Richard Feinberg Analyzes A Cuban Economy In Transition

By Mimi Whitefield
The Miami Herald

WWR Article Summary (tl;dr) A fascinating look at the state of U.S.-Cuba relations and what the future might hold for the economy of a nation just 90 miles from U.S. shores.

The Miami Herald

Since the mid-1970s when he was a graduate student in international economics, Richard Feinberg, now a professor at the University of California San Diego, has been fascinated by the challenges of reforming centralized economies.

He first focused on Eastern Europe but then spent decades working on Latin American policy, serving in posts in the White House, U.S. Treasury, the Department of State and in Washington-based think tanks. During the Clinton administration, Feinberg was special assistant to the president and senior director of the National Security Council’s Office of Inter-American Affairs.

So when Cuban leader Raúl Castro first began making tentative reforms to Cuba’s centralized economy, it was perhaps a foregone conclusion that Feinberg’s interest would be piqued. He began researching and writing about Cuba’s economic reforms in 2010, visiting the island as often as possible and making research trips to Nicaragua and Vietnam as well.

As a nonresident senior fellow at the Bookings Institution, he wrote extensively about the international response to Cuba’s fledgling reforms, foreign direct investment in Cuba, and emerging entrepreneurs and an incipient middle class on the island.

The culmination of his research is a new book, “Open for Business: Building the New Cuban Economy” (Brookings Institution Press, 2016). He’ll discuss the book at the Miami Book Fair at 3:30 p.m. Nov. 19.

Feinberg recently answered questions about his book, the state of U.S.-Cuba relations and what the future might hold for the economy of a nation just 90 miles from U.S. shores.

Q: You were in Havana on Dec. 17, 2014, when the United States and Cuba announced they were working toward normalization. Describe that morning.

A: On D17, as that historic moment is now known, I was attending a large conference on U.S.-Cuban relations hosted by the Foreign Ministry. Raúl Castro’s speech was projected live on a big screen. In unison, the ecstatic audience — stunned by their president’s unanticipated policy reversal — 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.” 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!

Q: The title of your book is “Open for Business: Building the New Cuban Economy.” Do you think at present Cuba is open for business? If not, what stage is it at?

A: At present, the slogan “Open for Business,” which is lifted from Cuban government investment promotion brochures, is still more of an aspiration than a current reality. “Open for Business” traces Cuba’s efforts to rebuild its economy following the disappearance of its long-term patron, the Soviet Union.

The book explains how the resilient Cuban leadership began to open the island’s economy to establishing relations first with Europe and Canada, and then with the dynamic emerging market economies — most notably, China, Brazil, Venezuela — while at home authorizing the launching of small-scale private businesses and, more haltingly, opening a window to foreign investment — all this without yielding power over most economic resources and decisions. I describe success stories in this new local private sector and among a number of foreign-owned joint ventures.

But I also shine a cold light on the many remaining obstacles and risks frustrating entrepreneurship and innovation.

Q: Inside the Cuban hierarchy, there’s been some pushback against some of the business opportunities offered by the Obama administration to forge closer economic ties. What do you think is behind this?

A: The Cuban authorities like to say that the Obama administration has taken some positive steps but that much more needs to be done. You could say the same thing about Cuban domestic economic reforms: some good progress, but there’s still a long way to go before the conditions are in place for a true economic renaissance.

We do not have access to the key decision-makers within the Cuban state and ruling Communist Party, so we can only speculate as to why they are moving so cautiously on economic reforms, and on opening the economy to international commerce, including with the United States. But several factors are probably at play.

Ideologically, the old guard, and some younger leftists, fear that opening to globalization and to market forces will jeopardize what they see as the genuine gains of the revolution, including social equity, universal social services, and a fiercely defended national sovereignty. Politically, some in power most probably fear that deepening economic reforms, by gradually empowering an emerging private sector and an internationally connected middle class, could eventually threaten the political monopoly of the hegemonic Communist Party. Bureaucratically, over 50 years the Cuban state has become so multilayered, so burdened with thick red tape and so risk-averse that the decision-making procedures are broken.

Raúl Castro and his aging colleagues seem to lack the vision and energy to drive comprehensive reform, so the Cuban people will have to wait until 2018 when new leadership — a new generation — comes forward.

Q: At this point, do you think U.S. regulatory changes have done much to encourage and help Cuba’s “cuentapropistas” [self-employed workers, or literally, “on-your own-ists”]? If not, why not?

A: The Obama administration brilliantly connected the dots between a surge in U.S. visitors, Cuban-American remittances, and the emerging private sector on the island. U.S. visitors are staying at private bed-and-breakfasts, dining at private restaurants (paladares) and nightclubs, are purchasing artisan wares and consuming high-quality Cuban artistic creations. Remittances are providing the main source of capital driving investments in these and related businesses in what I label the dynamic “private tourism cluster.”

The Obama administration has sought to encourage Cuba’s cuentapropistas by giving them access to U.S. commerce but with a few exceptions. The Cuban government has not opened channels for such cross-Straits exchange. The Cuban authorities object to policies that give priority to the private sector, preferring their state-owned enterprises. Also, the U.S. has yet to shake loose its financial system from the sanctions regime — and international trade moves on credit.

Q: Name three things that need to happen to further open the Cuban economy.

A: 1. National leadership that removes ambiguity and sets forth clear goals and objectives, rallies public opinion behind a new economic vision and that empowers a team of younger, dynamic and committed technocrats to decisively drive reform.

2. Expand the list of occupations open to private endeavor to include white-collar professions, such as law, architecture and engineering, and create a secure legal framework that provides the necessary protections for entrepreneurship and investment, both private and cooperative.

3. Make real the slogan “Open for Business” by accelerating the approval procedures for joint ventures with foreign investment. The current investment rates — at a woefully inadequate 8-10 percent of GDP — cannot drive growth, as the Cuban authorities occasionally recognize. In particular, Cuba faces a national security crisis in two critical sectors: energy and agriculture. These can only recover with serious injections of international capital and technologies. The expanding tourism sector is generating investment capital, but the stated government goals of tripling the number of rooms within 15 years will also require many international investment partnerships.

Q: In the book, you selected 12 Cuban millennials and asked them to answer 10 questions about their professional lives, reforms they would like to see in their country, and their future goals. Were there common themes in their answers and what conclusions did you draw?

A: In some respects, the Cuban millennials appear similar to their counterparts around the world: alert, ambitious, hard-working, postponing family for professional success, cosmopolitan in outlook and interested in world travel, measuring their own creativity and results against global standards. But they do not display the sense of entitlement or self-importance often attributed to millennials in the United States.

Looking forward, Cuban millennials are probably less likely to endorse a U.S.-style free-market politics than a European-style social democracy. But if the Cuban economy continues to falter, many young Cubans will vote with their feet and exit. The Cuban economy does not have to equal the wealth elsewhere to keep Cubans from emigrating, but it must narrow the gap in order for the brain drain to slow to healthier rates.

I should add: Every one of these millennials approved of the decision by Barack Obama and Raúl Castro to normalize diplomatic relations — and they hope that economic relations will normalize as well.

Q: Before leaving office, the Obama administration has tried to make its Cuba changes irreversible. Do you think it has succeeded, or are these changes susceptible to an unraveling, depending on who wins the presidential election?

A: At this point in the electoral cycle, [most] polls are predicting a victory by Hillary Clinton, and she is pledged to continue Obama’s policies of greater openness and engagement. For his part, Donald Trump has expressed diverse opinions on U.S.-Cuba relations.

However, if by “irreversible” you mean, does the current policy have such strong domestic constituencies that it would not be politically feasible to turn the clock backward, I’m not so sure.
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Opinion polls have showed popular support, but truly thick network ties, including of trade and investment, have yet to reach critical mass. One missed opportunity: the Cuban government could have sought agreement on a framework for settling the 6,000 authorized property claims by U.S. firms and persons, and thereby created powerful pro-engagement constituencies. It has preferred a go-slow approach to bilateral negotiations.

Q: In your book, you describe three possible future scenarios for the Cuban economy. What are they, and which one do you see as most likely?

A: Peering out to 2030, I imagine three scenarios:
1. Stalled reform, where forces of inertia and immobility maintain their grip and many millennials exit;

2. An ugly botched transition descending into economic stagflation and an explosion of criminal vices;

3. A sunny, soft landing, where comprehensive economic reform yields higher per capita incomes and consumption, and the political outcome is wide open. For the third sunny scenario, I cite four precedents — Vietnam, East Germany, Costa Rica, Nicaragua. While vastly different, all are cases of reasonably successful transformations to more market-oriented, decentralized economies definitively integrated into global commerce.

Personally, I believe that the sunny soft-landing scenario offers the most benefits for the largest number of Cubans as well as for inter-American relations, and I believe it is the most probable outcome. But that might be confusing preferences for predictions.

Better to conclude that history is not predetermined: If Cubans decide that this is their best outcome and they see it clearly, it is more likely to occur. In that case, the slogan “Open for Business” will become a vibrant reality, to the benefit of the Cuban people and their many international partners.

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