Fair trade, for the unfamiliar, is a trade system that aims to have fair wages, participatory workplaces, environmental sustainability, public accountability, educate consumers, and respect for cultural identity. If you've ever purchased fair trade goods, you've probably notice that most of them are more expensive than their non-fair trade counterparts; things like tea, coffee, clothes. This isn't always the case, but it tends to be. This is caused by several factors, some of which I'd like to discuss.
One reason has to do with something I learned last semester at Chico State called full cost pricing. Basically what this means is that the price of a good should include more than just labor and resource cost. The cost should factor in things like social and environmental cost. At a normal fast food restaurant you pay $.99 for a cheeseburger which covers the cost of the ingredients, labor, transportation, and other production costs. Absent from this price are costs associated with the environmental and social impacts. With these costs, that $.99 cheeseburger now costs more, but is now produced is a sustainable way. The employees are able to earn a living wage, work in safe conditions, and the environment is managed in a way that can be sustained.
Current attempts to enact something resembling this revolve around putting a price on CO2 emissions. The most noteworthy idea that has been considered is the "Cap and Trade" legislation which passed the house a few years ago, but never stood a chance in the Senate, and therefore never became law. The idea behind this legislation was that it put a price on environmental impact, which would have led to more sustainable production of goods. Unfortunately, it wasn't passed, and even it had been written into law, it wouldn't have done anything to alleviate social impacts.
What we get to experience now is what is referred to in economics as a negative externality. An negative externality is this: Say my factory makes a widget and I sell that widget to someone in Country X. That's great for me, and great for Country X. We've both taken part in a beneficial transaction. Unfortunately, my factory dumps millions of gallons of pollution into a nearby river that runs behind your house. Because of this, you can't swim in that river, nearby vegetation dies, and you develop some sort of illness. Those are the externalities. You were in no way a part of this transaction, you never consented to any of our dealings, but you get to deal with the consequences of it. This is an important concept when discussing why fair trade might be more expensive: many of these externalities are either factored into the cost of the good (dumping millions of gallons of waste into rivers is not an environmentally friendly / sustainable practice, at least I cannot imagine a way in which it would be, but I think this example illustrates what an exteranility is very clearly) or are avoided entirely through more sustainable, and likely more costly practices.
This post is getting long, so I'll just end it with this: Sustainability is an important issue. How we achieve sustainability is just as important. My hope is that if you are thinking about how to reach that goal, that this post--the idea that a potential model to employee is that of Fair Trade and full cost pricing--will help to guide some of your thinking. If not, oh well!
Bigmac
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