[NYTr] What Changes for Cuba's Economy Under Raul?

[All the News That Doesn't Fit]

Latin Business Chronicle - Oct 1, 2007
http://www.latinbusinesschronicle.com/app/article.aspx?id=1672

Will Raul Reform Cuba's Economy?

Raul Castro appears to be preparing reforms aimed at more foreign
investment... Cuba will initiate some degree of economic reform -
including more space for private economic activity - during the 
coming year.

BY PHILIP PETERS

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 our 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.

[Philip Peters is vice president of the Lexington Institute and writes
the blog, The Cuban Triangle. This column originally appeared in the
institutue's Cuba Policy Report.]