The myth of fair trade

Fair trade is an increasingly politically popular idea, and opponents of the free market see it as a moral way to fix market abuse. Proponents of fair trade argue that free trade favors developed countries or bigger corporations and that steps should be taken to correct the balance of power to ensure equitable outcomes. However, fair trade fails to work because of misplaced grievances toward the free market.

The idea of fair trade rejects the free market as a viable mechanism for the facilitation of goods and services. Fair-trade supporters argue that the free market does not lead to equitable outcomes and therefore is not suitable for modern society. In effect, they essentially argue that the free market does not lead to outcomes that they would prefer. Barring coercion, the free market presents the best opportunity for producers and consumers to seek deals that they both find to their individual benefit. An exchange requires two willing parties, ensuring that neither party is involved in trading unless they wish to. While there may be circumstances in which one party has greater bargaining power than the other party, this does not cause an exchange to become immoral as long as it was completely voluntary. Fair-trade organizations often fail because they seek higher prices for the producers they support. This prices them out of the market since consumers seek better deals on similar products.

Supporters of fair trade also argue for “fair prices.” They consider the purchase of products from developing nations at low prices to be exploitative and argue for these products to be paid for at higher prices. These supporters argue that consumers from developed countries ought to pay more and that producers from developing countries should be paid more than they are already because of inequality. Once again, the fair-trade movement labels outcomes it does not personally like as exploitative. It states that free market prices are too low and prolong the suffering of those from developed nations, but free market prices are always necessarily fair.

A product being placed for sale at a particular price implies that the producer values the amount of money he receives in the exchange greater than he values the product. Similarly, the purchase of a product at a particular price implies that the consumer values the product greater than the money that he pays to buy it. Therefore, a free market exchange leads to a trade that benefits both parties as they trade something they value less than what they receive. This can hardly be considered “exploitative.”

Fair-trade programs are also notorious for pricing out the producers they support as the programs’ certification and compliance protocols add costs toward the producer’s operations. This can be particularly disastrous as companies from developing countries are competitive in global markets often because of their low price points. Therefore, taking away from or minimizing their biggest advantage does not and has not boded well for free-trade initiatives.

This isn’t to say that fair trade certification is completely useless, as it can be of value in a free market scenario. Consumers who are happy and willing to pay more for products certified by a fair-trade organization ought to be able to do so. However, the general ineffectiveness of these programs without government help can be attributed to their misplaced hatred of the free market and the subsequent errors they commit as a result. They aren’t ineffective because their competitors are more ruthless or exploitative but rather because they ignore economic reality in favor of pushing outcomes they find preferable.