The Cost of Economic Reform in Cuba

5 MINS READAug 3, 2010 | 11:01 GMT
It can be difficult to separate the important from unimportant on any given day. Reflections mean to do exactly that — by thinking about what happened today, we can consider what might happen tomorrow.
Change appeared to be in the air in Havana when Cuban President Raul Castro confirmed reports Sunday of a five-year liberalization plan to update the communist country's economic policy. According to the president's speech, Cuba will drastically reduce state control over the economy to boost efficiency and ease some of the burden on the state. Part of the plan entails restructuring the labor force: Cuban government officials have said they plan to eliminate or shift one million inefficient jobs over the next five years (200,000 per year) to other sectors. To accomplish this, the Cuban government plans to hand out an unspecified number of licenses to increase the number of people allowed to own small businesses. While Castro's announcement adds credibility to reports that have been leaked over the past several weeks on Cuban economic reforms, the plan is overly ambitious. With 85 percent of the country's five-million-strong labor force working for the government, there is certainly room for privatization. The trick will be to eliminate jobs while simultaneously providing replacement opportunities. Without that, there is a significant risk of social unrest. Since Cuba is starting with very little in its current economic climate, plenty of jobs and long-term growth could be created if the country could transition its workforce into a manufacturing or industrial sector. However, Cuba's serious underdevelopment and lack of capital makes the creation of any real industrial sector difficult, if not impossible, in the timeframe of this shift. The more obvious sector for growth in the shorter term is the tourism industry, a main staple of the Cuban economy in the wake of the collapse of Soviet subsidies in the early 1990s. Though American citizens in Cuba are few and far between due to the U.S. embargo, the island is still a popular destination for Europeans, among others, attracted to Cuba's Caribbean coast and political mystique. Cuba may have largely missed the boat in realizing its economic potential. Many argue that lifting the U.S. embargo on Cuba is a policy long overdue and one that would provide the boon to the Cuban tourism sector to fuel the country's economic growth with American dollars. But there are several issues overlooked in this theory. First, there are a number of impediments to the embargo being lifted, the loudest of which is the Cuban exile community in the United States and the most important of which is a lack of political understanding between Havana and Washington. For the United States to come to such an understanding and justify the lifting of the embargo, it would need to see some progress from the Cuban side on improving human rights and employing democracy on the island. Cuba's recent decision to release political prisoners to Spain sticks out as a potentially conciliatory gesture toward the United States, but that alone won't significantly impact the United States' political attitude toward Cuba. The only reason Cuba can even think of opening its economy wider than a crack is because it feels it has the state control to do so. Political repression is very much a part of retaining state control in Cuba, and Cuba's leaders understand well that after decades of severe restrictions placed on the Cuban economy and society, the potential for a mass inflow of U.S. political, economic and social influence in Cuba could have serious implications for the security of the regime. It is thus difficult to see how Cuba can reconcile U.S. demands on democracy and human rights with the liberalization of the economy when any economic opening will only harden the need for tighter state controls (a lesson with which another communist state, China, is all too familiar). The more interesting question in our mind is whether a political rapprochement between Cuba and the United States would even bring Cuba the economic benefits it seeks. The island's decades of prosperity during the Cold War were a product of enormous subsidies and technological support from the Soviet Union. Cuba has very few natural geographic economic advantages. There is already stiff competition in the rum and sugar markets, and islands throughout the Caribbean boast similarly beautiful beaches. This is not to say that Cuba could not attract investment; certainly the tourist industry will benefit from the island's connections with the Cuban diaspora in the United Sates as well as the romanticism associated with Cuba's political isolation. But in the end, Cuba may have largely missed the boat in realizing its economic potential. In undergoing an internal review of Cuban economic policy, Cuban leaders will thus be asking themselves whether it really is worth the political cost of reaching an understanding with Washington when the economic payoff may not be as obvious as once thought. The result of that debate will determine whether change is indeed coming to Havana, or if this ambitious plan to slash one million state jobs in the name of greater economic efficiency falls into the basket of unfulfilled five-year plans.

Article Search

Copyright © Stratfor Enterprises, LLC. All rights reserved.

Stratfor Worldview


To empower members to confidently understand and navigate a continuously changing and complex global environment.