• Breadcrumb navigation uses Javascript

---

Fairness, trade and the incredible shrinking world

by Simon Longstaff

Introduction

I would like to begin by asking you to imagine yourself in each of the following situations:

• Suppose that you are walking through a market when your keen eye spots a rare piece of pottery for sale. A close inspection reveals that the vase is worth a small fortune. Yet, the owner is asking only a fraction of the price that it would fetch on the open market. Would you inform the vendor of its true value? Would you pay the asking price, sell it for a fortune and keep the profits? What would you do?
• Suppose that a man stumbles out of the desert – close to death for lack of water. He carries all of his worldly possessions on his back and would give everything for a sip of water from your well. The well has taken months to dig by hand and represents all that you have to trade with the world. Would you exchange your precious water for all that he has? Would you charge only a nominal amount or give it for free? What would you do?
• Suppose that you are selling a house with crumbling foundations. You are prepared to reduce the price to compensate for this fault. However, a prospective purchaser fails to carry out a proper inspection and offers you your full asking price. She is well educated and prosperous. Would you disclose the fault or profit from her ignorance? What would you do?

Now, suppose that in each case the other person was a member of your family, or a close friend. Does this additional piece of information change your response? And if it does, then what relevance might this have for our discussion of the global trading system?

One way in which to begin answering this question is to consider a few examples directly drawn from the area of international trade. Consider these examples:

• Imagine that you head up a pharmaceutical company that has invested millions in the development of an effective vaccine that will prevent HIV/AIDS. There is only a limited amount of vaccine available and it takes a considerable amount of time to produce more. Would you recoup your costs by auctioning access to the highest bidder? Would you provide it to those in greatest need? What would you do?
• Imagine that a government dislikes the political complexion of a country that is desperately short of grain needed to feed its people. Should it use its superior position in the marketplace to force a change in policy?
• Imagine that you have surplus stocks of a product that has been deemed harmful to human health and that can no longer be sold legally in your domestic market. Would you export the surplus to other markets where the laws are less developed?

I have no doubt that each of us could think of a hundred examples of similar choices that we might make. The connection, in each case, is that we are being asked to balance a host of competing demands; for example, commercial decisions against the demands of principle – such as that of 'fairness'.

Even then, matters are not quite so simple. Suppose that we affirm our commitment to the principle of equity. To whom do we owe a primary obligation? Is it fair to sacrifice the interests of investors in favour of poor consumers? Is it fair to sacrifice the jobs of fellow citizens in order to promote the interests of those in developing nations? Is it fair to sacrifice the aspirations of the poorest nations in order to satisfy the environmental, political and social conscience of the affluent?

It is against the background of having to make such decisions that debate about the nature of a fair global trading system must take place. My point in asking you to consider the scenarios that I have put before you is not just that life is full of difficult choices (although that is true). Rather, my aim has been to draw attention to the human dimension of the issue that we have before us and to do so as an essential backdrop to the more abstract and theoretical points that economists tend to make when discussing the operation of markets.

back to top

The perfect world of the economists

We live in a time when economists have been characterised as both the heroes and villains of modern society. Some people treat them as if they were a priestly caste blessed with the capacity to shape our destinies. Others treat them as confused ideologues who take their ability to sit on both sides of the fence, simultaneously, to be a virtue.

My own view is that economists have never recovered from the enchantment generated by the unsullied and abstract idea of the perfect market. It is easy to see how such an appealing idea might have bewitched so many; for it offers an ideal that has the incredible distinction of promising both universal happiness and perfect virtue. I will make my point by describing some of the key features of the perfect market.

In a perfect market:

• Every person has both the capacity and the opportunity to make an informed choice
• People do not take advantage of those who are relatively powerless
• People do not purchase things that they neither need nor value
• People engage in neither misleading nor deceptive conduct
• The right goods and services go to the right people at the right price

Who could fail to be inspired by such an ideal? The trouble is that it is rarely, if ever, realised except in the minds of economists and dreamers. One explanation for this failure of reality is that human nature falls somewhat short of the minimum standard assumed by the likes of Adam Smith. We should never forget that Smith was Professor of Moral Philosophy at the University of Glasgow.

While it is true that he believed that self-interest would power the operation of the 'invisible hand' of the market, it is less clear that he was indifferent to issues of character. Instead, he clearly distinguished between 'self-interest' and 'selfishness' when warning against some of the excesses that the merchant class was capable of entertaining. Furthermore, he was quite clear, in his own mind, that the claims of the market fell well short of being universal in their application. Nor did he believe that the market would never be prone to failure.

I have emphasised the word 'free' because some people wrongly believe that the idea of a free market is the same as the principle of laissez faire. The latter concept is something altogether different in which individual actors are free to do as they please – effectively unbounded except by those who meet them with equal or greater force. As such, there are no rules beyond those that the strong agree amongst themselves and impose on others. As suggested above, this can be distinguished from the idea of the 'free market' which is regulated by an internal set of ethical principles that are designed to ensure that the market performs its proper function; namely, to increase the stock of common good.

This last point bears thinking about when made in the context of our incredible shrinking world. Globalisation is characterised in terms of a planetary market without borders. This is certainly the world in which a number of trans-national corporations exist. We tend to focus on the economic 'opportunities' and 'rights' attached to the phenomenon of globalisation. Yet, there are equal and balancing 'challenges' and 'responsibilities'. As markets go global so the obligation to increase the stock of common good extends to all who participate in that market. This is an obligation owed as much to the person in the meanest condition as to the mightiest.

This is not to say that every individual or society has to be treated equally or identically. However, there are good reasons (based on both a sense of prudence and a sense of justice) for ensuring that the process of globalisation improves the basic conditions of life experienced by the least advantaged person covered by the market.

back to top

The not-so-perfect world in which we live

Properly understood, the idea of the free market as the foundation for an equitable trading system would seem to be quite compelling. So what has gone wrong? Some are tempted to attribute blame to the fact that human nature falls somewhat short of the ideal that the abstract system would seem to demand as a basic minimum. It's not that markets only work in a world inhabited by angels. It's just that they need a basic level of human decency – something that has been absent from some people in all societies at some time.

While it is true that human nature may fall short of what the free market requires, I do not think that this is where the theory fails. Instead, I believe that the foundation of classical economics is weakened by an underestimate of the need for some sense of fellow-feeling amongst citizens who (amongst other things) happen to be producers, traders and consumers.

That is, I think that the view of homo economicus offers us a narrow and inadequate account of what makes us tick as people! There are many problems with this one dimensional account but perhaps the most critical is its inability to offer a convincing account of how we might build an indispensable element in any efficient trading system – trust.

It could be argued that the development of a sense of trust is primarily driven by the self-interest of a number of parties who recognise their inter-dependence. For example, it has long been known that high-trust environments are far more efficient as economies. After all the cost of sealing an agreement with a handshake is considerably cheaper than having to seal the bargain with a legal document.

Despite this, I do not find the argument that trust is built out of the necessity of making and keeping agreements to be wholly convincing. It is an an economic model that assumes promise keeping to be the rational response of actors who fear the possibility of a kind of 'mutually assured destruction' should the system collapse. Instead, I think that trust can only be built by people who care, at some deeper level, about the relationships that they have with other people. As noted above a sense of interdependence and mutual advantage is important. It's just that I doubt that it is enough to carry the burden of the whole story.

back to top

From theory to practice

My aim, now, is to draw together the threads of this argument in order to weave a brief outline of the strategies that we might employ in order to generate an equitable global trading system. The key elements that I have tried to identify are that:

1. Decisions about how we deal (trade) with others are profoundly affected by our sense of the relationship that exists between us. For example, it is common for strangers to receive less favourable treatment than that bestowed on those whom we know and love.
2. A free trading system will be one in which people make free choices on the basis of perfect information.
3. An efficient and fair trading system is likely to be one built on a combination of:
   1. recognised inter-dependence, and
   2. mutual trust.

If I am correct in my analysis, then the following strategies will need to be pursued:

1. Corruption will need to be eliminated from the public and private sectors of all trading nations. Corruption in all of its forms: bribery of officials, collusive tendering, crony capitalism and the like is a cancer that distorts the trading system. It allows the wrong products to go to the wrong people at the wrong price. It allows dangerous goods and services (some of which kill) to be provided to the public.
2. The international community will need to establish an international body with the power to investigate and prosecute examples of unconscionable conduct in which the powerful trample on the interests of those who are relatively weak.
3. The developed nations will need to ensure that the developing nations have a real opportunity to develop their people and infrastructure to a level sufficient to ensure that they can produce goods and services that will find a market. This will generate a related capacity to purchase a range of goods and services from others – and thus keep the great wheel of trade turning.
4. Nations and international institutions will need to establish mechanisms to support those suffering the hardships inevitably caused by economic reform. It is common for economies to experience 'friction' as they evolve. At such times, people experience periods (often prolonged periods) of unemployment and deprivation as they try to adjust to new conditions and develop new skills. Of course, economic terms like 'friction' hardly do justice to the terrible human reality that the term sanitises. It is difficult to imagine a peaceful and prosperous future in a world in which the gulf between rich and poor widens and becomes permanent and irreversible – even as we all grow more inter-dependent.

All of the above could be justified by an appeal to the pure ideal of the free market. However, I would prefer to place greater emphasis on the justice of extending such a system to everybody affected by the market.

On this last point, it is important to note that not everybody will want to participate in the global market. Some may decide that there are good enough reasons for remaining outside – perhaps in order to preserve some unique and positive aspect of their society. In relation to this we need to remember that it would be worse than contradictory to force people to participate in what is supposed to be a free market. Bearing this in mind, my comments are directed only to those who choose, for whatever reason, to participate.

back to top

A core strategy?

All things being equal, I suspect that the measures that I have proposed will be judged utopian and unrealistic. However, I am not convinced that we need to accept the world as we happen to find it. Instead, I believe that we have the capacity to choose a different way and to make something better. All things being equal, people will be tempted to justify the kind of approach that I have outlined by appealing to enlightened self-interest.

I prefer to return to where I began and to think some more about the effect on our choices when those affected are no longer counted as strangers. Could it be that as the world shrinks we will find it almost impossible to ignore the evidence of our common humanity? Is it possible that we will recognise that the opportunity to enter into a relationship with those who were one unknown and far removed has become real. Will new forms of community form among the fluid lines of a world made small?

If this is possible, then I suspect that it is women who may forge the new paths that we will all have to follow. Not being a woman, I have no direct insight into that which may distinctive about the feminine. Nor do I wish to propagate a naive stereotype. However, there seems to be a general consensus that women have superior skills when it comes to forming relationships and that this capacity is rooted in the easy and natural way in which you are able to care for other people and other things.

If the feminine is allowed to prevail then we may be able to overcome a current tendency to replace 'society' with the 'enterprise association'. John Casey has tried to describe the latter:

We might imagine a city founded purely as a trading post. The laws of the city will reflect its original purpose, and have to be understood in relation to this purpose. Contracts will be vigorously enforced however unreasonable or unjust, because it is of the highest importance to retain the confidence of those with whom the city trades. Indeed, the notion of a contract being 'unjust' will have no meaning. All education will be subordinated to the need to produce an ‘enterprise culture’, and no subject will be studied as an end in itself. The rulers of the city will regard themselves essentially as the managers of the enterprise. Their tasks will be to maximise wealth and promote trade.

Is this so very far from what we now experience? Some may say that this is an accurate and even attractive picture of the type of world in which we live. But does such a view of our relationships miss something of vital importance? For example, do we exist simply to "facilitate the exchange of commodities" or is there something more? Is there, for example, a need to value friendships, to realise that other people can make a claim on us? Is living in a society only possible when we recognise that each person is bound to others within a network of formal and informal relationships?

back to top

Conclusion

The economic turmoil being experienced by millions of people may be the result of some of the 'economic chickens' coming home to roost. Alternatively, it may represent some of the worst excesses of a laissez faire market. Or it could be the result of many other factors. All that we can be sure of is the fact that opinion is notoriously divided over where blame should lie.

My concern is a different one and hopefully of a kind that complements the ideas that I have tried to explore here. In our fascination with the technical explanations of what has happened and how it might be fixed, we tend to forget the human cost.

Thus, I hope that you will not think it too indulgent if I suspend all effort to offer rational argument and conclude with poetry – a form of language what many believe to be the home of truth. In this, I am indebted to William Blake:

What is the price of Experience? Do men buy it for a song,
Or Wisdom for a dance in the street? No! it is bought with the price
Of all that a man hath - his house, his wife, his children.
Wisdom is sold in the desolate market where none come to buy,
And in the wither'd field where the farmer ploughs for bread in vain.
It is an easy thing to triumph in the summer's sun,
And in the vintage, and to sing on the waggon loaded with corn:
It is an easy thing to talk of patience to the afflicted,
To speak the laws of prudence to the houseless wanderer,
To listen to the hungry raven's cry in wintry season,
When the red blood is fill'd with wine and with the marrow of lambs:
It is an easy thing to laugh at wrathful elements;
To hear the dog howl at the wintry door, the ox in the slaughter-house moan;
To see a God on every wind and a blessing on every blast;
To hear sounds of Love in the thunderstorm that destroys our enemy's house;
To rejoice in the blight that covers his field, and the sickness that cuts off his children,
While our olive and vine sing and laugh round our door, and our children bring fruits and flowers.
Then the groan and the dolour are quite forgotten, and the slave grinding at the mill,
And the captive in chains, and the poor in the prison, and the soldier in the field
When the shatter'd bone hath laid him groaning among the happier dead:
It is an easy thing to rejoice in the tents of prosperity -
Thus would I sing and thus rejoice; but it is not so with me.

discuss this article

---