Thursday, 6 May 2010

Fairer trade or freer trade ?

“This house believes that making trade fairer is more important than making it freer” – this is the current live debate hosted by The Economist here. This blogger is a complete and unabashed fan of The Economist and subscribes to the view that it is the best publication in the world. The Economist debates are a fascinating discussion of very relevant issues and it would be difficult to find as interesting a debate on economics as between fair trade and free trade.

The context must be clearly understood. Despite all the tall claims made, the world is nowhere close to free trade of an acceptable sort. The bastions of free trade are all fiercely protectionists in their own areas – agriculture in both Europe and the US, and pretty much everywhere else in the developing world. Everybody wants free trade in other’s homes, but not in their own backyard. Tariff and non tariff barriers abound. The crawling pace of the WTO talks, which go on for decades is testimony to this, although it has to be said much has indeed been achieved.

Ranged against free trade is an assortment of all sorts of constituencies, ranging from noble social organizations to bleeding heart socialists. Their noise making capability being much higher, free trade is being tainted as a four letter word and blamed as the originator of much misery. Arguments against free trade range from exploitation of workers in the poor countries, loss of jobs in rich, threat to way of life in all sorts of places, inequality, etc etc. There is some merit and much bunk in these arguments.

What is fair trade anyway ? Fair to whom ? Fair to the producer or fair to the consumer ?

The value free trade has brought to so many millions of people is often not given the credit it deserves. Prices of almost every good or service is lower because of free trade and competition. Producing something in the best place it ought to be produced, makes both quality and price better. While the opponents of free trade propagate the cause of the producer (the poor French farmer who will lose his French way of life if the big bad beast of free trade is unleashed), nobody propagates the right of the consumer ; why should the average Pierre on the streets in Marseilles pay more to keep the French farmer in Brittany in cosy comfort ?

Think about this. All arguments of protectionism are made by people unable to compete. If they could compete and win, they would not be scared of free trade. They are scared of free trade because they do not offer the best cost quality equation. Therefore they want the guy who offers the best deal to be kept out because only then can they survive. So they want some poor sod of a consumer to subsidise them. For every compromise somebody makes on free trade, it is the consumer who is jacked.

This is an opinionated blog, of course. This blogger believes that the only fair trade is free trade.

But read The Economist's debate. The excellent Ngaire Woods makes a powerful argument for fairer trade. As does Prof Jagdish Bhagwati for free trade. I am delighted to say that at the time of writing this piece, 52% of those voting agreed with me. But it is indeed true that the Economist reader is no average Joe Public. If there was an open vote amongst the population, I am sad to say that not even 5% is likely to take this view.


zeno said...

Definitely you should think of writing economics for dummies and finance for dummies.

The thinking of average joe or above average joe is usually influenced by the conditioning of the mind. So who makes more noise naturally reaches more number of people.

Moreover, for any issue, we can always take sides, debate and justify the stand.One man's freedom fighter is another man's terrorist. so it depends on the perspective.

One thing that makes your writing more interesting is you are opinionated. you do definitely take a (convincing) stand and that makes a difference. :)

Anonymous said...

thalaivary..average joe ku puriara mathiri soliteenga..konjam intha under age joevaiyum consider pannunga :D enaku terinja tradelaam..LIDO la countrya kaasu kuduthu collect panra trade thaan. Athu free ya faira therila aana interesting for sure :D

Ramesh said...

@zeno - Thanks zeno; very kind words from you. excellent point; the perspective is all importasnt of course. As you say its a thin line dividing a terrorist from a freedom fighter. Think of a situation like Bhagat Singh.

@gils- You are a super Joe; not a under age Joe although I'll forgive you for thinking you are still a teenager. Surely you should have a strong point of view considering that you are in an industry which has existed only because of free trade.

zeno said...

That is not my saying,a dialogue from Die another day, a jamesbond movie :P
even M Gandhi, according to british he broke many laws, [again inspired by a movie, guru]

ambulisamma said...

Very true,average joes and janes like me are not the target audience of The Economist.But considering that other areas like agriculture and teaching are exploited by call center jobs.This book One night @ a call center by chetan bhagat explains what a call center is doing to countries like India.But will ever be able to do a fair trade?

RamMmm said...

+1 for The Economist. Love it for all the debates there and the vast array of topics they cover. It was fun following the FYROM vs. Greece war fought on the comments section of the articles. :-)

In my opinion, it has to be a balance. Free trade is good, but a nation cannot hold on to it as the one and only means. Free trade could potentially be used for dumping or creating economic chaos (China seems to be dumper in quite a few categories :-)). If free trade is all that country practices (say A), and say that results in heavy imports of food, and war breaks out with a neighbouring country and others perceive A to be the aggressor and block their supplies (not fair!), A is sunk. And farming obviously has its protectionists and to an extent it has to be.

Sandhya Sriram said...

free trade and fair trade are very much a factor of free and fair to whom? what could be free for one could be dumping for other. what could be fair for one could be exploitation for the other.

Leaving few extremists aside, by and large, if picking up what one offers makes commercial, economic and social sense to another, he will pick it up, whether he calls it free, fair or whatever trade.

J said...

I might be misreading which side of the debate you are any case,

//All arguments of protectionism are made by people unable to compete. If they could compete and win, they would not be scared of free trade.//

You cannot talk of competing without having a level playing field. This is related to the second definition in Bhagwati's argument. But I am not convinced by his point. If some other country want to pollute itself to produce cheaply, I don't believe that it is as simple as saying that it is their choice and continue to trade with such a country freely. Because as we are realizing it may be only a matter of time when that pollution is everyone's problem of global warming. So I believe as long as there is fairness in the rules of the game then free trade is good.

The part that I have to reluctantly agree with Bhagwati is that I dont think overpaying under the guise of "fair" trade is the solution to jumpstart African economies. I am all for giving them some help initially to prepare to compete but am not sure what form that should take.

Deepa said...

I think world trade can be free once every country and every trader is on fair playing grounds. There may be a merit in uplifting the underdeveloped markets (as in Ms Woods' Africa example).The problem there being more socio-political than economic, there may be merit in lending support till they are competitive.

But when an industry is strong enough its really meaningless to regulate. In a free trade, a buyer or consumer picks up whatever is beneficial to him at that point, nobody should judge his decision based on other criterias. If a seller feels threatened, in his own country or elsewhere, isn't it more sensible that he pulls up his socks rather than crying foul?

Deepa said...

Me and J happened to post at the same time, lest someone blames me for copying! :D

Ramesh said...

@ambulisamma - Call centres are a good example of free trade; they won't exist if protectionism was rife. And if the success of call centres is attracting people from agriculture or wherever, that's good for those people; they earn a better living. Why should they be deprived of that ?

@RamMmm - Dumping is actually not easy to do. Those yelling dumping at China often simply do not understand how the costs can be so low in China. No nation can dump consistently and make losses ; that's simply not sustainable. If China dumped all the time, they won't have a robust economy as they have now. Your example of country A at war is interesting ; only as breakdown of free trade will put A at risk. Perhaps the threat that their food imports will be stopped might deter them from being aggressors !

@Sandhya - I can understand the fair to whom, but why is free not free in black and white ? You eloquently put the case for free trade in your last sentence.

@J - This is a tough territory - the one of level playing field. I can very well understand the pollution argument; there's a case for some common grounds there. But what about "worker rights". Western societies insisting that the Chinese should not work for more than 48 hours a week is not level playing field; that's just an excuse for imposing what is acceptable in one culture on the other. On balance I would argue that the level playing argument should only be used in very few cases where there are global implications like pollution.

@Deepa - I don't buy the argument for support to "undeveloped" countries. If they are efficient, they can compete on their strengths like price. That's how China sometime ago, or Vietnam now, competes. The parts of Africa that create competitive advantages (for eg the flower trade in Kenya) succeed handsomely. The ones that are basket cases have other problems; free trade is not the culprit.

Vishal said...

Somehow I feel that fair trade is dependent on free trade. Fair trade may be just a piece of concept if trade is not free. Chances are that free trade would ultimately create more grounds for fair trade.

On a second thought, if at all there is a market for absolute fair trade, it would depict all the traits of free market too. Seems complicated though!

Vishal said...

Btw I might be having that floppy disk but don't know where would I find compatible drive to get access to it ;)

Ramesh said...

@Vishal - Yes complicated. The problem is that fair means fair to me, but not to you. So restrictions. So, getting away from free trade.

Keep the floppy. In 50 years it would be worth a million as an antique !

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