On November 10, 2011, one of the most significant economic reforms took place in Cuba, the long standing communist country. For the first time in 50 years, Cuban people were allowed to buy and sell property as the country broke from its long tradition of socialist housing. This is a major step in a long list of reforms that have been enacted since Raul Castro took control as Cuba’s president in 2008.1
As the country liberalizes to join the globalized world, a major question lingers on. The final step holding back full integration in the world economy remains the embargo imposed by the United States. Given the liberal style reforms, many wonder whether or not it is still relevant and necessary for the two countries to remain disengaged.
Reforms in Cuba
Ever since the Cuban Revolution of 1959, all property officially belonged to the state. As a result, many buildings fell into disarray, as citizens felt little need to invest in improving something that did not officially belong to them. “Previously, the only kind of property transactions that Cubans were allowed to make were ‘permuta(s)’ – a complicated bartering system, which while legal, often included illegal payments made under the table.”2 Now, the major reforms created an entirely new market in the country, where buyers and sellers actually set prices and exchange property.
Some scholars have gone so far as to refer to this as the beginnings of a capitalist revolution. Pedro Freyre, a professor at Columbia Law School, states+ that, “This is the foundation, this is how you build capitalism, by allowing the free trade of property.”3 While this may be a rather extreme assumption, it is still significant given the other reforms that have also been taking place.
Another major reform is the “new credit system…that will offer loans to small-business owners, independent farmers, and other citizens.”4 Loans will be offered especially to construction companies that will see their business bolstered by the new property laws. Arturo Lopez-Levy, a Cuban economist, states that, “The new credit policy is another step toward the configuration of a mixed economy integrating state and non-state sectors in a common national market.”5
Earlier in the year, Castro also liberalized the car trade. Just like with real estate, Cuban citizens can now buy and sell cars, which will hopefully bring an inflow of new vehicles to update the 1960s style cars that are common across the country.6 Finally, on December 1, 2011, major agricultural reforms were enacted as farmers were given the ability to sell their products directly to hotels and restaurants. Before, there was a complex system of middlemen that not only increased the price for the consumer, but also took money out of the producers’ pockets. Officials are hoping that this will also increase the quality of food at major tourist destinations, since tourism is a major part of the Cuban economy.7
Still More to be Done
While the Cuban government is clearly taking the right steps to improve their economy, there are still some major flaws with the system that need to be addressed. The most significant of these are the reported human rights abuses and the arresting of foreign businessmen. “Since July Cuba has arrested several foreign managers, and closed three such ventures.”8 A major issue with the system is the fact that foreign managers want to pay market wages, and cannot given the strict socialist system. Therefore, corruption ensues and the government considers this to be “law-breaking.”
“There have been at least six corruption probes targeting foreign companies over the past two years, sending 52 foreigners to jail and expelling more than 150 business owners and operators.”9 While Castro’s overall goal is to prevent corruption in the economy, the result is quite different. Instead, foreign firms will be less willing to invest in Cuba. If Cuba wants foreign investment to continue to bolster its economy, the government needs to avoid practices that will prevent these companies from succeeding, and provide disincentives for doing business in the country.
In addition, Cuba also needs to aim to make these new reforms without the guises of socialism. For example, the new property law still has some stringent aspects that prevent it from actually being a purely capitalist reform. “Owners will be limited to two homes (a residence and a vacation property) and financing must go through Cuba’s Central Bank, which will charge fees, which have not been determined. And a tax of 8 percent will be split by the buyer and seller.” 10 These restrictions show the lack of government commitment to fully liberalize the economy, and its desire to remain as close to communism as possible.
The need for reform in Cuba has become increasingly clear. While many of the reforms the country is making are helping, more measures are needed to fully integrate Cuba into the world economy. Brazil has offered support to attain this goal, by helping Cuba raises its export volume and reduces imports.11 However, it is clear that many more major reforms are needed to improve relations at home and abroad, and create a more stable hemisphere.
Reactions for the future
Reform in Cuba cannot be expected to take place overnight. After 50 years of socialist rule, gradual reforms are necessary to ensure that the economy does not completely collapse under the weight of the market. Regardless, a major obstacle to the integration of Cuba into the world economy remains the enduring U.S. embargo against the country. For years, this policy has been hurting both the Cuban people and the relationship between the two countries.
The Center for Democracy in the Americas released a report specifically stating that the U.S.”should remove Cuba from the U.S. State Department list of State Sponsors of Terrorism and offer support for Havana’s economic liberalization program.”12 These actions have clearly had a negative impact on the Cuban people and economy. In addition, there is no clear indication that Cuba even deserves to be on this list. Instead, the U.S. should reengage with Cuba, and help the country along the path to liberalization.
The continued aggressive stance towards the island has had a dramatically negative impact on U.S. political clout in the region. The rise of regional organizations that do not include the U.S., such as Unasur and CELAC, clearly demonstrates the disdain for U.S. policy towards Latin America.13 By reengaging with Cuba, the U.S. would be able to show to the hemisphere that it is no longer trying to control the other states using a bully approach, and instead is willing to work together to create a more integrated region.
1 Tham, Raymond. “Cuba’s Gradual Revolution: Will Capitalist-Style Reforms Save the Socialist Nation?” Economy Watch. November 22, 2011.
3 Cave, Damien. “Cuba to Allow Buying and Selling of Property, With Few Restrictions.” The New York Times. November 3, 2011.
4 Orsi, Peter. “Cuba unveils new loan program.” Miami Herald. November 21, 2011.
6 “Cuba Liberalizes Used Car Trade.” Latin American Herald Tribune.
7 “Cuba to allow farmers to sell directly to hotels.”. BBC. November 21, 2011
8 “Business in Cuba: A Risky Venture.” The Economist. November 12, 2011.
9 Russell, Mark. “As Cuba Opens Up, Castro Hits Corruption.” Newser. November 20, 2011.
10 Cave, Damien. “Cuba to Allow Buying and Selling of Property, With Few Restrictions.” The New York Times. November 3, 2011.
11 “Brazil Wants Cuba to Update its Economic Model.” Latin American Herald Tribune.
12 “US Urged to Support Reforms in Cuba.” Latin American Herald Tribune.
13 James, Ian. “Chavez touts new Latin America, Caribbean Bloc.” Associated Press. December 1, 2011.
* Picture of Cuban Flags in Havana: http://www.flickr.com/photos/missmass/570666807/ * Picture of car in Cuba: http://www.flickr.com/photos/melissa_photos/8306909/