Phil Peters on Cuba's Economic Debate

Will Raul Castro Reform Cuba’s Economy?

Philip Peters
Cuba Policy Report
Sep 25, 2007
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Talk to anyone who worked with Raul Castro, or anyone clued in to the process that produced Cuba’s economic reforms in the early 1990’s, and you get the same story: that he supported those reforms and is not averse to the use of market mechanisms to improve Cuba’s economy.
But with his brother in power, we could never know Raul’s preference for Cuban economic policy if he were in charge.

That may soon change.

Fidel Castro has not appeared in public for more than a year, and in the video released last week he doesn’t appear capable of taking back the reins of executive power that he delegated in July 2006.

With Raul Castro now serving as interim chief executive, Cuba is engaged in an economic policy debate of potentially great consequence. (To follow this issue, check out my blog, The Cuban Triangle.)

Fidel Castro started this debate, but the longer it goes on the more it seems to follow a path that he would not have planned.

Delivering his last major policy speech in the formal lecture hall of the University of Havana in November 2005, Fidel confronted his generation’s mortality. “The veterans are disappearing,” he said, “and making room for new generations of leaders.” He asked whether socialism is “irreversible,” and his answer was clear. “This revolution can destroy itself,” he said. “We can destroy it, and the fault would be ours.”

To ensure the long-term political survival of socialism, Fidel argued, Cuba needed to put its economic house in order.

At the time of that speech, Cuba was reaping the benefit of Venezuelan oil, high nickel prices, and stronger tourism revenues. With breathing space, Fidel was asserting his orthodox economic thinking. He reduced the number of joint ventures with foreign investors by about 100, and squeezed Cuba’s small entrepreneurial sector.

In the speech, he detailed the black-market activity that pervades Cuba’s economy, from pilfered inventories to off-the-books entrepreneurship, and he wanted to put an end to it. He called for more control and policing. He threatened to close Cuba’s remaining private restaurants and to give a “Christian burial” to private taxis that help Cubans get to work amid insufficient public transit. He planned to deploy teenage “social workers,” who were already watching the till in gas stations, to combat corruption in bakeries, pharmacies, and cafeterias.

But then Fidel fell ill, delegated executive power, and left public view.

As interim leader, his brother Raul made the economy his priority, telling Cuba’s legislature that he is “tired of excuses.” He settled the state’s debts to farmers and tripled prices paid to milk and beef producers. He ended abusive pricing at Cuba’s airports, where high landing fees and refueling charges were making Cuba a less competitive tourism destination. He changed customs regulations to allow Cubans to receive video equipment and car parts from relatives overseas – a change in direction from a policy that seemed to seek to squeeze every possible bit of revenue from visitors. Rather than “bury” private taxis, he ordered police to stop harassing them – a small step, but the first bit of good news that Cuba’s entrepreneurs have received in years. Private restaurants remain open. Fidel’s social workers returned to their normal jobs.

And under Raul, the debate about Cuba’s economic future took a different turn.

Articles in official media showed that many of Cuba’s socialist enterprises are dysfunctional, abusing consumers, and able to operate only because employees use black-market fixes to keep them going.

Officials took up the discussion of the black market, but unlike Fidel, they aren’t scapegoating “egotists” and “cheapskates” who skirt the law. Raul Castro and others argue that Cubans resort to “indiscipline” because they can’t make ends meet with meager state salaries. There’s a big difference between blaming greed and saying people deserve a day’s pay for a day’s work. There’s also a big difference between targeting the black market and targeting a root cause, which is the stark inequality of income in Cuba’s workforce.

Last July 26, Raul Castro gave his first major policy speech. He told folksy stories about milk and farm production that ridiculed the bureaucracy and low productivity of state agriculture. He stated a need to examine and expand the practices that work in the agriculture sector, which would imply an expansion of private farming, where productivity is highest. He called for increased foreign investment. He called for “structural changes” which, in Marxist terms, could imply a change in property relations and a selective shift away from state ownership. He closed by quoting Fidel, seven years ago: “Revolution is a sense of the historical moment, it is to change all that must be changed.”

This speech was preceded by a process where the party, state enterprises, research centers and other institutions across Cuba were summoned to describe problems and solutions that would raise output, productivity, living standards. It was followed by grass-roots discussions now taking place in workplaces, union locals, and neighborhood Communist Party units.

This debate is producing proposals that were taboo one year ago: to expand private agriculture and small enterprise and provide micro-credits, have the state stop providing services it provides poorly, grant autonomy to state enterprises, expand foreign investment. Some of the proposals and calls for change have emerged on foreign websites and in interviews with foreign media, and through the Internet these ideas have recirculated in Cuba.

Having unleashed this debate and highlighted fundamental economic problems, Raul Castro has yet to make major decisions. That will likely occur once his own policy team completes its work and, as one Cuban economist argues, “political consensus” is obtained.

Cuba’s political system has an orthodox wing – its detractors call it the “Taliban” – and there are indications that its weight is felt in the current debate. A new salary policy, geared toward increasing state salaries so workers could cover their basic needs without outside income, was promised for June 2007 but not delivered. A study of “socialist property” that could promote fundamental reforms was initiated last fall, but later it was announced that its results would come “within three years.” And the sharpest comment in Raul Castro’s July 26 speech – that instead of guaranteeing milk to children only, Cuba’s goal should be to supply milk to all who want it – was dropped from the text printed in Cuban newspapers the next day.

Taking all this into account, it is my view that Cuba will initiate some degree of economic reform during the coming year.

I reach this conclusion for three reasons.

First, while there are differing opinions within the Cuban political system regarding economic policy, there is consensus that something must be done – for both political and economic reasons – to address the unfinished business of the reforms of the 1990’s, especially income inequality. That task requires a degree of economic growth that small-scale changes cannot provide.

Second, if the Cuban government’s intention were to stand pat, it would surely be directing an old, tried-and-true message to the Cuban people now: that Cuba is besieged by a hostile U.S. Administration that perceives weakness, and this is a time to concentrate on defense and to avoid experimentation in domestic policy. But Raul Castro’s message has been the opposite.

That is because, third, as more and more time has passed with Fidel Castro offstage, Raul Castro has steadily raised expectations for policy changes that will improve Cubans’ daily lives. He has done so through small initial policy steps, through his public speeches, and now by pushing a discussion of economic problems and “structural changes” to Cuba’s grass roots organizations. It is hard to conceive that a politician in any political system, much less one in Raul Castro’s circumstance today, would embark on a strategy of raising expectations to this degree if his intention were not to deliver results. It bears noting that Raul Castro has tempered expectations by telling the Cuban people not to expect dramatic improvement overnight.

There are two kinds of policy change that could liberate productive energies and yield positive results in Cuba. One is administrative change that would make the state sector more productive: decentralization, greater flexibility for state enterprises, new policies to bring more foreign investment. The other would involve granting more space for private economic activity. My guess is that we will see a combination, with initial moves in the agriculture sector.

A turn to significant reform would change the trajectory of Cuba’s domestic policy and would carry political implications in Cuba and abroad. The Cuban public would surely welcome an economic improvement and the government gain support. And those who have called for change in Cuban policies – dissidents, the Bush Administration, European governments – would have to decide how to react.

President Bush is awaiting the day when “the good Lord will take Fidel Castro away” and views that day as a moment of opportunity for the United States and others to exhort Cubans to change their political system. He may be waiting for a moment that, in practical political terms, has already passed. Change in Cuba, however gradual, is far likelier to come from within the system itself as it grapples with its economic future and the prospect of Fidel Castro’s entire generation soon leaving the scene.




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