Cuban Politics: New Capitalism on a Socialist Island?

Cuban Politics: New Capitalism on a Socialist Island?

This post is part of a retrospective series exploring business, tourism and politics in Cuba today.

The unique, beautiful island country of Cuba has now opened the gates and allowed passage for American investment. But the country remains at odds with American democracy, remaining tied to a Socialist agenda that ensures the state comes first.

IMG_8831

A 22-foot bronze statue of Che Guevara tops his mausoleum in Santa Clara, Cuba.

For American business owners, the politics of the country obscure a clear path forward, making it difficult to gauge how quickly one can set up an operation. Questions abound, especially regarding how profits will return to the U.S.

Although a few decidedly capitalist elements now exist in the socialist regime, all roads still wind back to GAESA, or Grupo de Administración Empresarial, run by Raul Castro’s son-in-law General Luis Alberto Rodriguez. GAESA owns almost all retail chains in Cuba, along with a string of 57 hotels and a constellation of companies from service stations to manufacturing plants. Estimates claim GAESA-run companies account for half to 80 percent of all business revenue in Cuba.

Yet GAESA has tacitly pursued capitalistic endeavors, most notably the Mariel foreign trade zone, a 465-square-kilometer base for global trade and foreign investment. There is a burgeoning cuentrapropista class in Cuba, entrepreneurs who work outside the state-run businesses. One-third of the Cuban population is now self-employed, most working in the service industry.

Though doors are opening, the well-entrenched regime still vocally expresses opinions on everything.

Obama’s historic visit in March—which coincidentally coincided with PMT CEO Chuck Sholtis’ visit to Cuba—included a speech punctuated a few days later by Fidel Castro, who released a letter laden with deeply critical rhetoric reminiscent of Cold War-era communications. Titled “Hermano Obama” (Brother Obama), the elder Castro provided a line-by-line parsing of Obama’s speech, engaging in “ex-post-facto dialogue with he American president with pointed critiques of revived slights and insults”, according to a CBS News report.

He ended the dissertation with an especially poignant jab at American businesses, the focus of much of the recent visits to Cuba.

One of the more common billboards on the Cuban highways.

“No one should pretend that the people of this noble and selfless country will renounce is glory and its rights. We are capable of producing the food and material wealth that we need with work and intelligence of our people,” Castro wrote.

Other American spectacles during the week of Obama’s visit, like the Rolling Stones concert, seemed to highlight the stark contrasts between the two countries. In the Miami Herald article “Sympathy for the Devil”, Humberto Fontova wrote, “…the only historic changes in Cuba involve the Castro regime’s sources of income…Castro’s subjects — while allowed to boogie a bit — essentially remain the impoverished and oppressed subjects of a totalitarian regime.” He added that over the Easter weekend, Cuban dissidents suffered a wave of arrests and beatings that were “dutifully ignored by the mainstream media.”

While a glimmer of hope comes in the form of cuentrapropistas and the few capitalist endeavors taking flight, the average official salary for Cubans remains about $15 a month. Many barely eke out a living, relying on the state to subsidize food and shelter.

IMG_9207

A tobacco farm building in Sancti Spíritus.

One major obstacle remains—the embargo, which during his visit, President Obama said the U.S. will end. Realistically, it is up to Congress to remove the embargo, and considering the historic lack of progress in the current Congressional sessions, it may take a while to fully remove.

The 2016 U.S. International Trade Commission (USITC) report Overview of Cuban Imports of Goods and Services and Effects of U.S. Restrictions stated if the embargo was lifted, U.S. exports to Cuba for agricultural sectors and manufactured products could increase by about $1.4 billion—to approximately $1.8 billion annually within five years.

If U.S. restrictions were removed and Cuban import barriers were reduced, U.S. exports in thee sectors could increase by an additional $442 million, to an estimated total of $2.2 billion, according to the report—a significant improvement for both trade and for the average Cuban citizen.

There is huge potential for American manufacturing and exports in Cuba. With a rapidly expanding tourism sector expected to explode over the next 5 years, the influx of Americans will no doubt have an impact on Cuba. It will remain difficult to separate politics from business in Cuba, but the calculated changes made so far will open up the country just enough so that American investment can trickle in. Raul Castro is gradually introducing market-based reforms into the communist system.

IMG_9058

A CDR sign hangs at the National Museum in Havana.

Even with these changes, Sholtis said propaganda remains very visible around the island. For example, signs above doorways still read: “In every neighborhood—Revolution. CDR”. The CDR, or Committee for the Defense of the Revolution, was set up in 1960 to create an intricate ground network of Cuban spies and informants. People singled out by the neighborhood watch were harassed, imprisoned or ultimately fled the country.

Fidel Castro announced the creation of these networks by stating: “We are going to implement, against imperialist campaigns of aggression, a Revolutionary system of collective surveillance where everybody will know who lives on their block and what relations they have with the tyranny; and what they devote themselves to; who they meet with; what activities they are involved in.”

While the effects of the CDR are diminishing today, its continued existence makes most Cubans wary. It remains a direct connection from the streets to the national government.

Nationalist propaganda murals, signs and posters mark much of the country’s scenery.

While the politics of Cuba may not be changing, the social and economic systems are evolving—but with risks. The most immediate danger relates to energy resources, which could result in one of Havana’s largest import expenses. Few cars are on the road now, but a growing Cuban industrial sector will certainly require increasing energy demands. With these evolutions taking place, Cuba may also lose its 16-year preferential access to discounted Venezuelan oil. Sustained low prices might enable the country to buy its own crude and refined products on the open market, even as its financial reserves dwindle. Perhaps U.S. oil exporters will find a welcome market across the Straits of Florida?

President Raul Castro is slated to step down in 2018. The likely successor to Castro is Miguel Diaz-Canel, a younger, university-educated politician with views described as hardline Marxist-Leninist. What Cuban politics will look like during the period of normalization of relations—and beyond—remains unclear. Similar to China, elite circles of Cuban Revolutionary Armed Forces dominate the economic scene, and Castro’s successor has a challenging course ahead.

“So much has changed in Cuba, but so much hasn’t”, according to Bloomberg Business—bringing inevitable friction as change runs up against status quo.