Where is Cuba going?

By Paul Richard, Axis of Logic

Axis of Logic exclusive

Sunday, Oct. 27, 2013

Let’s start with some basic truths:

Cuba has a controlled and managed economy. So does everyone else. There is not a jurisdiction on this planet that doesn’t interfere in what the ‘free market’ proponents allege should be the unfettered movement of goods and services. Not one.

Every country controls banking and interest rates, in one manner or another; every country imposes some level of restrictions on imports and exports; every country taxes its citizens and, sometimes, the sale of goods and services. Even the United States – the putative bastion of the free market – has, since 1995, passed more than 65,000 market regulations and created more than 600 government agencies to oversee them. That’s some free market you’ve got there, folks. Every country manipulates its economy to the advantage of someone. Cuba’s great sin is that it prefers to manipulate its market to the advantage of its own common people.

The world has long been critical of the efforts of Cubans to exercise control over their country and the welfare of their people. The critics either miss or ignore the irony that they do exactly the same thing; but they do it for different masters. Cuba manages in order to provide for the people; most countries manage in order to take from the people.

Cuba’s defenders often point to the brutal U.S.-trade embargo levied against the island and the pressure the US has exerted on other nations to support the embargo. Despite that, Cuba has managed to survive. While even they would admit it has not been easy, and not altogether successful, the Cuban government has shown the world that it is entirely possible to survive in the face of an onslaught from the world’s biggest bully.

It should be remembered that the US embargo is not merely to prevent goods from entering or leaving Cuba. It also affects Cuban currency, making it untradeable on the world market. That has caused them to scramble for foreign (mostly US) dollars, and led to the country creating two currency systems. That gained huge urgency after the demise of the former Union of Soviet Socialist Republics when Cuba lost its largest trading partner and its greatest access to world markets, including currency. Cuba is acknowledging now that the effects of the dual currency have not been positive, and they are seeking ways to reform it. Inequalities arose because of the dual system and this is exactly what the system was intended to avoid.

So now, Cuba is changing. For the most part, the steps they are taking appear to signal a tacit acceptance that they should no longer wait for the United States to grow up and learn to play nice with its neighbours; they are embarking on reforms that appear to assume that’s never going to happen. The one thing that is not up for debate is whether Cuba will abandon its socialist principles: It will not, and the vast majority of its citizens don’t want it to.

Yet when critics of Cuba look at the transformations currently underway in the island’s economy, there is a tendency to salivate and to crow that Capitalism has won, Communism has been defeated. You might want to put away that smirk, you guys; you’re wrong.

In most countries, there is a small cabal of elites who control everything. How well that serves the people varies widely – from the all-encompassing compassionate socialism of Scandinavia and Finland, to the rapacious and voracious capitalist trough wallowed in by the US.

And Cuba also has a group of elites – to which anyone who is willing to adhere to the basic rules of Cuban society can belong. So it was amazing to watch the five-month ‘congress’ that took place in 2010-2011 wherein some 8 million people were given input into the direction that Cuba should move in order to get ahead.

This all starts from a position of natural weakness. Cuba is lacking in natural resources, produces little that allows it to trade with other countries, and still does suffer from an inability to freely interact with its closest neighbours (owing to the US embargo). A major part of its economy derives from tourism, with the largest group of travellers – by far – coming from Canada. We here have never adhered to the US embargo and our cold winters make inexpensive vacations to Cuba very attractive. [Secretly, in the many trips I’ve made to Cuba I had a certain pleasure in knowing that it’s off-limits to my closest southern neighbours. I didn’t miss them.]

And Cuba is doing much to enhance its attractiveness as a vacation paradise. Already, many resorts are foreign-owned and non-US companies are in great evidence on the island. [Despite the fabled presence of pre-Revolutionary American cars on the road, most cars – and there are a lot of them – are quite new models of Mitsubishi, Toyota, Kia, and so on. The pre-Revolutionary Dodges and Fords are still in operation, but they are more of a tourist attraction these days.]

When I was there last, a Cuban I met showed me with pride a power-generation facility constructed by Cubans and Canadians, and largely funded by donations from Canada. Canada is not alone in trying to help Cuba make the best of its situation; but, for the record, Canada’s actions are certainly not altruistic – we are seeking profit. But we are at least willing to provide assistance and take a reasonable profit, rather than load up our trucks with the customary capitalistic theft.

In all cases, though, the state insists in 51% control of foreign enterprises. Until recently – read further below.

But the facts remain that Cuba’s resources are few, and it’s nearest neighbour is obnoxious. The current leadership has acknowledged there have been failures, and mistakes made. They have acknowledged that bureaucracy and corruption have crept in in some places. Fidel Castro himself notes that not everything worked as intended or expected, and changes need to be made. Fidel says that he is now too old to embark on major overhauls and, in a gentle way, hints that his brother Raúl may be too old as well. And, in that regard, the brothers welcome the input and contributions of a younger administration – one that has only known the current system and is not misled by false reminiscences of pre-Revolutionary ‘good times’. They know better.

The most recent move of Cuban authorities to raise eyebrows abroad has been the establishment of a ‘Special Economic Zone’ in the port of Mariel, about 45 km west of Havana. Within this zone, foreign companies will be permitted to transfer their profits abroad without paying taxes or tariffs to Cuba. And in this zone, foreign companies can be 100% owned and controlled by foreigners with contracts enacted up to 50 years in duration. Critics point to the fact these special zones exist elsewhere in the world, with a spotty record on whether they are of benefit to the host country. In fact, critics argue there have been more misses than hits.

The idea behind the project is that foreign companies ship raw materials into the zone where Cuban workers can manufacture or assemble them into finished products that are destined to be exported for sale elsewhere. In other words, to produce Cuban employment. The hope is that the net benefit to Cuban workers will create economic stimulus in the local economy that is greater than the taxes and tariffs that Cuba will forgo.

Again, this has proved successful in some places but not others, so there is definitely a risk being undertaken by the Cuban authorities. It has to be assumed that Cuba can make this work – they have survived in the face of great hardship and managed to keep afloat so there is a reasonable expectation that if this is doable, it is certainly doable here. To find examples of success, look no further than the free zones in South Korea, Dubai, and China.

This particular zone is to be developed by Brazilian capital, and managed by a Singapore-based firm.

Those who look at Cuba from the outside often remark that average earnings in the country are low, availability of consumer goods is sometimes challenged, and Cuban entrepreneurs are discouraged. Well, that last point is no longer true as the enterprising spirit of Cubans has been given some new freedoms since 2011. And critics often overlook the extensive and successful public education and domestic biotech and medical industries that are extremely strong in Cuba. The island has become a hive for medical tourism and the export of Cuban medical technology (and personnel) is thriving. Indeed, Cuba trades medical expertise with other Latin American nations – to the benefit of all parties.

I think it is fair to say that those who long for the day that Cuba undoes its revolution should not hold their breath. Cuba is full of clever people, capable of making something out of not much. And they will continue to progress and to succeed without turning their backs on the real needs of real people. Wherever it is that Cuba is going, it isn’t over to the dark side of brutal oligarchy or casino capitalism. Their socialism might change, but it will remain socialism.

Paul Richard Harris is an Axis of Logic editor and columnist, based in Canada. He can be reached at paul@axisoflogic.com.

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