Free Trade vs Fair Trade

August 04, 2012 0 Comments

So, if I want a new shirt, is any one shirt better than another (ethically speaking)? Or should I prefer one type of coffee or chocolate over another? While you read this post, I want you to keep two questions in mind:

1) Why do people buy the things they buy?
2) Why do businesses provide the goods and services that they do?

For those of us that live in western society, we have both the luxury and burden to choose what we purchase. We are generally not told what to wear, what to eat, where to live, etc.

For this freedom of choice, we can thank a philosopher by the name of Adam Smith, the man who developed the modern idea of a free market economy. He answered the questions I posed using the metaphor of an “invisible hand” that would guide what was produced and provided.

Most simply described, Smith’s “invisible hand” theory states that if everyone would work to prioritize their own self-interest, they would automatically fulfill the needs and desires of others. Every person would aim to produce or provide products and services that were in demand, thereby making a profit from which to live. If everyone would work to do this, Smith predicted that society as a whole would be better off. He thought that if a product was desired, it would be created; however, if that product was not made well, someone else would improve upon it in order to compete with the original provider.

As I studied this economic theory in college, I was bothered that Smith so readily assumed everyone interacting with the market is doing so both legally and ethically. As many of us understand, this is often not the case. One need only remember the now well-known Enron scandal, or recall the child labor indictments against many clothing and shoe companies over the past decade to be convinced of this unfortunate truth.

One recent attempt to combat the free market’s potential for unjust business practices is the Fair Trade movement, an initiative proposing to guarantee fair labor practices, protection of the environment, worker rights and a livable wage standard when providing work to a labor force overseas. This has led to the recent “free trade vs. fair trade” debate which will be discussed in the remainder of this article.

If you are unversed in this debate, I will briefly summarize it here. Those who reside on the “free trade” side of the argument believe that the free market produces the optimal result in regards to international trade. Those in favor of free trade would say that companies are paying a fair wage for labor because they have offered a price that was accepted; if it was an unjust offer, the producers would have turned it down.

Those on the side of “fair trade” argue that this is not good enough. Just because we can hire workers overseas for such a low wage does not mean that we should. Just because workers will accept low-paying jobs, work long hours, utilize unsafe equipment, offer their children for employment, and surrender basic human rights does not justify the right of companies to exercise such low standards.

Imagine this scenario: My shirt company goes into a village and offers them work. The village doesn’t have any other option for work, and people are doing their best simply to survive. Perhaps these villagers are scrounging together $3 a week doing dangerous or unsanitary labor in order to feed their families. The company sees this and offers them a job for $0.10 an hour for forty hours a week. This will result in $4 a week earning potential. Therefore, they are better off—by one dollar and a 25% increase in wage. Most likely the villagers will accept this work because it is better than what they had. Is this okay? What if it costs $6 a week to keep the family healthy and the children in school?

As far as I can tell, there is no definite, objective cut off for what is fair and what is not. If there was, there would be no issue. It would be obvious what the best ethical conclusion would be and injustices would be easier to point out and reconcile. However, as there is not, many have sought to seek out perceived injustices in order to work toward a solution.

I have wrestled with the issue of mistreatment of overseas labor for quite some time, and I have found two things that are important to consider at this juncture. First, not all (or even most) companies act unethically. Second, when the companies that do act unethically make the decision to do so, it is because of a skewed values system that is, unfortunately, encouraged by the society that buys their product.

So what is this values system?

It is the simple desire to gain the most bang for our buck. For far too long we have operated in the free-market with the assumption that a good society results when we can buy the most amount of goods for the cheapest possible price. In fact, we are so used to the availability of cheap goods that we almost seem to consider access to them a right.

I believe this is causing us to tread on fairly thin ethical ice in many instances. The good news is that, according to economic theory, the market can be changed at any time by those who interact with it. There are two ways in which this can occur: first, products that are created, distributed, or used unethically can be boycotted. If this is done, companies must “change their ways” if they wish to continue making a profit.

Simply put, if a product that is created unethically is boycotted, there can be no market for the product, therefore no one will buy it. If no one will buy the products, then there is no incentive or benefit in creating the products. Thus, the product will cease to exist.

The second way to change the market is through a “buycott” - buying those products that are created ethically, even though their prices may be somewhat higher, and then finding methods of living with less materially—knowing that the things you do possess were created by businesses that value their workers and pay them fairly. This practice is very similar to government taxes and subsidies. The government heavily taxes what they want less of (i.e. cigarettes) and heavily subsidizes what they want more of (i.e. solar panels and other desirable advances in technology).

In order to change unethical business practices, we (like the government) must advocate for what we want more or less of with our dollars. We must be conscious of what we are supporting by spending money on goods and services.

I am an advocate of the free market system because of its potential to produce a good society if our “self-interest” were to include the best interest of others. Maybe “self-interest” doesn’t have to be limited to getting the most goods for the cheapest price. Maybe it could include

treating everyone involved in the process justly and with care.

Those who like what the fair trade movement is offering would like nothing more than to see the movement pass away. These people would like to see no more need for a free market alternative because the free market is operating at the same standards of the fair trade movement.

Until we get there, the Fair Trade standard is acting as a tutor/regulator, helping us along the way toward an economic system that will value the highest good; treating others the way that we desire to be treated. Fair Trade is a set of principles that, when acted upon, creates a rubric to measure the sustainability and social responsibility of our corporations. It is not a system we would advocate should replace the Free Market but rather teach it how to evolve into a better version of itself. Until the Free Market can catch up, however, it is the responsibility of the consumer to care for the unseen laborer, artisan and producer and to demand that those employing them do as well.

By Joseph Roberts, JBU Student and Yobel Intern Summer 2012