Following is an article in The Times today.
OXFAM, we learnt last week, is going to back a chain of “fair trade” coffee bars. Meanwhile Gap clothing company has disclosed that many of the factories that it uses in developing countries do not comply with minimum labour standards. For those consumers whose prime concern is Third World development, the proper course is clear: buy clothes at Gap and avoid Oxfam’s coffee.
The rationale of Oxfam’s venture is to lessen the hardship that coffee growers have suffered since coffee prices slumped in 1997. The organisation claims: “Coffee growers will win three times . . . They’ll be selling their coffee at a fair trade price; they’ll share directly in the profits and will also showcase their coffee to the UK.”
Unfortunately the sharp decline in world coffee prices is not only cyclical. Over the past decade, exchange-rate movements and new technology have made the Brazilian coffee industry more productive, while Vietnam has used its low wage costs to become a large and efficient producer. Low coffee prices are not the result of market failure, but a sign that there are too many producers.
Of course laissez-faire is no reputable response to the farmers’ hardship. Oxfam is right that there is an obligation to assist poor coffee farmers. But its Scargillite remedy of subsidising enterprises that can never be profitable will prevent the development of new businesses which could be. A better scheme is to support farmers’ efforts to diversify production.
GAP and other multinational companies have long been targets of trade union and activist campaigning against Third World sweatshops. Dangerous, unsanitary and ill-paid conditions do exist in some textile and footwear factories in developing countries. Yet multinational corporations help to improve those conditions. Innumerable studies in South-East Asia have shown that foreign-owned companies employing unskilled labour typically pay higher wages than local employers. Those wage rates are still low compared with advanced industrial economies because productivity is low. They are not evidence of exploitation.
The anti-corporate campaigners are now focusing their attention on the gap between the price of the finished goods on Western shelves and local wage rates. It is a massive non sequitur. As Jagdish Bhagwati, former special adviser to the UN on globalisation and a leading trade economist, has pointed out, it makes no economic sense to “shift the criterion from where and at what wage you buy labour to where and at what price you sell the output”.
It is also actively damaging. There is evidence that, through the transfer of technology to local economies, multinational companies such as Gap improve the productivity of both labour and capital and so help developing countries to industrialise and become richer. Far from being corporate villains, they improve poor people’s living standards.
The most egregiously ill-informed of the anti-corporate pressure groups, CorpWatch, claims that a “race to the bottom” is taking place in global wages and working conditions. In reality, a race to the bottom is evident principally in the quality of campaigners’ analysis. A pervasive fallacy of Thirld World campaigning is the notion that economic decisions have no costs. In supporting Oxfam’s coffee venture, we enable poor coffee growers to “win three times ” — yet by insinuating that other coffee is ethically dubious, Oxfam threatens the livelihoods of other more successful, but generally poor, coffee farmers.
By castigating multinationals, these campaigners are not promoting living wages but are impeding developing countries’ efforts at economic progress. This is neither ethical campaigning nor guilt-free consumption: it’s narcissism.