Cuba for Realists

Cuba for Realists
SEPT 30, 2015 8:30 AM EDT
By Editorial Board

This has been a year of new possibilities for Cuba. Even with the U.S.
embargo still in place, the restoration of diplomatic ties has injected
the socialist redoubt of Fidel and Raul Castro with energy and hope --
not to mention tourists bearing dollars and euros. As things stand,
though, hopes for a Cuban economic miracle are likely to remain just that.

True, the economy grew by almost 5 percent in the first half of this
year, a big improvement over last year's 1.3 percent. Meanwhile, U.S.
companies are prospecting. As the shadow of U.S. sanctions recedes,
investors from Asia, Latin America, and old and new Europe are looking, too.

The trouble is, here's what they find: a state that ring-fences the
choicest investment opportunities; frowns on majority ownership; is slow
to approve new ventures; controls the hiring, firing, and payment of
workers and the distribution of agricultural and other goods; and
reserves the right to expropriate businesses as it sees fit. Recent
reforms have allowed some Cubans to start certain kinds of small
businesses -- a dramatic change by the island's impressive standards of
economic repression. But the Cuban state has hardly gone pro-enterprise.
Or pro-freedom, for that matter: Its political repression continues
mostly unchecked.

Could there be such a thing as "capitalism with Cuban characteristics"?
That might be the hope of Luis Alberto Rodriguez, the Cuban army general
who runs the state-owned conglomerate controlling more than half of
Cuba's economy, from hotels and gas stations to rental car fleets and
container ports. If you're hoping to do business in Cuba, he's likely to
be your partner, as an article in this month's Bloomberg Markets makes
clear. Yet the general is mistaken. In the end, you can have capitalism
or Cuban characteristics, but not both.

No doubt, the lifting of the U.S. embargo would help to liberalize the
economy, partly by making the gains of liberalization bigger, and faster
to arrive. But real change depends on a sudden access of wisdom on the
part of a vacillating and sclerotic one-party state facing a major
leadership transition when Raul Castro steps down in 2018.

Without radical reform, Cuba will struggle to avoid further stagnation.
Its state-owned enterprises are uncompetitive and burdened with bloated
payrolls. To make things worse, a demographic challenge looms: Cuba's
population is the second-oldest in the hemisphere. Cigars, beaches, and
charming old Chevrolets won't suffice to lure $2.5 billion a year in
foreign investment -- Cuba's stated goal, and a small fraction, by the
way, of what it really needs.

The full reform agenda is daunting, but Cuba could do one smart thing
quickly. The government should finally abandon the country's dual
currency system, which forces its best and brightest to moonlight as
taxi drivers to earn hard currency, cloaks the inefficiency of state
enterprises, and makes it harder for foreign investors to do business.
The regime has repeatedly punted on its time frame for unifying the
peso. Will Raul Castro fulfill a pledge to do so before next spring's
big party congress? If he does, a tentative Cuba libre would be in order.


To contact the senior editor responsible for Bloomberg View's
editorials: David Shipley at davidshipley@bloomberg.net.

Source: Cuba for Realists - Bloomberg View -
http://www.bloombergview.com/articles/2015-09-30/cuba-s-efforts-to-control-capitalism-won-t-end-well