Free Markets & Fair Trade

The current system of free markets has been designed to work well in the countries with stable democratic governments having proper regulatory frameworks that respect human rights and shun corruption by and large – and leaves out countries with poor infrastructure, low incomes and GDP – that is the poorer economies are left to contend with exporting cheap lowly priced commodities, if they are blessed with natural resources to do so.

Fair trade is a strategic advantage for nations and businesses to alleviate poverty and  develop sustainably without much government intervention. Its purpose is to create opportunities for producers who have been economically disadvantaged or marginalized by the conventional trading system. It entails in its core – transparency and accountability closely followed by paying fairer or better prices in return for improved quality.

In listening to Michael Porter, HBS Prof talk about his recent article in HBR “Creating Shared Value’, he points that corporations have got themselves into a fix and governments and society is looking at them as ‘bad’. The old view that what is good for business is also good for society is changing to ‘what is good for society must be good for businesses. So, the way to fix capitalism is through “Creating a Shared Value” whereby businesses need to view society’s interests first. Companies have missed the bigger picture of creating value for society and making profits in the process.

In another interview at Michigan University of Prof Stu Hart of Cornell, who has done pioneering work at Base of Pyramid business models and in his new book ‘Capitalism at Cross roads’, argues that economic globalization has systematically ignored, bypassed and damaged the poor. What business must understand is that BOP represents a business opportunity, rather than seeing them as aid recipients.  MNC’s need to ‘co-create’, develop ‘native capability’, build ‘business eco-systems’ and form partnerships in the poorer regions.

I think both are pointing towards the road towards fairer free markets. Sure, hacking at perverse subsidies, increasing FDI’s, providing tax incentives, carbon taxes, use of Micro-credit, Fair trade as Starbucks and others have moved to and other policy instruments also help pave the road to fair markets.

However, the wealthier countries don’t need to diminish their advantages – it doesn’t have to be a trade-off. If businesses can grow and profit in the BOP simultaneously creating livelihoods and generating incomes, then it’s a win-win. And for that entire business model has to be re-thought rather than just selling de-featured product.

Fairtrade International  works outside of the constraints government to encourage social responsibility and partners producers and consumers and directly allows consumers in reducing poverty with products traded under working conditions, wages, and terms of trade that are fair and not exploitative. So, fairer free trade has a bright future as the emerging economies and the African countries make their mark on the world business. 

(Image from http://fairtrade.net/)

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