All the ire at banks and multinational companies by dangerous communists and anti-globalisation hippies is misdirected. They should reserve their venom for the rustic rich-world farmer living the life of Henry David Thoreau. They are the new robber barons.
Every economist, expert and commentator I’ve seen seems to be flummoxed (and mildly panicked) about food inflation. The question on everyone’s lips is, “What can be done about high food prices?” The answer to that is fairly simple. I asked Thomas Carlyle’s parrot to explain.
Price is a wonderful number. It contains a lot of information, and alerts both producers and consumers to a variety of facts. Examine each of these signals, and you’ll have a fairly good idea whether a perceived problem really is a problem, and if so, what public policy prescription might help.
The first point to make is that the solution to high prices is high prices.
Prompted by the debate David Bullard tried — but probably failed — to stir (as I argued on Friday), I wrote a short opinion on colonialism, which I reckon is worth posting separately. Thanks to Dawn for the comment that prompted this thought.
My own view on colonialism is that it was a logical development in a world that had until then been isolationist and mercantilist. At the time, trade with enemies or foreign countries was often embargoed, subject to high tariffs and duties, or simply forbidden. Establishing friendly trading colonies was a necessary step on the way to building global trade.
Though deeply marred by illiberal practices such as corruption, annexation, slavery and war, such practices do not negate the mutual benefits of trade expansion, which was the primary purpose of colonial expansion by the major economic powers. One could argue that some (though far from all) colonial trade was involuntary, and that some colonialists did not respect the property or political rights of indigenous peoples. Inasmuch as this was the case I’d agree that an honest case for “mutual benefit” cannot be made, but then, inasmuch as this was the case, the trade wasn’t free at the time.
These are among the reasons that colonialism would always have to be superceded, and why it couldn’t be anything other than a step towards a freer, more modern world in which the benefits of trade can be enjoyed by all its citizens. However, that it did expand the world’s horizons and build the world’s institutions to a level at which capital could be more efficiently deployed and resources more efficiently harnessed, is hard to dispute. Without the expanded production base created by growing trade, I doubt we could have supported the unprecedented population growth of the 20th century. In fact, I doubt that growth — and the concomitant growth in global prosperity and quality of life indicators — would even have been possible without growing global trade.
That we’re in a better world now than under a colonial trading system is indisputable. The advance of liberty is always an improvement in society, as is the growing sophistication of governments, markets and the institutional structures that support it.
That a colonial trading system was a useful step on the way to today’s increasingly free and prosperous world is perhaps more controversial, and whether its benefits exceeded its obvious costs is less immediately clear. But it’s a debate worth having, if only so that in focusing our efforts on an increasingly free and prosperous future, we can learn valid lessons from our less free and prosperous past.
No less an orator than president George W Bush of them great misunderestimated United States, trotted out this line in an address to the Economic Club of New York just now. He promised to strongly promote his free trade proposals, and spoke eloquently against isolationism and protectionism — sentiments that I, as a foreigner, cheer.
This raised a laugh:
It makes no sense to deny capital, including sovereign wealth funds, from access to the US markets. It’s our money to begin with. It seems like we ought to let it back.
Proof that seven years of regular practice can make a moderately competent speaker out of anyone.
“What developing countries need is to develop, not to have their present conditions of life and work preserved like a museum exhibit,” writes Janet Daley in a column prompted by a report that finds “fair trade” to be fundamentally unfair. Thanks to Alex Matthews, over at the excellent classical liberal blog AfroDissident, for alerting me to his own post on the subject. (Granted, he did so two weeks ago, but I have been very patchily connected, thanks to the electronic-frying power of blackouts.)
As you glide along the supermarket aisle past the smartly packaged Fairtrade coffee and guiltily slip the cheaper arabica into your trolley instead, you may ask yourself how much good your overpriced purchase of the Fairtrade stuff would have done anyway.
Well, now you know. Today’s report from the Adam Smith Institute [summary here, or full report in PDF here] will probably confirm your suspicion: Fairtrade labelling is largely a marketing ploy, which makes clever use of the almost infinite capacity for guilt harboured by the residents of wealthy countries over the condition of those in poorer ones, even though that condition is, in no rational sense, their fault.
But rational thinking does not come into this: you and your heaped shopping trolley represent wealth and security, which you have a vague but pretty firm notion that the people who harvest the coffee beans do not have. So maybe you are persuaded to make a gesture: a small strike against “exploitation” and global greed and (if you are old enough to remember this epithet) “corporate capitalism”. And you feel better about yourself.
It transpires that a very small number of farmers are getting a subsidised fixed price for their produce under Fairtrade franchises and that this is at the expense of most other farmers in their regions, who are actually worse off as a result.
But even more serious, the Fairtrade operation helps to keep poor countries and undeveloped economies exactly that — poor and undeveloped.
By sustaining agricultural activity that would not otherwise be sustainable in the global marketplace, it keeps backward populations from developing other forms of modern economic activity that might help them climb out of their backwardness. In order to permit wealthy people to indulge in a bit of sentimental largesse, it effectively preserves an anachronism that locks some of the poorest people in the world in backwaters of primitive economic existence.
What developing countries need is to develop, not to have their present conditions of life and work preserved like a museum exhibit. And the greatest aid to real development — and the proven route out of mass poverty — is through free trade, not Fairtrade.
All of which should cause us to reflect on the various misuses of the word “fair”, and its even more pernicious noun form “fairness”, as it is bandied about in political discourse. As received opinion has it, “fair” means “equal” - in the strict literal sense of the word. Distribution of wealth in a society is “fair” if nobody has much more than anybody else - however much harder they may have worked, or however singular and disciplined their talents may be.
The corollary of this is that taxation helps to ensure “fairness” by seeing to it that those who earn more than others have more of their income confiscated. On this formulation, disparities of wealth are inherently wicked. This is a moral philosophy that you may or may not find attractive. But if you do, you will have to accept that it is fundamentally totalitarian. Disparities of wealth are a sign of a dynamic free-market economy in which some sectors are invariably expanding while others contract: at any given moment, some people’s lot will be improving ahead of others’.
[…]
It is ironic that the very same people who are committed to the idea that “fair” must mean “the same” talk endlessly about “opportunity”. Nothing is a greater killer of opportunities than uniformity.
[…]
How have we come to accept such vindictive uses of the word “fair”?
Of course it was initially the fault of the Left and its special pleading lobbies, which — like some Fairtrade promoters — had a lot to gain. But the Right has been complicit: it has surrendered words like “fairness” and “opportunity” — and accepted caricatures of other words such as “selfish” and “greedy” — with scarcely a murmur of dissent.
Romantic notions of the noble savage, of the beauty of the supposedly traditional pursuits of poor people, are very common. Many developing countries actively play into this misguided view Westerners have of them. I cannot count how often I’ve seen beadcraft workshops in South Africa, as if this is the route out of poverty, or wire sculptures in museums, as if simple crafts are thereby ennobled. The only effect of indulging this romantic, condescending image of Africa is to create an industry that produces singularly uniform curios that delight clueless rich people. Absurdly tall wooden giraffes may be a wonderful way to part a fat prat from his dollars, but it is hardly the best route out of poverty.
Do read the full report (PDF), it’s worth it.
In fairness, here’s the rebuttal by the Fairtrade Foundation. It may not surprise you that it finds the report to be utter rubbish, motivated by evil agendas.
It says, “Releasing this report when thousands of people are trying to make a difference to global poverty by promoting Fairtrade products, is an insult to the effort and commitment of Fairtrade producers and their supporters in the UK.” Ag shame. Good intentions are so, well, good.
“Moreover, the opinions in this report will be rebutted by the producers themselves during Fairtrade Fortnight…” Well sure, but those producers are of “the very small number” cited in the Adam Smith Institute report. Besides, they comment on only a very limited fact: that they get paid more for their coffee. Of course they’re going to say that’s a good thing. They’re hardly likely to consider their personal windfall in the context of the macro-economic impact on development.
“Those of us who have had the privilege of seeing and hearing at first hand the difference that Fairtrade makes to poor communities are not going to be persuaded otherwise by the rehashing of simplistic economic theories.” Indeed. Economic theory has seldom stood in the way of socialist, statist, collectivist or protectionist preachers. Especially not when there’s money to be made from gullible saps.
Update:A fellow calling himself Angry African posted this link to his own post about Fairtrade as a comment to this piece over at the Mail & Guardian Online’s blog site.
It’s well worth a read, especially since it claims Fairtrade not only charges consumers more for the label, but charges participating farmers for the priviledge of being Fairtrade certified. If true, Fairtrade starts to sound more like a protectionist cartel — no, worse: a protection racket — in the Proudly South Africa vein.
“Pay us and we’ll put our label on your products, mark it up sky-high, and give you a small kickback,” then comes to mean, “Pay us, or we’ll guilt-trip people into not buying your products, so you can be sure you won’t get your products to market in our rich countries.”
Pictured alongside is Lauren Bush, the niece of US president George W Bush. She made the news recently with a charity project called FEED. Each designer canvas bag sold will generate enough money to feed one child in the developing world for a year.
Good Magazine quotes her as saying: “I would love for [this] to be completely nonpolitical because I think it distracts from the real humanitarian point of the project.”
But that’s not good enough for Sky News, whose Adam Boulton spent most of his interview with the 23-year-old trying to trip her up over his own prejudices about her uncle. According to the Sky report:
However, the US is often seen by some as the main obstacle to helping the Third World in terms of world trade.
It has the largest economy but as a proportion of its wealth it does not give as much as some other nations.
Nevermind that this is irrelevant, ill-informed and uncalled-for editorialising. Nevermind that it confuses aid with trade. Nevermind that the US is the biggest global aid donor in nominal terms, is on a par with many others in relative terms, and that the Bush administration has increased aid commitments to Africa compared to previous US administrations. Nevermind that the US is the leading promoter of trade (as opposed to aid) in the fight against poverty. Nevermind whether trade should be preferred to aid. Nevermind whether simply dispatching an arbitrarily chosen share of gross national income on foreign aid is better or worse than spending less money more effectively. Nevermind whether throwing good money after bad in foreign aid is likely to address “Third World” poverty (as opposed to merely soothing the collective conscience of the rich). These weren’t the questions Boulton asked of Lauren Bush.
Instead, Boulton threw his own simple biases about the US president at his college-age niece, which strikes me as pretty low. If he’s going to bash Bush, why pick on her? Is she to blame for the public’s perception (or more accurately, the media’s lack of objectivity) about the US? Why would she have anything at all to say about US policy on foreign aid or free trade? Why not ask her directly under which conditions she believes aid works, and when she believes aid trumps trade in poverty relief? Why not ask her about her own project, instead of harrying her with cheap shots about her uncle?
When the activistreporter closed by asking why she didn’t want to go into politics, she tartly shot back: “Because of questions like these.”
That barb didn’t make it into the online version of the report. Well done, Ms Bush, for revealing the brave Bush-bashing Boulton as nothing more than an editorialising chicken-hawk who can’t handle being smacked down by a good-looking girl.
I just started reading The Pursuit of Reason, a history of The Economist researched and written over a ten-year period by Ruth Dudley Edwards and published on the occasion of its 150th anniversary in 1993. It’s a great read, and James Wilson, the founding editor, has a lot to contribute on the subject of free markets and free trade.
The paper was founded with the purpose of documenting the harm done by government tariffs, restrictions and subsidies, and arguing in favour of a laissez-faire political economy. It relied heavily on statistics and clear reasoning. It was uncompromising. Wrote Wilson in the issue of 13 February 1846:
The more we reflect upon the experience of the past — the more we watch what is now going forward in this country, the more irresistibly are we brought to the conclusion that the only functions which a government can exercise with advantage to society are those connected with the maintenance of order, the peace and security of life and property, and the raising of the necessary funds for those objects; and, moreover, that whenever a government or the legislature step beyond those simple duties, they do so at the hazard of doing much more mischief than good.
Since I’m laid up in bed with a rather annoying flu that managed to switch off both body and mind, I figured I’d pass the time and break the silence with links to the half-dozen most popular posts on my blog, as per Google Analytics. They represent a gratifying mix of subjects, ranging from the environment to economic theory, from social networks to media freedom, from silly bureaucrats to great press photographs. In order of popularity:
Of these, my own favourite is the Kevin Carter piece. Like the item on William F. Deedes and the post on Isambard Kingdom Brunel (and the follow-up column it sparked), they reflect the pleasure I take in history and the great people that populate it.
The annual Economic Freedom of the World index for 2007 has been published. Zimbabwe isn’t exactly a winner, but South Africa’s performance is merely average. According to the report:
The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to compete, and security of privately owned property. Forty-two data points are used to construct a summary index and to measure the degree of economic freedom in five broad areas: (1) size of government; (2) legal structure and security of property rights; (3) access to sound money; (4) freedom to trade internationally; and (5) regulation of credit, labor and business. This year’s index includes a number of new components based on the World Bank’s Doing Business ratings.
South Africa’s score rose slightly, but it slipped to 60th in the rankings, from 54th in 2006 and 36th in 2005, as other countries overtook it and new countries with higher scores were included among the 141 evaluated. The report is copublished by the Cato Institute, the Fraser Institute in Canada and more than 70 think tanks around the world.
The Free Market Foundation (FMF) launched the report at separate events in Johannesburg and Cape Town today. I was unable to attend, but the organisation’s executive director, Leon Louw, said in a statement:
After impressive gains from greater political and economic freedom achieved in and after 1994, SA’s overall economic freedom score has stagnated during recent years, although there have been significant changes in individual components in the index.
This year’s report notes that economic freedom remains on the rise, and also confirms that it is contagious — albeit not as highly as some would like to think. “Countries ‘catch’ about 20% of their average geographic neighbors’ and trading partners’ levels of, and changes in, economic freedom,” argue the authors, Russell S. Sobel of West Virginia University and Peter T. Leeson of the Mercatus Center at George Mason University. According to the announcement:
The average economic freedom score rose from 5.1 (out of 10) in 1980 to 6.6 in the most recent year for which data are available. Of the 102 nations with scores in 1980 and in the most recent index, 90 recorded improvements in their economic freedom score, and just nine saw a decline. In this year’s index, Hong Kong retains the highest rating for economic freedom, 8.9 out of 10, followed by Singapore, New Zealand, Switzerland, Canada, United Kingdom, and the United States.
Zimbabwe, which isn’t a failed state according to its ambassador to the US, is ranked dead last, behind Myanmar. “[Prosperity, security, freedom and life expectancy] are part of a fundamental base needed to build a free and prosperous nation. A quick glance at the countries scoring lowest on the index quickly shows that without economic freedom, especially protection of property rights and the rule of law, there is little individual freedom and little in the way of prosperity,” said Temba Nolutshungu, Cape Town director of the FMF.
South Africa’s scores in each category changed as follows:
The full report is available from the Cato Institute or the Fraser Institute. Eustace Davie, a director at the FMF, discusses the report in an article of the week. Because this link may not last, I’ll reproduce the full text below the fold.
I often say, in connection with issues such as foreign aid, state subsidies, or celebrities stumping for Africa, that the road to hell is paved with good intentions. Good intentions alone do not justify policy. The consequences of policy are what matters.
This observation cuts both ways, however. This editorial by Gregory Clark, author of Farewell to Alms: A Brief Economic History of the World, uses the same aphorism, and then, ironically, proceeds to illustrate the point.
Neil Blakey-Milner asked the following, in response to my previous post on fear of trade with China and protectionism. It’s a good question, worthy of a detailed response.
What should a country do about imports from countries that are known to be or highly suspected of using child labour or other forms of “slave” labour or other techniques that are banned by that country?
First, let’s stipulate that only a small fraction of the trade that ends up being restricted by tariffs or other forms of protectionism is, by this standard, objectionable, and that this fraction represents an extreme-case scenario. I’ll focus mostly on child labour in my response, but similar arguments go for other forms of labour policy on which prosperous nations frown.
Let me first try to be somewhat specific: Africa, not Asia, has the highest child labour force participation rate in the world. According to UNICEF, almost one in three African children work, while the corresponding figure for Asia is one in five. That Asian statistic is not much worse than that in Latin America or the Middle East. Why China should be singled out for censure is unclear to me.
Moreover, child labour below the age of 16 is illegal in China. The International Labour Organisation recommends a minimum working age of 15, and China has ratified the relevant convention. So the problem is not one of legal labour standards either.
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