A general record of my ongoing battle with all forms of nonsense.

Tuesday 17 March 2009

Skeptics in the Pub – Unfair Trade with Dr Madsen Pirie

One way to judge a Skeptics in the Pub event is to count up the number of people sending emails praising the talk and multiply it by the number of people complaining about it.  By this measure, February’s talk on the Fair Trade movement with Dr Madsen Pirie was the top talk so far.

Pirie opened by talking about the “causes of poverty”, arguing that there are none – poverty is the default state.  Our ancestors for millions of years have endured almost nothing but poverty.  The question we should be asking in a time where so many people in the world are wealthy is “what are the causes of wealth?”  His answer was free trade.

Pirie talked as much about the benefits of free trade as he did about the problems caused by the Fair Trade movement, giving us all an overview of the basics of economic theory.  A quick summary of his points follows:
  1. By supporting farmers in countries such as Mexico where other opportunities are available, the Mexican farmers continue to compete with Ethiopians.  If the Mexicans changed work, the price of coffee would rise – supporting the world’s poorest farmers who can’t afford to change job.
  2. By giving a fixed price for coffee, there is no incentive for farmers to produce a higher quality product.  Producing quality goods is the most effective way of achieving a higher price.
  3. No country has ever escaped poverty through charity.  It has only been done through trade.  Pirie pointed to places like Hong Kong, Japan & Taiwan where they started off with poor sweatshop labour (a small step up from manual agricultural work) and steadily worked their way to wealth.
  4. That to fight poverty, we should buy as much as possible from poor countries – and campaign to remove the import taxes, quotas, and subsidies such as the CAP which have been so disastrous for the world’s poor.

I think Pirie could have done slightly better if he had also touched on the cost of joining the Fair Trade movement.  By charging manufacturers a €1,900 annual certification fee, they pretty much guarantee that the poorest Ethiopians (where the per capita GDP is US$316) cannot join in on the price-fixing cartel.  This explains why so many of the producers are in richer countries like Mexico.  With a per capita GDP of over US$10,000 the Mexicans are rich enough to afford it.

Want to help the world’s poor?  Me too.  That’s why I try to buy goods from producers that are so poor that they can’t afford to join the Fair Trade movement.

With a huge number of Fair Trade supporters in attendance a lively debate was guaranteed – and there was much misinterpretation of what Pirie was saying.  Many present seemed to be under the impression that Pirie was against helping the world’s poor.  It didn’t seem that way to me.  He was simply arguing that the Fair Trade movement was doing more harm than good – and that to really bring the world’s poor away from poverty, we need a method based on sound economic principles.  With Pirie tirelessly campaigning against import taxation, quotas and the Common Agricultural Policy - he’s shown he’s willing to put in the effort, not just talk the talk.

What was very interesting to see is the way some normally critical thinkers who are great fans of the scientific method abandon those critical faculties when it comes to the softer science of economics.  Sure, it seems unintuitive to think that paying more for a good or service will be detrimental to the world’s poor.  But its unintuitive nature is what makes economics, for me, such a fascinating subject.

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