I will let you think about that and come up with an answer or you can contact me for the correct answer (and yes, there is a correct answer!). Long time readers will remember that we published some projections at the beginning of 2012 (here and here) and I will leave it up to you to test them. Those projections were primarily based on Marian Salzman’s work, stay tuned for the 2013 projections, but one of them is that traditional economies are going alternative. If that is true, what impact will that have on the Sourcing/Supply Chain communities?
Marian distinguishes between the “official” economy (GDP, LIBOR, etc.), the “grey” economy (cash transactions for services like home repair, domestic help, etc.) and the “black” economy (drugs, weapons, etc.). Her hypothesis is that people are becoming more and more distrustful of the official economy and are turning to other alternatives. If you think about the recent debacles related to the official economy, it’s no wonder. The financial collapse, recessions, daily banking scandals, wild currency fluctuations, Fiscal Cliff, the debt ceiling, etc. coupled with the really big ones like LIBOR where global interest rates were being determined in exchange for favors and champagne bottles and you can see why.
As a result, people and businesses are turning more and more to alternative ways of trading and settling financial obligations. Bartering has been around much before the advent of currencies but is now making a huge comeback. Last year, more than $12 billion was bartered and is going to continue to grow. Local communities are issuing local currencies which actually deliver significant benefits locally and are getting to be quite popular (Ithaca dollars). Complementary currencies (Toronto dollars) are still going strong and expected to increase. Freecycling (giving your perfectly working TV to someone else because you want a bigger one!!) is another example. Bitcoins is another example of an alternative currency that is gaining a lot of traction. Those that remember Farmville will also remember the merging of an online currency to be used in Farmville which would be earned online or purchased traditionally with regular currency.
While “official” economies have contributed significantly to global economic growth, they have also come with all the negative impacts of globalization (offshore outsourcing, wildly fluctuating and wildly disparate pricing, etc.) and the problems listed above. As a result, these alternative economies are starting to gain traction and some of them are clearly back to the future (bartering). If this trend continues, it will start to have a profound impact on businesses and one that we must start thinking about. Is it extreme to think about bartering with your business partners instead of the normal transactions? Could we contemplate setting up a complementary currency between trading partners? How about setting up a private currency between us and a number of our trading partners? If you can’t trust the financial system (think LIBOR!!!!!), are you the forced to start thinking about alternative economic mechanisms? Let me know what you think.
We will announce the winners in our next blog and maybe some prizes too!