NCB Nath
Markets have been a part of human organization from time immemorial. Goods have been bought and sold for barter, cash, and credit giving varying degrees of satisfaction and concern to many who participated in the process of exchange. The asymmetric nature of power and information in markets has been recognized for long and many reforms have been initiated by the state, the communities and the civil society organizations. Each of these has their stories of success and failure. But the market remains by and large a place where the powerful gain more often than not and the less powerful lose with unvarying regularity. Why does it continue to be the case the world over? Failure has not deterred the reformers and success has not tempered the powerful.
For the classical economist the market was a place where the price equated supply and demand, market clearance as they called it had no ethical aspects. The consequences of imbalance had to be borne by the market players and if somebody lost it could not be helped. There is nothing called fair price in economics (one may be surprised at this but unfortunately it is true). It does however recognize a subsidized price, a concession to some for non-economic reasons outside the market mechanism. The unseen hand that is supposed to control the market had never exhibited a softer side.
In the last decade or so there has been a rise of what is called the regulatory state which intervenes in the markets for the benefit of the less powerful. It is less inclusive than the socialist state but more proactive than the capitalist state. The earlier controversy state versus the market is now replaced by a compromise formulation state and the market in an uneasy coalition. Discussions on fair trade or green trade have to keep this background in mind.
The words competition, monopoly which influence policy making all over the world are legacies of earlier economic theoretical positions and specific connotations which sometimes are not understood by the policy makers or those who seek to influence policy. Take for example the generally accepted position that competition is good and that monopoly is bad. Too many players in the market can lead to economic waste and one can visualize a benevolent monopolist (likely to the state owned) who adds to societal good. In the wonderland of the market place words do not always mean what they seem to mean.
There are two concepts which we need to understand if one were to attempt to tame the logic of the market place in favor of the less privileged. They are asymmetry of information and asymmetry of staying power. Let me explain them.
Asymmetry of information is easy to understand, some know where they can get better deals than the others and make use of this knowledge for their gain. The better informed are usually the better endowed with resources. The poor have neither knowledge nor money.
Staying power is the ability to wait for a better opportunity before entering the market. It would mean ability to stock when the markets are unfavorable and release goods when it suits them to do so. The less well endowed in resources have little or no staying power. They have to sell almost immediately after the goods are produced because they need the cash for their livelihood.
Those of us who are involved in fair trade efforts essentially try to remedy the two asymmetries we have talked about. It needs understanding and organizational ability.
Individual producers whether they be small farmers or artisans by themselves are unequal to the task of facing the buyer power in a level playing field situation. That is why they need to get together and organize themselves. Getting together is a necessary condition of success not a sufficient condition.
This where the proactive role of the state comes in, in framing rules of exchange, providing support facilities, dispute resolution mechanisms and statutory protection. Unaided the task of getting a fair deal for the small player in the market becomes that much more difficult.
Another source of great support is a discerning consumer who is supportive of fair trading even if it means a small increase in the price he/she pays. While it is a great gesture of human solidarity, without the other supports we have talked about it will only be the ‘smaller stream of business’.
One of the organizational innovations in fair trade is to limit the links in the chain of distribution, get the producers to sell directly to the consumers so that cost of longer distribution is shared between the two main economic partners. Cooperatives, producer associations and companies have performed a useful role.
There is a market phenomenon which we need to understand in the commodity markets specifically, longer chain does not always mean a higher cost/price. In produce markets where prices fluctuate almost hourly, each link in the chain trades its position, making losses or profits affecting final price in unpredictable ways. Fair traders operating in these markets need to be conscious of this. Large volume of trade sometimes stabilizes the market.
Information asymmetry and transparency in market exchanges go together. Both state and corporate players have sought to provide information to the small producer, the former as a part of its obligations to its citizens and the latter as a part of Corporate Social Responsibility and good business practice.
Many states in the world have by legislation mandated auctions where the bidding is open and the producer has a right to withdraw if he feels that he would like to wait for another day. Not all auctions have been good examples of openness but the method has merits provided the small producer is organized and has the necessary staying power.
Fair traders have also sought to add value to the products of their customers; exit undifferentiated commodity markets and enter branded consumer goods markets. There have been many success stories but this transition needs preparation.
If fair trade has to become the way all trade operates, they need to acquire a critical minimum size and support of many players in the market. The excitement of creating a more ethical business mode is exciting but making it a default practice is enduring.
