Your Teacher Said What?! (23 page)

Middlemen are a favorite villain of Progressives, because—in Progressive World—they don't add anything of value to a transaction. Never mind that without trucks, warehouses, shipping companies, more warehouses, more trucks, packaging companies,
more
warehouses,
more
trucks, and, of course, supermarkets—or even farmers' markets—it's pretty hard to get coffee or anything else into even a Progressive pantry.

The people pushing Fair Trade—by now it's always capitalized and sometimes made into a single word, “Fairtrade”—say they support free trade but spend a lot more time on its failures than on its successes. Even so, labeling coffee Fair Trade and charging an additional four or five bucks a pound for the stuff shouldn't be a huge problem for a free-market guy like me. If people want to pay a premium, why not?

There, are, it turns out, several reasons for a free-market purist to object to the fair-trade concept—and only one of them is that it sounds so patronizing.

 

“Blake, what would you call something that wasn't a fair trade?”

“An unfair one?”

 

Exactly. But the sneering attempt of fair-trade coffee (or fair-trade anything) to stigmatize any other sort is the least of its problems. More important is that it replaces the enormous power of the market to allocate resources efficiently with a bunch of good intentions—and everyone knows where they lead. Fair trade, by setting a floor price on coffee beans, certainly offers an incentive to farmers to grow them. But the difference between the fair-trade price and the market price is nothing more than charity; and worse, it is charity offered only to farmers who agree to continue producing the same stuff, in the same way, that made them poor—and eligible for charity—in the first place. This isn't just theory. Every one of the fair-trade licensing organizations discourages diversification and mechanization, pesticides, fertilizers—you name it. Coffee farms, to qualify as fair-trade suppliers, have to be smaller than twelve acres, and they're not permitted to employ any full-time staff.

And even as charity, it's not exactly a success story. Only about 5 percent—
5 percent
—of the fair-trade price actually makes it back to the producers anyway. Partly this is because the raw commodity is only part of the final product. And partly it's because of the cost of fair trade itself. An executive at the biggest fair-trade coffee cooperative in Guatemala is on record saying that “after paying for the cooperative's employees and programs, nothing remained of the Fairtrade premiums to be passed on to the individual farmers.”

Worst of all, fair trade discourages
any
sort of innovation, even the sort that results in the kind of expensive coffee that is (to really devoted coffee drinkers) actually worth a higher price. Fair trade sets a minimum of $1.26 a pound for green (i.e., unroasted) coffee beans, which is a lot more than the market price for ordinary coffee but a lot less than the $1.60 or more paid for high-quality beans. What this means is that consumers who have bought into the fair-trade propaganda are not only buying inferior coffee but are also refusing to buy coffee that puts even more of their money into the hands of coffee producers. The answer isn't reducing their exposure to free markets: As William Easterly of NYU's Development Research Institute—not exactly a hotbed of conservative thought—writes, “the parts of the world that are still poor are suffering from too little capitalism.”

 

It's not very hard to figure out why Colombia is a better place to grow coffee than, say, Kansas. Though seventy different countries are home to coffee farms and plantations, all of them are located in a pretty narrow geographic band, from about twenty-three degrees north to maybe twenty-five degrees south—Havana to São Paulo—which is the only place the coffee berries can grow. Since most of the world's coffee drinkers are located outside the coffee belt, the countries within it enjoy a commercial advantage that explains why millions of their farmers are able make their livings growing and, less frequently, roasting and exporting coffee beans.

This kind of advantage is what economists call an
absolute advantage
, and it applies to all sorts of things that are found not just in supermarkets but also in your average ten-year-old's closet.

 

“Blake?”

“Yes, Daddy?”

“Go up to your bedroom and pick out ten of your shirts, then bring them down here.”

Here's the list of countries in which Blake's assortment of T-shirts, button-downs, and turtlenecks were manufactured: China, Vietnam, Indonesia, Pakistan, China (again), India, Bangladesh, Costa Rica, India (again), and Mexico.

 

“Why do think so many of your shirts were made in these countries?”

“Because they're good at making them?”

 

They sure are. The United States imports more than $100 billion worth of clothes every year, and despite our clothing bills, only a small fraction of it ends up in one Kernen closet or another. The reason that so much of it comes from developing countries is, as Blake guessed, that they're good at it. Their absolute advantage isn't, however, that Honduran or Chinese or Bangladeshi clothing factories are better or more up to date than those in the United States but that they are a
lot
cheaper to run. The wages paid to workers in those countries are so much lower that it is almost impossible for Americans to compete (which is a subject for another book). It's no great trick to show Blake that the reason her tie-dyed V-neck only cost $4.99 to buy is that it's just plain cheaper to make it in Vietnam than in North Carolina—though it can confuse the average member of Congress.

However, a whole lot of other things we import from other countries can be made even more inexpensively here, which
really
confuses a lot of members of Congress. The reason we buy so many gazillion gallons of imported soft drinks is not that Mexican bottling plants are more efficient than those in the United States; in fact, those bottling plants south of the Rio Grande are making the same Pepsi-Cola, using the same sort of factories, as those in the United States. The reason is the counterintuitive concept known as
comparative advantage.

The idea of comparative advantage is centuries old, dating back to (at least) 1817, when an economist named David Ricardo
³³
used it to explain why, even though both wine and cloth were cheaper to make in Portugal than in Britain, Britain imported only wine from Portugal. Cloth, you see, was only a little cheaper to make in Portugal, while wine was much cheaper. It made sense for the Portuguese to specialize in the area where they had the biggest edge—the largest comparative advantage—and make wine, while buying cloth from British factories.

Inspired by reading about Ricardo, I decided to explain to Blake why the United States imports so much stuff from overseas that we are perfectly capable of making at home. Out came the pencils and paper, while Blake managed to choke down her groans.

 

“Have you ever heard the expression ‘You can't compare apples and oranges'?”

“Yup.”

“Well, we're going to do just that. Let's imagine two different farms—”

“Where are they?”

“Doesn't matter.”

“I mean, are they in different states, or different countries?

“Okay. Let's say that they're in different countries. One is in the USA, and the other's in—”

“South Africa.”

(I should point out that the World Cup was going on while this particular exercise was under way.)

“Okay. South Africa. Now let's say that the United States farm can harvest four hundred apples a month and two hundred oranges, while the South African farm can harvest two hundred apples and fifty oranges.”

“Okay.”

“Let's make a chart.”

“Now, which can grow the most oranges in a month?”

“The U.S., of course.”

“But the U.S. can also make the most apples, right?

“Right.”

“So what's the most apples
and
oranges we can get out of these two farms?”

“Well, six hundred apples and two hundred fifty oranges?”

“Okay. Now how about this: The farmers can decide to plant more of one kind of tree than another, but if the South African farmer decides to shift from apples to oranges, he's going to lose four apples for every orange he grows. On the other hand, the American farmer only loses two apples for every orange
he
grows. Advantage U.S., right?”

“He could grow more oranges.”

“But the South African farmer has the same advantage in apples. If he stops growing oranges completely, he's going to get four apples for each orange he gives up. So by giving up his fifty oranges, he gets . . . ?”

“Two hundred more apples. Four hundred in all.”

“And now the American farmer can grow all the oranges he wants.”

Time for a new chart:

The result is forty more apples
and
thirty more oranges, all for the same amount of work on the same amount of land. American oranges can be traded for South African apples, and everyone is better off,
even though the most efficient apple farm isn't growing the most apples.

This is why free trade is so important and why the idea of local sufficiency in food is such a dangerous idea. And when I say “dangerous,” I don't mean just to everyone's wallet.

Around the world, 850 million people are undernourished. Not obese, undernourished. A lot of Progressives—the sort that are reflexively against any sort of technological or commercial progress—argue that this is because of a lot of unjust exploitation by big agricultural businesses who have bid up the price for food. They are (surprise!) wrong. Almost all of the people in the world who are just one harvest away from famine couldn't care less about the world market price for corn or rice or soybeans. All of them, by definition, have
some
comparative advantage, but without any ability to trade whatever is produced by that advantage, they are doomed to chronic poverty and malnutrition.

But at least they're organic (poor farmers can't afford either fertilizer or pesticides, so their food is as organic as anything Michael Pollan eats), local (more than 70 percent of African rural households live more than a thirty-minute walk from the nearest all-weather road), and very, very slow.

 

Though we live less than an hour away from America's theater capital, Penelope and I don't get to see many Broadway shows, mostly because of the early-to-bed-early-to-rise demands of
Squawk Box
's schedule. However, after the tenth time my friend Barry Habib insisted that the Kernens needed to spend an evening at the theater, I couldn't say no. The evening in question was a Saturday-night performance of
Rock of Ages
, a “ jukebox musical” with songs from 1980s bands like Journey, Twisted Sister, and Bon Jovi—and Barry knew something about the show because he was the musical's lead producer.