At first glance, Cuba’s basic political and economic structures appear as durable as the midcentury American cars still roaming its streets. The Communist Party remains in power, the state dominates the economy, and murals depicting the face of the long-dead revolutionary Che Guevara still appear on city walls. Predictions that the island would undergo a rapid transformation in the manner of China or Vietnam, let alone the former Soviet bloc, have routinely proved to be bunk. But Cuba does look much different today than it did ten or 20 years ago, or even as recently as 2006, when severe illness compelled Fidel Castro, the country’s longtime president, to step aside. Far from treading water, Cuba has entered a new era, the features of which defy easy classification or comparison to transitions elsewhere.
Three years ago, Castro caused a media firestorm by quipping to an American journalist that “the Cuban model doesn’t even work for us anymore.” Tacitly embracing this assessment, Fidel’s brother Raúl Castro, the current president, is leading a gradual but, for Cuba, ultimately radical overhaul of the relationship between the state, the individual, and society, all without cutting the socialist umbilical cord. So far, this unsettled state of affairs lacks complete definition or a convincing label. “Actualization of the Cuban social and economic model,” the Communist Party’s preferred euphemism, oversells the degree of ideological cohesion while smoothing over the implications for society and politics. For now, the emerging Cuba might best be characterized as a public-private hybrid in which multiple forms of production, property ownership, and investment, in addition to a slimmer welfare state and greater personal freedom, will coexist with military-run state companies in strategic sectors of the economy and continued one-party rule.
A new migration law, taking effect this year, provides a telling example of Cuba’s ongoing reforms. Until recently, the Cuban government required its citizens to request official permission before traveling abroad, and doctors, scientists, athletes, and other professionals faced additional obstacles. The state still regulates the exit and entry of professional athletes and security officials and reserves the right to deny anyone a passport for reasons of national security. But the new migration law eliminates the need for “white cards,” as the expensive and unpopular exit permits were known; gives those who left the country illegally, such as defectors and rafters, permission to visit or possibly repatriate; and expands from 11 months to two years the period of time Cubans can legally reside abroad without the risk of losing their bank accounts, homes, and businesses on the island.
This new moment in Cuba has arrived not with a bang but rather on the heels of a series of cumulative measures -- most prominent among them agricultural reform, the formalization of a progressive tax code, and the government’s highly publicized efforts to begin shrinking the size of state payrolls by allowing for a greater number of small businesses. The beginnings of private credit, real estate, and wholesale markets promise to further Cuba’s evolution. Still, Cuba does not appear poised to adopt the Chinese or Vietnamese blueprint for market liberalization anytime soon. Cuba’s unique demographic, geographic, and economic realities -- particularly the island’s aging population of 11 million, its proximity to the United States, and its combination of advanced human capital and dilapidated physical infrastructure -- set Cuba apart from other countries that have moved away from communism. It is perhaps unsurprising, then, that Cuba’s ongoing changes do not resemble the rapid transition scenario envisioned in the 1996 Helms-Burton legislation, which conditioned the removal of the U.S. embargo on multiparty elections and the restitution of private property that was nationalized in the 1960s. In this respect, Washington remains more frozen in time than Havana.
Cuba’s reforms might appear frustratingly slow, inconsistent, and insufficient to address its citizens’ economic difficulties and desires for greater political participation. This lack of swiftness, however, should not be taken as a sign that the government has simply dug in its heels or is ignoring the political stakes. The response of Cuban leaders to their country’s vexing long-term challenges has involved strategic thinking and considerable debate. Indeed, the next few years will be crucial. As the 53-year-old Miguel Díaz-Canel, the current vice president and Castro’s newly designated successor, recently noted, Cuba has made “progress on the issues that are easiest to solve,” but “what is left are the more important choices that will be decisive in the development of [the] country.”
Those fundamental dilemmas include the following: How can Cuba attract and manage the foreign investment it urgently needs while preserving its hard-fought sovereignty? How much inequality will the island’s citizens tolerate in exchange for higher productivity and greater opportunities? And even if the Communist Party manages to take a step back from day-to-day governance, as Castro insists it must, how will Cuba’s leaders address the long-simmering pressures for greater transparency, public accountability, and democratic participation? If the recent past is prelude, Cuba will likely continue on its gradual path toward a more open, pluralistic society, while preserving its foreign policy independence.
REFORM WITH CUBAN CHARACTERISTICS
From the moment he assumed provisional power in 2006, Raúl Castro has spoken bluntly about Cuba’s predicament. “We reform, or we sink,” he declared in a characteristically short and pointed 2010 national address. Even as Havana sticks to its central political conviction -- namely, that the Communist Party remains the nation’s best defense against more than a century of U.S. interference -- terms such as “decentralization,” “accountability,” and “institutionalization” have become buzzwords, not taboos. Whereas in the 1990s, Havana was willing to permit only limited private enterprise as an emergency measure, the government now talks openly of ensuring that 50 percent of Cuba’s GDP be in private hands within five years. Realistic or not, such ambitious goals would have been sacrilege less than ten years ago. Already, the representation of Cuban small-business owners in the country’s National Assembly and their participation in the annual May Day parade offer evidence of changes under way.
The reforms have yielded several modest successes thus far. After facing sharp liquidity and balance-of-payments crises in the wake of the 2008 global financial meltdown, Cuba has succeeded in restoring a modicum of financial stability, resuming its debt payments, sharply cutting its imports, and beginning the arduous task of reducing public expenditures. Several key strategic investments from international partners -- most notably, the refurbishing of Mariel Harbor, with the aid of Brazilian capital, to transform it into a major container shipping port -- are moving forward on schedule. Meanwhile, a new state financial accountability bureau has begun the hard task of weeding out endemic corruption.
Nevertheless, Cuba faces serious obstacles in its quest for greater economic vitality. Unlike China and Vietnam at the start of their reform efforts, Cuba is an underdeveloped country with developed-world problems. Not only is the population aging (18 percent of the population is over 60), but the country’s economy is heavily tilted toward the services sector. When Vietnam began its doi moi (renovation) economic reforms in 1986, services accounted for about 33 percent of GDP, whereas the productive base represented nearly 67 percent. By contrast, services in Cuba make up close to 75 percent of the island’s GDP -- the result of 20-plus years of severe industrial decay and low rates of savings and investment. Service exports (mainly of health-care professionals), combined with tourism and remittances, constitute the country’s primary defense against a sustained balance-of-payments deficit.
Cuban officials and economists recognize this structural weakness and have emphasized the need to boost exports and foster a more dynamic domestic market. Yet so far, the state has not been able to remedy the imbalance. In the sugar industry, once a mainstay, production continues to flounder despite a recent uptick in global prices and new Brazilian investment. Meanwhile, a corruption scandal and declining world prices have weakened the nickel industry, leading to the closing of one of the island’s three processing facilities. More broadly, Cuban productivity remains anemic, and the country has been unable to capitalize on its highly educated work force.
Although important, the expansion of the small-business sector cannot resolve these core issues. There are now 181 legal categories for self-employment, but they are concentrated almost exclusively in the services sector, including proprietors of independent restaurants, food stands, and bed-and-breakfasts. Start-up funds are scarce, fees for required licenses are high, and some of the legal categories are senselessly specific. It also remains unclear whether the chance to earn a legitimate profit will lure black-market enterprises out into the open.
No surprise, then, that the expansion of self-employment has not yet enabled the state to meet its targets for slimming down its bloated payrolls. In late 2010, Castro pledged to eliminate 500,000 state jobs in the first six months of 2011, with an eye to incorporating over 1.8 million workers (out of a total estimated work force of 5.3 million) into the private sector by 2015. But the government managed to eliminate only 137,000 positions that first year. Still, the reforms are making a serious impact. Small businesses currently employ some 400,000 citizens, an increase of 154 percent since the liberalization of self-employment began in October 2010. To spur further growth, moreover, authorities recently launched a wholesale company that will allow emerging enterprises to purchase supplies on the same terms as state-run companies, thus addressing a major complaint of business owners.
To supplement these gains, Cuba needs to continue rebuilding its productive capacities in core areas such as agriculture. Before Raúl Castro came to power, approximately 20 percent of the cultivable land in the country lay fallow and Cuba imported half its domestic food supply -- a significant part of which came from the United States, under a 2000 exception to the trade embargo. To increase domestic production, the state has handed over more than 3.7 million acres of land to private farmers, whose crops now account for 57 percent of the total food production in the country despite their occupying just under 25 percent of the arable land. Yet aggregate food-production levels in most basic categories still hover at or slightly below 2002 levels.
More promising is the investment to renovate Mariel Harbor, led by the Brazilian conglomerate Odebrecht, with backing from the Brazilian National Development Bank. Cuba is hoping to position itself as a major shipping hub in the Caribbean. Located between the Panama Canal and points in the United States and Europe, the enormous, deep-water port at Mariel is ideally situated to handle trade with the United States and beyond in a post-embargo world. In addition, four Brazilian pharmaceutical companies have signed on to produce medicines in the port’s vicinity for direct export to Brazilian and other markets. Still, if the U.S. embargo remains in place, the long-term benefits of the Mariel investment will be limited.
The port project underscores some of the broader dilemmas constraining foreign investment in Cuba and the country’s overall growth prospects. Havana designated Mariel as a special economic development zone -- an area where foreign companies are given special incentives and prerogatives -- in an effort to attract badly needed investment dollars. Cuban officials also aim to take advantage of the country’s well-educated population and establish investment zones geared toward high-tech innovation and other high-value-added activities, such as biotechnology. Yet without links to local industries, such investment zones could become economic islands, providing employment to locals and income to the Cuban government but reduced multiplier effects.
The island’s dual-currency system makes the challenge all the more difficult. A byproduct of the circulation of U.S. dollars in the 1990s -- first in the black market, then legally -- the Cuban convertible peso (CUC) today functions as the currency of the tourist sector and is required for the purchase of many consumer items. For common Cuban citizens, the value of the CUC is pegged to the dollar, with one CUC equal to 25 Cuban pesos (CUP), the currency in which most state workers are paid. Consequently, citizens who receive hard currency from abroad or who earn money in CUC, such as workers who collect tips from foreign tourists, enjoy much higher incomes than workers who rely solely on salaries paid in CUP.
Even worse, the values of the CUC and the CUP are considered equal within and between state enterprises. This bizarre accounting practice helped insulate CUP prices from inflation during the depths of the economic crisis that followed the collapse of the Soviet Union, but today it makes it difficult for analysts and investors to estimate the real costs of doing business on the island or the value of state companies. Economists agree that the least disruptive way to move toward a single currency would be to gradually merge the two exchange rates in tandem with a steady rise in GDP and salaries overall. But in the meantime, the artificial one-to-one ratio within the state sector has the effect of overvaluing the CUP’s international exchange rate and thus decreasing the competiveness of domestic goods. Paradoxically, the dual-currency regime protects imports at the expense of domestic production.
Cuba’s recent reform of its migration law neatly encapsulates a number of the possibilities, limits, and implications of Castro’s larger agenda. Despite being both a sign of the state’s willingness to make strategic decisions and arguably the most important reform to date, the new law also underscores the uphill battles that remain and illustrates the difficulty of managing optics and expectations. As with most issues in Cuban society, the line between politics and economics is entirely blurred.
Faced with an exodus of educated professionals and capital from the country after the revolution, the Cuban government began heavily regulating the movement of its citizens abroad in the early 1960s. In light of émigrés’ direct involvement in attempts to unseat the Castro regime, often financed by the U.S. government, Havana treated migration as a matter of national security. For many years, those who succeeded in leaving, legally or illegally, had their property stripped by the state and could not, barring extraordinary exceptions, return home. Such restrictions left deep wounds.
Yet it has been a long time since Cubans on the island and off could be neatly divided between anticommunists and pro-Castro revolutionaries. Any visit to the Miami airport today attests to the strength of transnational ties; in peak season, over a hundred weekly charter flights carry Cubans and Cuban Americans between the two countries. Such travel, allowed under some circumstances since the late 1970s, has expanded considerably since 2009, when U.S. President Barack Obama lifted restrictions on family visits. In 2012, upward of 400,000 Cubans in the United States visited the island. And this is to say nothing of the hundreds of thousands of Cuban emigrants living across Latin America, Canada, Europe, and beyond who also visit and support family at home.
Indeed, by making it easier for Cubans to travel, work abroad, and then return home, Cuba’s new migration law is also meant to stimulate the economy. At an estimated $1 billion a year, remittances have been big business since the late 1990s, helping Cubans compensate for low salaries and take advantage of what few opportunities have existed for private enterprise. Now that the government has undertaken a wider expansion of the small-business sector, ties between the diaspora and the island are bringing an even greater payoff. Cubans abroad are already helping invest money in the window-front cafeterias, repair shops, and other small businesses popping up across the country. Some islanders are also sending their own money out of the country so that relatives can buy them consumer goods abroad.
Beyond redressing a deeply unpopular status quo, however, the new migration law has put the government in an awkward position. Assuming enough Cubans can afford the now reduced, but still comparatively high, fees associated with acquiring necessary travel documents, other countries -- principally the United States -- will need to continue receiving Cuban visitors and migrants in large numbers. Ironically, Havana has long criticized the special preferences granted to Cubans under U.S. immigration law for seeming to encourage and reward dangerous attempts to reach U.S. shores. Now, Cuba appears to benefit from such measures’ remaining on the books -- especially the one-year fast track to permanent residency established by the 1966 Cuban Adjustment Act. Under Cuba’s expanded two-year allowance for legal residency abroad, the more than 20,000 Cubans emigrating legally to the United States each year will be able to acquire green cards without necessarily giving up their citizenship claims, homes, or businesses on the island.
Small-time diaspora capital may prove easier to regulate and rely on than funds from multinational corporations driven strictly by profits. Under the repatriation provisions of the island’s new migration law, some Cubans may even retire to the island with their pensions and savings after decades of working abroad. Yet opening the doors for more young citizens to leave could prove risky for a quickly aging, low-birthrate society that has been suffering from a brain drain for some time. Besides, along with remittance dollars, Cuba urgently needs both medium and large investors. Ultimately, only larger outlays can help fix Cuba’s most fundamental economic problem: its depleted productive base. Castro appears to recognize that attracting foreign investment, decentralizing the government, and further expanding the private sector are the only ways to tackle this long-term predicament. The government is unlikely to proceed with anything but caution, however. Officials are wary of rocking the domestic political boat, and citizens and party leaders alike recoil from the prospect of more radical shock therapy. Rising public protests in China and Vietnam against inequality and rampant corruption have only reinforced the Cuban government’s preference for gradualism.
Striking an adequate balance will be no easy task. In late 2012, Havana legalized the creation of transportation cooperatives -- private, profit-sharing entities owned and manage by their members -- to fix bottlenecks in agricultural distribution. Meanwhile, 100 state enterprises are now running their finances completely autonomously as part of a yearlong pilot program. The government is also reportedly considering ways to offer a wider array of potential foreign partners more advantageous terms for joint ventures. But the Communist Party is working through numerous contradictions -- recognizing a place for market economics, challenging old biases against entrepreneurs, and hinting at decentralizing the budget while incongruously insisting, in the words of its official 2011 guidelines, that “central planning, and not the market, will take precedence.”
EASING OFF THE DADDY STATE
Curtailing the state’s economic role while preserving political continuity requires threading a delicate ideological needle. Although the government expects to continue providing Cubans with key social services, such as health care and education, party leaders have reprimanded the island’s citizens for otherwise depending too heavily on what one prominent official a few years ago called the “daddy state.” In the eyes of many Cubans, this is deeply ironic. Cuba’s revolutionary founders, who built up a paternalistic state in the service of equality, are now calling for that state’s partial dismantlement. What’s more, most Cubans already need to resort to the black market or assistance from family abroad to acquire many daily necessities.
That is not to say that the reforms have been conducted without popular input. In the run-up to the 2011 Sixth Congress of the Cuban Communist Party, the government convened an unprecedented series of assemblies across the country to hear citizens’ grievances and proposals for change and to discuss Castro’s agenda. Although multiparty elections are not on the horizon, this undertaking allowed for widespread and often contentious public debate, albeit within broadly “socialist” conceptual parameters. Despite defending one-party rule, Castro has also called on public officials to make themselves accessible to the state press, and he has asked the press, in turn, to drop its traditional triumphalism. In a similar vein, he has implored students to “debate fearlessly” and party members to “look each other in the eyes, disagree and argue, disagree even with what leaders say whenever [you] think there is reason to do so.” More recently, Díaz-Canel publically mentioned the impossibility of prohibiting the diffusion of news via social media and the Internet -- a sign that, for the government, the strategic benefit of facilitating wider Internet connectivity may well outweigh the usefulness of controlling access.
Reality has not yet caught up with this rhetoric. Debate in public among high-ranking Cuban officials remains rare, even if it is reportedly vigorous behind closed doors. Nor is it clear whether Cuba’s National Assembly can become a more consequential, deliberative branch of government. Public statements perceived to impugn the Cuban Revolution’s legitimacy remain taboo and are grounds for facing consequences in the workplace or even ostracism. Nevertheless, outside of high-level government bodies and the still largely anodyne daily press, diverse voices have pushed the terms of debate considerably in recent years, blurring the purportedly neat line dividing “revolutionary” and “counterrevolutionary” positions.
International attention tends to focus on Cuba’s small, self-identified dissident community, particularly a newer cast of digitally savvy activists and bloggers. Yet in a country where the Internet remains an expensive, highly regulated commodity, perhaps the most interesting, potentially consequential debates are transpiring among academics, artists, independent filmmakers, former officials, and lay religious leaders, particularly from the Catholic Church, whose websites, journals, and public forums are more accessible to the island’s population. In general, these actors do not propose a radical break with all of the revolution’s legacies, symbols, and narratives. They also maintain their distance from foreign, especially U.S. and Cuban American, financial support, which marks many dissidents as “mercenaries” in the eyes of the Cuban state. Yet they do so more out of political conviction than strategic calculus, refusing to accept the purported choice between towing the party line at home and collaborating with transition schemes concocted abroad.
Recently, a small group of Catholic moderates and reformist Marxists, brought together under the auspices of a church-sponsored cultural center, circulated a series of straightforward proposals for political reform online. These included allowing direct, competitive elections for all of Cuba’s major leadership positions (albeit with all the candidates coming from one party), unrestricted access to the Internet, freer media, more effective separation of powers in the government, and greater use of plebiscites on major government decisions. The proposals have provoked opposition from some defenders of the status quo while generating substantial support, interest, and debate among academics on the island.
Yet despite the unprecedented scope of these discussions, it is hard to predict whether they will produce much concrete change in the short term. Presently, they do not seem to be having much impact on the public, which pays less attention to them than do the orthodox keepers of the revolutionary faith. The explanation for ordinary Cubans’ disengagement has as much to do with apathy, inertia, self-preservation, and the material demands they face every day as it does with limited access to information and a curtailed right of assembly. After all, substantial numbers of Cubans watch Miami television stations via pirated recordings or illicit satellite hookups, yet they have so far proved no more likely to take to the streets than their neighbors who lack such access. Since the 1960s, the primary means for those disaffected or unsatisfied at home to register their opinion has been to emigrate -- particularly to the United States, given the multiple incentives for Cubans built into U.S. immigration law. As long as this pattern continues, Havana will have the political space to continue its reforms “without pause, but without haste,” in Castro’s formulation.
THE LAST ICICLE OF THE COLD WAR
As the migration issue shows, Cuba’s economic and political predicaments cannot be appreciated in isolation from its international context. The U.S. embargo remains a formidable obstacle to the island’s long-term economic prosperity, and it casts a long shadow over Cuban domestic politics. In the case of Vietnam, it was only after the lifting of the U.S. embargo in 1994 that the economy began to transform in earnest. Given Cuba’s proximity to the United States and its relatively low labor costs, a similar shift in U.S. law could have a profound impact on the island.
In January, U.S. Secretary of State John Kerry opened his confirmation hearing by celebrating his close collaboration with Senator John McCain (R-Ariz.) in overcoming the legacy of war in order to restore U.S. relations with Vietnam. Yet both Kerry and Obama still seem to defer to the outdated conventional wisdom on Cuba, according to which Washington cannot change its failed policy so long as Cuban Americans in Congress continue to oppose doing so. Reality, however, is already changing. These legislators’ constituents have started voting with their feet and checkbooks, traveling to the island and sending remittances to family there as never before. Several wealthy Cuban Americans, moreover, are now talking directly with Havana about large-scale future investments. As a Democrat who won nearly half of Florida’s Cuban American vote in 2012, Obama is in a better position than any of his predecessors to begin charting an end to the United States’ 50-year-long embargo.
The geopolitical context in Latin America provides another reason the U.S. government should make a serious shift on Cuba. For five years now, Obama has ignored Latin America’s unanimous disapproval of Washington’s position on Cuba. Rather than perpetuate Havana’s diplomatic isolation, U.S. policy embodies the imperial pretensions of a bygone era, contributing to Washington’s own marginalization. Virtually all countries in the region have refused to attend another Summit of the Americas meeting if Cuba is not at the table. Cuba, in turn, currently chairs the new Community of Latin American and Caribbean States, which excludes Washington. The Obama administration has begun laying out what could become a serious second-term agenda for Latin America focused on energy, jobs, social inclusion, and deepening integration in the Americas. But the symbolism of Cuba across the region is such that the White House can definitively lead U.S.–Latin American relations out of the Cold War and into the twenty-first century only by shifting its Cuba policy.
To make such a shift, however, Washington must move past its assumption that Havana prefers an adversarial relationship with the United States. Raúl Castro has shown that he is not his brother and has availed himself of numerous channels, public and private, to communicate to Washington that he is ready to talk. This does not mean that he or his successors are prepared to compromise on Cuba’s internal politics; indeed, what Castro is willing to put on the table remains unclear. But his government’s decisions to release more than 120 political prisoners in 2010 and 2011 and allow a number of dissident bloggers and activists to travel abroad this year were presumably meant to help set the stage for potential talks with the United States.
Meanwhile, the death of Hugo Chávez, the former Venezuelan president, and the narrow margin in the election of his successor, Nicolás Maduro, have made it clear that Havana has reasons of its own to chart a path forward with the United States. In the last decade or so, Cuba came to depend on Venezuela for large supplies of subsidized oil, in exchange for a sizable brigade of Cuban doctors staffing the Chávez government’s social programs. Political uncertainty in Caracas offers a potent reminder of the hazards of relying too heavily on any one partner. Havana is already beginning to branch out. In addition to financing the refurbishing of Mariel Harbor, the Brazilians have extended a line of credit to renovate and expand five airports across the island and have recently signed a deal to hire 6,000 Cuban doctors to fill shortages in Brazil’s rural health coverage. Even so, in the long run, the United States remains a vital natural market for Cuban products and services.
Of course, as the 1990s proved, even a huge financial setback may not be enough to drive Havana to Washington’s door. Half a century of U.S. economic warfare has conditioned Cuban bureaucrats and party cadres to link openness at home or toward the United States with a threat to Cuba’s independence. Some hard-liners might prefer muddling through with the status quo to the uncertainty that could come from a wider opening of their country.
The best way to change such attitudes, however, would be for Washington to take the initiative in establishing a new diplomatic and economic modus vivendi with Havana. In the short term, the two countries have numerous practical problems to solve together, including environmental and security challenges, as well as the fate of high-profile nationals serving time in U.S. and Cuban prisons. Most of the policy steps Obama should take at this stage -- removing Cuba from the list of state sponsors of terrorism, eliminating obstacles for all Americans to travel there, and licensing greater trade and investment -- would not require congressional approval or any grand bargain with Havana. Although it might be politically awkward in the United States for a president to be seen as helping Castro, on the island, such measures would strengthen the case that Cuba can stand to become a more open, democratic society without succumbing to external pressure or subversion. Deeper commercial ties, moreover, could have repercussions beyond the economic realm, giving internal reformers more leeway and increasing support on the island for greater economic and political liberalization.