Notes for a Panel Discussion on Fair Trade

Annual Conference of the Fair Trade Movement; 9 October 2010.

Keywords: Globalisation & Trade;

Economists have spent over two hundred years thinking about how markets work. They have concluded they are not fair but in general they are effective. You get a sense of this by looking at the growth of the world economy over the last two centuries– the era of globalisation – for trade has been a major factor in the transformation.

In that time, average output per head – measured in the conventional way – has risen about nine times. Of course a nine times increase in material consumption does not mean we are nine times happier, but there is no doubt that generally individuals are better off from the nine-fold increase.

However the increase has not been shared equally. Output per head in Western Europe is about fifteen times higher, while Africa – the poorest of continents  – has experienced only a three fold increase. Even so, not only are Africans better off on this measure, but today’s average African incomes are higher than Western Europe’s were two hundred years ago.

So one may conclude that as a general rule globalisation has made even the poor better off . There are numerous caveats to this conclusion, and it certainly does not mean that every year they are. Sometimes some have experienced long periods of stagnation on this measure. It seems likely that Chinese per capita incomes were lower in the 1960 than they were in 1810.

What we might conclude from this is that we should not be trying to stop globalisation; rather the aim has to be to harness it – to make it fairer, sharing its benefits more equally, and to restrict other harms that it causes (such as environmental degradation). The fair trade movement is trying to do this, particularly by enabling people to trade more ethically.

As commendable as this activity is, I want to suggest it is not enough. But I want to also warn you that many of the proposals to improve the fairness of the system, may blunt its effectiveness and sustainability; an apparently fairer intervention may not always make the poor better off. While that is not true for the narrow fair trade movement –  as far as I can tell – it is a warning to those with a wider agenda.

Two hundred years of economist thinking and experience has shown it is darned hard to design better economic systems.