Market economy invented in Kumpula!

HS runs a story about Kumpulan vaihtopiiri (edit: there is also another one, Helsingin vaihtopiiri, I confused these two but they seem to have the same idea). These are grassroot organizations that enable barter economy of small services in exchange for credits (alternative money). In this system, the credits are called kumpenni, a local penny, 10 kumpennis are worth one hour of work. (In the other one, it is merkkari which originally stands for "pirate coin", in fact a popular licorice candy).

That's all very fine and admirable; this is how communities have worked all along throughout history, and selling and paying for services in local trade through bi- or multilateral barter or more loosely defined gift economy is what keeps communities up and running. These movements pop up and there have been little stories like this in papers every now and then.

What baffles me is that the participants say - according to HS - that "they want to distribute welfare and have alternatives to capitalistic market economy".

Hey guys, wake up. What you have invented is capitalistic market economy: freedom of selling and buying services, freedom of pricing, freedom of who you trade with and who not. It isn't an alternative to capitalism, it is capitalism. There's even a "bank" that keeps track of value of services given, instead of the more traditional way of each person keeping track of who owns him or her what, and who he or she is indebted to.

What the participants seem to forget is that what they do is eroding the welfare state, and that what they do is illegal. I'll elaborate a bit.

1) The eroding of welfare state

Why is buying services with money so expensive? Because you have to pay tax, and because you have to pay for the related bureaucracy (which may be a higher cost than the tax itself). You pay not only the 22 % value added tax, but there are lots of other taxes, particularly the income taxes and social insurance contributions of people who work for each other, and the administrative cost of making these payments. If you hire someone to work for you legally, and pay all the taxes and statutory contributions, often less than half of the money actually goes to the person doing the work. The rest goes to the state to fund the welfare state. And if you have ever employed a person in Finland, you'll know that the process of meeting legal obligations is complex and takes a lot of work to find out.

If you evade those payments, what is that if not undermining the foundations of welfare state? Also, the welfare state has developed mechanisms to restrict worker exploitation, for instance the minimum wage (in Finland, through collective agreements). In local barter trade, all these rules are dodged.

2) The illegality

Yes, I know, it's absurd. It sounds really stupid that if I mow your lawn and then you mend my socks, we should both pay income tax and pay social contributions, and if we do more of it, we should also pay value added tax. But that's the current law; that's the very basic idea of the welfare state. A very large part of the money that the government makes and then uses for various more or less good causes comes from taxing the use of labor, and much of worker protection is achieved through the bureaucracy and the barrier of entry that it creates.

Current law is very explicit about this, and the taxman's guidance in the Web makes it absolutely clear. There are situations where people can work for free - bees (in Finnish, talkoot) for instance. But bartering services is tax evasion.

Even in the case where you and your neighbor work at the same place and only you have a car, giving a ride to your neighbor and accepting half of the gas cost from him is illegal. This is the welfare state.

The outcome

The development in Kumpula is by no means new. This kind of barter economy movements have spawned throughout the Western world for decades. For instance, in the U.S., the tax code was amended to cover them in 1982.

The ideas are the same ("let's fight evil capitalism and support local communities"), the means are the same ("let's use local money to enforce locality, avoid the taxes and bureaucracy"), and the outcomes are the same (unrestricted small-scale capitalism works for a while, it's generally a nice experience, but people grow up, the key people move away, and eventually the system fades away). If any of these trials were to become substantial, they would face investigations and criminal proceedings.

So, to summarize: the activists speaking here have become completely confused with the concepts of market economy and welfare state. They think they're doing "something else", when they are actually doing "more of the same". They think they've invented an alternative to capitalism, and what they're doing is going back to the 19th century style capitalism, just in small scale. If it stays that way, it's OK.

5 kommenttia:

  1. Kumpulan vaihtopiiri is not at http://www.vaihtopiiri.fi/ but http://community-exchange.org/ . Helsingin seudun vaihtopiiri is very different one. The currency is kumpenni, not merkkari, though the system is more about time banking than exchanging any sort of artificial money.

  2. Doh, thanks for correction. I'll fix that in the text. So the currency name is different, but is there any other major difference? I mean, at least the vaihtopiiri.fi site did not handle the legality/tax issue at all and the other one is an umbrella site covering countries all over the globe, with probably even less of an idea of what the situation is in Finland. The answer may of course be that "this is so minor that the taxman is not interested", but then, if it is insignificant for the taxman, then it is insignificant for any other purpose as well.

  3. Sorry, I'm not familiar with Helsingin vaihtopiiri and therefore cannot compare them. It's older, that much I know.

    The people who started Kumpulan vaihtopiiri have learned that the association with real money (caused by the currency name kumpenni) is a bit of a problem, but not anymore for most people already familiarized with the system. Anyway it could be better to talk about minutes or hours. But when it comes to the old stuff people wants to get rid of, how do you measure their price in time? So the cute currency name kumpenni stays at least some time.

    And this is also confirmed with the tax authorities: it's more like "naapuriapu", "kirpputori", "talkoot" kind of thing and that's why it's doesn't have anything to do with taxes. But for the clarity, it's better to avoid in practice euro-like prices and other too tight connections to real money.

    I also tend to disagree with this: "if it is insignificant for the taxman, then it is insignificant for any other purpose as well". You can of course consider anything with not-very-large-sum-of-money-on-it insignificant but then you don't count the value or purpose of social networks, goodwill, getting necessary things done, knowing your neighborhood, having fun and so on.

    So for me, it's not about capitalism, anticapitalism or building or tearing beloved welfare state apart. At least not now. It's more about those things I listed above. Or another analysis: it's the city version of what exists automatically on the countryside where villages are small and people know and help each other. Just without the negative aspects of everyone knowing each other.

  4. Quite fine, but I don't think that avoiding connections to real money is the solution; the tax authorities remain disinterested as long as the activity is economically marginal, whether the activity is measured in euros or some local currency.

    In the long run, I don't think the system will give much of the benefits of the social networks of countryside - unless everyone starts to know each other, as well. Of course, here it is easier to perform some kind of social exclusion where undesirables are ignored.

  5. While I agree with some of the things you say, I think you ignore the fact that market economy and capitalism are not the same thing, and on the other hand that small scale systems benefit people who need and want to produce small scale services.

    Capitalism is a system, which is based on private venture capital. The people who have money invest it in whatever they think will profit them. While this is good for financing ventures that need more capital than any one individual or even a small group of individuals could come up with, it also means that while working for said investors, they will profit from your work and they will also control your work. On the other hand, the profit motive means that any lucrative business operation will be done, whether or not it is beneficial for the people or not.

    What we see in Kumpula is the craftsman's market economy, where each participant sells his own work, not the work of an employee. There's no speculation, selling short or betting fictional money on futures in this system.

    You compare the participants of the Kumpula system to employees. But they aren't. They are self-employed entrepreneurs, even if on a very small scale. It's true that even so, they are evading some taxes, but very small business don't have to pay VAT anyways. But I think the thing people really are escaping is the hand of the corporations. As said, they take a profit of your job, and they dictate the way you do it. This is fine for large scale operations, like paper mills and nuclear plants. But for small scale work and small scale needs this usually is less ideal.

    I'll give you an real life example. I had a leaking pipe some time ago. So I call a plumbing firm. This is a small leak, a fifteen minute job and ten euros worth of parts. So the firm really doesn't care, it's peanuts for them. I have to call three times, and wait two weeks for them to send a plumber. So, he fixes the leak, and I get a bill for one hour. They won't bill anything less. I also get billed for one hour of driving. So for a fifteen minute job I pay about hundred euros. The plumber gets paid about 15 € per hour. OK, so some of the money goes to the state, but a lot of it goes to profit and a lot of it goes to waste because of a business model not meant for small scale operations. I earn about 15 € per hour after taxes, so I have to work about six hours to pay for this little job.

    If my part of town had this Kumpula kind of system, and assuming there was a plumber participating, I'm pretty certain that I could've gotten better service for a lot less, even if we payed taxes in the system - which you could easily do if you wanted to.

    The exchange system is also kind of "starter kit" for people who want to be self-employed entrepreneurs. You don't have to create a company, you don't have to say goodbye to unemployment benefits, you can just sign up. If you notice that your phone is constantly ringing and you have customers that are willing to pay you in cash, you can quit your day job and become a real entrepreneur. If you are only needed an hour for a week, it's probably not worth it to become an entrepreneur. But that's not bad either, since it still means you get small favors and good service along the way instead of paying shitloads for bad service.

    And old version of this is what I call "scotch-based economy". Say I knew a plumber, I could've called him and ask him to come for coffee when his around. Tell him I got a problem and bottle of scotch. Afterwards I would have neither. This works with most older finnish craftsmen.