Migration Policy Gone Awry: The Gulden Coffee Story, Part II

In 2007, Policy Innovations ran the story of Gulden Coffee, a fair trade coffee business based in New Jersey that imported coffee directly from Colombia. Yesterday, we learned that Gulden Coffee is being liquidated because one of the owners, who had an investor's visa, was not let back in the United States. Ironically, the end of her story in Policy Innovations talked about creating jobs in the United States:

I am proud that GÜLDEN Coffee is an American company, supporting increased trade and investment between the United States and Colombia. It will mean more jobs in both countries. The exchange with the farmer touched my heart, encouraging me to strive even harder to make my family's small business a success that I can share with coffee workers and small producers around the globe.

I spoke with one of the owners this morning to learn they will have to fire all of their employees (half a dozen) and liquidate a company in this terrible economic environment.

With Ana's permission, I am posting her email, which I received last night.

Dear Devin,

How are you? I hope everything is good for you.

I was reading your article about "Is Ethical Capitalism Possible?" and I decided to tell you something that happen to me and my company Gulden Coffee.

On November 2008 I came to Colombia because have to renewed my Investor visa (I am not yet an American residence). I came to your embassy for my interview. Unfortunately on that day I was told by the consul that I was not eligible for that kind of visa. I was also told that the main reason for such denial-decision was mostly related to the volume of my business; apparently such volume was not big enough, as it is required.

On December 23, 2008, following with the consul instructions, I came back to the embassy to apply for the business visa. As I explained to the consul, my main objective now was to go back to the USA and find a manager for my business. Again, the consul denied my application, apparently because of my lack of employment in Colombia. As I was explained by the consul, my profile didn't meet the criteria for that kind of visa. Needless to say, I tried my best to explain the consul why I didn't have employment in Colombia. I told him that the main reason was due to the fact that I have been in the USA since 2000, working hard, building my business and respecting and obeying all the USA laws.

Since that day I am trying to contact the American Ambassador via email and mail, and he did not answer (I enclosed the letter). So we decided to close our company, fire employees and explain to my clients why we are out of the business. I cannot believe that this happen to us. We are good people trying to do business, pay taxes and contributing for American Economy. I am in shock but if USA does not want us, I won't insist any more. I am in Colombia and I will open my business here and trying to build wherever I did in NY.

I want to thank you because you were very nice with us. If you are planning to came to Colombia please don't forget to contact me….I will always remember you…..take care,

Ana Maria Trejos-Gulden

I hope we will hear a happier part III to this story.

Do Ethics Pay?

Today’s Wall Street Journal reported on the large sums of money companies invest in social responsibility. (Policy Innovations ran a story last month about how CSR programs might fare during a recession.) The WSJ focuses on the extent to which consumers reward ethical behavior.

WSJ conducted a series of experiments in which three groups of consumers were shown the same products, but one group was told the products were made using high ethical standards while the other was told that low standards had been used. The control group got no information regarding the products.

In short:

Regardless of their expectations, consumers were willing to pay more for ethical goods than unethical ones, or ones about which they had no information. Likewise, negative information had a much bigger bearing on consumer response than positive information. People punished unethical goods with a bigger discount …than they rewarded ethical ones with premiums…

People with high expectations doled out bigger rewards and punishments than those with low expectations.

The Policy Innovations article notes that ethical products tend to experience smaller losses during an economic downturn than most goods because of ethical consumers’ commitment to concerns other than price.

WSJ suggests that ethical consumers should be targeted regardless of the state of the economy:

Companies should segment their market and make a particular effort to reach out to buyers with high ethical standards, because those are the customers who can deliver the biggest potential profits on ethically produced goods.

Philanthrocapitalism: Just Another Emperor?

One of the topics we cover at Policy Innovations is trends in social organization, how they affect globalization, and vice versa. Based on his new book, Michael Edwards of the Ford Foundation wrote an interesting article for openDemocracy on the subject of philanthrocapitalism—the "movement to harness the power of business and the market to the goals of social change." He believes it's time to look past the hype and really debate whether this influx of market mojo is delivering what it claims. Are social goals compromised in favor of financial ones?

[ASIDE: We ran an article by Laura Raynolds of Colorado State University not too long ago discussing a similar moment in the evolution of Fair Trade. Raynolds argues that Fair Trade's new position in the marketplace—due to success in scaling up and expansion into new products—puts it in conflict with its social goals.]

Edwards believes that civil society's shift from community organizing to services provision represents an erosion of the sector's power to participate in social transformation: "The accumulated outcome is that civil society may be getting larger—but not stronger or more effective in leveraging fundamental changes in society."

What are the changes Edwards wants to see?

Systemic change has to address the question of how property is owned and controlled, and how resources and opportunities are distributed throughout society.

How do we get there?

[C]ollaboration among separate organizations may be better than blending or competition. It preserves the difference and independence required to lever real change in markets (not just extend their social reach), and to support the transition to more radical approaches that might deliver the deeper changes that we need, like new business models built around "the commons" such as open-source software and other forms of "non-proprietary production"; and community economics and worker-owned firms, which increase citizen control over the production and distribution of the economic surplus that businesses create.

How do we keep nonmarket civil society motivated?

What separates good and bad performers is not whether they come from business or civil society, but whether they have a clear focus to their work, strong learning and accountability mechanisms that keep them heading in the right direction, and the ability to motivate their staff or volunteers to reach the highest collective levels of performance.

I think the most important critique Edwards makes is that market-style projects shouldn't be the sole logic of civil society—social entrepreneurism has hit the scene with a fair amount of zeal. If civil society acts as a social immune system, as Paul Hawken puts it, then that system should have several curative options. Plus, people are more and more motivated to find meaning in their work—social entrepreneurs are filling a niche.

When critiquing the new unity of philanthrocapitalism, Edwards sets it in comparison to the diversity of actors that was required in successful social movements of the past. But right now there is no unified movement. The only thing comparable is the set of actors that are pushing the shift to an environment-friendly lifestyle—though goals may overlap, they are loosely bonded at best in their actions. And the problem they are trying to solve is so inherently tied to our existence as consumers, making it no surprise that fast-acting market forces have swooped into the new environmental gap in our political consciousness.

Has philanthrocapitalism only flourished because civil society becomes too calcified when it is based on institutions instead of a broad social struggle?

Black Gold Shows Bitter Trade Problems

As I have argued in Policy Innovations, ethical trade policies would be based on the principles of freedom and fairness. Thanks to our friends at California Newsreel, I was able to view the extraordinary documentary on the coffee trade Black Gold. The film tells us that something is wrong in the global trading system. Consider these points from the film:

• Africa has become more dependent on aid than ever before.

• Over the past 20 years, Africa’s share of world trade has fallen to 1 percent.

• If Africa’s share of world trade increased by just 1 percentage point, it would generate a further 70 billion dollars a year or five times the amount Africa currently receives in aid.

Why can’t Africa access trade as a tool to generate wealth? The film, produced by British filmmakers Marc Francis and Nick Francis, follows the heroic story of Tadesse Meskela, an administrator of the Oromio coffee cooperative in Ethiopia. Meskela has devoted his efforts to securing a fair wage for his coffee farmers since the global price of coffee plummeted after the International Coffee Agreement, which stabilized prices, collapsed in 1989.

The big players in setting the global coffee price are companies like Kraft, Nestle, Proctor and Gamble, and Sara Lee. Nevertheless, Starbucks, which is also a minor coffee buyer in Ethiopia, is one of the main characters in the film. It is not clear why this is the case other than that Starbucks is so popular that it can possibly influence public opinion. The film also contrasts the situations at fancy cafes in Trieste and Seattle with the squalid health and living conditions in Ethiopia’s coffee growing communities. Who is at fault?

Is it the New Yorker drinking coffee at Starbucks? Is it the problem of the Italian barista? Is it the US Trade Representative’s fault for not securing a trade deal in Cancun? Is it the responsibility of Illy coffee’s board? How about the New York City commodities trader? All of these characters appear in the film, but I wonder why the American, European, or Japanese politician responsible for farm subsidies never made a debut. In a Syriana-esque way, the film suggests that the system itself is broken but no single person is in charge. Something is wrong in the global trading system and judging by the sinister music that plays during certain scenes, everyone in the supply chain holds some responsibility.

As consumers, we certainly hold power and responsibility. I was perusing the Black Gold's excellent website and found a link to a PBS page that tells you where your coffee came from. An interesting comment here from a page on Kraft’s Maxwell House:

As with their Yuban brand, Kraft does not use fair trade coffee beans with their Maxwell House products. Pat Riso, a spokesperson for the company, was quoted in an article as saying that “the reason we don't offer it is because consumer demand for fair trade products is quite limited.”

In other words, if consumers demanded more fair trade coffee, the company would follow their wishes. There is a lot to unpack there. Clearly, the level of moral responsibility a company has in society is a huge topic of debate. Many have argued that we shouldn’t necessarily expect companies to behave ethically all on their own, especially as long as their fiduciary duty is to maximize profit. But I would also argue that companies are just tools to organize people, and people absolutely have an ethical duty to act responsibly.

From a policy perspective, the problem is inequity in subsidies and other resources. Rich countries can send huge teams of lawyers to WTO meetings, far outflanking any team a poor country can send. Meanwhile, rich countries are subsidizing their farmers in the hundreds of billions of dollars each year. Now the United States is under WTO scrutiny for possibly exceeding the legal limit of farm subsidies. From Reuters:

Monday’s WTO probe of US agricultural support for wheat, maize, rice and other crops comes three days after the US Senate passed a $286bn farm bill, following a similar bill from the House of Representatives in July. The White House has threatened to veto the bills, saying they failed to overhaul crop subsidy rules.

The Canadian and Brazilian complaints to the WTO are about whether US support topped Washington’s limit of $19,1bn a year since 1999, except 2003, for the most trade-distorting support. “Canada estimates during these years the US exceeded its WTO commitment levels by billions each year,” the Canadian government told the WTO.

But there is some good news on the fair trade coffee front. From CNW:

Fairtrade Labelling Organizations International (FLO), the only certification model that guarantees a fair minimum price to farmers that meet strict social and environmental criteria, is announcing an increase of the guaranteed minimum washed Arabica coffee price to US$1.25 per pound, to take effect on 1 June 2008. This new minimum price will be valid through at least June 2010, when another price review will take place. The coffee price adjustment, consisting of an average increase of US$0.05/lbs, will benefit more than 250 producer organizations in countries throughout Asia, Africa and Latin America, representing almost 1 million small farmers and their families.

It is clearly a complex issue that the film just brushes. But Black Gold deserves a lot of credit for highlighting the disparities along the coffee supply chain. We should be mindful of these gaps when we make decisions at the supermarket, company boardroom, or voting booth.

Photo by cgfan.

Creeping Protectionism

A stunning new Wall Street Journal-NBC News Poll portends a sea-change in U.S. trade policy. According to John Harwood in today’s Wall Street Journal:

Six in 10 Republicans in the poll agreed with the statement that free trade has been bad for the U.S. and said they would agree with a Republican candidate who favored tougher regulations to limit foreign imports.

This makes Matthew Slaughter and Kenneth Scheve’s prediction in Foreign Affairs look even more prescient. This summer they wrote:

U.S. policy is becoming more protectionist because the American public is becoming more protectionist and this shift in attitudes is a result of stagnant or falling incomes. Public support for engagement with the world economy is strongly linked to labor-market performance, and for most workers labor-market performance has been poor.

All of this should be of concern because, as Slaughter recently told Policy Innovations, globalization adds between $500 billion and $1 trillion to annual US income.

The leading Republican candidates for president are all still solidly pro-trade. Will they begin to change their tune in light of this emerging trend among the party base? And what about the Democrats? The new poll claims that a majority of Democrat voters believe that free-trade hurts the US. Hillary Clinton is looking less and less like her free-trading husband. She recently opposed the US-South Korea free trade pact. Will the trading stance of a Clinton presidency look more like the 1990s or the 1930s?

More to the point, if both parties start sounding the protectionist horn, what effect will that have on US incomes and growth rates around the world? Are we headed for a return to the disastrous Smoot-Hawley era of the 1930s?

Say it aint so.

- Matthew Hennessey

Fair Trade Policies Should Help Not Punish

Matthew Slaughter of Tuck Business School wrote an op-ed today in the Wall Street Journal titled, "Let's Have a Real Debate on Globalization." His central point is that globalization has in balance helped the U.S. economy. And that instead of trying to punish countries that appear to be cheating, the U.S. should focus on making sure Americans are equipped to compete in and cope with a globalized economy.

Here is the key quote:

"The preferred course is to complement open borders with a mix of domestic policies to help those that are hurt. But is this what we hear being discussed on the campaign trail? No. It is about fair trade, not free trade. It is about pulling back on previous trade agreements. It is about new laws to hit 'currency manipulators' with new trade barriers."

I totally agree.

In an article I wrote a few months ago titled "The United States Must Redefine Fair Trade" I tried to make the same point. My point is that fair trade policies should start with the freedom to trade and add ethical principles, based on the fair trade movement.

It is fair to give the world the opportunity to benefit from the international trading system. It is also fair to try to protect labor and environmental standards--and it is fair to build human capacity and potential to innovate and prosper. Punishing regimes that we don't like or manipulate their currencies have very little efficacy.

This is how I put it:

"Notice that tariffs and competitive devaluations are not on the list [of desirable policy tools]. Although both of these approaches are advocated under the guise of protecting fairness and even human rights, history and economics tend to dispute those claims. Instead, openness—with the proper safety net—can help advance human rights."

Policy Innovations interviewed Matthew Slaughter recently. Read our interview, titled "Pushing against the Protectionist Drift."