Tuesday, May 13, 2008

"Simple, feel-good solutions"

Tony Payne explains why it isn't enough to have good intentions, especially when dealing with complex social, political and economic problems. In fact, things can be made much worse—an alternative meaning for "the road to hell is paved with good intentions." In this case the feel-good "solution" is to purchase "Fair Trade" products. From "Smell the Coffee" at the Sola Panel:
Trying to solve pricing problems on the other side of the world through our shopping choices may make us feel better, but it is unlikely to have much effect, except possibly to make the situation worse. Basic economics tells us that the usual reason prices for a particular commodity are low is that too much of it is being produced: supply and demand. This normally motivates some farmers to move into other crops that are in shorter supply, and thus have a higher price, giving greater return to the farmer. It's why those nasty free markets tend to promote efficiency and prosperity.

However, artificially propping up the price of a commodity distorts this process and removes the incentive for farmers to diversify. In fact, it does the opposite: it creates an incentive for others to start producing that crop (since it has a guaranteed higher price), thus increasing output and putting an even further downward pressure on price. So there is a reasonable chance that the well-meaning ‘Fairtrade’ movement may actually make things worse in the long run for the majority of third world farmers. The world is very complex place, and solving problems in the world (economic and otherwise) is very difficult. The intuitively obvious action (let's give some farmers more money for their coffee by buying Fairtrade) may, in fact, end up having larger negative consequences we haven't stopped to consider.

The same is true for nearly all the practical, secular problems we face. And the larger, more complex and more distant the problem, the more resistant it is to simple, feel-good solutions. ....[more]
The Sola Panel | Smell the coffee

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