What Has Changed in Cuba?

by Roy C. Smith  

Mr. Obama’s visit to Havana has refreshed the enthusiasm for a New Cuba that was created when he and Raul Castro announced their intentions to “normalize” relations fifteen months ago.  But while enthusiasm is high, progress in improving economic relations has been slow. The outlook is for it to remain slow.

Since the announcement in December 2014, embassies have reopened, travel restrictions administered by the US Treasury Dept. have been relaxed, and some limited concessions to allow financial transactions have been made. Cuban-Americans have travelled back and forth more freely with many bringing money for investments in new licensed private enterprises that are burgeoning.

However, Congress has done nothing to address the several US laws passed over past decades that prevent US companies from doing business or financial transactions in Cuba (called the “Embargo” by us, and the “Blocade” by the Cubans), without which the major US economic opportunities of a New Cuba will be remain sterile.  Though there are loopholes in these laws, without their repeal the President’s hands are tied and there is little more he can do to speed things up while he remains in office.

However, the Cubans have done very little to open their economy for foreign investment, trade and development of their industrial sectors and public infrastructure since the announcement.  Non US enterprises seeking to engage with Cuba, but unaffected by the Embargo, have been frustrated by Cuba’s slow progress in opening up.

It is true that since Raul Castro became head of state in 2008, a number of economic policy changes have occurred – mainly as a result of laying off about 20% of the work force from government jobs to encourage them to become “self-employed” entrepreneurs.  This was a necessary step to take as Cuba’s failed economy, propped up for years by the USSR and then by Venezuela, slid further towards bankruptcy. Even so, the government still employs about two-thirds of all workers.

Raul has said that economic reforms are necessary to preserve “Cuban Socialism,” the legacy that more than 50 years of Castro rule has left behind.  Without the recognized economic threats facing the country, it seems unlikely that Castro would have agreed to the announcement.

Cuban Socialism (Communism is rarely mentioned) has had some achievements – the population is literate, has access to decent free health care, and enjoys a very high degree of income equality, though only to the extent that everyone is equally poor.  But the economy is very sick. It had about a 2% growth rate for the five years trough 2014, little to no foreign direct investment, and has accumulated government debts equal to 125% of GDP. Cuba must import 80% of its food (20% of which comes from the US under a human needs exception to the Embargo) even though Cuba has vast amounts of uncultivated agricultural land in a tropical climate. It has little to export but sugar, cigars and rented-out Cuban doctors.

Despite all this, Cuba has experienced very little social unrest. Civil authorities are powerful and strict, but so were they in the Ukraine, Egypt, and in the former Eastern European states before these regimes fell to public protest.

Indeed, Raul may feel that the announcement already has been a big success. It has been popular with the people, and attracted lots of attention to the prospects of a New Cuba. Without having to give much of anything, Cuba’s foreign exchange inflows from tourism has greatly increased, and GDP growth jumped to 4% in 2015.

Even so, though the announcement increased applications for foreign direct investment, these have largely been rejected or stalled indefinitely. Of 200 such applications since 2014, only about 35 have been approved, and those were have faced draconian obstacles from the Cuban bureaucracy to being implemented.

Raul’s ideas about economic reform seem only to go as far as the retail sector – more small shops and street markets, but not large corporate engagement in the agricultural, manufacturing or financial sectors through which Cuban economic sovereignty, pride and “values” might be at risk.  Going that far but no farther, however, will make little difference to Cuba’s considerable economic problems.

But, Raul says he will retire in 2018, at 86, and turn the government over to someone else.  Within a few years, however, he and Fidel will join their revolutionary colleagues in Cuban Socialist heaven, and a new team will have to decide how far to go.  

In the meantime, other things are changing, due to Raul’s earlier reforms and the announcement. One is the end of fifty-years of anti-Americanism, and rising expectations for improvement in standards of living and economic opportunity because of the possibilities of interacting with the US.

Another, however, is a rapidly growing differential between those who are making money from all the tourist trade (restaurants, real estate, arts and entertainment) or otherwise from wheeling and dealing or corruption. Already the sort of envy and public concerns about the power of the newly rich has surfaced.

And, Cubans are getting more information about how others live as compared to themselves. As the Internet becomes more available this will spread further and faster.

Cuban-Americans are changing their attitudes. Recent surveys show that most of the Miami Cuban population favors normalization, and many see opportunities in bringing their capital and well developed business skills back home. 

So maybe the most likely near term future for Cuba is continuing rigidity and hostility towards large corporations that will be eroded by expectation sof normalization, drip by drip, until the Castros are gone.  By then, the Embargo (which has little continued support in the US) most likely will be gone too, and a greater flow of capitalist economic activity will result and this, as it did in Eastern Europe, will start to carry away the last of the rigidities.

The Castros greatest fear, I presume, is that after them, Cuba will revert to what it was in Batista’s time. A gold-rush of unrestrained capitalism might just bring that about, but it doesn’t have to.  The best thing for the Cubans to do over the next few years – which some of them are –is to spend time planning for a modern political and economic framework that can survive the transition from socialism to a markets-driven form of mixed economy. There are a number of good examples from the recent past – Poland, Hungary, the Baltic countries, Spain after Franco, and more locally, Chile and Costa Rica.