Quote: Originally Posted by captain morgan
I suppose that the real question is: How do you define fair?
There are apparently two different facets of fair trade which seem to be a result of free trade criticism. I don't commit to endorsing these ideas, but they are interesting to discuss.
The Dependency Thesis
Proponents of fair trade maintain that trade between and among nations occurs in coercive and uneven ways. Even if nations trade freely, smaller nations become increasingly reliant on richer states, whose interaction with smaller countries depletes natural resources in those countries, and slows their progress. Dependency theory has many variations, and has undergone changes over several decades.
Here are the basics. Richer, powerful nations are collectively known as the "core," while LDCs and other very poor countries are known collectively as the "periphery." Dependency theories entertain the idea that periphery states depend for their well-being on the core. The core produces more luxury goods, while the periphery specializes in basic and industrial goods. Although there are many putative mechanisms driving the dependency - some of them highly disputed even among dependency theorists - the general theme is that such a dependent relationship exists, and is ruinous to the LDCs.
F.H. Cardoso and Enzo Faletto published Dependency and Development in Latin America
in 1969, the first academic statement of dependency theory. In it, Cardoso and Faletto argue that "economic development has frequently depended on favorable conditions for exports." Argentina in 1900 looked economically very similar to the United States of 1900, but Argentina's growth was severely depressed when compared to U.S. economic growth over the twentieth century. Cardoso and Faletto attribute this decline to unfavorable terms of trade relationships for Argentina.
Later versions of the dependency theory hold that governments mismanage money, while private investors regard the Third World as risky investment. So, the Third World finds itself perpetually disadvantaged. John Gray of the London School of Economics argues in False Dawn
: The increased interconnection of economic activity throughout the world accentuates uneven development between different countries. It exaggerates the dependency of ‘peripheral' developing states such as Mexico on investment from economies nearer the ‘centre', such as the United States. Though one consequence of a more globalized economy is to overturn or weaken some hierarchical economic relationships between states - between western countries and China, for example - at the same time it strengthens some existing hierarchical relations and creates new ones.
Dependency theory ultimately maintains that the terms of trade between center and periphery nations is unbalanced and therefore unfair.
Alleviation of Poverty and Human Dignity
Fair trade advocates maintain that nations that have limited export opportunities become poorer, and hard-working individuals and their children struggle to meet basic life needs. Fairtrade.org argues that trade introduces an exploitative mechanism which impoverishes those in the Third World: "Particularly in the field of trade, our area of attention, the law of the strongest is frequently the only law. In Asia, Africa and Latin America, both male and female craftsmen and farmers know all about this. If they cannot free themselves from the grasp of the numerous middlemen and buyers, who from their position of power prescribe the lowest prices, they will remain slaves of circumstances their entire lives."
According to the principles of fair trade, the prevailing terms of trade between rich and poor nations are unjust because prevailing market prices for the goods produced in the Third World are too low for the laborers to reap a wage reflecting their dignity.
Nobel Prize winning economist Amartya Sen, in Development as Freedom
notes another problem of poverty: Many of the same people who have small incomes also have deficiencies in the ability to convert those incomes to useful life pursuits. In other words, there are "unequal advantages in converting incomes into capabilities." Sen continues, "the interpersonal income inequality in the market outcomes may tend to be magnified by this ‘coupling' of low incomes with handicaps in the conversion of incomes to capabilities."
Poorer nations are thereby perpetually punished even further as they are less able to efficiently use the income they accumulate. Fair trade organizations take up the project of buying products from Third World producers at supracompetitive prices - prices that exceed the equilibrium price, as a form of poverty alleviation.