A community-owned business-to-business barter system: advice and proposal

by Matthew Slater

This proposal argues that the barter industry is captive to its software providers, and that a different, community-owned, model of software ownership could free the barter industry from the poor practices and over-extraction that now hold it back.

It is argued that a basic open source implementation, managed by its users, would both stimulate the industry to more constructive forms of competition and encourage new eco-minded exchanges to start up.

At a moment in history when the banking system has taken leave of its responsibilities, the authors wish to see a revival of barter and nurturing of a post-growth economy.

Terminology

An exchange is a member organisation which keeps accounts between businesses who agree to honour one another’s credit.

A network is a group of exchanges usually running the same software, who honour each other’s credit

A network provider is a organisation providing software to exchanges, and typically taking a fee from the trade that happens between them.

National money, hard money & legal tender are equivalent terms. This is a commodity which is presently scarcer than usual in the economy

Trade’, trade dollars & barter credit are the unit of account used to measure value in an exchange. The value is the same as the national currency because that makes accounting and taxation easier. Units of account cannot be scarce, but flow according the trust between members of the system

Contents

The problem

The barter industry

Networks and free market capitalism

The solution

About free software

Community Owned Software

Long term management

Why doesn’t this already exist?

Benefits of 21st Century Software Frameworks

A proposal

Implementation Partner: Smokey Mountain Hollers Cooperative

Implementation Partner: Apres Geneve & Community Forge

Main goals

Roadmap to version 1.0

Approximate cost

Additional information

About Matthew Slater

About Amy Hamilton

About Drupal

The problem

The barter industry

Wikipedia describes ‘barter’ as:

A trade or barter exchange is a commercial organization that provides a trading platform and bookkeeping system for its members or clients… Commercial exchanges make money by charging a commission on each transaction either all on the buy side, all on the sell side, or a combination of both. Transaction fees typically run between 8 and 15%… It is estimated that over 350,000 businesses in the United States are involved in barter exchange activities. There are approximately 400 commercial and corporate barter companies serving all parts of the world… There are two industry groups, the National Association of Trade Exchanges and the IRTA. Both offer training and promote high ethical standards among their members. Moreover, each has created its own currency through which its member barter companies can trade. NATE’s currency is the known as the BANC and IRTA’s currency is called Universal Currency (UC).

The industry is strongest in the USA where many networks operate, offering a wide range and quality of services, though barter happens all over the world. There are many providers of barter software who compete to sign up exchanges into their networks but no two software packages are compatible.

This is a serious structural problem with the industry which is choking its success even as developed economies enter a depression, cash is drying up, and the need for barter is greater than ever.

The industry is is segmented into competing trading networks, delineated by software. The software providers are competing against each other to grow these networks because they profit not only from the software, but from the trading between exchanges within their networks.

Networks and free market capitalism

Predictably, when networks compete with one another to gain more exchanges as members, the result is segmentation which is bad for all members, who want to be in the biggest network possible. The same applies when Myspace, Friendster, and others compete with Facebook to become the dominant social network. End users suffer either the inconvenience of being in several networks, or the limitation of only connecting to a subset of their friends. When the game ends, the winner, selected by the ‘market’ is the best funded, most marketed, most profitable, and least ethical provider, and the prize is a monopoly which cannot be challenged for years.

This is not how free markets were supposed to work. Widget makers in the industrial revolution would compete on quality, price and cost to produce, and the most money-efficient would best serve the market while the others found niches if they were lucky. But translate this to infrastructure networks and the customer no longer benefits. We should be learning from networks like the Internet, which was built on open standards. This fostered a much healthier kind of competition about who could build the best services for the Internet, not who could build the best internet, (which is what AOL tried to do).

Reagan and Thatcher started a wave of privatising critical infrastructure provision from telco, energy, roads, prisons, post, even according to some accounts, the money system. Many agree that the pendulum has swung too far and that running critical infrastructure for maximum profit easily leads to monopolistic abuses. This is also the ideology that led to an epidemic of competing phone networks and competing rail companies, with all the intangible benefits to the end users that that entails.

Governments and banks are absolutely unsupportive of local trading networks, and tax all trade in national currency as if the sales took place in dollars. If this wasn’t bad enough, none of the network providers seems to value the credit of their own networks; they accept only legal tender for their services. Similarly, managers of barter exchanges have bills to pay, and extract hard money from their businesses by levying transaction charges and membership fees. These local economies which are so critical in an era of scarce money, are being drained of national money at every opportunity.

Even without this parasitism the practice of barter is suffering from the wrong kind of competition, profiteering, rampant seigniorage, collapses, and a poor general reputation, and this means that businesses feel they cannot turn to barter even when they need it most.

The solution

A healthy digital network is built on open data standard which allow any provider to make software compatible with the rest. This allows competition without segmenting the market. IRTA has pushed for such standards, and has had some success implementing Universal Currency. No commercial software vendor wants to be the first to embrace open standards because some of their customers would take the opportunity to leave. The deadlock can only be broken with a new, open source implementation. Once the software is free, providers would be forced to work to retain their users by providing value, rather than simply locking them in.

About Free Software

A new approach to software could break this deadlock and divert attention and resources away from harmful competition and hopefully towards the spreading of good practice, standards and support.

Free software can revolutionise a market in the face of commercial software aiming for a monopoly. Internet Explorer was forced to become free and has been inferior to the open source alternatives and losing market share for 15 years. Similarly Microsoft’s web server could never compete with Apache, which was open source. And Linux, while many users are completely unaware of it challenges Microsoft and Apple, and beats them in all kinds of markets.

In software ‘free’ does not mean it costs nothing to own and to run; it means anyone can download the code, read it, alter it, and use it. Free means it is not captive or controlled. Instead of passive customers paying for use of the code, it means users are empowered to tailor the software to their own needs, and/or improve the software for the benefit of all the other users.

The developer effectively waives ownership by releasing it open source, seeking only make a living by being the preferred developer. Many open source projects are developed and maintained by clusters of enthusiasts and users who gain professional kudos for their contributions.

Community Owned Software

If many people get involved in a free software project, coordination is needed to manage features, programmers, bug reports, and releases.

The most obvious and democratic way to manage open source community software is when the users themselves pool resources to manage the software they all use. In the barter industry this would obviate a whole of self-interested tier and return power to the exchanges currently held by software companies. It would also lower the chance of being held hostage by an existing software provider using a proprietary system where the data can not easily be recovered in the event of dispute, technical fault or provider collapse. Such events have taken place in recent history with the likes of the infamous Bentley Commerce System collapse (a dispute between the software provider and shareholders, resulting in a cascading collapse of many small exchanges) and BarterNet (an attempt to consolidate exchanges through outright purchase which resulted in eventual collapse of many of those involved).

Instead of paying a fixed fee to many profit making software companies to develop the same features many times, exchanges might collectively fund specific features and upgrades according to their priorities and budgets. Of course users could still act unilaterally. The details should be worked out later.

This approach resolves the problems inherent in the idealised monopoly end-state. Instead of one of the players expanding to fill and control the whole software sector, the users of the software club together to ensure their software is serving them and the businesses they serve.

A collective approach to barter software offers other benefits:

  • Monitoring and regulation could be standardised through a single reporting format
  • Standard data formats would allow exchanges to switch software much more easily. Exchanges could more easily plug-in to a global marketplace.
  • Instead of exchanges competing for territory, brokers should compete within much larger networks their skill at matchmaking.
  • As users take on nonprofit responsibility for the efficiency of both exchanges and networks, the money-cost of maintaining the network would decrease and the trade volume increase.
  • Rapid development and roll out of features

  • Competing exchanges that cooperate on innovations to the software would grow, improve and refine the quality of the software jointly and much more quickly, since the artificial objective of comparative advantage of software features would be replaced by the real objectives of clear communication, ease of use, and optimum efficiency.

As a rough guide, properly funded software should be maintained at around 20% of the build cost per year, in order to keep it fully up to date and incrementally improving. Then every five years or so it should be completely rebuilt, probably on a newer platform.

Long term management

The development process serves, and hence is paid for, by the exchanges who use it. Votes might be weighted accorded to dollars invested or some similar metric, of course weighted in favour of members who took the up-front risk.

The money for all of this should to be raised from the exchanges using some kind of membership fee; the more exchanges participate, the cheaper it gets, in direct proportion. Instead of software developers resting on their laurels, and creaming off the profit from their inter-exchange trades, costs should go down as usage goes up.

And since profit is not the objective, barter credit itself can be much better leveraged to meet the running costs of the system.

As with all the other software providers, there should be a paid employee / networker, perhaps part time, who should have a deep knowledge of the industry and would fulfil a number of functions:

  • Work with users to secure a solid subscription base

  • Manage the negotiations between users about which features get built

  • Sales & marketing

  • Supervise the building of a body of collective knowledge about running barter exchanges

  • Liaise with IRTA and other professional bodies.

  • Ensure the exchanges meet certain accounting standards, especially if their currency is to be used outside the exchange

The employee would be a servant of the users who, in their turn, would decide strategic issues periodically according to their level of involvement.

It would be interesting to explore the possibility of the IRTA providing or supervising the networker role. It would be a great complement to their already successful UC (Universal Currency). In fact any existing nonprofit software provider could be well qualified to manage the whole project.

Why doesn’t this already exist?

It is hard for any new software to get a toe-hold because of the way that existing packages leverage and close their networks. New applications cannot offer their users trading networks, except for the Universal Currency, so exchanges have very little incentive either to experience the trauma of migration, or to move to smaller networks. The start-up cost of making new software which can match the features of established software, and the risk of not getting enough paying customers soon enough, and developing a value proposition powerful enough to get people to migrate, makes it all pretty unlikely that new software, and new ways of thinking can break in. By aiming to create new exchanges in the emerging sustainability movement, it should be possible to break through.

Serious attempts to upgrade the barter industry in the last decade and dot com boom yielded disappointing results, especially considering the a great deal of money invested. Investors felt and probably still feel burned by B2B. While community currency software is typically open source, only Cyclos has attained a professional reputation.

Cyclos is the strongest multi-user open source accounting package available It is well established and contains marketplace features, yet does not provide the kind of flexibility needed to actually run an exchange as a business. Cyclos characterises itself as ‘banking’ software, and takes little account of brokerage or membership management. Its applications are often large projects with special needs and on-hand expertise. As a monolithic application, very little development is possible outside of the main branch, and development proceeds slowly in whatever direction STRO deems most strategic. Their strategy is strongly influenced by availability of public funds for (and sometimes of) developing countries. Ominously, they reserve the right to close the source of future releases.

The closest thing which already exists is TradeAuthority, a member-owned network of exchanges with its own software.

“TradeAuthority’s mission is two-fold. First, to help develop other member-owned exchanges across the country modeled after the PartnersOne model. TradeAuthority is a service company providing the startup knowledge, assistance, and policies of that PartnersOne model and also providing the QuikTrade system. The second mission was to also provide our software to current existing exchanges who desired to utilize the software and participate in the larger TradeAuthority network of exchanges.”

This project will not start until sufficient partners and resources are pledged. A strong similarity can be found with Thomas Greco’s Mutual Credit Clearing Union Proposal

Benefits of 21st century software frameworks

There is no industry software built with a modern framework, to the best of our knowledge.

The evolution of software development is always moving to higher levels of abstraction, which allow more complicated applications to be written with less code. web frameworks started to emerge around 2005. A framework provides an empty but working software application and a set of coding standards to build compliant plug-ins. A popular framework will have tens of thousands of developers, who take responsibility for constant framework upgrades and vast libraries of re-usable configurable discrete plug-ins.

Frameworks make heavy use of standards and conventions because that makes it easier to customise, override some parts of the application while swapping or upgrading other parts. This componentization makes expensive code units much cheaper and easier to write, maintain and share.

With a popular framework, it is much easier to recruit local developers (i.e. paid in trade dollars) to customise, host and maintain a localized versions.

A proposal

Implementation Partner: Smokey Mountain Hollers Cooperative (SMHC)

After 2.5 years of research and development, SMHC is currently enrolling its first business cooperative members on the exchange. Once the exchange has a minimum of 50 trade cooperative members (estimated for February/March 2012), it will officially launch for trading.

Since its inception, SMHC has been committed to truly ethical practices and design frameworks. It is a community-owned cooperative and has done extensive research and consulting on how to make governing processes as democratic and egalitarian as possible. With the understanding that, if the SMHC system is successfully mounted, it will likely grow to a substantial portion of the local economy, and serve as a model for other communities, it has been important to take the time to research best practices, appropriate safeguards, and frameworks that are most likely to result in true democracy and the re-commoning of society. For more information, and to see our Guiding Principles, please visit www.smokeymountainhollers.com

Currently serving on the advisory board of SMHC are

Thomas Greco, esteemed economist and author of The End of Civilization and the Future of Money

Annette Riggs, who has 20 years’ experience in trade, distribution and fulfillment businesses, with a particular expertise in non-cash execution models.

Bob LeRoy, longtime accountant for Ithaca HOURS and accounting expert on local currency, also serves on the Coordinating Committee of SMHC.

Thomas A. Beckett, A cooperative lawyer, local to Asheville, has done extensive research to help us prepare our bylaws and decide upon the best legal framework in which to successfully operate within the state of North Carolina.

All SMHC documents, including Bylaws (still in final stages of development), Articles of Incorporation and more, are available by request.

Implementation Partner: Apres Geneve & Community Forge

La Chambre de l’économie sociale et solidaire, (APRÈS-GE) has expressed strong interest in a new Drupal based barter system to be implemented by Community Forge. It already commissioned a new module to do predictive barter but the project is awaiting funding, probably from the city government. APRÈS-GE has around 250 local member organisations signed up to an ethical code and envisages a community far broader in scope and purpose than a conventional B2B. Please see http://apres-ge.ch (in French).

Main goals

To provide adequate, free software for anyone to set up a B2B barter exchange.

To create software and monetary standards to allow exchanges to trade in an open network.

To work with the industry in creating migration software standards to allow exchanges to move between providers.

To pilot a new model of ‘low-friction’ barter in which less legal tender is drawn from the exchange and the infrastructure is funded through trade currencies.

To create an association, foundation or trust to sustain and develop the software, the community of users, and the knowledge and experience they collectively hold.

Roadmap to v1.0

Based on the work already done in Drupal, monthly releases could be made from the start with trading in SMHC, happening by the second month.

0.1 Set up a basic working money system with dollars and trade dollars currencies and simple marketplace and publish it for free download.

0.2 With configurable fee charging.

0.3 With improved trading workflow for goods, culminating in a transaction

0.4 With the most essential brokering tools

0.5 With ‘Universal Currency’ compliance

0.6 With 1099B Compliance for US Exchanges & GRT for Australia

0.7 With installer package

1.0 New exchanges are invited to launch

The new software would not attempt to compete on features with established software. This is the moment the long-term management kicks in, as described above.

Numbers to consider

This proposal does not yet include costing, but here is an indication of the cost of outsourcing this work to reputable businesses. However with trade currencies, participation from the users, and the engagement of passionate individuals, much fewer dollars will actually be needed.

6 programmer months: @$15,000 p. m.

including packaging which is so important for open source, wire-framing, graphic design

6 months marketing: @$10,000 p. m. (part time, including travel)

Educating the green business networks about money systems.

3 months for liaison @$5,000 p. m.

including testing, requirements gathering, documentation, developing the business model, and handover to the long-term manager

Implementation partners would also contribute

considering requirements, testing, collecting user feedback, issue tracking etc

Typical cost of software to run one barter exchange for one year: $2000 – $5000

Annual turnover of IRTA member companies (trade dollars): $12 billion

Additional information

About Matthew Slater

I have been writing software for 13 years, and working with Drupal for the last 4. In 2009 I co-founded Community Forge with Tim Anderson of SEL du Lac to build and host LETS software. My mutual_credit module has been deployed for scores of LETS groups, and more recently by hundreds of communities in Timebanks USA which migrated its Community Weaver software to Drupal.

As a full time activist I have a deep understanding of money systems and why they fail, and I try to share this knowledge. In a world literally governed and managed by money I work for the most impact, not the most personal profit.

I believe that what is most needed in the world right now is local alternatives to scarce national and supranational currencies, and that the barter industry is failing to provide that. I believe I have a lot to offer the industry; this proposal is not the only possible solution, and I will be supportive in principle of any initiative which would restore confidence in the practice of barter.

About Amy Hamilton

With a background in writing, teaching, the arts, community organizing, non-profit development and grassroots economics, in both New York and North Carolina, I am well-qualified as the primary coordinator of Smokey Mountain Hollers Cooperative. Since June 2009, I have been organizing with other local, national, and international local currency advocates in order to create a local exchange system that is truly human-scale, yet potentially international in scope.

I wish to promote a commons-oriented vision in my community and the world and to assist in creating solutions that allow people and communities to act autonomously to realize our best potential.

About Drupal

Drupal is an open source content management platform powering millions of websites and applications. It’s built, used, and supported by an active and diverse community of people around the world.5

Drupal websites are not so much ‘coded’, but ‘assembled’ and ‘wired’ using a mixture of configurable components, mostly publicly available. There are several ways to package sites or optional features, to share hosting & management resources. The framework strongly supports various forms of community interaction, so beyond the expected features of barter software, it is comparatively simple to encourage deeper or more subtle social ties, by creating features such as personal blogs, a ‘buddy’ system, trader of the month, and installing them optionally.

In addition, much of the site is configured through the web browser, without code, which makes it easy to hand over certain powers to the exchange manager, as appropriate. So instead of just editing pages and managing users and trades, exchange managers might also be able to specify rich trading rules, create new user-profile fields, construct their own reports, pick up local news via RSS – whatever is required.

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