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Free Trade Seldom Helps The Poor

The popular view is that "Free Trade" i.e the elimination of barriers created by import quotas, taxes and duties, leads to "wealth creation".

The question arises, however : wealth for whom?

In Columbia earlier this week, coffee producers were demonstrating against the fact that the prices they are receiving for their produce in local markets are below the cost of production.

There lies the essence of wealth creation: if a member of the supply chain can be persuaded/forced to accept a price lower than their cost of production, profit/wealth can be created for another member of the chain.

For Columbia, read almost any country producing raw materials. Producers almost inevitably receive low prices/wages for their output. The losses they accept become profit further up the supply chain.

In many Third World countries, 90% plus of the population are living in poverty. The 10% that are not poor get their wealth from the losses accepted by producers who have to accept poverty as their fate.

Often the wealthy are one ruling tribe or are members of a single political party, whose control of "government" gives them the power to force producers to accept low prices.
There are of course pressures at every step on the supply chain, with big retailers such as Walmart and Tesco squeezing every member of that chain to wring maximum profits from their shop sales.

However, the ultimate victims of the "squeezing" are usually the initial producers, as every other participant in the supply chain has more power than they have.
Third World producers are often forced to grow for export because those that control their countries want the foreign exchange that brings them their wealth.

The stark reality : producers often go hungry because they are growing crops for export, not food they can eat.

So Free Trade as it usually operates may be creating more poverty, more hunger than existed previously.

Agriculture can create self-sufficiency for those working the land, but not if farmers are forced to grow for export.

So rather than focusing on International Trade as the panacea for poverty, it would be better if the West helped subsistence farmers produce more efficiently for their own needs and questioned the activities of Third World Governments to ensure they are not forcing farmers to produce for export.

Trouble is, when you start asking such questions, where do they end? How many Chinese factory workers are receiving an equitable payment for their labours?
60% of all merchandise sold by some Western Retailers comes from China.......




 

Thursday, 28th February 2013

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