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A Real Fair Trade Solution

I have routinely criticized “fair trade” schemes for perpetuating price distortion in the developing world (see here and here), and when doing so, I am routinely confronted by fair-trade shoppers who defend their purchases as a counterbalance to unfair agricultural subsidies.

My response: Why are you trying to battle arbitrary price distortion with more arbitrary price distortion?

Indeed, although the aims of “fair traders” are often noble (e.g. when “equality of outcome” doesn’t masquerade as “fairness”), their efforts would be much better spent tackling the real problems that impact economic development in the long term. If we’re looking for a game of Demolish the Western Privilege Machine, agricultural subsidies are a marvelous piñata.

Daniel Sumner sums the issue up nicely in a paper for AEI titled, “Picking on the Poor: How US Agricultural Policy Hurts the Developing World”:

“Farm commodity subsidies—including price and income supports—crop insurance subsidies, and disaster aid encourage US production and disadvantage farmers who attempt to compete with subsidized production from the United States. These programs stimulate more production when market signals indicate otherwise, which pushes prices lower when they are already low. The programs withdraw subsidies when prices are high, which allows prices to rise even more. Thus, US policies contribute to more variable prices in world commodity markets. Import protection and export subsidies, including export credit programs, have similar impacts. Demand-side subsidies and mandates, especially for bioenergy, also contribute to price spikes that severely affect poor consumers.”

And behold, although the current administration seems otherwise intent on promoting a host of false-start economic “programs” and “eco-friendly” boondoggles, they seem to at least be doing one thing that will lead to long-term, sustainable economic growth (HT):

“President Barack Obama on Monday proposed to end a “direct payment” subsidy that gives $5 billion a year to farmers regardless of need, as part of his larger effort to reduce the federal budget deficit. Direct payments, created in 1996 as a temporary measure, will be the largest farm subsidy this year and terminating them would be a dramatic re-shaping of the U.S. farm program.”

…The White House said the subsidy is “unnecessary” as more than half of recipients have incomes above $100,000 a year. In a blog, White House rural advisor Doug McKalip said elimination of the subsidy was common-sense reform.”

There is plenty of nit-picking we could do over what else needs to change when it comes to farm subsidies—and I suspect this is more of a publicity hat tip than a principled policy direction (sigh)—but we can at least do one tiny little cheer for the global poor, along with perhaps taking a minute or two to daydream about a sustainable economic future. It is, at the very least, a step in the right direction.

Likewise, the sooner that those concerned about farmers in the third world begin to direct their energy to the areas that actually matter, the better. Agricultural subsidies artificially choose winners over losers, similar to the way fair trade promises artificial prosperity (along with plenty of the former). The sooner we truly level the playing field, the sooner the poor in the developing world can follow (semi-) accurate price signals like the rest of us.

For the Christian, such an approach is imperative, as Victor Claar states in his book (and as I seem to be forming a habit of repeating):

I am convinced that real, long-term hope for today’s global poor lies in our united prayerful anticipation of the day in which we will no longer think in terms of “us” (wealthy Westerners) and “them” (the global poor). Instead, the question that should gnaw at us most deeply is how we can each be effective forces to bring about a world in which such a distinction is no longer relevant—a world in which all people share together, with enduring personal dignity and freedom, the blessings and rich abundance of God’s gracious and innumerable gifts intended for us all.”

Let the sharing begin, ye Big Ag Behemoth.