Why should people who otherwise bargain for every penny, pay more for something knowing fully well they are overpaying? While classical economics likes to believe people are rational and hence selfish, interestingly most people don’t live by the laws of economics, or as Mullainathan & Thaler (Read the research paper here) puts it “economics is anti-behavioral”. They indulge in chocolates, spend time watching trashy movies, and fortunately enough, are concerned about people around them, often willing to sacrifice their own interests to help others.
The fundamental premise of the fair-trade movement (Hear Harriet Lamb speak at the LSE) is this humaneness in human behavior. A higher price that a consumer pays for fair-trade coffee, tea, sugar or any other product is in exchange for a promise by the producer to pay a higher, fair price to its workers and farmers. And one of the drivers of this trend will be the increasing polarization in incomes and quality of living in India. “In the face” poverty in large cities like Mumbai makes many people feel guilty about being rich – travelling in chauffeured cars amidst poor children begging for the next meal – and works as triggers for altruistic behavior.
Today, in some countries fair-trade products have become huge. In UK alone, £500m worth of goods bearing the Fairtrade mark are sold annually, including tea, coffee, bananas, cotton, flowers and even footballs, transforming the lives of millions of farmers, workers and families.The Fairtrade Foundation, has been a pioneer in this movement. In India, beginnings have been made by NGOs like Fair Trade Forum, among other institutions. But it is when larger organized retailers and speciality retailers like Fabindia starts promoting these products through their networks, this could snowball into a much larger movement.
Let’s celebrate irrationality again!