Archived Posts March 2006 - Page 4 of 9 | Acton PowerBlog

Blog author: jballor
Monday, March 20, 2006

I was intereviewed for this article in yesterday’s New York Times, but I apparently didn’t make the cut. Nevertheless, in “Fair Prices for Farmers: Simple Idea, Complex Reality,” Jennifer Alsever does an excellent job bringing to light some of the dangers that are inherent with external and artificial adjustments to the price mechanism.

In the case of the fair trade food movement, the price floor is set artificially at a certain amount, determined to meet or surpass the subsistence needs of the local farmer. For coffee, this is currently set at $1.26 per pound by the fair trade community.

Alsever writes, “Despite good intentions, most consumers who shop according to their social convictions don’t know how much of their money makes it to the people they hope to help. Critics say too many fair trade dollars wind up in the pockets of retailers and middlemen, including nonprofit organizations.”

The problem is that the fair-trade certification organizations themselves, and also the retailers, can add several layers of increase into the price of a fair trade commodity. We might say that the fair trade consumer, who is presumably already willing to pay more than the market price, has a greater level of acceptable price elasticity.

TransFair USA, the certifying body in the US, “generated $1.89 million in licensing fees from companies that used the logo. It also spent $1.7 million on salaries, travel, conferences and publications for the 40-employee organization.”

“Farmers often receive very little,” said Lawrence Solomon, managing director of the Energy Probe Research Foundation, a Canadian firm that analyzes trade and consumer issues. “Often fair trade is sold at a premium, but the entire premium goes to the middlemen.”

Of course, these are the self-professed middlemen who cut out the layers of middlemen under a market based, free trade system. Those were the “bad” middlemen, while TransFair apparently represents the “good” sort of middleman.

One other aspect of this tinkering with the price mechanism is that the fair trade movement does nothing to recognize the reality reflected by purchasing power parity (PPP). So, writes Alsever, “a price that is fair in one country may not be in another. In Brazil, ‘$1.26 per pound for coffee is a fortune,’ said Kevin Knox, a coffee consultant in Boulder, Colo. ‘In the forest in the mountains of Mexico, the money barely is enough to justify doing it. Their yields are small, and the costs of production are higher.'”

These are just a few of the problems that arise when people try to artificially manage the price mechanism. When it is allowed to do its job, the market price of something provides a lot of good information. It can tell us, for example, that the supply of coffee far outstrips the demand, and so some coffee growers should think about getting into another product or industry. It would be in their best interests to do so, and the best interests of all of us, so that the world doesn’t end up with too much coffee and too little of something else.

The economic ignorance behind the fair trade movement leads me to believe that it really is just a sort of passing fad, especially popular among naïve church groups, which will at some point be replaced by far more effective methods of alleviating poverty around the world, such as micro-enterprise development (for more on this, see groups like Five Talents, Opportunity International, and Kiva). It’s hard to see real staying power behind a movement that thinks the answer to the reality of poor coffee farmers is simply to subsidize the production of commodities of which we already have an oversupply.

For more on some of the emotional and psychological reasons people are willing to pay more for fair trade items, see “Absolution in Your Cup: The real meaning of Fair Trade coffee,” by Kerry Howley. The fair trade movement currently lack the ability to enforce their pricing schemes through the coercive power of the state, so they must rely on other tactics.

Blog author: mvandermaas
Friday, March 17, 2006

As mentioned in an earlier post, Acton was in Washington D.C. last week to honor the 2005 Samaritan Award-winning programs. But we managed to do a lot more than hold a reception for our honorees – almost all of them also met with members of Congress to impress upon them the value and importance of private charities in their communities.

We spoke with Karen Woods, Director of Acton’s Effective Compassion Initiatives, to get her perspective on a successful couple of days in our nation’s capitol. You can watch that interview by clicking the play button below.

Related items: Acton Senior Fellow Marvin Olasky was interviewed last week by NPR on the White House’s plans to increase faith-based grants. To read about Olasky’s Seven Principles for Effective Compassion, click here.

This is an article worth reading by Steven Waldman in the Washington Monthly, “The Framers and the Faithful: How modern evangelicals are ignoring their own history.” The article examines the attitudes of many 18th century evangelicals toward government, and specifically with respect to a number of the founding fathers, including Jefferson, Madison, and Patrick Henry.

While the provacative subtitle may be true, it shouldn’t really be all that surprising. After all, Waldman does a good job throughout noting that “each side of our modern culture wars has attempted to appropriate the Founding Fathers for their own purposes,” and that convenient facts are omitted by each group. The article does a good job getting at some of the complexities and diversity of voices in the 1700s, and shows that there isn’t just a single univocal view of the proper relation between church and state. Check it out.

William Easterly, professor of Economics at NYU, has written a new book challenging the prevailing development orthodoxy of increased aid and the “big push” to combat poverty in the Third World. The White Man’s Burden: Why The West’s efforts to Aid the Rest Have Done So Much Ill and So Little Good, published by Penguin is to be released on March 20th.

I have only read a short bit of it so far, but what I have seen is refreshing. He questions the effectiveness of aid, pointing out that aid has been largely ineffective and more of the same is not the answer. In so doing he goes up against politicians such as Tony Blair and Gordon Brown, economists such as Jeffery Sachs, and rock stars such as Bono and Bob Geldof.

Sachs calls for increased aid and Blair speaks of a “big push” to bring about The End of Poverty. (Sach’s book is also v. interesting by the way) Easterly agrees with Sachs that extreme poverty is a tragedy, but while there is a lot of talk about poverty itself, he says there has been very little said

about the other tragedy of the world’s poor. This is the tragedy in which the West spent 2.3 trillion dollars in foreign aid over the last 5 decades and still has not managed to get twelve cent medicines to children to prevent half of all malaria deaths. The West has spent 2.3 trillion and still has not managed to get four-dollar bed nets to poor families

He contrasts the central planning inefficiency of the aid industry to the market’s ability to distribute 9 million copies of the sixth volume of Harry Potter books to the British and American economies in a single day.

There was no Marshall Plan for Harry Potter, no International Financing Facility for books about underage wizards.

Easterly makes the distinction between what he calls planners and searchers. Planners like Jeffery Sachs and Tony Blair advocate large scale attacks on poverty through aid and global initiatives. Planners operate from top-down schemes that are often well intentioned but have not worked. Searchers on the other hand avoid large scale plans and look for entrepreneurial solutions to solve problems that take into account incentives and accountability.

Despite the evidence, why do big plans remain so popular? Well, one reason of course is that planning schemes are inspiring. End poverty by 2025. Grandiose plans often have the support of big name politicians and celebrities and they promise a solution right away. Piecemeal solutions rarely inspire even when they work. Second, no one is accountable when the fail. And when they do fail the answer is do more of the same thing. The One Campaign is a perfect example. But popularity and good intentions are not a substitute for effectiveness.

A third reason is the prevailing allure of utopian schemes. Easterly writes that the planning approach to foreign aid is part of the what Karl Popper calls the “utopian social engineering” approach to problem. This approach has been tried and failed in diverse times and places such as the five year plans of the Soviet Union, the structural adjustment programs of the World Bank in Africa in the 1980s and 90s, and the “shock therapy” used on the transition economies after years of failed planned economies.

Utopianism is nothing new. Eric Voegelin saw Gnosticism and utopianism as the driving force of modern politics, and it appears to be the driving force of aid as well.

Maybe Easterly’s challenge will wake people up to the failures of planning and get them to respect the entrepreneurial capabilities of the people in the developing world. As Hernando de Soto has pointed out in The Mystery of Capital, there is no lack of entrepreneurial spirit in the Third World.

Instead of increasing aid and more top-down plans decrease regulation and barriers to starting businesses, and let local entrepreneurs and the markets find solutions that far away planners have been unable to accomplish.

Blog author: jballor
Friday, March 17, 2006

A recent NBER working paper, “The Effects of Tort Reform on Medical Malpractice Insurers’ Ultimate Losses,” argues that “The long run effects of reforms are greater than insurers’ expected effects, as five year developed losses and ten year developed losses are below the initially reported incurred losses for those years following reform measures.”

A number of the specific changes in the history of tort law are discussed in Ronald Rychlak’s Trial by Fury: Restoring the Common Good in Tort Litigation, part of Acton’s Christian Social Thought Series.

Rychlak argues that in addition to the tangible and significant economic impact of current tort law, the system also “encourages litigation at the expense of forgiveness and understanding. It ignores the role that family members, friends, religious leaders, and others can play in bringing about reconciliation.”

Blog author: jballor
Thursday, March 16, 2006

Henry Stob, the longtime professor of philosophical and moral theology at Calvin Theological Seminary, authored a compendium of articles on various aspects of theological ethics in his 1978 book titled, Ethical Reflections: Essays on Moral Themes (Grand Rapids: Eerdmans). The book is now out of print, but I ran across an excellent section that excellently captures the intent of the work of the Acton Institute.

In Chapter 2, “Theological Foundations for Christian Ethics,” he writes:

Because man does in fact have a horizontal dimension, and because he is in fact tied in with nature, the presence of “conditioning” factors cannot be denied. There is that in man which is amenable to “causal explanation.” Accordingly, the effect upon him, and upon his conduct, of chemical processes, biological instincts, psychological drives and complexes, economic determinants, and social pressures may never be ignored. It would be a mistake, however, to suppose that the natural sciences, or those social sciences which proceed by way of the quantitative analysis of empirical givens, are able really to interpret man and his behavior. The methods employed within these sciences, fashioned as they are for use on the horizontal plane, are simply not fitted to plumb the depths of man.

It is most narrowly the economic aspects of human relationships that the Acton Institute is concerned with, but more broadly other “horizontal” institutions are relevant, including disciplines such as political science and history.

One impressive piece of evidence that suggests that Dr. Stob is right in his analysis of the limits of social sciences is the current flowering of interest in economic theories of “social capital,” for example. These are attempts to get at some of the deeper aspects of human reality. Stob concludes that this is properly the realm of ethics, and this is underscored by Francis Fukuyama’s definition of social capital: “Social capital can be defined simply as the existence of a certain set of informal values or norms shared among members of a group that permit cooperation among them.”

Stob writes that since the horizontal dimensions do not exhaust the causal explanations for human behavior,

Attention must be given, therefore, to another set of answers to the question about man and his behavior. These answers, proclaimed by Christian ethics, arise out of theology and metaphysics, and reflect an apprehension of man’s vertical dimension. Integral to them is the recognition that, though man is undoubtedly tied in with nature, he is even more certainly tied in with God. This being tied to God, it is recognized, is precisely what accounts for man’s humanity. It is this which raises man above mere animality and constitutes him a moral person. It is this, moreover, which enables him to break through the causal nexus and transcend merely natural determinants. Being tied in with God, having a dimension of depth, oriented to some object of ultimate concern, he can rise above the influences playing upon him from the side and exercise a genuine freedom—the freedom to set himself ideals and to aspire after them.

It is in the intersection between the vertical and horizontal dimensions of human existence, specifically as ethics relates to economics, that the Acton Institute works. It is the deeper and more comprehensive view of the human person, particularly as revealed in Holy Scripture, that allows us to evaluate and appropriate elements of study of the “horizontal” planes of human relationships.

Blog author: dphelps
Wednesday, March 15, 2006

Go here for Acton’s new video, “Solutions,” which offers a real starting place for all of us who want to do something about poverty and hunger.