Regional Integration and Private Sector Growth in Cuba: How Castro Looks to Modernize the Island’s Economy
by Alex Bernstein
On February 24, 2008, Raúl Castro replaced his brother, Fidel, as President of Cuba. In an efort to modernize the country’s economy, Castro has since carried out a set of drastic economic reforms which include the growth and deregulation of the private sector, ultimately leading to better relations with other nations in Latin America. While the reforms mark an enormous shift in policy of the communist government, they have been carried out at a tremendously slow pace and accompanied by obstacles which make economic success very difficult.(i) Further, it is not known whether the government will implement more reforms or if it is satisfied with the positive attention from other nations that accompanied the reforms. Cuba is now at a crucial point – Castro has shown a willingness to liberalize Cuba’s economy and now has the opportunity to further the process of democratization, which could put the nation in a position to catch up with the rest of the developing world.
The changes happening in Cuba are the result of decades of unsustainable economic policies implemented by the government. Following the Cuban Revolution in 1959, the government led by Fidel Castro dominated the economy, nationalizing and overseeing state-run enterprises in all industries for a half-century. While, following the collapse of the Soviet Union, Cuba has enjoyed a fruitful relationship with Venezuela, receiving millions of barrels of oil in exchange for thousands of doctors every year, the country’s production levels and efficiency remained extremely poor. Private business was prohibited, and average pay rates hovered around $20 per month (they are still around this level). While this is barely enough for most Cubans to get by, in return, they receive cheap food, housing, and transportation, free healthcare and education, and enjoyed extremely low crime rates. While Cubans enjoy these social benefits (especially the nation’s healthcare, which is the best in Latin America), they still do not enjoy the right to free press and continue to live in a country dominated by a single political party that frequently imprisons political opponents.
Upon entering office in 2008, President Castro acknowledged that the nation’s economic system was unsustainable. President Castro declared that “The growth of the non-public sector of the economy...will allow the state to focus on raising the efficiency of the basic means of production...while relieving itself from those management activities that are not strategic for the country.”(ii) While these reforms point toward a more free-market economy, or a “mixed” economy, the government maintains that it will remain faithful to the socialist principles of its constitution. Nevertheless, the government began by laying of one million workers (one-fifth of its workforce) in 2011, and it has since allowed Cubans to start small businesses and buy and sell real estate and automobiles. Around 200 private activities have been allowed and expanded, with nearly half of those allowing the private contractors to sell their services to government. Accountants, taxi drivers and construction workers are among the many whom no longer rely on the State, and certain businesses may now hire employees other than family members while receiving loans from the government.(iii)
More than half a million Cubans have signed up as entrepreneurs, yet the vast majority do not possess the tools necessary to run a business – management, accounting and marketing skills – because the state had been in charge of performing these duties in the past.(iv) Those who hope to take part in this free-market system are facing many challenges, such as poor infrastructure, obsolete banking practices, restrictions on trade and extremely high taxes.(v) The lack of a wholesale market for retailers to buy in bulk, and the continuous uncertainty about future conditions due to contradictions between old and new laws, in addition to the aforementioned, have created an immensely challenging business environment.
While it is clear that there are many challenges, the benefits of these reforms are witnessed not only in job creation and increased innovation, but also in the palpable sense of empowerment as more and more Cubans begin to work for their own success in a competitive business environment. Although it may appear that these reforms are anti-Revolutionary in nature, even supporters of the Revolution applaud the changes; while the attitudes of self-interest and competition so essential to a competitive private sector would seem to damage revolutionary values such as unity and solidarity, supporters think that the emerging wealth gives Cubans the ability to share and help others more- and in doing so, bring them together. The government is trying to spread the idea that the goal of these reforms is not to embrace capitalism, but instead to perfect socialism using its own model, rather than one based on China or the European nations.(vi) Supporters claim that at the end of the day, as long as those who are benefitting from the reforms are willing to share their wealth with other Cubans, the reforms actually do ft into the socialist framework of the Revolution.
But some skeptics think that instituting these reforms may just be a government effort to revitalize the Revolution, a ploy to give restless Cubans false hope for a brighter future. The old guard of the Communist Party is afraid to lose power, and if President Castro planned on enacting further reforms, they most likely would have come already. President Castro stated that he will not seek another term after his current one ends in 2018, and many believe that vice-president Miguel Diaz Canel will take over. If so, will Diaz Canel expand these free-market reforms? Or will the old method of restrictions on business and anti-Imperialist rhetoric resurface?
Much of this depends on Cuba’s relationship with the rest of the region, which has been mostly positive, at least where fellow Latin American countries are concerned. In January, Havana hosted the second summit of the Community of Latin American and Caribbean States (CELAC), during which many Latin American leaders expressed interest in tightening relations with Cuba. During her visit, Brazilian president Dilma Roussef cut the ribbon to open the Port of Mariel, the most modern port in the region, made possible by an $800 million loan from her country. This event illustrated the robust nature of the Brazil-Cuba relationship that had been blossoming in the preceding years. It also highlighted its reciprocal nature, and demonstrated gratitude for the services of thousands of Cuban doctors who were sent to underdeveloped communities in rural Brazil. Mexican President Enrique Peña Nieto also expressed interest in improving the shaky relations of the past decade, resulting in a meeting between two heads of state. Even the Secretary General of the Organization of American States (OEA) José Miguel Insulza attended at the summit, the first head of the OEA to do so since 1962. Te CELAC summit marks an enormous improvement in Cuba’s relations with the rest of the region, and is an encouraging sign for the continued economic development of the island.
The United States, as it is not a member of CELAC, did not have representation at the summit, and in fact openly criticized the lack of effort on the part of the attending nations to open dialogue about more sensitive topics, like Cuba’s poor human rights record. While integration between Cuba and other Latin American countries is important for Cuba’s economic growth, a good relationship with the U.S. is essential for continued Cuban development, as it is not only a natural trading partner due to its proximity to the island, but because the U.S. is and will continue to be the economic power house of the region. The Obama administration has eased many restrictions on U.S. citizens’ to travel to Cuba, and after a symbolic handshake between President Obama and President Castro in December it appeared the two nations were inching closer to a renewed relationship. Yet after the Cuban president offered to open a dialogue that same month to better relations, the U.S. responded that it would continue its firm policy of non-negotiation where the 53 year-old trade embargo is concerned, so long as the Castro government continues committing human rights abuses.
Will the embargo be lifted during Fidel or Raúl Castro’s lifetime, or will it be another decade? The fact is that Cuba is still governed by an oppressive regime that has no plans to give in to its “imperialist” North American neighbors. Nevertheless, President Castro has taken some minor steps towards improvement. His loosening of restrictions on leaving the island prompted the European Union to open dialogue that could potentially restore bilateral relations with several European countries. Further, a recent poll in the U.S. showed that a growing number of Americans wish to normalize relations with Cuba.(vii) This will not be enough for the Obama administration, however, which will stand firm on current policies until the Castro regime takes more steps to ensure Cubans are guaranteed their human rights. Regardless, the changes being implemented in Cuba are not likely to be reversed and will only expand in years to come, which will prove beneficial not only for Cubans, but for the rest of the region as well.
i. The Economist Newspaper. “Money starts to talk.” The Economist. July 2013.
ii. Muskus, Jef. “Cuba Details Free-Market Reforms.” The Huffington Post. TheHuffingtonPost.com, 24 Sept. 2010. Web.
iii. Ellingwood, Ken. “Yes, They’re Abierto: Cubans Open Their Doors to Small Business.” Los Angeles Times. Los Angeles Times, 05 Apr. 2012. Web.
iv. Ibid.
v. Frank, Marc. “Cuban State Begins to Move out of the Restaurant Business.” Reuters. Tomson Reuters, 26 Mar. 2013. Web. 31 Oct. 2013.
vi. Piccone, Ted. “Cuba Is Changing, Slowly but Surely.” The Brookings Institution.
vii. “La Mayoría En EE UU Apoya Normalizar Las Relaciones Con Cuba.” EL PAÍS. N.p., 11 Feb. 2014. Web.
by Alex Bernstein
On February 24, 2008, Raúl Castro replaced his brother, Fidel, as President of Cuba. In an efort to modernize the country’s economy, Castro has since carried out a set of drastic economic reforms which include the growth and deregulation of the private sector, ultimately leading to better relations with other nations in Latin America. While the reforms mark an enormous shift in policy of the communist government, they have been carried out at a tremendously slow pace and accompanied by obstacles which make economic success very difficult.(i) Further, it is not known whether the government will implement more reforms or if it is satisfied with the positive attention from other nations that accompanied the reforms. Cuba is now at a crucial point – Castro has shown a willingness to liberalize Cuba’s economy and now has the opportunity to further the process of democratization, which could put the nation in a position to catch up with the rest of the developing world.
The changes happening in Cuba are the result of decades of unsustainable economic policies implemented by the government. Following the Cuban Revolution in 1959, the government led by Fidel Castro dominated the economy, nationalizing and overseeing state-run enterprises in all industries for a half-century. While, following the collapse of the Soviet Union, Cuba has enjoyed a fruitful relationship with Venezuela, receiving millions of barrels of oil in exchange for thousands of doctors every year, the country’s production levels and efficiency remained extremely poor. Private business was prohibited, and average pay rates hovered around $20 per month (they are still around this level). While this is barely enough for most Cubans to get by, in return, they receive cheap food, housing, and transportation, free healthcare and education, and enjoyed extremely low crime rates. While Cubans enjoy these social benefits (especially the nation’s healthcare, which is the best in Latin America), they still do not enjoy the right to free press and continue to live in a country dominated by a single political party that frequently imprisons political opponents.
Upon entering office in 2008, President Castro acknowledged that the nation’s economic system was unsustainable. President Castro declared that “The growth of the non-public sector of the economy...will allow the state to focus on raising the efficiency of the basic means of production...while relieving itself from those management activities that are not strategic for the country.”(ii) While these reforms point toward a more free-market economy, or a “mixed” economy, the government maintains that it will remain faithful to the socialist principles of its constitution. Nevertheless, the government began by laying of one million workers (one-fifth of its workforce) in 2011, and it has since allowed Cubans to start small businesses and buy and sell real estate and automobiles. Around 200 private activities have been allowed and expanded, with nearly half of those allowing the private contractors to sell their services to government. Accountants, taxi drivers and construction workers are among the many whom no longer rely on the State, and certain businesses may now hire employees other than family members while receiving loans from the government.(iii)
More than half a million Cubans have signed up as entrepreneurs, yet the vast majority do not possess the tools necessary to run a business – management, accounting and marketing skills – because the state had been in charge of performing these duties in the past.(iv) Those who hope to take part in this free-market system are facing many challenges, such as poor infrastructure, obsolete banking practices, restrictions on trade and extremely high taxes.(v) The lack of a wholesale market for retailers to buy in bulk, and the continuous uncertainty about future conditions due to contradictions between old and new laws, in addition to the aforementioned, have created an immensely challenging business environment.
While it is clear that there are many challenges, the benefits of these reforms are witnessed not only in job creation and increased innovation, but also in the palpable sense of empowerment as more and more Cubans begin to work for their own success in a competitive business environment. Although it may appear that these reforms are anti-Revolutionary in nature, even supporters of the Revolution applaud the changes; while the attitudes of self-interest and competition so essential to a competitive private sector would seem to damage revolutionary values such as unity and solidarity, supporters think that the emerging wealth gives Cubans the ability to share and help others more- and in doing so, bring them together. The government is trying to spread the idea that the goal of these reforms is not to embrace capitalism, but instead to perfect socialism using its own model, rather than one based on China or the European nations.(vi) Supporters claim that at the end of the day, as long as those who are benefitting from the reforms are willing to share their wealth with other Cubans, the reforms actually do ft into the socialist framework of the Revolution.
But some skeptics think that instituting these reforms may just be a government effort to revitalize the Revolution, a ploy to give restless Cubans false hope for a brighter future. The old guard of the Communist Party is afraid to lose power, and if President Castro planned on enacting further reforms, they most likely would have come already. President Castro stated that he will not seek another term after his current one ends in 2018, and many believe that vice-president Miguel Diaz Canel will take over. If so, will Diaz Canel expand these free-market reforms? Or will the old method of restrictions on business and anti-Imperialist rhetoric resurface?
Much of this depends on Cuba’s relationship with the rest of the region, which has been mostly positive, at least where fellow Latin American countries are concerned. In January, Havana hosted the second summit of the Community of Latin American and Caribbean States (CELAC), during which many Latin American leaders expressed interest in tightening relations with Cuba. During her visit, Brazilian president Dilma Roussef cut the ribbon to open the Port of Mariel, the most modern port in the region, made possible by an $800 million loan from her country. This event illustrated the robust nature of the Brazil-Cuba relationship that had been blossoming in the preceding years. It also highlighted its reciprocal nature, and demonstrated gratitude for the services of thousands of Cuban doctors who were sent to underdeveloped communities in rural Brazil. Mexican President Enrique Peña Nieto also expressed interest in improving the shaky relations of the past decade, resulting in a meeting between two heads of state. Even the Secretary General of the Organization of American States (OEA) José Miguel Insulza attended at the summit, the first head of the OEA to do so since 1962. Te CELAC summit marks an enormous improvement in Cuba’s relations with the rest of the region, and is an encouraging sign for the continued economic development of the island.
The United States, as it is not a member of CELAC, did not have representation at the summit, and in fact openly criticized the lack of effort on the part of the attending nations to open dialogue about more sensitive topics, like Cuba’s poor human rights record. While integration between Cuba and other Latin American countries is important for Cuba’s economic growth, a good relationship with the U.S. is essential for continued Cuban development, as it is not only a natural trading partner due to its proximity to the island, but because the U.S. is and will continue to be the economic power house of the region. The Obama administration has eased many restrictions on U.S. citizens’ to travel to Cuba, and after a symbolic handshake between President Obama and President Castro in December it appeared the two nations were inching closer to a renewed relationship. Yet after the Cuban president offered to open a dialogue that same month to better relations, the U.S. responded that it would continue its firm policy of non-negotiation where the 53 year-old trade embargo is concerned, so long as the Castro government continues committing human rights abuses.
Will the embargo be lifted during Fidel or Raúl Castro’s lifetime, or will it be another decade? The fact is that Cuba is still governed by an oppressive regime that has no plans to give in to its “imperialist” North American neighbors. Nevertheless, President Castro has taken some minor steps towards improvement. His loosening of restrictions on leaving the island prompted the European Union to open dialogue that could potentially restore bilateral relations with several European countries. Further, a recent poll in the U.S. showed that a growing number of Americans wish to normalize relations with Cuba.(vii) This will not be enough for the Obama administration, however, which will stand firm on current policies until the Castro regime takes more steps to ensure Cubans are guaranteed their human rights. Regardless, the changes being implemented in Cuba are not likely to be reversed and will only expand in years to come, which will prove beneficial not only for Cubans, but for the rest of the region as well.
i. The Economist Newspaper. “Money starts to talk.” The Economist. July 2013.
ii. Muskus, Jef. “Cuba Details Free-Market Reforms.” The Huffington Post. TheHuffingtonPost.com, 24 Sept. 2010. Web.
iii. Ellingwood, Ken. “Yes, They’re Abierto: Cubans Open Their Doors to Small Business.” Los Angeles Times. Los Angeles Times, 05 Apr. 2012. Web.
iv. Ibid.
v. Frank, Marc. “Cuban State Begins to Move out of the Restaurant Business.” Reuters. Tomson Reuters, 26 Mar. 2013. Web. 31 Oct. 2013.
vi. Piccone, Ted. “Cuba Is Changing, Slowly but Surely.” The Brookings Institution.
vii. “La Mayoría En EE UU Apoya Normalizar Las Relaciones Con Cuba.” EL PAÍS. N.p., 11 Feb. 2014. Web.
