Tag: trade

Fair Trade and Development

Fair Trade is where companies and consumers pay more than the free-market rate for products to ensure that workers receive a decent wage for their products.

Typically this involves consumers in developed countries paying a higher price for agricultural products such as coffee, chocolate and bananas to the workers in developing countries.

The Fair Trade Foundation monitors the production of Fair Trade products, and to qualify for the Fair Trade label workers need to work for a company which ensures several conditions are met including:

  • Workers have decent (safe) working conditions.
  • Workers have the right to join a union and have a say in the process of production.
  • Workers receive a wage that is sufficient to give them a decent quality of life in their country – this usually means enough to pay for the basics and some left over to pay for education for their children, for example.
  • Production is sustainable and not harming the environment

The idea behind Fair Trade is that when workers have decent working conditions and receive enough money to ‘improve’ their lives, this means that trade can work effectively for development.

Fair Trade is very much in line with the principles of People Centred Development.

The Benefits of Fair Trade

The Fair Trade foundation says that 1.6 million farmers across the world are currently benefitting from Fair Trade and there are many, many examples of how Fair Trade is benefitting grass roots farmers in many developing countries.

Fair Trade Coffee…

Coffee is by far the largest Fair Trade export – the video below looks at an example of what I like to think of as ‘extreme Fair Trade’:

It outlines how Fair Trade Coffee importers in Europe work directly with coffee producers in Rwanda, focusing on empowering women into management positions especially.

And they export the coffee on a sailboat, meaning this is zero emission coffee, using a company called Timbercoast.

Fair Trade Cocoa and Chocolate…

Ivory Coast is the world’s largest cocoa exporter, most of it not Fair Trade, but the video below looks at how Fair Trade cocoa works in the country…

Fair Trade Cotton….

The video below outlines the story of Fair Trade Cotton

How Fair Trade can promote development

The main idea behind fair trade is that workers get paid enough to promote social development. The extra money they receive can be used to send their children to school, for example.

Fair Trade does not allow child labour, meaning children should be free to go to school and get an education.

Women and men are treated equally in fair trade projects, so working with fair trade can empower women and tackle traditions of gender inequality.

Finally the sustainability requirements of fair trade means that the process of production won’t undermine the local environment in the long term, promoting sustainable development.

If you’d like to read more about the general advantages of Fair Trade then this is a decent article:10 Ways Fair Trade Helps Advance the Millennium Development Goals

Criticisms and Limitations of Fair Trade as a Strategy for Development

  • The Fair Trade Price Guarantee is a minimum income guarantee – if the market price of, for example, coffee, increases and so the price of the finished coffee increases, there is no guarantee that the workers will receive the higher price.
  • It follows that workers working in regular non fair trade organisations might be better off if there are price spikes in the product they produce.
  • Guaranteeing a minimum income may in fact keep workers trapped in primary product production and discourage them from diversifying into more profitable areas.
  • In the grand scheme of things 1.66 million workers is NOT that many workers – there are BILLIONS of workers in developing countries, even if 10 million workers were benefitting from Fair Trade, that would be less than 1% of the workforce in the developing world!

If you’d like to read more, you might like this article from The Guardian (2017): Fair Trade only Really Benefits Supermarkets.

Relevance to A-level sociology

Fair Trade is an alternative fo Free Trade and is a response to the many criticisms of how trade does not work for development.

How Europe’s Agricultural Polices Hurt Africa

International trade policies seem to benefit large scale industrial farmers in Europe and hurt smaller scale farmers in Africa.

This is according to a recent 2018 DW documentary which focuses on how Industrial technology, large scale industrial production and European Union Subsidies make EU agricultural products much cheaper than locally produced African agricultural products, despite the much lower wages in Africa.

It is evidence which suggests that the global trade system is not promoting development in Africa – rather it benefits developed countries as they are able to export their cheaper products to poorer countries which undermine local farmers who produce viable alternatives.

The documentary focuses on Wheat produced in Germany and how this ends up being three times cheaper than other flour products such as Cassava which is grown in Senegal.

This is an excellent contemporary piece of research for Trade and development which is one of the main topics in the Global Development option for sociology.

The documentary is perfectly suited for teaching Global Development as it is split into several key sections which contrast agricultural systems in Germany and then Senegal.

Wheat production in Germany

The documentary starts off by visiting a 40 Hectare farm in Germany – the guy who runs it only does it as a side venture as he cannot live off the income he gets from his crop – which is 20 to 22 EU per year, which includes a government subsidy, which makes up 40% of his income.

Wheat exporters

The documentary now goes to the port of Hamburg and interviews a wheat exporter – 40% of Germany’s wheat is exported and 25% of that goes to Africa. NB Germany aren’t the largest exporters to Africa, that is mainly China and the USA.

Shops in Senegal

Next we visit the capital of Senegal and go to some food shops, nearly all of which are stocking exclusively EU imported food stuffs, such as wheat flour and vegetables.

They only find one shop on the outskirts which stocks Cassava flour, which is locally produced and it is three times as expensive as the imported EU flour, which is odd given the higher wages in Germany.

The Millet Co-operative

We now go to a local co-operative which produces Millet, an alternative to Wheat, which can be ground into flour. They say that they would like to process their raw grain into flour and sell that because it would fetch more than the raw grain, but they can’t sell it because of the cheaper EU wheat imports.

We actually see two women who should be employed to grind the grain, but they are not because of the lack of ability to sell it (the lack of a market).

Perversely the co-op is funded by EU aid money which they used to buy grinding stones.

Instead of selling it, the millet is used mainly for their own consumption.

The local shop even stocks EU products such as onions and powdered milk despite the fact that these can be produced easily enough in Senegal.

Things are set to get worse

The documentary now visits a Port which has recently been upgraded with over 70 million EU of aid money, making it easier to import even more products from the West, which are increasingly processed abroad.

The EU is also in negotiations with several African countries to remove trade barriers, giving them even less freedom to protect themselves.

The consequences of unfair trade

It’s mooted that if local farmers cannot make a living (80% of people in Senegal work in agriculture) they will increasingly look to migrate – thus EU policies could be causing migration to Europe from Africa.

The EU won’t defend itself on camera

The documentary tried to get a member of the EU responsible for agriculture to discuss its findings, no one was available!

Could Senegal feed itself?

The answer seems to be yes – at one point the documentary focuses on a research project which led to a higher yield Millet crop being produced, but the higher yields are fed to cattle not people because of the cheaper imported Wheat.

In order to benefit local farmers, countries such as Senegal in Africa need to be allowed to develop, they need to be allowed to protect themselves from cheap EU imports, which are cheaper because they benefit from more than a century of technology and policy developments which makes their goods cheaper.

The situation with Wheat is contrasted to that of Chicken – Senegal slaps a 30% import tax on Chicken and there are plenty of local farmers selling Chicken in the local markets, just not flour products.

As it stands it seems that the global trade system here is benefitting a handful of farmers in EU countries at the expense of many more farmers in poorer countries.

Global Value Chains and Globalisation

The 2019 World Bank Development Report highlights the importance of ‘global value chains’ to helping poor countries develop.

Global trade has increased significantly since the 1990s and global value chains today account for more than 50% of global trade.

Those countries which have high levels of participation with Global Value Chains have generally developed more quickly than those countries which have limited or no participation with global value chains.

Vietnam would be a good example of a country that has increased its export links to GVCs over the last 30 years and has seen a corresponding rapid economic development.

What is a Global Value Chain?

The report defines a global value chain (GVC) as ‘the series of stages in the production of a product or service for sale to consumers. Each stage adds value, and at least two stages are in different countries.’

The bicycle is used as an example of a product with an extensive global value chain, with many countries being involved in the many stages of its production.

Global Value Chains and Development

Those countries which have moved from simply exporting agricultural goods to manufacturing parts for products such as bicycles have seen higher levels of economic growth since the 1990s:

What I find most interesting is this map here:

We see that those countries which are more involved with global manufacturing – China and India for example have seen the highest rates of economic growth

The negative consequences?

The report also has chapters on increasing inequalities which have emerged as a result of development through increasing manufacturing – GVC firms tend to be highly concentrated in only a few regions in every country, and women are less likely to be employed in managerial positions.

And there may also be some negative environmental consequences for countries more involved in global value chains.

Future challenges

The report suggests that recent technological innovations which bring manufacturing closer to the end-consumers of GVC products (3D printers) may mean that manufacturing for GVCs is no longer a viable path to development for poorer countries.

The limitations of this report

You have to question how objective this report is – it is from the World Bank, an organisation dedicated to increasing World Trade.

The report also doesn’t seem to acknowledge the problem of what happens to those countries which are ‘left behind’ or ‘left out’ of global value chains.

That map above kind of reminds me of an updated version of Wallersteins’ ‘three zones’ in his World Systems Theory – and in that theory, one country can only move up into a higher zone at the expense of another moving down – there always has to be one country (or regions within countries) at the bottom, or maybe even left out altogether, which seems to be the case here.

It might be that integrating into GVCs is a great way to develop for SOME people in some regions of some countries, but not necessarily even for the majority of people the world over.

It might even be the case that the expansion of GVS are the cause of more inequality and thus, despite increasing economic growth (which are very limited indicators of development) we actually have equal amounts of losers (or more) than we do winners from the expansion of GVCs.

Relevance of this report for Global Development within A-level sociology

  • This seems to be a good case for global optimism – those countries which get more involved in global trade
  • The map of countries seems to be a modified version of Wallerstein’s World Systems Theory‘s ‘Zones of Production’, although interpreted here in an entirely positive light!
  • This seems to be a positive example of increasing trade leading to positive development.
  • HOWEVER, you need to be critical of this report because of the biased source – the World Bank, which is pro-trade!

Sources/ citations

You can read the full report here.

What is Economic Globalisation?

Economic Globalisation involves the global expansion of international capitalism, free markets and the increase in international trade, a process which has accelerated since the 1950s.

Nearly every country on earth now imports and exports more from and to other countries than it did immediately after World War Two, and even ex-communist countries are now part of the global capitalist economy.

Britain for example imports around 60% of its food, with only 40% of the food supply being grown in Britain, and if you take a look around any class room, or any living room, and you will probably find that the majority of products were imported from somewhere else.

This post focuses on four key aspects of economic globalisation: global supply chains, the growth of Transnational Corporations, and the increasing importance of the post modern, weightless economy.

This post has been written primarily for students studying the Global Development option for A-level sociology.

The emergence of global Commodity chains

Manufacturing is increasingly globalised as there are more worldwide networks extending from the raw material to the final consumer. The least profitable aspects of production – actually making physical products, tend to be done in poorer, peripheral countries, whereas the more profitable aspects, related to branding and marketing, tend to be done in the richer, developed, core countries.

The role of Transnational Corporations (TNCs) is particularly important

TNC logos

TNCs are companies that produce goods in more than one country, and they are oriented to global markets and global products, many are household names such as McDonald’s, Coca Cola and Nike. The biggest TNCs have annual revenues which are greater than the economic output of middle-income countries. Apple, for example, generates more income than Finland does every year, and many oil companies such as Shell and Exxon-Mobile generate revenue several times that of the poorer countries they extract from.

The global economy is Post Industrial

The global economy is increasingly ‘weightless’ (Quah 1999) – products are much more likely to be information based/ electronic, such as computer software, films and music or information services rather than actual tangible, physical goods such as food, clothing or cars.

The Call Centre is a common ‘post industrial’ work setting, taking over from the ‘factory’ in industrial society. The call centre is ‘instantaneously global – connecting workers immediately to clients, via IT.

The electronic economy underpins globalisation

Banks, corporations, fund managers and individuals are able to shift huge funds across boarders instantaneously at the click of a mouse. Transfers of vast amounts of capital can trigger economic crises.

global electronic economy

Related Posts

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Arguments for Trade as a Strategy for Development

‘Free’ trade* refers to the relative absence of government interference in the affairs of private businesses and the consumers who buy their products. Free trade depends on free trade agreements.

Free Trade agreements are policies established between countries and private businesses which make it relatively easy for companies to produce and sell goods in more than one country, so the ‘free’ in free trade means the freedom of businesses from the restrictive power of government.

Free trade.jpg
Free Trade – It’s about keeping goods circulating, and services of course!

Governments can restrict free trade across international boarders by doing the following:

  1. Imposing tariffs – which are taxes that nations impose on imports. Tariffs increase the cost of goods, and make it harder for companies to sell their goods abroad. (Quotas are similar but blunter instrument than tariffs, they are simply a limit which governments put on the number or value of imports they will accept from certain countries in any given time period)
  2. Subsidizing domestic industries – which are government hand-outs or tax breaks on domestic companies – if a government does this, then it makes domestic goods cheaper and foreign goods relatively more expensive – it’s effectively the opposite of tariffs.
  3. Imposing high taxes on profits – which reduces incentives for private companies to invest and produce goods.
  4. Having too many regulations – which require that companies pay workers minimum wages, do health and safety assessments, and take care of the environment.

It follows that Free trade agreements tend to focus on:

  1. Eliminating tariffs and quotas
  2. Eliminating government subsidies
  3. lowering taxes on profits
  4. Reducing regulation and protection.

Free trade opens up foreign markets and lowers barriers for foreign companies that otherwise might not be able to compete against local businesses. Without free trade agreements, there would probably be less trading between countries.

The idea of free trade goes back a long way

One of the most well- known historic proponents of free trade was Adam Smith. In his 1776 book The Wealth of Nations Smith argued that the ‘invisible hand’ of the free-market would ensure that producers produced what consumers wanted as efficiently as possible.

David Ricardo expanded on Smith’s ideas arguing that countries tended to have a comparative advantage in providing different goods and services and should do what they do better and cheaper than other countries, and in this way everyone benefits. For example, the U.K. climate is well-suited to growing apples, but not sugar-cane, and vie-versa for Jamaica, so it makes sense that two countries specialize in each crop and trade, rather than trying to grow everything themselves.

Modernisation Theory and Neoliberalism both argue that developing countries need to increase their share of world trade (export and import more) in order to develop, and both recognize that most developing countries have enormous potential to increase exports, given that they have a two important ‘competitive advantages’ over the West –an abundance of natural resources, which the West no longer has, and abundance of cheap labour.

However, the two theories have very different ideas about how poor countries should increase trade – modernization theory prefers aid to encourage trade, whereas neoliberalism is suspicious of aid, believing that poor countries should move straight to opening up the markets to attract TNC investment.

Modernisation Theory

Modernisation theory argues that increasing trade with other countries is a crucial part of ‘climbing the ladder of development’.

Initially, in phase two, or ‘the pre-conditions for take-off’, developing countries themselves have very low levels of capital and expertise, and so they require aid from the West, in the form of capital investment and western advice, which could help countries establish an industrial base, for example.

In the ‘take off’ phase (phase three) of Rostow’s model, countries will start to manufacture goods for export to other countries, and the ‘drive to maturity’ phase (phase four) sees earnings from exports reinvested in public infrastructure such as education, which results in a higher skilled workforce and further integration into the global economy.

After 60 years, the ‘age of high mass consumption’ should have been attained which means that countries are equal trading partners in the global market place.

Neoliberalism

Reid-Henry (2012) argues that neoliberalists see global free-trade markets as both the means and desired end for development.

Neoliberal development policy argues that developing countries need to create a ‘business-friendly’ environment in order to encourage inward investment from wealthy individuals and Transnational Corporations.

Reid-Henry suggests there are four key organizing principles of neoliberal policy:

  1. The governments of developing countries are expected to pull down all barriers to Western investment
  2. Workers in the developing world are expected to work hard and cheaply for Transnational Corporations
  3. Public services need to be privatized
  4. Social life should be organized around the profit motive.

Many developing countries have actually set up huge Export Processing Zones, or Free Trade Zones In order to attract TNCs developing countries have set up. These are special areas in that country, typically close to ports, which offer incentives for Transnational Corporations to invest, including tax breaks, low wages, and lax health and safety legislation.

In Neoliberal theory, corporations will help a country develop by providing jobs and training. The money earned will be spent on goods and services at home and abroad creating more money to invest and (limited) tax revenue for further development.

Evaluations 

It is true that there is an obvious relationship between trade and economic growth. The world’s top five countries, ranked by GDP, export (and thus profit from) 40% of the world’s goods. Meanwhile, the bottom 50 GDP countries export less than 1% of the world’s goods.

However, dependency theorists argue that ‘free-trade’ has historically brought more benefits to wealthy countries and corporations compared to developing countries.

Further Reading:

What is Free Trade? – quite a useful intro blurb from study.com

The case for free trade is as strong as ever – Bloomberg View, March 2016

IMF study warns free trade seen as benefiting only a fortunate few – Guardian article, 2016.

The impact of free trade agreements on the economies of developing countries – DFID 2015 – based on a ‘rapid assessment’ of 144 studies of FTAs between developed and developing countries, this recent report concludes that (a) in most cases the evidence isn’t strong enough to say what the effects of free trade are and (b) where the evidence is strong enough, it’s mixed.

*The reason I typically parenthesize the ‘free’ in ‘free trade’ is that for free trade to happen effectively it actually requires a substantial legal framework, which requires government and a legal system to which all parties agree – the most obvious aspect of which is the protection of private property – which basically says that if you make a profit, you can keep it, rather than having someone come and simply take it off you.