Direct exchange is the natural consequence of uneven distribution of capabilities across actors.
What we’re thinking
The most basic form of service exchange is direct exchange: I help you make progress and you help me make progress in return.
The exchange may differ in magnitude of effort applied and may occur with delayed timelines. To manage those differences, humans employ an IOU-style approach, which, in The Progress Economy, we will refer to as service credits.
Notably, we are not describing the basis of a barter economy; though there is a further challenge in direct exchange where the two parties need to discover each other.
We must recognise up-front that direct exchange is rarely observed in life. More commonly it is masked by we find the service exchange being indirect. Understanding indirect exchange requires the concepts introduced here for direct exchange.
Why this matters
We shift thinking away from value, cost, and price (value-in-exchange) to effort given and received.
That we accept differences in magnitude of effort reflects our desire for equitable exchange, rather than equal exchange; introducing the inequitable exchange progress hurdle; and the need for service credits.
Participating in an exchange becomes a phenomenological decision based upon equitable exchange (balanced with phenomenological judgements of progress potential, reached, and achieved).
Service exchange is the driving engine of exchange in our economies (or “fundamental basis of exchange” as Vargo & Lusch put it). It occurs because i) all actors in the economy are trying to make progress with every aspect of their life, ii) making progress requires the application of capabilities, and iii) capabilities are unevenly distributed across actors in the economy.
(If you’re jumping in right here, it’s worth reviewing what we mean by service – the application of capabilities to make progress – and capabilities – a quality of a resource that is used in making progress, like skills, knowledge, strength, availability, etc.)
The exchange may be direct, as we discuss here, or indirect.
What is direct service exchange?
Direct service exchange is a straightforward concept: you help me make some progress, and I help you make some progress (or vice versa, or in parallel). We can visualise it like the following diagram:
Direct exchange occurs when two actors apply their respective capabilities to help each other make progress. For example a friend may help another in return for a nice home cooked meal. An accountant might prepare a digital agency’s accounts in return for the agency building the accountant’s website. Each provides the help the other needs, using capabilities the other lacks.
A book store may allow a coffee company space in their location. The coffee vendor provides a relaxing atmosphere, encouraging book shop customers to spend longer time browsing (and hopefully increasing purchases); the book shop provides a certain type of clientele and a prominent location for the coffee shop. .
What they exchange need not be identical in nature, effort or form. One provides accounting expertise; the other provides digital development. Or one provides space the other cosiness; together attracting customers.
Their contributions of effort accepted differ because the progress each seeks to make differs and the view is phenomenological. What is important is that each party feels they are getting an equitable, not necessarily equal, amount of effort in service given to them. If one party feels the effort exchange is not fair to them, there is as equitable exchange progress hurdle.
Challenges with direct service exchange
Direct exchange is less observed in the wider world because it:
- relies on the two parties with capabilities to swap finding each other, and
- often quickly gets masked by one or more of the four types of indirect exchange.
Money, for example, quickly pollutes direct exchange. The book store will often charge rent to the coffee shop for the space, albeit perhaps less than directly renting from a retail landlord. Direct exchange has been masked. Or selling services creates an impression of a one way swap, a marketplace, reducing the discovery problem.
But we’ll discover that money is an implementation of service credits, and service credits first arise as a way of mediating direct exchange before expanding into a role of lubricating indirect exchange.
Whilst it is often masked, direct exchange is important to understand as it allows us to explore the traits of service exchange and service credits.
Tracking temporal differences: Service credits as IOUs
There’s often a temporal gap in a service exchange. I might help you move this weekend, but I might not need your help in return for many months.
To mediate these temporal differences, we need a tracking system – a register of service IOUs. We’ll call these “service credits“. They are promises of future service. When I provide a service to you, you give me a service credit that I can redeem (with you) at a later point in time.
These service credits can take various forms, from a mental note among friends to a formal contract, entries on a central or distributed register/ledger, to tokens/IOU notes you carry with you. The formality of such service credit implementation increases with the level of unfamiliarity or trust required between the parties involved.
Aligning magnitude differences
Simplistically, one unit of service could be represented by one service credit.
But, outside of an altruistic society, that breaks down due to views of unfairness. Does you cooking me a meal (or rather you applying your culinary skills for my benefit) equate to me helping you move a 5-bedroom house?
To answer that, we need to introduce the concept of equitable service exchange. Both parties need to agree that the effort they are swapping is equitable (fair). It doesn’t have to be equal, just fair.
So it certainly could be the case that we both feel you cooking me a meal in exchange for me helping you move is sufficient. It’s clearly not equal; but if everyone involved feels it is equitable, great. Or we could agree that you cooking me 4 meals is equitable, or 2 meals, or some not yet defined future help.
As with temporal differences, we can mediate magnitude differences through service credits. Now we associate a number of service credits with each service being exchanged.
Finding a party to exchange with
The harder problem, in a sizeable economy is finding a partner to exchange service with. Finding someone to help you make progress is a solved problem, we have advertising. But finding someone that can help you and is looking for your help substantially reduces the probability.
Luckily, service credits come to the rescue again, lubricating indirect exchange.
Let’s progress together through discussion…