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November 24, 2008

Barter Catching On As Times Get Tougher

HBJ PHOTO/JASON MILLMAN Goodwin College President Mark Scheinberg fills empty seats in his classroom with tuition-free students who work for companies that provide free services to the school.
By Jason Millman

Goodwin College doesn’t have any use for empty seats in its classrooms, so they’re being filled with students at no cost — well, no monetary cost, at least.

Instead of wasting space in the classroom, the East Hartford school allows students to attend on a barter system. They get free tuition in exchange for work done by their employer. For example, one construction company gets classroom credit for installing tiles at the college. The system works particularly well at Goodwin, where most of the 2,400 students are working adults, said president Mark Scheinberg.

“For many companies, it’s difficult to be able to fund students who come to school,” said Scheinberg, who estimated a dozen students attend on bartered tuition each year. “There are many companies now not only doing business with us for the first time, they’re doing it here rather than somewhere else.”

Barter’s roots trace back centuries, but it is still very much alive today. As an industry, barter accounted for 15 percent of the United States’ $5.62 trillion in international trade, according to 2004 statistics from the World Trade Organization. And as the economy slumps and cash is tight, barter becomes a more attractive option for companies looking to grow, said Ed Deak, Fairfield University professor of economics. “Whatever works for you in this climate of tight cash flows and a bad credit situation, go for it,” said Deak, who added that barter is an attractive option for service-based companies.

 

‘Snowball Effect’

Don’t ask John Ferrera about the bad economy, though. The owner of the Rochester, N.Y.-based Vanguard Glass Block Windows, which also has New York offices in Albany and Syracuse, was able to expand his company in Hartford last year on the strength of barter.

Ferrera estimated that his window company’s Hartford branch is doing between $20,000 and $25,000 worth of barter business each year, and barter accounts for anywhere between 5 and 15 percent of his company’s overall business. Barter allows him to afford numerous business-related expenses, and more importantly, he said, it gets him business he normally would not have otherwise.

“It gives me a lot of networking abilities, and it gets my name out there,” Ferrera said. “You get the snowball effect. Once you get the momentum going, the work comes in faster and faster.”

Goodwin College and Ferrera’s business are both members of the Hartford branch of International Monetary Systems, a publicly traded national network of barter exchanges.

IMS completed $114 million in trade volume last year in 27 networks, with $9 million generated from the more than 1,200 companies in the Hartford branch, which it purchased three years ago. Given the troubled state of the economy, the Milwaukee-based barter company expects this year’s totals to easily beat last year’s growth.

 

The Second Economy

“When the traditional economy is in the tank, the biggest reason is there’s an imbalance in dollars out there. The system has been messed up in some way,” said IMS CEO Don Mardak. “In barter, we have a second economy that complements the traditional economy.”

IMS uses its own money system. That means that when a company is looking to trade a product, it doesn’t necessarily have to do a direct exchange. Instead, IMS can credit that company with trade dollars based on the item traded, and those trade dollars can then be used to purchase a product from another company. In addition to paying member fees, both parties involved in a swap pay IMS 7.5 percent of the value of the trade. All transactions are reported to the Internal Revenue Service, and IMS performs credit checks on all the companies involved in the exchange.

Deak of Fairfield University said networks, such as IMS, help avoid the biggest fallback of the barter system — finding someone who is open to trading.

 

The Barter Club

“It’s pretty hard to find someone who wants what you’re offering,” Deak said. “That’s why these organizations are a little better because they might bring together 25 or 30 different companies that might be willing to exchange.”

The barter exchange opened up new business opportunities for Sandi Sarnese, who owns Richland Industries, a pest control company with offices in Newington and East Hartford. Sarnese has used barter to help fund her business and to pay for birthday parties for her children. But she knows that it’s important to keep barter separate from cash customers for the integrity of the barter exchange. “If people were to spoil it and turn that business into cash, eventually the barter club would flounder,” she said. “The barter club has to survive in this way.”

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