Fair Trade and Poverty: Not Quite a Panacea?

picture: Lily, Flickr

Consumers’ choices make the world go round as they influence the decisions of influential multinational companies and international politics. This process is constantly reinforced by the effects of globalization, with decreasing transportation costs and the continued facilitation of communication. These processes led to a system in which the production chain is often not transparent to the consumers anymore. The label in the clothes does not suffice to explain the origin of a product in our times. As economist Petra Rivoli explains in her book “The Travels of a T-Shirt in the Global Economy”, published in 2009, “Made In China” is really only half of the truth. Where has that led us?

Critics of globalization gained momentum when in 2013 a garment production building collapsed in Bangladesh. Subcontractors of famous companies as Mango or Primark ignored safety risks in order to win the competition for the lowest production prices among the developing countries. This incident showed how the weakest links in the most complex production chains are often exploited. Health and economic risks are kept in the poorest countries while profits accumulate in the hands of shareholders of the Global North and often corrupt local elites. The prosperity generated only seldom benefits the working force and countries such as South Korea and China are rather viewed as the exceptions that prove the rule. However, we Western consumers profit greatly from these low-wage workers as well. At this sight, what are the measures that can be taken in order to mitigate the consequences of our actions?

Governmental subsidies for poor families, which help them break the poverty trap, can be an instrument of change. The poverty trap is a concept that explains how poor farmers are not able to save money for investments in the future. This can mean that children have to work instead of going to school to lift the family income above subsistence level. The lack of education will then carve in stone the further life career of the children as subsistence farmers. Only exogenous political projects are considered capable of breaking this cycle.  These can for example be cash transfer projects that have already proven successful in Latin America. A crucial point, however is their financing, as very few governments of the Global South have the capabilities to provide sufficient capital. Through political pressure governments of the economically dominant nations can be convinced to take their moral obligations seriously and increase foreign aid. However, the trend, especially in the US, seems to lead to the opposite direction and spending cuts on aid.

An individual, consumer-based approach could therefore be to take the problem into one’s own hands instead of pressing for political change. Fair trade is the over-arching concept for these approaches. There are new markets evolving as brands who build onto the fair trade idea, certification organizations and initiatives in the economically poorer countries spring up like mushrooms. Fair trade is booming in most European countries, displaying resilience to the economic crisis. What does it boil down to? The consumer takes the conscious decision to pay more money than he would have to for a similar product. The extra surplus that is generated should then profit the low end of the value chain, the part with the least value-added. Dependent on the sector, this will benefit sewing workers or farmers who often found cooperatives to negotiate together and organize themselves more easily.

This is an alternative way for consumers to counter the poverty trap of the producers. As parents earn more than world market prices or free market-driven wages would allow them to, investments that lead to higher productivity can be implemented. As a coffee producer from Costa Rica puts it: “Free trade is not responsible trade. […] Fairtrade is the way trade should be: fair, responsible and sustainable.” His community managed to produce more ecologically friendly and improve the infrastructure in the region, facilitating trade though lower transaction costs. However, there are also problems with fair trade. Despite the certification process it often remains opaque where the extra money spent ends up. It has been calculated that in some cases not more than 20% of the additional money spent actually went to developing countries. As is often the case, fair trade is a brand that allows businesses to earn money and will therefore be used as such.

Fair trade does not abolish the partly exploitative structures of the international trade system. It is a way of actively redistributing and thereby alleviating the unpleasant consequences our economic system can produce. It might be seen as comparable with giving money to beggars. You help individual people but you don’t fight the root problems causing the poverty in the first place. What is it that remains then? Fair trade will certainly not be a panacea for global poverty issues – it is no revolution. What the bottom billion needs are large-scale policy changes that have to be put in place by international political entities. Nonetheless, fair trade can help to minimize casualties on an individual day-to-day basis on the way to a global political solution.


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