Cuba's Latest Reforms Won't Work

Cuba's Latest Reforms Won't Work
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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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