Free trade not fair trade will end African poverty
, 27 April 2005 John Meadowcroft
In his sermon on African poverty the Archbishop of Canterbury has added his voice to the growing chorus of religious leaders, politicians, pop stars and even television presenters who believe that fair trade offers a solution to Africas plight.
While the Archbishop and others are right to draw our attention to the fate of the worlds poorest continent, unfortunately fair trade will not end global poverty and could make things worse.
Fair trade undermines economic efficiency and has the potential to increase corruption.
It involves governments or aid agencies picking winners businesses they believe merit special treatment in the marketplace that are then supported even if they are uneconomic or badly run. It has the potential to increase corruption as different businesses compete to be the one favoured by government or agencies. Economic prosperity cannot be based upon policies that support inefficient or uneconomic enterprises. That is the way to economic ruin.
There are many myths about the causes of Africas malaise, but the truth is that economic prosperity is actually relatively easy to achieve.
In fact, it is so easy that Hong Kong a tiny former colony with almost no natural resources has managed to achieve it; Hong Kongs per capita GDP is now more than $25,000, compared to the UKs $23,000.
Indeed, the example of Hong Kong is instructive for all of us who wish to see an end to global poverty. In 1950 Hong Kong was classed as a developing country, but in the last fifty years it has caught up with and now surpassed many of the worlds richest nations.
Hong Kongs economic prosperity has been built upon free trade; it has one of the most open economies in the world with few barriers to imports or exports. Its prosperity was not based upon rich people buying fair trade products but on participation in the global economy, initially at relatively low wage levels.
Indeed, when I was growing up in Huddersfield in the 1970s my parents were reluctant to buy goods with the Made in Hong Kong label because they believed such products were made by exploited workers slaving in sweatshops. Today, those exploited workers are richer than we are!
In Hong Kong, free trade has been supported by a government that has provided an institutional framework of private property rights, the rule of law and sound money, without burdening the economy with high taxes, over-regulation or restrictions on imports and exports.
The greatest obstacle to Africas emergence from poverty is not free trade, but the actions of many of its own governments.
Many African governments do not provide the rule of law nor sound money, and they levy punitive taxes on business and enmesh enterprise in regulation; in some developing countries it can take quite literally years to set up a business.
Most importantly, the great majority of the poorest people in Africa live and work on land whose ownership is unclear because there are no established private property rights.
Where people do not own the land on which their homes and businesses stand they may be unwilling to invest in the long-term development of those homes and businesses and will be unable to release the capital locked in their assets. As a result, enterprise and development are stifled.
Fair trade is likely to make a small number of fortunate Africans selected for special treatment by their governments or by aid agencies relatively wealthy. But it does not offer a long-term solution to the poverty that is crippling the continent and which, by all accounts, is getting worse.
If you are interested in development issues, you may be interested in
The Poverty of Development Economics by Deepak Lal,
A Tribute to Peter Bauer
, a collection of essays celebrating the work of the development economist Lord Bauer, and the recent edition of Economics Affairs on
Aid, Trade and Economic Development
. You might also wish to visit the website of the
, which contains a wealth of information on development issues and globalisation.