Barter has been used throughout history when traditional procurement breaks down, but does it still have a place in modern purchasing?

When economies falter, and customary systems of trade start to collapse, public and private organisations can find themselves cut off from vital goods and services. In these circumstances, these organisations sometimes turn to barter as a replacement for currency-based purchasing. 

But how effective could bartering be as a tool for modern procurement teams? 

When financial systems break down… 

Of course, it’s worth mentioning that modern discourse on the nature of barter and its place in economic history has largely moved on from the fantastical conceptions of a pre-coinage barter economy imagined by economics textbooks.   

“Historically, [economics textbooks] note, we know that there was a time when there was no money. What must it have been like? Well, let us imagine an economy something like today’s, except with no money. That would have been decidedly inconvenient! Surely, people must have invented money for the sake of efficiency,” writes David Graeber in Debt: The First 5,000 Years. “The story of money for economists always begins with a fantasy world of barter.”

Pre-money societies, Graeber posits, functioned in a much less rigorous this-for-that way than modern economic systems. People with a surplus of, say, shoes, wouldn’t go out and try to use shoes to barter for their bread, milk, and farm equipment. Instead, people in a community would share surplus production freely, under the assumption that other members of the community would share their own surplus production and care for one another. 

However, while barter economies that recreate modern economic systems — minus the money  — never existed historically, that doesn’t mean that there aren’t persistent examples of bartering in historical and modern procurement ecosystems. 

Bartering and economic instability 

While the current economic landscape isn’t facing anything like the meltdown experienced during the Great Depression of the 1930s, disruption is more common than ever. Geopolitical tensions, the looming climate crisis, and economic pressures have the potential to conspire to undermine the ability for organisations to procure the goods and services they require. 

Under such circumstances — skyrocketing inflation, loss of access to credit, etc. — the mechanisms underpinning global finance become (even more) disconnected from the physical assets and services they represent. At times like these, new (old) systems historically step into the gap, as people look to exchange goods and labour for the things they need to survive. 

Individuals and organisations adoptb artering systems when financial systems of money and debt fail. 

While this happens more readily at the individual or community level, there are historical and modern examples of this happening at the national level. As public procurement professionals in challenging times, today’s CPOs could consider the potential for bartering to bridge economic gaps that money can’t cross. 

Global and local barter economies in the Great Depression 

“Reversions to simpler types of economic organisation are not uncommon in times of economic stress,” notes an article published in Nature in 1933 at the height of the Great Depression. 

During the Depression, when systems of credit collapsed and money wasn’t readily available, barter economies developed at both the global and local levels. In 1931, Nature notes that a “small exchange was opened in Salt Lake City to facilitate the barter of unemployed labour for surplus farm produce.” Money had functionally become disconnected from the value of labour and goods, and the replacement system spread rapidly to many parts of the country, covering “a wide range of trades and professions” just two years later. Individual labour markets based on a barter system (although this was quickly replaced by an ad hoc system of promissory notes called “scrips”) weren’t confined to the small scale. The Depression was a global event that left nations, not just individuals, unable to participate in finance (or procurement) in the traditional sense. 

In September of 1932, the Wall Street Journal reported that, “Following the lead of the United States and Brazil, which traded wheat and coffee, Germany has begun to obtain coffee in exchange for coal, Danish cattle for agricultural implements, and Russian petroleum for electrical machinery.” Additionally, Bloomberg notes that Argentina bought railway equipment from Spain with foodstuffs, Turkey bought guns with figs, and the UK sent coal to Finland in exchange for cut timber. Germany dye manufacturers accepted  720 carloads of wheat as payment for longstanding debt from the government of Hungary. 

This is public procurement on a national scale using the barter system. And the practice hasn’t ended, even in the 21st century. 

Public procurement bartering in the 21st century 

Embracing a barter system might seem antiquated or foolish in a modern economy defined by international currencies and global supply chains. Modern economies are so interconnected and complex, economists argue, that finding the necessary “double coincidence of wants” to facilitate a barter is nigh impossible compared to the less sophisticated economies of the past. 

Nevertheless, the past twenty years are full of examples of public procurement teams wheeling and dealing when financial systems failed to serve as a medium of exchange. 

In 2005, Thailand and China reached a trade deal that saw the former swap 100,000 tonnes of dried Thai longan fruit for Chinese armoured vehicles and weapons. This wasn’t first time the Thai government tried to buy weapons with agricultural produce. The previous year, during visits to Stockholm and Moscow, then-president Thaksin suggested trading Thai chicken for Russian or Swedish fighter jets, saying “They both have wings and they can both fly.” 

The Thai government is still doing this. Earlier this year, the country’s defence minister was reportedly eyeing up a deal to use 150,000 tonnes of rice to partially fund the purchase of a frigate from the Chinese navy

Just last year, Egypt’s government announced plans to enter into a barter agreement with Kenya to maintain the importation of Kenyan tea amid a dollar shortage in Egypt’s federal reserve. Under the arrangement, Egypt’s government procures Kenyan tea, while has the freedom to choose what it wants to import from Egypt. This year, Iran and Sri Lanka reportedly started trading crude oil for tea

When does bartering make sense for public procurement? 

While bartering on a large scale seems like an easier, simpler method of exchange, compliance issues and the need for a double coincidence of wants makes it a niche solution—especially as major companies and governments are unlikely to enter into the kind of surplus economy that actually pre-dated currency-based financial systems. However, in times of economic uncertainty, barter-based procurement is an option that procurement professionals would be foolish to discount altogether. 

“Given increasing pressures to contain costs, purchasing personnel need to be creative and find new ways to aggressively control costs,” argued researchers in the International Journal of Purchasing and Materials Management in 1994. They add that domestic barter provides a unique alternative approach to cost recovery and that “purchasing and materials management professionals can utilise domestic barter as part of their cost containment initiatives and simultaneously add value to their companies’ product or service offerings.” 

According to an article in Mint, new digital tools could be unlocking a new age of bartering. “Today, bartering has made a comeback using techniques that are more sophisticated to aid in trading, for instance, the internet.” Digital tools are overcoming many of the traditional limitations of bartering, like geography and market size. “Today, bartering is global,” Mint notes, adding that this sort of trading usually takes place in online auctions and swap markets.

Given the rise in platforms and digital marketplaces for procurement (both public and private), could it be time to reevaluate the potential for bartering to evolve into a larger part of modern procurement? 

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