Wed, 20 Aug 2003

Fair Trade

I don't know. I just don't think fair trade is very fair. A group of do-gooders picks some set of vendors who they think are being treated unfairly, and set out to treat them preferentially. How can this be fair, when some are treated better than others?

What is "fair", anyway? Let's look at the dictionary definitions. Do the people who want fair trade mean "marked by impartiality and honesty : free from self-interest, prejudice, or favoritism--a very fair person to do business with"? Probably not, since they specifically play favorites. Do they mean "conforming with the established rules : ALLOWED"? Probably not that either, since they seek to change the established rules. I think they mean this one: "consonant with merit or importance : DUE -- a fair share".

Using this definition -- a fair share -- doesn't help us much. Everybody wants the world to be fair, but nobody can particularly agree on exactly what is fair. Earlier, I wrote about price gouging. Everyone might say that price gouging is unfair, but everyone is wrong because they don't understand economics. They don't think, they just react. They notice that prices have gone up, assume the seller is getting an unfair profit, and run with it. Instead, they need to look at the existing situation. The seller is in possession of something suddenly more valuable. Why should "price gouging" be limited? Why should the buyer receive all the benefit of the increased value? Why does the buyer have merit and the seller not?

Fairness, then, is in the eye of the beholder. The more you think about fairness, the more complicated the issue gets. If you only help some, is that fair to the others? If you only help the seller and not the buyer, is that fair? If you favor the buyer over the seller, is that fair?

I don't mean to say that people should only base their decisions on price. You buy things because of their value to you, not their price. Similarly, people sell things because of their value, not the price they can get. A buyer will buy when the value exceeds the price, and a seller will sell when the price exceeds the value. By definition, an unforced transaction benefits both parties. The dancer who wants the pink tutu more than money is happy, and the former who wants the money more than the pink tutu is happy. Both have something they value more. Value has been created out of nothing. That is why unforced trade, peacable trade, free trade, is so powerful a force for improving the world.

What, then, of fair trade? Surely, you would think, if free trade is good, then fair trade is better. Maybe, but only if it's not forced -- that is, if it's still free trade. If you need to use violence to create fair trade, then by definition you have to coerce someone. They have to be coerced because they perceive an absence of the condition in the previous paragraph. They don't want the money more than the thing. Even though Alice is not dancing anymore, she still wants to keep her pink tutu. Or even though Betty wants to dance, she prefers to keep her money rather than get a dorky pink tutu.

Written into our constitution is the concept of fair trade enforced by violence. I refer to eminent domain. The Fifth Amendment says that private property shall not be taken for public use without due compensation. This isn't free trade, because the owner of the private property does not want to sell. It's fair trade because they are paid an amount of money which a judge agrees is fair. There's a ton of problems with eminent domain, which I don't want to get into right now. Suffice it to say that unwilling sellers usually don't agree that the price is fair.

So how would peaceful fair trade look? If you're using the power of government to enforce fair trade, then by definition your trade isn't peaceful. In order for it to be peaceful, it must be completely voluntary. In order for fair trade to be anything other than free trade, somebody must be making a contribution. Somebody must be kiltering the market in a voluntary way. In essence, they must be paying more for something simply because they believe that transaction to be more fair.

So, then, peaceful fair trade is nothing more than a marketing term for free trade. Instead of a direct trade of A and C, you have B intervening in the trade in some manner to make it more lucrative, or to increase the value. B might be acting as a wholesaler, accepting a price lower than their cost because they perceive their loss as increasing the fairness. B might be acting as a certification body, saying that the wood comes from plantations, thereby increasing the value of the wood in C's eye, and passing on those increased profits to A.

Voluntary and peaceful fair trade can only exist by offering extra value in a free market. That kind of fair trade is, well, fair. Any other kind of "fair trade" is as evil as the violence needed to make it happen.

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