How to Help the Poor without Buying Fair Trade Coffee

As promised, here is economist and Christian Victor Claar's answer to that question:

"Tim Harford echoes Collier, observing that coffee farmers will never be rich until everyone else is first; that is, until coffee growing becomes rare enough that it can command a higher price. Because fair trade creates more coffee, and not less, coffee will never pay well. Thus, only long-term growth and development will help the poor grow rich. 

What, then, can lead to real and lasting economic gains for the poor? The good news is that we have considerable information about this question, and a rich feast of evidence confirming the answer that economics provides. When prices are free to act as a signal showing people what to make either more or less of, poor people begin to flourish. For example, even though there continues to be income inequality within nations, inequality across the entire globe has decreased over the last quarter century. More importantly, the rate of extreme poverty has declined. Columbia University’s Xavier Sala-i-Martin estimates that between 1976 and 1998, the number of people living on one dollar or less per day fell by 235 million. Further, the number living on two dollars or less per day fell by 450 million. That is improvement worthy of our rejoicing! 

How does it happen? Why has it happened so quickly in China and India, while much of Africa has grown slightly poorer over the same period, even as we have given massive amounts of foreign aid to Africa? Simply put, in places where markets operate freely, prices act as a signal—to all of us—to stop doing things that pay little and begin doing things that pay more. In the case of the coffee market, the reason that coffee continues to be cheap is that we keep making too much because we choose to ignore the price signal.

Putting at least some faith in markets to be a powerful force for change in the lives of the poor does not amount abdicating our concern for the poor, instead opting to cavalierly put our hope in little more than faeries and magic dust. Just as we trust gravity to keeps us all affixed securely to the ground, and just as principles of particle physics assure you that the chair you are sitting in right now will not let you slip through its seat to the floor, markets work invisibly in ways that we understand reasonably well. Although this author is no physicist, he trusts what a physicist tells him regarding what can and cannot work in our physical world, though the forces themselves cannot be easily observed; we see only the effects of such forces. 

The laws of physics are part of God’s providence; so are the laws of economics. In fact, many Christian economists have seen the providence of God in Adam Smith’s famous invisible hand of the marketplace. Two quotes wonderfully and beautifully illustrate. Consider first the words of Robin Klay and John Lunn, two economics professors from Hope College in Holland, Michigan:

Just as God-given productivity of the soil, combined with human labor and ingenuity, blesses societies with abundant crops, so also does the productivity of gifted human beings bless all humanity through markets. The somewhat mysterious way in which markets accomplish this without any one person directing it suggests to us the providential hand of God at work. 

More recently, in a book reflecting on John Calvin’s thought regarding markets, David Hall and Matthew Burton write: 

'God’s providence is present in all events. We need to learn to see his “invisible hand” working in all things. He is truly sovereign over all of history. To doubt that is to reject God’s lordship. Such repudiation is not merely based on an absence of information; it is also a rebellion of the heart against one’s Creator. Happy is the person who learns to see God’s hand in all of life.'

A key role for concerned Christians, then, is to permit and even encourage the power of markets to do the heavy lifting of the poor from poverty. One encouraging tool that is already making a difference in the lives of poor coffee and soybean growers is the Internet and mobile phone access. For years, coffee sellers everywhere and soybean growers in India have fallen victim to greedy middlemen by settling for a selling price that is below the going rate simply because growers did not have access to potential buyers other than their local coyote and also because they lacked accurate information regarding the going market value of their crops."

--Victor Claar, Fair Trade? Its Prospects as a Poverty Solution