'Fair Trade' Made Possible by Globalisation
Mike Veseth, Robert G. Albertson Professor of International Political Economy at the University of Puget Sound, writes on the Wine Economist Blog on “Fair Trade Wine” (HERE):
“Fair Trade products attempt to use globalization to offset some of the negative potential effects of globalization. Global market forces can sometimes lead to the exploitation of natural resources and unskilled labor, for example. The “sympathy” that Adam Smith thought would condition market relations breaks down when producer and consumer are separated by thousands of miles and multiple commodity chain links.
“…because consumers are often better informed and more interested in the origins of and production conditions associated with wine than for most other consumer goods.”
“Wine enthusiasts are thirsty for information about where wines come from, who made them and how. Fair Trade provides this information in a way that informs, educates and potentially produces social and economic change.”
Comment
I do not think it is the case that ‘The “sympathy” that Adam Smith thought would condition market relations breaks down when producer and consumer are separated by thousands of miles and multiple commodity chain links.’
In fact, I am not sure that Adam Smith thought of “sympathy” quite in the way that Mike Veseth presents it. It is clear in Moral Sentiments that sympathy was both a general and a local phenomenon associated with how humans live in societies (as they always have).
We can be concerned about events that affect complete strangers, as well has have intense sentiments towards a close relative, with diminishing degrees of intensity as persons are more ‘distant’ in their relationship with us, for example, second and third cousins, through to strangers.
Indeed, that is how we would expect it to be. The circles of people with whom their immediate relationships overlap is an effective bonding force for society (of which the ‘six degrees of separation’ is a crude illustration). Your friends and acquaintances have their own and quite distinct friends and acquaintances, and, like the ‘little fleas’ in the poem, so on ‘an infinitum’.
Smith links these points well in Moral Sentiments, when discussing the connection between man the social animal, who knows a few others well and most others less well or not at all, and how this still stabilises society, both inter-personally and economically:
“It is thus that man, who can subsist only in society, was fitted by nature to that situation for which he was made. All the members of human society stand in need of each others assistance, and are likewise exposed to mutual injuries. Where the necessary assistance is reciprocally afforded from love, from gratitude, from friendship, and esteem, the society flourishes and is happy. All the different members of it are bound together by the agreeable bands of love and affection, and are, as it were, drawn to one common centre of mutual good offices.
But though the necessary assistance should not be afforded from such generous and disinterested motives, though among the different members of the society there should be no mutual love and affection, the society, though less happy and agreeable, will not necessarily be dissolved. Society may subsist among different men, as among different merchants, from a sense of its utility, without any mutual love or affection; and though no man in it should owe any obligation, or be bound in gratitude to any other, it may still be upheld by a mercenary exchange of good offices according to an agreed valuation.”
[TMS II.ii.3.1-2; 1872 ed. Kessinger Rare Reprints, pp 78-9;]
These remarkable, and not often noted, passages are the root of Adam Smith ideas about societies. Our need for the ‘assistance of others’ is universal, ever present, and unavoidable, no matter the size of our society or the age within which its acquires its means of subsistence.
Of course, from the vantage of the 21st century, our dependence on others is far greater that it was for the likes of Ghengis Khan in the 12th century – he was unaffected by the tribes of North America, Australia, and Western Europe – but in the global economy, developed since the 15th century onwards, ever wider and ever deeper circles of sentiment and influence have developed along the inter-twined influences of both “the agreeable bands of love and affection … drawn to one common centre of mutual good offices” and by “by a mercenary exchange of good offices according to an agreed valuation”.
It is the characteristic of commercial economies that their supply chains can operate without persons knowing much or anything about players two or a few links further on and back (and beside them) in any inter-locked supply chains that make up our mode of susbistence.
It is also not the case that the “sympathy that Adam Smith thought would condition market relations breaks down when producer and consumer are separated by thousands of miles and multiple commodity chain links.” It is the “a mercenary exchange of good offices according to an agreed valuation” that conveys the necessary information for markets to work.
By ‘good offices’ Smith means people exchanging services to each other, not necessarily confined to commercial transactions – there are no limits to exchange relations in Smith’s world, whether it is the development of language and conversation (think of today’s Internet), of political and religious ideas, of literature and arts, of information and knowledge and, in practice, almost all human activities.
The separation of consumers from producers, which almost always has been the case since individuals began to transact with relative strangers in the early, larger bands and then with complete strangers in other bands, and finally tribes and then ‘nations’, has always been the basic facility that ‘mercenary exchange’ made possible.
Exchanging wool for pewter in medieval Europe did not require intimate or any knowledge of who provided the merchants with the wool or the merchants with the pewter. The early humans who received stone ‘Venus’ figurines in exchange for decorative beads, say, most certainly did not know the members of a supply chain stretching hundreds of miles from where the stone originated.
Mike Veseth makes the interesting point that wine consumers are interested in “where wines come from, who made them and how”. This, of course, is the marketing message of ‘Fair Trade’ suppliers, who justify higher prices for wine because the original producers are in relative poverty and Fair Trade “provides this information in a way that informs, educates and potentially produces social and economic change”.
This is not an aberration of how markets work (always remember, exchange by markets is the fastest information processing method created by human societies), it is how any student of markets would expect them to work.
All along all supply chains, people make decisions to enhance their performance in their particular bit of it under the motivation of reducing their costs to enhance their supply capacity and increase or maintain their share of the profits.
When the spice trade showed such fantastic profits in medieval Europe, several seafaring nations competed (often bloodily) to identify the sources of spice and transport it back to Europe to sell at mark-ups that began at several thousand per cent.
Globalisation is the cause of well-meaning Fair Trade sympathies, not the enemy of them. The vast charitable NGOs conform to what Adam Smith expected from the ‘mercenary exchange of good offices’. He preferred, but did not expect in mid-18th-century Britain, that:
“Where the necessary assistance is reciprocally afforded from love, from gratitude, from friendship, and esteem, the society flourishes and is happy.”
But ‘should’ those conditions did not obtain, in their absence:
“Society may subsist among different men, as among different merchants, from a sense of its utility, without any mutual love or affection; and though no man in it should owe any obligation, or be bound in gratitude to any other, it may still be upheld by a mercenary exchange of good offices according to an agreed valuation.”
Mike Veseth, and Fair Traders, are not bucking the market, nor finding a new form of trade. They are finding another way, using the price mechanism, to enrich the “agreed valuation” for “the mercenary exchange of good offices”.
Indeed, it remains true still that the majority of consumers buying ‘fair trade’ products need to know nothing about the original suppliers or the others between them and the local supermarket, to complete their transactions to enjoy their wine. That is the power of global branding, which only globalisation makes possible.
“Fair Trade products attempt to use globalization to offset some of the negative potential effects of globalization. Global market forces can sometimes lead to the exploitation of natural resources and unskilled labor, for example. The “sympathy” that Adam Smith thought would condition market relations breaks down when producer and consumer are separated by thousands of miles and multiple commodity chain links.
“…because consumers are often better informed and more interested in the origins of and production conditions associated with wine than for most other consumer goods.”
“Wine enthusiasts are thirsty for information about where wines come from, who made them and how. Fair Trade provides this information in a way that informs, educates and potentially produces social and economic change.”
Comment
I do not think it is the case that ‘The “sympathy” that Adam Smith thought would condition market relations breaks down when producer and consumer are separated by thousands of miles and multiple commodity chain links.’
In fact, I am not sure that Adam Smith thought of “sympathy” quite in the way that Mike Veseth presents it. It is clear in Moral Sentiments that sympathy was both a general and a local phenomenon associated with how humans live in societies (as they always have).
We can be concerned about events that affect complete strangers, as well has have intense sentiments towards a close relative, with diminishing degrees of intensity as persons are more ‘distant’ in their relationship with us, for example, second and third cousins, through to strangers.
Indeed, that is how we would expect it to be. The circles of people with whom their immediate relationships overlap is an effective bonding force for society (of which the ‘six degrees of separation’ is a crude illustration). Your friends and acquaintances have their own and quite distinct friends and acquaintances, and, like the ‘little fleas’ in the poem, so on ‘an infinitum’.
Smith links these points well in Moral Sentiments, when discussing the connection between man the social animal, who knows a few others well and most others less well or not at all, and how this still stabilises society, both inter-personally and economically:
“It is thus that man, who can subsist only in society, was fitted by nature to that situation for which he was made. All the members of human society stand in need of each others assistance, and are likewise exposed to mutual injuries. Where the necessary assistance is reciprocally afforded from love, from gratitude, from friendship, and esteem, the society flourishes and is happy. All the different members of it are bound together by the agreeable bands of love and affection, and are, as it were, drawn to one common centre of mutual good offices.
But though the necessary assistance should not be afforded from such generous and disinterested motives, though among the different members of the society there should be no mutual love and affection, the society, though less happy and agreeable, will not necessarily be dissolved. Society may subsist among different men, as among different merchants, from a sense of its utility, without any mutual love or affection; and though no man in it should owe any obligation, or be bound in gratitude to any other, it may still be upheld by a mercenary exchange of good offices according to an agreed valuation.”
[TMS II.ii.3.1-2; 1872 ed. Kessinger Rare Reprints, pp 78-9;]
These remarkable, and not often noted, passages are the root of Adam Smith ideas about societies. Our need for the ‘assistance of others’ is universal, ever present, and unavoidable, no matter the size of our society or the age within which its acquires its means of subsistence.
Of course, from the vantage of the 21st century, our dependence on others is far greater that it was for the likes of Ghengis Khan in the 12th century – he was unaffected by the tribes of North America, Australia, and Western Europe – but in the global economy, developed since the 15th century onwards, ever wider and ever deeper circles of sentiment and influence have developed along the inter-twined influences of both “the agreeable bands of love and affection … drawn to one common centre of mutual good offices” and by “by a mercenary exchange of good offices according to an agreed valuation”.
It is the characteristic of commercial economies that their supply chains can operate without persons knowing much or anything about players two or a few links further on and back (and beside them) in any inter-locked supply chains that make up our mode of susbistence.
It is also not the case that the “sympathy that Adam Smith thought would condition market relations breaks down when producer and consumer are separated by thousands of miles and multiple commodity chain links.” It is the “a mercenary exchange of good offices according to an agreed valuation” that conveys the necessary information for markets to work.
By ‘good offices’ Smith means people exchanging services to each other, not necessarily confined to commercial transactions – there are no limits to exchange relations in Smith’s world, whether it is the development of language and conversation (think of today’s Internet), of political and religious ideas, of literature and arts, of information and knowledge and, in practice, almost all human activities.
The separation of consumers from producers, which almost always has been the case since individuals began to transact with relative strangers in the early, larger bands and then with complete strangers in other bands, and finally tribes and then ‘nations’, has always been the basic facility that ‘mercenary exchange’ made possible.
Exchanging wool for pewter in medieval Europe did not require intimate or any knowledge of who provided the merchants with the wool or the merchants with the pewter. The early humans who received stone ‘Venus’ figurines in exchange for decorative beads, say, most certainly did not know the members of a supply chain stretching hundreds of miles from where the stone originated.
Mike Veseth makes the interesting point that wine consumers are interested in “where wines come from, who made them and how”. This, of course, is the marketing message of ‘Fair Trade’ suppliers, who justify higher prices for wine because the original producers are in relative poverty and Fair Trade “provides this information in a way that informs, educates and potentially produces social and economic change”.
This is not an aberration of how markets work (always remember, exchange by markets is the fastest information processing method created by human societies), it is how any student of markets would expect them to work.
All along all supply chains, people make decisions to enhance their performance in their particular bit of it under the motivation of reducing their costs to enhance their supply capacity and increase or maintain their share of the profits.
When the spice trade showed such fantastic profits in medieval Europe, several seafaring nations competed (often bloodily) to identify the sources of spice and transport it back to Europe to sell at mark-ups that began at several thousand per cent.
Globalisation is the cause of well-meaning Fair Trade sympathies, not the enemy of them. The vast charitable NGOs conform to what Adam Smith expected from the ‘mercenary exchange of good offices’. He preferred, but did not expect in mid-18th-century Britain, that:
“Where the necessary assistance is reciprocally afforded from love, from gratitude, from friendship, and esteem, the society flourishes and is happy.”
But ‘should’ those conditions did not obtain, in their absence:
“Society may subsist among different men, as among different merchants, from a sense of its utility, without any mutual love or affection; and though no man in it should owe any obligation, or be bound in gratitude to any other, it may still be upheld by a mercenary exchange of good offices according to an agreed valuation.”
Mike Veseth, and Fair Traders, are not bucking the market, nor finding a new form of trade. They are finding another way, using the price mechanism, to enrich the “agreed valuation” for “the mercenary exchange of good offices”.
Indeed, it remains true still that the majority of consumers buying ‘fair trade’ products need to know nothing about the original suppliers or the others between them and the local supermarket, to complete their transactions to enjoy their wine. That is the power of global branding, which only globalisation makes possible.
Labels: Globalisation, Markets, Moral Sentiments
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