I wish I’d listened more in ECON 101. But it was at 9 am, I was invariably hung over, and the class was big enough that I could just fall asleep, head on desk, without notice.
Cuz I feel like I really missed something important about why “free trade” often isn’t free. I don’t see its free-ness so much in the world around me.
On the other hand, listening to the constant drone of “hurray for free trade, down with fair trade” people makes me think I really didn’t miss much… Maybe I just wasn’t as heavily inculcated by the “free trade” drone cuz, you know, I was napping.
ECON 101 was really simplistic. Increase supply, and prices will go down. Increase demand, and prices will go up. The forces of the market regulate the prices, which fluctuate depending on supply and demand.
Apply that to coffee, and the simplistic argument goes: Farmers are just growing too much coffee. They need to realize that the market’s just not gonna pay ‘em good money cuz the supply of coffee exceeds demand. Thus, it’s “good” that these farmers are being driven off their land, cuz they should really be doing other stuff, not producing coffee. So quit yer whinin’, farmers and fair traders — farmers going broke’s a win-win situation for free trade!
What I didn’t get from ECON 101 is why it’s just the coffee farmers that’re suffering. Cuz the multinational companies selling coffee aren’t exactly hurting from this coffee glut.
You’d think that if green coffee beans became dirt cheap, some of that cheapness would translate into the final price for the customer — and cut into the profits for these big companies.
Ok — I know it’s more complicated than that, because a lot of what we’re paying for when we buy a cup of coffee in the US isn’t the coffee itself. We’re paying transportation costs, roasting costs, packaging costs, marketing costs, retail space costs, barista training costs, etc. etc.
Still, I’d think that a serious overproduction of coffee would have some consequenses for other parties in the coffee chain beyond the farmer.
Why don’t I see those consequences?
Note: I realize “free trade” and “fair trade” aren’t mutually exclusive, but I’m looking for answers in terms of the conventional definitions “free trade.” You know, the kind that’s anti fair trade.
My question’s simple, and not rhetorical — After all, “free trade” diehards often pride themselves in their simple, elegant solutions: What is the “free trade” explanation for why coffee farmers are suffering while no one else in the coffee chain seems to be suffering with them?
Curious to find out — Feel free to rail at me for completely misrepresenting the “free trade” side of the argument. Like I said, I think I must be missing something, cuz I just don’t get it.
Hoping I’ll have some answers by the time I get to San Francisco later tonight –
I think maybe, there is the assumption that “free trade” (picking up the example of coffee) operates in a perfectly competitive (or close to perfectly competitive) market. Unfortunately, we can’t really apply the free trade model to the coffee industry because the “powers that be” — corporations, roasters, etc — seem to be more oligopolistic in nature. At least, that’s what it seems to me to be problematic. I’m no econ expert so this could be completely irrelevant!
Comment by Adelin — January 27, 2006 @ 1:57 pm
I agree with Adelin. It seems to me free trade dogma is microeconomics based, yet free trade effects happen in the macroeconomic world where dozens of other important factors matter, too — concentrations of wealth, rent-seeking at the multinational corporation level, labor policies, etc.
I actually think free trade is generally a good thing to shoot for, but mainly between countries at similar levels of political development. Unfortunately, with the US regressing politically in so many ways, I may get my wish. Let’s *all* be banana republics!
Comment by Thomas Nephew — January 27, 2006 @ 3:05 pm
No, Siel, you have it right. I have a theory I’ve developed over several posts on my blog that neoliberalism isn’t an economic theory, but an ethical system (i.e., a system of ethics, not a system that’s ethical). It pastes “free” over the status quo, and concludes from this freedom that everyone has chosen to be where they are, and how dare fair-traders interfere in the natural order of things? Never mind that neoliberalism violates most if not all of Adam Smith’s requirements for a free market — especially the one about buyer and seller having equal bargaining power. In the real world, the one neolilberalism has built, corporations have vastly more bargaining power than either producers or end consumers, and that is why free trade is not really free at all.
Comment by esteban — January 27, 2006 @ 3:13 pm
Esteban; what he said.
Comment by Roger, Gone Green — January 27, 2006 @ 4:56 pm
Wow — Thanks for the insightful comments. Once I get back to LA, I’ll have to do some research on these oligopolies, just cuz it sounds so ollie and gopo and fun :)
In any case, it seems that there’s a general consensus here — that “free trade” may sound pretty in theory, but fails to take in many important factors that impact trade in the real world. And that unless these factors are taken into account and “corrected” — whether by fair trade or by other measures — “free trade” will continue to be unfair trade in real life…
Comment by Siel — January 28, 2006 @ 12:04 pm
I think a great place to start would be Eric Schlosser’s Fast Food Nation, or even his other book–Reefer Madness. He’s describing other industries, but it’s basically the same kind of economics at work, and he does a great job of describing what’s really going on.
Comment by NC — January 28, 2006 @ 1:55 pm
Err….
What’s a neoliberal?
Comment by ProgGrrl — January 28, 2006 @ 9:11 pm
Furthermore, in line with what Esteban said, it seems as though the free trade issue contravenes the notion of the invisible hand precisely because countries like the United States seek preferential access to markets via free trade policies.
And a tangent:
When the free trade agreement was signed between Singapore and the US a couple years ago, the US tried to bargain its way into selling chewing gum to Singapore, and I do believe they have succeeded.
The strange thing is, the chewing gum issue isn’t a free trade issue since no other countries have access to the Singapore market since chewing gum sales are banned in the country — no other country had preferential access to selling chewing gum in Singapore, since the island used to have a policy of “equal opportunity” exclusion. However, at present you can get chewing gum via a prescription from your dentist. And it will be American gum.
Comment by Adelin — January 28, 2006 @ 9:42 pm
ProgGrrl, “neoliberalism” is a term used more in Europe and Latin America than the US. It describes a current of economic thought that revises classical liberal economics – Smith’s markets – to the point where Smith would barely recognize it. In essence, it has made an art of using the language of free trade to chip away at our freedom. There’s more on my blog – but please don’t just read part 1, because that just lays the groundwork.
Comment by esteban — January 29, 2006 @ 1:09 am
Reefer Madness is very thought-provoking. Is it right or wrong to restrict the circulation of commodities such as drugs and pornography? Should goverments decide what is good for people, or should people decide for themselves?
I’m a lover of free trade, as green LA girl already knows.
I think it’s important to be able to distinguish between theory and practise, though of course both are important. On a theoretical level, most sane people would probably agree that free trade is the ultimate thing to aim for. On a practical level it’s far more complicated because the world is such a fucked-up place and people are so full of self interest, which is a complex topic in itself.
The Globalisation Institute is surely the best place on the web to read about the nuts and bolts of free trade. They may not be 100% right about everything all of the time (who is?), but they do have a surprising ability to cut through the crap and get to the heart of many of the most serious issues facing the world today.
I thought the GI cats were crazy when bossman Alex Singleton first posted a comment on my blog attacking the concept of Fairtrade. Alex has since revised his position on Fairtrade and the GI blog has become one of the very few I consider to be essential reading.
Comment by beev — January 31, 2006 @ 11:06 am
Siel: I’m disappointed that you stopped replying to me emails, and have since created a post that alludes to our past discussion, without letting me know.
Esteban, Roger:
If that is your position, then what’s wrong with “free trade”?
Esteban: It is not *your* theory. It is what every economist already knows. Neoliberalism isn’t free trade. Hence a critique of neoliberalism is not a critique of free trade.
Comment by AJE — January 31, 2006 @ 9:46 pm
What is the “free trade†explanation for why coffee farmers are suffering while no one else in the coffee chain seems to be suffering with them?
There’s lots of people able to produce coffee, but only a few businesses that (currently) satisfy consumers demands to provide convenient, low cost goods. Hence coffee farmers can’t command a high price for their product (coffee beans), but Nestle can command a high price for theirs (the end product).
This could be down to many reasons, one of which is that it’s (relatively) easier to start producing coffee (hence it’s a competitive market). Another is that big corporations can lobby governments to subsidise them, or restrict competition.
The market for coffee isn’t “liberalised” at the moment, and so we should all be praising attempts to 1. reduce trade barriers and 2. enter the coffee industry.
Imagine the big coffee firms currently pay the farmer $2 and the sells it on for $6. (for a specific quantity).
Clearly, a rival firm culd make money by buying it for $3 and selling it for $5 – in which case the farmers, the new firm, and the consumers are ALL better off.
If that doesn’t happen, there MUST be some kind of law preventing entry. Fairtade is fantastic in that it does what i’ve just described (well, half of it) but the point is that this is exactly what would happen if the market was free. An “ethical” business is one that erodes the profits of existing, dominant firms.
That’s the way i see it, at least, and so I hope it helps. By the way, i’ve read the articles you sent, and written some responses – i’ll post them soon and send you the links
regards,
AJE
Comment by AJE — January 31, 2006 @ 10:39 pm
AJE — What emails? I haven’t gotten any since your comments on the post in which I quoted yr email saying sweatshops are great cuz at least the workers haven’t starved to death. If you’ve sent any since then, I honestly haven’t received them. Please resend. My address: greenlagirl at gmail dot com.
And I already read — and commented on — your post about our past “discussion.” Unless you’ve posted another one – in which case, if it contains any new info you’re seeking my comment on, please let me know where it is and I’ll at least check it out. But I’m not your mother — I won’t always respond or react the way you want me to to your e-tantrums. Undue brattiness — or a simple rehashing of old info in an effort to generate hits from my curious readers — won’t be tolerated for long.
Thanks, however, for your v. last comment — the thoughts on the free trade issue. It seems we all agree on one thing: The so-called free trade model on which the coffee industry works right now is not “free,” by any of our definitions.
Comment by Siel — February 1, 2006 @ 12:30 am
For those interested, I got an email from AJE that said this: “i thought you quoted a different email – but maybe i’m wrong, in which case i apologise.”
Apparantly, it’s too much trouble for him to compare the email he sent me to the quotes I used in my previous post. And after all the ranting, bitching, false accusations, and calling me and my readers names, AJE says this: “I’m asking this in a geniune hope to learn more about fairtrade.”
Riiight. Like Roger, gone green says, “I am SO done, I do not plan to reply.”
Comment by Siel — February 1, 2006 @ 7:08 pm