Open for Business

Building the New Cuban Economy

Richard Feinberg

• Publisher: Brookings Institution Press
• Year: 2016
• Print ISBN: 9780815727675
• eBook ISBN: 9780815727682
• Topic: Economics
• Subtopic: International Economics
• Index: Economics

90 miles off the coast of Florida a new revolution is afoot. This time instead of guerillas marching through the streets of Havana, it is a global economy that will revolutionize Cuba. Now open to the world, how will this nascent economy develop? Open for Business: The Cuban Economy after Castro, Richard Feinberg's new book, examines the Cuban economy from its long held and outdated economic model to its early steps into developing a dynamic market economy. He examines key issues like the role foreign investors will play, how Cubans will forge a path to entrepreneurship, and the roadmap from other emerging economies.
As Cuba's economy awakens from the post-Castro dream, it will do so on its own terms and with a flavor that is entirely Cuban. Feinberg's book speaks both to Cuba's legacy and to its new horizons on the world stage.

1

Cuba Opens a Door to the World

The United States Engages

On the morning of December 17, 2014, I was walking casually down a placid side street in Havana, making my way toward a gray, concrete building where a conference on relations between the United States and Cuba was entering its third and final day. I was one of a dozen or so U.S. scholars gathering in a large auditorium full of some 200 Cuban diplomats, scholars, and graduate students. As I approached the entrance way, I could sense a heightened energy in the air, a buzz of expectation. “What’s up?” I inquired.

“We’re expecting a big announcement later this morning.”

“No doubt something about Alan Gross [the United States Agency for International Development (USAID) contract worker being held by the Cubans allegedly for spying],” I ventured.

“Yes, maybe coupled with the release of the remaining Cuban Five [formerly five, now three Cubans convicted of spying on anti-Castro Cubans in Miami and being held in U.S. jails]. Won’t that be wonderful?” exclaimed a random Cuban standing outside the building entrance.

Then the stranger added, “We’ve been told that around 11 a.m. they will put up big screens and show ‘live’ the speeches of Obama and Raúl.”

That really caught my attention: jointly orchestrated presidential statements of this sort are very rare in international diplomacy. They were totally unprecedented in what for decades had been hostile relations between Washington and Havana. Maybe it’s something more than just a spy swap, I conjectured.

I had been arguing for several months that “the stars may finally be aligned,” that after so many disappointments and delays the Obama White House might now be well positioned to move forward decisively on U.S.-Cuban relations. “Raúl Castro Ruz, facing a weak economy, appeared genuinely interested in better relations,” I had told the Financial Times two weeks earlier.¹

But Obama and Castro would go even further than I had anticipated.

In the Havana auditorium, the Cubans naturally gave their own president first billing. While the presidential speeches were delivered simultaneously, first we watched Raúl, followed by the U.S. leader.

The image of the Cuban commander-in-chief sitting at an unadorned table was stark, spectacularly outdated in terms of visual media aesthetics. Eighty-three-year-old Raúl Castro, who had served as head of the Cuban armed forces his entire adult life, was wearing his light olive military uniform, with four visible stars on each epaulet. Hanging behind him were modest-sized pictures of Cuba’s national heroes, most notably Jose Martí. Castro chose to read his speech from pieces of paper that he held at an angle, apparently to facilitate his vision. He held a prepared text, making it clear to all Cubans that the speech he was about to read was official policy, approved by himself and the senior leadership, the all-powerful political bureau of the Communist Party of Cuba, which Raúl chaired as first secretary of the party’s Central Committee. He fully expected all Cubans to fall into line behind his authoritative pronouncement.

Raúl began cautiously, his demeanor sober. “Throughout these 56 years of Revolution, we have kept our unswerving loyalty to those who died in defense of our principles since the beginning of our independence wars in 1868. . . .”²

Then the Cuban president switched gears, relaying details of the phone conversation he had had the day before with President Obama, in which they made headway on “some topics of mutual interest for both nations.”

The first bombshell: “As Fidel promised on June 2001, when he said ‘They shall return!’ Gerardo, Ramon, and Antonio have arrived today to our homeland.” The Cubans in the audience screamed loudly. For years, the country had been plastered with posters of the “Five Heroes,” the five Cuban men being held in U.S. prisons for spying.

Raúl continued, “For humanitarian reasons, today we have also sent the American citizen Alan Gross back to his country . . . and [released] those persons whom the Government of the United States had conveyed their interest in,” referring to 53 political prisoners who were being released over a series of weeks.

And then, quickly, the central message: “We have also agreed to renew diplomatic relations . . . We propose . . . mutual steps to improve the bilateral atmosphere and advance towards normalization of relations, based on the principles of international law.” A second, much louder scream emerged from the stunned audience.

Their president continued, “We acknowledge our profound differences, particularly on issues related to national sovereignty, democracy, human rights, and foreign policy. I reaffirm our willingness to dialogue on all these issues . . . We must learn the art of coexisting with our differences in a civilized manner.”

The remarks were as brief as they were laden with historic impact. In unison, the ecstatic audience jumped to its feet and spontaneously sang the Cuban national anthem. Friends embraced, wet tears streamed down the cheeks of many. One Cuban colleague turned to me and whispered, “I feel such a relief, as though a huge burden has been lifted from my shoulders.” Another Cuban woman added, “I too feel as though a dark cloud has dissipated, for the first time in my life I can glimpse the sunlight.”

The remarks of President Obama were then broadcast. Again, the Cubans were very happy, but it was their own president who had marked the definitive break with the past. It seemed to be the dawning of a new era in Cuba’s relations with its mighty northern neighbor—and for many Cubans, the dawning of hopes for a brighter future. On the streets of Havana, groups of students could be seen marching behind the national flag, cheering and singing.

Cubans were so taken aback by the news that many thought it miraculous. Indeed, the date of the announcement was none other than the celebrated day of Saint Lázaro, the patron saint of cures and miracles, who is melded with the Afro-Yoruban-derived deity Babalú Ayé.

Henceforth in Cuba, this memorable day, a dramatic turning point in Cuban history, would be referred to as “17D” (diez y siete diciembre).

Other diplomatic missions in Havana were knocked off balance. So long as Americans had stood on the sidelines, other nationalities—Europeans, Brazilians, Canadians—had seized center stage in Havana’s diplomatic theatre. Suddenly, the 800-pound gorilla had stormed into the room, and other nations feared that their glory days were behind them.

Ambassadors from the European Union complained to me that the White House had not had the courtesy to at least inform them of the big announcement ahead of time (although the State Department had begun informing European capitals the previous evening). Some predicted that European investors would now rush in, before the big U.S. corporations arrived in force.

Later that week, a senior Chinese diplomat remarked to me with a smile, “Now we know why the Cuban government is projecting a high growth figure for 2015! They are anticipating a rush of U.S. tourists.”

The question remained, however: Why, after so many decades of mutual antagonism, had Washington and Havana suddenly decided to smoke the pipe of peace?

Why Now?

In the case of major diplomatic initiatives, especially ones that mark a sharp break with the past, there is often more than one explanation behind White House decisions. In this case, motivating factors included 1) international diplomacy, 2) changes under way within Cuba (and U.S. perceptions thereof), and 3) shifts in U.S. domestic politics. All of these elements had to come together, pushing in the same direction, to account for the dramatic policy shift.

A Latin American Ultimatum

At the 2012 Summit of the Americas in Cartagena, Colombia (best remembered for the misconduct of U.S. Secret Service agents), the Latin Americans ganged up on President Obama, demanding that Cuba be invited to the next summit or they would not attend—not that most Latin American leaders cared for Cuban communism, but most Latin Americans harbored a visceral dislike for the harsh U.S. commercial embargo against Cuba. Many diplomats felt that decades of implacable U.S. hostility had served only to hand the Castro government an excuse for internal repression; in their view, a policy of engagement would be more likely to produce positive change on the island. The Latin Americans wanted to fully reincorporate Cuba into inter-American institutions, and the periodic Summit of the Americas meetings were among the dwindling number of institutions from which Cuba was still excluded.

Initially, U.S. diplomats discounted the Latin American threat not to attend the next summit, scheduled for Panama City in April 2015. Just bluster for public consumption, they maintained. But as the date for the Panama meeting approached, the Latin Americans repeated their ultimatum: No Cuba, no summit.

President Bill Clinton had initiated the Summit of the Americas in Miami in December 1994. Although the conclaves of 34 heads of state and government moved around the capitals of the Western Hemisphere, the United States still played a leadership role at most meetings. In recent years, as Latin American governments formed various inter-American groupings that purposefully excluded the United States (and Canada), the Summit of the Americas meetings took on an even greater salience for U.S. diplomacy in the region.

So the White House was boxed in. To preserve the summits, it would have to accept Cuba at the table. But it did not want to risk a tense atmosphere where the president of the United States appeared to be sitting uncomfortably near a bitter antagonist, at the insistence of other (smaller and weaker) nations. There was a real danger that the other Latin American leaders would roundly applaud the Cuban representative, to the embarrassment of the U.S. delegation.

How to fix the entire setting? The answer: advance U.S. interests and follow through on a policy change President Obama had wanted to make for years by altering the very nature of the U.S.-Cuban relationship. Transform it from one of antagonism to one of, if not friendship, at least normality. Be courageous and extend an olive branch of peace and friendship. The Latin Americans would love it. Indeed they did. And Raúl Castro delivered in spades.

Once in Panama, Raúl took his turn to speak at the plenary session of leaders. He opened with a long list of traditional grievances against the United States. Listening live to his remarks in the Panama Convention Center, I was worried. “No, it’s not possible that Raúl is going to mess this up,” I said to myself. Just as my mood was turning to despair, Raúl paused and turned toward Obama, who was seated just a few yards away: “President Obama, I do not blame you. As you have said, you weren’t even born yet.” A nice gesture, I thought. Castro continued, rising to the dramatic moment: “I have read your books, Mr. President.” Castro smiled, “Not every word. . . .” And then the clincher: “But I have concluded that you are an honest man, a man true to his humble origins. . . . I admire him.”

It was a remarkable tribute from a proud communist revolutionary to the leader of the free world, and a far cry from the more traditional Marxist analysis, so frequently uttered by Fidel Castro, that all U.S. presidents, regardless of their initial intentions, were or inevitably became tools of American capitalism and imperialism and hence hostile to Cuban socialism and independence.

For the rest of the summit, Barack Obama was a widely respected figure—and he will likely remain so throughout Latin America and the Caribbean for the remainder of his presidency. He will be seen as the courageous man who had stood down the powerful lobby of right-wing Cuban Americans, the brave, open-hearted U.S. leader who was willing to accept political diversity in the hemisphere, even at the doorstep of the United States. The smarter minds in Latin America well understood that the United States was acting out of strength and self-assurance. They knew that over time, the United States would change its Cuba policy, but it was Cuba itself—its internal affairs—that would eventually undergo the most profound change.

New Cuban Rhythms

When Fidel Castro fell seriously ill in 2006, his younger brother, Raúl, stepped into the breach as acting president, formally becoming president in his own right in 2008. In comparison to Fidel, who displayed unshakeable ideological affinity for socialist planning and visceral antagonism to the United States and international business, Raúl showed himself to be a cautious pragmatist. He allowed a small-business private sector to emerge, permitted markets in residential real estate and cars, allowed most Cubans to travel abroad without special exit permits, and began to make noises about seeking more foreign investment. Cuban cities started to buzz with new businesses, and citizens no longer feared voicing their criticisms of the regime’s poor economic performance.

The U.S. Interests Section (a diplomatic representation short of an embassy) was slow to report on these departures. It housed little expertise in economics, instead maintaining a standard focus on human rights abuses. It reminded me of the U.S. compound in the Soviet Union during the mid-1980s, when most residents, whether diplomats or journalists, discounted the changes being engineered by Mikhail Gorbachev: “We’ve seen these piecemeal reforms before, they are superficial and easily reversed,” was a common refrain.

So I had taken it on myself to investigate the economic reforms under way in Cuba, and to explain them in three separate monographs, published by the Brookings Institution during 2011–13 and widely disseminated in Washington policy circles.³ I gave one of them to the lead policy adviser for Latin American affairs at the National Security Council (a position I had held during the administration of Bill Clinton). He called a few days later and asked that a half-dozen copies be delivered to the White House, so that he could distribute them around to his colleagues.

When a country begins the transition from an authoritarian top-down economic model toward a more market-driven system, U.S. diplomats reflexively seek to assist the pro-reform factions and to bolster incipient private enterprise. Once the U.S. government began to see such an opportunity emerging in Cuba, the forward-leaning officials naturally wanted to engage. The White House began to consider the obstacles—in U.S. politics and in U.S.-Cuba relations—that stood in the way of initiating a new era of positive engagement. But to shift its policy on Cuba, the White House first had to remove the political obstacles strewn throughout the complex, contentious U.S political system.

The handoff from Fidel to Raúl—brothers with remarkably different personalities—was another critical factor in creating an opening for a U.S. policy shift. Fidel Castro had proven repeatedly that he relished an antagonistic relationship with the United States. When Bill Clinton began to ease restrictions in February 1996, Castro ordered the shoot-down of two small civilian planes piloted by Brothers to the Rescue, a provocative exile group based in Miami. The Cubans had repeatedly urged the U.S. government to halt the flights, warning of consequences. Nevertheless, the Cubans had other options, such as buzzing the unarmed aircraft or forcing them to alter their flight path. Surely, Fidel, who served as his own well-informed desk officer for U.S. politics, appreciated that a deadly shoot-down would stop Clinton in his tracks and sour bilateral relations. Fidel had met with senior aides shortly before the shoot-down and had asked: “Who here thinks we are prepared for good relations with the United States?” Not sure what the correct answer was, the aides remained silent, until one responded, “No, comandante, we are not.” “Correct!” proclaimed Fidel. The shoot-down decision also coincided with a domestic crackdown on political opponents.

Despite a reputation for being tough, even ruthless at times, Raúl seemed less likely than his older brother to indulge in histrionics and sudden reversals. Raúl promised to be a more reliable interlocutor. And for several years Raúl had been making noises about wanting a more normal relationship with the United States. Furthermore, Raúl had very good, hard ...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• Map of Cuba
• 1. Cuba Opens a Door to the World: The United States Engages
• 2. The Old Cuban Economy and Raúl Castro’s Efforts to Fix It
• 3. Dancing with Many Partners: Good Balance, Poor Execution
• 4. Opening to Foreign Investment: New Portfolio Opportunities
• 5. Joint Ventures in Cuba: Seven Case Studies
• 6. Emerging Entrepreneurs and Middle Classes
• 7. Millennial Voices: Ambitions and Visions
• 8. Scenarios: Dreaming in Cuban
• Appendixes
• Acknowledgments
• Notes
• Index
• About the Author