Why Thomas Byrne is wrong on Fairtrade

fairtrade-vertical-colourThomas Byrne has been slurred by his friends as an ‘evil capitalist swine’, [who would] ‘rather see people suffer’, than be brought out of poverty through these wonderful Fairtrade schemes.

And rightly so.

His arguments against Fairtrade show a fundamental misunderstanding about how a poor country develops into a rich one.

ByrneTofferings‘ main argument against Fairtrade is that it is not free trade. I’ve reproduced some below with my emphasis to illustrate where he’s gone wrong.

[Fairtrade] distorts the markets, and while it may be good for the coffee grower in the short term, it’s bad for them in the long term, it’s bad for other coffee growers who aren’t part of the schemes (because they have to sell at the same price as everyone else), and it’s bad for the consumer because it costs us more than it should. Obviously we have the choice to go elsewhere, but that necessitates that there are some producers not part of the Fairtrade group which again, hurts them.

Where ByrneTofferings goes wrong is that he assumes distorting markets is a Bad Thing. For a developing country nothing could be further from the truth.

Exporting primary materials like coffee or rubber is a precarious situation for any country to find itself in. For example, the economies of Peru and Chile nearly collapsed after their export of nitrate fertilisers was obliterated by the creation of the Haber Process in the early 20th Century, which provided a cheaper, closer and more reliable source of fertiliser.

This is why distorting markets is so important, it allows countries to move from low value-added to high value-added activities more swiftly. For example, moving from low value added coffee growing, to coffee roasting, to coffee packing and finally to high value added coffee marketing will increase people’s well being and domestic stability as the economy diversifies.

Relying on a natural resource is dangerous and waiting for your domestic economy to upgrade naturally is risky.

There are plenty of ways which Governments can distort markets to make development and domestic upgrading occur more quickly.

  • For the capitalist out there, a government could grant tax exemptions or holidays to businesses engaged in capital investment. For example, tax breaks for firms that invest in new facilities rather than pay higher dividends.
  • For the centrists, firms engaged in similar endevours could be encouraged to congregate in selected “special economic zones” via various subsidies. By bringing these together the government would encourage positive spillovers which would not occur without some guiding visible hand. For example, car manufactures sharing widget producers.
  • For my comrades, a state firm could use tax revenues to promote full employment pushing up agregate demand and subsidise domestic demand.

Fairtrade goods are an excellent way to get money into these developing countries to allow them to undertake these sorts of endeavours. ByrneTofferings argues that it would be better to give money to a charity, but charities are accountable to their donors, not the recipients of the aid. Fairtrade puts money in pockets and channels it through productive businesses, this is the advantage it has over charity.

Fairtrade on its own will not change many lives, but coupled with an activist Industrial, Trade and Technology policy it can provide a vital step to improving the condition of those in the third world.

A reply from Thomas Byrne is here http://www.byrnetofferings.co.uk/2009/09/brief-reply-to-leftoutside-on-fairtrade.html

Honduran Coup: Zelaya under siege in Brazilian Embassy

Earlier today forces commanded by interim leader Roberto Micheletti surrounded the Brazilian Embassy (H/T Calvin via Socialist Unity).

At some point in the previous 24 hours the democratically elected leader of Honduras Manuel Zelaya returned and took shelter in the Brazilian Embassy.

Following this reports have become increasingly confused, and little is known for certain. For one thing it is claimed that Zelaya’s arrival was a surprise to those working in the embassy, although he was welcomed.

Nonetheless it is clear where the sympathies of the Brazilian authorities lie. They regard Mr Zelaya as the legitimate president of Honduras and say there is no question of either handing him over to the military forces outside or asking him to leave.

One official told me “he is welcome to stay for as long as he wants”

Hondurans in civil resistance surrounded the Brazilian Embassy in Tegucigalpa yesterday to greet their returning president. This morning, coup regime troops attacked them violently, sending 24 wounded to hospitals. D.R. 2009 Mariachiloko, Chiapas Indymedia.

In the short term, the overnight curfew due to last from 4pm to 6am has been extended to 6pm and is expected to last into the night. As pictured, many appear to be in open revolt.

Supplies, power and water have been cut off from the Brazilian Embassy and there is something of a siege situation emerging.

Brazil’s President Lula has called for a cessation of hostilities and the immeidate withdrawl of troops from near the embassy. He has also called for Obama to voice his support for Brazil and Zelaya.

The only anti-coup TV station Channel 36 has gone off the air. Radio Globo’s Internet site is down too. There are also efforts to scramble mobile phone usage.

From Al Giodarno

3:18 p.m.: Micheletti blinks:

Honduras’ de facto leader, Roberto Micheletti, said on Tuesday he has no intention of confronting Brazil or entering its embassy where ousted President Manuel Zelaya has taken refuge to avoid arrest.

“We will do absolutely nothing to confront another brotherly nation. We we want them to understand that they should give him political asylum (in Brazil) or turn him over to Honduran authorities to be tried,” Micheletti told Reuters.

Meanwhile, at least two popular barrios in and around Tegucigalpa have defied, en masse, the curfew order and chased National Police out of their communities: El Pedregal and Colonia Kennedy. They’ve erected barricades and declared the coup regime and its security forces non grata.

More information as it comes in. Narco News will carry more up to date information than I possibly could, subscribe.