catapult magazine

catapult magazine

Vol 1, Num 7 :: 2002.12.06 — 2002.12.19


Global trade and fair trade

The importance of consumer action

I am not personally opposed to globalization. On the contrary, I think this era of globalization we are in has the potential to greatly open up exciting new opportunities for the world’s citizens.

But with these new opportunities come new hazards. Global trade is one of those double-edged swords. For example, global trade allows me to eat wonderful fruit I couldn’t eat otherwise, like nice, juicy pineapples and bananas. The other side of the sword, though, is that I am entirely disconnected from the production of those bananas. As a consumer in the world of global trade, I am only expected to shop around for the best price for a given quality of product. So, I go to my local grocery store and buy my banana, without a clue as to how it was produced and who produced it. This is very unlike most food I would have purchased hundreds of years ago, a high percentage of which would have been grown by myself, my neighbors, or, maybe, people in neighboring communities.

Now, I am not about to mourn the loss of the neighborhood farmer’s market. I think globalization can give us many more choices, but we have lost something with the decline of our reliance on local production. No longer do we see the human or ecological side of production very well. What we see is abundance in our supermarkets.

Do we know how our bananas are produced? Our stuffed animals? Our shoes? Our shirts? Clearly, no consumer has the time to thoroughly investigate where and how the products they purchase are produced. However, we can get a pretty good idea by recognizing some of the basic elements of the global trade economy that is developing under World Trade Organization (WTO) principles. The global trade economy is predicated on the ideas of comparative advantage and specialization. Economists point out that we all have certain advantages in producing goods. For instance, Canada’s advantage might be in producing wheat because of geography and soil conditions, while Haiti’s advantage might be in producing sugar cane because of its unique geography and natural resources. As the theory goes, Canadians and Haitians are both better off if Canada specializes in wheat, Haiti in sugar, and they trade so people in both countries have more wheat and more sugar than they would if they each tried to produce both products separately.

The global trade economy is currently predicated on one major type of comparative advantage for many poor countries: low wages. Haiti, India, Pakistan, Nicaragua, China, Indonesia, and many other countries that host an enormous percentage of the world’s population have an almost endless supply of cheap labor: people desperately trying to avoid starvation and meet the most basic of their needs. And, let there be no mistake about it, there are thousands upon thousands of producers in this global economy that are gravitating to these countries to take advantage of this comparative advantage. As any introductory economics textbook will tell you, a standard assumption of firm behavior is that firms are motivated by the desire to maximize profits. You don’t need to be an economist to see that countless firms motivated precisely by this desire are relocating or beginning operations to manufacture and produce goods ranging from all types of food products, to clothing, toys, appliances, and many other consumer goods. Any product that requires unskilled labor to assemble or produce is a prime candidate for production in one of these many poor countries with the comparative advantage of cheap labor.

Defenders of this process point out that when people in poor countries specialize in these repetitive and mundane types of work, they are doing the best with what they have to offer. They don’t have much to offer to the market (because of their lack of skills and education) so why shouldn’t we (as a global trading community) take advantage of the little they do have to offer. It makes them productive, and allows them to contribute. Their earnings then allow them to purchase import products that they could not otherwise have access to—computer technology, for instance, which could then be used to train and educate people for other higher level and more rewarding tasks of production. The wealth they accumulate through this process could then be used to further develop other comparative advantages. For instance, India, despite being one of the poorest countries in the world, now has a thriving computer programming industry, a significant source of comparative advantage.

Whether or not this theory of trade based on comparative advantage leads to the socio-economic development of poor countries is a matter of empirical research. Since the global trade economy is well in progress, this is something that we would do well to monitor. Unfortunately, this theorizing about economic development sometimes prevents us from asking the hard questions. The most challenging moral question, in my view, is whether we should be building and strengthening a system that admittedly is based on the shifting of unskilled production to poor countries with extremely low wages and poor working conditions. Indeed, this type of production is encouraged under the global trading system because it exploits the comparative advantage of countries and represents an efficient allocation of resources.

Why is this a pressing moral issue? In short, because it provides a strong incentive for producers to bring the wages, labor, health, and safety standards of production to the lowest common denominator. Under the current global trading system, companies are rewarded by consumers for production with the lowest costs for a given quality of product. A direct effect of this is that many employers are not particularly concerned about whether wages can sustain a decent living (or even meet basic needs) or, in many cases, if basic health and safety laws are upheld. In fact, there is an incentive to set up shop in places where there is lax government enforcement of health, safety, environmental and labor standards. All else being equal, why would a company set up shop in a country that imposes a living wage standard, or a country that fiercely protects the right of workers to organize in unions? These sorts of things would raise the cost structure for firms, and therefore be less appealing.

So, what is the alternative? I think the answer may be found in developing some way to fight those pressures to produce at the lowest common denominator. We need to raise the bar. As consumers, we need to create an incentive for corporations to pay more heed to decent standards of production. Yes, we can work harder for government enforcement of minimum wage laws, and basic health and safety standards, but the reality in many countries is that governments do not have adequate resources to do this work, are not interested in it, or are pressured by corporations not to act. The strength of consumer action, is in its ability to directly affect the incentive structure facing corporations.

Consider McDonald’s. When producing its chicken McNuggets, McDonald’s has a natural incentive to obtain chicken at lowest cost. Because of the vast quantity of chicken demanded by McDonald’s, producers around the world have an incentive to raise their chicken as cheaply as possible without much regard for the welfare of chickens, or perhaps, environmental quality. The net result is that we get very cheap McNuggets, but at a serious cost. Among other problems, chickens are raised in a factory setting, where they are crammed into cages with virtually no room for movement. However, McDonald’s received pressure from activists to demand more. Specifically, activists took a small step and argued that chickens ought to have more space in their cages, believing that, as a matter of basic animal welfare, an animal ought to be able to at least move around a little. McDonald’s recognized the importance of this pressure, and made a change in its chicken purchases. McDonald’s demanded the chicken it purchased would come from farms where chickens had more space to move around. It hasn’t changed the world, but it was a place to start.

Consider the example of Equal Exchange, a major fair trade organization. Through the work of Equal Exchange, a growing number of consumers have rebelled against global trade that reduces production to the lowest common denominator. Through the marketplace, consumers have said they want their coffee and other products to be produced in a way that is socially and ecologically responsible. Through their purchases, these consumers have said they care about whether producers have livable wages, they care about whether or not coffee production is destroying the local ecology, and they care about whether the wealth generated from coffee production leaves a poor country or stays within.

Consumer behavior does make a difference. Consumers who want to fight the lowest common denominator tendencies of global trade can work through a variety of fair trade organizations. (See the Fair Trade Federation for more information). Fair trade organizations may play only a small part in the total global economy now, but think of the message we can send to other producers. By buying fair trade products, other corporations may begin to get the message that consumers do not want to buy soccer balls stitched together by nine-year-old Pakistani girls who should be in school. In the same way that green labeling gives consumers an assurance that a product has been produced in an eco-friendly way, we should work toward products that are socially friendly — in that they are made with a regard for decent health, safety, and labor standards. Fair trade organizations help us do that.

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