Fair Trade Unfair to Elves

Paul Collier's tough-minded book, "The Bottom Billion," rubs gruesome facts in the faces of lefties like me who pine for ever larger amounts of financial aid for the developing world, uncritically laud whatever upheaval erupts in the name of social justice, and deplore free trade as the root of all evil.  Which is to say that it's required reading for those who care about the fate of the sixth of the world's population stuck in miserable poverty. 

So the other day I'm finishing up the book when I came across this astonishing claim:

The price premium in fair trade products is a form of charitable transfer, and there is evidently no harm in that.  But the problem with it, as compared with just giving people the aid in other ways, is that it encourages recipients to stay doing what they are doing--producing coffee.

Happy fair trade month, Whole Foods shoppers!

I commend Collier for taking aim at any number of sacred cows, but fair trade?  Must every virtuous and kind thing I do have awful unintended consequences? Yes! Collier continues:

Raising prices (albeit infinitesimally, since fair trade is such a small component of demand) makes it harder for people to move into other activities.  They get charity as long as they stay producing the crops that have locked them into poverty.

I divine three indictments against fair trade here -- a) it isn't "normal" commerce, but charity, b) it's ineffective charity, and c) what small impact it has keeps poor people doing the things that make them poor.  Each of these arguments, while clever, is wrong.

Pondering my relationship as a consumer to distant producers, my mind reels back twenty or so years to the nights my family would lounge around watching prime time television. In particular, the Keebler cookie commercials, which featured Ernie the Keebler elf captured my imagination. Keebler cookies are made by cheery, diligent elves inside of a tree. Assuring the viewer that their cookies are sweatshop free, the last line of Keebler's original jingle runs "They're baked in magic ovens, and there's no factory. Hey!"

There can be no doubt that since the elf campaign launched in 1968, many Keebler cookies have been bought because they were made by elves in magic ovens and hence, are "uncommonly good." Consumers pay a premium for cookies made by make-believe creatures when plenty of lower cost alternatives that taste just as good are at hand. 

Is this a charitable transfer to elves?  Worse, have we cookie consumers inadvertantly locked the elves into a retrograde tree-based production system? Obviously not. Collier assumes that given equal quality, the lower priced product will always win out, which may be true of a cattle auction, but not of branded consumer products.

It's a basic tenant of marketing that with any strong brand there's a constellation of associations and values bound up in the product being hawked that compel people to buy. In the case of Keebler, a certain number of kids are persuaded that the idea of a snack of magical origin adds value to the cookie experience. The only way to explain the 40% price premium on Polo tee-shirts is the waspy glamor the Ralph Lauren brand confers on the wearer.  Such ideas, while immaterial, figure as key product benefits for consumers.

The growth in the market for Fair Trade certified products represents the broadening of the consumer-driven definition of product benefits to include social values.  When somebody plunks down $3 more for a pound of Fair Trade coffee, they aren't looking to eradicate world poverty, they are paying for the right kind of coffee -- the kind that's harvested in an environmentally sound fashion by people who have been treated fairly. To observe that fair trade is ineffective charity is to misunderstand the inherently modest virtue of this bargain. Next the economists will tell us that buying a Harley Davidson motorcycle doesn't help the Hell's Angels.

Does Fair Trade hurt poor people in the developing world? Dig if you will the picture of Juan Valdez, a coffee bean picker in Colombia who gets either $1 a day for regular coffee or $1.25 for Fair Trade certified coffee.  Ask Juan whether or not he'd prefer to make 20% more for the same work.  But first, do the responsible thing and explain to him that by accepting more pay, he is dodging the truly abject poverty that might eventually drive him to find more lucrative work elsewhere.

Juan's choice, and the choice of a consumer calculating the social value of a fair trade purchase, couldn't be more obvious.  Leave it to an economist to suggest that the best way to help the poor is to make sure their suffering is as awful as possible.