Twenty-three years ago I was in my first semester of the M.B.A. economic development program at Eastern University. I took a required class that exposed us to development theories and presented case studies on development efforts from around the world. It was a semester long immersion in futility. The class had its desired effect. I’m ever haunted by how easy it is to make things worse and how hard it is to foster sound economic development.
Today, many Christians motivated by concerns for compassion and justice are looking for ways to use their economic influence to help the poor. A very popular approach is to support fair trade goods. Fair trade coffee is probably one of the most popular examples. My own denomination (Presbyterian Church, U. S. A.) is deeply involved with Equal Exchange through the Presbyterian Coffee Exchange. The aims are noble and inspiring. But having developed a skeptical eye early on, I’m always compelled to ask if a strategy like this really works.
Recently my cyber-friend and economist at Henderson State University, Victor Claar, wrote a small book Fair Trade? Its Prospects as a Poverty Solution. Claar begins the book by presenting a brief overview of the development and the dynamics of the modern coffee industry. Two economic issues that feature heavily are the inelasticity of both supply and demand, and the low barriers to entering the coffee growing business. These two combine to create a volatile industry.
Next, Claar presents a brief history of the fair trade coffee movement and how it is intended to work. That is followed by a chapter that examines whether or not fair trade coffee can work as intended. In short, based both on the way fair trade coffee works, and based on the intrinsic dynamics of a commodity industry with low barriers to entry, he concludes it cannot. In fact, paying select farmers a premium price can actually lock those farmers into production of commodities (ex., coffee) that they should be abandoning for more profitable products while simultaneously drawing other farmers into a market who would be better served by growing other crops. To understand the details of why this is so, I encourage you to read the book.
Claar concludes with a chapter on how we might respond. He offers some helpful perspective but I strongly resonated with this paragraph:
Speaking more generally, when poor countries grow rich, it rarely has anything at all to do with how many mouths they have to feed or the abundance of natural resources. Instead, across the globe, poor countries of all sizes, climates, and endowments begin to grow rich as two key factors increase. First, countries grow rich as their human capital improves. Human capital is the term economists use to describe the value that a country’s people possess through their accumulated experience and education. For example, there is little doubt that India’s recent growth explosion is due in large part to the education – including the knowledge of the English language – of its people. Second, countries grow rich as they invest in and accumulate physical capital: the machines, tools, infrastructure, and other equipment that make the product of each hour of physical labor more valuable.
That which both human capital and physical capital share is that they both transform the result of an hour of a person’s hard work into something of greater value. As the value of an hour of labor rises, employers gladly pay higher hourly rates, knowing that their bottom lines will be the better for it.
If we want to be effective agents in aiding the poor, we should focus our efforts in directions lending enhanced value of an hour of labor … (57)
Amen! Claar goes on to mention microlending efforts by organizations like Kiva as just one avenue, but there are others. I know of churches that are developing relationships with communities in emerging nations to learn from indigenous brothers and sister how best to make their resources available to them.
When I was approached by Victor to review this book and write a foreward, I was more than happy to do so. I appreciate the book’s irenic tone and the affirmation of concerned Christians trying to do the right thing with their economic decisions. But I also appreciate the concise clear analysis Claar brings to evaluating the effectiveness of fair trade. If fair trade is a topic that captures your interest, then I highly recommend that you become acquainted with this volume.