Preserving Stability in Cuba After Normalizing Relations with the US

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BY Dr. Timothy Ashby, Senior Research Fellow, Council on Hemispheric Affairs

Source: Reuters

Cuba under Raul Castro has entered a new period of economic, social, and political transformation. Reforms instituted within the past few years have brought the expansion of private sector entrepreneurial activity, including lifting restrictions on the sales of residential real estate, automobiles, and electronic goods. Additional reforms included, more than a million hectares of idle land has been leased to private farmers where, citizens have been granted permission to stay in hotels previously reserved for tourists, and freedom being granted for most Cubans to travel abroad. Stating that it was time for the “gradual transfer” of “key roles to new generations,” President Raul Castro announced that he will retire by 2018, and named as his possible successor a man who was not even born at the time of the Cuban Revolution. [1]

The twilight of the Castro era presents challenges and opportunities for U.S. policy makers. Normalization of relations is inevitable, regardless of timing, yet external and internal factors may accelerate or retard the process. The death of Venezuelan President Hugo Chávez is likely to undermine the already dysfunctional Cuban economy if it leads to reductions in oil imports and other forms of aid. This could bring social chaos, especially among the island’s disaffected youth. Such an outcome would generate adverse consequences for U.S. national and regional security. To maintain Cuba’s social and economic stability while, reforms are maturing, the United States must throw itself open to unrestricted bilateral trade with all Cuban enterprises, both private and state-owned.

The collapse of Cuba’s tottering economy could seismically impact the United States and neighboring countries. It certainly did during the Mariel Boatlift of 1980, precipitated by a downturn in the Cuban economy which led to tensions on the island. Over 125,000 Cuban refugees landed in the Miami area, including 31,000 criminals and mental patients. Today, the United States defines its national security interests regarding Cuba as follows:

• Avoid one or more mass migrations;
• Prevent Cuba from becoming another porous border that allows continuous large-scale migration to hemisphere;
• Prevent Cuba from becoming a major source or transshipment point for the illegal drug trade;
• Avoid Cuba becoming a state with ungoverned spaces that could provide a platform for terrorists and others wishing to harm the United States. [2]
All of these national security threats are directly related to economic and social conditions within Cuba.

U.S. policy specifically supports “a market-oriented economic system” toward Cuba, yet regulations prohibit the importation of any goods of Cuban origin, whether from the island’s potentially booming private sector – including 300,000 agricultural producers – or State Owned Enterprises (“SOEs”). [3],[4] Such a policy is counterproductive to U.S. interests. Regardless of over 400,000 entrepreneurs, including agricultural cultivators, it could be many years, if ever, when Cuba’s private sector would be ready to serve as the engine of economic growth. SOEs employ 72 percent of Cuban workers. [5] A rational commercial rapprochement towards Cuba would; therefore, require a change in current laws and in the system of regulations prohibiting the importation of Cuban goods and products. Normalized bilateral trade will benefit the Cuban people by helping to provide economic stability and fostering the growth of a middle class – both of which are essential for the foundation of democratic institutions. Two-way trade must include both Cuba’s private sector as well as SOEs.

Cuban SOEs are in a state of gradual transition like other parts of the economy. In December 2012, the Cuban government authorized a wide range of co-ops that will allow workers to collectively open new businesses or take over existing SOEs in construction, transportation and other industries. Considered a pilot program that is a prime candidate for an expansion, the co-ops “will not be administratively subordinated to any state entity.”[6] Many Cuban officials, well aware of the limits to small-scale entrepreneurism, appear to harbor hope that co-ops could shift a large portion of the island’s economy to free-market competition from government-managed socialism. In other transitional states, particularly in post-socialist economies, co-ops have served as commercial bridges between state-owned and privatized business. Of the 300 largest co-ops in the world, more than half are in United States, Italy, or France. [7]

Ironically, the outputs of such co-ops, including agricultural products which could find strong demand in the American market, are barred by short-sighted federal regulations, thus hampering if not defeating what could be a major U.S. policy goal.

The United States has been actively trading with foreign SOEs for years. The People’s Republic of China – a one party and communist state – is the United States’ second largest trading partner, and Chinese SOE’s account for a large percentage of the nearly $400 billion USD in goods exported to America each year. Venezuela is in the top fifteen of U.S. trading partners, and the bulk of that country’s exports are petroleum products deriving from the state-owned PDVSA (which in turn owns Houston-based CITCO oil company). Another communist country, Vietnam – which initially was the subject of a U.S. economic embargo similar to that imposed on Cuba – is the second-largest source of U.S. clothing imports and a major manufacturing source for footwear, furniture, and electrical machinery. [8] On these matters, the Cuban government has said that it wants to “replicate the paths of Vietnam and China.” [9]

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