Tuesday, September 28, 2010

Cuba's Latest Reforms Won't Work

Javier Corrales
Associate professor of Political Science at Amherst College
Posted: September 28, 2010 05:30 AM

Cuba's Latest Reforms Won't Work

In early September Fidel Castro, former president of Cuba and now
opinion-maker-in-chief, stunned the world twice by declaring, first,
that the Cuban model "doesn't work for us" anymore, and second, by
arguing a few days later that he didn't really mean what he said. While
Fidel Castro seems confused, his brother Raúl, Cuba's official
president, seems pretty clear about the issue. With the set of
market-oriented reforms that he recently announced, Raúl Castro has
essentially confirmed that Fidel's original statement was
correct--Cuba's current model needs overhaul. The key question is
whether the announced reforms will save Cuba. The answer is no.
Raúl Castro's reforms are no doubt significant. Ten percent of public
sector employees will be let go. Self-employment will be allowed in 178
activities. Private restaurants will be allowed to add more tables.
Rental markets will be expanded. And for the first time ever, Cubans
will be able to hire non-relatives, and Cubans living overseas will be
allowed to take part in these new economic liberties. In total, the
government expects to authorize 250,000 new businesses, tripling the
size of the current self-employed private sector.
There is no question that Cuba needs reform. Cuba is the one country of
the Americas that has had not one, not two, but six lost decades,
experiencing a deterioration of living relative to its peers steadily
since the mid 1950s. Something must change. However, the current reforms
won't do the trick. This is not because the reforms are, economically
speaking, too modest (they are), but because the most vital political
factor that is required for market reforms to be effective is still
missing--societal trust in the state.
Cubans mistrust the state for a simple reason: every time the state
opens the economy, sooner rather later, authorities unilaterally change
their mind, decide to take those liberties away, and end up punishing
those who tried to take advantage of the small breathing space that had
been provided. This promise reversal has taken place four times under in
the Revolution's history.
The first occurred two years after the triumph of the Revolution.
Initially, Fidel promised to create a favorable climate for private
investment. The first major law of the Revolution, the "Fundamental Law
of Cuba" of February 7, 1959, even stated that "Confiscation of property
is prohibited" (Art. 24) and recognized the "legitimacy of private
property" (Art. 87). There was so much trust in the state that Bacardi,
one of the largest Cuban-owned multinational ever, paid its 1959 taxes
all at once. But in December 1961 Castro declared himself a
Marxist-Leninist and launched the most aggressive confiscation drive
ever in the Americas, collectivizing almost 70 percent of the total
economy by 1962.
The second promise reversal was the Revolutionary Offensive of 1968.
Initially, small retailers were exempted from the nationalization drive
of 1961-62. This made many Cubans feel that the revolution was
supportive of economic rights for the little guys even if it punished
the big capitalists. But in 1968, the state changed its mind again and
proceeded to nationalize 55,636 small businesses (groceries, butcher
shops, laundries, barber shops, boarding houses), essentially
eliminating all non-agricultural retail still left in Cuba.
The next broken promise came in 1986 with the "rectification of errors"
campaign. That year, a few markets that had been allowed to reopen
earlier in the decade were suddenly shut down. This policy reversal was
so severe that two scholars described it as "a return to
totalitarianism," inexplicably at a time when economic totalitarianism
was waning in the big communist powers of China and the USSR.
Finally, and most gravely, the unprecedented market reforms of 1993-94
(dollarization, opening to foreign investment, and legalization of
self-employment) were also terminated--more gradually but also equally
decisively--by the early 2000s. By then, most foreign direct investments
failed to materialize due to unfavorable business conditions, possession
of dollars was penalized again, and most self-employment activities were
reregulated, or altogether banned, legally or extralegally.
Cuba thus has a history, as economist Carmelo Mesa-Lago always points
out, of introducing modest economic openings, only to reverse them soon
thereafter. The brief reforms allow the state to weather a momentary
fiscal crisis. But when the fiscal crisis subsides, the state re-imposes
draconian measures. This return to totalitarianism is something that all
college-level Cubans have seen once; older Cubans have seen multiple
times. It is the way that the Cuban state conducts business, or rather,
chooses to interrupt business. The result is that Cubans have learned
not to trust the state.
Without this trust, Castro's microeconomic reforms won't amount to much.
No doubt, Cubans will try to take full advantage of the new
openings--many will open new businesses, retool themselves to work in
different trades, and borrow money from relatives abroad. This will
bring some economic relief. But these will be baby steps. The much
bigger steps that are required for market reforms to deliver
transformative effects--firms making large investments in capital and
technology, conducting research to develop new markets, borrowing
long-term to pursue high returns projects--won't happen in Cuba. All
these activities require citizens to think long term, which in turn
requires citizens to have state institutions in which they can believe,
such as property-defending courts, reliable and balanced legislatures, a
legal system that is predictable and committed to protecting contracts,
and a state that governs by negotiation rather than decree. These
institutional conditions are absent in Cuba, and nobody believes that
the current state will ever deliver them or guarantee their survival.
Analysts have begun to debate whether the current round of reforms goes
too far or fails to go far enough. But focusing on the reforms alone
misses the point. The key problem is that Cubans have a long history of
being cheated by their state, and the current reforms do nothing to
address this problem. Contrary to press accounts, the current reforms
are not new. The Cuban state has made similar promises in the past, only
to change its mind arbitrarily, abruptly, punitively, and always in a
reactionary direction.
The Cuban state has been trying to bring revolution to Cuba's society
since 1959. But what Cuba needs is no more revolutions at the level of
society, but a revolution at the level of the state. The conditions that
allow the state to act so arbitrarily and imperiously must end. This
behavior has been the hallmark of the Cuban state since
pre-Revolutionary times--arbitrariness expanded under the Fulgencio
Batista regime (1952-1958) and became more pronounced under the Castros.
The current reforms do nothing to strip the state of arbitrariness, and
until that changes, it is hard to imagine that this round of reform will
be more than another failed déjà vu.

Javier Corrales is professor of political science at Amherst College,
Amherst, MA.


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