Liberal Vision

To buy local is loco

Over at Cafe Hayek, George Mason professor of economics Russ Roberts turns his guns on the ”buy local” fallacy.

Roberts is a far better economist than I am, and I have no doubt that he has a better understanding of the value of trade, but I am left feeling that somehow his article fails to get to the root of the issue.

I have therefore set out my own reasons why the Buy Local movement is actually harmful to human development and will reduce welfare. This boils down to the fact that it is anti-trade, preventing people from benefiting from the most effecient providers across the country or the world; that it undermines the principle of specialisation on which human development is based; and ignores Comparative Advantage, which makes it worthwhile for even the most and the least efficient producers to work together.

Please head over to the IEA website and take a look at the full article. I have closed the comments section below to encourage readers of this site to comment in the same place as readers of the IEA site.

Not your Hegemon of choice? Tough!

I found the programme The Chinese Are Coming broadcast on BBC 2 last night fascinating. The documentary looks at the operations of Chinese businesses in Africa and considering the state of Africa’s industrial and agricultural development, I welcome the Chinese into Africa. I’m genuinely glad they’re there. They’re behaving like the excellent capitalists they are: spurring competition, specialising and trading, giving African locals jobs and building up vital infrastructure. True, they’re not my hegemon of choice largely for the reasons mentioned in the show. They’re not keen advocates of human rights, good pay and conditions for workers. But the agricultural policies e.g. subsidies, chosen by the more human-friendly hegemons of the EU and the USA are devastating to Africa and have effectively ruled out further USA and EU involvement in the continent and will continue to do so until they are overturned. I found it a little hard to swallow the moralising from presenter Justin Rowlett since China has merely filled the gaps left wide open by bad trade policy decisions in the West. For approximately every $3.4 Billion the West gives in aid to bolster the economies of developing countries other policies deprives them of $17 Billion. With friends like the West it is no wonder that, for Africa, China can hardly be considered an enemy.

As for the baby elephants mentioned in the show…”You’re always going to have that threat from poaching so long as that demand is there…” lamented an animal sanctuary owner. But that’s not true is it? You could stop the poaching very simply by making the ivory trade legal and farming elephants for ivory, meat and game hunts.

Fair Trade without the Froth

Today, the Institute of Economic Affairs has released a new research paper “Fair Trade without the Froth: A Dispassionate Economic Analysis of “Fair Trade” by Sushil Mohan.

It concludes that claims by the Fair Trade movement are seriously exaggerated. The IEA says that “.. It is likely that producers end up with only a small fraction of the extra margin consumers pay“ , that “Fair Trade doesn’t benefit the poorest producers due to heavy administration requirements and fees involved” and that “Fair Trade does not focus on the poorest countries”.

We agree with all those sentiments.

Buying Fair Trade eases the middle class conscience and little more.

If you really want to help the developing world, fight loud and hard for the removal of trade barriers.

Back in summer of 2009 a guest contibutor to Liberal Vision – Franklin Cudjoe – made many of the points the IEA makes today and having re-read his post this morning I thought it worthy of a second outing…. so here it is….

GUEST POST for Liberal Vision by Franklin Cudjoe 10th July 2009

In the New Statesman’s “Observations on Fairtrade” I was quoted as saying that free trade, not Fairtrade, is the key to developing countries like my own. Here are a few reasons why this is so.

Most of the Fairtrade premium charged by supermarkets does not make it to the poor in developing countries. It has been estimated that only ten per cent filters down, most of it consumed by Western retailers. No wonder that many people suspect that supermarkets are granting monopolies to their own-brand Fairtrade-approved goods for the sake of their own profits. They convince consumers that they are morally obliged to buy Fairtrade stock, offer no alternative, then pocket the difference.

But more importantly, even the amounts that do trickle down will not help economies to develop. Any subsidies provide perverse incentives that can delay development. Increasing prices artificially causes an increase in supply which results in too much produce being grown. As Fairtrade growers only pass on about 20 per cent of their stock to the Fairtrade scheme, the results are quite dangerous, and can result in the market price actually coming down (due to surpluses).

Instead, people in less developed countries need to be able to follow price signals and adapt to changing demands – both from our own markets and those in the West.

Sadly both of these markets are blocked from us by trade barriers. Your governments are partially to blame for this – but even more culpable are our own self-interested politicians.

Trade barriers between African countries are an extreme impediment to our economic development. Shipping a car from Japan to Abidjan, Côte d’Ivoire, costs $1,500 – yet shipping the same car from Abidjan to Addis Ababa, Ethiopia, costs over three times as much – $5,000!

According to the World Bank, removing regional trade barriers would earn Africa an extra $1.2bn a year.

So what can concerned people in wealthier countries do to help? For a start, you can lobby your governments to stop setting a bad example by imposing trade barriers themselves. Many people in poor countries say “rich governments protect their industries, why shouldn’t we?”. The result is that we all lose – but poor countries suffer the most.

We now have a global trade war, arguably prompted by President Obama’s “Buy American” policies in the USA. Ministers at the G8 preach free trade while building up barriers back at home.

Buying Fairtrade is a feel-good scam. It does not help. Those who really want to help should urge their politicians and the G8 to bring down trade barriers – and make a lot of noise about it.

This post was first published on Liberal Vision 10th July 2009. Franklin Cudjoe is the founder and Executive Director of IMANI Center for Policy & Education, a think tank based in Ghana. His work has been cited in House of Commons debates on aid and development in Africa.

American Professor starts “Coffee Party” movement

Ok, he hasn’t actually started a “Coffee Party” movement, but he has written a blog post.

In his hypothetical half-serious 10-point manifesto, the excellent Bill Easterly proposes a tolerant, liberal agenda.

Among their policies and ideals, the Coffee Party…

• …”likes free trade”
• …recognises “tax-bloated government”
• …proposes “ending the War on Drugs”
• …”hates xenophobia towards immigrants”, specifically when “aimed at particular trading partners, falsely blamed for our economic woes.”
• …believes that “ALL ‘are by nature equally free and independent,’ and have ‘inalienable rights, among them life, liberty, and the pursuit of happiness,’ men and women, blacks and whites, gays and straights, immigrants and natives, Christians and Muslims, citizens and foreigners, rich and poor.”

Surely this is something the LDs should support and emulate. Or at least it would be if it actually existed.

Famine, like aid, is political

In today’s WSJ development economist and Aid Watch blogger, William Easterly, reviews Peter Gill’s new book on Ethiopia since Live Aid, “Famine and Foreigners”. Well worth reading if only for Easterly’s concise, but tragically accurate, summary of Ethiopia’s perpetual trouble with food insecurity over the last few decades:

“If it were possible to sum up in one sentence Ethiopia’s struggles with famine over the past quarter-century, I’d suggest this: It’s not the rains, it’s the rulers. As Peter Gill makes clear in his well-turned account of the country’s miseries since the 1984-85 famine and the Live Aid concert meant to relieve it, drought has not been as devastating to Ethiopians as their own autocratic governments.”

Unfortunately, many western NGOs find it inconvenient to recognise this fact and continue to tow the donor-friendly line of “climate change” as the primary causal factor for food shortages in the developing world. Great for western public relations, less helpful for the average Ethiopian, who would probably prefer to be given the opportunity to own land, trade freely and drag themselves out of poverty, than see foreign aid spent on useful projects like this, or this.

The last “naturally” caused famine in Northern Europe occurred in Finland in 1866–1868. The cause? Climate change, of course: unusually wet summer in ’66, then exceptionally harsh winter and spring in ’67. The actual cause: Poor infrastructure and communication linkages restricted trade and when it became evident a crisis was mounting the Finnish government refused to borrow money from abroad for fear of devaluing its newly introduced currency. By the time Rothschild’s came to the rescue with loans, it was too late and almost 15 per cent of the population was to perish.

Thankfully today, most of Europe has moved beyond oppressive systems of governance capable of starving entire populations for political reasons. The ability to exchange goods freely and the incentive, through ownership, to develop, improve and protect land helps to mitigate the effects of climatic fluctuations.  Ethiopians are intentionally prohibited  these luxuries. And their citizens are unlikely to benefit from the continued tunnel vision of western  NGOs, rock stars and governments intent upon perusing, and funding, their own agendas. Gill and Easterly recognise this: DfID, with its donation of £132m in bilateral aid to the Ethiopian government  in 2009, seems not to.