Political clunkers

"Support by another means" examines the benefits and detriments of sending some U.S. products to Africa. I asked economics professor Victor Claar (Henderson State University) about other ways we can help the poor internationally. Claar co-authored Economics in Christian Perspective (IVP, 2007) and wrote Fair Trade? Its Prospects as a Poverty Solution (Acton Institute, 2010). He earned his Ph.D. at West Virginia University and taught for nine years at Hope College in Michigan.

As a Christian economist, what do you like about markets? Markets can do tremendous good-they lift the poor out of poverty in far more effective ways than people can imagine or arrange otherwise. Markets are phenomenal in their ability to take resources and reallocate them from less-valued uses to more-valued uses.

How does the growth of a worldwide market help the poor internationally-and sometimes hurt Americans? The "factor price equalization theorem" (it needs a sexier name) says jobs will go where the wages are relatively low. Once those wages are bid up, then the opportun­ities will go to the next place, and those wages will rise, and on to the next place, and so on. Will this be good for Americans in the short term? No, absolutely not. But it is good for the global poor in the short term and the long term.

Normal market mechanisms may be slow. People who want to move faster to improve the lives of coffee workers push "fair-trade" coffee. Fair-trade agreements set a minimum price that coffee growers get paid for their coffee. The idea is simple: Rather than pay the low-low price for coffee that the market will bear, caring citizens in well-to-do countries should exercise some dollar-powered social action and be willing to pay a little bit more for coffee.

This seems like a good idea. People in poor countries get more money. Any problem with that? I don't question the motives of fair-trade advocates, but at one coffee shop I knew well, fair-trade prices for a cup of a coffee were uniformly 25 cents more than regular coffees. Out of that extra quarter at most two cents went all the way back up the supply chain, because making a cup of coffee does not require a lot of coffee. You might be better off buying the not fair-trade coffee, paying 25 cents less, and sending it to a non-governmental organization that you know is doing really good work, especially work targeted toward the groups you are really passionate about helping.

If more of that quarter went to poor people, would they be helped in the long run? Coffee growing pays poorly because a lot of people can do it in many parts of the globe. It doesn't require a lot of human capital or a lot of tools. One unintended consequence of the fair-trade coffee movement is that it encourages people to persist in an employment that will never, ever pay well. Fair-trade agreements may draw even more people into the coffee market. They don't afford people an opportunity to consider, "What could I do in the longer term that will be of value to others in a lasting way?"

You mention that growing sugar would be more profitable for the poor. Yes, but in order to protect the livelihood of sugar beet growers in Michigan, we ban sugar produced in other nations. Sugar producers there could get a higher wage for their work if only we Westerners would decide that people are people and we are going to go buy wherever we can get sugar at a low price. Rather than shelter and protect sugar beet growers in Michigan, maybe we ought to open up avenues of opportunity for the truly poor among us, even if they happen to lie outside our borders.

If we did not have trade restrictions on sugar, what would that do to the job prospects and income of coffee growers? Central America would gain access to a huge market and shift to sugar growing. If I am currently a coffee grower, I know I'm never going to make a lot of money at coffee growing, but all of a sudden there is this large market in the West for sugar, and it pays better in a way more enduring and rewarding than coffee growing.

Let's continue with the coffee theme: What about milk or cream? In order to protect the livelihood of Americans, dairy products are something else we protect. As part of every farm bill, dairy farmers are guaranteed minimum prices. I tell my students all the time that we should treat people as people, no matter where they happen to live. We are all created in the image of God. I find it distressing that we protect relatively affluent Americans when we should give everybody an opportunity to do something they can do well, at a low cost, in a high quality way.

But what about Americans who will lose their jobs? Western Michigan has a lot of sugar beet growers. We protect them, and sugar sells in the United States at a price markedly higher than the price in the world market. We guarantee this by banning sugar from outside sources. This means that if you have a hankering to make Life Savers, it is a lot more expensive to make them in the United States. Western Michigan had a Life Savers factory. It employed about 600 workers in what were seen as dependable, lifetime jobs that paid well. You didn't need a great education. Because of the U.S. ban on global sugar, Beatrice Foods picked up and moved to Canada, where it buys sugar at the lower world price, instead of at the higher trade-protected price. So in an effort to save Michigan sugar jobs, we lost 600 relatively low-skilled, well-paying jobs that had been around for 35 years.

What are some other examples of unintended consequences that you display to your students? "Cash for Clunkers" had some not-so-good effects on working-class people and the poor. When I was trying to buy a used car for myself in 2009, it was really difficult because Cash for Clunkers was in play. If you had a car that didn't get some minimum gas mileage, it was designated a clunker. If you were a relatively poor person who just needed transportation to get to and from work, pick the kids up from school, go to church and back, getting a used car at a reasonable price became more pricey. People who normally would have traded in their cars or sold them in the used car market opted to take the tax credit: The old car was put in a crusher.

What are better ways to help the poor internationally? Compassion International makes sure children get good nutrition and good education. Kiva.org helps entrepreneurs get access to financial capital. It's great not to throw money at a faceless poor person someplace, but to help an individual child, an individual businesswoman. Then, economic growth can start to happen in exciting ways. Listen to Marvin Olasky's complete interview with Victor Claar.