The price of being fair

Consumers are keen to buy fairly traded goods and the higher prices we are prepared to pay can be a

Like most projects in international development - aid, debt relief, microfinance - fair trade can help reduce poverty. What it cannot do is effect fundamental change in the world trading system. I tend to be suspicious of attempts to change market outcomes by fixing prices, which is what fair trade boils down to. But, in practice, the armchair economists' objections that high fixed prices lock farmers into overproducing (rather than abandoning crops with little future) seem a bit overdone.

Farmers selling goods certified under the Fairtrade label can only sell as much at the Fairtrade price as they have contracts for. I have visited cotton farmers in Mali who were fully aware of the dangers of relying too much on one crop, even with a higher price, and continued to rotate cotton with peanuts, maize, sesame seeds and so on.

But, now that Fairtrade is gaining a larger share of the total market, the threat could become more serious. Unless every single coffee buyer in the world, for example, buys the same amount of coffee as before at a higher price, Fairtrade may well be in the uncomfortable position of closing its books to new applicants or certifying farmers who cannot get any contracts at a Fairtrade price.

The risk of overproduction through price- fixing is not theoretical. Governments in Bangla desh and elsewhere guaranteed absurdly high prices for jute farmers, with the result that more and more jute was produced and shovelled on to the world market and prices collapsed. What farmers need to do - and Fairtrade could be a bit more explicit in encouraging them - is to use Fairtrade income to improve the quality of existing crops, diversify into others or move out of farming altogether. I was heartened to be told of Ecuadorean coffee farmers who felt that Fairtrade would give their children a choice not to grow coffee.

On this subject, a useful if little-known aspect of Fairtrade is the "social premium", a payment the co-operatives receive to be spent collectively. There are well-documented problems with Fairtrade's predilection for dealing only with co- operatives (farmers have usually been organised otherwise). But where it works, it can work. One Malian village I visited used its premium to build a crop store that enabled it to distribute supplies of grain evenly over the year.

Fairtrade has no way to make sure that farmers diversify or improve quality, and I have some sympathy with companies such as Green & Black's, which say they aid farmers more by helping them to improve quality and go organic rather than just guaranteeing a price.

Fairtrade is fine as far as it goes. I part company where a moderately sensible market intervention is dressed up as part of a mission for global "trade justice". Itself a creation of NGOs, the UK Fairtrade Foundation sits on the board of the Trade Justice Movement, a coalition of dozens of NGOs. The movement's analysis of trade - that poor countries are prevented from trading by unfair rules, tariffs and subsidies - is wrong and its suggested solutions are routinely misguided.

With a few exceptions (cotton in particular), rich nations' trade tariffs and subsidies do not significantly hurt developing-world farmers, and certainly not those in Africa. The products most African farmers grow are not subsidised heavily by Europe and the US, which concentrate their support on temperate crops such as beet and wheat.

Even in crops where rich and poor compete head-on, pursuing trade justice often means not backing poor against rich but weighing in on the side of one set of developing countries against another. Take the NGO cause céèbre of rice, of which there are now Fairtrade versions. Famously, the markets in Accra, Ghana are piled ceiling high with subsidised American rice that undercuts domestic produce. (Printing the Stars and Stripes on the sacks, as American rice exporters often do, is a particularly nice touch.) NGOs lead a steady stream of pliable celebrities and journalists round by the nose and invite them to be outraged.

But if they look carefully in the markets, they will also see rice from Vietnam and Thailand that is competitive without subsidy. If the US never exported another grain of rice, Ghanaian farmers still could not compete with Vietnamese and Thai imports. Protecting them with tariffs merely means transferring money to the rice farmers from everyone else in Ghana, by making them pay more for a staple food.

Prices in one of Fairtrade's biggest markets, coffee, were driven down a few years ago by huge expansion of cheap production in Vietnam and Brazil, the former helped by its government. One solution proposed by NGOs in the trade justice coalition, including Oxfam, is to hold up prices by "managing supply" - in other words, to form a global coffee cartel.

It is hard enough holding together a cartel like Opec, where countries either have the commodity or they don't. Trying to support a global price in a commodity where production can be expanded rapidly almost always fails. The previous coffee cartel, along with a whole bunch of similar commodity arrangements in decades gone past, collapsed precisely for that reason.

And can we seriously envisage going to Vietnam, a country poorer than Mexico, Ecuador and Peru, whose farm exports have helped it reduce poverty at a spectacular rate, to tell it to cut production? How is this trade justice? Why do Vietnam's coffee farmers matter less than Mexico's?

Fairtrade can be a useful support to farmers if it pulls them into the existing world trading system and helps producers diversify and go up the value chain. But it cannot function as a club whose members take on the hopelessly unrealistic and misguided quest of slaying the chimerical beast of trade injustice.

Alan Beattie is world trade editor of the FT

Jeremy Corbyn. Photo: Getty
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Lexit: the EU is a neoliberal project, so let's do something different when we leave it

Brexit affords the British left a historic opportunity for a decisive break with EU market liberalism.

The Brexit vote to leave the European Union has many parents, but "Lexit" – the argument for exiting the EU from the left – remains an orphan. A third of Labour voters backed Leave, but they did so without any significant leadership from the Labour Party. Left-of-centre votes proved decisive in determining the outcome of a referendum that was otherwise framed, shaped, and presented almost exclusively by the right. A proper left discussion of the issues has been, if not entirely absent, then decidedly marginal – part of a more general malaise when it comes to developing left alternatives that has begun to be corrected only recently, under Jeremy Corbyn and John McDonnell.

Ceding Brexit to the right was very nearly the most serious strategic mistake by the British left since the ‘70s. Under successive leaders Labour became so incorporated into the ideology of Europeanism as to preclude any clear-eyed critical analysis of the actually existing EU as a regulatory and trade regime pursuing deep economic integration. The same political journey that carried Labour into its technocratic embrace of the EU also resulted in the abandonment of any form of distinctive economics separate from the orthodoxies of market liberalism.

It’s been astounding to witness so many left-wingers, in meltdown over Brexit, resort to parroting liberal economics. Thus we hear that factor mobility isn’t about labour arbitrage, that public services aren’t under pressure, that we must prioritise foreign direct investment and trade. It’s little wonder Labour became so detached from its base. Such claims do not match the lived experience of ordinary people in regions of the country devastated by deindustrialisation and disinvestment.

Nor should concerns about wage stagnation and bargaining power be met with finger-wagging accusations of racism, as if the manner in which capitalism pits workers against each other hasn’t long been understood. Instead, we should be offering real solutions – including a willingness to rethink capital mobility and trade. This places us in direct conflict with the constitutionalised neoliberalism of the EU.

Only the political savvy of the leadership has enabled Labour to recover from its disastrous positioning post-referendum. Incredibly, what seemed an unbeatable electoral bloc around Theresa May has been deftly prized apart in the course of an extraordinary General Election campaign. To consolidate the political project they have initiated, Corbyn and McDonnell must now follow through with a truly radical economic programme. The place to look for inspiration is precisely the range of instruments and policy options discouraged or outright forbidden by the EU.

A neoliberal project

The fact that right-wing arguments for Leave predominated during the referendum says far more about today’s left than it does about the European Union. There has been a great deal of myth-making concerning the latter –much of it funded, directly or indirectly, by the EU itself.

From its inception, the EU has been a top-down project driven by political and administrative elites, "a protected sphere", in the judgment of the late Peter Mair, "in which policy-making can evade the constraints imposed by representative democracy". To complain about the EU’s "democratic deficit" is to have misunderstood its purpose. The main thrust of European economic policy has been to extend and deepen the market through liberalisation, privatisation, and flexiblisation, subordinating employment and social protection to goals of low inflation, debt reduction, and increased competitiveness.

Prospects for Keynesian reflationary policies, or even for pan-European economic planning – never great – soon gave way to more Hayekian conceptions. Hayek’s original insight, in The Economic Conditions of Interstate Federalism, was that free movement of capital, goods, and labour – a "single market" – among a federation of nations would severely and necessarily restrict the economic policy space available to individual members. Pro-European socialists, whose aim had been to acquire new supranational options for the regulation of capital, found themselves surrendering the tools they already possessed at home. The national road to socialism, or even to social democracy, was closed.

The direction of travel has been singular and unrelenting. To take one example, workers’ rights – a supposed EU strength – are steadily being eroded, as can be seen in landmark judgments by the European Court of Justice (ECJ) in the Viking and Laval cases, among others. In both instances, workers attempting to strike in protest at plans to replace workers from one EU country with lower-wage workers from another, were told their right to strike could not infringe upon the "four freedoms" – free movement of capital, labour, goods, and services – established by the treaties.

More broadly, on trade, financial regulation, state aid, government purchasing, public service delivery, and more, any attempt to create a different kind of economy from inside the EU has largely been forestalled by competition policy or single market regulation.

A new political economy

Given that the UK will soon be escaping the EU, what opportunities might this afford? Three policy directions immediately stand out: public ownership, industrial strategy, and procurement. In each case, EU regulation previously stood in the way of promising left strategies. In each case, the political and economic returns from bold departures from neoliberal orthodoxy after Brexit could be substantial.

While not banned outright by EU law, public ownership is severely discouraged and disadvantaged by it. ECJ interpretation of Article 106 of the Treaty on the Functioning of the European Union (TFEU) has steadily eroded public ownership options. "The ECJ", argues law professor Danny Nicol, "appears to have constructed a one-way street in favour of private-sector provision: nationalised services are prima facie suspect and must be analysed for their necessity". Sure enough, the EU has been a significant driver of privatisation, functioning like a ratchet. It’s much easier for a member state to pursue the liberalisation of sectors than to secure their (re)nationalisation. Article 59 (TFEU) specifically allows the European Council and Parliament to liberalise services. Since the ‘80s, there have been single market programmes in energy, transport, postal services, telecommunications, education, and health.

Britain has long been an extreme outlier on privatisation, responsible for 40 per cent of the total assets privatised across the OECD between 1980 and 1996. Today, however, increasing inequality, poverty, environmental degradation and the general sense of an impoverished public sphere are leading to growing calls for renewed public ownership (albeit in new, more democratic forms). Soon to be free of EU constraints, it’s time to explore an expanded and fundamentally reimagined UK public sector.

Next, Britain’s industrial production has been virtually flat since the late 1990s, with a yawning trade deficit in industrial goods. Any serious industrial strategy to address the structural weaknesses of UK manufacturing will rely on "state aid" – the nurturing of a next generation of companies through grants, interest and tax relief, guarantees, government holdings, and the provision of goods and services on a preferential basis.

Article 107 TFEU allows for state aid only if it is compatible with the internal market and does not distort competition, laying out the specific circumstances in which it could be lawful. Whether or not state aid meets these criteria is at the sole discretion of the Commission – and courts in member states are obligated to enforce the commission’s decisions. The Commission has adopted an approach that considers, among other things, the existence of market failure, the effectiveness of other options, and the impact on the market and competition, thereby allowing state aid only in exceptional circumstances.

For many parts of the UK, the challenges of industrial decline remain starkly present – entire communities are thrown on the scrap heap, with all the associated capital and carbon costs and wasted lives. It’s high time the left returned to the possibilities inherent in a proactive industrial strategy. A true community-sustaining industrial strategy would consist of the deliberate direction of capital to sectors, localities, and regions, so as to balance out market trends and prevent communities from falling into decay, while also ensuring the investment in research and development necessary to maintain a highly productive economy. Policy, in this vision, would function to re-deploy infrastructure, production facilities, and workers left unemployed because of a shutdown or increased automation.

In some cases, this might mean assistance to workers or localities to buy up facilities and keep them running under worker or community ownership. In other cases it might involve re-training workers for new skills and re-fitting facilities. A regional approach might help launch new enterprises that would eventually be spun off as worker or local community-owned firms, supporting the development of strong and vibrant network economies, perhaps on the basis of a Green New Deal. All of this will be possible post-Brexit, under a Corbyn government.

Lastly, there is procurement. Under EU law, explicitly linking public procurement to local entities or social needs is difficult. The ECJ has ruled that, even if there is no specific legislation, procurement activity must "comply with the fundamental rules of the Treaty, in particular the principle of non-discrimination on grounds of nationality". This means that all procurement contracts must be open to all bidders across the EU, and public authorities must advertise contracts widely in other EU countries. In 2004, the European Parliament and Council issued two directives establishing the criteria governing such contracts: "lowest price only" and "most economically advantageous tender".

Unleashed from EU constraints, there are major opportunities for targeting large-scale public procurement to rebuild and transform communities, cities, and regions. The vision behind the celebrated Preston Model of community wealth building – inspired by the work of our own organisation, The Democracy Collaborative, in Cleveland, Ohio – leverages public procurement and the stabilising power of place-based anchor institutions (governments, hospitals, universities) to support rooted, participatory, democratic local economies built around multipliers. In this way, public funds can be made to do "double duty"; anchoring jobs and building community wealth, reversing long-term economic decline. This suggests the viability of a very different economic approach and potential for a winning political coalition, building support for a new socialist economics from the ground up.

With the prospect of a Corbyn government now tantalisingly close, it’s imperative that Labour reconciles its policy objectives in the Brexit negotiations with its plans for a radical economic transformation and redistribution of power and wealth. Only by pursuing strategies capable of re-establishing broad control over the national economy can Labour hope to manage the coming period of pain and dislocation following Brexit. Based on new institutions and approaches and the centrality of ownership and control, democracy, and participation, we should be busy assembling the tools and strategies that will allow departure from the EU to open up new political-economic horizons in Britain and bring about the profound transformation the country so desperately wants and needs.

Joe Guinan is executive director of the Next System Project at The Democracy Collaborative. Thomas M. Hanna is research director at The Democracy Collaborative.

This is an extract from a longer essay which appears in the inaugural edition of the IPPR Progressive Review.

 

 

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