disagree with is that the 6 issues that Professor Tony Venables showed us are far from being realized.
In the context of free trade as defined by George Bush (only when it benefits us and fuck the rest) or by the European Union (CAP is good for our farmers... Don't touch CAP), you find developing countries restrained by the markets they can export to. They can trade amongst themselves (which they actively do) but the true value-added markets are in the developed world.
Is fair trade the answer? Fair trade tries to answer points 1 and 2 and has had some measure of success in making the trading world a bit more fair for the farmers involved in these schemes. However, they do not fix the fundamental issues involved in world trade which is a lack of goodwill between nations. Trade can only occur when mistrust and politics are removed from the equation.
In this context, free trade can be used as a tool for poverty alleviation if it can allow for local manufacturers, farmers and developers to grow their business. I would add that microfinance plays a large role in providing the necessary monetary capital, in working capital, or infrastructure or capital expenditures for these company. This allows the company to grow as their sales grow. Many companies in the developing world stand to benefit from integrative trade as they are more likely to enjoy cost advantages and resources at a lower cost. Tools that responsible the average citizen and allow them to make their own economic decisions are usually the most sustainable.
What they need most is education and key transport infrastructure. This is where the G20 can play an active role. Where governance is being met in developing countries, G20 countries should be encouraged to actively invest in public infrastructure and education schemes to allow the citizens to benefit from their governments actions. This would allow for business investment to arrive and more additional capital to be invested in local companies allowing for international trade, permitting growth in jobs and real wages. Surely earning $3 a day is better than earning $1 a day? We are still far from the ideal but improvement is what is key in poverty alleviation.
Free trade is an interesting concept. When ideal conditions are met, no one can refute the immense potential of free trade to maximize the utility of participants in the equation. Everyone benefits in a true free trade environment. The issue is not whether free trade works but whether it really exists. Professor Venables mentions 6 issues which need to be dealt with prior to using free trade as a poverty alleviation device:
1) Pursuade consumers to consume more goods from low income countries (remove people's concepts that buying locally is somehow patriotic)
2) Remove the trade monopolies in domestic and external markets (remove the number of transfers between parties before it arrives to end user... In some cases, coffee will touch over 50 different parties before arriving to your home)
3) Trade liberalization from all parties concerned (removal of all import and export duties, tariffs or other trade-distorting policies)
4) Develop key infrastructures in all markets concerned including developing countries (roads, health centers, education)
5) Remove all subsidies, direct or indirect, that distort the true value of the transactions
6) Account for externalities such as impact on environment in transactional costs
Who can disagree with this? Even non economist see the intrinsic value of commercial trade. You have two parties with 2 values each (one for the good they wish to exchange and another one for the good they wish to purchase). Each party agrees upon the price of exchange and both parties are left with a higher utility from the transaction. What I fundamentally disagree with is that the 6 issues that Professor Tony Venables showed us are far from being realized.
In the context of free trade as defined by George Bush (only when it benefits us and fuck the rest) or by the European Union (CAP is good for our farmers... Don't touch CAP), you find developing countries restrained by the markets they can export to. They can trade amongst themselves (which they actively do) but the true value-added markets are in the developed world.
Is fair trade the answer? Fair trade tries to answer points 1 and 2 and has had some measure of success in making the trading world a bit more fair for the farmers involved in these schemes. However, they do not fix the fundamental issues involved in world trade which is a lack of goodwill between nations. Trade can only occur when mistrust and politics are removed from the equation.
In this context, free trade can be used as a tool for poverty alleviation if it can allow for local manufacturers, farmers and developers to grow their business. I would add that microfinance plays a large role in providing the necessary monetary capital, in working capital, or infrastructure or capital expenditures for these company. This allows the company to grow as their sales grow. Many companies in the developing world stand to benefit from integrative trade as they are more likely to enjoy cost advantages and resources at a lower cost. Tools that responsible the average citizen and allow them to make their own economic decisions are usually the most sustainable.
What they need most is education and key transport infrastructure. This is where the G20 can play an active role. Where governance is being met in developing countries, G20 countries should be encouraged to actively invest in public infrastructure and education schemes to allow the citizens to benefit from their governments actions. This would allow for business investment to arrive and more additional capital to be invested in local companies allowing for international trade, permitting growth in jobs and real wages. Surely earning $3 a day is better than earning $1 a day? We are still far from the ideal but improvement is what is key in poverty alleviation.
posted by Serge LeVert-Chiasson at
1:22 AM
0 Comments:
Post a Comment
<< Home