Havana at night.
One of the hottest topics of conversation about Cuba seems to be the series of “reforms” implemented in the last couple of years by Fidel Castro’s younger brother Raul Castro. From allowing Cubans to finally buy and sell cars, to allowing them to work independent of the state in one of 181 different occupations allowed by the government, there is a general sense that things are “changing” on the island. But just how far have these reforms gone? Is Cuba really making an effort to liberalize its economy and allow for greater freedoms?
It wasn’t long ago that Cuba’s government recently approved its new Foreign Investment Law, but already the verdict seems to be out: Cuba has struggled to attract investment despite reforms. And despite bold predictions of growth by the government – the island managed only a mere 0.6% growth in the first half of 2014 – far below official estimates. The Heritage Foundation, alongside The Wall Street Journal recently released its Index of Economic Freedom, which ranks countries around the world based on a series of factors. Despite recent reforms, Cuba ranks 177th out of 178 countries. Only North Korea had more restrictions on economic activity.
So why exactly is Cuba struggling so mightily to stimulate its economy and spur growth?
Aside from the realities of the American embargo on trade with the island, Cubans refer to something known colloquially in Cuba as the internal embargo. The internal embargo refers to the government’s draconian control of its own economy and its stringent Soviet-style restrictions on personal freedom. Interestingly enough, despite the embargo the United States is still Cuba’s fifth largest trading partner. The truth is that the Communist government’s restrictions on economic and business activity would work to hinder economic activity even if the embargo didn’t exist.
So aside from the embargo, what can Cuba do if it was serious about reform? In a recent article, Cuban economist Pedro Campos listed a number of economic reforms that the state could undertake to truly put Cuba squarely on the path to prosperity. But I believe that we can go even farther.
Here, a socio-economic program for true reform in Cuba:
1. Removal of internal restrictions on the movement of people and goods within Cuba. As things currently stand, people within Cuba are not allowed to freely trade goods and products from one province to another. These restrictions distort prices and increase costs for average citizens. A coffee grower in the mountains of Eastern Cuba should be able to sell his product in the streets of Havana.
2. Removal of draconian import and export restrictions and tariffs. The state currently holds a monopoly on foreign trade in the island and Cubans who want to start their own businesses are prohibited from freely buying and selling goods with buyers and sellers outside the country. This increases costs, contributes to scarcity of goods, and restricts economic growth.
3. Removal of all restrictions on Cubans’ ability to work privately and to form their own businesses independent of the state. As it stands, the Cuban government has a very limited list of 181 professions of which Cubans are allowed to work in. This list includes such antiquated (and almost 18th-century-like) and limited professions as “shoe cleaner” and “plumber.” Doctors, lawyers, architects, engineers, technicians and other ordinary citizens should be able to freely contract their work and services.
4. Allow for the creation of business associations such as corporations and sociedades anonimas by ordinary Cubans. These entities would have the power to raise capital, form contracts, begin projects, own property, and have limited liability for their owners and associates. As things currently stand, ordinary Cubans are only allowed to work independent of the state if they obtain “licenses.” Only the state is allowed to own and operate business enterprises. Cubans with licenses to work independently are not independent private sole-proprietorships in the true sense of the word – they are legally merely independent contractors working for the state. These licenses do not grant their owners the same rights that they would have as owners and managers of independent business associations such as would be the case with a corporations or other privately-owned business associations.
5. Removal of restrictions on foreign investment. Cuba’s new Foreign Investment Law released a few months ago, although a step in the right direction, does nothing to help capital reach the hands of ordinary Cubans. Foreign investment is only allowed in state-owned enterprises. Investment, loans, and capital transfers to ordinary Cuban citizens is not allowed. A ordinary Cuban launching his own business is not allowed a business loan from his relatives in Madrid or Miami.
6. Removal of restrictions on the accumulation of wealth and property and an easement of restrictions on the sale and alienation of property. Stringent and rigid rules prohibit the accumulation of wealth and property by ordinary Cubans on the island. These artificial and unnecessary restrictions limit the participation of ordinary citizens in any sort of meaningful economic activity. Cubans before 1959 could freely sell and transfer property. Why can’t Cubans in 2014? The free transferability of property is one of the basic tenets of a truly free economy and should be a basic right open to all Cubans.
7. A reduction of the extremely high tax rate on individual business activity. One of the least spoken about aspects of the government’s recent reforms has been how the high tax burden (sometimes as high as 50% for some businesses) has led many independent businesses to close down. With such a high tax burden, barriers to entry into the economy remain high for the ordinary Cuban citizen. Those with access to remittances (and thus dollars) from abroad have an unequal advantage.
8. Elimination of the double currency. Cuba is one of the few (if not the only) countries in the world with a double currency. Tourists, travelers, and foreigners who do business in Cuba all do business with the Convertible peso, a currency that is pegged to the dollar. Ordinary Cubans are paid in the National Peso, a currency that is on average twenty five times less valuable than the convertible peso. As things currently stand, the double currency creates a country of haves and have-nots – those (such as those who work in the tourism business, prostitutes, and those who receive remittances) who have access to dollars and convertible pesos – and everyone else.
1. Freedom of expression. It is no secret that economic and personal freedoms go hand-in-hand. Cubans who wish to conduct business, or advertise their business, or criticize government inefficiency, corruption or policy should be able to voice their opinion freely without being subject to police harassment, arbitrary detention, jail time, or exile (or worse).
2. Freedom of the press. The facilitation of communication between citizens should not be a monopoly of the state. Currently, all forms of media – television, newspapers and radio are in the hands of the state. Cubans should be able to form their own independent newspapers and mediums of communication. This facilitates commercial advertising, national dialogue, and promotes the creation of a healthy and well-informed body politic.
3. Separation of powers. The devolution of powers from the highly centralized government to municipalities and provinces and the separation of powers between the executive, legislative and judicial branches of government are essential if Cuba ever hopes to truly create a society that is based on the rule of law. Cuba’s Communist 1976 Constitution concentrates most of its power in the hands of a few decision-makers at the very top.
4. The removal of the ban against political parties that are not the Communist Party of Cuba. The motto of the Cuban Revolution is “Everything within the Revolution, nothing outside of it.” A truly free and plural society has many voices. These voices are sometimes directly at odds with each other. There are workers, there are peasants, there are capitalists, there are merchants, there are entrepreneurs, there are social activists, there are communists, there are anarchists, there are conservatives and there are liberals – free societies are a complex agglomeration of different people – all trying to speak at once. Our government should be a reflection of the will of an entire nation – not of one single political party.
5. The removal of restrictions on access to the Internet. The Cuban government currently restricts its citizens’ access to the internet. The Internet, perhaps one of the greatest tools for communication, commerce, and dialogue in the history of humankind, is something that only 2% of Cubans have access to. Access is generally limited to those with connections in the government or those who have familial or outside connections with friends or relatives abroad. Even then, access is restricted to a limited state-controlled intranet. It’s about time that Cuba join the modern world.
These and a whole series of other reforms are just some examples of basic reforms that the Cuban government could undertake if it were truly interested in starting the path towards increased prosperity. The path to economic growth and increased personal freedoms is not a secret one.
Until then, the “reforms” were are seeing in Cuba are only cosmetic half-hearted attempts to appease and maintain control. If Raul Castro and his Politburo really want change to arrive in Cuba, they know where to begin.
Until then, you should remain skeptical about talk of “reform” in the island.