Barter, sharing, local currencies: formalizing the informal economy as a response to economic downturn

One of the publications from the Asset Based Community Development Institute, A GUIDE TO CAPACITY INVENTORIES: MOBILIZING THE COMMUNITY SKILLS OF LOCAL RESIDENTS, focuses on how people have a variety of skills and these skills can be tapped to improve themselves, their families, and their communities.   (The ABCD Institute has a number of other related handbooks on this broad topic.  Some are free, some not.)

Time banks as a way to organize bartering

And over the years, I've across various "time bank" projects--there is one in Prince George's County called Anacostia Hours--which organize people across a local geography, creating a time bank where people can trade services mostly but also goods through an exchange that records people's time contributions, e.g., maybe I have a truck and help someone move for a few hours.  These hours are recorded and then I can trade that time for something I might need, like a consultation with an accountant.

I've never been all that interested in this, even though it obviously makes sense from the standpoint of building local economies and providing the ability to support local commerce beyond the strict dollars and cents of straight up transactions.

For it to be worthwhile, it requires a large number of willing participants, and people with skills-services that others want, constant recruiting, etc.  It seems like a lot of work to make it work, and constant effort to maintain it, let alone expand it.

Desperation as a spur to barter and other informal economic measures

And while the US economy is maybe getting better, economies in Southern Europe and the UK continue to decline, because the response to the economic downturn there hasn't been Keynesian macroeconomic measures to boost employment and economic activity but Herbert Hoover-like austerity measures (Paul Krugman writes a lot about this in the New York Times, such as "Europe's Austerity Madness," and former US Treasury Secretary Lawrence Summers had an op-ed on the same topic recently, "Growth not austerity is best remedy for Europe," in the Financial Times and other newspapers) that cut back on government spending and programs, further reducing economic activity and extending the recession.

Economic decline can spur the scaling up of organized bartering exchanges

So one ground up community response has been organized bartering networks.  The Washington Post wrote about it in August, in "In Spain, financial crisis feeds expansion of a parallel, Euro-free economy."  From the article:

Psychologist Angels Corcoles recently taught a seminar about self-empowerment for women, and when she finished the organizers handed her a check with her fee. The amount was in hours, not euros.

But Corcoles didn’t mind. Through a citywide credit network that allows people to trade services without money, the 10 hours Corcoles earned could be used to pay for a haircut, yoga classes or even carpentry work.

At a time when the future of the euro is in doubt and millions are unemployed or underemployed with little cash to spare, a parallel economy is springing up in parts of Spain, allowing people to live outside the single currency.

In the city of Malaga, on the country’s southern Mediterranean coast just 80 miles from Africa, residents have set up an online site that allows them to earn money and buy products using a virtual currency. The Catalonian fishing town of Vilanova i la Geltru has launched a similar experiment but with a paper credit card of sorts. It implements a new currency worth slightly more than the euro when it is used at local stores.

In Barcelona, the country’s second-largest city after Madrid, the preferred model is time banks, which allow people to trade their services in hours without the involvement of money.

“This is a way for people who are on the fringes of the economy to participate again,” said Josefina Altes, coordinator of the Spanish Time Bank Network.

It strikes me that bartering is a more organized form of what Logan and Molotch's discussion of the "use value of place" in Urban Fortunes: Toward a Political Economy of Placemaking, specifically:

Informal Support Networks: Place of residence is the potential support of an informal network of people who provide life-sustaining products and services. (chapter 4)

Except that with organized exchanges, they are more "formal", but still "informal" (or "underground") from an economics standpoint in that the "transaction" doesn't require the exchange of money in order to be completed.

Local currencies spent exclusively at locally owned businesses

Last month, the "Bristol Pound" (£B) was introduced in the City of Bristol in the UK.  The Bristol Pound is a local currency other than the British pound (or Euro) that can be spent only with locally participating independent retailers, thereby keeping more money in the local economy.  And they have designed and printed "Bristol Pound" notes.

See "By Virtue and Industry" from the OISE Bristol blog, "The Bristol Pound is launched to help independent retailer: Organisers hope currency will encourage shoppers to buy locally" from the Independent, and "Bristol banks on alternative pound to safeguard independent retailers:Butchers, bakers, solicitors and even a pole dancing tutor sign up to stop multinationals taking money out of area" from the Guardian.  From the Guardian article:

More than 300 businesses – including butchers, bakers, solicitors, plumbers, electricians, book stores, art galleries, a chimney sweep, supplier of firewood, even a pole dancing tutor – have signed up, making the Bristol pound the largest local currency in the UK.

The idea is simple: to encourage consumers to spend more of their money in the local independent shops that accept the one, five, 10 and 20 pound notes and stop money leaking out of the area to faceless multinationals, unknown shareholders or the discredited banking system.

The scheme is creating a buzz. New businesses are joining every day and consumers are queuing to exchange their sterling pounds for the Bristol equivalent (the rate is a simple-to-understand 1:1). Shops are planning discounts for customers who proffer the Bristol pound and some businesses considering paying employees partly in the local currency. The city council has said it will accept Bristol pounds as payment for business rates.

This has to do with what is called the economic multiplier effect.  When money is spent at local businesses, typically local businesses also purchase local goods and services, such as advertising in the newspaper, paying a local bookkeeper, etc., and more of the money recirculates locally.

So the local currency movement takes up the "Buy Local" campaign another, significant notch by putting money into it to realize the philosophy and attitude in a very practical and financial manner.  (In the U.S., the "Buy Local Campaign" from the American Independent Business Alliance is the leading buy local promotion program, although there are independent efforts in various places, including the Think Local First program in DC.)

From the Independent story:

Who is issuing Bristol Pounds – and who can use them? 
Circulating alongside sterling, Bristol Pounds have been launched by a non-proft partnership between Bristol Credit Union, which is regulated by the Financial Services Authority, and a community interest company founded by local business leaders. Anyone can buy Bristol Pounds banknotes at issuing points across the city or online, but only traders who are independent and based in or around Bristol can become sell items under the scheme.

How many Bristol Pounds are in circulation?
£B125,000 in printed cash has been made available in watermarked paper with ultraviolet graphics and foil logos for security purposes. It is hoped that £B500,000 will be in circulation within a year.

Note that I learned about this with regard to  Bristol, but other British cities, like Lewes, have already done this.  See "Should we all just print our own money?:Is there any reason towns and villages across Britain can't join the Bank of England in printing their own cash?" from Forex.com and "Small is beautiful – a story of local currencies (update)" from Sloman Economics.

On the other hand, money spent at chain establishments tends to flow out of the local economy, except for labor, as most of the goods and services purchased by chains are bought from firms located elsewhere.  Plus any profits that are made at a locally-owned store stay local too, whereas all profits from a chain store are sent to headquarters.

The organization Civic Economics has done studies on this phenomenon.  And the Institute for Local Self Reliance/New Rules Project on Independent Business initiatives is a good resource too

Software-applications fueled neighborhood sharing systems

I wrote in April about not bartering, but sharing items, within neighborhoods, in the entry, "Neighborhood sharing as computer mediated communication."  In London, two people, Sam Stephens and Ryan Davies, put together a program and software application called Streetbank to allow people to share items with each other directly or on a decentralized basis, aided by the database, and not requiring a centralized inventory.  See "Go on, lend me that old lawnmower in the shed" from Hammersmith & Fulton News and "Neighbourhood Sharing" from the Malaysia Star.

Maybe what's key about such a database--there it is set up to let you see available items within about a 2km distance--is that it really isn't so much about the items that are available, but about organizing a group of people predisposed to share items.

Borrowing-sharing items from your neighbors and close-by residents that you wouldn't otherwise know, informally, is fundamentally personal, and harder to do.

It's not so much that Streetbank is a database of available items as much as it is a computer-mediated method to foster face-to-face connections, structuring connections and making it easier to create reciprocal obligations that are personal, trading use of items, but not transactionally.

Note that some neighborhood listservs also perform this function, but it is the rare neighborhood that has the sense of community and trust where this happens.

I think it's possible to build these kinds of functions into neighborhood-focused computer applications programs.  See "Websites aim to make neighborhoods more neighborly" from the Baltimore Sun.

But a problem I see (like with listservs, community organizations, etc.) is scale and number of participants.  It's a conundrum because you need a small area to build trust, on the other hand you need a lot of participants to make it worthwhile to participate (the network effect).

Conclusion

While there are time banks efforts across the US, and various "support local first" type business efforts* across the country and even "cash mobs" where local residents descend in a group on a chosen business and spend a bunch of money, will "desperate" times push forward a greater interest in the United States--not just Europe--in bartering goods and services, a more formalized response to what has been considered part of the informal economy*?


* The IRS is very clear that barter-based transactions are supposed to be taxed as income.  See their webpage, Bartering Tax Center.