By Richard E. Feinberg
A presentation on November 26, Florida International University
Cuban Research Institute
School of International & Public Affairs
Florida International University
By Richard E. Feinberg
A presentation on November 26, Florida International University
Cuban Research Institute
School of International & Public Affairs
Florida International University
December 17, 2018
Richard Feinberg, Non-Resident Senior Fellow, Brookings Institution.
Original Article: Brookings Institution, Letter from Havana
As the Castro brothers fade into history, green shoots of civil society are visibly emerging in Cuba. Make no mistake: The Cuban Communist Party retains its authoritarian hegemony. Nevertheless, and largely unnoticed in the U.S. media, various interest groups are flexing their youthful muscles—and with some remarkable albeit very partial policy successes.
These unanticipated stirrings of civil society present a serious challenge to the cautious new president, Miguel Díaz-Canel, who assumed office this April. In recent weeks, three significant interest groups have pushed back against newly restrictive government regulations issued in the usual way: by government fiat, with few if any opportunities for public input. The new regulations aim to reduce profit margins of independent entrepreneurs, driving some out of business altogether, and to impose new censorship rules on cultural expression.
In response to these threats, the emerging private sector—some 600,000 employers and workers, over 10 percent of the workforce by official count—pressed the authorities to retract proposed limitations on individual capital accumulation. To everyone’s great surprise, the authorities suddenly offered significant concessions. Entrepreneurs will be able to own more than one business, the government agreed, and restaurant and bar owners will no longer face occupancy ceilings of 50 customers each.
Nevertheless, other restrictive anti-business clauses remain on the books. Apprehensive entrepreneurs are waiting to see whether government bureaucrats and inspectors apply their new discretionary powers with a light or heavy hand.
For their part, Cuba’s large army of cultural workers, in music, film, theater, and the visual arts, vigorously pushed back against draft regulations requiring prior approval of public performances and threatening censorship of “unpatriotic” content. At the last minute, again the government stepped back, agreeing to consult with representatives of the arts community prior to implementation.
In yet another challenge to government authority, Havana taxi owners and drivers staged an informal strike against a complex set of new rules. The government is seeking to impose burdensome reporting of all revenues and expenditures, higher effective taxes, more rigorous safety requirements for certain vehicles, and on some routes a lower ceiling on taxi fares. In protest and despair, many taxi drivers have turned in their licenses. Moreover, public buses are running less frequently, apparently due to scarcities of gasoline and spare parts. The result: a daily transportation headache for Havana’s work force.
The government has promised to import more buses. Meanwhile, the authorities seem incapable of foreseeing the practical outcomes on daily life of bureaucratic innovations. Intent upon raising tax revenues and imposing order over Havana’s unruly transportation grid, the authorities failed to anticipate the market-driven reactions of the regulated taxi owners and drivers.
In all three cases—the disgruntled business owners, the alarmed artistic community, and the frustrated taxi drivers—the civil protests took similar forms. Brave citizens signed carefully crafted letters, respectful but firm, addressed to ministers and President Díaz-Canel. (Some signatories reported subsequent government harassment, including menacing phone calls.) Spreading social media (on-island and offshore) buzzed with sharp criticisms of government policies. In a few notable cases, intrepid protesters gathered in public spaces, provoking brief police arrests. One prominent state TV program, “Mesa Redonda” (Roundtable), gave voice to some of the popular complaints, politely challenging official guests.
To access social media, most Cubans have had to locate scattered Wi-Fi hotspots. But this month the government has enabled 3G technology throughout the island. This belated entrance into the world of modern telephony may be another game changer. Cuban citizens who sport cell phones will now be empowered to upload immediately content to Facebook, WhatsApp, and Twitter.
These struggles over economic and cultural freedoms between the authorities and civil society come in the midst of a major re-write of the nation’s constitution. The Communist Party submitted a draft document for public comment in innumerable meetings convened throughout the island. Initial skepticism has given way to anticipation that the authorities may prove responsive to citizen suggestions and significantly amend the final draft, even as one-party rule and socialist planning will persist. A popular referendum on the new constitution is scheduled for late February.
Overall, the heated conversations over constitutional reform and the government’s responsiveness to civil society voices, however belated and partial, have raised hopes: Maybe post-Castro Cuba will gradually evolve toward a more responsive governance. Emboldened by cracks in government stone-walling, Cubans may seek to widen the space for civil society expression.
At the same time, while many welcome the young administration’s relative responsiveness to independent voices, some party stalwarts and ordinary Cubans accustomed to authoritarian rulers see only weakness and improvisation. Backsliding is certainly a feasible scenario. Already some anti-government skeptics see only one half-step forward, two steps backward.
Nevertheless, some Cubans harbor this aspiration: That President Miguel Díaz-Canel, who so far has championed continuity over change, will eventually gain the authority and confidence to tackle the other elephant in the room—the long-stagnant economy. For only comprehensive economic reforms could lift the economy from its deepening recession, the root cause of the government’s anxieties and the popular discontent.
Cuba’s Stalled Revolution: Can New Leadership Unfreeze Cuban Politics After the Castros?
By Richard E. Feinberg and Ted Piccone
Foreign Affairs, September 2018
For Cuba, 2018 marks the end of an era. For the first time in almost six decades, the country’s president is no longer a Castro—neither the late guerilla fighter, revolutionary caudillo, and international icon Fidel, nor his lower-profile brother Raúl, who succeeded Fidel as president in 2008. This April, the mantle was instead passed to former vice-president Miguel Díaz-Canel, a younger post-revolutionary politician who raised paradoxical hopes of both continuity and change.
Yet for those who imagined that the post-Castro era would quickly bring major reforms, Díaz-Canel’s tenure so far has been sorely disappointing. Five months in, progress in the country has come either slowly or not at all. The island’s economy continues to decline, just as it has since the collapse of the Soviet Union nearly 30 years ago, and this despite the carefully calibrated reforms Raul Castro instituted in 2011. Investment rates are alarmingly low, foreign exchange scarce, and shortages of consumer goods widespread. Many discontented Cubans, especially educated youth, continue to emigrate in search of higher living standards and better career choices, depleting the current and future workforce.
Reformers and hardliners continue to do battle within the Cuban Communist Party. A new draft constitution promises progress, notably on gender and gay rights, but it also reaffirms the hegemony of the Cuban Communist Party and institutionalizes outdated economic thinking. Recent government initiatives further restrict individual freedoms in business, the arts, and media. The Trump administration, meanwhile, has largely returned to the pre-Obama rhetoric of regime change and posture of hostility and isolation.
Díaz-Canel has inherited an economy in a state of transition. During his decade-long rule, Raúl Castro broke through once-forbidding ideological barriers on economic policy. He actively inserted Cuba into global commerce, opened the island to foreign investment, and promoted a burgeoning domestic private sector. Raúl also relaxed barriers to travel abroad, allowed private markets for real estate and automobiles, and gradually expanded access to mobile technology and social media. The private sector took off. By 2017, it provided jobs and income to as many as four out of ten Cubans of working age. Tourist traffic rose more than 80 percent during Raul’s tenure. Even though U.S. travelers became less common on the streets of Havana over the course of 2017, as the Obama bump gave way to a Trump dip, tourism is once again the brightest feature of the Cuban economy.
The government has not laid out a new economic policy agenda, much less a strategic vision for long-term development.
And yet, the Cuban economy has performed poorly overall. During the decade of Raúl Castro’s rule, Cuba’s GDP grew an average 2.4 percent per year—at least according to government statistics. At times, GDP growth stagnated at below two percent per year. Five percent would be the minimum necessary for Cuba’s growth to be considered sustainable.
The government has failed to create a truly receptive business climate, and outside the flourishing tourism sector, foreign investors remain skeptical. The precipitous drop in Cuba’s merchandise exports bodes particularly ill, signaling that the country’s state-owned enterprises are failing to compete in global markets. In 2016, these exports shrunk to less than $3 billion, their lowest level in more than ten years. In response, authorities slashed imports, from a peak of nearly $15 billion in 2013 to $10.4 billion in 2016. The loss of these imports has left Cuban stores empty of the most basic consumer items, from beer and paper products to spare parts for household appliances. All the while, restrictions on bringing capital goods into the country continue to exacerbate the already serious lack of factory machinery and farm equipment.
Change is unlikely to materialize soon. The Díaz-Canel administration, occupied with managing austerity policies, has not yet laid out a new economic policy agenda, much less a strategic vision for long-term development. In July, the government issued tough new regulations for the island’s emerging private enterprises. Aimed at preventing private companies and citizens from accumulating wealth—and nipping in the bud any potential challenge to the state’s monopoly on economic and political power—the new rules show that Cuban leaders are still extremely wary of, if not outright hostile to, private enterprise.
OLD RUM IN NEW BOTTLES?
Cuban politics are similarly resistant to change. Raúl Castro is still very present—as head of the Cuban Communist Party until 2021 and as leader of the government’s current efforts to revise the constitution. Every step of the relatively smooth succession process seemed designed to signal continuity with the measured pace of change that had marked Raúl Castro’s tenure, encapsulated by his maxim “sin prisa, pero sin pausa”—without haste, but without pause. It’s no wonder, then, that Díaz-Canel told the national assembly upon donning the presidential sash that “comrade Raúl will head the decisions for the present and future of the nation.”
Díaz-Canel has a lighter touch and is less camera-shy than his predecessor, but when it comes to policymaking, he has so far failed to deliver change. He retains a largely inherited team of senior bureaucrats, and his public remarks have been less about programmatic innovation than about maintaining party unity. Granted, this could be a temporary posture meant to reassure the old party apparatchiks while he builds a more autonomous governing class of technocrats. By this interpretation, the 58-year old is cautiously cultivating a power base of his own to set forward in the later portion of his five-year term, especially after Raúl steps down as party chief in 2021.
On the institutional side, recent changes are a mixed bag. The National Assembly chosen in March includes a mix of old and new faces. More than half of the deputies are new, 53 percent are women, and 41 percent are black or of mixed race. Likewise, the council of state, which is headed by Díaz-Canel and effectively governs the country year-round, has three new vice presidents between the ages of 48 and 52—young leadership for a country long ruled by former revolutionaries in their seventies and older. New rules mandate that deputies serve no more than two five-year terms and enter office at an age no older than 60. Taken together, the changes suggest that party leaders understand the importance of making the benefits of public office accessible to younger cadres and of diversifying the ranks of the governing elite.
A proposed constitutional reform, meanwhile, promises a modest but potentially meaningful political opening. The draft constitution divides power between a president serving as head of state and a prime minister who manages the government’s day-to-day functions. It devolves more autonomy over local affairs to provincial authorities, even though governors would still be appointed by the president. Other provisions suggest greater separation between state and party, even though the overlap in personnel would probably remain high. A new national electoral council would improve the image of the country’s elections, if not their actual integrity. Citizens who gather at least 10,000 signatures can propose legislation. Those who gather 50,000 or more will be able to initiate constitutional revisions.
Even if reformers manage to wedge open some cracks in the state’s monolithic apparatus, Cuba will remain a strictly one-party system.
The draft constitution explicitly grants important civil and due process rights, including habeas corpus, the presumption of innocence, the right to seek restitution for violations committed by state agents, non-discrimination regardless of sexual orientation, and religious liberty. But it makes such fundamental rights conditional upon “collective security, general well-being, respect for public order, the Constitution and laws.” The draft document is rife with such contradictory loopholes that ultimately confirm the state’s supreme power to override fundamental human rights.
Make no mistake: even if reformers manage to wedge open some cracks in the state’s monolithic apparatus, Cuba will remain a strictly one-party system. The draft constitution re-inscribes the Cuban Communist Party as the “superior leading force of [Cuban] society and the state.” Cuban socialism and its political and social system remain “irrevocable.” In the economy, the draft charter complements state planning and ownership with some space for domestic and foreign private capital, but these changes stop well short of formally embracing a more genuinely balanced, hybrid regime, such as the market socialist models of China or Vietnam.
At the moment, the Communist Party is holding forums to debate the draft constitution across the island. These forums are generating discussions among interested elites, but they are expected to yield only modest fixes to the issues outlined above. Once ratified by the legislature and by public referendum—likely easy hurdles—the new constitution will mainly cement the Castro legacy in constitutional, legal and de facto terms, while also bestowing some political legitimacy upon the post-revolutionary cohort Díaz-Canel now leads. For the many Cubans yearning for higher wages and more consumer goods, there is little relief in sight.
Havana’s economic and political inertia has left Washington with little room to elicit more progressive reforms. Either the United States can accept Cuba’s reality and find ways of getting along in order to protect its national interests, or it can maintain and perhaps even step up its efforts to pursue regime change through punitive measures. The latter policy, in place for nearly six decades, has demonstrably failed, but it is unfortunately entrenched in U.S. law, thanks to Congress’ codification of the U.S. economic embargo against Cuba in 1996. U.S. President Donald Trump, who has rolled back many of the openings granted by President Obama, has important pro-embargo constituencies in Florida and is unlikely to shift direction any time soon. In effect, the Miami hardliners have won back the initiative from the diverse anti-embargo constituencies of the Obama era. This is probably fine and well with hardliners in Cuba, as it gives them some breathing space to seek better relations with Europe, Russia and China without Washington in the picture.
The new administration will likely split the country along generational lines.
The United States and Cuba still cooperate in some areas, but such exchanges face significant challenges. U.S. tourism to the island, especially cruise ship travel, is showing signs of recovery, after a sharp decrease in 2017 and in the first half of 2018. Bilateral cooperation in the areas of law enforcement, migration, and environmental affairs continues quietly, but depleted staffing at both U.S. and Cuban embassies, in part due to a wave of mysterious health concerns reported by U.S. diplomats in Cuba last year, has hampered basic diplomatic and consular functions. U.S. congressional activity has stalled, with the exception of efforts to lift financial restrictions on agricultural trade. All told, neither the punishing embargo nor anemic U.S. diplomacy is likely to prod Havana towards more ambitious reforms.
Domestically, the Díaz-Canel administration will likely split the country along generational lines. For many older Cubans, the new government’s commitment to the principles that guided the Castro era is reassuring. Many middle-aged Cubans will welcome the renewed guarantees of state-sponsored economic security and welfare. Some may also perceive glimmers of a more normal, open and, accessible polity, and will take heart in Díaz-Canel’s support for gradual, carefully monitored openings to foreign investment, the internet, and controlled private enterprise. Cuba’s restless youth, on the other hand, are likely to see only more missed opportunities, whether in a constitutional reform that prioritizes continuity over change or in a president who so far has proven more cheerleader for the status quo than agent of reform. Tragically, Cubans of all stripes, including too many of the best and the brightest, will continue to seek opportunities elsewhere.
Brookings, Friday, July 13, 2018
In a leap backwards, the Cuban government has published a massive compendium of tough new regulations governing the island’s struggling private enterprises. The new regulations—the first major policy pronouncement during the administration of President Miguel Díaz-Canel—appear more focused on controlling and restricting the emerging private sector than on stimulating investment and job creation, more concerned with capping wealth accumulation than in poverty alleviation.
Many small businesses that cater to foreign visitors are already suffering from Trump-era restrictions and travel warnings that have decimated the U.S. tourist trade in Havana. But the new regulations are more a product of domestic Cuban politics than foreign pressures.
On a positive note, the Cuban government promises to renew the granting of licenses for many categories of private businesses by year-end, repealing the extended suspension announced last summer. But the new regulations greatly empower government rule-makers and intrusive inspectors, casting a gray cloud over the island’s business climate. Many existing businesses are likely to retrench if not close altogether.
The private sector grew dramatically in recent years, to include nearly 600,000 owners and employees by official figures, with many more enterprising Cubans working informally; in contrast, the state sector stagnated and further decapitalized. Indeed, many thriving private businesses began to compete successfully against state entities, notably in restaurants, bars and night clubs, guest houses, construction, and transportation. The healthy wages paid by profitable private firms often eclipsed the meager salaries paid to disgruntled government officials and factory workers.
The extensive, highly detailed regulations, which go into effect in December, read like “the revenge of the jealous bureaucrat.” Drawing on a multitude of ministries and operating at all levels—national, provincial, and municipal—interagency committees will now be empowered to authorize, inspect, and regularly report upon private businesses under their jurisdictions. The regulations are replete with astoundingly specific performance requirements and innumerable legal breaches that seem crafted to allow government officials wide discrimination to impose heavy fines (or extort bribes), suspend licenses, and even seize properties.
To cite but a few such regulations: Private restaurants and guest houses must cook food at a minimum of 70 degrees Celsius for the time required for each food; day care centers must allocate at least two square meters per child, have no more than six children per attendant, and be outfitted with pristine bathroom facilities described in exquisite detail (private schools and academies are strictly prohibited); and private taxi drivers must document that they are purchasing fuel at government gas stations, rather than buying on the black market. Further, local officials can deny new licenses based on “previous analyses,” even if the proposed business plan meets all the other specifications, and can fix prices “when conditions warrant.”
The regulations could help shield state enterprises from unwanted private competition. The very ministries that stand to lose market shares are in charge of approving licenses in their sector. For example, the ministry of tourism has the lead in judging licenses for private guest houses. Appeals are possible, but to administrative authorities, not to judicial courts.
Government agencies are also seeking to reassert control over the island’s vibrant artistic communities. The regulations prohibit artists from contracting directly with private restaurants and bars; rather they must be represented by public-sector entities that charge commissions up to 24 percent of revenues. Moreover, performers must not use “sexist, vulgar or obscene language,” which if enforced could imply the banning of popular hip-hop and reggaeton songs and videos.
Perhaps most telling are the restrictive rules squarely aimed at inhibiting private capital accumulation. In a sharp turn from past practice, Cubans will now only be allowed one license for one business, effectively outlawing franchising and diversification. Capacity at restaurants and bars is capped at 50 guests. Most biting, the new regulations establish an upward-sloping wage scale (whereby wages rise as more workers are hired); hiring more than 20 workers becomes prohibitively expensive (six times the average wage). Unlike in the past, employers will now have to pay taxes on the first five workers hired as well.
Many private businesses must also record their transactions (revenues and expenditures) in an account at a government financial institution and keep three months of prospective taxes on deposit. Intended to reduce under-reporting of income, this measure will significantly raise the effective rates of taxation. Investors must also explain their sources of funds. In a country where political authority is unchecked, these financial impositions alone will discourage many potential entrepreneurs.
The Cuban authorities have repeatedly asserted their interest in attracting foreign investment, to compensate for weak domestic savings. However, foreign investors are likely to view these new regulations, even though they apply to domestically-owned firms, as indicative of an official wariness if not hostility toward private enterprise in general. Risk-averse foreign investors will also note that the Cuban government is quite capable of precipitously altering the rules of the game.
The new regulations are the first major policy initiative promulgated during the administration of President Miguel Díaz-Canel. Many of the resolutions were approved by the Council of State under Raúl Castro, prior to Díaz-Canel’s inauguration in April, but nevertheless were issued during his young tenure. Not a good sign for those hoping that Díaz-Canel, 58 years old and ostensibly representing a younger generation, might quickly place his own imprimatur over the extensive state apparatus.
The new regulations make one thing abundantly clear: The Cuban government, state-owned enterprises and the ruling Cuban Communist Party do not want to risk major competition to their own interests—economic, commercial, and political—from a potentially capital-rich, diversified emerging private sector. Apparently, perceived interests in security and stability have overruled Cuba’s own declared economic development goals.
Brookings, December 4, 2017
Original Article: Order from Chaos
In many ways, Raúl Castro’s 10-year presidential rule, ending in February 2018, has been utterly disappointing. Cuba’s economy is stagnant and economic reform has stalled. Political power remains highly centralized and secluded. The island’s educated youth are fleeing in droves for better opportunities abroad. And the Trump administration is renewing U.S. hostility.
Nevertheless, during his decade in power Raúl Castro oversaw historic shifts in Cuban foreign and domestic policies. Raúl initiated some policy innovations, deepened and consolidated others, and merely watched while forces beyond his control drove other changes. Regardless, these changes have paved the way for the successor generation of leaders—if they dare—to push Cuba forward into the 21st century.
Fidel’s younger brother, now 86, can be especially pleased with his achievements in foreign affairs. Cuba had been a colony of Spain, a dominion of U.S. capital, a cog within the Soviet-dominated Council for Mutual Economic Assistance (COMECON) system. Now, for the first time in its 500-year history, Cuba has escaped the grip of a single world power.
Today, Cuban traders circumnavigate the globe, engaging both state-directed and free-market economies. The top trading 10 partners in goods in 2016 were (in rank order): China, Venezuela, Spain, Canada, Brazil, Mexico, Italy, Argentina, Germany, and Vietnam. The next tier of merchandise trading partners (between $275 million and $100 million) includes the United States, France, Algeria, the Netherlands, Russia, and Trinidad and Tobago. No single country accounts for more than 20 percent of total merchandise trade.
This trade diversification began in the 1990s following the collapse of the Soviet Union, but Raúl’s economic team extended and consolidated it. Under Raúl, Cuba also expanded the number of countries that purchase its main service export—the labor of educated professionals, especially in the medical field. While Fidel initiated large-scale service exports to Venezuela, Raúl followed suit with Brazil and dozens of other developing countries.
In the last 10 years, Cuba has also diversified the sources of foreign investment. For example, in the economy’s bright spot, international tourism, investors hail from Spain, France, Canada, Germany, Switzerland, Canada, China, and Malaysia, among other locations.
A small island economy cannot hope to be fully autonomous; it must adapt to global constraints. But by diversifying its economic partners, Cuba has minimized its vulnerability to external dictates, and maximized its own margin for maneuver. This diversification of economic partnerships has paid handsome diplomatic dividends. Cuba has become an accepted participant in various Latin American forums and diplomatic initiatives; overcame its exclusion from the Summit of the Americas leaders’ meetings; gained membership in the Central American Bank for Economic Integration (CABEI); and gained access to resources at the multilateral Andean Development Corporation (CAF). President Donald Trump is alone in his efforts to damage the Cuban economy through comprehensive economic sanctions.
BREAKING IDEOLOGICAL BARRIERS
The slow, halting pace of economic reform has discouraged many Cubans, especially recent university graduates. Conservative forces resisting change remain strong within the Cuban Communist Party. Nevertheless, Raúl leaves a legacy that could greatly facilitate the work of reformers in the future. (I will further evaluate the economic reforms and pathways forward in a February 2018 Brookings policy brief.)
Raúl’s legacy lies not in standard measures of economic performance, such as per capita GDP growth, labor productivity, or investment rates, where results have varied from disappointing to disastrous. Rather, Raúl’s legacy in economic policy lies in breaking once forbidding ideological barriers. True, Raúl’s public statements often have been contradictory and shifting, as he apparently sought to balance conflicting tendencies within the Cuban Communist Party. But in key areas, Raúl demolished or at least cracked these obstacles to change: rejection of globalization (a favorite Fidel bugaboo), fear of foreign investment, and hostility to private business and markets. He also transformed relations with the United States.
In daily life, Cubans have left behind the comfort of social uniformity and relative economic equality for the more tumultuous worlds of greater social heterogeneity and income inequalities.
Raúl is no cheerleader for globalization. But he set aside his brother’s heated denunciations of multinational corporations and “exploitative” markets. Instead, he went about the practical business of building economic relations with a multitude of governments and foreign corporations. Without much pomp and circumstance (although there was the occasional ribbon-cutting), Raúl advanced the process of normalizing Cuba’s integration into global markets.
Raúl’s decision to normalize diplomatic relations with “the historic enemy,” the United States, dramatically revised his regime’s foreign policy doctrine. The hegemon just across the Florida Straits was no longer an imminent, existential threat, readily justifying economic deprivations and tight political restrictions. Notwithstanding the altered attitude in Washington today, so far a number of the concrete gains from the Obama era détente remain in place, notably the facilitation of travel (commercial airline flights and cruise ships) and the generous flows of remittances to many Cuban families, whether for household consumption or business start-ups.
Of the reforms most directly attributable to Raúl, the suppression of the special (and expensive) permit to travel abroad was among the most important to many Cubans. As a result, most Cubans can freely leave the island (provided they can acquire an entry visa elsewhere), to be enriched by their contact with foreign lands and ideas. Greater access to mobile technology and rapidly expanding social media, permission to sell homes and cars, and more freedom to stay in once-forbidden tourist hotels have also improved life for many Cubans during his tenure.
De facto, by building commercial partnerships worldwide, and by accepting the freedom to travel, Cuba has now embraced core components of globalization.
OPENING TO FOREIGN INVESTMENT
To stave off complete economic collapse in the early 1990s, Fidel had invited in limited foreign investment. El Comandante en Jefe made these concessions holding his sensitive ideological nose and again closed Cuba’s borders once he felt politically secure. In sharp contrast, Raúl has publicly chastised his ministers for not accelerating foreign capital inflows (although he hesitated to fire them).
Periodically, the government releases a “Portfolio of Opportunities for Foreign Investment.” Each edition is fatter and glossier; the 300-page 2017-2018 version features 456 projects with a cumulative price tag of $11 billion. Yes, most projects have remained on paper, victims of bureaucratic foot-dragging and red tape; but these documents are products of an inter-agency process whereby many ministries and state enterprises join in a collective waving of hands to the international commercial community.
In a 2011 official document outlining proposed reforms, foreign investment was derided as “complementary,” a secondary afterthought. In contrast, when addressing Havana’s annual international trade fair in 2017, Raúl’s minister for foreign trade and investment sang a very different tune: “Today foreign investment ceases to be a complement and has become an essential issue for the country.”
Mariel, the new economic development zone facing the Straits of Florida, has gotten off to a slow start, having approved over three years only 26 projects worth about $1 billion. However, 15 of these projects have broken through another ideological barrier: allowing 100 percent foreign ownership.
LEGITIMIZING PRIVATE PROPERTY
Fidel disliked and distrusted private property. In 1968, for example, he nationalized remaining mom-and-pop businesses. In contrast, over the last decade the government has issued hundreds of thousands of licenses to small-scale private businesses. Raúl has also encouraged some 200,000 Cuban families to farm as homesteaders (although not all survived). In addition to these authorized private businesses, many Cubans augment their income in more-or-less tolerated gray-market activities. Altogether, as much as 40 percent of the Cuban workforce have at least one foot in the private sector.
Recently, Raúl criticized private business for illicit activities, and the government halted the granting of new business licenses. Nevertheless, these concessions to anxious Communist Party stalwarts appear to be a temporary pause. The ideological foundations, and public constituency, for the acceptance and eventual expansion of a market-driven private sector have most likely been set too deep for a full-blown counter-revolution to succeed.
This increase in economic pluralism has unleashed public debates on economic policy. Criticism of government performance is widely voiced with less fear, even if journalists and academics are still careful not to directly confront senior authority.
Another major shift that accelerated during the last decade: the evolution of Cuban society from socialist uniformity toward a more heterogeneous mix of property relations, income levels, and social styles. While legal statutes remain to be written, property can now be private (often in partnership with diaspora capital), cooperative (in numerous variations) and foreign-owned, as well as state controlled.
Income inequalities have become more visible, even if less jarring than in other Latin American and Caribbean nations. Many Cubans still honor social solidarity. But the transition toward a more normal, relaxed, and individualistic society is unmistakable. On Havana’s streets, Cuban youth—increasingly exposed to international tourists, travel opportunities and the worldwide web—sport the variety of hairstyles, tattoos, music, and other signatures of global youth.
These ideological adaptations do not guarantee speedy policy changes, much less their faithful implementation. The Cuban government is grappling with a severe foreign exchange crisis, and the sudden, unanticipated chill in bilateral relations imposed by the United States. All the more reasons for the next generation of Cuban leaders to build upon the diversity of international economic associations and the new ideological currents unleashed during the reign of the second and last Castro brother—and to launch their island state into deeper phases of global integration and economic transformation.
William LeoGrande, Guest Co-editor; Arien Mack, Journal Editor
William M. Leogrande, Introduction: Cuba Looks to the Future 235
PART I: UPDATING THE ECONOMY
Ricardo Torres Pérez, Updating the Cuban Economy: The First 10 Years 255
Archibald R.M. Ritter, Private and Cooperative Enterprise in Cuba’s Economic Future 277
Richard E. Feinberg, Bienvenida—Maybe: Cuba’s Gradual Opening to World Markets 305
Katrin Hansing, Race and Inequality in the New Cuba: Reasons, Dynamics, and Manifestations 331
PART II: FACING POLITICAL CHALLENGES
William M. Leogrande, Updating Cuban Socialism: The Politics of Economic Renovation 353
Margaret E. Crahan, Cuba: Religion and Civil Society 383
Rafael Hernández, Intellectuals, Civil Society, and Political Power in Cuban Socialism 407
Ted A. Henken, Cuba’s Digital Millennials: Independent Digital Media and Civil Society on the Island of the Disconnected 429
PART III: ENGAGING THE WORLD
Philip Brenner And Teresa Garcia Castro, A Long Legacy of Distrust and the Future of Cuban-US Relations 459
Carlos Oliva Campos And Gary Prevost, Cuba’s Relations with Latin America 487
Mervyn J. Bain, Havana, Moscow, and Beijing: Looking to the Future in the Shadow of the Past 507
Carmelo Mesa-Lago, University of Pittsburgh,
Latin American Research Review, July 2017 https://doi.org/10.25222/larr.2
This essay reviews the following works:
Open for Business: Building the New Cuban Economy. By Richard E. Feinberg. Washington DC: Brookings Institution Press, 2016. Pp. vii + 264. $22.00 cloth. ISBN: 9780815727675.
Miradas a la economía cubana: Análisis del sector no estatal. Edited by Omar Everleny Pérez Villanueva and Ricardo Torres. La Habana: Editorial Caminos, 2015. Pp. 163. $5, paper. ISBN: 9789593031080.
Entrepreneurial Cuba: The Changing Policy Landscape. By Archibald R. M. Ritter and Ted A. Henken. Boulder, CO: First Forum Press, 2015. Pp. xiv + 374. $79.95 cloth. ISBN: 9781626371637.
Retos para la equidad social en el proceso de actualización del modelo económico cubano. Edited by María del Carmen Zavala et al. La Habana: Editorial Ciencias Sociales, 2015. Pp. vi + 362. $20 paper. ISBN: 9789590616105.
Soon after current president of the State Council Raúl Castro took over power in Cuba from his brother Fidel in 2006, he started structural reforms to cope with the serious socioeconomic problems accumulated in the previous forty-five years. Some authors, including a few in this review, argue that Cuba is in transition to a mixed economy. Despite the importance of these changes, however, the official view is that central planning will predominate over the market, and state property over private property.1 A main reform goal was to fire 1.8 million unneeded workers in the state sector, which demanded an expansion of the “non-state sector” (NSS) to provide jobs to those dismissed. The four books I review are commendable additions to the growing literature on the NSS (inside and outside Cuba), as they fill some of its existing gaps, to be identified below.2 A few authors rely on surveys to gather data, but surveys are not easy to take in Cuba; hence the majority used interviews of different size and representativeness, as well as in-depth conversations.
Within the NSS, the most dynamic four groups are self-employed workers (507,342), usufruct farmers (312,296), and members of new nonagricultural and service co-ops, NASCs (only 7,700 so far). Altogether these make up 17 percent of the labor force, out of a total 29 percent in the entire NSS.3 Except for the most recent NASCs, the other three forms were legalized during the severe crisis of the 1990s but did not take off until much later. Selling and buying of private dwellings, banned in 1960 and reauthorized in 2011, involve at least 200,000 transactions but still only 5 percent of the total housing stock. The books reviewed in this essay mainly concentrate on self-employment and to a much lesser extent on NASCs.
The main gaps treated by the books are the NSS’s history; size and personal profiles; relations with the state; progress achieved and obstacles faced; the role of variables—age, gender (most treated), race, education, and location—on growing inequalities; particular issues such as access to raw materials, capital and credit, competition, and taxes; and NSS perspectives. This review discusses the data, method, and evidence that each researcher uses and the major issues and findings, arguing that the size of the NSS remains questionable.
In Entrepreneurial Cuba, Archibald Ritter and Ted Henken combine their economic and sociological expertise to produce an encyclopedic, balanced, and laudable volume on the development of the NSS in Cuba. Targeted on self-employment and, to a lesser extent, on NASCs, the book also tackles broader topics like the “underground” economy. It starts with an examination of small enterprises in general, internationally, and its lessons for Cuba. Based on historical and comparative approaches, Ritter and Henken discuss the evolution of self-employment throughout Cuban contemporary history. In the socialist period, they compare Cuban policies with those of the USSR and Eastern Europe; furthermore they contrast Fidel’s hostility to the NSS (except for reluctant support in times of economic crisis) with Raúl’s more pragmatic and positive style, which does not exempt the sector from tight controls, restrictions, and taxes. Largely based on my cycles approach,4 the history of self-employment under socialism is divided in three periods (each one covered in a chapter): 1959–1990, trajectories and strategic shifts; 1990–2006, the “Special Period”; and 2006–2014, Raúl’s reforms.
Ritter and Henken conclude that the NSS has grown and achieved substantial progress: for instance, increase in authorized activities and licenses, broadened legal markets, deduction of part of the expenses for tax purposes, micro credits and banking facilities, and rental of state facilities. Conversely they identify limitations, like narrow definition of legal activities, exclusion of most professional and high-tech occupations, multiple taxes and taxation at a high level, lack of wholesale markets, bureaucratic resistance, obstacles to hiring employees, and discrimination in favor of foreign firms. They provide suggestions to overcome these problems. Lack of space impedes a more profound treatment of this book, the most comprehensive and profound on self-employment so far. The structure of the book, combining historical stages and current analysis of self-employment and NASC, however, is somewhat complex and leads to a certain overlapping.
Ritter and Henken rely on three series of interviews conducted in Cuba with sixty self-employed workers in 1999–2001, half of them re-interviewed in follow-up visits in 2002 and 2009 and, finally, some revisited in April 2011 to evaluate the impact of Raúl’s reforms. The authors select the three most dynamic, lucrative, and sizeable private activities: small restaurants (paladares), taxis, and lodging. They asked their informants about three issues: (1) ambitions and expectations for the future (whether they expected to become true small- and medium-sized enterprises—SME—in the long run); (2) survival strategies in negotiating with the state (how they responded to the government regulations, licenses, and taxes); and (3) distinctions between licensed and clandestine self-employed workers.
Accompanying abundant evidence, deep analysis, statistical tables, synoptic charts, figures, and useful appendices (including a list of the 201 authorized activities for the self-employed and a timetable of the evolution of NSS in 1959–2014), the authors intersperse vignettes that allow the reader to better understand the daily life of the self-employed. Occasional jewels in the book brighten our knowledge, such as uncovering in fascinating detail the bureaucratic shutdown of El Cabildo, which was the most prosperous private, medium-sized business in Cuba.
Miradas a la economía cubana, a collection edited by well-known Cuban economists Omar Everleny Pérez Villanueva and Ricardo Torres, includes twelve essays that offer a first-rate sample of scholarship on the NSS at the Center for the Study of the Cuban Economy, the best economic think tank in Cuba. The anthology, an excellent complement to the Ritter and Henken book, includes self-employment and NASCs. In the prologue, Juan Valdés Pérez notes that “the new economic model in Cuba is moving [transita] toward a mixed economy, based on a public sector, a mix-capital sector, and a private sector, mostly SME” (14). Most contributors to the volume propose reasonable policies to help the consolidation and further expansion of the NSS.
In the opening chapter, Torres discusses the role of the private sector in a centrally planned economy such as Cuba, which generates an intrinsic conflict. Despite NSS advances, the government still sees it as a supplement to the state sector and imposes clear limits. Hence the NSS role is and will continue to be very minor, if currents trends hold. An important point, among many discussed by Torres, is that its productivity is low, despite the very highly educated labor force (ranked at the top of Latin America), and shows a declining trend due to the low skills of the activities approved. He ends by suggesting, “In a scenario [Cuba] where public enterprises are predominant and mostly inefficient, wealth is not socialized and man is not liberated from alienation, just the opposite” (25). Torres believes that the solution to all existing problems is neither privatization of all public assets nor to insist on old formulas overcome by time, and urges a serious national social debate on these issues.
Pérez Villanueva analyzes and defines self-employment and SME, tracing their evolution and identifying needs such as autonomy, a wholesale market with competitive prices, facilitation of payments through the national banks, and use of highly skilled personnel; he also notes adverse effects like social inequalities (see Zavala et al., below). At the end of his chapter, he asserts that “the Cuban SME would be more viable than the actualization of our economic model and contribute more positive results, providing that the government understands its role and potential” (35).
Camila Piñeiro provides the most comprehensive and deep analysis of NASCs so far. These cooperatives grew 74 percent, from 198 to 345, in 2013–2014, but their tempo slowed to 6 percent in 2015.5 Based on diagnosis and audits done on sixty NASCs in 2014, Piñeiro identifies their achievements (increase in income and motivation, improvement in the locale and working conditions) and problems (complex and delayed creation, insufficient training, and lack of a wholesale market). The most successful NASCs are those created by the voluntary initiative of a group of persons that share the same goals and values (23 percent of all NASCs), and the least successful are those coming from former state enterprises, without negotiating with their workers so that they accept what is decided from above (77 percent).
Mariuska Sarduy, Saira Pons, and Maday Traba analyze tax evasion and underdeclaration of income among self-employed owners. They report that evasion was 12 percent of total fiscal revenue and 60 percent of registered self-employed contributors in 2013–2014. They carried out 300 interviews with self-employed workers in Havana in 2014 and found that 55 percent omitted income in their declaration for the following reasons: 95 percent due to very high taxes; 77 percent blamed the complex procedure to pay taxes; 80 percent knew that evasion or underdeclaration are toughly penalized crimes, but half believed that they were necessary to survive, and 20 percent thought that it was improbable that fiscal authorities would catch them.
Expanding her substantial work on geographic inequalities, Luisa Íñiguez uses the 2012 population census to explore the distribution of NSS enterprises in Cuban provinces and municipalities and shows their differences and contribution to social inequalities. She develops various maps of the island, displaying the location of total NSS enterprises, as well as key components such as the self-employed, usufruct farmers, and small private farmers. In addition, she calculates percentages of components of the NSS relative to the employed labor force. The NSS developed much further after 2012, but her work remains valuable and sets a solid foundation for future study.
The role of women in microenterprises is examined by Ileana Díaz and Dayma Echevarría, relying on data from the 2012 population census and Ministry of Labor and Social Security in 2013, and a survey of thirty-five self-employed owners in Havana circa 2014 (63 percent women and 37 percent men). Among other gender inequalities, they find that women are more hurt than men by the lack of a state policy to foster microenterprises, and by poor access to credit as well as to legal and accounting advice. Interviewees answered key questions with a fair consensus: 50 percent noted unfair competition from state and mixed enterprises; most preferred to work as self-employed instead of for the state; public or private financing was judged insufficient; elementary-secondary school didn’t help in their activity but university did; and they noted poor access to wholesale markets, telecommunications, and vanguard technology. Virtually all interviewees, but a sizably lower percentage of women than men, said that their success was more than expected. Both genders agreed on the major obstacles: limited demand, excessive state bureaucracy and regulations, too much competition, absence of a wholesale market, and difficulties to get inputs.
Retos para la equidad social, edited by Maria del Carmen Zavala et al., contains twenty contributions, all but one authored by women, focused on socioeconomic inequality under Raúl’s structural reforms. Three chapters of the book deal with expanding inequalities among the self-employed by age, gender, race, education, and location, and also with their motivation, satisfaction, competition, capital access, obstacles faced, and views of the future.
The best chapter in the collection, by Daybel Pañellas, Jorge Torralbas, and Claudia Caballero, relies on a survey taken between October 2013 and March 2014 among 419 persons self-employed in fifty-seven activities and located in three districts of Old Havana. They find that age, gender, education, and location are important factors in the quality of occupation, access to capital, and earnings of the self-employed. In the sample, 76 percent worked by themselves, without employees; 13 percent were employers and 11 percent employees; 64 percent were men and 36 percent women; 48 percent were white and 52 percent nonwhite; 54 percent were middle-aged adults, 30 percent young people, and 15 percent elderly; 54 percent had precollege or university education, 31 percent had a low level of education, and 15 percent had a technical education (a highly trained labor force and NSS, also noted by Torres). Not only are women underrepresented, but their activities reproduced their roles in domestic life, such as work in cafeterias, food preparation, manicure, makeup, and as seamstresses. While women rented rooms mostly in national pesos (CUP), men rented rooms in the more advantageous convertible pesos (CUC = 24 CUP). Combining education, race, and gender, the best-educated white males had better occupations than the lowest trained nonwhite females (e.g., computer programing vis-à-vis seamstress). The self-employed were mainly attracted by these features of self-employment (not exclusive categories): better income (80 percent), easier labor journey (20 percent), and being their own bosses (15 percent). Their level of satisfaction ranged from so-so (53 percent), to good/very good (38 percent), to bad/very bad (9 percent)—the higher the educational level the more occupational satisfaction.6 Success in competition was attributed to the quality of product or service (56 percent), business location (24 percent), and low prices (14 percent). Access to capital was mostly by employers that receive remittances, are white, and have higher or middle education, ample social networks, and good locations; conversely, investment is minimal among low-educated nonwhites. Obstacles encountered by the self-employed were lack of access to raw materials (49 percent), heavy taxes (44 percent), lack of financing (35 percent), state control and inspections (33 percent), and legal procedures (23 percent). These proportions varied in the three districts and were influenced by gender, race, and type of activity; for example, controls and inspections were mostly mentioned by workers with low education, nonwhites, and women. On their perceptions for the future, 81 percent believed that the self-employed would prosper—especially if the mentality of the state and the self-employed changes— and 10 percent didn’t think so.
Geydis Fundora expands on the growing inequalities enumerated above, based on a study of fifty-two self-employed residents of Havana Province in 2010–2013, reaching similar conclusions. Out of the 201 activities approved, 65 percent have a male profile; paladar owners mostly hire women because of their sex appeal to clients and because the work is similar to that done at home; other activities are in practice barred to the “weak sex.” Men tend to be employers and women employees, thus resulting in lower decision making and income for women. The elderly are disadvantaged because most activities require physical strength; most young people are hired as employees and in less specialized activities. There is no political will to gather statistics on race, but whites predominate over blacks and mulattoes, opposite to what Pañellas, Torralbas, and Caballero found; nonwhites have less access to capital and hence to success and higher earnings. Those that have a high initial capital—coming from savings, remittances, or hidden foreign investment—enjoy an advantage over the rest not only to establish the business but also to buy inputs, pay taxes, and bribe inspectors. Location in more attractive and populous zones are keys to success.
Magela Romero targets self-employed women engaged on infant care, a most-needed occupation to increase female participation in the employed labor force, which was 37 percent of the total in 2015;7 the low proportion is an outcome of resilient traditional gender roles at home and work. Based on eighteen cases in the town of Cojímar (in Havana) in 2013, the study found that all those self-employed in infant care were women, and half of them had previously been informal domestic employees. All said that their main attraction was a higher income, but all also complained of exhausting work and high responsibility with a monthly salary of 200 CUP per infant, with a maximum of five infants, equal to US$40, still three times the mean average salary in the state sector.
Open for Business by Richard E. Feinberg deals mainly with the economic events following the process of normalization between the United States and Cuba that started at the end of 2014, preceded by a summary of the previous state of the Cuban economy and Raúl’s reforms. Feinberg believes that the emerging NSS “offers the best hope for a more dynamic and efficient Cuban economy, especially if it is permitted to partner with foreign investment and with more efficient state-owned enterprises” (132). One chapter on emerging entrepreneurs is based on a monograph he published in 2013, which at that time provided substantial data and analysis on self-employment, preceding the other three books reviewed herein.8 One graph and one table are updated to mid-2015, but most of the text remains unchanged. The author and an assistant had in-depth conversations with twenty-five microentrepreneurs between March 2012 and April 2013, emphasizing financial issues (averages of time open, number of employees, starting capital, and use of domestic and foreign capital). Interesting profiles of self-employed activities are given on paladares, cafeterias and catering, bed and breakfasts, accounting, a shop selling handicrafts to tourists, building construction and house remodeling, electronic repairs, and renting of 1950s cars; from such profiles he extracts useful lessons.9 A stimulating innovation is the selection of twelve young Cuban “millennials” (aged 20–35), one of them the owner of a cafeteria, for appealing interviews based on ten questions.
Feinberg envisages four stages of capital accumulation of microbusinesses: primitive household accumulation, early-mover super-profits, growth and diversification, and strategic alliances with state enterprises and with foreign investors (not yet authorized). Like the other authors whose books I review here, he stresses the progress and achievements of self-employment, perhaps more so than other authors. But he also pinpoints the many constraints the self-employed face: poor banking and meager credit, serious scarcity of inputs of all sorts (as a visible exception he gives the wholesale market “El Trigal,” temporarily closed in May 2016), shortage of commercial rental space, a very challenging business climate, and government restrictions including persecution by government inspectors and heavy fines, as well as constraints on capital accumulation and business growth. He provides his own recommendations to alleviate these problems.
One fundamental question left unanswered is the size of the NSS. Unfortunately, there are no official data on the NSS, complete and disaggregated by components. Neither Ritter and Henken nor most Cuban authors provide such a figure (Torres estimates it as 27 percent of the labor force; p. 21). The only elaborated calculation in the four books is Feinberg’s, who states that “altogether, as many as 2 million enterprising Cubans—40 percent of total employment—and possibly even more can be counted within the private sector” and predicts that “in the next three to five years, total private employment could reach 45 to 50 percent of the active labor force” (Feinberg, 132, 139; emphasis added); this exceeds by 10 percentage points Torres’s middle-term estimate of 35 to 40 percent (24).
Feinberg overestimates the NSS’s size. First, an important semantic and substantive issue is that not all NSS participants are private, only most self-employed workers and their employees as well as small private farmers are. Usufruct farmers, NASCs, and other cooperatives’ members do not own their land or buildings; these belong to the state, which leases them to the workers. Second, several figures in Feinberg’s estimates are either questionable or not supported by specific sources; the main query is what he labels “other private activities (estimated),” such as full-time unregistered self-employment and partial self-employment done by state-sector employees, which add up to between 185,000 and 1,185,000, based on guesstimates (while it is true that some government employees work part-time as self-employed workers, it is impossible to know for how many hours, which makes it difficult to estimate average full days of work). Third is the inclusion of 353,000 members of credit and service cooperatives (CCS), because that number exceeds by 65 percent the total number of all co-op members in 2015, including agricultural production (UBPCs, Basic Units of Agricultural Production, and CPAs, Agricultural Production Co-ops), CCSs (Credit and Services Co-ops) and NASCs.10 Furthermore, many private and usufruct farmers are also members of CCSs, thus they are counted twice. Fourth, the category of “land lease farmers” (172,000) is confusing; on the one hand Feinberg does not specifically include usufruct farmers (312,296), and on the other hand the official data on land leasers (arrendatarios) is only 2,843.11 Fifth, employees of self-employed workers are counted since 2011 in the total number of the self-employed, mixed with owners, and we have shown that there is a double counting in the overall figure. In any case, the official statistics on the total NSS share in the employed labor force expanded from 17 percent in 2008, when Raúl officially became president, to 29 percent in 2015.12 In conclusion, there is no doubt that the NSS is important and growing, but certainly not as much as Feinberg estimates.
In summary, the most studied NSS group is the self-employed; NASCs are briefly discussed by Ritter and Henkel and in Piñeiro’s chapter in Zavala et al. Largely excluded from the discussion are usufruct farmers, and totally omitted is the selling/buying of private homes. The historical approach is followed most intensively by Ritter and Henken, although several Cuban authors provide summaries of the evolution in their respective topics. The preferred methodology is interviews or conversations combined with research. There is a consensus that the NSS (mostly self-employment) has been successful despite considerable obstacles. We lack a reliable estimate of the NSS’s size.
Missing in the four volumes is an evaluation of the NSS’s macroeconomic effects.13 Ritter and Henken refer to some results of self-employment, such as job creation, noting the nonfulfillment of the official target of dismissing more than one million unneeded state employees. None of the books discuss the impact of usufruct farming on agricultural output, where NASC members are still minute and their impact is even more difficult to assess. It is true that the scarcity of available data hinder the task, but still some estimation could have been done on the NSS’s effect on produce sales, fiscal revenue, and GDP.14
Feinberg and Ritter and Henken are the only authors who explore the future of the NSS. Feinberg provides three broad overall scenarios, which are thought-provoking but touch little on the NSS: (1) “inertia” with little change, without citing potential precedents and projecting self-employment to 750,000, 48 percent higher than the March 2016 official figure of 507,342; (2) “botched transition and decay,” the most pessimistic, similar to former states of the USSR, but with self-employment expanding to 1 million, twice its 2016 size, as some restraints are removed; and (3) “soft landing” in 2030, the most optimistic, under market socialism as in Vietnam, where self-employment really takes off and reaches 2 million employees and 40 percent of the labor force—this is somewhat confusing because he refers to the private sector and had previously predicted, for the entire NSS, 45 to 50 percent in 2019–2021 (203–222).
Ritter and Henken offer three possible alternative routes for the NSS, without predicting its size: (1) reversal to Fidel’s hostile approach, which they judge very improbable because it is totally unfeasible and discredited (“unlikely to be reversed” for Feinberg, 131); (2) stabilization of Raúl’s current (2014) and cautious reform package to self-employment and NASCs, which would remain in place for the rest of his presidency, but with a significant expansion of both and the potential of creating a “mixed cooperative market economy”; and (3) acceleration of the reform and rebalancing among public, private, and cooperative sectors, with medium and large private enterprises advancing at the expense of co-ops and smaller private enterprises; the viability of this scenario, they say, could be helped by a “serious relaxation of US policy toward Cuba” that could “encourage the Cuban government pro-market openings” (311).
Cuba is always unpredictable, and none of the three scenarios by the above authors completely fit the situation in August 31, 2016, when this review essay was finished. Ritter and Henken’s book was concluded in October 2014, thus this reviewer has the unfair advantage of almost two years that have brought significant changes, such as the evolution of US-Cuba rapprochement in 2014–2016 and the Seventh Congress of the Communist Party held in April 2016.15 In light of those events, their first and third alternatives are implausible, at least in the medium and long run; the second might be conceivable if the emphasis is placed on “stability” instead of significant expansion. By August 2016, however, rapprochement, rather than helping the reforms, appeared to have the opposite effect due to dread in the leadership caused by Obama’s visit and it effects, reflected in the results of the Seventh Party Congress. The number of self-employed workers peaked at 504,613 in May 2015, declined to 496,400 in December, and climbed again to 507,342 in March 2016, an increase of 0.7 percent in ten months, substantially lower that the expansion rate in 2014 and 2015 (14 and 3 percent, respectively). Furthermore, at the Congress, Raúl warned that although NSS forms are not antisocialist, “powerful external forces” try to “empower” them as agents of change, and could risk further “concentration of wealth and property” (the latter was not among the agreements of the Sixth Congress in 2011), making it necessary to impose “well-defined limits” on them.16 The Seventh Congress also recommended to halt the creation of new NASCs because of their deficiencies, and to concentrate on the existing ones instead.17 Finally, the only existing wholesale market was temporarily closed in May 2016. Feinberg’s book ended in early 2016, much later than Ritter and Henken’s, but his scenarios and predictions don’t correlate well with the facts explained above: “inertia” looks optimistic and even more so “decay”—both appear to be short- or middle-term effects—whereas the 2030 “soft landing” would require the drastic changes detailed by him, which are difficult to visualize now.
1 These basic principles of the reforms were set in the Sixth Communist Party Congress of 2011 and ratified in the Seventh Congress of 2016.
2 The pioneer book in the field is Jorge F. Pérez-López, Cuba’s Second Economy: From Behind the Scenes to Center Stage (New Brunswick: Transaction Publishers, 1995).
3 Oficina Nacional de Estadística e Información (ONEI), Anuario Estadístico de Cuba 2015 (La Habana, 2016).
4 Carmelo Mesa-Lago, Market, Socialist, and Mixed Economies: Comparative Policy and Performance; Chile, Cuba, and Costa Rica (Baltimore: John Hopkins University Press, 2000).
5 ONEI, Anuario Estadístico de Cuba 2015.
6 A series of interviews conducted by five authors in 2014–2015, in a much wider part of Havana City, agreed with the predominance of men over women, the highest participation of middle-aged adults, and the important role of education, but found a prevalence of whites and a higher level of satisfaction. Carmelo Mesa-Lago et al., Voces de cambio en el sector no estatal cubano: Cuentapropistas, usufructuarios, socios de cooperativas y compraventa de viviendas (Madrid: Editorial Iberoamericana Vervuert, 2016).
7 ONEI, Anuario Estadístico de Cuba 2015.
8 Richard E. Feinberg, Soft Landing in Cuba? Emerging Entrepreneurs and Middle Classes (Washington, DC: Brookings Institution, 2013).
9 These cases are more varied than those discussed by Ritter and Henken, but the latter provided the most comprehensive and profound analysis of paladares.
10 ONEI, Anuario Estadístico de Cuba 2015.
11 ONEI, Anuario Estadístico de Cuba 2014 (La Habana, 2015).
12 Mesa-Lago et al., Voces de cambio en el sector no estatal cubano; ONEI, Anuario Estadístico de Cuba 2015.
13 Valdés notes in the prologue to Pérez Villanueva and Torres’s book the absence of a macroeconomic essay to place all NSS forms in the proper context.
14 The percentage of GDP generated only by self-employment has been estimated as 5 percent by Saira Pons, Tax Law Dilemmas for Self-Employed Workers (La Habana, CEEE), but by 12 percent by Torres (in Pérez Villanueva and Torres, p. 24), a significant gap. For an assessment of some NSS effects see Mesa-Lago et al., Voces de cambio en el sector no estatal cubano.
15 After this essay was finished, the guidelines (lineamientos) for 2016–2021 were published; a rapid browse indicates no significant changes from the guidelines of 2011.
16 Raúl Castro Ruz, “Informe central al Séptimo Congreso del Partido Comunista de Cuba,” Granma, April 17, 2016 (emphasis added), 1–3. Mauricio Murillo mentioned, as examples of the limits to be imposed, the establishment of limits on the number of hectares that somebody may have (“Intervención en el VII Período Ordinario de la Asamblea Nacional,” Granma, July 9, 2016).
17 Carmelo Mesa-Lago, “El lento avance de la reforma en Cuba,” Política Exterior 30, no. 171 (2016): 94–104.155
By 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
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.
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.
Richard Feinberg, December 2015, Brookings Institute
In their opening meetings, the U.S. and Cuba will present their conflicting claims. One possible outcome is protracted and contentious negotiations. But there is a much more promising alternative approach: to take advantage of the very size and complexity of the conflicting claims and to make their resolution the centerpiece of a grand bargain that would resolve some of the other remaining points of tension between the two nations, and embrace an ambitious, forward-looking development strategy for Cuba.
There are precedents for such a grand bargain, in such cases as the Soviet Union, Vietnam, and China. The Roosevelt-Litvinov agreements—negotiated in the White House directly between the U.S. president and Soviet foreign minister—laid the foundations for renewing diplomatic relations, and one might argue for the World War II alliance that defeated the axis powers. Similarly, the claims settlement with Vietnam was one piece of a much broader normalization process between the two once bitter adversaries—two nations that now label themselves strategic allies. Pointedly, at the August 14, 2015 flag-raising ceremony at the U.S. Embassy in Havana, Secretary of State John Kerry remarked:
“And last week, I was in Hanoi to mark the twentieth anniversary of normalization of relations between the United States and Vietnam. Think about that. A long and terrible war that inflicted indelible scars on body and mind, followed by two decades of mutual healing, followed by another two decades of diplomatic and commercial engagement. In this period, Vietnam evolved from a country torn apart by violence into a dynamic society with one of the world’s fastest growing economies.”
In recent U.S.-Cuban relations, there is also the precedent of the December 17, 2014 announcements, when the return of Alan Gross and a CIA asset for three Cuba spies was wrapped in the larger story of normalizing diplomatic relations, and on the U.S. side, the relaxing of certain travel and economic restrictions.
The two-tiered settlement strategy outlined above allows for U.S. firms to re-engage in Cuba. At the same time, some individual claimants and their families harbor deep affections for Cuba and would probably be willing to contribute to its future development. Cuba could consider special incentives to regain this legacy of the island’s past, and for interested claimants to match their awards with re-investments in new projects.
With the right incentives, Cuba could also attract the capital and talents of many of the two million Cuban-Americans resident in the United States. With their separate legal issues and emotional charges, and the vastness of their numbers, the property claims of Cuban-Americans will require their own treatment (more on this in a subsequent paper). But the settlement of U.S. property claims might include a general framework for the future consideration of issues of concern to Cuban-Americans – with the overarching goal being reconciliation of the diaspora with the homeland.
The settlement of U.S. claims could be wrapped in a package of economic opportunities for Cuba. Importantly, the United States could further relax its economic sanctions (amending or repealing Helms-Burton), providing more trade and investment opportunities – and the capacity for Cuba to earn the foreign exchange needed to service debt obligations. In turn, Cuba will have to accelerate and deepen its economic reforms, to offer a more attractive business environment for investors and exporters. Politically, the Cuban government could present a significant softening of the U.S. embargo as a victory, offsetting any concessions made in the claims negotiations. A comprehensive package might also be more attractive to the U.S. Congress; formal Congressional consent would enhance the measures’ legitimacy and durability and help to close off any court challenges, should some claimants be unsatisfied with the final settlement. It is time for Cuba to enter the international financial institutions and the United States should no longer stand in the way. The IFIs can play a vital role, in providing capital and connections to the global marketplace. The IMF and World Bank are also deep repository of knowledge on transitions from central planning to more market-driven economic systems.
The claims settlement agreement between the United States and Hungary contained an annex where it was agreed, inter alia, that the Hungarian Government intended to settle outstanding dollar bonds through direct talks with bondholders; and that the United States would seek authority from its legislature to accord Most-Favored Nation (MFN) treatment to Hungary, subject to separate negotiations.
75 In a grand bargain, the United States could offer to work with Cuba and other creditors to renegotiate Cuba’s outstanding official (Paris Club) and commercial (London Club) debts on terms that take into account Cuba’s capacity to pay.76 The U.S. government continues to carry on its books $36.3 million of Cuban obligations to the U.S. Export-Import Bank (Ex-Im Bank), which could be addressed within the Paris Club framework.77 The United States could also agree to reconsider remaining trade and investment restrictions.
At this stage, it would be too much to expect agreement on a detailed development strategy for Cuba. But a process could be put in place whereby Cuba would work with its many international partners, including the United States, to forge a twenty-first century development model that preserves the social gains of the revolution but that also raises labor productivity and living standards.
Under President Raúl Castro, Cuba has initiated economic reform and the international community can accompany it by adding its expertise and resources. It would not be too much for the claims ettlement talks, if they agree on a two-tiered strategy, to include a discussion of the business climate, and what additional steps Cuba needs to take to attract badly needed foreign investment. As strict socialist property relations are gradually replaced by a more hybrid economic system, Cuba will need to design and implement new property regimes that promote individual initiative but that also encompass land-use, housing, natural resources and other regulatory oversight protective of the public interest and consistent with sustainable and equitable growth.
The strategic goals in a massive claims resolution process must be political: to heal the deep wounds of past conflicts, to lay foundations for peaceful coexistence and the non-violent resolution of disputes, to avoid jeopardizing fiscal balances and crippling debt burdens, to build investor confidence and international reputation, and to help render the Cuban economy more open and competitive. These vital goals will not always be fully convergent with the more traditional, legal objective focused narrowly on the rights of property claimants. In designing and implementing solutions, as claimants bang on doors and demand attention, policy makers should not lose sight of their overriding purposes. In the interests of both Cuba and the United States, the twentieth-century trauma of massive property seizures should be transformed into a twenty-first century economic development opportunity.
Richard Feinberg is a nonresident senior fellow with the Latin America Initiative at the Brookings Institution. He is a professor of international political economy at the School of Global Policy and Strategy, University of California, San Diego. His four decades of engagement with inter-American relations spans government service (in the White House, Department of State, and U.S. Treasury), numerous Washington, D.C.-based public policy institutes, the Peace Corps (Chile), and now in academia. He is also the book reviewer for the Western Hemisphere section of Foreign Affairs magazine.
Financial Times, June 16, 2015
John Paul Rathbone, Latin America Editor; Geoff Dyer, US diplomatic correspondent; Richard Feinberg, Professor, UCLA San Diego; Marc Frank, Journalist based in Cuba; Cardiff Garcia, FT Alphaville reporter
NEW CONNECTION DIVIDES OPINION; President Obama’s overtures play better than expected at home — although not with everyone
STRAITS DEALING BRIDGES MANY GAPS; Retailers in Florida cash in on items needed by customers across the water
GLIMMERS OF GLASNOST BEGIN TO WARM ISLAND; Government retains a firm grip, but there are signs it is loosening a little
NEW PORT ZONE HARBOURS BIG AMBITIONS; A would-be capitalist enclave in a socialist state, the Mariel project is emblematic of change
STATE EXPERIMENTS WITH CO-OPERATIVE THINKING; From garages and restaurants to dealers in exotic birds, co-ops are expanding
CUBA’S NASCENT KNOWLEGE ECONOMY; The island could capitalise on a wealth of expertise in science
US COMPANIES STILL FACE INVESTMENT HURDLES; Bureaucracy, eroded infrastructure and regulatory risk are among hurdles
GOVERNMENT LIKELY TO END TO DUAL CURRENCY; Change would be part of reforms to remove price distortins
COMPENSATION IS KEY TO FUTURE RELATIONS; What now for legal claims by those who lost property in the revolution?
OPINION: WHAT CUBA CAN LEARN FROM VIETNAM; The island has the resources and location to create a balanced economy
There is a new entry among Cuba’s roll of important dates. Alongside Fidel Castro’s 26th of July movement and the January 1 1959 “triumph of the revolution”, there is now December 17 2014. That was the day when Barack Obama and Raúl Castro, the US and Cuban presidents, announced that they wanted to normalise bilateral relations and end more than 50 years of cold war enmity.
To be sure, communist Cuba was already changing. After formally becoming president in 2008, Mr Castro began a tentative economic liberalisation process to boost the country’s flagging economy — especially urgent now that Venezuela’s growing crisis jeopardises the $1.5bn of aid it sends every year. But the December 17 announcement lit a bonfire of expectations among US businesses — even if Cuba’s $80bn economy, for all its exotic allure, is much the same size as the Dominican Republic’s. “There is a new sense of excitement, of US companies coming to look and thinking of starting seed businesses,” says one long-established European investor in Havana. “It makes sense. Start small, learn how the system works and then see how it all goes.”
So, how might it all go? Continue reading: Financial Times SPECIAL REPORT on CUBA June 16 2015