Fair Trade Movement between Developed and Developing Countries - Research Paper Example

? Fair Trade Movement between Developed and Developing Countries Outline Introduction Review of Related Literatures a) World Bank and International Monetary Fund: Function of Promoting Development in the Global Age b) Understanding the Washington Consensus c) The Fair Trade Movement between Developed and Developing Countries Conclusion The Fair – Trade Movement: Extension of World Bank and International Monetary Fund’s Policies or A Real Alternative to the Washington Consensus Introduction At the international trade level, the social, political and economic conditions are always more in favour of the developed countries rather than promoting and supporting such equal trading conditions for both the developed and the developing countries. The developing nations are always subject to the exploitative tendencies of the developed nations in the free market. In this regard, a social movement which aims for greater equality in the international trade is organised through the fair – trade (European Fair Trade Association (EFTA), 2006). In addition to that, the fair – trade movement promotes securing the rights of the marginalised sectors from the developing nations (EFTA, 2006). Indeed, the fair – trade movement has been one of the most constant and most unwavering criticisms of the World Bank and International Monetary Fund’s (IMF) policies of deregulating barriers to trade. It is the case that the effectiveness of both the World Bank and the IMF are criticised because of its failure to further stand for the concerns of the developing world, including the interests for greater equity in trade (Share the World’s Resources (STWR), no date). Nonetheless, both these Bretton Woods Institutions together with the fair – trade movement are supposedly means to reduce the poverty occurring globally. With the contextualisation of the background of this research investigation, basically, the paradoxical function of fair – trade movement is observed. In this regard, the key question that frames this study is what really the function of the fair – trade movement is as a catalyst for reducing poverty. There is a point of view suggesting that the fair – trade as a social movement only serves a function of being an extension of the policies of both the World Bank and IMF. On the one hand, another vantage point proposes that this fair – trade does constitute a real alternative to the “Washington Consensus”. Given this contradicting points of view, this paper considers the need to critically review, analyse, understand and explain what really the role of the fair – trade it serves. Meanwhile, this paper mainly delves at discussing the function of the fair – trade movement in relation to World Bank and IMF. In order to further understand the focus of this paper, it intends to specifically obtain the following information. First, it points out to establishing what the functions of the World Bank and IMF are. Second, it seeks to grasp an understanding of the Washington Consensus. Third, it wants to analytically determine how the fair – trade movement is currently doing between the developed and developing nations. Through rooting out and analysing such data, it can finally discuss whether fair – trade is an extension of World Bank and IMF’s policies or if it constitutes a real alternative to the Washington Consensus. It is the case that there have been so many attempts in stating and assessing the functions and aims of fair – trade, World Bank, IMF and Washington Consensus in the context of development. It is in this regard why this paper is of significance. This paper is of importance because development is so much a relevant concept not only in the field of sociology but really in every part of the world especially that of the developing ones. By means of development, fair – trade, World Bank, IMF and Washington Consensus are really opportunities to achieve development especially among the disadvantaged nations. Review of Related Literatures This section of the paper will first present a general idea of the available literatures regarding the topic under study. The objective of this part is to offer a cursory outlook at how the range of presented information is sought to address the problem of this research. In order to grasp an understanding of what really the function of the fair – trade it serves in relation to the World Bank and International Monetary Fund, this section is categorised into the following: a) World Bank and International Monetary Fund: Function of Promoting Development in the Global Age; b) Understanding the Washington Consensus; and c) The Fair Trade Movement between Developed and Developing Countries. On the one hand, it is of necessity to note that the reviewed books, articles and other materials presented in this paper is not a representative of the entire array of the information regarding the topic under study. It is the case that the reviewed, examined and presented materials serve a purposing of aiding to grasp a sociological point of view on how to understand the function of fair – trade movement in relation to the World Bank and International Monetary Fund. a) World Bank and International Monetary Fund: Function of Promoting Development in the Global Age The World Bank and the International Monetary Funds, both the world’s biggest source of development finance, were once initially designed to make sure that economic growth existed in all countries and likewise, to guarantee that all countries worldwide was stable in terms of financial aspects, mainly because of the impacts of the World War II. However, these two institutions have now changed its directives from the time when both the governments of United States and United Kingdom modified their obligations at The Bretton Woods Conference in 1944 (STWR, no date). Today, the World Bank has turned out to be the single biggest international financial institution of the world (Share the World’s Resources, no date). Mainly, the World Bank’s official objective is to reduce poverty around the world. This institution is strongly committed in promoting international trade, upholding foreign investment as well as assisting capital investment (World Bank, 2012). In this regard, it offers loans to be used as capitals for projects aiming for large – scale developments as well as infrastructures especially to the developing countries (World Bank, 2012). On the one hand, according to Escobar (1980), the IMF operates for economic advancement among its member countries. According to IMF (2012), it functions to promote worldwide cooperation in terms of financial aspect. In addition to that, it works to secure financial stability around the globe (IMF, 2012). Also, it supports employment to sustain economic development worldwide (IMF, 2012). Apart from that, it assists trade at the international level (IMF, 2012). On the overall, this international institution operates to reduce the poverty as it increases the standards of living all over the world (IMF, 2012). b) Understanding the Washington Consensus In 1989, John Williamson, an economist, coined the term Washington Consensus as he had described the ten specific economic policies creating a liberal market and economy with an aim to promote reform among developing nations as prescribed by the World Bank, IMF and the U.S. Treasury Department, three institutions based on Washington D.C. According to Williamson (2005), as an approach to development especially in terms of economic growth, it includes reforms aiming for macroeconomic stability, tax reform, deregulation, unified exchange rate, financial liberation, privatisation of state - owned enterprises, legal system which secures property rights, redirecting expenditure, elimination of barriers to entry of foreign direct investments, and substitution of quantitative trade restrictions by tariffs. Washington Consensus has two versions. However, this together with the post – Washington Consensus approaches are seemingly just the same because of the fact that it still takes in the principle of development of the former. Nonetheless, the post is organised on market reform and other components like good governance and institutional reform. According to Stiglitz (2001), these are elements necessary for the advancement of development of the sustainable, egalitarian and democratic kind. This marks their distinction though. Apart from that, Stiglitz (2001) suggested that the post Washington Consensus highlights the market limitations and thus, seek ways to correct such imperfections. It is of importance to note that the former Washington Consensus had earned a bad reputation due to the following policy reforms: the endeavour to constrict the fiscal policy, the elimination of restrictions of foreign direct investment, the support for privatisation as well as deregulation, and the initiation of widespread financial and trade liberalisation (Williamson, 2005). Instead of promoting economic development, according to Stewart (1991), the outcomes of these policies are growing unemployment rates and increasing poverty on the overall. It is for this reason why the post Washington Consensus has branched out, not only focusing on economic growth but also looking at social development. Apart from the differences on development goals, both are grounded on different economic theories and principles which govern them. North (1995) suggested that the World Consensus is grounded on the neo - classical economic theory. The logic of Keynesian economics of liberalisation governs it. It is likewise governed by the lazzie faire permitting the market to stabilise on its own with no or just little amount of intervention from the government. On the one hand, the post Washington consensus is based from various economic principles such as the new institutional economics and new development economics. Unlike the former, through new institutional economics, the post Washington Consensus recognises the value of the state in regulating the market. According to Fine (2006), the new development economics is not only grounded on different economic principles but also takes in non - economic elements including the other fields such as the sociological field. Likewise, it takes a special focus on the imperfections of the market. True enough, apart from the economic structures, different elements are taken in consideration in the market like institutions, customs, and social structures (Fine, 2006). Also, while the former had the desire to disregard the role of the state through little to no state intervention at all, this post approach, on the one hand, regards so much the importance of the state. While it is the case that this sort of consensus acknowledges the fact that many of the developing countries are challenged by the inefficiency, bureaucracy and corruption of the government, it still recognises the value of the state. This is because it considers greatly the element of the state necessary for better governance and democracy. The good governance is considered by the post Washington Consensus as a very crucial element for sustainable growth and development. c) The Fair Trade Movement between Developed and Developing Countries Given the overview, indeed, both the World Bank and IMF facilitate international trade with the main aim of cutting off the poverty all over the world especially among developing nations. Nonetheless, the effectiveness of World Bank and the IMF in assisting international trade that can equally benefit the developed as well as the developing countries is criticised (STWR, no date). Various non – governmental organisations and different academics are criticising these two institutions. Instead of being advocates of economic development, these banks are often the case, supporter of policies which are detrimental to the economic development (Schneider, 2002; Stiglitz, 2003; Stigitz & Charlton, 2006). On the one hand, in Henry Hazlitt’s (1984) book entitled “From Bretton Woods to World Inflation: A Study of the Causes and Consequences”, he prescribed that the World Bank together with the IMF is advocate of a State – dominated international trade. Instead of lowering poverty, these two institutions are designed to stimulate world inflation. In “Fair Trade for All: How Trade Can Promote Development”, Stiglitz and Charlton (2006) proposed what a multilateral trade agreement should be. For them, the concept of fair – trade must really ensure that development is upheld while of course, making the conditions for all the involved parties equal. This is because, in reality, the global trade regime is not just for it favours greatly the developed countries while this is not true for the developing countries. The way trade liberalisation is shaped is something not that of fair trade but of trade agreements ruled by special interests. Given the unequal trade relations, the developing countries are not advancing economically just how the developed nations are progressing. The bigger share of gains from the trade liberalisation proceeds to the advanced developed countries while the smaller share has gone to the developing regions. Unfortunately, in some cases, the poorest regions like sub – Saharan Africa actually have worsened off because of the unfair trade relations. In addition to that inequality, it is the case that the developing countries are compelled to open up their markets. Likewise, they are forced to remove their subsidies. However, the case of developed countries is not similar to their condition, particularly in agriculture. Indeed, both parties benefit from the trade relations but the thing is that the developing nations are subject to the manipulative tendencies of the developed nations. As a solution to make the trade conditions more development – friendly among the developing regions, Stiglitz and Charlton suggested that the biases and interests of former colonial powers must be changed so that both parties can benefit equality from a more liberal world trade regime (Blandford, 2008; Northcott; 2006). Meanwhile, through looking at the special case of coffee producers in Nicaragua, Costa Rica and Guatamala, Utting – Chamorro (2005) and Berndt (2007) agreed with the inequalities between the developed and developing countries in their trade relations. Apart from the small amount of shares that the exporting cooperatives from the developing countries receive, a significant portion from the payment goes to the extra charges of membership, certification, production and others. Meanwhile, the shares that the farmers get from the exporting cooperatives are not known due to the lack of monitoring done by the Fair Trade Foundation. However, in reality, these farmers receive very little earnings and take several months before they receive such payment, thus, exploited from such working condition. The standards of the fair trade are not suitable. Thus, fair trade is not fair after all. True enough, it is not advantageous for the exploited parties. On the one hand, some have seen the positive impacts of the fair – trade movement. Though acknowledging the fact that not everyone benefits equally from the fair – trade, Taylor (2005) discussed “In the Market But Not of It: Fair Trade Coffee and Forests Stewardship Council Certification as Market – Based Social Change” that fair trade has functioned to maintain economic profitability as well as success in social goals through having an increased access in the market and likewise, creating long – term partnerships with producer organisations. Apart from that, he perceived that fair – trade contributed to the personal development since well – being of producers gets better and also, social development. Lyon (2007) reasoned that community and institutional - based developments of local organisations are nurtured through fair – trade. In the case of Guatemala, Lyon (2007) also suggested that through fair – trade, human rights are promoted. Conclusion The Fair – Trade Movement: Extension of World Bank and International Monetary Fund’s Policies or A Real Alternative to the Washington Consensus Coming from the point of view of the Bretton Woods Institutions and the fair - trade movement as catalysts for reducing the poverty existing globally, the fair - trade is more of constituting a real alternative to the post Washington Consensus than extension of policies of both the World Bank and IMF. This is suggested because the fair - trade, according to some academics like Lyon (2007) and Taylor (2005), is contributing also positively not only to economic development but also to personal, institutional, and social development. Apart from such, it also works to promote human rights (Lyon, 2007). Meanwhile, this is aligned to what the post - Washington Consensus is up to, thus, not only centering on economic development but is also focusing on other elements like the state which can be subject to reform for better governance aiming for sustainable social, political and economic growth and development (Fine, 2006). Nonetheless, in this critical analysis of what function of the fair - trade movement it plays in relation to the World Bank, IMF and Washington Consensus, first, this paper contextualises the roles and objectives of World Bank, IMF and Washington Consensus. However, this paper recognises the fact that their roles and objectives are subject to criticisms since instead of promoting and developing equality, in the aspect of trade in particular, they somehow contribute to facilitating inequality. This is of course a paradox to what they are aiming for. Apparently, it is acknowledged based on the review of materials that the fair trade is really designed in such a manner that it is dominated by special interests of the more powerful countries. Given the criticisms and the contradictory relationship of what the fair trade, World Bank, IMF and Washington Consensus aim for and what their impacts are, the fair - trade is only constituting to real alternative to Washington Consensus if the trade liberalisation is really fair for both the developed and developed countries. That is to say, they will both have equal conditions in which the other is not advantageous over the other or otherwise. It is only in this way that the fair trade can really constitute to an alternative for Washington Consensus. However, until inequality exists in the international trade relations, that is to say, the developed regions rule the partnership based on their particular interests while the developing regions are subject to exploitative tendencies of the other, the fair - trade movement will not serve as an alternative to Washington Consensus or not even an extension to the policies of the World Bank and IMF at the least. References: Berndt, C. E. (2007). Is Fair Trade in coffee production fair and useful? Evidence from Costa Rica and Guatemala and implications for policy. Mercatus 65 Policy Series,Policy Comment 11. Washington DC Mercatus Centre, George Mason University. Blandford, D. (2008). Review of “Fair trade for all”, by J.E. Stiglitz and Andrew Charlton. American Journal of Agricultural Economics 90(2). Escobar, A. (1980). Power and visibility: Development and the invention and management of the third world. Cultural Anthropology 3(4): 428-443. European Fair Trade Association (EFTA) (2006). EFTA: Joining fair trade forces. Retrieved from: Fine, B. (2006). The new development economics. In Ben Fine, Jomo K. S. The new development economics: after the Washington Consensus (2nd ed). London: Zed Books. Hazlitt, H. (1984). From Bretton Woods to world inflation: A study of the causes and consequences. Washington, D.C.: Regnery Publishing. International Monetary Fund (2012). Factsheet: The IMF at a glance. Retrieved from: Lyon, S. (2007). Maya coffee farmers and fair trade: Assessing the benefits and limitations of alternative markets. Culture & Agriculture 29(2): 100-112. North, D. (1995). The new institutional economics and Third World development. In John Harriss, Janet Hunter, Colin M. Lewis The new institutional economics and Third World development. London: Routledge. Northcott, M.S. (2006). 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In the market but not of it: Fair trade coffee and forest stewardship council certificationas market-based social change. World Development 33: 1. Utting-chamorro, K. (2005). Does fair trade make a difference? The case of small coffee producers in Nicaragua. Development in Practice 15(3): 584. Williamson, J. (2005). The Washington Consensus as policy prescription for development. In Timothy Besley & Roberto Zagha Development Challenges in the 1990s. Washington DC: World Bank& Oxford University press. Williamson, J. (1989). What Washington means by policy reform. In Williamson, J. Latin American readjustment: How much has happened. Washington: Institute for International Economics. Read More