At every Yale dining hall, students can always be found flocking to the jugs of coffee, seeking that necessary boost between a third problem set and the 100 pages of “Das Kapital” due. But only last week did I notice the sign that sits above our caffeine crocks — it reads “Equal Exchange.”
Curiosity led me to do a little research. It only took a quick glance at their website to see that this organization would undoubtedly be the ninth ring of Gordon Gekko’s hell. One quick example: “Because Equal Exchange was founded with democratic principles in mind, we strongly believe in a one-person, one-vote workplace without a corporate hierarchy.” But more important, beyond the Vermont-brand capitalism this group endorses, is the repeated reference to “fair trade.”
Now, by “fair trade,” what they really mean is the opposite of “free trade.” The European Fair Trade Association defines it as “a trading partnership, based on dialogue, transparency and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers.”
So this seems all well and good, right? Yale chips in a few extra dollars here and there so that we can fulfill our societal obligation — seems like a win-win. Unfortunately, this is an act of self-deception. Our desire to transcend the capitalistic forces that dictate free trade in fact hurt those who we would be trying to help. If Yale seeks to brand itself as a truly conscientious institution, we should immediately cease our relationship with Equal Exchange coffee.
Let’s outline the logical course of events that follow “fair trade’s” noble hopes. Imagine you are a farmer in Vietnam or Kenya, and you are deciding what market to get into. Currently, there is a vast excess of coffee suppliers, so the price level is naturally at a place that would discourage further entrance into the market — however, here is where price distortion comes into play. “Fair trade” introduces an artificially high price into the market, which further feeds the already injurious surfeit of providers.
Moreover, we’ve seen this story before — in fact, “fair trade” in this field stems from the consequences of earlier market tampering. The coffee crisis of the 1990s, characterized by plummeting and unstable prices, was caused by organized ignorance of price forces. Through the International Coffee Agreement, fostered by the United Nations, coffee-producing nations were able to rig prices and subsidize local industry until the bubble eventually burst to the detriment of farmers worldwide.
But isn’t this just more proof of capitalism gone awry? If only the whole world would accept “fair trade” — then these unfortunate results wouldn’t occur! But even if “fair trade” became universal, that would simply raise the price of coffee. A drop in demand would accompany the price increase, thus putting more of the people we are trying to help out of work. Overall, by its nature, “fair trade” coffee creates a harmful set of incentives, luring the world’s poor into an already bloated market — the recurring trap of good intentions.
It’s clear that these conceptual dangers have already become reality. “Fair trade” has created an economic environment that worsens the already abysmal condition of the world’s poorest. Counter-intuitively, in order to just apply for “fair trade” consideration, suppliers need to put up over $1,600 in fees. Furthermore, once contracts are settled, very little ends up actually trickling back to the farmers themselves, with almost 90 percent of the premium going to first world intermediaries. These circumstances drive contracts to relatively developed nations, excluding the countries most in need of foreign business. A 2008 report by the Adam Smith institute sums it up well: “Most of the subsistence economies that people think of as central to fair trade have far, far fewer [fair trade producers] … In practice, then, fair trade pays to support relatively wealthy Mexican coffee farmers at the expense of poorer nations.”
Yale prides itself on being a force for good beyond its ivory tower. However, this goal can only be accomplished with awareness and bravery — an understanding that allows us to break from the lures of self-gratification and begin to make real differences. We readily accept Equal Exchange as a moral good because of our attraction to a sense of selflessness. But Equal Exchange, and “fair trade” coffee as a whole, creates a perverse economic system where the world’s destitute are enticed into a falsely perpetuating market wherein the only option is continued struggle and inevitable failure. There is no question we must empathize with and assist the many destitute people of the third world — but no good exists when we sweep the core problems under a rug of invented altruism.
Undoubtedly Yale will receive criticism for terminating our relationship with Equal Exchange. But President Levin must follow the same advice he gave my class when we first entered this institution — place result over perception.
Harry Graver is a freshman in Davenport College.