Trade

Fairtrade Advice

The Adam Smith Inst. report on Fairtrade is now out.

Looks like Kay Tee\’s on the ball with her advice:

Consumers could even buy bargain products from their local supermarkets and loan the money they save directly to farmers through a microcredit agency like kiva.org.

That way the farmers both get to develop, rather than being held back technologically, an they also get 100% of your money, rather than 10% of the Fair Trade price premium.

And hippies will whine, so trebles all around, eh?

 

Fairtrade Fortnight

Starts tomorrow I beleive. And there\’s a report out from the bosses at the ASI to celebrate.

Fairtrade\’s supporters blame the plight of coffee farmers on world prices and ruthless multinationals. But supporters ignore the real causes of poverty among growers. Farmers I interviewed in Kenya told me that the problems they faced were caused by their own government\’s interference. They have to use milling companies granted regional monopolies, which fleece them. They want to boost productivity by using fertiliser but cannot afford the prices demanded by the fertiliser monopoly. Imported tools would transform their output but are subject to punitive tariffs.

Brazil, conversely, pursued free-market reform and the farmers have mechanised. That has enabled five people and a machine to enjoy the same output as 500 unaided farmers.

Yet the Fairtrade Foundation, the lobby group behind the scheme in Britain, seems oblivious and admits it has no programmes to encourage the use of technology. Even worse, it is giving counterproductive advice to farmers, encouraging them to mix crops in the same field, thereby cutting productivity and making mechanisation more difficult.

Despite Fairtrade\’s moral halo, there are other, more ethical forms of coffee available. Most Fairtrade coffee is roasted and packaged in Europe, principally in Belgium and Germany. That is unnecessary and retards development. Farmers working for Costa Rica\’s Café Britt have climbed the economic ladder not just by growing beans but by doing the processing, roasting and packaging and branding themselves.

But Café Britt is not welcome on the Fairtrade scheme. Most Café Britt farmers are self-employed small business people who own the land they farm. That is unacceptable to the ideologues at FLO International, Fairtrade\’s international certifiers, who will accredit farmers only if they give up their small-business status and join together into a co-operative.

There is evidence that Fairtrade is damaging quality, too. Its farmers typically sell in both Fairtrade and open markets. Because the price in the open market is solely determined by quality, they sell their better beans in that market and then dump their poorer beans into the Fairtrade market, where they are guaranteed a good price. That\’s worth considering next time you pop out for an espresso.

(That\’s another boss, Alex Singleton of the GI, writing there).

I\’ve actually heard (rumour, not fact) that Fairtrade actively militates against mechanisation, insisting that only peasant farmers can benefit: a great way of perpetuating poverty down the generations.

The Value of Trade

OK, OK, so these people are idiots but let\’s take their figures at face value shall we?

The United Kingdom is drastically over-populated and could support only 17 million people if it had to provide for the current 60 million from its own resources, says a study published on Monday.

That means 43 million people are alive, hale and hearty, because we trade with the rest of the world.

Good thing we do really, isn\’t it?

The Real Danger

Peak oil, peak food…..but the real danger is here:

Mr Currie said investment cycles in energy typically last about 10 to 12 years as producers struggle to catch up with demand. However, this cycle has been short-circuited by politicians after barely six years.

"The political environment is extremely hostile. The world is looking like the 17th century under mercantilism when countries saw economics as a zero-sum game. They exported as much as they could to get gold, and erected enormous barriers. China looks like that, so does Russia, the Mid-East and most of Africa and Latin America," he said.

While the West has much of the skill for developing energy projects, it is blocked by nationalist petro-states from investing directly.

Mercantilism, that dreadful beast that we thought Ricardo had slain.

Sigh, economics and trade are not zero sum games, it\’s the imports you want, the imports that make you rich. Idiots.

Eh?

Critics have said it is proper that the UK is self sufficient in doctors but officials should still look after the international doctors already here.

Why?

We\’re not self sufficient in apples, energy, steel, accountants, bankers or builders. Why should we be trying to be self sufficient in doctors?

Haven\’t these people ever heard of the benefits of trade?

Really?

Is Gavin Kennedy about?

Brown won\’t be able to rely on Adam Smith for intellectual support of unrestricted free trade. His townsman, faced with Chinese currency manipulation and artificial barriers to imports imposed by Japan, would say "There may be good policy in retaliations" if they force changes in the policy of trading partners.

"The recovery of a great foreign market will generally more than compensate the transitory inconveniency of paying dearer during a short time for such [imported] goods."

Did Smith really say that it could be a good idea to raise tariffs in order to get another to drop theirs?

Even if he did I suspect the advice is countered by the later writings of Ricardo, but it would be interesting to know the context in which Smith said this.

£ 10 Billion Trade Agreement!!!!

Sure, it\’s nice to have more trade, nice to have more investment here (which of course raises the productivity and thus wages here).

Tens of thousands of jobs could be created in Britain by Chinese companies, Gordon Brown said, as he hailed an historic deal which he hopes will increase trade between the two countries by £10 billion over the next two years.

£ 5 billion a year, eh? 0.003% of the economy? Even with our rather anaemic trend growth rate of 2.5% or so, that\’s simply noise, not something we could actually identify. And we could probably get that sort of boost without flying hundreds to China on the taxpayers\’ penny: simply abolish a hundred or two restrictive regulations instead.

Another way of looking at it. If boosting trade is indeed so important, then we should be looking at ways to do it in the most efficient manner. Patrick Minford has pointed out that leaving the EU and having free trade would boost the economy by 3%.

So, again, if boosting trade is such an important point, we could get 100 times the bang for our buck by leaving Brussels, instead of going to China.

Cornish Coffee

The main one being it has taken so much work to turn the cherries picked at Eden just before Christmas into cups of coffee. "I\’ve put hours into it," said Stephenson. "If I was charging by the number of man hours I\’ve put it into it, I would have to charge £20 a cup."

That\’s why we\’ve got trade and the division of labour, Bubba.

Err, Really?

I sorta get Kaletsky here:

The bad news is that the $400 billion worth of extra economic activity gained by US businesses and workers will be exactly matched by losses in Europe, Asia and the rest of the world.

And I sorta don\’t. He\’s saying that a switching from EU production to US consumption hurts the EU producers as much as it aids the US producers. OK. But what about the consumers? Isn\’t it a basic point of trade economics that the benefits to them have to be taken into account?

And?

What\’s the problem here?

China’s surplus with the US has grown by just 18pc. The high-level EU team — the first currency mission of its kind — will include Jean-Claude Trichet, the president of the European Central Bank. The implicit threat is that China could face protectionist measures if it persists with a mercantilist policy of holding down the currency to gain export share.

Mercantilism harms those stupid enough to practice it. We, the consumers (for of course the economy should be run for the benefit of us, the consumers) here in Europe benefit from the Chinese error. So why are our rulers flying off to try and make us poorer?

Another way of putting it. A high euro to yuan exchange rate means that we get more Chinese goods for each unit of European goods that we export. That is, we have to expend less effort to make the exports with which we buy our imports. This makes us richer.

Why would we want to stop that happening?

Oh Dear, Oh Dear.

Someone\’s been letting the lefties into the trade debate again.

Sadly, both for American workers and the quality of the trade debate, the textbook has other chapters. One of them explains the Stolper-Samuelson Theorem (SST), which points out that when the US exports insurance services and aircraft while importing apparel and electronics, we are implicitly selling capital – physical and human – for labour. This exchange bids up capital\’s price (profits and high-end salaries) and bids down wages for the broad working and middle-class, leading to rising inequality and downward wage pressure for many Americans.

Note that this is not just a story about laid-off factory workers, who obviously suffer the toughest losses. Rather, all workers in the US economy who resemble import-displaced workers in terms of education, skills, and credentials are affected. Landscapers won\’t lose their jobs to imports, but their wages are lowered through competition with those import-displaced factory workers.

Indeed.

In the early 1990s a flurry of studies, driven by the Nafta debate over US trade with Mexico, examined the links between trade, wages, and inequality. Updating a standard method from that earlier debate with 2006 data shows that trade has increased wages for those with a 4-year university degree by around three per cent and lowered wages for all other workers by about four per cent.

Consider a household of two median wages earners working a combined 3,600 hours per year (the average for married couples). A four per cent wage cut for this household would cost the couple $1,800 in annual pay. And this loss is net of any gains from trade: it fully accounts for the lower priced imports and new opportunities in export industries.

Ah, and there we see the twist in the tale. It is not true to say that this median wage earning household has seen its income fall by $1,800. It is true to say that (assuming you believe the analysis, which we will for the moment) their income is $1,800 lower than it would have been without the globalisation. But it hasn\’t actually fallen, it simply hasn\’t risen as much as it might have done.

So the average American worker is not in fact geting poorer. They\’re just not getting rich as fast as they might do.

To work out whether this is a good thing or not we then need to look at who is getting rich more quickly as a result of the globalisation. That would be those hundreds of millions of South and East Asians who have, in the past generation, risen up out of $1 a day poverty into a safe and secure lifestyle.

Now traditionally lefties would look at this result and pronounce it good. The rich (and by any global standard the median US household is stinkingly rich) are getting richer more slowly than the poor, who are leaving their absolute poverty behind them.

Somewhat sad to see someone like Jared Bernstein abandoning such a moral calculus and start to think only about those already rich, the Americans.