Originally published on 10/09/2007
Skeptics of trade liberalization often argue that the current international trading system is unfair. It is said: workers in developing countries are paid abysmally low wages and must endure dangerous working conditions; profit seeking corporations seek out production locations with lenient environmental regulations contributing to global warming and unsustainable development; and firms produce products threatening consumer safety. The proposed solution is to promote fairness and global social justice. Surely this is something everyone can agree on, since who could possibly be in favor of unfair trade and global injustice.
The fact that there is no agreement means either that people have different conceptions of fairness or that they see fairness in different places. This post will begin an exploration of what people mean when they express concern about fairness in trade.
Let me begin with a simple proposition: Unfairness must involve perceived losses to someone caused by someone else. Stated a bit more emphatically: Unfairness means someone is getting “ripped off”.
Consider the low wages paid to workers in developing countries. Anyone who considers the low wages unfair, will almost surely argue the point by highlighting the much higher incomes earned further up the supply chain. Thus we’ll see comparisons of CEO salaries or sports celebrity promoters to the average production worker. The implication is that high wage management is ‘ripping off’ the low wage production workers. A more fair salary distribution would provide income to the production workers sufficient to provide for themselves and their families by reducing the astronomical salaries earned by top executives in the company.
Or try another example. Proponents of a fair tax code generally argue that special exceptions provide opportunities to evade taxes. However, to take advantage of these opportunities one needs to be wealthy enough to hire competent tax accountants and attorneys who are experts in the complexities of the tax code. Average and low income households rarely can take advantage of these exceptions. The implication here is that wealthy individuals and corporations pay less than their fair share of taxes while the lower income groups pay a disproportionately larger share. In other words the tax code allows wealthy individuals to rip-off poorer people. One commonly suggested solution is a flat tax, whereby every household will pay a fixed percentage of their income in taxes with no special exceptions allowed.
If the above proposition is true it does not necessarily follow that the reverse implication is also true. Indeed I will argue it is not true. Stated formally: Losses to one person caused by someone else are NOT necessarily unfair. In other words, a loss caused by another does not always mean someone is being ripped-off.
The example that demonstrates the exception is a competitive sporting event; say a soccer match. If Manchester United and Chelsea come together in competition, play 90 minutes, adhere to the rules of the game as judged by the officials, suffer the consequences of any penalties (also according to the rules of the game), it is quite likely that one team (CFC) will win and the other lose (MU). (although of course, sometimes the teams will tie!) In this instance the loss by one team is clearly caused by the other, and yet we would not argue that the loss was unfair. That is unless one is a “sore loser.”
Sore losers are those who look for excuses to explain their loss; they are prone to argue that the loss was due to poor officiating such as botched calls and favoritism. They may even look further and contend that differences in player salaries give one team an unfair advantage.
Numerous fairness issues arise from this simple sports analogy. In a later post I’ll explore the interesting parallels between sports competition and economic competition.
