by Antonin Calderon & Jean Rossiaud (Leman Currency / APRES-GE in collaboration with Gaëlle Bigler (FRACP / URGENCI)

This is the third issue of the series we started in October, on the theme of “local currencies”, after a general presentation of the advantages and challenges of local currencies through the example of the Leman currency (October 2018) and the avenues for collaboration and synergies between local currencies and sustainable food (December 2018), we propose today to reflect in terms of production/supply chains, for different types of agricultural products, and starting once again from the Geneva experience: from seed to production, from production to processing, from processing to distribution, from distribution to consumption. The five key agricultural sectors on which Leman and the Chamber of the Social and Solidarity Economy (APRES-GE) are currently working are the following:

• Beer: from hops to pints
• Vegetables: from pitchfork to fork
• Bread: from seed to bread
• Wood: from tree to stere
• Wine: from vine shoot to glass

This is why it is particularly interesting to bring the different actors in a production/supply chain together around the same table, in order to reflect together on current and potential value flows – and the resulting cash flows. Many economic actors generally do not have the time to take this step back. The local currency offers producers a great opportunity to strengthen the links between them, and between them and consumers, and thus to strengthen the local economy in the face of competition from globalized markets. The service provided by the local currency is “economic facilitation”: it is a form of brokerage that allows producers to better choose their local suppliers, and in case of overproduction to sell stocks in the payment community.

The beer production/supply chain: from hops to pints

Let us take the example of the beer sector to illustrate what we are saying. The development of artisanal breweries is currently in full expansion and their operation is easily modelable. The main links in this chain are: farmers, malthouse, breweries, distributors, as well as bars, restaurants or grocery stores. The diagram below illustrates this.

If you still don’t know it, you should know that 90% of beer is made up of water, which is used as the basis for adding malt, hops and then yeast. To this can be added additional ingredients, such as coffee, fruit, spices or other condiments or herbs.

Farmers (1) grow the cereals, which will then be processed into malt by the Malting plant (2). At the same time, hops (2”), a climbing plant, must be cultivated and its flowers harvested and dried; yeast (2”) must be produced, usually in a laboratory.

These three ingredients are used by artisanal breweries (3), with water, for the production of beer. Other goods are also needed to produce beer, including bottles, capsules, labels, glue, and of course water. These products are considered as secondary in the beer production chain, although they are obviously necessary. More and more often, breweries collect their bottles, through a deposit system, and reuse them.

Then, the distributors (4) are responsible for transporting the drinks produced in bars, restaurants and grocery stores (5), where they are sold for consumption, and in particular to employees (6) of the various companies in the beer industry. Indeed, some of the beer consumers work in the sector.

A new activity should also be integrated into this beer sector: mushroom houses (4′). They work with breweries, recovering the used malt (spent grains) and using it as a substrate on which mushrooms (especially shiitake and oyster mushrooms) will grow. The recovery of the substrate is currently being studied for use as protective packaging, for its lightweight and shock absorbing properties.

All these actors also have costs for premises, energy, production and transport machinery, IT, printing and administration. This is what we call the secondary network of suppliers.

The following diagram summarizes the primary network of the beer sector, by modelling the flows of goods/services, as well as the cash flows that allow these exchanges.

The economic relationship

The local currency is above all a tool for establishing economic links between the actors of a sector. While stakeholders are convinced of the value of creating a strong local economy, they do not always have the time, energy or even the knowledge to analyse all current and potential flows in their own economic production/supply chain Pressed by short-term economic constraints and lack of liquidity, they usually go as fast and cheap as possible, whereas their real economic interest in the medium or long term would be to favour a concerted and solidarity-based approach, for example in a pooled credit system.

Working in their own local currency encourages economic actors to be aware of the specificities and various constraints within the chain and puts everyone in commercial contact with their potential suppliers and customers: the farmer with malting, malting with breweries, distributors with breweries, and bars, restaurants and grocery stores with distributors.

The stakes are not only economic and ecological. Admittedly, it makes it possible to increase the volumes of activity of each individual and the wealth produced on the territory; and the development of this territory, in short circuits, reinforces economic resilience and ecological sustainability (reduction of CO2 emissions). On the social and political level, the economic network thus created breaks the isolation of each actor and it is the social fabric that is strengthened. Together, it will be easier to defend your collective interests and become stakeholders in public policies to promote local agriculture.

Monetary liquidity for the sectors

The pooled credit system offered by a complementary local currency such as the Leman in the Lake Geneva region provides significant liquidity to the production/supply chains. Indeed, each actor is granted an operating credit line (currently between LEM 1,000.- and LEM 20,000.-, depending on its size) that can be used without interest rates and without limit as long as it remains below the established threshold. The potential for economic exchange for the entire economic chain concerned is therefore increased by the sum of the credit limits of all its players.

This ancestral system of credit pooling, which has practically disappeared today, swallowed up by the contemporary banking system, is nevertheless a very simple and very stable system. The network as a whole is by definition always totally balanced “at zero”: the sum of the positive amounts is always equal to the sum of the negative amounts, and there is no monetary creation. The more money turns, the more wealth is produced. The lack of liquidity is a barrier to activity. Shared credit therefore replaces bank credit very advantageously.

Conventional bank credit is expensive – when it is granted, because banks often refuse risk. It raises the price of products, because it is necessary to include the cost of money (interest) in the selling price, and weakens the seller in a competitive market occupied by large groups that lower prices.

By working in local currency, we recreate a parallel economy, and we avoid pressure from large groups and foreign products. Getting started with the complementary currency, particularly for agricultural sectors, must be seen as a survival and development strategy. But we must play the game together, companies, employees and consumers, so that the currency can continue to supply the local economy continuously, without stagnating in bottlenecks.

Towards healthy irrigation of the production/supply chains

The main challenge is therefore to avoid the formation of pockets of local currency retention, which indicate an economic blockage. Such a blockage is beneficial if it allows the actor in question to question himself about his partners who do not accept the local currency. It may be time to change it, and to opt for suppliers who also fit into the logic of relocation and social and environmental responsibility.

This is where the services of local currency “facilitators” come into play: they work with companies to integrate suppliers into the payment community, if they meet the conditions of the charter and, if not, to find new partners.

On the other hand, pockets of local currency are problematic if companies cannot put as much currency back into the circulation as they accept: the currency then loses its primary function, which is to facilitate trade. The risk of devaluation of the currency (it will be exchanged below its official value, for example 120 units will be requested for a good/service worth 100 in state currency) is therefore significant.

Two types of actors can find themselves structurally in this “bottleneck” position. First, the company that would occupy a central place in the supply chain, and would have no or too few substitutes. In the “beer” sector, it is the malting industry, with which all local breweries have an interest in working in local currency. Secondly, the company at the “end of the chain”. In our example, it is the farmer who grows the cereals that will then be processed into malt. The following diagram shows this problem of pocket retention of local currency at the end of the supply chain.

For these two cases, there is a simple theoretical answer, but it is not so easy to put into practice, because it already requires a dense economic network: the payment of part of the salaries in local currency. However, the money supply redistributed monthly is a powerful lever for boosting the local and sustainable economy through consumption. This is explained in the diagram below.

We have therefore seen that producers in the agricultural sectors have a clear interest in using the local currency to resist competition from large groups and foreign producers. However, this success is based on the balance of flows. Strengthening the local economy therefore requires organization and patience, as it involves bringing all its stakeholders into the payment community into a virtuous circle.

It is up to the local currency to carry out this work of economic facilitation and credit pooling, and it must be given the means to do so. Once this work is done, in the same way that an irrigation system would be installed in a crop, money can then flow in a virtuous way by creating value in the local and sustainable economy, and by strengthening economic resilience, in the face of systemic financial crises. 2008 should be a lesson to us!

In a future newsletter, we will take the example of one or more particular companies and how they use local currency on a daily basis to make sense of their work: an economic sense, of course, but also the feeling of participating fully in improving the common good.

This post is also available in / aussi en: French Spanish

Photo by practicalowl

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If we study the productive reality of the last thirty years, the changes turn out to be amazing. Among all of them, the most striking, the most unexpected, the one that most strongly contradicted the idea that the great economic systems of the twentieth century had about themselves, was not that the future would be full of computers, cellphones, and electronic equipment. That idea had already appeared in the ’40s and ’50s in science fiction and popular futurism. Nor was it globalization. The idea of a world united by free trade had been part of the Anglo-Saxon liberal ideal since the Victorian era, and from the foundation of the League of Nations, between the wars, it was part of the declared objectives of the great English-speaking powers.

No, the most shocking thing was the beginning of the end of business gigantism. From the State businesses of the USSR, to shipbuilding and metallurgy in Asturias, from Welsh mining to United Steel or the big automotive companies, the oligarchs that had been the model of “enterprise” for the contemporary industrial world, stopped hiring, collapsed, and fired tens of thousands of workers. It wasn’t just “de-localization”: the new Chinese or Vietnamese plants didn’t grow indefinitely, either. Markets like electronic products expanded year after year, and yet personnel and capital global used were reduced. It was said that the new labor-intensive industries would be services, especially services connected with the new dominant form of capital: finance. But soon, banks and insurers that employed hundreds of thousands of people at the turn of the century started to reduce personnel. Today, the great banks are on track to reduce personnel by 30% over the next decade.

What happened?

What had happened was, in fact, amazing. Following the Second World War, the United States had become the great provider to the world. When the war ended, US GDP was around half of the global GDP. Benefiting from the European need for reconstruction and from peace treaties that, while not reaching the level of humiliation of Versailles, were openly asymmetrical, big Anglo-Saxon businesses globalized at great speed speed. It was a dream come true for their shareholders. It wasn’t at all strange to economists. At the time, if Marxists, Keynsians, and neoliberals agreed on anything, it was that businesses were able to, and in fact tended to, grow indefinitely. But by the ’50s, it was already obvious that something was going wrong. In the USSR and the countries of the East European, you could always blame the arbitrariness of the political system or the mistakes of the planners. But in the USA, it was different. And yet, it was there, present and invisible, like an elephant in a high-society gala. The first to realize it was a economist called Kenneth Boulding. Boulding noted that American businesses were reaching the limit of their scale, the point at which inefficiencies due to having to manage a larger size were not compensated for by the benefits of being bigger. Looking at the America of his time, he also warned that big businesses would try compensate for their inefficiencies using their weight in the market and in the State. We were under pressure long before “too big to fail” in the crisis of 2008, but he could already tell that Big Businesses would not hesitate to use the power they had as a result of employing tens of thousands of people to get made-to-fit regulations and thinly-veiled monopolies. Business over-scaling, warned Boulding, could end up being a danger to the two main institutions of our society: state and market.

But what came next was even more surprising. Businesses bet on improving their systems and processes. They discovered that information was important—crucial—to avoid entering the phase in which inefficiencies grew exponentially. It also became obvious that a business size that was inefficient for one market became reasonably efficient for a larger market. As a result, they used all their power to promote a branch of technology that had shone only marginally in the great war: information. With this same objective, as soon as the opportunity arose, they pushed governments to reach commercial agreements and, above all, frameworks for the free movement of capital, since the industry that had scaled fastest and had begun to give alarming signs of inefficiency was finance. Meanwhile, the champion in business scale, the USSR and the whole Soviet bloc, collapsed, to the astonishment of the world, in an obvious demonstration that operating life wasn’t infinite.

A true revolution in support of the feasibility of large scales in crisis was implemented in the West. The political result was called “neoliberalism.” It basically consisted of the extension of free-trade agreements, which expanded markets geographically; financial deregulation, which allowed the rise of “financialization,” or extension of markets over time; and a series of rents and monopolies for certain businesses, which were assured by regulations, like the hardening of so-called “intellectual property.”

The technological result was known as the “IT revolution,” which is to say revolution of information technology. But it came with a surprise, following a series of apparent coincidences in the search for ways beyond the limits on efficiency imposed by the rigid hierarchical systems inherited from the previous century. At the end of the ’60s, the structure of networks that connected big university computers, which was financed by defense spending, took a distributed form. This would not have brought about a radical change if a new field, domestic information science, had not evolved towards small, completely autonomous computers, known as “PCs.” The result was the emergence in the ’90s of an immense capacity for distributed and interconnected calculation outside the fabric of business and government: the Internet.

The revolution of scale

The Internet brought profound changes in the division of labor, which overlapped with the ongoing reduction of optimal scales, and changed the social results expected from delocalization, the first trend in globalization.

In the ’90s, when the “end of history” seemed go hand in hand with the consolidation of a new string of industrial technology giants (Microsoft, Apple, etc.), free software, which had been a subculture until then, built the first versions of Linux. Linux is the “steam engine” of the world that is emerging: the first expression of a new way of producing and, at the same time, a tool to transform the productive system. Over the next twenty years, free software would come to be the greatest transfer of knowledge and value in the contemporary era, equivalent to several times all foreign aid to development sent from developed countries to those on the periphery since WWII.

Free software is a universal public good and, in an era in which information infrastructure is a fundamental part of any productive investment, a free form of capital. Free capital drove an even greater reduction in the optimum scale of production. But it also helped make value chains of the physical goods with strong technological component distributed. Globalization and delocalization had broken the links in value creation in thousands of products throughout the world, especially in the less-developed nations of the Pacific basin, but all those chains were re-centralized in the US, and to a lesser extent, in Japan, Germany and other central countries, where big corporations (from Apple to Nike) branded, designed, marketed, and hoarded the benefits of intellectual property. The possibility of free software was key for many of those chains to “insource” in countries like China, and produce all the elements, including those of greater value added.

The immediate result was prodigious economic development, the greatest reduction in extreme poverty in the history of humanity, the greatest increase in real wages in the history of China, and the appearance of new global centers of innovation and production in coastal cities. These cities play by a new set of rules that, not surprisingly, include an extreme relaxation of intellectual property, an accelerated reduction of scales, and production chains systems and assembly systems that allow a formidable increase in scope, which is to say, the variety of things produced.

The Direct Economy

As all these changes were set in motion in Asia, in Europe, the free software model was expanding into a whole spectrum of sectors. Soon, groups would appear that replicate the mode of production based on the commons (“the P2P mode of production“) in all kinds of immaterial content—design, books, music, video—and increasingly, in the world of advanced services—finance, consultancy—and industrial products—drinks, specialized machinery, robots, etc.

But while the “P2P mode of production” is a fascinating path for a transition from capitalism to abundance, its direct impact—how many people live directly from the commons—is relatively small. As in Asia, Europe, and the US, structural change will begin in an intermediate space that is also based on the digital commons: the Direct Economy.

The Direct Economy is all those small groups of friends—and therefore, a basically egalitarian organization—that design a product that generally incorporates software and free knowledge into itself or its process of creation, sell it in advance on a  crowdfunding platform (making bank financing or “shareholders” unnecessary), produce it in short runs of a few thousands in a factory, whether in China or on the side of their house, and use the proceeds to improve the design or create a new product.
The Direct Economy is bar owners who invest 10,000 euros in equipment and begin to produce beer 100 liters at a time, or a few tens of thousands of euros and gain capacity to prepare almost 1,500 liters every 12 hours in continuous production—and then go on to bottle and begin distributing nearby and in networks of beer artisanal lovers.  And of course, they will have more varieties than the big brewery in their are, higher quality, and a better quality/price ratio.

The Direct Economy is the academy or the high school that installs a MOOC or Moodle to be able offer its students services over the summer, independent app developers, the role-playing bookstore that buys a 3D printer and starts selling their own figurines, or the children’s clothes store that starts designing and producing their own strollers, toys, or maternity bags.

All of them are small-scale producers making things that, until recently, only big businesses or institutions were able to make. All of them have more scope than the scale model. All of them, at some point in the process, use free software and knowledge, which reduces their capital needs even further. All of them take advantage of the Internet to reach providers and customers for low costs—for example, by being able to reach very geographically dispersed niches or find very specialized providers. Most will not have to resort to banks or investors to finance themselves, but rather, will use pre-sale and donation systems on the network to raise money. And some of them use the “commodification” of the manufacturing industry and its flexible production chains for the process.

As for internal organizing, we’re generally looking at models that are much “flatter” and more democratic than conventional businesses. While traditional businesses are autocracies, or at best aristocracies based on hierarchical command and responsibility, the large majority of projects in the Direct Economy are “ad-hocracies,” in which the needs of the moment shape teams and responsibilities. This even happens in cases where big businesses decide to take a gamble on creating a spin-off and competing in a new field. Instead of an org chart, there are task maps. Rather than “participation in management,” there emerges the type of energy that characterizes any group of friends that make something “spontaneously.” If the legal process wasn’t still so arduous, if it didn’t require notaries and endless paperwork, we would say that the natural way to the Direct Economy is worker cooperativism.

Conclusion

But none of this is as important as the broader meaning of the Direct Economy to people’s possibilities in life. In Wage Labor and Capital, one of his more accessible works, Marx explained the trap in the narrative that exalts social mobility and equality of opportunities: wages can’t become capital. Or, rather, couldn’t… and it’s true that it continues to be unable to in a good part of the world and in many branches of industry. But we’re seeing something that is historically shocking—the reduction to zero of the cost of an especially valuable part of capital, which materializes directly knowledge (free software, free designs, etc.). And above all we see, almost day by day, how the optimum size of production, sector by sector, approaches or reaches the community dimension.

The possibility for the real community, the one based on interpersonal relationships and affections, to be an efficient productive unit is something radically new, and its potential to empower is far from having been developed. This means that we are lucky enough to live in a historical moment when it would seem that the whole history of technology, with all its social and political challenges, has coalesced to put us within reach of the possibility of developing ourselves in a new way and contributing autonomy to our community.

Today we have an opportunity that previous generations did not: to transform production into something done, and enjoyed, among peers. We can make work a time that is not walled off from life itself, which capitalism revealingly calls “time off.” That’s the ultimate meaning of producing in common today. That’s the immediate course of every emancipatory action. The starting point.

Translated by Steve Herrick from the original (in Spanish)

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