Are we at war with the invisible hand?

01/11/2007 - 1:37 PM
I read an article in The Economist recently which criticized Fair Trade as a simple price support system that encourages overproduction. This “Adam Smith” take on Fair Trade implies that the invisible hand of economics should be allowed to force down prices and remove the small “inefficient” producers, all in the best interest of society. Indeed as Smith said in the Wealth of Nations:

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

This thinking creates the classic ‘race to the bottom’ as firms pursue ever lower prices (at ever lower conditions) to satisfy the supposed interest of consumers.

In an even more recent issue, however, The Economist pointed out that despite greater affluence in the developed world, happiness has reached a plateau. As the magazine states:

“People are stuck on a treadmill: as they achieve a better standard of living, they become inured to its pleasures.”

Yes, we all like low prices, but perhaps that quest for the lowest possible price is not always in our own best interest? In his other works, Smith himself alluded to sympathy for others as a necessary component of maximizing social good.

At the heart of Fair Trade is the idea that consumers do have a concern for their impact on the world and others, and that they support efforts of third world farmers to both compete in the marketplace and strive for an improved standard of living for their communities. Do you believe it? I do…and as mentioned last week, plenty of market research backs me up. The problem is that these true market signals have been disrupted by a lack of transparency in sourcing in the world of modern agribusiness.

What does this mean? By supporting Fair Trade Certified products as a consumer, supplier, or retailer, you are fixing the invisible hand, not breaking it. You are not just supporting farmers efforts to compete; you are supporting a system that is working toward greater good, rather than supporting a ‘treadmill’ in affluent societies, and a ‘race to the bottom’ elsewhere.

The good news it that this idea is catching on. Epicurious.com just named Fair Trade as one of the top food trends of 2007. Ironically, as more of us embrace Fair Trade, we not only help improve the standard if living for others, we also improve our own.

Next week: News from Nicaragua.
01/11/2007 - 1:37 PM
01/11/2007 - 1:37 PM