Why I oppose “Fair Trade”

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Economics is not a simple subject. Well, it really is, it’s just counterintuitive. That’s pretty much the story of math as well: very simple subject, very surprising results. Same goes for physics.

It’s not that the subjects are hard, it’s that those subjects contradict what we think is right before we investigate further. When we carefully consider the facts and the logic, we come to realize that our first impressions were the wrong impression.

Take the idea of “Fair Trade”. The idea works like this. Today, Americans who have more money than they know what to do with are buying the cheapest of cheap goods from countries who “exploit” their people for practically slave wages. This must be a bad thing, people think, and so let’s try to convince people to spend more money and buy more expensive things so that we don’t feel so bad for exploiting so much.

Like many things that liberals advocate (or is it all things?) this is pure nonsense. Careful investigation reveals why.

First, why are people working for slave wages? The liberals want you to believe that you are “exploiting” them, the same way a rapist exploits a rape victim, or something like that. They think that going to the furthest corners of the world with the least developed economies and spending our money there is a really, really bad thing. They think that we should instead send our money to more advanced countries, and let the poorest countries be damned.

The truth is actually shockingly simple: The reason why people work for slave wages is because that’s the best opportunity that exists in the entire world. And it is a billion times better than the next best opportunity. The rules of comparative advantage explain why “exploiting” such people is not just benefiting us, but benefiting them, to the maximum extent possible.

Second, what is “fair trade?” It sounds an awfully lot like “free trade”, but if it were just free trade, we’d call it that. No, it is the exact opposite of free trade. “Fair trade” says that there is a guy down the street who is willing to sell his Pokemon cards for pennies, but instead we’re going to force our kids to buy the Pokemon cards from our friends who want to charge dollars. Why would we do this? Looking at it this way, it’s obvious there is some corruption going on here. There’s a reason why you’d force someone to not use the lowest bidder, and it goes way beyond quality arguments. The reason is because the people making such an argument have a lot to benefit from it all. In truth, “Fair Trade” does the exact opposite of what it claims: it exploits the lowest bidders and it exploits us.

If you care about the poor, then you will remove every economic barrier. You will make it possible for them to do practically anything they want with their money. Let me give you some examples of things that will give the poor an actual opportunity to get ahead in life:

  • Zero minimum wage.
  • Minimal regulation. (IE, only for safety, only for things that really matter.)
  • Minimal or zero taxes. (If you make less than this much money, don’t worry about paying any taxes at all.)
  • Zero import or export restrictions (except for safety. See “Minimal regulations” above.)

These things will give the poor every opportunity the rich have to get ahead. See, the rich don’t care about the minimum wage because they are going to get paid much more than it anyway. They don’t care about regulation because they can hire armies of lawyers to figure out how to comply and how to wiggle out of any punishment. And if there is a punishment, they can just pay it and move on with their economic lives. And the rich can hire armies of accountants to manage their taxes as well.

Why would we burden the poor with the same “burdens” we put on the rich and expect them to benefit from it? Those burdens are crushing them.

Now, imagine you are a poor dirt farmer in some forgotten corner of the world. Your family has known meager crops and famine for the past umpteen generations. What can you do to get ahead? You can keep trying the same things your ancestors tried, and you’ll get the same result. Or, you can try something new. Suppose an American walks on to your farm and says, “I will give you as much food as you can eat, if you’ll show up to my factory and work from dawn until dusk making shoes for me.” Wouldn’t you jump at the chance? I know I would! What an opportunity! What does it matter to you whether the American is going to become a millionaire or a billionaire — for the first time in your family’s history, you no longer have to worry about food, and your kids no longer have to slave away on a farm. You can even sock away a few pennies here and there, and before you know it, you’ve got some real money that can be used to get ahead in life.

Better yet, your kids will get pretty good at working in that factory, and maybe one of them will become supervisor or even manager. If they are smart and learn English, they can even get a job in the port city negotiating trade deals.

Do you see why going with the lowest bidder worldwide is the way we elevate people out of poverty? With a little bit of wealth, and trust me, a few dollars is a fortune for these people, with a little bit of wealth, they can stop worrying about their next meal for a few moments and make some plans for their future. They can tell their kid to go to school. They can figure out how to get ahead in life by learning a valuable skill.

The truth is that developing countries eventually run out of runway. One day, they realize that they are no longer the cheapest country in the world, and they learn that they have to adapt to the modern economy because their factories aren’t going to feed them forever.

And the truth is, one day, there won’t be anymore poor people left to exploit. When that happens, and it can only happen with freedom, what a world we will live in!

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2 Responses to “Why I oppose “Fair Trade””

  1. Jason gardner Says:

    True. But you don’t want to export bad behavior. For example, we can probably make batteries fairly cheaply if we dump our waste in the green river. However, that means we are putting the cost of disposal on the general public instead of including the cost in the cost of the battery. Not good.

    Similarly, if China dumps battery waste in it river (as they do) they can make cheaper batteries then I can if I don’t dump. The cheater in this system has a competitive advantage and can undercut the honest man. (See China USA relations since 1990.) similar for the respect of intellectual property and labor rights.

    We must ensure somehow that importers that cheat to not bankrupt native companies that do not. I do t see how we can do this without government.

    • Jonathan Gardner Says:

      You’re talking about external costs when you’re talking about pollution.

      The thing about pollution is that the remedy is to internalize those external costs, avoiding the Tragedy of the Commons. The reality is that eventually those external costs will turn into internal costs. In terms we understand, you can’t skip cleaning your toilets every week for very long. Eventually, you’re going to bear the cost of not cleaning your own toilet. Really, there are no external costs that you don’t bear in one way or another.

      China has an important decision to make: Should they continue polluting for American dollars? Or should they risk raising their prices and actually enforcing the regulations designed to keep the environment clean? Right now, it’s clear what they want. Perhaps to them they’d rather have money than a clean environment. Maybe they’ll choose to be clean when they have enough money and economic development to make it feasible. This is the free market in action. It is causing them to choose between one thing and another, and letting them live with the consequences.

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