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Stephen Kinsella: We don’t need cash to shop local


Someone this week called economists the 'pornographers of doom'. Others have likened us to undertakers in a plague: it's not pretty, but business is good.

I know what they were trying to say -- economists have never got a good word for things, they are always seeing the downside. But that isn't always the case. More often than not, these days economists are studying specific projects and systems to figure out why some work, and why some don't.

With the promissory note deal done -- and a fudge of a deal it was -- let's step away from the doom-porn, just for a moment, and take a look at a small idea that might have big consequences for local development.

Clonakilty in west Cork has lots of things to be thankful for. They have access to the sea, lots of tourist resources, great shops, and Clonakilty is a wealthy suburb of Cork, which is the greatest place on Earth, if you believe Cork people. But Clonakilty, like everywhere else, has been hit by the recession.

In 2006 only 478 people were signing on in Clonakilty. In 2012 that number has tripled to 1352 with the same pattern on long-term unemployment we see in the rest of the country. Local businesses have been hit by falling demand for their products and services, and budget-constrained households haven't been spending money on large ticket items. You know the story. It's the same all over Ireland.

One of the things that happens in longer-than-normal recessions is that markets established over many years break down. Think about window cleaners -- perhaps you got your windows cleaned during the boom once a month, and now that things are tighter, you don't. So the 'market' for window cleaning services disappears once the window cleaner can't make a living from it.

This destruction of markets inconveniences some and brings hardship to others, and it all comes about because of a lack of demand based on a lack of disposable income to fund that demand.

But the windows still need to be cleaned, and some people would still like to clean them, in exchange for something else. The barrier is that no one has any cash.

So: get rid of the cash.

Everyone thinks economics is all about money. It isn't. Economics is about exchange, and money is usually used as a medium of exchange. The familiar monetary exchange is: I'd like my windows cleaned; here's a tenner. A valid alternative exchange is: I'd like my windows cleaned, here's an apple tart. Or two.

That's what they've done in west Cork. Locals have gotten together to organise a skills and labour exchange based on a simple website, www.clonfavour.com. Essentially you just register your name and describe your skills, and then people who want those skills contact you. Say your son needs economics grinds, and I need my chickens killed. Well, we have a match on this website. No money changes hands, but we both get what we want.

The list of skills is intriguing: teaching someone to mackerel fish, gutter cleaning, surfing and driving lessons, the aforementioned chicken killing, baking, proof reading, and the list goes on.

The price of the service is still there, somewhere, but it is buried in the exchange. What is also very important is the positive spillover effect a successful exchange creates.

Economists have studied these positive and negative spillovers for centuries. A negative spillover costs someone who isn't directly involved in a process of something. If a plant is producing a horrible smell or an environmentally harmful substance, the workers and buyers of the product are all part of that process, but someone living nearby has to deal with the negative spillover of the pollution or the smell.

Similarly a positive spillover affects people outside the direct exchange. Good examples are infectious disease control (think about it) and putting beautiful things in public places.

The favour exchange in Clonakilty also creates a valuable positive spillover, as it connects two perhaps previously unconnected neighbours, strengthening the social fabric of the community. Like other positive spillovers, it is hard to price this unintended benefit, but studies show these effects are there, and they are lasting.

Studies show that most local development projects do stall when the private market recovers. However, even if this does happen to the Clonakilty favour exchange, the lasting benefit to the community, and to the people involved in it, may not.

The favour exchange is just one way to organise cashless transactions. Other villages and towns could think about organising something almost the same, but tailored to the specific requirements of their locality. Then we would essentially have a series of experiments in local development. We could see which ones worked, and which ones didn't, and why. The information we would get would be invaluable for local development across the country.

Stephen Kinsella is a lecturer in economics at the University of Limerick

Irish Independent