Trade and aid can mix, and it's not all beards and sandals

Ethical Trading

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I have an interest to declare here but let me come to that in a moment. To most people one of the most unexpected aspects of this week's White Paper on overseas development is its emphasis on "ethical trading". Time was when ethical trading meant African handicrafts on sale at the back of the church hall or undrinkable coffee at Nicaraguan Solidarity stalls (whatever happened to them?). So how has it gone from a hobby for the beard-and-sandals brigade to being a big plank in government policy in less than a decade?

The very idea of ethical trading would not long ago have been regarded in Labour Party circles as an oxymoron. I might have thought so, too, until I went to Ethiopia during the 1984 famine. That brought home to me the limitations of the approach to aid that was then current. Emergency food did the job of keeping people alive. But so many of the development projects that were supposed to prevent future emergencies were based on a paradigm which ended with grandiose modernisation projects, abandoned and overgrown in the African bush.

Over the next decade I reported from 30 Third World countries and was increasingly struck by the extent to which all suffered from the same problems. Two things became clear. First, that if development projects were to work they had to be rooted in the priorities and perceptions of the local people, not those of experts from abroad. Second, that all projects would be fruitless unless some of the underlying structural problems were dealt with in the international trading system; the West had erected an edifice of tariff and taxes to discourage Third World countries from developing their own industry and instead continuing simply to provide the industrialised world with raw materials. The system that went under the name of free trade was for many not free at all, and certainly not fair.

And now for my declaration of interest. When my decade of overseas travelling came to an end I became involved with Traidcraft, a plc which buys and sells Third World products but which pays a fair price to the people who make them. Its sister company, Traidcraft Exchange, of which I now chair the board, runs a business advisory service to provide basic business skills to those producers and gives marketing information on what will sell in the UK.

It was not terribly fashionable when I joined. The pure of heart preferred charitable-giving untainted by the murky marketplace. The politically minded saw it as a kind of Trojan horse for Thatcherism - "You're just a social market man," I was once told by Labour's last development minister, Judith Hart.

But business was vital - and not just because self-sufficiency and work lies at the core of human dignity. As Clare Short's white paper acknowledges, private capital flows have now come to dwarf official flows as a source of money into the Third World. More than that, the man and woman in the high street had ceased to be citizens and become consumers. The challenge was to harness that and ensure that every pounds 1 spent was an economic vote cast in the direction of the poor.

That meant a wider canvas than Traidcraft's mail order system and its 2,000 voluntary reps could afford. Abroad Traidcraft Exchange spawned indigenous partner organisations in South Africa, Tanzania, the Philippines, India, Zambia and Bangladesh. At home it established a partnership with three other "alternative trading" groups - Oxfam Trading, Equal Exchange, Twin Trading - to create a new, fairly traded, high-quality coffee named Cafedirect and persuade supermarkets that there is a market for ethics, just as there was for environmentally friendly goods.

It has been a marked success. Other fairly traded goods - including tea and chocolate - are now widely available in supermarkets branded with the marque of the Fairtrade Foundation which Traidcraft set up in coalition with Cafod, Christian Aid, New Consumer, Oxfam, the World Development and, perhaps most surprisingly, the Women's Institute.

But introducing new brands cannot be a comprehensive answer. Existing companies had to be influenced towards more ethical business practices. Aid agencies began pressing large manufacturers and retailers to endorse codes of conduct. Christian Aid rated supermarkets in order of Third World friendliness (Tesco came top) and ran exposes of the sweated labour behind Nike shoes and child labourers who make Manchester United's footballs. Cafod did the same with fashion footwear from Brazil.

From there ethical trading moved up another gear. For the past six years Traidcraft has been pioneering a system called social accounting. Using mechanisms parallel to those in financial auditing it monitors the impact a firm has on its suppliers, customers, staff (and their families), the local community and the environment. The system has been taken up by Allied Dunbar, BT and the Irish government. The Co-op Bank and the Body shop have adopted their own versions. Traidcraft's social accounting specialist has most recently been approached by Shell with whom it is in discussions on how it might report its activities in a more open and transparent way. And Clare Short is pledged to investigate how her own department might be subjected to a social audit.

Social auditing is, of course, like codes of conduct, a voluntary mechanism. But it is proving such an effective tool of management information that many companies are considering it who do not feel the need to adopt it as a mere PR measure. The challenge now is to spread that further. Globalisation has brought new problems for developing countries. But it has also brought a new lever with which to press for a better deal for the world's poor.

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