Fair Trade is Fraud. And Getting Worse.

FairTrade does not help the people it claims to help.

And, interestingly, it damages almost everyone else in poor countries.

Russ and I discussed it some time ago.  We proved, as always, prescient.

It does, however, give rich white people a chance to feel good about themselves, at a convenient price.

A nod to ML...

Fair Trade Kerfuffle

I am on record as being a Fair Trade Skeptic. (I admit that Fair Trade is human- caused, but I am not sure that is melting the polar ice caps).

Interesting article from NYTimes, normally a big Fair Trade cheerleader ("If you want to get laid, support Free Trade! Yay, team!")

Excerpt:

Critics accuse Fair Trade USA of watering down standards, perhaps motivated by the bigger fees to be earned from certifying a higher volume of products. Some sellers of fair trade products fear that small coffee farmers will lose market share to the big plantations and that companies will have an incentive to include only the minimum amount of fair trade ingredients in their products.

“It’s a betrayal,” said Rink Dickinson, president of Equal Exchange, a pioneer importer of fair trade coffee, chocolate, tea and bananas, based in Massachusetts. “They’ve lost their integrity.”

Paul Rice, chief executive of Fair Trade USA, said the fair trade movement was dominated by hard-liners who resisted needed changes. “We’re all debating what do we want fair trade to be as it grows up,” Mr. Rice said. “Do we want it to be small and pure or do we want it to be fair trade for all?”

He dismissed criticism that his group was seeking to increase revenue for its own sake. “The more we grow volume, the more we can increase the impact” of fair trade, he said. In 2010, companies that sell fair trade products paid the group $6.7 million in licensing fees, which are meant to pay the cost of auditing a company’s production to make sure its fair trade claims are accurate.

As part of his efforts to expand the fair trade designation, Mr. Rice is cutting ties between his group and an umbrella organization, Fairtrade International, which coordinates fair trade marketing activities in close to two dozen countries. He said his group paid outsize fees to Fairtrade International — about $1.5 million last year — and received little in return. The international group has also rejected the changes put forth by Mr. Rice.

“The best thing we can do is make sure we’re staying true to the principles that got us to where we are,” said Rob S. Cameron, the chief executive of Fairtrade International. “I’m not going to water those principles down.”

The brouhaha has surprised many companies that sell fair trade products and will soon be forced to take sides. For consumers who pay attention to where their food comes from and how it is produced, the result could be confusion as they try to sort through a proliferation of competing fair trade labels with differing claims.

Heh, heh heh. He said "brew-ha-ah." About Fair Trade coffee. That's funny.

Fair Trade Revealed As Feel-Good Hoax

I have for some time been a basher and hater of "Fair Trade," in coffee and other commodities. In fact, as far as I'm concerned, Russ Roberts and I podcastrated the whole issue nearly four years ago. Sarah Marchmont wrote a very fair-minded article about it.

Here is the basic economics--a rent is being created: a price above market price is being charged. In countries where property rights, contracts, and rule of law is tenuous, feel-gooders and scam artists have put together an unholy coalition. The feel-gooders create something called "Fair Trade" certification, which means that the farmers get paid well above market price for the coffee they produce.

Not surprisingly, many farmers want to get in on this action. But less than all can be certified "fair trade" recipients, since a price that much above the market price would create a surplus. The fair trade feel-gooders would never be able to sell the glut of coffee if EVERYONE gets fair trade certification.

So, the feel-gooders stick their fingers in their ears and shout "LA-LA-LA-LA-LA" and pretend that their partners the scam artists are doing the right thing when they hand out the "fair trade" certifications.

But remember that these are countries with little rule of law, and shoddy police enforcement. So what the scam artists in effect do is sell off the rent (the high price of fair trade certification) to the highest bidder.

The result is that, after a fairly short period, three years at most, the "fair trade" farmers are getting no more, and maybe less, than everyone else, and no more than they got before the "fair trade" scam was started. The scam artists, it's true, are skimming the profits, but the competition to become a scam artist then becomes the valuable commodity, and rent-seeking to get to be the guy who certifies "fair trade" then also dissipates THAT rent. Some government official in the country, the one who licenses the guy who licenses the guy who certifies "fair trade" farmers ends up sucking down the rent.

Consumers pay more, and feel good about themselves. The feel-gooders who started the program move on to abuse some other group of farmers with false promises. And the results are a substantial increase in dead-weight loss.

Don't believe me? Article in the National Post, by Lawrence Solomon, founder of Green Beanery in Toronto, a suburb of Buffalo.

And the German study that really reveals how it all works. In fact, as the Hohenheimers note, the certification process is so corrupt many don't even bother, and just mislabel the coffee as "fair trade" from the get-go.

All you need to know to figure out why "fair trade" and similar feel good programs are dumb is have lunch with Bob Tollison once, and have him explain what rent-seeking is. Or you can read this, I suppose, though Bob is a better bet. (Dr. Henderson gives a nice short history.) The point is that once you understand rent-seeking, you can PREDICT that stuff like "fair trade" won't work. It can't work. And it doesn't work.

UPDATE: Dalibor Rohac has a nice piece on same subject. Thanks for the tip, DR!

Stupid is as Stupid Does

"The Fair Trade Challenge to Embedded Liberalism"

Sean Ehrlich, International Studies Quarterly, December 2010, Pages 1013-1033

Abstract: The embedded liberalism thesis, a major component of the trade policy literature in political science, argues that governments can build support for free trade by compensating economically those hurt by trade, usually with welfare or education policies. This strategy depends, though, on opposition to trade being driven by employment factors, such as job or income loss because of increased competition. The current fair trade movement raises many non-employment criticisms of trade such as concerns about the environment and labor standards but the literature tends to treat these concerns as traditional protectionism in disguise. This article argues, instead, that for many, these concerns are sincere and that this presents a growing challenge to the compromise of embedded liberalism. The article demonstrates this by examining survey data in the United States and showing that those who support fair trade tend to have characteristics that are opposite those who support economic protection.

A clear problem with democracy. Idiots who are racist or homophobic get to decide employment and marriage policy. And idiots who have no idea how an economy works get to regulate the economy. Democracy is overrated.

(Nod to Kevin Lewis)

Soy un perdedor

Markets in everything: Sovereign barter edition

The North Koreans want to pay the Czechs back in ginseng!

I am not making this up.

For their part, the Czechs are holding out for Zinc.

Is sunburn really a worse problem than lack of sexual vigor in the Czech republic?

Live and learn.

Fair Trade Coffee? No, Thanks!

Chicago just passed a stupid law.

Article on why it was stupid, according to me.

The City of Chicago passed a resolution this month supporting fair trade efforts in the city, but critics say there’s more to the fair trade story than most consumers realize.

Mike Munger, chair of the political science department at Duke University, said the concept of fair trade – which certifies businesses for paying workers a living wage and observing social and environmental criteria -- isn’t always successful. “It probably succeeds close to half the time,” he said.

People don’t want to hear that because they want to feel better about themselves, Munger said. “It’s just not true, the premise is not true.”

One problem is an imbalance when too many companies go for certification in one product – say, coffee – and that drops the price and also keeps farmers from growing other crops.

Another problem is where the money goes.

Several studies demonstrate that a middle man may be the real winner, Munger said. Consumers are paying middle men more, not the worker. The money can be dissipated somewhere before it gets to the worker, he said, possibly in paying bribes for certification.

Obtaining fair trade certification is expensive, and there’s no way to prove that the workers are the ones reaping the benefits of the premium prices the consumers are paying, Munger said.

Check this. Unbelievable.

A podcast on Fair Trade

An article in England, with a remarkably self-hating man commenting.

A guest blog post, and also my best shot at explaining why Fair Trade is idiotic.

"Fair trade" raises costs to consumers. Worse, it enslaves the people it claims to help, with the invisible chains of artificial subsidy, and arrested economic development. If it pleases you to think of happy natives, living primitive lives, just go rent a BBC documentary, and let the market work.

A dedicated follower of fashion

Or, every girl crazy 'bout a sharp dressed man.

Or in this case, a weirdly dressed billionaire.

People, Warren Buffet is endorsing men's clothing. Successfully. Yikes!!

Take a gander, as they say in Iowa, of this picture of Warren with a homeless man:

Hard to believe that an endorsement by him would cause a Chinese clothing firm's stock to go up by 70%, it less than a month, but it did according to this story.

Everyone thinks Warren is such a great guy, but there he goes sabotaging America by increasing our trade deficit.

The Culture that is Germany VI

I am having a hard time believing that this one is real:

"German police said on Monday that they have arrested one of two British men suspected of selling bags that they said held laptops and mobile phones but which in reality contained potatoes.

Authorities believe the pair tricked around 40 people in two German states driving around in a car with British number plates, convincing them to hand over cash for the electronic hardware but giving them spuds instead.

A shopowner in Hildesheim near Hanover telephoned the police on Friday after becoming suspicious -- he had read in the paper about swindlers in a right-hand-drive car -- but the two men left the scene.

Later the same day in the same town the two men were attempting to sell laptops to a group of people that included, unfortunately for them, someone who had come across them before and who then also rang the police.

"The police were quickly at the scene but the two suspected con men fled ... They sped down Kaiserstrasse in their metallic green Opel, going through several red lights and endangering other road users," police said.

The 32-year-old man was arrested after the chase ended but the second man, aged 20 and whom the police have since identified, was able to flee on foot despite being trailed by a police helicopter. They believe he may be armed."

All this seems impossible but the article says "around 40 people" were tricked. Which leads me to wonder: Do laptops in Germany usually come in bags? Are they ovoid and lumpy? Are German mobile phones 4-5 inches thick and do they smell like dirt? Who buys a "bag of mobile phones" without looking in the bag first? What about a reverse scam, where you sell people "bags of potatoes" that actually only contain mobile phones?

Markets in everything, antique cellphone edition

Here's the deal:

"Got an old Nokia 1100 sitting around? You may be sitting on a fortune... albeit with a catch.

Certain circles are said to be paying upwards of $32,000 for the handsets, at least those made in Nokia's Bochum factory in Germany.

Why? According to reports, the criminal underground has found a way to hack into the phones' firmware to allow for illegal bank transfers by reprogramming the phone number on the handset.

Changing the phone number would give hackers the ability to send and receive text messages via the handset, which would in turn open the door for completing basic bank transactions, particularly in Europe."

As always, a big hat tip to LeBron for the meme

Do androids dream of electric cigs?

"With its slim white body and glowing amber tip, it can easily pass as a regular cigarette. It even emits what look like curlicues of white smoke. The Ruyan V8, which produces a nicotine-infused mist absorbed directly into the lungs, is just one of a rapidly growing array of electronic cigarettes attracting attention in China, the U.S. and elsewhere — and the scrutiny of world health officials.

Marketed as a healthier alternative to smoking and a potential way to kick the habit, the smokeless smokes have been distributed in swag bags at the British film awards and hawked at an international trade show.

Because no burning is involved, makers say there's no hazardous cocktail of cancer-causing chemicals and gases like those produced by a regular cigarette. There's no secondhand smoke, so they can be used in places where cigarettes are banned, the makers say."


I am pretty sure that nothing can go wrong with a product that sprays atomized nicotine down your throat. Kudos to you Ruyan Group LTD. Full story is here. FYI, according to the AP "Ruyan" means "like smoking". It doesn't say in what language.

Fair Trade

Our good friends over at Adam Smith Institute Blog were kind enough to publish a post of mine, on "Fair Trade."

For more on the effects of REAL commerce on "primitive" peoples, see Tyler Cowen's excellent book, "Creative Destruction: How Globalization is Changing the World's Cultures." He really nailed it, with lots of interesting details.

My own conclusion:

"Fair trade" raises costs to consumers. Worse, it enslaves the people it claims to help, with the invisible chains of artificial subsidy, and arrested economic development. If it pleases you to think of happy natives, living primitive lives, just go rent a BBC documentary, and let the market work.