The following interview with Terry Hallman, Director of the London-based People-Centered Economic Development Ltd., examines the various factors involved in improving small-business environment in post-Soviet Crimea. Focusing on the case of Crimean Tatars, he discusses the availability of micro finance, assistance from international organizations, direct foreign investment and aid from the diaspora. He explains why his proposed People-Centered Economic Development program, also referred to as social enterprise, would work better for repatriates who lack the necessary material collateral to start their own business. The interview reveals why the Crimean Tatars, who spent half a century in exile, mostly in Uzbekistan where they contibuted significantly to the development of local economy, are having a difficult time in lifting themselves out of poverty in their homeland. The interview was conducted by Inci Bowman, International Committee for Crimea, Washington, DC.
Economic Development in Crimea and the Crimean Tatars:
An Interview with Terry Hallman
1. You have been involved in economic development in Crimea for a number of years now. Why did you decide to go to Crimea and how long did you live there?
In 1999 I set out to improve localized economic conditions in the former Soviet Union. As a US citizen, I was able to leverage significant funding from US international aid funds. First effort was in Tomsk oblast in Siberia. After sourcing a large-scale USAID regional initiative to Tomsk, I followed up with a review of Tomsk's business climate just prior to the initiative getting underway. That set a baseline reference point. After that, my work was finished in Tomsk. So I went with Ukraine as the next location.
I was impressed with Ukraine's willingness to remove their nuclear force early in their new independence. Part of why Tomsk was approved for the regional initiative was their status as a major research and development center for nuclear weapons during the Cold War. It was a swords-to-plowshares sort of thing. Ukraine, by contrast, disarmed quickly and consequently got less transitional development assistance. To me, it seemed extremely unfair that Ukraine opted for peace and got little assistance, while Russia quietly threatened that its nuclear arsenal might leak out unless the US paid billions to prevent it.
Crimea is an autonomous republic in Ukraine, geographically isolated, positioned strategically for a potentially robust economy, with one of the highest per capita poverty rates in Ukraine. Duplicating the Tomsk program in Crimea, particularly Tomsk's very successful microcredit bank, would be a good test bed for community development and poverty relief. Because it's a small community, a little more than 2 million people on the entire peninsula, positive community-wide outcomes could be seen much more quickly than in larger, big-city locales such as Kyiv. So Crimea became the target location, with its capital Simferopol being the nerve center.
So far, I've spent one year researching Crimea and one year living in Crimea to try and implement a new project there. I lived there in 2002-2003. I remain focused on getting the Crimea project I proposed implemented.
2. What types of micro finance are available in Crimea for individuals to start their own small business?
I found only two possibilities in Crimea. One is derived from UN's Crimea Integration and Development Program. The other is a standard EBRD (European Bank for Reconstruction and Development) program administered through commercial banks.
Both options require material collateral, which is by definition non-existent for anyone in poverty. Poverty remained a trap, while the whole point of microcredit programs is to relieve poverty first and foremost. I proposed the same kind of microcredit bank set up in Tomsk. It didn't require any material collateral whatsoever. Several thousand people have taken loans to start small businesses in Tomsk, 99% of businesses survived their first year, 98% of loans are paid back on time.
3. Why do you think that UNDP's Crimea Integration and Development Program (CIDP) is not very suitable for the deported people who are repatriating to Crimea?
Microenterprise development is essential in Crimea, and was a core objective in the CIDP plan that UN published. The microenterprise component was funded with about half a million dollars US. I went through several months of research to determine how much might really be needed. It turned out to be at least US$40 million to have any reasonable hope of making a difference for several hundred thousand people in or near poverty, with the Crimean Tatar community being quite a disproportionately large percentage of those in poverty. CIDP had apparently never done those calculations, and was proposing further study to determine if there was greater need for microcredit offerings in Crimea. I was finished with the question and on to viable solutions and amounts, while they were proposing to spend more time and money to study the question. And I and my small staff were working with a budget a small fraction of the size of CIDP's - which may be one reason why we were moving much faster than UN's people. We were smaller, leaner, more focused, and with far less bureaucracy.
The conclusions were irrefutable. Crimea desperately needed a serious microcredit program requiring no material collateral to participate, and, the program needed tens of millions of dollars. I concluded that CIDP's primary function was to monitor potential conflict, not to alleviate it. That is my opinion only, based on what I learned and what I saw. To me, one can't expect to leave hundreds of thousands of people suffering in poverty and at the same time avoid conflict. It's not possible, but that's how CIDP was approaching the situation.
4. Has the CIDP worked better for those who were already living in Crimea before the former deportees began returning?
Honestly, I don't know. I wasn't in Crimea when former deportees began to return. What I do know is that a disproportionately large percentage of Crimea's poverty population are former deportees, primarily Crimean Tatars.
However, based on the fact that CIDP's microcredit program required material collateral that returning deportees were not likely to have, it stands to reason that they were least likely to be able to benefit from CIDP's program. Those most likely to benefit were non-deportees who were more likely to have at least some material assets by which to take advantage of CIDP's program. On that basis, I would have to say it that the CIDP program was slanted heavily in favor of non-deportees - deportees being mostly Crimean Tatars.
5. Please describe briefly your proposed program, P-CED.
P-CED is People-Centered Economic Development. It began informally following a paper I wrote for the Committee to Reelect the President (US) in 1996. P-CED is now officially instituted in Britain as a company limited by guarantee for the purpose of socially beneficial enterprise.
Most significantly, since the paper was written in 1996, the economic paradigm proposed in P-CED has come to be included in major universities including Yale, Harvard, Stanford, Duke, and Oxford business schools, in London School of Economics, and since 2002 as a formal part of economic policy of the United Kingdom of Great Britain. These are under the shortened label of 'social enterprise.' P-CED's paradigm has come a long way in only eight years.
6. Why do you think that P-CED will work better than the more conventional
Essentially, P-CED challenges conventional capitalism as an insufficient economic paradigm, as evidenced by billions of people in the world living in poverty in capitalist countries and otherwise. Under the conventional scheme, capitalism - enterprise for profit - has certainly transformed much of the world and created a new breed of people in capitalist societies, the middle class. That is a good thing. But, capitalism seems to have developed as far as it can to produce this new class of fairly comfortable people between rich and poor, at least in the West where it has flourished for quite some time.
The problem is that profit and money still tend to accumulate in the hands of comparatively few people. Money, symbolically representing wealth and ownership of material assets, is not an infinite resource. When it accumulates in enormous quantities in the hands of a few people, that means other people are going to be denied. If everyone in the world has enough to live a decent life and not in poverty, then there is no great problem with some people having far more than they need. But, that's not the case, and there are no rules in the previous capitalist system to fix that. Profit and numbers have no conscience, and anything done in their name has been accepted as an unavoidable aspect of capitalism.
I disagree. In 1996, I simply set up a hypothetical 'what if' proposition. What if some businesses decided to change their practices, or institute themselves as new enterprises completely, for the sole purpose of generating massive profits as usual and then using those profits to help people who have little or nothing? That's the way to correct and improve classic capitalism for the broadest benefit worldwide. It's now called social capitalism, or, social enterprise. I still call it the same as I did in 1996: people-centered economic development, and that remains the name of my organization and my web site.
At first, the idea seemed heresy - but not for long, simply because it made sense and it didn't step on the toes of any existing enterprises that were in business to enrich relatively few people. None of them were asked to change anything, but it left open the possibility of more forward-thinking people to step in and do business differently. Even now, I am astonished that the idea struck such a deep and sympathetic chord in so many people so quickly - especially in our top business schools, where one might have thought that they were all in it for the money, for personal wealth, with little regard to social benefit or the poorest of the poor.
More can be found on this question at the Web site, www.p-ced.com/page2.html.
7. Can you describe a set of optimal conditions or a case that would be the most suitable for implementing P-CED? (That is, under what conditions P-CED would work best?)
The success of P-CED in any given community is directly proportional to business environment and level of corruption at government level. In many parts of the world, including unfortunately Ukraine and Crimea, the level of corruption is so high that it is extremely difficult to do business. Bribery and official payoffs are common, taxation is high for legal businesses without favorable connections, paperwork is confusing, costly, and time-consuming, and so on. At minimum, there must be established and honest rule of law - open civil society, in George Soros' terms - and honest judiciary to sort out business disputes fairly under written and consistently interpreted contracts without regard to who is involved. Contract law is the bedrock of all of this. In corrupt cultures contract law is more about who you know and how much money one can pay to a judge for 'favorable' rulings.
In fact, the primary reason that the project I proposed for Crimea has not yet been implemented there is due only to official, government corruption. Nothing more.
8. Do you see other obstacles to the implementation of P-CED in Crimea?
Again I would refer to conditions explained above. If a business is going to be robbed or otherwise compromised by corruption and corrupt practices, it's profits will be less or possibly even non-existent. The P-CED model is not a charity sort of operation. It is business. What we choose to do with profits is entirely up to us, and we choose before anything else happens to set most of our profits aside to assist poor people. In fact, our corporate charter requires us by law - UK law, where rule of law is very well established - to use our profits only for social benefit. We cannot do anything else with it. To the extent that it is difficult or impossible to engage honestly and predictably in business activities in any given community and make a profit, we are reduced in what we can do with any profits that might be made. I do not take kindly to, and do not accept, paying bribes and gifts to government officials or to anyone else in order to do business.
9. In the US, for example, there is assistance in terms of training or informational kits designed for aspiring entrepreneurs on how to run a small business. Are there similar training programs in Crimea?
UNDP's program has some very basic business training. The problem there is that even with that training, most people in poverty haven't access to funds to get started, in which case there's little point in the training itself.
10. Even in the US, where people have lived in a small business environment all or most of their lives, a high percentage of new small businesses fail within the first year or so. Do you have any comparative figures that may reveal how small business attempts are succeeding in post-soviet communities like Crimea?
As I mentioned above in the Tomsk experiment, business survival rate is high and loan repayment rate is also very high.
But, I should point out here that new small businesses in the US operate under very different terms and conditions compared to the Tomsk project and what I proposed in Crimea. One key factor is how the money is borrowed to begin with. The Tomsk project and proposed Crimea project require something called 'loan circles.' These are groups of about 5-7 people who all get their start-up loans together, after going through a training program to develop business plans, do market research, and so on. If ANY one person in the loan circle fails to repay his or her loan, no one in that circle can proceed to critically important second-round financing until that loan is paid. That in turn tends to make everyone very, very careful about what they're getting into, because no one wants to have to repay someone else's loan. Before anyone gets money, by the time the training is finished and business plans are done, everyone in the loan circle has seriously considered not only their own plan but everyone else's as well. This way, it's far more likely that a business will succeed, because it's been so thoroughly screened and examined by other people who have one and only one possible means of access to loans to improve their own lives. Everyone has strong incentive from the start to be sure that all others in their loan circle succeeds. And if one doesn't succeed, everyone else much cover the loan. Thus the high business survival rate and high loan-repayment rate.
In US businesses, most people go it alone, quite a different scenario. Anyone can dump money into stupid, hopeless business plans, or even go into business with no plan and not even any market research. That's why so many businesses fail in the US. In that sense, comparing typical US small business efforts with the microcredit model I'm working with is comparing apples and oranges. Similar, but really quite different.
11. You have come in contact with many Crimean Tatars who are trying to reestablish their lives in their homeland. How would you characterize their attitude(s) toward small business?
Two words: ambitious and naive. Many want to do similar to what so many US small businesses do, just put some money with an idea and figure it will make profit. I see this as a minor problem that can be fixed with basic training for business planning and market research, along with funds to implement solid plans once they're finished. On that basis, based on dozens of Crimean Tatars I've talked to about many different kinds of businesses, I think the Crimean Tatar community has enormous potential to channel ambition and innate good business sense to transform the economic base of their community.
The harder part, of course, is getting through the negative overall business environment imposed by the present government. It can be done, but it will take strong, focused effort and unity of purpose. I don't yet see the leadership for that at government level in Crimea, Crimean Tatar government officials notwithstanding. No one at government level seems to have any real concern about corruption, aside from trying to hide it from the outside world in order to pay lip service to the problem and try to lure foreign direct investment (FDI.) To date, FDI in Crimea and all of Ukraine is extremely low, and that's the main reason. And it remains the primary barrier, unfair though it may be to citizens in the community, to the development and recovery of the Crimean community - Tatars and otherwise.
12. Do you think that FDI by the Crimean Tatar diaspora may offer the best hope for the economic development of their deported kin?
The Crimean Tatar diaspora might offer some hope, but I don't think that there is one single best hope. At minimum, the diaspora might provide investment capital via informal arrangements, in that the Crimean government is hampering more formal arrangements. This is really a complex, sensitive consideration, but if dealt with effectively and honestly it will get to the core of Crimean development, especially for the Tatar community.
First, I understand that the diaspora have tried in the past to invest in their Crimean Tatar brethren, to improve their social and economic conditions. Some instances appear to have been successful, based on the homes I'm seeing built or purchased by some Crimean Tatars. In other cases, I understand that investment money was lost in failed business projects. My distinct impression about all of it was great potential, as mentioned above, but also a strong need for organized, disciplined lending and business preparation programs. To date, it seems to have been hit and miss, and there are bound to have been some successes. That's just the law of probability coming into play. How much investment and money have been lost to achieve the successes, I don't know. But I get the sense that the diaspora have grown more reluctant to invest - evidenced by so many Crimean Tatars tracking me down to ask about even very small investment. That tells me that diaspora investment has dried up or is quite limited, and gets back to the thesis of my proposal: that Crimea is tens of millions of dollars short of what is needed for microcredit for those people in or near poverty. There's no question that's the case, regardless of why it's the case.
We also have to consider matters of integrity and honesty. In fact, Tatar leadership in Crimean Parliament proved to be the very first breach of integrity that to date still has the project I proposed, stalled - on my recommendation. The project will have to remain paused until certain matters are settled, and that has to do with nothing more than sticking to agreements and commitments - same as in any honorable friendship.
Morever, I observed quite a few Crimean Tatars prospering quite handsomely, with hardly a second thought about other Crimean Tatars or anyone else. These guys could have easily invested to help their own neighbors and brethren, and were in the best possible position to do it, rather than leaving it entirely to foreign aid or diaspora to step in and do it.
With all due respect, I'd have to say that based on what I saw, the lack of unity and mutual commitment among the Crimean Tater community was and is the primary problem hindering broad-based development - economic, social, cultural, political and civil. Thus the need for outside intervention, encouragement, business training, and so on, just as I've proposed. Without that, I think the diaspora is likely to be fighting a noble but losing battle.
I don't pretend to imagine that I can honestly understand the horrors and terrors faced and endured by the Crimean Tatar community. Simply reading the history since Stalin is mind-boggling and heartbreaking. It comes as no surprise to me that Crimean Tatars are now gasping for air, and when a few surface and can breathe again, they're not immediately thinking about their neighbors. I understand that much. But I also would gently but persistently remind everyone that many of their brethren and neighbors are still drowning, and desperately need help or they will die. Plain and simple. I am still willing to try and help, the US side may still be willing to try and help if I give the green light, but the essential decisions about right and wrong, to get this done properly, on principle, with integrity - or not - still remain up to the Crimean Tatar community and no one else. No one is preventing the CT community from behaving with honor and integrity, and those with whom I've dealt in Crimea know exactly what I'm talking about. There is a limit to how much outside friends can do, no matter how much we care or how much we want to try and help.
Living in a corrupt post-Soviet culture in Crimea has, I expect, made it difficult for Tatars to behave otherwise. People tend to do what everyone else around them is doing. In that case, where does corruption end and recovery begin? It has to start with inner decisions on the part of individuals, friends and neighbors to change things, to do better, to do simple things like making promises and commitments, and keeping them.
In that sense, I have to conclude that the best hope for development of the Crimean Tatar community, economic and otherwise, is really up to Crimean Tatars' integrity, as individuals, as a group, and in representatives who have finally made their way to official government posts. Without that, there is probably very little that the diaspora, I, or anyone else can do to improve matters significantly.
© 2004 Terry Hallman
Posted: 27 October 2004
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