How to Improve Fair Trade: #4

4. Producers have access to financial and technical assistance

This principle also assumes that a producer’s rights are more important than a buyer’s rights.  This is not fair.  Many low-income buyers also find themselves in economically disadvantaged positions.

Furthermore, a person or a small group will have to receive a position of authority in order to decide who will receive financial and technical assistance.  Whoever is in this position will be the target of producers and special interests that wish to receive preferred status.  There is no reason to believe that these people will be any less targeted than the current politicians or that, over time, these interest groups wouldn’t find there way into these positions themselves to make what decisions served them best.

Also, I am having a hard time seeing the difference between this principle and the current subsidy system.  Subsidies are meant to help out producers in need and the current subsidy system has been overtaken by special interests, which has, in turn, raised the prices for local buyers and greatly disadvantaged low-income farmers abroad.

How to Improve Fair Trade: #3

3. Buyers and producers trade under direct long-term relationships

Buyers and producers are unique individuals.  Each industry, from coffee farming to fishing to metallurgy to textiles to tourism etc., is also unique.  All of these industries must take into account different factors, from weather to preferences to buying cycles, and they must do so with limited resources.  There are an uncountable number of ways a trade relationship can be arranged with all of the different possible variables. 

To only support ‘direct long-term relationships’ presumes that someone has a better understanding of all these special trades than the buyers and producers who are closest to their products and trades.  First, let’s consider ‘long-term relationships’ using a textile producer who produces a fabric that quickly experiences a change in demand; let’s say the fabric goes out of fashion.  In this situation, a long-term contract would benefit the producers, as they would have no one else to sell their product to if it wasn’t for this long-term relationship.  The buyer would be stuck buying a product in which there was no longer any use for.  In this case, this principle favors the producers over the buyers.  The buyers will be hurt.  Similarly, if other conditions were present, the producers could also be the ones hurt.

Second, I am unsure what is meant by ‘direct relationships’.  There are many scenarios where direct relationships are not beneficial.  Do we ever wonder why vending machines have a slot for a quarter rather than one slot for the farmer’s bale of hay and another for the shoemaker’s leather shoe and so on?  Money is a technology that works wonderfully at saving us from the burden of the millions of direct relationships we would need to establish all throughout the global village in order to live a typical day.

Another example of the benefits we receive from indirect relationships is a supermarket.  Why do we go to the supermarket instead of establishing a relationship with an apple farmer a vegetable farmer a sugar plantation a wheat grower and so on?  The number of direct relationships necessary to fill a shopping cart with just the daily necessities would be amazing.

Favoring only one form of trade relationships is not fair.  With the plurality of the global village, it is silly to assume that only one type of relationship can exist between buyers and producers.  Choosing one relationship as the best favors people who fit the model of this one relationship and discounts any relationship that may try to differ.  There are many external events that can favor one side of this relationship over the other, including weather conditions, trends and inflation.  I am concerned that people in the ‘fair trade’ movement don’t think that buyers and producers are intelligent enough to make these decisions on their own.

How to Improve Fair Trade: #2

2. Forced labor and exploitative child labor are not allowed

Neither are they respectable on a worldwide scale.  No country’s people or system of trade advocates for these conditions.  Unfortunately, these conditions exist and we can’t just wave a magic wand and make them go away.

Simply not allowing something is a very poor way to go about dealing with a problem.  It immediately rejects any small steps that may improve the situation from where it currently is but not solve it completely.  It is also unreasonable to assume that these conditions can be reached without passing through many of these small steps.

For example, let’s take a family in poverty that has barely enough resources to evade starvation and no access to daycare or clean water.  What is more exploitative, the situation where the children in the family work and help the family continue to survive or the regulation that says that they are not allowed to do this?  Of course, the current ‘fair trade’ movement does not advocate blocking these families’ only means to survival, but it doesn’t take a very close look at the feasible available alternatives.

Some people say high-income countries should send money to the low-income countries, though the problem doesn’t end there.  Money isn’t everything.  These people also have to learn how to sustain a lifestyle outside of poverty.  Many of the countries where this is a problem don’t even have institutions or governments that can offer a sustainable environment, free from special interests and war.  A discussion about the best way to solve these problems has been tied up in bureaucracy for years and no agreements have been reached.  While this debate continues, we need to ask again, what is more exploitative, the situation where the children in the family work and help the family continue to survive or the regulation that says that they are not allowed to do this?

I do not wish for unnecessary child labor, nor do I think a mother who is living in poverty would put their child to work if it were not necessary, but by denying poor families from opportunities they have we are not trying to solve problems that exist, but problems that we would like to exist.  Denying opportunities to families in poverty and their children, even if they are marginal and not up to our own society’s standards, is not fair.

How to Improve Fair Trade: #1

1. Producers receive a fair price - a living wage. For commodities, farmers receive a stable, minimum price.

I am concerned that this principle assumes the buyer does not deserve a fair price - a living purchase.  A voluntary trade involves two parties, the producer and the buyer.  Both share in the transaction because they think they will be better off after it takes place.  They both agree on a living price.

Let’s take the example of a coffee farmer.  If a buyer spends less on the goods provided by one farmer, they the buyer has more to spend on the goods of another farmer or on another industry, such as purchasing a mobile phone or clothing.  These other industries also employ low-wage workers in semiconductor and textile manufacturing.  The choice to support one producer would be the choice to favor that producer over others in the same position.

Also, this argument doesn’t acknowledge that people are unique and may value commodities differently.  Where some people might love the latest fads and trendy music and be willing to pay a ton of money to have these items, others consider these items to be trite and unnecessary and wouldn’t spend a dime on them.  The same is true for coffee and other products.

Consider if the price of $100/lb was decided upon as a ‘fair price’ for coffee.  Clearly, a coffee farmer whose beans were once enjoyed by low-income buyers would no longer be able to sell his coffee to these people.  Now, $100/lb is an exaggeration, the real fair ‘fair trade’ price may just be $1 dollar or $2 dollars more than the initial price.  But the same principles hold.  Some low-income buyers will no longer be able to purchase this type of coffee because it will move out of their price range and others will have less money to spend on the goods of other producer’s who might be in a similar low-wage position.

Thus, by the standards set in this first principle, ‘fair trade’ favors certain producers at the cost of others and favors producers over buyers.  This is not fair, nor does it leave fairness to be decided by merit but by favor and privilege.

How to Improve Fair Trade: #0

Trade should be fair.  And as an advocate for fair trade amongst nations and people I must express concern about the current premises in the ‘fair trade’ movement.  The arguments in support of ‘fair trade’ are specious, favor special interests and hurt small businesses and low-income buyers.  On top of this, human nature is perceived to respond differently to incentives based on whether the person is acting as a buyer, producer or a worker.  These arguments must be reanalyzed because, in their current state, they are nothing but a mockery to fairness.

Over the coming week, I will take the 8 principles that Global Exchange lists to be the pillars of “fair trade” and raise some concerns on why I think they are inadequate in framing the discussion about fair trade.

Productivity replaces No-productivity

The Power of Productivity, an excellent book by William W. Lewis of the McKinsey Global Institute has recently served as a marvelous lead for contemplation while on the bus here in Ecuador.  The bus, similar in shape and function to any bus you may now have as an image in your head, was driven by a man and his two sons while three other people collected money, arranged luggage and ran through the streets looking for riders.  It doesn’t always require six people to operate a small bus down here, but it is often more than I am used to and this example serves to draw out the productivity juxtaposition here.

It would be fine if you want to compare this experience to a bus experience in a higher-income country such as in Europe or the US, though I am going to continue with a more precarious contrast.  Google recently released the beta version of a program that guesses what web pages you are going to visit (from your past habits), preloads them (while you are using the web for other things), and then records how much time it saved you by having the pages preloaded. 

Lewis writes about a 12-year microeconomic study of several countries that he carried out that does an exceptional job at explaining how activities of higher productivity replace activities of lower productivity, and also exposits how excessive regulation and big government lead to lower levels of productivity.  Lewis beleives one major ideological differences between countries which reflect these atributes is the respect of consumer preferences over other special interests.  (Here is a related post on blogs and consumer power.)  I will be posting more ideas on these topics soon.

Networks and the Semantics of War

Thomas Friedman says that supply chain relationships will prevent wars.  Anyone know how many jobs the US has outsourced to the Middle East recently?  It seems Russia is discussing outsourcing uranium enrichment with Iran.

Rock stars are also using social relationships to find prosperity.  (For some more contemplation of networks, Grant McCracken tells a story about how two Russian mathematicians got involved with digital images of unicorn tapestry.  If Part I peaks your interest, there are 5 more parts to follow)

John Mackey also speaks up on collective relationships involving the freedom to choose.  Check out his new business paradigm.  He talks down on profit maximization assumptions of free-market economists.  I see it more as a semantic debate over agreed upon relationships, though the environment may be right for a euphemistic shift.

It seems not all business have been taking this into consideration while outsourcing.  Some countries don’t even take it into consideration when creating an institutional structure.

Understanding Innovation

I would listen to this three times, at least.  Clayton Christensen’s Capturing the Upside podcast helps to explain everything from how Linux will disrupt more mainstream operating systems, where photovoltaic panels and voice recognition software will find their leverage to greater market share (through Mongolian marketplaces and Lego robots), and even how his own Harvard Business School is threatened by crappy, low cost competition.

From Dollars to Alpaca, Informal Markets Thriving

Is dollarization or improved printing technology leading to more counterfeiting throughout Latin America?  Or perhaps it is more intrinsic in the structure of their institutions and culture in these countries.

Here’s an interview on Peruvian women in the informal economy who are joining trade unions.  I wonder how much they think about the economics of unemployment in their negotiations?  Government concern for the Alpaca trade has led to a questionable program to put microchips in the Alpacas ears in hopes to keep good wool local, even though it is valued much higher abroad.

In other places, some are trying to change incentives on the informal market.  India has implemented a VAT that includes hopes of stunting the informal market for mobile phones.  This opinion discusses some features of the value added tax, including how it cuts into informal markets.

Loveboat with a Timecard

Outsourcing to international waters to avoid H-1B visa regulations.  Countries are just arbitrary, time-sensitive definitions anyway.

Copyright Communists and the Commons

Another of the Forbes rich listers is spamming copyright offices around the world:

Bill Gates is an intelligent man who has done a great deal of good in the world. So when he gets caught out in a bare-faced lie this should matter to all of us; and last week, when he called the opponents of American intellectual property law a "communist" movement he was encouraging a mistake that could impoverish the entire world.

Read more on the war against copyright communists.  Also check out Creative Commons who is leading the movement of sharing creativity with their ‘some rights reserved’ copyrights and encouragement of things like the up and coming music sampling commons, Mixter.

Yahoo! has even put out a beta Creative Commons search engine, so tally up on how easy home recording is these days and if you’re feeling entrepreneurial, turn your Mac Mini into a recording studio and, to Gates’ spite, head for the communes.

High Price. Lots of Incentive

The drug war appears not to be having much of an effect on cocaine sales in the US.  Although Colombian cocaine traffic has been reduced by 22%, Bolivian production has increased by 17%.  The price remains steady or lower than historical levels.  Read here or here.

Fractal Finance and Business School

A great lead from Alina at Totalitarianism Today discusses randomness and rationality in markets through fractal finance.  And in a bout of rationality, a vermont businessowner bought a free-ride into a Dutch business school on eBay for $36,000.  Perhaps he’ll learn why Metcalf’s law. is a bit weaker than it was cracked up to be.

Latin American Universities

When The Times survey came out, Mexico’s UNAM university sent out ecstatic press releases to the media that resulted in headlines such as UNAM leads Latin American universities.

UNAM’s actual rank was 195 out of 200.  Nonetheless, there claims are true.  Read more on the survey and the struggles of Latin American Universities here.

Here’s Someone to Watch

Well, don’t say it wasn’t expected.  Hugo Chavez is heading forward with his plans of land reform in Venezuela.  Apparently, Chavez has promised to put an end to ‘idle’ latifundios.  That is, estates of 5000 hectares (12,350 acres) that aren’t being used efficiently.  You can take your guess at what efficiently may mean.  Especially when the land in question is 6.6 million acres of private holdings.

The claim is that there is too much land in the hands of too few people.  As the government hasn’t enforced property rights in the past, there should be low expectations to see a drastic change in the future.  In one case, where the government ignored demands to remove a few squatters from private land, the number of squatters grew to several hundreds, now equipped with housing settlements and yucca crops.

The wisdom behind these acts is best summed up by Chavez’s motives to "tax farms into productivity."  Unfortunately, such wisdom is having a hard time being implemented since the government doesn’t even have a registry of land ownership.  Hey, there’s a policy that might work for a start—respect of ownership!