Time for Cuba to Implement Economic Reforms
Match the Openings Made by the U.S.
– The island’s well-educated workforce is one of Cuba’s strengths.
– Cuba’s top-heavy, multi-layered bureaucracy drowns itself in endless
clearances and red tape.
– Foreign investors and developers swarming Havana will soon learn the
approval process can be maddeningly tedious.
“We don’t need gifts from the Empire,” growled Fidel Castro, in a
calculated rebuff to Barack Obama following his historic March visit to
Havana. But the ailing Castro only underscored the widening gap between
an aging, out-of-touch Communist Party and the Cuban people who had
embraced the U.S. president with open arms.
Tens of thousands of restless Cubans are fleeing the island each year,
having grown tired of dusty Communist propaganda and the debilitating
hardships of miserable wages, disruptive consumer shortages, and
programmed power outages. But over 11 million remain, betting that Cuba
could, once again, become an economic engine in the Caribbean.
Cuba is at a tipping point. Fidelista ideologues and bureaucratic
inertia could stall reform—driving many more millennials to exit.
Powerful state-owned enterprises could fight to preserve their
comfortable monopolies and repress private initiative.
More optimistically, Cuba could gradually evolve toward a balanced,
hybrid economy where more efficient state firms share markets with
home-grown private businesses and responsible foreign investors from
around the world.
Over five decades ago, Cuba imported a Soviet system of highly
centralized five-year plans that shut down private enterprise, choked
off innovation, and obscured property rights. But since 2008, under the
more pragmatic leadership of Fidel’s younger brother, Raúl, the
government has published detailed remediation plans which, if
progressively implemented—and that’s a big if—would gradually navigate
Cuba to a more mixed economy with space for individual initiative and
more openness to foreign influences and markets.
In my many travels crisscrossing the island in recent years, I’ve been
repeatedly impressed by Cuba’s abundant promise. With wiser policies,
Cuba could unleash economic expansion across multiple growth poles:
sustainable tropical agriculture, diversified sources of energy,
globalized healthcare and affordable wellness services, high-performance
creative industries including music and the visual arts, steady streams
of biotech innovations and computer applications, and tourism for all
tastes and ages.
At the core of this sunny scenario stands the island’s well-educated
workforce—the building block of a modern, service-oriented economy. To
its credit, the revolution invested heavily in public schools, and
universities are free to all who pass the competitive entrance exams.
But no one wants to work in agriculture, despite ample arable land. A
mere 100 miles from Florida’s mechanized agriculture, Cuban farmers
still labor behind horse-and-plow. Why? Because the bureaucracy refuses
to give up on state-run agriculture that treats farmers like low-wage
employees. If and when the Cuban state empowers those who till the soil
to make decisions on investment, production, and prices, rural Cuba
could blossom with tropical fruits, citrus groves, and organic produce.
Similarly, Cuba has the natural resources to be self-sufficient in
energy, balancing hydro-carbons, bio-mass, wind, and solar. The
government’s own documents outline smart energy projects—distressingly,
most remain on paper. The top-heavy, multi-layered bureaucracy drowns
itself in endless clearances and red tape. And bureaucrats hesitate to
approve foreign investments in the “sensitive” energy sector, fearing
the wrath of the hardline nationalists and allegations by state
prosecutors of taking bribes from unscrupulous foreigners.
Today, Havana is swarming with foreign investors and developers. But
they soon learn that the complex approval process can be maddeningly
tedious—a major roadblock to growth that Cuba must exorcise.
Furthermore, Cuba’s renowned healthcare and bio-technology industries
could become major earners of foreign exchange. With universal access to
holistic, preventive care, Cuban citizens enjoy life expectancies equal
to those in developed nations. In sharp contrast to the pandemic
plaguing nearby Puerto Rico, Cuba’s integrated public health system has,
so far, kept the Zika virus at bay.
Instead of having to send 40,000 medical professionals to work abroad,
the government could pour resources into medical tourism. Already,
fee-based medical services—for cancers, diabetes, and alcohol
addiction—are available for wealthy or politically connected foreigners.
But to take these income-generating practices to scale, Cuba must forge
international partnerships with accredited foreign hospitals and insurers.
And if Cuba’s bio-technology industries are to break into global
markets, Cuban firms must be willing to overcome their fears of being
exploited by global pharmaceutical giants, and instead forge mutually
beneficial partnerships with them.
Cuban universities graduate many well-educated technologists—who find
work in places like Florida and Mexico. In its determination to control
information flows and interactions among its citizens, the Cuban
government has blocked internet penetration—driving young IT experts to
emigrate. The presumptive heir to Raúl Castro, Miguel Diáz-Canel has
recognized that his nation must embrace the IT revolution—but when will
the government telecommunications monopoly open the island to
Already, successful Cuban artists exhibit in galleries from New York to
Barcelona, and dazzling salsa dancers offer intensive instruction in
Vancouver and Zurich. World-class artistic and athletic talent has been
nurtured over decades in highly selective national sports and arts
institutes including the fabled Cuban Advanced Institute of Art. But for
the creative industries to flourish on the island, the government must
lift the many obstacles to financial transactions, commercial contracts,
and intellectual property protection that frustrate local talent.
Today, the Cuban tourism industry earns a hefty $3 billion in annual
revenues from 3.5 million visitors. This May in Havana, the minister of
tourism laid out plans for tripling the number of hotel rooms over 15
years, building capacity for up to 10 million tourists and annual
revenues of over $9 billion.
Meanwhile, visitors who cannot find rooms in hotels are flowing into
newly renovated private bed and breakfasts. In colonial Trinidad, the
number of private rentals outpaces formal hospitality beds by six to
one. This emerging private tourism cluster also includes booming
businesses in home remodeling, furniture manufacturing, transportation
services and private dining and clubbing options.
But for Cuba to hit its 10-million tourism target, it will have to allow
international investors to participate in prime hotel and resort
locations—and overcome the resistance of state-owned hotel chains who
prefer to keep the juiciest investments for themselves. The government
will also have to fully accept that the private B&Bs are welcome
partners to the state-owned hotels in national tourism development.
Most importantly, a healthy national private sector is emerging: the
government has authorized some 500,000 Cubans to own their own
small-scale private businesses. I’ve had the good fortune to meet many
of these impressive millennials, across a wide variety of professions.
A visual designer, hard-working Yondainer Gutiérrez holds two jobs: as
an independent contractor for international clients, and as co-founder
and CEO of the Cuban online restaurant directory AlaMesa (to the table).
In 2012, Yamina Vicente transitioned from university teaching to
launching Decorazón (from the Spanish for decoration and corazón, or
heart), an event planning business. Her business now encompasses a
network of some 18 private subcontractors.
Many more well-educated Cubans could exercise their entrepreneurial
talents—when the government finally relaxes restrictions that force
lawyers, engineers, architects, and other white-collar professionals to
work exclusively in government offices.
In each of these promising economic sectors—agriculture, energy,
healthcare, IT, the creative arts, tourism, and private enterprise—many
Cubans know what needs to be done. But the politics is more challenging
than the technical economics. Can Cuban reformers persuade the old guard
to loosen its grip and risk change?
With smart, agile leadership and a little luck, Cuba could keep its best
and brightest and ensure sustainable prosperity for those who bet on
their beloved homeland.
Richard E. Feinberg, is a nonresident senior fellow in foreign policy at
the Latin America Initiative of the Brookings Institution.
Source: Time for Cuba to Implement Economic Reforms | Global Trade