Dani Rodrik has an interesting post on the procedural fairness of trade
a redistribution that takes place because home firms are undercut by competitors who employ deplorable labor practices, use production methods that are harmful to the environment, or enjoy government support is procedurally different than one that takes place because an innovator has come up with a better product through hard work or ingenuity. Trade and technological progress can have very different implications for procedural fairness. This is a point that most people instinctively grasp, but economists often miss.
In the case where person A is made richare than person B, perhaps because person A engaged in unethical or immoral behaviour, then as Dani says, our perception of whether the resulting distribution is acceptable or not depends on these issues. However, isn’t that just a symptom of incomplete accounting, i.e. not accounting for the negative externality person A causes on person B. Surely if accounted for then we wouldn’t have need to run into the roadblock Dani describes.
Another issue is that surely perspective is important. In the quote above, if you are a factory owner in Vietnam employing young children for long hours making designer clothes, it doesn’t look particularly innovative to us. But to the alternatives faced by those labourers, the introduction of the factory is innovative. You can’t talk about fairness without including the other side in the debate.
However, I think Dani is right when he asserts that the procedural issue is one of the reasons why laypeople and economists often differ in their assessments of free trade. My view is that this reflects differences between the groups of whether externalities exist and what, if anything, should be done about them.
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