Wednesday, May 5, 2010

Fairer trade or freer trade ?

“This house believes that making trade fairer is more important than making it freer” – this is the current live debate hosted by The Economist here. This blogger is a complete and unabashed fan of The Economist and subscribes to the view that it is the best publication in the world. The Economist debates are a fascinating discussion of very relevant issues and it would be difficult to find as interesting a debate on economics as between fair trade and free trade.

The context must be clearly understood. Despite all the tall claims made, the world is nowhere close to free trade of an acceptable sort. The bastions of free trade are all fiercely protectionists in their own areas – agriculture in both Europe and the US, and pretty much everywhere else in the developing world. Everybody wants free trade in other’s homes, but not in their own backyard. Tariff and non tariff barriers abound. The crawling pace of the WTO talks, which go on for decades is testimony to this, although it has to be said much has indeed been achieved.

Ranged against free trade is an assortment of all sorts of constituencies, ranging from noble social organizations to bleeding heart socialists. Their noise making capability being much higher, free trade is being tainted as a four letter word and blamed as the originator of much misery. Arguments against free trade range from exploitation of workers in the poor countries, loss of jobs in rich, threat to way of life in all sorts of places, inequality, etc etc. There is some merit and much bunk in these arguments.

What is fair trade anyway ? Fair to whom ? Fair to the producer or fair to the consumer ?

The value free trade has brought to so many millions of people is often not given the credit it deserves. Prices of almost every good or service is lower because of free trade and competition. Producing something in the best place it ought to be produced, makes both quality and price better. While the opponents of free trade propagate the cause of the producer (the poor French farmer who will lose his French way of life if the big bad beast of free trade is unleashed), nobody propagates the right of the consumer ; why should the average Pierre on the streets in Marseilles pay more to keep the French farmer in Brittany in cosy comfort ?

Think about this. All arguments of protectionism are made by people unable to compete. If they could compete and win, they would not be scared of free trade. They are scared of free trade because they do not offer the best cost quality equation. Therefore they want the guy who offers the best deal to be kept out because only then can they survive. So they want some poor sod of a consumer to subsidise them. For every compromise somebody makes on free trade, it is the consumer who is jacked.

This is an opinionated blog, of course. This blogger believes that the only fair trade is free trade.

But read The Economist's debate. The excellent Ngaire Woods makes a powerful argument for fairer trade. As does Prof Jagdish Bhagwati for free trade. I am delighted to say that at the time of writing this piece, 52% of those voting agreed with me. But it is indeed true that the Economist reader is no average Joe Public. If there was an open vote amongst the population, I am sad to say that not even 5% is likely to take this view.