Cuba and the Question of Legacy

Richard N. Holwill (Ambassador to Ecuador, 1988-1989)

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Some say that President Barack Obama’s opening to Cuba is designed to bolster his legacy. Indeed, the current debate centers on his actions and on US policy. This focus, however, misses the more interesting dynamic: the debate within Cuba over the next steps in the pas de deux with the United States and the question of Raúl Castro’s legacy.

At issue is the nearly absolute power that the Cuban government has over its people. That power is an outgrowth of the government’s monopoly on all aspects of the economy. During periods of food shortage, the government would allocate food in ways that favored loyalists. With jobs scarce, the government has allocated the best jobs to party faithful. So too with fuel, seed, fertilizer, and the other essential elements of growth. While universal education and basic health care are free to all, only a favored few have guaranteed access to university admissions and advanced health care for cancer and other potentially terminal diseases.

But economic control does not foster economic growth. Cuba is in trouble and Raúl Castro admitted as much when the United States Chamber of Commerce CEO Tom Donohue and the then-Chamber of Commerce Chairman Steve Van Andel met with him in Havana last year. He admitted that the government had seized too much of the economy. He went on to say that the Cuban leadership had made mistakes in becoming reliant on a single country for support. The Cubans now know that they need to diversify their economic relations. After hearing this, one member of our party left the meeting saying: “This visit isn’t about us. It’s about Venezuela.”

Indeed, the one topic that we did not discuss with Cuban officials was the multi-million dollar subsidy provided to Cuba by Petrocaribe, the Venezuelan oil facility that keeps the Cuban economy from collapsing. The Cubans know that the economic crisis in Caracas has dire consequences for them. To prepare for a termination of subsidized oil, the Cubans are trying to attract foreign investors by passing a new foreign investment law. Castro told our group he needs $10 billion in foreign direct investment over the next five years to rebuild the economy.

Castro has made modest changes to the Cuban economy by creating small openings for the private sector. In some professions, individuals can work “for their own account,” and are known by a Spanish language term that means just that: cuentapropista. Discrete government production units have been turned over to the workers as private cooperativas, independent of the state and owned by the workers.

The auto-body shop for the City of Havana is an example of a very successful cooperativa. The manager told us that he and his team cut their cost by 25 percent and increased output four-fold. However, they can only expand by reinvesting their profit, because they cannot accept money from equity investors and can borrow only a limited amount of money. The same is true for cuentapropistas. They are on their own, and while they may get support from family members and may be able to borrow very small amounts of money, they can’t use equity capital to stimulate growth.

Cuba’s new foreign investment law is reasonable, at least on the surface. However, those who do go to Cuba will find that the restrictions mentioned above apply to them as well. They cannot invest in Cuba’s private sector—or as Cuban officials call it, the “non-state sector.” All foreign investment must be in the form of a joint venture (JV) with the government, which is also the body that will adjudicate any internal dispute. Foreign investors will find that they cannot hire their own workers. The government will assign its employees to the JV, which will then pay the government employment agency for those services. The agency will take the government’s cut and pay a small fraction of the fee to the workers.

These rules reflect an essential element of Marxist theory: hostility to the productive use of private capital. The challenge for Castro is to attract the $10 billion he needs while maintaining these anti-capitalistic policies. This is the dilemma that drives the debate in Cuba. To maintain control, the government must control the economy, which means that the government must control the allocation of capital. If it insists on that control, foreign investors will shy away from what opportunities do exist in Cuba.

In the streets of Havana, there is evident excitement about renewed ties to the United States. Clearly though, many Cuban officials view this excitement as dangerous. The opening to the United States is seen by some of the elite as a threat to the control that they have enjoyed and to the privileged position that flows from that control.

In what appears to be an effort to placate anxiety among the elite, Castro told a forum in Costa Rica that relations with the United States will not be “normalized’ until the US Naval Base at Guantanamo is returned and the Government of the United States agrees to pay compensation for the damage done by the US “blockade” of Cuba. Yet, if the US embargo were to be lifted tomorrow, very little would change. Cuba will not attract the foreign direct investments it needs unless it adopts policies that welcome capital investments.

Ultimately, Cuba’s future will depend on decisions made by Cubans themselves and not on US policies. Castro says that he will retire in 2018. Between now and then, he must decide on his legacy: he can be the last revolutionary leaving a failed state to posterity, or the father of a reformed Cuban economy leaving his people with a chance at a better life.

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