City landscapes and tax structures influence the barter economy's evolution.
The current economic transition has reduced personal wealth, world trade and access to loans across the world. Furthermore, national debt has been increased with various forms of fiscal policy called bailouts or stimulus packages. It’s safe to say that on average overall disposable income is down. In Holland, the Centrale Bureau voor Statistiek reports that consumer confidence is down 24% and turnover is down from 2008. How can we overcome our losses? Some speak of a shifting paradigm in the business model and leadership while others advocate innovation. In the economy today many organizations, particularly banks, have returned to jargon that refer to going back to basics, trusted and well established methods. Well how about going way back, like back to barter?
Barter diminished with the emergence of money, the symbolic value of goods and service, which made dragging a pile of exchangeable goods long distances to a marketplace as simple as a promissory note in a wallet. With money, one always can trade. Money also brought lending and speculation to the marketplace which, ironically put us in this financial situation. But now with information technology can we find what we want when we want it? What if Internet and mobile phones could empower people to barter for their goods and services as easily and effectively as money? What if barter could shift the loss in income by substituting cash purchases with reciprocal exchange?
“Bartering is the new currency in economic recession” -ABC news
It’s difficult to measure the volume of barter but estimates indicate 3 billion in bartering in the USA alone where barter postings on Craig’s list have doubled in 2009. The International Reciprocal Trade Organization posted a global study in 2004 releasing an $8.25 billion exchange value just with businesses dealing with barter. A new census is do this year with experts expecting substantial growth. However that figure will be limited, and does not take into account micro bartering activities that are not recorded as part of income tax or facilitated via bartering websites.
Barter is not free. Since 1979 the International Monetary System is largest online platform for bartering. Here goods and services are exchanged for barter dollars that are registered as income tax and levy a 6% charged per transaction. A similar platform has been created in 1983 in the Netherlands called Bartering Nederland that also guarantees a safe exchange platform with a slightly more complex membership and commission structure.
Perhaps large barter transactions between companies via B to B arrangements have a preference for a high profile and tax audibility. Trust and or accountability is a factor in barter’s continued growth. However, I suspect that vast numbers of barter activity will continue to grow unregistered. Professor Roger Stager for the John Hopkins Business School comments earlier this year in the USA Today on this underground economy by saying,
“Barter absolutely thrives in bad times.”
How much barter activity is happening in local communities both on and offline that never makes it to the tax form and aggregate economic activity measure like Gross Domestic Product? In 2006 Alvin en Heidi Toffler published Revolutionaire Rijkdom that highlights this emerging paradigm of value exchange outside the money system that is strongly supported by Internet, open source software and what they refer to in het Nederlands ‘prosumeren,’ the combination of product producer and consumer. Prosumeren is also low tech and community building. The NRC Next on 27th of July reported the re-emergence of urban gardens. A trend also to be found in North America and draws parallels with this activity to the community building of the 60’s and 30’s when sticking together was a priority. Urban garden is also a step in the sustainable direction by reducing transportation costs. It also improves health by decreasing the quantity of synthetics ingested that we find in so many of our supermarket foods.
The scope of barter is two fold. On a macro level large scale business trades are moving millions of units of value between each other. This activity is often via online networks and is accounted for like money so it can be taxed and added to traditional economic indicators. On the micro level, the barter activity is so intimate and local that it remains unexposed to tax and does not generate recordable data for economic measures. Both levels show signs of continued growth.
Does barter value simply substitute money’s function in society? Maybe it will be business as usual for high rollers in multi-nationals who are trading at the level of container ships for airplanes. Although bartering leaves cash in our hands it may end up reducing the money supply. Essentially in today’s banking systems money equals debt, so if increasing percentages of economic activity is without money then we could start reducing debt. In turn, interest rates and savings plans will also adjust.
BARTER IN THE CITY
How will an increase in bartering effect economies and societies? Is there anything that can hold it back and who will have a comparative advantage? Government, or specifically the tax department could play a dynamic role in promoting or distorting reciprocal trade. A proactive approach can be noted by Trade Sheffield in the UK. Here local government has supports barter between businesses as a way to stimulate economic activity. Trade Sheffield's currently has 394 members, with an estimated combined annual turnover of £251million. For a city that has slightly over a half a million residents that is a spectacular percentage of overall economic activity. Imagine what the numbers could be like if a large city like London, a cluster of cities like in the Randstad or even a region like Benelux would embrace a public private partnership endorsing barter.
The more a city government aligns itself with barter networks the more likely barter will begin to manifest itself in physical form. Cities and regions could build market places and or forum like exchange halls to create a centralized meeting point for barterers. These economic exchange points would be less abstract than a stock exchange and more advanced than medieval markets filled with chaos and haggling. Today communication technology will take out the guesswork of finding what you need and where to get it. In fact, urban planning will also cater to enhancing barter potential directly in architectural coding and in mixing uses. Over time, cities will develop specialties. For example bartering in Rotterdam is known for its commodity and logistics where as Amsterdam offers services in advertising and product development. Demographically speaking, how will formalized barter networks empower immigrants, in particular the entrepreneurial Turkish community? Will the increasing grey population also find economic / social livelihood through barter?
Cities will be interested in harboring barter. Sustainability, community building and economic growth will most likely be the communication language. But deep down inside I think controlling the volume of income tax will be the driving motivation. If barter achieves an increasing level of frequency per person that could come at the cost of reported income tax, in an era of massive national debt losing out on more tax could mean closing down departments and cutting public services. By embracing barter, and therefore promoting it with an open infrastructure than can be monitored, licensed and taxed seems like a win-win situation.
BARTER vs. MONEY as STATUS SYMBOL
There is a special social element to bartering that differs between online communities and a face-to-face interaction. Somehow the sense of value for a good or service when equated outside the realm of money becomes personalized in a local setting. Baking an extra loaf of bread for my neighbor in exchange for tomatoes from his/her rooftop garden has a grounded intimacy that instills a sense of community. Or watching the neighbor’s kids since I work from home in exchange for use of their car on my next holiday always ends in a handshake and smile. In this way bartering seems more than maximizing economic activity but has something community building about it.
In fact the perspective of money status might alter when juxtaposed to barter status. Many people around the world share the mentality that money is cold and heartless. Currently barter is not in everyday conversations by most of us so its global perception is in the making. Until now barter is still that quirky thing of the past, novel and a thrifty way to share resources. Having loads of money equals bling bling, and maybe having loads of barter could develop another connotation, something more social and trustable. What would a barter rich person look like? Will they show up to an opening event in a limo wearing a tuxedo with beautiful people hanging off their arms? Appearances can be deceiving but what can be expected from a barter rich person is large number of trusted contacts and networks. They may also be tribe specific, or in other words specialized in a context of goods and services for a particular industry. Tribal characteristics will appear in the clothes and technological accessories they wear, it will also underpin language and place logic. Knowing the write slangs and expressions plus the places to meet and the culture of approaching barter are part of tribal dynamics.
WHAT DRIVES the BARTER SCENARIO
The coming transition years are marked with an economic sentiment of doing more with less. Bartering can fulfill this gap but it could also attribute increasing instability to the establishment. We are in a time when the Dollar as a global currency is questioned and where increased national debt has discounted pensions and future generations. Will barter improve sustainability and strength community involvement or further polarize society between the haves and have not’s. Barter happens at all levels, between my neighbors and neighboring nation states. It’s just as possible that I will trade bread with my neighbor for tomatoes as Russia could trade nuclear secrets for carbon credits with Iran.
As bartering grows, it will be interesting to see how Internet influences both global and local networks. The horizontal axis measures barter communities in terms of physicality versus virtuality. The vertical axis explores how cities and regions will develop a pro-active relationship with barter economy and where underground barter networks challenge the establishment.