"Fair Trade" = Free Trade: Could it actually be that a fair trade retail movement in Berkeley is driving a technological solution for global capitalism?
Jan 31, 2006

AlwaysOn

You may have already noticed products labeled "fair trade" when walking the aisles of your local supermarket. What is fair trade? It's the idea that workers and artisans should receive a living wage that reflects the economic value of the goods and services they produce. This growing consumer movement started with commodities like coffee and tea and chocolate—but is now being applied to the more complicated arena of hand made crafts through the efforts of a startup company called World of Good. DFJ Frontier and Draper Fisher Jurvetson have just helped take fair trade to the next level by providing funding to World of Good.

At first blush the investment might seem confusing: by supporting a retail goods company applying the concept of fair trade to imported crafts like bags, scarves, and jewelry, it might appear we're putting our venture capital towards regulation of the markets and abandoning our traditional focus on technology. Could it actually be that the fair trade movement in Berkeley—not exactly known as the stronghold of capitalism—is producing a technological solution for global free trade?

Sure enough, we believe that World of Good epitomizes the power of the free market. Fair trade is actually a consumer movement, not government regulation: many consumers desire that the products they buy be made in ways that respect the people and environment that produce them. When Whole Foods launched cruelty free chicken doubters predicted the effort would fail, but consumers were willing to pay a premium to know that their dinner lived a good life before making it to the table.

It makes sense that these same consumers are interested in cruelty free clothing, jewelry, and house wares. No one likes the idea of a third world sweatshop; World of Good's fair trade program seeks the alleviation of poverty for tens of thousands of artisans producing high quality crafts. Can these global products reach the U.S. market in an ethical way that consumers can trust, with prices they are willing to pay? So far the company has enjoyed early success, securing national distribution and demonstrating economic efficiency as measured by the dollar per square foot metric religiously tracked by retailers. Just ask World of Good's retail partners, who keep asking for more.

So where's the technology in World of Good? In reality, fair trade isn't about charitable overpayment for third world goods and services; the most significant barrier to open market economics in these countries is the lack of transparency in pricing and negotiation. And that's where the internet arrives, right on time.

Economists' initial excitement about the internet focused on the prospect of eliminating information asymmetry and allowing supply and demand to reach natural levels. This potential launched a thousand (or so it seemed) b2b exchange startups and we all know the promise has borne fruit in such markets as insurance, used car sales, and even diamond engagement rings. When consumers can get information easily that allows them to compare alternatives, prices reach equilibrium and unfair advantage tends to disappear.

But imagine this model turned upside down, where the power of the internet could be used to help uninformed suppliers in a market where buyers have all the control. Craft producing villages around the world have little access to market information on the selling price of their goods as they move through the global supply chain. These producers rarely have the ability to assess the value of their labor and are unable to negotiate prices to ensure that they live above the poverty line.

This is why World of Good founder Priya Haji has introduced web-based floor pricing technology for worldwide distribution to craft producers. Literally anywhere in the world, a producer, their representative, or a buyer can test pricing in real time. This calculator shows how the price of goods compares to United Nations indicators of poverty and international labor wage data. Immediately, artisans can use this information to negotiate market prices while buyers with conscience can see how their pricing policies compare to their intentions. Using the internet, World of Good embodies a key requirement for free markets: the free flow of information.

You can find World of Good at national retailers like Whole Foods and many local specialty stores in northern California. To get involved, check out www.worldofgood.com and www.worldofgood.org (the latter includes information on the company's non-profit, World of Good Development Organization). After all, fair trade can be free trade, through freedom of information in the global market and the power of consumers driving real change with capitalism.

Scott Lenet is a founder and Managing Director of DFJ Frontier, a venture capital firm providing seed and early stage funding to technology startups.