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The Worldstock Fair Trade Story

- by Patrick Byrne, CEO, Overstock.com
Created by Accident (Literally)

In 1999, I founded Overstock.com with one mission: to create an e-retailer optimized for liquidation – that is, to work within fractured supply channels of numerous, scattered vendors, scooping up products in lots too small to be moved efficiently through mass retail.

In 2001, I took a break from Overstock.com to visit India and Southeast Asia, where I was able to travel widely by motorcycle. As I went from village to village, I came across small groups of artisans making first-rate silver and woodwork, table settings, silks, and home decor products. Some of these cooperatives included the disabled, many of whom had lost limbs to landmines, or women with no legitimate job opportunities at all.

One afternoon, I crashed my motorcycle on a dirt path and lay tolerably banged up in the tropical sun, watching farmers work their fields. Some children kindly took me to their village, where, that night, I reflected on what I had seen.

I saw a common thread running through these communities, a thread I had previously missed. They had in common, of course, their poverty, coupled with a desire for work, self-respect, and the chance to provide for their families. Yet beyond their disabilities, obstacles, and lack of capital, a larger problem confronted them all: their output came into the world through highly fractured supply channels of numerous, scattered producers, in lots too small to be moved efficiently through the mechanisms of mass retail.

It was too obvious even for me to miss! The central problem of artisan production – how to marry scattered small-lot production to mass demand – is indistinguishable from that of liquidation. And, by one of those weird coincidences that seem to govern my life, this was a problem I had already built the most effective mechanism to solve: Overstock.com.

Upon returning to the States, I formulated plans for Worldstock, a store within Overstock.com devoted solely to carrying the works of artisans – especially disadvantaged artisans – and selling them as inexpensively as possible so as to maximize the amount of return for them.

Ethical Dilemmas

The first questions that needed to be addressed were ethical. The issues I faced were like mines strewn across a battlefield:

• Child labor: Children are not “free and rational agents" in the conduct of trade. Children working in factories cannot meaningfully choose the condition of their employment, and so their output is morally tainted. (I decided, however, that children might legitimately help their parents in informal, cottage-industry settings, if their work were limited and they go to school.)

• Fairness: How can an American liquidator negotiate fairly with a supplier from a poor country in a context of asymmetric power, information, and capital?

• Oppression: Would providing new economic opportunities to traditional cultures reinforce entrenched patterns of the oppression of women? Should trade be conducted with people working in countries whose governments are guilty of human rights violations, or would that support tyranny?

Over time, I arrived at the best set of principles I could formulate, based on my personal observations, education, and experience. I chose them by reflecting on the products with which I hoped to build Worldstock: goods whose purchase would support women, disabled people, traditional artisans such as Native Americans, and other disadvantaged people, goods produced through micro-credit, and goods whose production or consumption is carried out in an environmentally sound manner.

Worldstock Principles

The following principles govern Worldstock products, pricing, negotiations, and disclosure:

• Economic, Cultural and Environmental Sustainability: Worldstock only supports businesses that sustain rather than use up people, cultures, and natural resources. We seek to provide economic sustainability through stable employment which is healthful enough that it does not “use up” workers in the short term, and with which people can build a life for themselves in the long term. We seek to provide cultural sustainability by buying the products of artisans working in traditional settings, which in turn supports traditional practices while ameliorating the cultural disruptions that often accompany development. We contribute to environmental sustainability by buying goods from organizations such as the Worldwatch Institute that research and sell replenishable products from the Brazilian rainforest rather than burning it for pasture. Moreover, some goods are surrogates for commercial goods, but are produced in nonindustrial, eco-friendly ways.

• Razor-Thin Margin Pricing: Unlike some retailers that mark up socially-conscious goods by 300% or more, with only a small fraction of the sales proceeds actually returning to the producers, we have decided on a radically different course. While a small profit is necessary to afford the ever larger inventories that growth requires, my dream is to price our goods inexpensively so as to grow Worldstock rapidly and spread the model to as many people as possible.

• Fair Negotiation: The hyper-competitive mentality of capitalism is not appropriate for Worldstock. When disparities in wealth, options, and information between two parties go beyond a certain level, negotiations can no longer be fair. Consequently, at Worldstock, we do not negotiate roughly with suppliers, but rather remind them that if they charge us too much, we will not be able to sell their products or place reorders; lower prices to me will create higher volume for them. In effect, the buying behavior of our customers dictates how hard the producers themselves face pushback. I could think of no fairer system.

• Transparency: Principled disagreement exists even among proponents of fair trade. Some believe that Worldstock products should only be purchased from development organizations, NGOs, nonprofits and micro-credit banks, which organize producer associations and in some cases, provide training for producers (landmine survivors, for example). Others claim that limiting purchases to such agencies perpetuates a mindset of dependency. Should I forgo the shawls made by a small workshop of women in an eastern Lebanese village simply  because they lack the certification of an NGO, or should I trade in them to reward their initiative? My answer is simple: We buy socially responsible products from all reputable sources, including directly from artisans themselves. All producers sign a statement of principles

Conclusion

Artisans around the world have trouble reaching their natural markets due to poverty, poor information, and the disadvantage of being small-lot producers in an age of high technology and mass distribution. Yet they are capable of making exquisite centerpiece products. These artisans could feed their families, vaccinate their babies, and send their children to school, if we in the developed world were to purchase the high-quality goods they know how to make. We realized that Overstock.com could bridge this global gap. The result is Worldstock, a store emphasizing sustainability, fairness, and transparency while empowering artisans to achieve their dreams for themselves and their families.

Sincerely,
Patrick M. Byrne
CEO

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