"Fair" Trade

[Toro]

Good article on "fair" trade

http://www.globalizationinstitute.org/publ...radejustice.pdf

The fact that economists overwhelmingly support free trade does not seem to stop the World Development Movement from making the truly remarkable argument that free trade is “discredited”:

"On international trade they [the Conservatives] remain wedded to a failed and discredited free trade agenda for Africa. Unfortunately this too they share with the Government. Overall there is very little to set the Tories and Labour apart on these key issues." (quote from the critics of free trade - ed.)

Members of the public who support the Trade Justice Movement must find it difficult to understand how something that is so discredited can be so widely accepted in Whitehall and Westminster. (Hahaha. Ain't that the truth! - ed.) Yet the truth is that free trade is only “discredited” among ideological campaigners and those who listen to them. Out in the global economy, free trade is the only trade policy that works.

The price mechanism is an important part of trade. It provides a signal to producers about what to produce. In the pursuit of profits, it provides an incentive to enter markets where they can make the most, and strive for efficiency and innovation. The Trade Justice Movement does not seem to care much for efficiency. They think efficiency causes poverty. This is unfortunate.

The constant desire by producers – in a free trade environment – to win customers encourages them to invest in new machinery and increase productivity. By increasing productivity and efficiency, prices are cut. As a result, consumers – including those in the poorest countries – are made better off. Moreover, increased efficiency enables wages to rise. The result is that during the 1990s, 81% of American companies’ foreign investment went to Western Europe, Japan and Canada. These countries have high wages, but because their workforces are highly productive, they win hands down over workers from sub-Saharan Africa. This contradicts all the claims being made by anti-capitalist campaigners about how Western firms only want to invest where they can pay ‘sweatshop’ wages. Africa’s share of world trade halved between 1980 and 2000. Despite having 10% of the world’s population, it now only accounts for 1% of world trade. This shows that trade is not a race to where wages and conditions are lowest.

Anti-free traders rarely celebrate on the winners. We hear a great deal about how certain coffee farmers are unable to compete, but we are never told to celebratethe success stories in Brazil (where farmers have mechanized) or in Vietnam where producers are very efficient. Both countries are catching up with the West. Nor do we hear much celebration of countries like Hong Kong or South Korea or the other Asian Tiger economies.

The fact is that free trade – through an invisible hand – encourages production towards the countries that are best at producing. I am not aware of any mobile phones being manufactured in Britain, because other countries are better at that. On the other hand, the intellectual design of the microprocessor in three-quarters of the world’s mobile phones comes from a company based in Cambridge, England. Traditional manufacturers in Britain have been decimated – and yet, we are a richer country that at any point in our past, and there are more jobs in Britain than ever
before.

It is a mistake for governments to assume that trying to keep everyone in traditional jobs is good for a country. While the Trade Justice Movement likes the idea of a static world where everyone stays producing the same things, those countries that do well are those that are continually changing and adapting to market signals. This is what increasingly China is doing and that is why it is growing.

Why is Africa Poor?

Western protectionism is not a principal reason why Africa is poor. Nor is Africa poor
because of colonialism. After all, many former colonies have prospered (e.g. Hong Kong,Singapore, New Zealand, Australia and Canada). Meanwhile, Ethiopia (except for six years) has been independent for forty centuries. ...

Africa is poor because of bad government. Key is that fact that Africa is undercapitalized: there is not much investment occurring. This is because most people do not have legal title over their property. Thus, in many African countries it is impossible to mortgage a home to gain the capital to create a business. For markets to operate, legal structures are necessary and many African countries are lacking these. Corruption and bureaucracy literally robs the poorest in Africa. Land reform – whether in Ethiopia in the 1970s or in Zimbabwe more recently – has caused starvation. Wars kill off a valuable economic input – labour – and create massive instability.

Tribal politics prevents the best from succeeding in life. But Botswana has shown the way. Through good governance, over the past 35 years it has grown faster than any other country in the world. “Yet,” says Robert Guest of The Economist, “cabinet ministers have not awarded themselves mansions and helicopters, and even the president has been seen doing his own shopping. Exchange controls were abolished in 1999, the budget has usually been in surplus (though this has slipped recently), and GDP per head tops $3,000.” That is not bad for a country that was one of the world’s poorest when granted independence in 1966.

 

[BaronVonBigmeat]

I think it's interesting to note that Korea and Taiwan were literally at the same level as some nations in africa, right after WWII. The asian countries started moving to free trade and capitalism, the africans (I forget which nations specifically) moved towards socialism.

The point about property rights is huge, too. One of these days I'm going to get around to reading my copy of [ame=http://www.amazon.com/gp/product/0465016154/102-7793993-9633742?v=glance&n=283155&s=books&v=glance]The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else[/ame], which is an entire book devoted to explaining why 3rd world countries are stuck in poverty. It also simultaneously demolishes the silly myth of the left that 3rd world countries are examples of laissez faire run amuck.

 

[Said1]

I think it's interesting to note that Korea and Taiwan were literally at the same level as some nations in africa, right after WWII. The asian countries started moving to free trade and capitalism, the africans (I forget which nations specifically) moved towards socialism.

The point about property rights is huge, too. One of these days I'm going to get around to reading my copy of The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, which is an entire book devoted to explaining why 3rd world countries are stuck in poverty. It also simultaneously demolishes the silly myth of the left that 3rd world countries are examples of laissez faire run amuck.

This is a pretty good read too [ame=http://www.amazon.com/gp/product/0393318885/103-0614431-0225453?v=glance&n=283155&s=books&v=glance]The Wealth and Poverty of Nations[/ame].