Author Archives: Henken Ted

DONALD TRUMP HAS A CHOICE TO MAKE ON CUBA

CNBC.com

Ted Henken,  November 14, 2016

zzazaOne example of freer markets in Cuba isthe Paladar La Cocina de Lilliam (Lilliam’s Kitchen), a home-based restaurant garden where President Jimmy Carter ate on his first visit to Cuba in 2002. Photo: Ted Henken

While Americans have been reeling over the shocking outcome of our presidential election, Cubans are experiencing perhaps even greater vertigo as a result of the surprise victory of Donald Trump.

As the saying goes, “When the U.S. sneezes, the rest of the world gets a cold.” Or perhaps the old Mexican adage is more appropriate to the situation Cubans find themselves in: “Poor Mexico! So far from God, but so close to the United States!”

Cubans went from a largely acrimonious relationship with the U.S. prior to December 2014, to one of unprecedented “hope and change” during the past 22 months under bilateral efforts to achieve diplomatic normalization between the erstwhile adversaries, to one of great trepidation and uncertainty over the past week given the president-elect’s campaign promise to “cancel Obama’s one-sided Cuban deal.” President Raúl Castro perfectly captured the moment’s ambivalence for Cuba by quickly sending the president-elect a brief note of congratulations while simultaneously ordering a five-day military mobilization.

In my more than half-dozen trips to the island over the past year, I have noted a palpable, ebullient expectation among Cubans for a better, more prosperous future under Obama’s “new rules” of engagement. This was especially pronounced among Cuba’s emergent entrepreneurial class, which includes old school cabbies in their even older school American cars, hip app designers in Cuba’s surprising tech start-up scene, and some of the many restaurateurs behind the island’s surging circle of “paladares” (private, home-based restaurants) which now number more than 1,800.

This hard-won hope was also born of Cuba’s own “new rules” introduced in late 2010 under President Raúl Castro aimed at expanding the island’s long-suppressed private sector. However, I also found that most entrepreneurs were under no illusions that the Cuban government would be fully lifting its own counter-productive “auto-bloqueo” or internal embargo against grass-roots entrepreneurial innovation and inventiveness any time soon.

This sense of rising hope inside Cuba reached its climax in Obama’s brilliant deployment of soft power during his historic state visit to the island in March 2016. Many Cubans identified with this youthful, optimistic, and eloquent African-American family man endowed with both a sense of history and of humor much more than with their own waxworks of old white ideologues.

However, Cuba’s old guard realized that Obama’s charm offensive had begun to fatally undermine their own authority and undercut their long-effective use of the U.S. boogeyman as a scapegoat for their own economic failures and as a justification for their continued political authoritarianism. In response, the Cuban leadership has spent the past eight months constantly reminding Cuban citizens of the continued U.S. existential threat to Cuban sovereignty under the Revolution and simultaneously dashing their hopes for a better, more open and prosperous future by stepping up detentions of peaceful political opponents and independent journalists and slowing economic reforms to a manageable trickle.

The clearest example of the Cuban government’s efforts to lower expectations has come on the economic front. First, April’s Seventh Party Congress included no new resolutions about deepening or expanding much needed market-oriented reforms apart from a vague reference to studying the possibility of granting status as legal businesses to a portion of the half-a-million strong micro-enterprise sector. Nothing has come of this idea in the intervening seven months.

Second, price controls have been reimposed in the private agriculture and transportation sectors, reducing incentives for greater production. Third, this past summer saw the government scale back economic growth estimates for 2016 to under 1 percent and impose severe energy saving and cost-cutting measures across the state sector due to a liquidity crisis and the Venezuelan debacle.

Finally, the issuing of new licenses for Havana’s surging private, home-based restaurant sector were suspended for six weeks in the fall in order to root out legal violations such as providing bar services and live entertainment without permission, obtaining supplies from black-market sources, staying open past the state-imposed 3 a.m. closing time, and tax evasion. Some have even been accused of doubling as sites of prostitution and drug trafficking and shut down.
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However, the government has so far not delivered on its promise to provide affordable access to wholesale markets for these restaurateurs nor has it allowed them to legally import supplies from abroad or expand beyond the arbitrary limit of 50 place settings. Moreover, the tax system for the private sector provokes “creative bookkeeping” by imposing a rigid 40-percent deduction limit for business often burdened by much higher supply costs due to Cuba’s environment of chronic scarcity. It also imposes a labor tax on any more than five employees disincentivizing legal hiring.

To add insult to this injury, the moribund network of their state-run competitor restaurants do enjoy access to wholesale markets and suffer no seating or size restrictions or employment taxes. Especially frustrating for Cuban entrepreneurs is the fact that this emphasis on law and order comes in the context of shrinking output in the state enterprise sector, a looming emigration crisis with record numbers of new Cuban arrivals in the U.S., and in the midst of a tourism boom that the state hospitality sector has proven unable to absorb.

As Cubans like to say: “¡No es fácil!” (It ain’t easy!)

President-elect Donald Trump could follow the recommendation of some Congressional Republicans by adding his own isolationist wind to the already full sails of the Cuban government’s rigid control that attempts to keep Cuban entrepreneurs in their frustrated and impoverished places. Or he could send Cuba’s business pioneers a message of support and solidarity as they attempt to build a more prosperous future by continuing America’s historic opening to Cuba that aims to empower the island’s mergent capitalists through engagement, investment, and trade.

For someone who campaigned as a anti-politician who would bring a hard-nosed business sense to Washington, Cuba presents Trump with a golden opportunity to place economic pragmatism and the tangible benefits it would bring to citizens of both countries over the out-dated and counterproductive Cold War ideology that undergirds the embargo.

Commentary by Ted A. Henken, an associate professor of Sociology and Latin American Studies at Baruch College, City University of New York and co-author with Arch Ritter of the book “Entrepreneurial Cuba: The Changing Policy Landscape.” He is a past president of the Association for the Study of the Cuban Economy (2012-2014). Read his blog and follow him on Twitter @ElYuma.

 

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IS CUBA “OPEN FOR BUSINESS”? BOOK REVIEW BY TED HENKEN

ZZZZZZZZZZZZZZZZZZZBy Ted Henken. Complete review is available here: http://cubacounterpoints.com/archives/3832

A review of Open for Business: Building The New Cuban Economy by Richard E. Feinberg,  August 30, 2016, Washington, D.C.Brookings Institution Press, 264 pages, $22.00;    ISBN-10: 0815727674’;     ISBN-13: 978-0815727675

Introduction

A few years ago I ran into a fellow watcher of Cuba’s economy in my favorite local New York coffee shop. It was just after the publication of my own recent book on the emergent Cuban private sector, which I co-wrote with the Canadian economist Archibald Ritter. Keen on announcing my good fortune (and great timing!) to my colleague, I whipped the book out and proudly presented it to her. However, when she saw the title, Entrepreneurial Cuba, she looked up at me with a skeptical grin and said: “Well, aren’t you the optimistic one?!” I laughed, quickly assuring her that while the title was indeed up-beat, the contents of the book were a decidedly more complex, critical, and ambivalent affair, filled with equal parts new opportunities, old obstacles, significant reforms, and frightful omens.

Similarly, the title of Richard Feinberg’s own eminently readable and richly informative new book, Open for Business: Building the New Cuban Economy, slyly posits a reality of economic “openness” that is aspirational. The author himself admits that this position is still as much a government slogan for the future as it is an achieved present-day reality. While Feinberg tells his readers that Cuba is indeed “open for business” on the book’s eye-catching cover, the actual contents of the book’s wide-ranging eight chapters highlight aspects of Cuba’s new post-Fidel economy that place an emphatic and well deserved question mark (?) after this claim.

Far from falling prey to the “irrational exuberance” of facile boosterism or blatant apologetics that tend to characterize much business-oriented writing about Cuba these days, Feinberg’s book is a critical-minded and deeply informed evaluation of the pro-market experiments undertaken by the Cuban government over the past two decades with a special emphasis on Raúl Castro’s economic reforms between 2010-2016. Thankfully, Feinberg goes beyond an exclusive focus on the top-down administrative efforts on the part of the government to solve its chronic economic problems (chapter 2). Feinberg does consider the so-called “update” of Cuba’s state socialist economic model that is often in league with sympathetic foreign governments like China, Brazil, and Venezuela (Chapter 3) and pioneering foreign firms including Sherritt, Meliá, and Unilever (chapters 4-5).

Notably, chapter 6 on entrepreneurial Cuba tells the fascinating story of Cuba’s emerging private entrepreneurs and middle classes. According to Feinberg, now this new economic class includes as many as two million people and makes up 40% of the island’s workforce (a well-sourced if questionable claim). This is followed by a wonderfully original chapter that profiles a dozen Cuban “millennial voices”; youthful, and quite hopeful, pioneers in fields as diverse as business, art, media, academics, and technology. These innovative sections of the book allow the author to offer his readers a refreshingly rich and diverse portrait of the grass-roots efforts of everyday citizens to “open Cuba for business” from the inside and for the benefit of Cubans themselves.

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Conclusion

Not a typical academic monograph focused on a single aspect of the Cuban economy, Feinberg’s “Open for Business” is instead a globally-informed analysis of what are arguably the three most important and dynamic aspects of Cuba’s new economy: International trade, foreign investment, and the island’s emerging domestic entrepreneurs. His wide-ranging yet richly detailed focus – enhanced by multiple foreign investor case studies and vivid profiles of Cuba’s emerging entrepreneurs and pioneering millennials – makes this book required reading not just for professional economists and other academics, but also – and perhaps especially – for the growing ranks of potential foreign investors looking for independent, hard-nosed, and practical advice about Cuba’s unique business environment as they contemplate their own entreé into the Cuban market. It will also be useful and revelatory tool for U.S. policymakers as they gauge how best to “engage” the Cuban government over questions of trade and investment and “empower” the Cuban people, especially the emerging Cuban entrepreneurial middle classes.

open-for-business

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BETWEEN REFORMS AND REPRESSION, CAN CUBA’S NEW FORCES OF CHANGE SUCCEED?

Ted A. Henken and Armando Chaguaceda

WORLD POLITICS REVIEW, | Tuesday, May 10, 2016

Original Article Here: Henken & Chaguaceda, Between Reforms and Repression Can Cubas New Forces of Change Succeed – WPR –

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WHY THE U.S. SHOULD EMBRACE THE RISE OF CUBA’S ENTREPRENEURS

Huffington Post 01/25/2016;

Original Article here: Cuba’s Entrepreneurs

Ted A. Henken, Former President of the Association for the Study of the Cuban Economy (ASCE) and Baruch College (CUNY) Professor

Cuentapropista (a Cuban entrepreneur) is a term that up until a few years ago would not have been used to describe a large sector of Cuba’s centralized and still heavily planned economy. But despite heavy odds, I have recently witnessed the proliferation of Cuban entrepreneurship and its positive effects on the Island. As a Yuma (a Cuban term of endearment referring to visiting Americans), I’ve seen Cuba’s “non-state” sector expand considerably, giving testimony to the entrepreneurial successes that everyday Cubans are achieving, and hunger to expand upon.

Engaging directly with Cuba’s entrepreneurial sector — while we push for an end to our pernicious trade embargo — allows us to remove the U.S. as the Cuban government’s bête noir and empower more Cubans to be the masters of their own fates. Some hardliners in the U.S. would argue that engaging any sector in Cuba is helping the monopolistic and undemocratic Cuban government consolidate its power. However, the last 50 years have shown that isolation has only aided the Cuban government in strengthening its monopolies while deflecting blame for its failing economy onto the U.S. embargo. Engagement with cuentapropistas, on the other hand, gives us the chance to begin to build relationships of trust and mutual benefit with the Cuban people.

In the face of constant economic instability and state control, cuentapropistas are the defining social and economic catalyst for Cuba’s future. They are men and women who display incredible motivation and creativity in their business ventures, and are willing to take risks, often at great personal cost. As a result, the burgeoning private sector is now one of the most productive areas of an otherwise failing economy.

In a fact sheet I recently released in partnership with Engage Cuba and the Cuba Emprende Foundation, we found that while Cuba has the most educated, low-cost labor force in the world, private sector opportunities for Cuban professionals continue to be severely limited. As a result, entrepreneurial Cubans have taken their fate into their own hands and are now estimated to be one-third of Cuba’s total workforce. The rate of self-employment has surged to new heights in the last five years, rising from just under 150,000 to over half a million cuentapropistas by mid-2015.

A surprising area of self-employment growth is in telecommunications. The chronic scarcities and bottlenecks caused by the lethal combination of state socialist planning and the U.S. embargo have resulted in the incubation of a true “maker” culture. Highly trained but underemployed computer programmers and telecom agents have started launching innovative start-ups like AlaMesa and Conoce Cuba or designing “lean” software and offline mobile apps for both a Cuban and international clientele. Aiming to encourage this dynamic phenomenon, new U.S. regulations issued by the Obama Administration during 2015 now allow the contracting of Cuba’s private sector IT and other professionals.

But don’t be fooled. There are still drastic internal barriers for motivated, business-minded Cubans. The tax structure is burdensome, the private sector is legally cut off from international trade (apart from imports and exports via “suitcase commerce”), and cuentapropistas enjoy little reliable access to wholesale goods, rental space, credit, or foreign investment. Basic infrastructure is woefully outdated, and Internet access — the driver of any modern business — is still very limited and costly. Perhaps this is why despite unprecedented growth over the past five years, the cuentapropista sector contracted for the first time in the second half of 2015, falling to 496,400 by January 2016.

There are also serious structural workforce issues. For example, every year over 4,000 information technology engineers graduate across the country, but there are a limited number of state positions available to them. Therefore, many of these graduates are forced to join the historic exodus of young professionals abroad in order to find an economic return on their educations.

The possibilities for these young entrepreneurs will be virtually limitless once the island is equipped with a modern telecommunications infrastructure — something that can be made possible with the help of American investment. But in order for U.S. telecommunication services and other businesses to help bring meaningful change in Cuba, Congress needs to lift the trade embargo.

Because while American entrepreneurs and businesses await an end to the embargo, both Americans and Cubans are missing out. It is estimated that the U.S. is currently forgoing 1.6 billion in potential sales to Cuba annually due to current policy. Americans from across political parties have duly noted this fact. According to a Pew Research Center report, 72 percent of Americans, including 59 percent of Republicans, favor ending the Cuban trade embargo.

It is ironic that many embargo supporters rightly critique the Cuban government for restricting the free market inside the Island while simultaneously supporting an embargo that unfairly restricts American businesses abroad and any benefits they could bring to Cuba’s struggling entrepreneurs and its people. By allowing Americans to bring business and investment to the Island, we will grow our own economy while supporting the Cuban people, including cuentapropistas, in the process.

henkenteaching_001_jpgTed A. Henken, Ph.D., is the President Ex-Officio of the Association for Study of the Cuban Economy (ASCE) and co-author of the book “Entrepreneurial Cuba: The Changing Policy Landscape.” Henken is a member of the Policy Council of Engage Cuba, a bipartisan organization dedicated to mobilizing American businesses and non-profit groups to support the ongoing U.S.Cuba normalization process.

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Ted Henken: EIGHT QUICK TAKEAWAYS ON FUTURE OF US-CUBA RELATIONS FROM THE SUMMIT OF THE AMERICAS

2015-04-11t201325z_1868389586_gf10000056251_rtrmadp_3_panama-usa-summit_x1x_jpg_1718483346Ted Henken has some quick and cogent comments on the Cuba US Mdeetings at the OAS Summit of April 2015. They are presented below.

The original is on Prof. Henken’s Blog here: QUICK TAKEAWAYS ON FUTURE OF US-CUBA RELATIONS
Sunday, April 12, 2015

 1. Embarrassing lack of tolerance and “civility” on part of Cuba’s official civil society delegation (major contrast with Raul Castro’s warm and respectful approach to Obama). Failed the test of tolerance but will have to learn as the days of the exclusive, official “Cuban delegation” representing the island at international events are over since the migration reform of 2013. Question: Cuba can open up to the US (and vice versa) but can it open up to ITSELF – listen to the diverse and often dissenting views and organizations of its emergent civil society?

2. Surprising personal regard Raul Castro expressed for Obama as “an honest man” who has “no responsibility for past US policy” – I loved when Raul admitted he had cut that part from his speech, then put it back, then cut it, & finally decided to include it and was “satisfied” with his decision. History is made in the details.

3. Obama’s clear understanding of the key role of civil society and public support for Cuban civil society – expressed both in his terrific speech at the civil society forum and by meeting with Manuel Cuesta Morua & Laritza Diversent. Obama later stressed that these two leading Cuban dissidents support his “empowerment through engagement” policy.

4. Obama-Castro historic handshakes, joint press conference, & private meeting – “agree to disagree,” “work together where we can with respect and civility,” “everything on the table based on mutual respect,” “patience x 2!” – Obama looking forward and not trapped by ideology or interested in re fighting Cold War battles that started before he was born (but appreciates lessons of history); Raul still passionate (and long-winded) about past US wrongs but admits that can disagree today but “we could agree tomorrow.”

5. Obama’s unequivocal clarification that “On Cuba, we are not in the business of regime change; we are in the business of making sure the Cuban people have freedom and the ability to shape their own destiny,” stressing that “Cuba is not a threat to the United States.”

6. Maduro/Venezuela issue did not steal the show as some had feared (or hoped); Maduro did not get support for his condemnation of US sanctions and even had to endure some countries expressed concern for his own jailing of dissidents.

7. Shift in the region away from ideology toward economic pragmatism fueled in part by China slow-down, Russia nose-dive, & Venezuela implosion. US ready to step in with strategic economic engagement and oil diplomacy – especially to Caribbean Basin (H/T to Andrés Oppenheimer).

8. Also, various economically and diplomatically powerful Latin American nations have big domestic corruption scandals (Brazil, Argentina, Chile) or violence and security issues (Mexico, Central America) that make them wary of any confrontation with the US

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Ted Henken

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Americas Society / Council of the Americas: ENTREPRENEURIAL CUBA: A DISCUSSION ON CUBA’S EMERGING NON-STATE SECTOR (Web Cast of the Event)

10163_logo_1In 2011, Cuban President Raúl Castro began the process of reforming policies toward entrepreneurs and small, private enterprises. Join Ted Henken and Archibald Ritter as they present their book Entrepreneurial Cuba: The Changing Policy Landscape,* which analyzes the evolution of Cuban policy since 1959.

Henken and Ritter will discuss Cuba’s fledgling non-state sector, the underground economy, the new cooperative sector, Cuban entrepreneurs’ responses to the new business environment, and how Obama’s new policy of entrepreneurial engagement might impact Cuba’s “cuentapropistas.”

Speakers:

  • Ted A. Henken, Professor of Sociology and Latin American Studies, Baruch College, CUNY
  • Archibald R.M. Ritter, Distinguished Research Professor, Department of Economics, Norman Paterson School of International Affairs, Carleton University, Ottawa, Canada
  • Alana Tummino, Policy Director, Americas Society/Council of the Americas; Senior Editor, Americas Quarterly (Moderator)

April 2, 2015, Americas Society, 680 Park Avenue, New York NY USA

Book order form: Ritter-Henken-Entrepreneurial Cuba wdisc pdf

Here is the link to the web cast of the event:   http://www.as-coa.org/events/entrepreneurial-cuba-discussion-cuba%E2%80%99s-emerging-non-state-sector

New Picture (12)Alana Tummino

New Picture (13)Tummino, Henken and Ritter

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ENTERPRISING CUBA: CITIZEN EMPOWERMENT, STATE ABANDONMENT, OR U.S. BUSINESS OPPORTUNITY?

 AU-SSRC Implications of Normalization: Scholarly Perspectives on U.S.-Cuban Relations April 2015

 TED A. HENKEN AND GABRIEL VIGNOLI

Original here: ENTERPRISING CUBA

After cautiously consolidating his new government once becoming president in 2008, Raúl Castro made a series of unprecedented moves in late 2010 to encourage the reemergence of private self-employment (known as trabajo por cuenta propia or cuentapropismo in Cuba)—explicitly ending Cuba’s previous policy under Fidel Castro that, according to Raúl’s own bold assessment, had “stigmatized” and even “demonized” it.

Subsequently, both the number of legally allowed private occupations (up from 178 to 201) and of Cubans licensed to practice them have grown significantly, with the island seeing a veritable “boom” in entrepreneurial activity between 2011 and 2015. Indeed, in that time, the number of Cuba’s cuentapropistas (self-employed workers or micro-entrepreneurs) has more than tripled, growing from less than 150,000 in 2010 to nearly half a million by early 2015. Additionally, 498 new non-agricultural cooperatives have been authorized to operate on the island between 2013 and 2014, with another 300 under review at the start of 2015.

Moreover, on December 17, 2014, as part of a momentous diplomatic thaw between Washington and Havana, the Obama Administration announced a new policy of engagement targeted explicitly at “empowering” Cuba’s new class of private entrepreneurs by allowing U.S. companies to “support the emerging Cuban private sector,” in Obama’s historic words.

How might Washington’s new policy of “empowerment through engagement” and the larger bilateral process toward normalization impact the island’s emerging entrepreneurs as well as the emergent “non-state sector” of its economy? While there are many potential economic benefits of concerted U.S. private sector engagement with Cuba’s cuentapropistas, the monopolistic Cuban government poses significant challenges to those who want to do business on the island, reach out to island entrepreneurs, and hire Cuban workers—as many European and Canadian companies can already attest. How will this work in practice, who will be the likely winners and losers (both in Cuba and abroad), and how can the Cuban government deal effectively with the growth in socioeconomic inequality that will inevitably follow an expanded private sector?

Direct U.S. engagement with Cuban entrepreneurs through freer travel and more remittances; access to banking and other financial services; increased exports of badly needed inputs to island cuentapropistas; the import of private or cooperatively produced Cuban goods and services to the U.S.; and technology and know-how transfer are all encouraging elements of Obama’s new Cuba policy. These changes have the potential to both “empower” individual entrepreneurs—the stated goal of the U.S. policy shift—and incentivize the initial, if exceedingly cautious, private sector reforms already begun by the Cuban government.

However, to increase Cuba’s economic independence and overall prosperity, the U.S. should focus on addressing the specific economic needs of Cuban entrepreneurs, rather than framing its engagement as a way to effect “regime change” by other means. That is, given the need to build bilateral diplomatic trust after more than fifty years of mutual antagonism, Washington should eschew any “Trojan horse” approaches to entrepreneurial engagement that aim to empower the Cuban people by undermining the government. Such an antagonistic and divisive approach has not worked in the past and could derail Obama’s promising effort to encourage the incipient pro-market reforms already underway.

At the same time, a U.S. policy based on empowerment through economic engagement—even when motivated by the best and most transparent of intentions—will be a dead letter if the U.S. Congress insists on clinging to the outdated and counterproductive embargo and the Cuban government stubbornly refuses to ease its own auto-bloqueo (or “internal embargo”) against island entrepreneurs. As it implements a self-described economic “updating of socialism,” will Cuba continue to hold fast to its monopolistic “command and control” economic model—one that “ya no funciona ni para nosotros” (“no longer works even for us”), as Fidel Castro himself famously admitted in a rare moment of economic candor in 2010?

Continue reading: AU-SSRC-Henken-Vignoli-Enterprising-Cuba-FINAL 

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Book Launch in New York: ENTREPRENEURIAL CUBA: A DISCUSSION ON CUBA’S EMERGING NON-STATE SECTOR

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Americas Society / Council of the Americas

 

April 2, 2015

AS/COA; 680 Park Avenue; New York, NY    View map

Registration: 12:00 p.m. to 12:30 p.m., April 2, 2015
Lunch and Discussion: 12:30 p.m. to 2:00 p.m.

In 2011, Cuban President Raúl Castro began the process of reforming policies toward entrepreneurs and small, private enterprises. Join Ted Henken and Archibald Ritter as they present their book Entrepreneurial Cuba: The Changing Policy Landscape,* which analyzes the evolution of Cuban policy since 1959. Henken and Ritter will discuss Cuba’s fledgling non-state sector, the underground economy, the new cooperative sector, Cuban entrepreneurs’ responses to the new business environment, and how Obama’s new policy of entrepreneurial engagement might impact Cuba’s “cuentapropistas.”

*Copies of the book will be available for purchase.

Speakers:

  • Ted A. Henken, Professor of Sociology and Latin American Studies, Baruch College, CUNY
  • Archibald R.M. Ritter, Distinguished Research Professor, Department of Economics, Norman Paterson School of International Affairs, Carleton University, Ottawa, Canada
  • Alana Tummino, Policy Director, Americas Society/Council of the Americas; Senior Editor, Americas Quarterly (Moderator)

Registration Fee:   This event is complimentary for all registrants. Prior registration is required.

Event Information: Sarah Bons | sbons@as-coa.org | 212-277-8363
Press: Adriana La Rotta | alarotta@as-coa.org | 212-277-8384
Cancellation: Contact Juan Serrano-Badrena at jserrano@counciloftheamericas.org before 3:00 p.m. on Wednesday, April 1, 2015

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PERSPECTIVE: OVERCOMING CUBA’S INTERNAL EMBARGO

Published in Current History, February 2015, here: INTERNAL EMBARGO 

See original essay here: Overcoming Cuba’s Internal Embargo

By Ted A. Henken and Archibald R.M. Ritter

In scores of interviews conducted over the past 15 years with Cuban entrepreneurs for our new book, “Entrepreneurial Cuba,” Arch Ritter and I often heard the following two very pregnant Cuban sayings:

El ojo del amo engorda el caballo” (The eye of the owner fattens the horse) and “El que tenga tienda que la atienda, o si no que la venda” (Whoever has a store should tend to it, and if not then sell it”).

The first adage indicates that the quality of a good or service improves when the person performing it enjoys autonomy and has a financial stake in the outcome. The second saying suggests that if the Cuban government is unable to “tend its own stores,” then it should let others take them over.

In essence, this popular wisdom demands that the state turn over to the private sector the economic activities it cannot operate effectively itself—many of which are already widely practiced in Cuba’s ubiquitous underground economy.

In other words, the U.S. embargo – recently dealt a near fatal blow by the joint decision by Presidents Barack Obama and Raúl Castro to reestablish diplomatic relations after almost 54 years – is hardly the principal “blockade” standing in the way of Cuba’s economic revitalization. Though the American “bloqueo” has long been the target of withering and well-deserved international condemnation, on the island Cubans themselves are much more likely to criticize what they bitterly refer to as the “auto-bloqueo” (internal embargo) imposed by the Cuban government itself on the entrepreneurial ingenuity, access to uncensored information and open communications, as well as basic civil and political rights of the Cuban people.

President Barack Obama has opened a door to potential U.S. investment in (and import/export to and from) Cuba’s entrepreneurial and telecom sectors. But is Raúl Castro willing to allow U.S. companies to operate on the island? More important still, is his government ready to open up to the Cuban people by beginning to relinquish its tight control over private enterprise and the Internet?

While we believe that it is both good and necessary for the United States to open up to Cuba and vice versa (to paraphrase the late Pope John Paul II), our book argues that little economic progress or political freedom will be enjoyed by Cubans themselves until the Cuban government opens up to its own people, ceases to demand their acquiescence as subjects, and begins to respect them as citizens, consumers, and entrepreneurs with defensible and inalienable economic and political rights of their own.

In fact, two weeks following the historic mid-December Obama-Castro announcement, the Cuban government received its first public test of whether its internal embargo would now be relaxed in light of the sea-change in U.S. policy. On December 30, the internationally renown Cuban artist Tania Bruguera organized a public act of performance art in Havana’s iconic Revolutionary Plaza. Dubbed “#YoTambienExijo,” Bruguera invited Cuban citizens to “share their own demands” on the government and visions for the island’s future for one minute each at an open-mic set up in the Plaza. Predictably, the government responded by arresting and detaining scores of artists, activists, and independent journalists, which amounted to an even more public “performance” of its own typically repressive tactics, as news of the event echoed in the international media on the final day of the year.

Thus, while we can celebrate the fact that the U.S. and Cuban governments have finally agreed to begin respectful, diplomatic engagement, the Cuban government’s failure to respectfully engage with the diverse and often dissenting voices of its own citizens makes us wonder with Bruguera whether “it’s the Cuban people who will benefit from this new historic moment,” as she put it in her previously circulated open letter to Raúl Castro.

Between 1996 and 2006, President Fidel Castro pursued an economic policy retrenchment that gradually phased out the pro-market reforms of the early 1990s, indicating that he was more aware of the political risks that popular entrepreneurship would pose to his centralized political control than of the economic benefits it could provide. Therefore, he was unwilling to transfer more than a token portion of the state “store” to private entrepreneurs.

His brother, Raúl Castro, whose presidency began in 2006, has significantly eased this resistance. While the underlying goal of economic reform is still to “preserve and perfect socialism,” he has started to deliberatively shrink the state “store” and transfer the production of many goods and services to the more than half-a-million new small enterprises, including both private and cooperative ventures.

However, much more remains to be done in reforming policies toward microenterprise so that it can contribute fully to productive employment, innovation, and economic growth. For example, 70 percent of the newly self-employed were previously unemployed, meaning that they likely converted previously existing underground enterprises into legal ones, doing little to absorb the 1.8 million workers slated for state-sector layoffs. Moreover, only 7 percent of self-employed are university graduates, and most of them work in “low tech” activities because almost all professional self-employment is prohibited. This acts a “blockade” on the effective use of Cuba’s well-educated labor force, obstructing innovation and productivity.

A further goal of the tentative reforms to date has been to facilitate the emergence of cooperative and small enterprise sectors so that they can generate sustained improvements in material standards of living. This can only be achieved with additional reforms that effectively “end the embargo” against Cuban entrepreneurs.

Among the necessary changes would be:

1. Opening the professions to private enterprise,

2. Implementing affordable wholesale markets,

3. Providing access to foreign exchange and imports (a fiercely guarded state monopoly),

4. Establishing effective credit facilities,

5. Permitting the establishment of retailing enterprises, and

6. Relaxing the tax burden on small enterprise, which now discriminates against domestic enterprise in favor of foreign investors.

Progress in all these areas would be greatly facilitated by access to U.S. investors and markets (both as a source of desperately needed wholesale inputs and as a place to sell their products), something now possible following the implementation of Obama’s historic policy changes during the coming year.

However, it remains to be seen whether Raúl has the political will to intensify the internal reform process. The outright prohibition of activities the government prefers to keep under state monopoly allows it to exercise control over Cuban citizens and impose an apparent order over society. However, this comes at the cost of pushing all targeted economic activity (along with potential tax revenue) back into the black market – where much of it lurked prior to 2010.

On the other hand, the inclusion and regulation of the many private activities dreamed up and market-tested by Cuba’s always inventive entrepreneurial sector would create more jobs, a higher quality and variety of goods and services at lower prices, while also increasing tax revenue. However, these benefits come at the political cost of allowing greater citizen autonomy, wealth and property in private hands, and open competition against state monopolies.

The viability of Cuba’s reforms also depends on the recently announced changes in U.S. policy toward Cuba and on Cuba’s changing policy toward its émigrés, who already play a major role in the Cuban economy as suppliers of start-up capital via the billions of dollars they provide annually in remittances. Such investment could be expanded if the Cuban government were to deepen its recent migration reforms by granting greater economic rights to its extensive émigré community.

Obama’s relaxation of U.S. policy will inevitably shift the political calculus that underlies economic reform on the island. As external obstacles to Cuba’s economic revitalization are removed, the onus will fall with increased pressure on the Cuban government to broaden and deepen its initial reforms, since it alone will be to blame for poor performance.

For example, organizations like Catholic Church-affiliated CubaEmprende have already begun to offer entrepreneurship workshops to small business owners with the financial backing of Cuban-Americans. Now that they needn’t worry about the threat of U.S. sanctions, will this and other similar projects be provided the legal and institutional space to flourish by the Cuban government?

Despite a continued state monopoly on the mass media and one of the Western Hemisphere’s lowest Internet penetration rates, in recent years Cuba has seen a number of significant developments in information and communication technology (ICT) capabilities, access to uncensored news, and the availability of new dissemination channels for digital data.

These developments include:

1. The spread of the worldwide blogging and citizen journalism phenomena to Cuba;

2. The connection of a fiber-optic Internet cable to the island from Venezuela in 2013, followed by the opening of 118 Internet cafés in June 2013 and access to e-mail via cell phone for the first time in 2014;

3. The appearance of a small number of independent, island-based news outlets – including the news and opinion websites Havana Times, On Cuba, and 14ymedio (launched by pioneering blogger Yoani Sánchez in May 2014);

4. The creation of a number of unauthorized “mesh” networks that use private Wi-Fi networks to communicate and share information, and

5. The emergence of an underground digital data distribution system known as “el paquete” (the packet).

Each of these developments could be accelerated by the new U.S. policy that allows American telecom providers to do business in Cuba, but only if the Cuban government is willing to allow diversification and freer competition in its centralized, monopolistic ICT system.

For example, the so-called “packet” phenomenon currently acts as an alternate, off-line Internet on the island making huge amounts of electronic data (CDs, DVDs, video games, books, “apps,” computer programs, news, and so forth) readily available for purchase in Cuba’s digital “black market.” While much data continues to circulate via thumb-drives, there is also a market for entire external hard drives of data bought and sold not in megabytes or gigabytes, but in terabytes – and all outside the rigid control of the state media production and distribution system – amounting to an indirect but very serious and effective challenge to the so-called “política cultural de la Revolución.”

This digital black market arises from the fact that many products—especially the latest electronic gadgets—are either priced far out of reach for most Cubans in “las tiendas estatales,” not sold at all, or even banned outright. More recently, the small but rapidly growing number of Cubans who have joined the smart phone revolution (often purchasing their Androids or iPhones via the blocked site Revolico.com, a Cuban version of Craig’s List) have benefitted from the proliferation of “apps” especially configured for Cuba’s peculiar off-line environment.

Undoubtedly, such a peculiar digital media environment will be fundamentally transformed if American data, service, and hardware providers were given access to the Cuban market. At the very least, prices are bound to fall, speed increase, and access expand, with the quality and quantity of digital ICT equipment improving.

A key recent development was the June 2014 trip of top Google executives to the island, including company co-founder Eric Schmidt, with the purpose of “promoting a free and open Internet.” To that end, they met both with leading cyber-activist Yoani Sánchez and government officials, while also interacting with students at Cuba’s University of Computer Science. Upon returning to the U.S., Schmidt declared that Cuba was trapped in the Internet of the 1990s and heavily censored, with American-engineered hardware and software losing out to Chinese ICT infrastructure.

He also reasoned that the U.S. embargo “makes absolutely no sense” if Washington’s aim is to open the island up to the freer flow of information. “If you wish the country to modernize,” Schmidt argued, “the best way to do this is to empower the citizens with smart phones and encourage freedom of expression and put information tools into the hands of Cubans directly.”

The greatly expanded telecom opportunities for U.S. companies and the decision to review the designation of Cuba as a state sponsor of terrorism, both included in December’s announcement to normalize relations, indicate that the Obama administration was convinced by Schmidt’s logic.

The slow pace and (so far) only marginally successful results of Cuba’s economic reforms to date has put the Cuban government under rising internal pressure to expand Internet services and from abroad to meet the needs of the new foreign investors it hopes to attract. This eventuality – now with the help of U.S. investment and technology – could positively impact the population’s access to the web.

At the same time, the government is clearly looking to the Chinese example as it contemplates ramping up its own Internet capabilities, hoping to remake the web in its authoritarian image and forestall any of its democratizing impacts.

Still, in the months following the Google visit, the company announced that it was unblocking island access to its free cloud-based Chrome search engine as well as popular applications such as Google Play and Google Analytics – a decision that could not have been made without tacit approval from the Obama administration. Events in 2015 will reveal how much further the Cuban government is willing to allow Google and other Internet and telecom companies to go.

While these digital developments are significant, it remains difficult to determine to what extent they will affect ordinary Cubans, given that the government itself estimates the Internet access rate at an extremely low 26 percent. Even this figure conflates access to the Internet with the island’s limited internal “intranet,” and counts sporadic access to e-mail in the same category as full access to the World Wide Web.

Moreover, while 118 new cyber-cafes opened across the island in June 2013, the service is a state monopoly available only to those able to pay in hard currency. Full access for one hour costs the equivalent of the average weekly salary. Thus, expanded access to ICT in Cuba takes place in a context of a connectivity that can be described as slow, expensive, and censored, with certain sites – such as 14ymedio – blocked outright.

Devices such as computers, tablets, and smartphones are scarce and costly; the purchase and importation of key equipment such as routers and other Wi-Fi technology are highly controlled. Indeed, it is still not legally possible for the vast majority of Cuban citizens to obtain a household Internet connection, and there is virtually no legal access on the island to wireless networks and fully functional mobile technology or smart phones with data plans, outside of international hotels and certain government institutions, and select educational facilities.

The government has recognized these limitations and made commitments to remedy them, but there is no clear timeline or way to hold the government or its telecom monopoly Etecsa accountable to citizens, consumers, or Cuba’s emerging class of private entrepreneurs.

Cuban citizens of all stripes are working to overcome the substantial obstacles to entrepreneurship and free expression. This effort, however, takes place in an asphyxiating climate of political polarization, where Cubans have been doubly blockaded by the U.S. embargo on one side and by the ongoing internal embargo on the other.

This is why the recent growth of domestic entrepreneurship and innovative engagement by Internet companies like Google is so significant. This new approach seeks to engage and empower the Cuban people directly while accepting some collateral benefit for the Cuban government, instead of aiming to undermine the government with a ham-handed embargo while accepting the collateral damage that such a policy inevitably has on the people.

Now that this approach has been reinforced by the Obama administration’s momentous decision to diplomatically engage Cuba as a way to further empower the Cuban people (making their lives, in the words of the president, a bit more fácil), the ball is clearly in Castro’s court.

Will he transform his initial economic reforms and marginal expansion of the Internet into change Cubans can believe (and even invest) in?

 

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TED HENKEN’S BOOK LAUNCH PRESENTATION: ENTREPRENEURIAL CUBA

239574f3-e049-46c1-8ff7-d5b9e371f096_1320Ted Henken presenting  our book ENTREPRENEURIAL CUBA at the Coral Gables cultural institution, Books and Books, with the generous co-sponsorship of Florida International University’s Cuban Research Institute.

See Ted Henken’s presentation here: http://elyuma.blogspot.ca/2015/01/from-external-embargo-to-internal.html  starting at minute 5:15

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