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Fairtrade: Better Solution to Underdevelopment

Introduction

Fairtrade®: Definition

With the rise in globalization, opportunities for trade have expanded tremendously, allowing for cooperation between organizations on a global level, and reinforcing international partnerships. As a result, the necessity to create homogenous standards for interacting in the global economic environment has emerged. Thus, the platform for building the environment of Fairtrade® has emerged. According to Tallontire (2002), Fairtrade® can be defined as the approach that fosters “responsible business practice in trade between developed and developing countries, which also include organic production, environmental codes, forest certification, and ethical sourcing initiatives of major Western retailers” (p. 13). Therefore, the notion of the Fairtrade® boils down to the collection of standards that serve to simplify the key transactions performed in the global economic context to enhance trade.

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However, the concept of Fairtrade® can also be approached from another angle. Le Mare (2008, p. 1923) defines the subject matter as “a trading partnership based on dialogue, transparency, and respect, that seeks greater equity in international trade.” Due to the focus on the improvement of social conditions and the introduction of fair principles for paying for labor, as well as expanded opportunities for product and service improvement, Fairtrade® can be considered superior to the rest of the existing solutions to underdevelopment, including free trade.

Key Principles

The phenomenon of Fairtrade® is quite new, yet it has already gained the momentum needed for key stakeholders to recognize its advantages. Developed by the informal organization known as FINE, Fairtrade® seeks to resolve some of the main problems stemming from the existing method of conducting major economic activities. For instance, Fairtrade® strives to address the unfair wealth distribution problem, fights for the rights of producers from third-world countries, and encourages purchase from the said producers in order to reinforce sustainable development and foster stronger economic and cultural connections across the globe (De Pelsmacker et al., 2005). Although the described mission is quite noble, it also introduces certain shortcomings into the concept of Fairtrade®, thus making it disadvantageous in certain scenarios. The opportunities for introducing equality into trade with third-world countries is the main benefit of the Fairtrade® system, which is why the framework must be encouraged as the default system for collaboration in the global market, particularly, between companies from developing and developed countries.

Exploring Fairtrade®: Key Benefits

Key Advantages

The wage system is, perhaps, one of the crucial advantages of the Fairtrade® concept. Since Fairtrade® focuses extensively on the idea of redistributing wealth in a way that would imply greater equality, the approach toward calculating salaries and providing support to workers as the key stakeholders of the trade process is one of the doubtless advantages of Fairtrade®. Furthermore, the fact that Fairtrade® allows producers from third-world countries to benefit without the threat of their rights being ignored or abused by more powerful corporate entities is an admittedly strong advantage of Fairtrade®. According to Ronchi (2002), Costa-Rican co-operatives have received a significant economic boost with the introduction of the Fairtrade® principles into the economic interactions with first-world businesses.

The opportunities for institutional development, as well as the fostering of multiple partnerships, should also be counted as the advantages of the Fairtrade® model. Le Mare (2008) asserts that the use of the Fairtrade® principles entails a change that contributes to the social and economic development of the states where it is executed. Thus, the foundational principles on which Fairtrade® is based, namely, the concept of promoting economic growth and supporting third-world countries, allow addressing the problem of underdevelopment effectively.

In fact, the notion of fairness, which lies at the core of the Fairtrade® framework, appears to be a much better tool for handling the problem of underdevelopment. Indeed, given the nature of the latter phenomenon, namely, the presence of institutionalized discrimination and marginalization of specific nations and ethnic minorities, underdevelopment constitutes a crucial obstacle for third-world countries when organizations representing them enter the domain of the global economy (Wang and Chen, 2019). Combined with the lack of resources, issues with the absence of effective representation and communication systems define the high probability of failure and the imminent market risks (Baumann et al., 2012). In turn, Fairtrade® provides a chance at leveraging the specified disadvantages due to its specific focus on economic justice and the necessity to manage inequity.

Fairtrade®: Examining the Negative Aspects

Disadvantages

Unfortunately, some of the aspects of Fairtrade® could use more elaboration and greater scrutiny. Specifically, the fact that the system does not allow correcting some of the inequalities that have been institutionalized within specific communities or internalized by its members. For example, the study by Ronchi (2002) mentioned above established that the framework of Fairtrade® failed to support women as the participants in economic relationships, which could be explained by the low levels of enthusiasm and activity among women from the target community (Ronchi, 2002).

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In addition, some studies have pointed out that what Fairtrade® is trying to do is to take the moral high ground that will allow it to be deemed as ethically superior and, therefore, inherently more trustworthy and reliable than the traditional economic context. Specifically, by emphasizing that it represents an open system that grants charitable transfer to its third-world participants, Fairtrade® attempts at gaining an ethical monopoly within the global market. Consequently, Fairtrade® puts a moral onus on customers to use it as the only gateway to the ethical and morally justifiable system of trade-based interactions. As a result., the customers within the Fairtrade® system experience moral pressure to participate, yet Fairtrade® itself hardly strives to follow the principles that it promotes as foundational for ethical commerce. Specifically, Sidwell (2008, p. 9) points out that “it is hard to identify the difference between a direct charitable payment to a coffee community and the extra income provided by Fairtrade.” Thus, a conflict between the company’s intentions, which are admittedly noble, and its actions, which imply a rather forceful attempt at controlling its customers, misalign quite noticeably.

Finally, it is rather unfortunate that, in the contemporary discourse regarding the notion of Fairtrade®, the phenomenon in question is either seen as the only possible salvation for the global economy or dismissed entirely, with no middle ground provided. Ehrlich (2010) blames neoliberal economic trade frameworks and theoretical principles for the described state of affairs. Namely, Ehrlich (2010, p. 1014) notices that “studies have almost universally studied trade policy preferences unidimensionally respondents are assumed to either support free trade or oppose it.” Therefore, claiming that the application of the theoretical provisions and empirical standards of the Fairtrade® framework would be unreasonable as well given the possible adverse implications.

Negative Impact

In turn, considering the side effects of applying Fairtrade® to the global economic environment and, specifically, to the context of cooperation between first- and third-world countries, one should mention the possible economic risks to the existence of smaller companies operating in the same industry as Fairtrade® companies. Namely, since the Fairtrade® concept suggests that the prices should be lowered as a means of minimizing costs, the approach adopted along with the Fairtrade® philosophy may cause smaller organizations to face much more severe competition. Using the example of the Food and Beverage Industry, specifically, coffee production, Fridell et al. (2005, p. 11) explain that “conventional coffee production and exchange inevitably create problems for the financial viability of small-scale producers.” Namely, the increase in costs and the expansion of the Fairtrade® sector will inevitably oust small and medium entrepreneurs (SMEs) from their current environment: “As they are forced off the land, ownership becomes more concentrated, forcing those who were previously landowners into either the urban informal sector or the rural landless labor market” (Fridell et al., 2005, p. 11). Therefore, the threat to the economic well-being and, more generally, the very existence of companies functioning on a smaller scale represents one of the crucial negative effects of the Fairtrade® concept being implemented.

General Effects of Fairtrade®: Discussion

A brief overview of the current evidence on the effects of Fairtrade® will reveal that the framework at hand contributes to creating a level playing field for all participants, no matter what the economic status of their home country is. As a result, opportunities for fair representation and effective collaboration are created immediately. The specified outcome affects the issue of underdevelopment directly, in contrast to free trade, which merely focuses on minimizing barriers to international interactions in the legal and financial contexts (Makit, 2016). Thus, Fairtrade® ought to be preferred to the framework of free trade, which does not invite multiple options for companies from third-world countries. Nonetheless, while having generally positive and quite noble goals of lowering the bar for effective performance in the world market for third-world countries, as well as the attempt at securing the well-being of employees, the Fairtrade® concept is still quite underdeveloped. The fact that Fairtrade® implies a possible threat to the performance of SMEs, as well as individual entrepreneurs.

When considering the main problems with the Fairtrade® concept, one must mention the lack of empirical tests and the need to examine how the approach offered by it works in different economic settings. So far, the positive effects on the third-world countries and their economic development have been observed, with minor issues being limited to marketing costs (Lindsey, 2003). Specifically, Dragusanu et al. (2014, p. 227) emphasize that “some of the more recent private certifications may be little more than smart marketing and attempts to cash in on consumers’ willingness to pay for sustainably produced products.” Compared to free trade, Fairtrade® has a range of crucial advantages. The presence of a strong ethical paradigm and the focus on assisting organizations and individuals in developing countries is the main advantage that Fairtrade® has over the notion of free trade. Indeed, while both promote the concept of uninhibited economic transactions, the latter does not seek to assist economically struggling countries specifically (Watkins and Fowler, 2002). In turn, Fairtrade® offers an opportunity to support the economic growth within developing states, which makes it a morally preferable option.

However, compared to free trade, the Fairtrade® concept does not imply that the barriers between states should be reduced. Instead, it insists on the promotion of equal economic opportunities for all parties involved, which concerns primarily those affected by challenging economic conditions in their home market (Hira and Ferrie, 2006).. In turn, the free trade option actively reinforces the concept of creating a separate economic environment that is governed by simplified economic and financial standards, thus making it possible for all participants to become actively engaged in crucial activities and financial transactions (Ruben et al., 2009). Thus, the shift from the financial issues covered by free trade to socioeconomic that the Fairtrade® addresses suggest a more nuanced development of trade relationships.

At the same time, while Fairtrade® has proven to be sufficiently more effective than free trade, the existing range of evidence appears to be far too scanty to make any far-reaching conclusions presently. For instance, Smith (2009) has pointed out that some scholars have questioned the feasibility of Fairtrade® as a self-sustaining and effective replacement of the free trade concept. Particularly, Smith (2009, p. 29) argues that “Fair Trade has not lived up to its name as it has been promoted using misleading and scant evidence.” Indeed, the range of examples supporting the significance of Fairtrade® as a viable substitute for free trade is quite scarce.

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Nevertheless, due to its explicit focus on social issues, Fairtrade® appears to be far more suitable for managing the problem of underdevelopment than the notion of free trade. While free trade offers a great range of opportunities for organizations worldwide and removes the limitations that state-specific economic regulations impose on participants, it does not affect the problem of economic inequality at its core (Hernández, 2019). Namely, unlike Fairtrade®, free trade does not focus on restoring equity and offering every participant equal opportunities, thus leveling the playing field and providing additional support to those countries that suffer particularly strongly from economic issues, such as unequal wealth distribution, high poverty rates, inflation, and similar concerns.

The role of Fairtrade® compared to free trade has risen particularly fast with the development of the pandemic and the increase in restrictions imposed on economic interactions. Since countries with low GDP and a smaller range of economic opportunities suffer to the greatest extent from the observed problem, the promotion of Fairtrade® appears to be especially beneficial in the modern global economy compared to the principles of free trade. Therefore, Fairtrade® must be introduced into the global market and tested with greater diligence and attention to detail. Thus, the main issues with the management of interactions and trade-based relationships within the Fairtrade® framework will be effectively identified, and solutions for managing them appropriately will be produced.

Furthermore, when comparing the concept of Fairtrade® to the notion of free trade, one must mention the fact that the latter does not promote the agenda of eliminating global poverty, unlike the Fairtrade® does. Watkins and Fowler (2002) specifically emphasize the focus on reducing global poverty and, at best, making the described concern inexistent in the context of the global economic and socioeconomic setting inexistent remain among the foundational goals on which the bulk of the Fairtrade® concept was based. Since the problem of economic underdevelopment is tied inherently to poverty and the resulting unemployment, absence of economic development, and the associated effects, the inclusion of the principles of Fairtrade® into the setting of the global economy will allow states with low GDP and development index to participate in trade and gain benefits from it.

Conclusion

The concept of Fairtrade® is often compared to the notion of free trade, yet the two phenomena are rather distant from each other. From the perspective of managing underdevelopment in third-world countries and developing nations, the introduction of the Fairtrade® concept allows leveling the opportunities in a way that offers a greater range of options for success to companies from developing states. Thus, the promotion of equity, as opposed to strict equality, enables every participant disregarding the economic states of their state to engage in economic relationships and expand their business to gain traction in the global community. Therefore, Fairtrade®’s philosophy and framework are expected to have a much greater impact on the promotion of agency among trade relationships participants from underdeveloped third-world states. Furthermore, the Fairtrade® setting introduces opportunities for the participants to elevate above the economic and financial situation observed in their home market and grasp the opportunities that collaboration with global partners provides.

The observed outcomes become possible due to the presence of the focus on support for developing states and the emphasis on the importance of equity in economic relationships. Compared to the free-trade philosophy, which prioritizes creating a Consequently, in the long-term, the introduction of the principles of Fairtrade® will allow organizations from developing countries to benefit to a substantial extent. For this reason, Fairtrade® needs to be seen as a better solution to underdevelopment than the concept of free trade and encouraged accordingly on a global scale.

Reference List

Baumann, F., Oschinski, M. and Staehler, N. (2012) ‘On the effects of fair trade on the welfare of the poor’, Journal of International Development, 24, pp. 159-172.

De Pelsmacker, P., Driesen, L. and Rayp, G. (2005) ‘Do consumers care about ethics? Willingness to pay for fair‐trade coffee’, Journal of Consumer Affairs, 39(2), pp. 363-385.

Dragusanu, R., Giovannucci, D. and Nunn, N. (2014) ‘The economics of fair trade’, Journal of Economic Perspectives, 28(3), pp. 217-36.

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Ehrlich, S. D. (2010) ‘The fair trade challenge to embedded liberalism’, International Studies Quarterly, 54(4), pp. 1013-1033.

Fridell, M., Hudson, I. and Hudson, M. (2008) ‘With friends like these: the corporate response to fair trade coffee’, Review of Radical Political Economics, 40(1), pp. 8-34.

Hernández, O. U. (2019) ‘Political economy of fair trade and development theory: implications in the Costa Rican coffee market (1990-2017)’, Revista Relaciones Internacionales, 13, pp. 1-7.

Hira, A. and Ferrie, J. (2006) ‘Fairtrade: Three key challenges for reaching the mainstream’, Journal of Business Ethics, 63(2), pp. 107-118.

Le Mare, A. (2008) ‘The impact of fair trade on social and economic development: a review of the literature’, Geography Compass, 2(6), pp. 1922-1942.

Lindsey, B. (2003) Grounds for complaint: understanding the coffee crisis. Washington DC: Cato Institute.

Makita, R. (2016) ‘A role of fair trade certification for environmental sustainability’, Journal of Agricultural and Environmental Ethics, 29(2), pp. 185-201.

Ronchi, L. (2002) The impact of Fair Trade on producers and their organizations: a case study with Coocafé in Costa Rica. Policy Research Unit. Sussex: University of Sussex.

Ruben, R., Fort, R. and Zúñiga-Arias, G. (2009) ‘Measuring the impact of fair trade on development’, Development in Practice, 19(6), pp. 777-788.

Sidwell, M. (2008) Unfair trade. London: Adam Smith Institute.

Smith, A. M. (2009) ‘Evaluating the Criticisms of Fair Trade’, Economic Affairs, 29(4), pp. 29-36.

Tallontire, A. (2002) ‘Challenges facing fair trade: which way now?’, Small Enterprise Development, 13(3), pp. 12-24.

Wang, E. S. T. and Chen, Y. C. (2019) ‘Effects of perceived justice of fair trade organizations on consumers’ purchase intention toward fair trade products’, Journal of Retailing and Consumer Services, 50, pp. 66-72.

Watkins, K. and Fowler, P. (2002) Rigged rules and double standards: trade, globalization, and the fight against poverty. Boston, MA: Oxfam.

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