Perspectives on U.S.-Cuba Relations Under Trump

Trump and Cuban Americans

President Trump announces his administration’s policy toward Cuba. / YouTube / Livestream TV News / Creative Commons

Reversing Obama’s Cuba Policy?

By William M. LeoGrande*

In the two years after President Barack Obama and Cuban President Raúl Castro agreed to normalize relations, Obama tried to make his policy of engagement “irreversible” by opening up travel and trade that would create constituencies with a self-interest in defending engagement. He half-way succeeded. Despite the incendiary rhetoric in which Donald Trump cloaked his new policy when he rolled it out at a rally of Cuban-American hardliners in Miami, the sanctions he announced were limited.

Obama granted general licenses for all 12 categories of legal travel and relaxed other restrictions on who could visit Cuba. Trump rolled back only individualized people-to-people educational travel, so people-to-people visitors must once again travel on organized tours. But they can still go, and bring back rum and cigars.

Obama opened the Cuban market to U.S. businesses by licensing contracts with state enterprises in the travel, telecommunications, pharmaceuticals, construction, agriculture, and consumer goods sectors. Trump prohibited only contracts with Cuban enterprises managed by the military, and even then he exempted all existing contracts, and future contracts involving ports, airports, and telecomm – the sectors in which all but a handful of current U.S. businesses operate.

Trump did not impose any restrictions on Cuban–American family travel and remittances. He did not break diplomatic relations or put Cuba back on the State Department’s terrorism list. He did not restore the wet foot/dry foot policy that gave Cuban immigrants preferential treatment after reaching the United States. He did not abrogate the bilateral agreements on issues of mutual interest negotiated by the Obama administration.

Why such a flaccid set of sanctions from a president who stood on the stage in Little Havana and demonized the Cuban regime as brutal, criminal, depraved, oppressive, murderous, and guilty of “supporting human trafficking, forced labor, and exploitation all around the globe”?

Because Obama’s strategy of creating constituencies in favor of engagement worked. In the weeks leading up to Trump’s announcement, he was deluged with appeals not to retreat from engagement. The U.S. Chamber of Commerce argued in favor of expanding business opportunities, not constricting them. Farmers argued for expanding agricultural sales. Travel providers argued for expanding travel. Fifty-five U.S. Senators cosponsored a bill to lift all travel restrictions. Seven Republican members of Congress and 16 retired senior military officers argued that disengagement would damage national security by boosting Russian and Chinese influence on the island. Polling data showed that large majorities of the public, of Republicans, and even of Cuban Americans support engagement.

Even the executive bureaucracy was won over by the successes scored by the policy of engagement. During the last two years of Obama’s presidency, Cuba and the United States signed 23 bilateral agreements. When Trump ordered an inter-agency review of Cuba policy, the consensus of the agencies involved was that engagement was working and ought to be continued. Trump rejected that conclusion because it did not fit with his political strategy of currying favor with the Cuban-American right, but the agencies fought back successfully against more extreme proposals to roll back Obama’s policies entirely.

Trump’s vicious rhetoric and his open embrace of the goal of regime change – through sanctions, support for dissidents, and “democracy promotion” – risks destroying the atmosphere of mutual respect and good faith that made the gains of Obama’s policy possible. Already, hardliners in Havana who saw engagement as a Trojan Horse for subversion are saying, “We told you so!” Cuba’s private entrepreneurs, who Trump’s policy purportedly aims to help, will be hurt the most by the prohibition on individual people-to-people travel. However, the overall economic impact of his sanctions will be limited, both on U.S. businesses and in Cuba.

Cuba’s official response has been pragmatic but firm. A statement released shortly after Trump’s Miami speech declared, “The Government of Cuba reiterates its willingness to continue respectful dialogue and cooperation on issues of mutual interest, as well as the negotiation of pending bilateral issues with the United States Government…. But it should not be expected that Cuba will make concessions inherent to its sovereignty and independence, nor will it accept any kind of conditionality.”

In all likelihood, political pressures from the constituencies Obama’s policy created will continue to constrain Trump’s impulse to beat up on Cuba, but his loyalty to the exile right and his penchant for bullying will make it impossible to realize further progress toward normalizing relations. That will have to wait until the White House has a new occupant motivated by the national interest rather than by a political IOU given to Miami’s most recalcitrant Cuban-American minority.

*William M. LeoGrande is Professor of Government at American University in Washington, DC, and co-author with Peter Kornbluh of Back Channel to Cuba: The Hidden History of Negotiations between Washington and Havana (University of North Carolina Press, 2015).

Cuba: Trump’s “New Policy”

 

By Ricardo Torres*

The “new policy” toward Cuba that President Trump announced to great fanfare in Miami last Friday features little that is new while seeking to restore oxygen to a failed approach advocated by extreme sectors of the Cuban-American community. While adopting language reflecting the worst traditions of American foreign policy, Trump’s declaration implicitly blessed much of the rapprochement between the two countries introduced by President Obama – diplomatic relations will remain intact, for example. But the new measures he announced have symbolic and practical implications. His Cuban-American backers expended great political capital to change the policy in hope of accelerating regime change on the island, but the Trump approach will instead retard change – while increasing the pain of the Cuban people. Moreover, it will undermine the activities of legitimate U.S. citizens, companies, and groups interested in contact with the island and compromise U.S. citizens’ freedom to travel. They have acted against Trump’s campaign promise to create jobs (threatening thousands of workers who depend on U.S.-Cuba interaction) and increase national security (putting U.S.-Cuba cooperation in counternarcotics, counterterrorism, and illegal migration at risk). The new approach also runs counter to Secretary of State Tillerson’s repeated assertion that U.S. policy is not to impose its values and standards on others.

U.S. national interests seem to have taken a back seat to internal U.S. political factors, particularly the opposition to Obama’s policies among certain groups of the Cuban Americans that had seen their political influence decline over the past decade.

In addition to its symbolic weight, the Trump approach is likely to be felt most strongly in several principal areas. Despite continuing differences between the two countries, both governments had decided to move ahead together. It is difficult to overstate the sense of hope created during the Obama era, with immediate and tangible benefits for both.

Cuba’s internal situation has been changing recently, due to a gradual opening internally and to other nations. A steady increase in visits by foreign businessmen and Cuban travel overseas are evidence of this change. Trump’s rhetoric and actions will only strengthen those sectors inside Cuba that exaggerate the external threat and want to reduce the space for debate in the country.

The economic impact that Trump and his backers want – to hurt the Cuban government – cannot be separated from the harm it will cause the Cuban people. The new measures will probably reduce tourism, which provides a significant flow of revenue to vast sectors of the Cuban population that, in formal or informal jobs, benefit from that industry. Indeed, the much bandied-about private sector has been one of the principal beneficiaries of tourism development.

The Cuban government will assess its options in relations with the United States as well as in domestic policies. It will naturally have to let the U.S. government know that cooperation has yielded mutual benefits to both countries and that this step backward will not be limited to areas that Washington prefers. Havana might look for more ambitious ties with alternative partners, including both allies and competitors of the United States. Internally, rather than slow down, Cuba’s transformation should accelerate. The legitimate needs of the Cuban people should not be postponed in the face of this new adversity. The pace of Cuban reform should never be tied to external threats. As for the Cuban people, they will once again tell all who will listen that they themselves – not those on the other side of the Florida Strait – represent their interests. President Trump has empowered a small group of Cuban Americans to speak for people in Cuba whom they do not know, at the cost of sacrificing U.S. prestige and an array of its national interests. The absurd has become the accepted norm in American politics.

*Ricardo Torres is a Professor at the Centro de Estudios de la Economía Cubana at the University of Havana and a former CLALS Research Fellow.

Does Trade Incentivize Educational Achievement?

By Raymundo Miguel Campos Vázquez, Luis-Felipe López-Calva, and Nora Lustig*

Female student walking by building

A student walks around Preparatoria Vasconcelos Tecate. / Gabriel Flores Romero / Flickr / Creative Commons

Mexico’s experience with free trade has challenged one of the tenets of faith economists know well from reading early in their careers David Ricardo’s Principles of Political Economy and Taxation: that “the pursuit of individual advantage is admirably connected with the universal good of the whole” and that “[trade] distributes labor most effectively and most economically.”  Under this principle, “wine shall be made in France and Portugal; corn shall be grown in America and Poland; and hardware and other goods shall be manufactured in England.”  Mexico reminds us that while these benefits exist in the abstract, there are trade-offs to be faced—that there are, potentially, social and individual costs induced by trade liberalization.

In a recently published paper entitled “Endogenous Skill Acquisition and Export Manufacturing in Mexico,” MIT economics professor David Atkin shows the ways in which individual people experience trade and how it affects their decision-making – sometimes in ways that may not necessarily be socially desirable.  It analyzes a time period (1986-2000) during which Mexico underwent major economic transformations, including a rapid process of trade liberalization after 1989 and the introduction of the North American Free Trade Agreement (NAFTA) in 1994.  Analyzing data for more than 2,300 municipalities in the country, the paper tells us that young Mexicans at the time faced a very basic decision: to stay in school and continue studying or to drop out and look for a job (among the many being created in the export-oriented manufacturing sector), most of which did not require more than a high school education.  Atkin found that, on average, for every 25 new jobs created in the manufacturing sector, one student would drop out after 9th grade.  (The World Development Report 2008 on Agriculture for Development had raised the question about “missing” individuals in this age group, but in relation to migration.)

  • While trade brought positive effects including a higher demand for low skilled workers and an eventual increase in their wages – consistent with David Ricardo’s basic notion – Atkin concluded that in Mexico it had the socially undesirable effect of preventing, or slowing down, the accumulation of human capital. The reduction in human capital investment is a trade-off which can have negative effects on the economy as a whole.
  • Factors other than free trade might explain this effect. First, young students may drop out if the returns to schooling are not high enough to compensate for the additional investment.  Second, a lack of access to credit and insurance for relatively poorer households might make it impossible for aspiring students to finance their investment and obtain higher returns by continuing to tertiary education or to cope with shocks and avoid abandoning school.  Finally, the result could be driven by a lack of availability of information about actual returns to investment in education, which could lead to myopic decision-making.

The movement of capital toward locations with lower labor costs is an expected, and intended, result of an agreement such as NAFTA, pursuing higher export competitiveness at the regional level.  David Ricardo would have said that TVs and automobiles shall be made in Mexico, while software shall be made in Silicon Valley.  What completes the story, however, is that because of distortions like the ones mentioned above – low educational quality, under-developed credit markets, or weak information that skews decision-making – free trade might lead to socially undesirable consequences.  And it did in the case of Mexico, as Atkin convincingly shows in his paper.  It seems that when Ricardo gets to the tropics, the world gets more complex.

November 7, 2016

* Raymundo Miguel Campos Vázquez teaches at the Centro de Estudios Económicos at el Colegio de México, and is currently conducting research at the University of California, Berkeley.  Luis-Felipe López-Calva is Lead Economist and Co-Director of the World Development Report 2017 on Governance and the Law.  Nora Lustig is Professor of Latin American Economics at Tulane University.

Can Latin America Escape the Middle-Income Trap?

By Rick Doner and Ben Ross Schneider*

challenges logo (revised)2

Photo Credit: Inter-American Development Bank / CLALS / Edited 

Most literature on the “middle-income trap,” widely understood as a core obstacle to sustained development in Latin America, focuses solely on economic dynamics and understates the importance and challenges of political coalition-building.  That literature, largely generated by economists in academe and international financial institutions, argues convincingly that in Latin America, as well as Southeast Asia, once countries achieve some degree of success in economic development, they get stuck.  They are unable to compete with low-cost producers in traditional sectors – initial development success brings higher wages and other costs – while they also have failed to gain the capacity to compete with developed economies in frontier industries, where technological capabilities and productivity levels are far higher.  These analysts stress that Argentina, Brazil, Chile and Mexico – or for that matter Indonesia, Malaysia and Thailand – need to build on their achievements over the past half century in order to make the leap into the ranks of the world’s most prosperous nations.  They highlight the trap’s proximate origins in productivity slowdowns and recommend policy solutions that focus on improving human capital through investment in education and vocational training.  But identifying problems and potential solutions does not explain why leaders fail to adopt the solutions.  In other words, it’s not clear from existing writings why the trap is actually a trap.

The literature does not acknowledge that fundamental political obstacles, especially lack of effective demand and pressure for these solutions, are at the heart of the problem.  As is evident from the history of failed programs to improve education and R&D, political will to invest in such public goods is in short supply.  Politicians are rarely willing to forgo the short-term political benefits of satisfying entrenched interest groups for the long-term developmental benefits of creating institutions capable of helping the broader citizenry to upgrade its capacity for technology absorption.  A core reason for this lack of political will is the weakness of the societal constituencies that might demand the necessary policies and effective institutions.  Our research indicates that relations among key societal actors in middle-income countries are less amenable to building the consensus that economists advocate. In a recent article, we argue that the same conditions that facilitated or accompanied movement to middle-income status – such as foreign investment, low-skilled and low-paid work, inequality, and informality – have generated political cleavages that impede upgrading policies and the construction of institutions necessary to implement them.  This fragmentation is why the trap is a trap. Three lines of fragmentation are key:

  • Big business is divided between foreign and domestic firms. The former can undertake productivity-improving measures in-house and/or at their home headquarters, whereas local firms tend to focus in non-tradeable services and commodities whose demand for better training and R&D is lower than in manufacturing.
  • Labor is fractured between formal and large, growing informal sectors. Enjoying longer job tenure and on-the-job training for specific skills, formal workers have little interest in broader skills development.  Informal workers, on the other hand, constantly shift jobs and would prefer investments in vocational institutions offering general training.
  • These societies remain overall less equal and, as is now well known, inequality undermines the will and capacity to provide broad public goods such as quality universal education and support for technology development.

 Pro-growth coalitions of various types have been key to productivity improvements in now-high income East Asian countries, such as Korea and Taiwan.  The fact that these countries had stronger (and more autocratic) governments does not preclude developing or building on such coalitions in countries with messier political systems and weaker bureaucracies.  First, leaders can build on sectoral pockets of high productivity, such as aquaculture in Chile, wine in Argentina (and rubber in Malaysia).  Second, international and regional institutions can help supplement demands for skills by supporting programs that focus on technical and vocational institutions that actually meet and are linked to employers’ needs.  Third, organizations such as the ILO can promote business associations that represent the local firms for whom collective technical training and R&D are especially important.

August 22, 2016

* Rick Doner and Ben Ross Schneider teach political science at Emory University and MIT, respectively.

Elite Power and State Strength: A Timely Focus of Academic Studies

By Eric Hershberg

lapidim / Flickr / Creative Commons

lapidim / Flickr / Creative Commons

Insufficient state revenues are one fundamental reason that many Latin American governments fail to provide their citizens with adequate education, health care, public transportation, environmental protection and the physical and technological infrastructure needed to move their countries toward high-income country status.  As a whole, the region’s governments were able to spend only 14.8 and 15.25 percent of GDP in 2013 and 2014, according to the UN Economic Commission for Latin America and the Caribbean (ECLAC).  Rationalization of expenditures is a goal that can only be pursued in practice if there are adequate funds to begin with, and few Latin American states have that luxury.  (To be sure, even where states are well financed, as in Brazil and Argentina, governments typically fail to spend resources efficiently.)  Historically primitive and regressive tax systems have not evolved in a manner consistent with the development needs of the region.  During the second decade of the 21st century this remains a major obstacle for those who strive to build more effective and democratic states across Latin America.

Several ambitious new books in comparative political economy offer insightful and complementary analyses of the political conditions that perpetuate state weakness as well as the dynamics that offer hope of overcoming it.

  • Aaron Schneider’s 2012 Cambridge University Press volume on State-Building and Tax Regimes in Central America was an initial contribution to this emerging literature, linking that sub-region’s changing relationship to the world economy to aggressive efforts by different factions of the elite to fashion tax systems that reflect their narrow interests rather than a broader agenda of societal development.
  • A book that will be launched later this month in Guatemala City builds on this work by underscoring the importance of political contestation regarding the fiscal arena more broadly – encompassing state expenditure as well as revenue. That study, prepared under the auspices of CLALS and the Instituto Centroamericano de Estudios Fiscales (ICEFI), illustrates the ways in which Central American elites have exercised disproportionate influence to render states ineffective and regressive: they contribute little to state coffers and extract much from them, with consequences that diminish the life chances of a majority of that region’s population.
  • Tasha Fairfield’s conceptually ambitious and empirically rich comparative study of South American cases, to be published later this year by Cambridge University Press, is a landmark contribution to literature on elites and Latin American political economy. It consists of a thorough comparative analysis of Argentina, Bolivia and Chile, revealing that strong business associations tied closely to the state augment elite capacity to block progressive tax reforms.  Conversely, she finds that social movement influence over the state can undermine elite capacity to resist the sorts of taxation needed to redistribute wealth.
  • Evelyne Huber and John Stephens demonstrated previously, in their 2012 University of Chicago Press book on democracy and the left, that there is a clear link between the capabilities of the political left in democratic regimes and the prospects for more equitable social policies in Latin America. Such policies, as this recent wave of publications make clear, will only come about if societies develop systems of taxation compatible with the emergence of effective states.

Scholarship on Latin American economic development has until recently devoted little attention to political power imbalances as drivers of state weakness and the consequent failure of societies across the region to forge pathways toward developed-country levels of income and opportunity.  These studies highlight the centrality of elite collective organization and behavior, as well as the political strength of countervailing forces in society, for determining levels of taxation across the region.  Taken as a whole, this welcome wave of social science research restores Latin American political economy to its rightful place as a domain of scholarship that speaks to the concrete challenges facing the region today and in the future.  Policymakers throughout the hemisphere who speak of democracy and economic growth need the clear analysis to progress that scholarly works such as these provide.

February 5, 2015

Post-Snowden Challenges for U.S. Information and Communication Technology Firms

By Robert Albro

infocux Technologies / Flickr / CC BY

infocux Technologies / Flickr / CC BY

A year after Edward Snowden’s dramatic disclosures about NSA surveillance in Latin America, U.S. companies hoping to make inroads into the region’s fast-growing information and communication technology market are running into increasing obstacles.  If the political costs were immediately forthcoming, especially in Brazil, the fallout for Silicon Valley’s tech giants has taken longer to assess. The biggest problem is the lingering lack of trust resulting from the revelation that the U.S. companies enabled the NSA’s eavesdropping by giving it direct access to their servers.  A 2014 NTT Communications survey found that, in response to the Snowden affair, 88 percent of information and communication technology decision-makers around the world, including Latin America, have changed their buying behavior around large-scale data storage.  In Brazil, Argentina, Mexico and Chile, “data sovereignty” has become a major issue, in the form of new data privacy and disclosure laws now shaping the direction of the region’s developing market.

According to the Information Technology & Innovation Foundation, U.S. software firms are expected to lose $35 billion in sales overseas through 2016. Forrester Research, an independent technology and market research company, puts potential losses as high as $180 billion.  Latin American investors have been questioning the wisdom of using US data storage companies, and established U.S. dominance in the cloud computing sector has already taken a hit. Cisco’s last quarterly earnings, for example, were down 7 percent – 27 percent in Brazil – even as the cloud computing market in Latin America is predicted to grow at a 26 percent clip through 2018.  The emergence of Miami as a major global tech hub and gateway to Latin America’s fast-growing information technology markets is threatened by a proposed EU-Brazil trans-Atlantic cable to circumvent the city as a key node for Latin American access to the global internet.  As investor e-news service 4-Traders has reported, Chinese tech giants like Baidu, Alibaba and Tencent are establishing and expanding beachheads in Latin America, while China’s government pursues cooperative partnerships with Latin American counterparts to accelerate the development of the region’s information infrastructure.  Meanwhile, US-based data mining and analytics firms like Choicepoint Inc., currently major players in the region’s business intelligence and online security markets, have become the subject of investigation by skeptical governments and privacy advocates in the region.

The U.S.-centric view of the internet as “free and open,” a basic feature of the business model of U.S. tech firms, is being challenged in Latin America, where the regulatory balance between free expression and privacy is increasingly tilting toward the latter.  Despite the fact that the region’s online population is the world’s fastest growing and that it boasts a dynamic tech start-up movement, U.S. internet technology firms should expect more such challenges.  Regional trends in internet governance are largely anti-American, focused on displacing U.S. commercial dominance of the internet, and promoting open-source software as alternatives to U.S. products and services.  As Latin America builds out its cloud computing market, it is doing so in ways poised to compete and not collaborate with U.S. companies.  Privacy controls and requirements to conform to local laws already create new and costly disincentives for U.S. companies, which might opt to pull up stakes.  Meanwhile, business models for Latin American start-ups are not copycatting U.S. models as frequently as in the past.  If Latin American entrepreneurs have maintained close ties with U.S. centers of innovation and investors, they are now more focused on developing their own intellectual property, instead of technology transfer, to meet specific demands of their local and regional markets.  What just yesterday seemed wildly improbable – that U.S. tech giants might lose their edge in Latin America – has become a credible scenario.

October 23, 2014

The TecnoLatinas: A Start-Up Revolution

Foro de Ahorro de Energía Eléctrica, México | Photo credit: Alejandro Castro | Foter.com | CC BY-NC-SA

Foro de Ahorro de Energía Eléctrica, México | Photo credit: Alejandro Castro | Foter.com | CC BY-NC-SA

Latin America is experiencing a full-fledged start-up movement amid rapid growth of an innovation and information economy.  Over the last several years the region’s online population has grown faster than in any other part of the world – with approximately 255 million internet users as of last year.  Half of the top 10 markets worldwide, ranked by time spent on Facebook and other social media, are in Latin America.  Clusters of innovation start-ups, such as those around Monterrey, Mexico, are springing up with astonishing speed.  In 2012 Mexico was among the largest exporters of information technology services in the world.  Google is currently building a data center in Chile, while Amazon Web Services opened a data center in Sao Paolo last December.  But these are not information-era maquiladoras. Instead, Latin American entrepreneurs are combining the availability of open-source innovation tools and the emergence of cloud computing with effective bridge building in Silicon Valley to bring collaboration, expertise, and capital to their home markets.

  • Latin America offers multiple advantages for tech start-ups: a low cost of development, an educated and growing talent pool with the necessary technical and entrepreneurial skills, and increasingly available and affordable broadband and internet access.
  • In particular, Mexico, Chile, Brazil, Argentina, and Colombia, along with metropolitan areas across the region, are incentivizing the development of a competitive start-up ecosystem – an advantage attracting a growing number of “angel investors.”
  • Start-Up Chile, a national program begun in 2010 with 22 start-ups from 14 countries, offers seed capital, grants, tax protection, space, mentoring, and networking to “accelerate” promising ventures.  Its most recent competition drew 1421 applicants from 60 countries, including from Singapore, London, and San Francisco.

The lack of tech innovation and incentives for start-ups has been an Achilles’ heel of Latin American economies for decades.  If the start-up trend continues, the region could make significant, lasting progress toward narrowing the sizable gap between itself and the most dynamic developing countries, mostly in Asia.  Latin America’s start-up movement is both top-down and bottom-up, with a tech-savvy generation of entrepreneurs not afraid to take risks and to leverage government support, as part of a collaborative business model built on multiple ties to Silicon Valley.  A core challenge will be whether these initiatives are scalable, and whether governments can move away from stale policy debates rooted in antiquated paradigms to move their economies toward the frontiers of innovation of the information age.  Old elites with a lock on traditional industries are poorly positioned to obstruct the phenomenon, but if these emerging innovation hubs are to succeed, at some point they are likely to confront  the entrenched and oligopolistic business practices still prevalent in the region’s energy, telecom, and other sectors.