Fair Trade and Dead Aid

“My Voice Can’t Compete with an Electric Guitar” says Robert Joustra

Things that make us feel better don’t always work.

Take two of the most venerated icons in Western foreign policy: fair trade and foreign aid.

Few injunctions to the moral person seem more pressing-trade fairly, give to the poor-and religious people, to their credit, can push these the most. After all, Jesus said to also give your robe to the man who asks for your coat. This instinct drives the aid industry and the increasing pressure on developed governments to give more, assuming that the unwillingness of the developed world to part with its wealth causes the developing world’s problems-if only we bought more fair trade, if only we gave more generously.

But this isn’t the message emerging from prominent global economists like Paul Collier. In The Bottom Billion, Collier argues that fair trade is really foreign aid masquerading as a new model of international trade. He writes, “The price premium in fair trade products is a form of charitable transfer… the problem with it, as compared to just giving people the aid in other ways, is that it encourages recipients to stay doing what they are doing” (163). The fair trade brand exists because the global market somehow masks the true cost of production-which is to say the people who do the actual production do not receive the appropriate dividends.

This is, in short, unprofitable work, and subsidizing unprofitable and undiversified economies is the surest recipe for ensuring that those economies remain dependent on that subsidy. Collier writes, “They get charity as long as they stay producing the crops that have locked them into poverty” (163). Such charity may seem benevolent in the short term, but in the long term, it may retard the growth and diversification of economies in the developing world. At best, the fair trade brand is an interesting viral marketing campaign which alerts us to the critical reformations that must be made to the imbalance in global trade and finance. At worst, it’s a false populist optimism which reinforces the prevailing economic order-the proverbial band-aid for the cancer patient. What we need, as both Joseph Stiglitz and Paul Collier agree, is fairer and freer trade, ideas which mostly have not worked because they have never really been tried.

Foreign aid has also come under siege in the past several years, most recently and impressively by Dambisa Moyo in her slim but punchy read, Dead Aid. Moyo tackles the presumption that exponential increases in foreign aid will solve the crisis of development on the African continent. After decades of ever-increasing aid agendas, she points out, the continent is far worse off than it was before aid ever came. The counter-argument, of course, is that aid has come with too many strings: tied aid, a form of subsidy which requires aid recipients to buy products from the donor country; loans with interest rates that cripple the economies of developing countries in repayment; or the much villainized structural adjustment, which required the reformation of developing economies in a Chicago School imagination. Many argue that if we simply gave away the aid with no strings attached, forgave the debt and got our neo-colonial noses out, Africa could certainly be rescued.

But even while admitting to the shady aid practices of the past, Moyo is not so enthusiastic about this Bono-style cash dump. Moyo’s argument is the classic counter-welfare case: large-scale infusions of cash infantilize economies and governments, ironically reducing accountability. Citing Collier’s research, Moyo argues that aid does not merely go to corrupt governments, but actually has a corrupting influence on governments. Those governments whose principle revenue comes from taxation are inherently more accountable to their population. But without such accountability to domestic institutions, and with the checks and balances of foreign lending institutions spotty, at best, abysmal governance in corrupt governments is propped up by a virtually unlimited stream of cash.

Even well-intentioned and practical aid, like the recent Hollywood mosquito-net campaign, can have unintended side effects on receiving economies. Moyo helps us imagine how the sudden infusion of hundreds of thousands of mosquito nets will affect a domestic economy. Yes, initially, every household will have a net. But what happens to the domestic producers of such nets who cannot-surely-compete with the cost of subsidized Hollywood benevolence? Domestic net production seizes, causing joblessness and poverty. Then, when these nets need replacement in five years, the cycle starts again. Another Hollywood campaign, another infusion-the cycle of aid-dependent poverty continues.

… the fair trade brand and foreign aid are palliative care for a patient whose options are rapidly shrinking …

Moyo and Collier’s arguments are intentionally inflammatory, but they are also correct in many respects. The aid model is not working, and no large-scale cash infusion or debt forgiveness scheme is going to make it suddenly start working. The fair trade brand is too small-scale and ultimately regressive. Yet, like committed ideologues, we continue the practices that have long ago proven unsuccessful; as one prominent aid economist says in Moyo’s book, “My voice can’t compete with an electric guitar.” Aid has its new priestly caste wrapped up in the Hollywood powerful and rock stars of the world, but we need a new hermeneutic to read and practice development, one which takes the responsibility and capacity of domestic economies seriously and ceases the degradation of African markets and governance through easy and inflationary money. Our goal, in Moyo’s infectious visionary language, is a world without aid.

There is a danger in religious circles that as our consciences are reawakened, our intellects are not always so equally roused. These practices of fair trade and foreign aid have come under considerable attack in the last few years, mitigating the enthusiasm of fair trade and foreign aid advocates but also-importantly-pointing to a principle of social and cultural change that is much in need of recovery. Foreign affairs do not need Band-aids hastily slapped on by fringe grassroots populists, but long-term substantive critiques of the global social and political architecture.

We need what one Christian politician of the last century called an architectonic critique and what Cardus calls the renewal of (North American) social architecture. The system is certainly broken, but the fair trade brand and foreign aid are palliative care for a patient whose options are rapidly shrinking. There may well be solutions to some of the endemic problems that vex the international order, but as long as our consciences are salved by feel-good coffee branding and knee-jerk check writing campaigns, we won’t take the hard look we need at the architecture of global capitalism and bring about the social innovation that is necessary for genuine architectonic reformation.

Writer: Robert Joustra is a Researcher with Cardus, serving as Associate Editor of Policy in Public. He lectures in international politics and foreign policy at Redeemer University College and is currently pursuing a PhD in international politics at the University of Bath. He is astonishingly well-versed in Norse mythology, central Asian migrations from the 5th to 17th century and emergent science fiction series since the 1970’s. For the amusement of posterity he keeps a record of his research, topical interests and existential crises at Fuhd Me: A PhD Blog (pronounced F’hud, phonetic for PhD).

If that got you fired up, you need to watch Stephen Lewis and Paul Collier debate Hernando De Soto and Dambisa Moyo at the Munk Debates: Be it Resolved that Foreign Aid Does More Harm than Good. Copyright © 2009 Cardus. All Rights Reserved.

This article originally appeared in Comment magazine, the opinion journal of CARDUS: www.cardus.ca/comment

3 Comments to Fair Trade and Dead Aid

1. Very thought provoking. There is no denying it when it comes from such a powerful and credible source like Dambisa Moyo.

   Call me old fasioned but I’m always suspicious when something gets very trendy and feel good and people start thumping the table about it and saying “you musn’t eat this chocolate or drink that coffee”. I’m also suspicious of the bona fides of some of this fair trade stuff.

   Let’s get our eyes back on the main game.
Peter B on November 26th, 2009

2. Hi there Robert,

   Thanks for this really well written article. You raise some important issues.

   Your use of two well- known books by two respected development authors makes for an interesting, if limited, read. I think the article failed to represent the full scope of the arguments around Fair Trade and Foreign Aid. As you probably know, it is no where near as clear cut as you make it. Not withstanding World Bank and capitalist propaganda, most research identifies the importance of aid and fair trade in development. Both foreign aid and fair trade are vital to current visions of global justice.

   I absolutely agree that we need a reformation but very much argue that paliative care is not a distraction from this. It would obviously be wrong to deny a suffering patient palliative care while we wait to find the cure for their ills.

   I really don’t want to be unduly harsh, but I feel it is a little irresponsible to talk of global reformation without giving some solid concrete ways for this to occur. At least Fair Trade and Aid do this. I fear in this article you have just given a whole lot of people more reason to sit back and wait for Jesus’ return.

   Lucy
Lucy AR on November 27th, 2009

3. Hmmm? I’m pretty sure that anyone deciding to stop caring and wait for the second coming isn’t doing so because of anything written here. The problem is so overwhelming that no one person can get there head around it. I can’t imagine a five hundred word article that would explain the situation so effectively that I would stop buying things I didn’t need and stop taking profit with no effort. Every incredible deal comes because someone somewhere had to work for less just to survive.

   Recently I was invited to invest money in a scheme that would double my money in only 90 days. It’s a company who claims to be helping people realize the great American dream, to own a home. They are buying foreclosures for pennies on the dollar and then reselling them three or four times over. Everyone in the middle makes money. The poor slob who lost it gets nothing, and the new owner gets it for a little less than market value and feels great about that. So, I could put in 30G’s and get back 60 in just 90 days, with nothing more than the push of a button. That’s unbelievable, but people are going for it. it’s a feeding frenzie. Shoot, I lost a whack last year from my retirement savings, I should just get some of it back, right? Wrong. That kind of thinking just feeds the monster.
Wayne on November 30th, 2009

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