SPECIAL REPORT CUBA March 24th 2012 Revolution in retreat SPECIAL REPORT C UBA Revolution in retreat Under Raúl Castro, Cuba has begun the journey towards capitalism. But it will take a decade and a big political battle to complete, writes Michael Reid ACKNOWLEDGMENTS Apart from those mentioned in the text, the author would like to thank the following people for their help in preparing this report: Marc Frank, Julia Sweig, Hal Klepak, Susanne Gratius, Emily Morris, Bertrand de la Grange, Ivan Docampo of the Cuban Embassy in London, Alberto Ibargüen and Sergio Bendixen in Miami, and a number of people in Cuba who must remain anonymous. It is more than usually important to stress that none of the above bears any responsibility for the views expressed in the report. The Economist March 24th 2012 WHEN ON JULY 31st 2006 Cuban state television broadcast a terse statement from Fidel Castro to say that he had to undergo emergency surgery and was temporarily handing over to his brother, Raúl (pictured below with Fidel, left), it felt like the end of an era. The man who had dominated every aspect of life on the island for almost half a century seemed to be on his way out. In the event Fidel survived, and nothing appeared to change. Even so, that July evening marked the start of a slow but irreversible dismantling of communism (ocially, socialism) in one of the tiny handful of countries in which it survived into the 21st century. Raúl Castro, who formally took over as Cuba’s president in February 2008 and as rst secretary of the Communist Party in April 2011, is trying to revive the island’s moribund economy by transferring a substantial chunk of it from state to private hands, with profound social and political implications. He has abolished a few of the many petty restrictions that pervade Cubans’ lives. He has also freed around 130 political prisoners. His government has signed the UN covenants on human rights, something his brother had jibbed at for three decades. Repression has become less brutal, though two prisoners have died on hunger strikes. Cubans grumble far more openly than they used to, and academic debate has become a bit freer. But calls for democracy and free elections are still silenced. The Communist Party remains the only legal political party in Cuba. And Raúl Castro has repeatedly dashed the hopes of many Cubans that the hated exit visa, which makes it hard (and for some, impossible) to leave the country, will be scrapped. The economic reforms, set out in 313 guidelines approved by a Communist Party congress in April 2011, are being implemented slowly and with great caution. That is because they face stubborn resistance from within the party and the bureaucracy. Indeed, the leadership shuns the word reform, let alone transition. Those terms are contaminated by the collapse of the Soviet Union, an event that still traumatises Cuba’s leaders. Ocially, the changes are described as an updating in which non-state actors and co-operatives will be promoted. But whatever the language, this means an emerging private sector. The new president often says his aim is to make socialism sustainable and irreversible. The economy will continue to be based on planning, not the market, and the concentration of property will be prohibited, Raúl Castro insisted in a speech to the National Assembly in December 2010. He is careful not to contradict his elder brother openly: his every speech contains several reverential quotes from Fidel, who despite his semi-retirement is consulted about big decisions. (For brevity and clarity this report will refer to each Castro brother by his rst name.) Fidel’s frail and ghostly presence in his compound in Siboney, a 1 CONTENT S 5 Inequality The deal’s o 6 Population Hasta la vista, baby 7 The economy Edging towards capitalism 9 Politics Grandmother’s footsteps 10 Cuban-Americans The Miami mirror 12 After the Castros The biological factor A list of sources is at Economist.com/specialreports An audio interview with the author is at Economist.com/audiovideo/ specialreports 1 KEY FIGURES SPECIAL REPORT GDP: 2011 - $120bn* C UBA Exports†: 2010 - $5bn HAVANA Miramar Siboney Mariel La Salud ARTEMISA Imports†: 2010 - $11bn Population: 2011 - 11.2m Havana Matanzas El Cacahual MAYABEQUE CIENFUEGOS Gol fo d e Bat a b a nó Cienfuegos Bay of Pigs ISLA DE LA JUVENTUD 2 leafy enclave of mansions on Havana’s western outskirts, doubtless checks the speed of reform. But he no longer controls the levers of power and rarely comments on domestic politics. This special report will argue that whatever the intentions of Cuba’s Communist leaders, they will nd it impossible to prevent their island from moving to some form of capitalism. What is harder to predict is whether they will remain in control of the process of change, or whether it will lead to democracy. No turning back this time When the Soviet Union collapsed in 1991, many outsiders believed that communism in Cuba was doomed. Massive Soviet subsidies and military aid for Cuba had o set the economic embargo imposed by the United States in 1960. By the 1970s they had also brought stability after Fidel had all but bankrupted the island by his manic shifts from forced industrialisation back to exaggerated reliance on sugar, the economy’s mainstay since colonial days. The overnight withdrawal of Soviet subsidies and trade links caused Cuba’s economy to contract by 35% between 1989 and 1993 (see chart 1). In response, Fidel declared a national emergency, dubbed The Special Period in Peacetime. He opened the island to foreign investment and mass tourism and legalised small family businesses and the use of the dollar. But then he found a new benefactor in Venezuela’s Hugo Chávez, who began to provide Cuba with cheap oil. A big chunk of that is ocially counted as a swap of oil for the services of some 20,000 Cuban doctors, sports instructors and security advisers working in Venezuela. China, too, emerged as a new source of credit. Thus bolstered, Fidel reversed course again. Many family businesses, as well as some foreign ventures, were shut down; the dollar ceased to be legal tender in 2004. The ageing leader 1 No longer special GDP, % change on previous year* Current-account balance, % of GDP F’CAST 2011† Cuba Chile Gross fixed 10.5 21.8 15 investment, – $’000, current 5 Avg. years schooling, 10 adults* Infant 15 mortality, 1989 95 2000 05 10 15 73.8 77.2 5.8 10.0 9.9 9.7 7.2 8.5 5.0 6.8 21.6 14.1 per 1,000 live births Sources: Economist Intelligence Unit; UNDP; UNPD; World Bank 2 Dominican Rep. Mexico 16.9 20.6 % of GDP* 10 Life 79.3 79.3 expectancy 5 at birth, years + GDP per 5.4 13.7 0 person*, VILLA CLARA MATANZAS PINAR DEL RÍO Pinar del Río Source: Economist Intelligence Unit *At purchasing-power parity †Goods only *Estimates †Or latest available Santa Clara SANCTI SPÍRITUS Sancti Spíritus CIEGO D E ÁV I L A Ciego de Ávila launched the Battle of Ideas, sending out armies of youths as ill-trained teachers and social workers. This time, Raúl has insisted, there will be no turning back: the reforms will happen sin prisa, pero sin pausa (slowly but steadily). But Raúl is no liberal. He and Ernesto Che Guevara, the Argentine adventurer who died in Bolivia in 1967, were the orthodox Marxists among the leaders of Fidel’s Rebel Army, the ragtag band of bearded guerrillas who toppled the corrupt, American-backed dictatorship of Fulgencio Batista. As defence minister from 1959 to 2008, Raúl set up and led Cuba’s formidable armed forces. When Raúl took over from Fidel, he moved slowly at rst, amid factional ghting. To general surprise, the men who lost out in 2009 were Carlos Lage, who had run the economy since the Special Period and was seen as a reformer, and Felipe Pérez Roque, the young foreign minister. They were denounced for having criticised the Castros (Mr Lage was caught on tape describing the leadership as living fossils) and for having been corrupted by power. Instead, José Ramón Machado Ventura, an 81-year-old Stalinist, was named as Raúl’s deputy. But Raúl also quietly discarded nearly all of Fidel’s ministers and key aides. Their replacements are mostly army ocers. Rafael Hernández, an academic who edits Temas, a quarterly journal attached to the culture ministry, points out that many of them are engineers by profession. Fidel ruled Cuba through the unbridled exercise of his massive ego. He centralised all power in his own hands, imposed Utopian egalitarianism and performed frequent policy swerves. By all accounts, Raúl is more modest, by nature a delegator and team-builder, more interested in getting things done than making speeches. When he took over in 2006 he put an end to the 4am meetings his brother loved. He is the Sancho Panza to Fidel’s Don Quijote (they even look the parts). Raúl seems to be acutely conscious that Cuban communism is living on borrowed time. The economy is grossly unproductive. Venezuelan aid in 2008 was o set by devastating hurricanes and the knock-on e ects of the global nancial crisis on Cuba’s tourism and trade. The country is running down its capital, but living standards remain frugal. Its famed social services are no longer a ordable. The population is shrinking. Mr Chávez, its Venezuelan patron, is being treated for cancer and faces a close election in October. And the Cuban leadership is gerontocratic: Fidel is 85, Raúl is 80 and the average age of the Politburo is over 70. The históricos, as those who fought in the revolution are known, are dying o . With Mr Lage gone, they have no visible successors. Raúl’s opportunity to institutionalise the system has come very late in the day. We either rectify things, or we run out of time to carry on skirting the abyss [and] we sink, he warned in his December 2010 speech. 7 The Economist March 24th 2012 SPECIAL REPORT UNITED STATES A T L A N T I C New Orleans B FLORIDA Miami G u l f o f M e x i c o AH AM O C E A N AS F l o ri d a S tr ai t s PUERTO RICO Havana (to US) CUBA HAITI MEXICO DOMINICAN REPUBLIC JAMAICA C a r i b b e a n BELIZE GUATEMALA HONDURAS S e a 500 km VENEZUELA CAMAGÜEY Camagüey LAS TUNAS Las Tunas Holguín HOLGUÍN Bayamo GRANMA r a S i e r SANT IAGO DE CUBA M a e s t r a G UA N TÁ N A M O Guantánamo Santiago de Cuba Guantánamo Bay (to US) Inequality The deal’s o Inequalities are growing as the paternalistic state is becoming ever less a ordable JUST OUTSIDE SANTA CLARA, a city in central Cuba, in a hotel that was once a Communist Party hospitality centre, a trio of musicians entertains a large group of German tourists. The trio belts out Hasta Siempre, Comandante, an anthem to Che Guevara, whose capture of an armoured train at Santa Clara prompted the collapse of the Batista dictatorship. I wouldn’t sing this song for an audience of young Cubans. But it has international resonance, explains one of the trio. Then they strike up Chan Chan from the Buena Vista Social Club. That music is associated with the Batista years, consigning its elderly practitioners to neglect under communism until Ry Cooder, an American, turned them into international superstars in the late 1990s. In a confusion the government has happily exploited, they have become incongruous icons of the Cuban revolutionary myth. That myth has been extraordinarily potent and durable. Along with Caribbean beaches and cheap rum, it draws tourists to Cuba (2.7m last year, a record). It has led the Latin American and European left to treat the Cuban dictatorship with indulgence. Soviet communism and its eastern European satellites never held any romantic appeal. Cuba was di erent. Two things of substance have sustained the mythand the Castros’ rule. First, even as he turned his country into a Soviet client, Fidel CasThe Economist March 24th 2012 C UBA tro managed to embody Cuban nationalism, as the David defying the American Goliath and its economic embargo. In the three decades from 1898 the United States all but ran Cuba, having ousted Spain. By the 1950s American businesses owned large, though diminishing, chunks of the island’s economy. That brought resentment and economic distortions, but also investment and progress: in 1959 Cuba was one of the leading ve Latin American countries on a range of socio-economic indicators. Life expectancy was close to that of the United States and it had more doctors per person than Britain and France. But around a third of the population lived in severe poverty. The second substantial achievement was that even as he expropriated almost all private property, Fidel poured resources into social programmes that reached from cradle to grave, providing free world-class health care and education as well as free pensions and funerals. Child malnutrition and adult illiteracy were eliminated. Life expectancy and many other social indicators rose above those of the United States. Every Cuban household had (and still has) a ration book (or libreta) entitling it to a monthly supply of food and other staples, provided at nominal cost. Many other services were (and are) similarly subsidised. Compared with the rest of Latin America, Cuba seemed to be achieving greater racial and sexual equality. Fidel’s deance of the United States and Cuba’s social achievements under his rule found many admirers abroad. They also secured the more or less enthusiastic support for the regime of a majority of Cubans. The deal was that Fidel would give them security and meet their basic needs, and in return they would surrender their liberty. Many of those who rejected that deal emigrated, often with ocial encouragement. Others were jailed, often in appalling conditions, by Fidel’s police state. The wages of poverty That deal began to break down in the Special Period. When Soviet subsidies suddenly dried up, Cuba’s scal decit soared, to a peak of 33% of GDP. The government covered the gap by printing money, which stoked ination. In real terms the average wage has dropped to just 25% of its value in 1989. A survey in Havana in 2000 found that 20% of the population was poor (dened as at risk of being unable to satisfy their basic needs); the national gure now is almost certainly higher. Social services have su ered, too. According to a paper by Carmelo Mesa Lago, a Cuban economist at the University of Pittsburgh, and Pavel Vidal, an economist at Havana University’s Centre for the Study of the Cuban Economy (CEEC), in 1989 Cuba outranked every other Latin American country in all social indicators except housing. But between 1989 and 1993 social spending per head was slashed by 78% in real terms. It has since recovered somewhat, but the paternalistic state is fraying. Hurricane damage in 2008 added to an already acute housing shortage. Contrary to the myth, Cuba now has some shanty towns. Just o the main avenue in Miramar, a plush part of Havana studded with foreign embassies and homes of senior party ocials, stands El Romerio, an enclave of tightly packed huts of corrugated iron and wood. On a Saturday afternoon its mainly black residents play dominos in the narrow, rutted streets. Decades of migration to the capital from the poorer east have turned the century-old houses of central Havana into overcrowded slums. In January four young people died after a house collapsed. People still live in the crumbling house next door. Transport has long been scarce. There are only 600,000 cars on the island, with an average age of 15 years, and half of them belong to the state. A new eet of Chinese buses helped, but Cuba failed to include their maintenance in the contract and some are already o the road, according to a foreign diplomat. 1 3 SPECIAL REPORT C UBA 2 The government also paid over the odds for the diesel generators that have temporarily eased the chronic power cuts. Cuba still stands out from its neighbours in two respects. First, its extraordinarily e ective civil-defence system has ensured that the frequent hurricanes rarely cause as much loss of life as they do elsewhere in the Caribbean (or the United States). Secondly, violent crime is rare: a visitor can walk through the roughest parts of Havana with little fear. But both these achievements are those of authoritarian rule. And now health services and education are becoming harder to access and getting worse. Secondary-school enrolment is below its 1989 peak. There is a surfeit of humanities graduates and a shortage of agronomists and engineers. Although infant mortality has continued to fall, maternal mortality has risen. Many drugs are in short supply. Hospital patients sometimes have to bring their own sheets. There are reports of doctors starting to demand payment. On a weekday morning in a village in the inappropriately named municipality of La Salud (health), south of the capital, this correspondent came across an elderly woman who had hurt her arm and was whimpering with pain, having found no doctors in attendance at two health clinics. In 2010, 37,000 Cuban doctors and other health workers were working in 77 countries around the world, mostly in Venezuela but also in Africa, the Caribbean and Central America. The Cuban government also o ers scholarships to 20,000 Latin Americans to study medicineall part of its obsessive search for international prestige. But the main reason for the shortage of medical sta is low salaries. A woman who gave her name as Grisel says she worked as a family doctor for just $23 a month, but now earns $40 a month in an improvised craft shop in Havana. She has two small children. A pair of children’s shoes costs $13. As a doctor I faced a choice of buying shoes or eating. Raúl Castro has taken steps to rationalise health and education services and has raised teachers’ salaries. But the crucial reform required to make the welfare state sustainable is to switch from subsidising products and services indiscriminately to subsidising those people who need it, and Raúl has shrunk from that. His proposal to phase out the libreta was removed from the guidelines at the party congress. Inequality revisited Cuba’s growing social inequalities are symbolised by the dual currency system introduced in the Special Period. The convertible peso, or CUC, is now xed at par to the dollar. The ordinary Cuban peso is theoretically worth the same as the CUC, but that is an accounting ction. In fact the peso is pegged at 24 to the CUC. The CUC is used for foreign trade and tourism. Wages and the prices of basic goods in the domestic economy are set in pesos. The average monthly wage is 454 pesos, or $19. The shelves of state-owned shops selling merchandise in pesos are sparsely stocked. Many things, from white goods to processed foods, can be bought only with CUCs, so many professionals are working in the tourist industry or in foreign-owned companies. Remittances from family members abroad have added another source of inThe population is shrinking, ageingand emigrating equality. So has a large informal economy. And now private business is doing its bit. CUBA IS THE only Latin American country sioners are among the poorest in Cuban In all this Cuba is starting to resemwhose population is falling. It is also ageing society. But by 2008 total pension costs had ble the rest of Latin America, but without faster than anywhere else in the region, for risen to 7% of GDP. political liberties. The Gini coecient of several reasons. First, Cuban women are The government introduced a pension income inequality (where 0 represents having far fewer babies. The number of reform in December 2008, raising contribucomplete equality and 1 complete inchildren per woman fell from ve in 1963 to tions (introduced in the 1990s) and the equality) rose from 0.24 in the late 1980s to 1.9 in 1978 and to below 1.5 between 2004 retirement age (to 60 for women and 65 for 0.41 a decade later, according to research and 2008. Second, thanks to good health men). But that will not be enough to make quoted in Espacio Laical, a magazine pubcare very few children die in infancy, and pensions self-nancing, nor eliminate lished by Cuba’s Catholic church. A conCubans live to a ripe old age. pensioner poverty. And those who want to dential later study is said to have put the Third, some 30,000 Cubans a year leave emigrate are just the people the island can gure at 0.5, similar to the Latin American the island. Nowadays few of them risk their least a ord to lose. Fear of rising emigration average of 0.53 in the mid-2000s. lives in rafts or rubber tyres to cross the is the main reason why Raúl Castro says Cuba has no visible oligarchs as yet, Florida straits. Instead, they queue up for a abolishing controls on leaving the island but it does have a number of increasingly visa. Under an agreement reached in the requires long and careful study. wealthy people. They include farmers, 1990s to deter uncontrolled migration, the owners of some tourist-linked businesses United States gives out some 20,000 visas a 2 such as guest houses and restaurants, and Into the sunset year by lottery. Spain, which grants citiPopulation under 15 and over 60 years old some ocials who prot from their conzenship to the children and grandchildren of % of total tacts. The Castro brothers themselves those who ed the country’s civil war and 0-14 60+ have always lived simply, but Habana Lithe Franco dictatorship, has handed out bre, a recently published book about the 40 63,000 passports. A steady trickle of Cubans lifestyles of the city’s privileged caste of posted to Venezuela or travelling abroad 30 artists and musicians, included photochoose not to return. graphs of sons of Fidel and Che Guevara. So Cuba is getting older (see chart 2). 20 Cubans are extraordinarily resilient, The typical Cuban family consists of two adaptable people, but their frustration is grandparents, two parents and one child, 10 palpable. On being asked to take his passays Jorge Mario Sánchez of CEEC. On current senger to a restaurant owned by Roberto trends, by 2025 there will be almost as many 0 Robaina, a former foreign minister, a taxi pensioners as workers. Pensions are low (an 1953 70 81 95 2002 06 09 driver exploded: These people spend average of $10 a month in 2008), and penSource: Oficina Nacional de Estadísticas their whole time stopping us from getting 1 Hasta la vista, baby 4 The Economist March 24th 2012 SPECIAL REPORT C UBA no wholesalers in Cuba, so all supplies come from state-owned supermarkets or from trips abroad. Reservations are taken on Ms Nicolas’s mobile phone. Advertising is banned, though classied ads in the phone book will soon be allowed. Across Cuba small businesses are proliferating. Most are on a more modest scale than La Galeria. Fernando and Orlandis Suri, who are smallholders at El Cacahual, a hamlet south of Havana, can now legally sell their fat pineapples and papaya from a roadside stall, along with other produce. Orlandis plans to rent space on Havana’s seafront to sell fruit cocktails and juice. In Santa Clara, Mr Pérez’s wife, Yolanda, sells ice-cream from their home. Having paid 200 pesos for a licence and 87 pesos in socialsecurity contributions, she earns enough to buy salad. The streets around Havana’s Parque Central heave with vendors hawking snacks and tourist trinkets. Many of them are teachers, accountants and doctors who have left their jobs for a more lucrative, if precarious, life in the private sector. No reason to work Remembrance of things past 2 ahead, and they are helping themselves. Resentment at the un- fair advantages enjoyed by the party elite is echoed by Roberto Pérez (not his real name), a 50-year-old sports instructor living in Santa Clara: The problem is that people who work hard and obey the law don’t get ahead. It’s those at the top who get ahead by doing business with foreigners. In much of Cuba it has become hard to nd anyone under 40 with a good word to say for the system. Mr Pérez’s son, a teacher, plans to leave Cuba as soon as he can. The young people here have nothing to do. They are desperate, says his father. That is why the economic reforms have to succeed. 7 The economy Edging towards capitalism Why reforms are slow and dicult GISELA NICOLAS AND two of her friends wanted to set up an events-catering company, but that is not one of the 181activities on the approved list for those who work por cuenta propia (on their own account), so in May 2011 they opened a restaurant called La Galeria. With 50 covers, it is a fairly ambitious business by Havana standards. They have rented a large house in Vedado and hired a top chef and 13 other sta who are paid two to three times the average wage, plus tips. The customers are mainly foreign businesspeople and diplomats, Cuban artists and musicians and visiting Cuban-Americans. This opportunity means a lot to us, says Ms Nicolas, who used to work for a Mexican marketing company. But they haven’t created the conditions for a protable business. There are The Economist March 24th 2012 This cuentapropismo is only the most visible part of Raúl Castro’s reform plan. The fundamental issue in Cuba is production, says Omar Everleny, a reformist economist. Prices are high and wages are low because we don’t produce enough. Cuban statistics are incomplete, inconsistent and often questionable. But in a lifetime’s detective work, Carmelo Mesa Lago at the University of Pittsburgh has calculated that output per head of 15 out of 22 main agricultural and industrial products was dramatically lower in 2007 than it had been in 1958. The biggest growth has come in oil and gas and in nickel mining, largely thanks to investment since the 1990s by Sherritt, a Canadian rm. But output per head of sugar, an iconic Cuban product, has dropped to an eighth of its level in 1958 and 1989. Capital investment has collapsed. Raúl Castro has repeatedly lamented that Cuba imported around 80% of the food it consumed between 2007 and 2009, at a cost of over $1.7 billion a year. The American embargo is an irritant, but the economy’s central failing is that Fidel’s paternalist state did away with any incentive to work, or any sanction for not doing so. So most Cubans do not work very hard at their ocial jobs. People stand around chatting or conduct long telephone conversations with their mothers. They also routinely pilfer supplies from their workplace: that is what keeps the informal economy going. The global nancial crisis in 2007-08 also took its toll. Tourists stayed away, the oil price plunged, and with it Venezuelan aid. Hurricane damage meant more food imports, just when world food prices were rising and those of nickel, now Cuba’s main export, were plunging. All this coincided with the political inghting in which Mr Lage was ousted, during which all nancial and budgetary discipline was blown away, according to a foreign businessman. Having repeatedly defaulted on its foreign debt, Cuba has little access to credit. Instead of devaluing the CUC, which would have pushed up ination, in January 2009 the government seized about $1 billion in hard-currency balances held by state-owned enterprises (SOEs) and foreign joint ventures. It did not nish paying them back until December 2011. The guidelines approved by the party congress contain measures to raise production and exports, cut import demand and make the state nancially sustainable. This involves, rst, turning over idle state land to private farmers; second, making the state more productive by transferring surplus workers to the private sector or to co-ops; and third, lifting some of the many prohibitions that restrict Cuban lives, and granting much more autonomy to the 3,700 SOEs. The grip of the state on Cuban farming has been disastrous. State farms of various kinds hold 75% of Cuba’s 6.7m hectares of 1 5 SPECIAL REPORT C UBA 2 agricultural land. In 2007 some 45% of this was lying idle, much of it overrun by marabú, a tenacious weed. Cuba is the only country in Latin America where killing a cow is a crime (and eating beef a rare luxury). That has not stopped the cattle herd declining from 7m in 1967 to 4m in 2011. In 2008 Raúl allowed private farmers and co-ops to lease idle state land for ten years. By December last year 1.4m hectares had been handed out. The government has now agreed to extend the lease-period to up to 25 years, allow farm buildings to be put up and pay for any improvements if the leases are not renewed. Credit and technical assistance also remain scarce, says Armando Nova of CEEC. Farmers su er in the grip of Acopio, the state marketing organisation. It is the monopoly supplier of inputs such as seeds, fertiliser and equipment and was Raúl sees the sole purchaser of the farms’ output, but its monopoly is being dented. Farmers corruption can now sell surplus production of all but as 17 basic crops themselves. Under a pilot programme in Artemisa and Mayabeque politically provinces, near Havana, new co-ops will incendiary take over many of Acopio’s functions. The reformers want to see Acopio go. at a time of More surprisingly, so does Joaquín Infante rising Ugarte at the National Association of Economists and Accountants (ANEC): It’s inequality always been a disaster. We should put a bomb under it. But in around 100 of Cuba’s 168 municipalities the economy is based on farming, so Acopio is a big source of power and perks for party hacks, and its future is the subject of an intense political battle. That makes farmers nervous. A year ago the 30 or so farmers in the Antonio Maceo co-op in Mayabeque leased extra land, got a loan and planted bananas, citrus and beans. The administrator says output is up, but it will take time to see a real di erence. And with that he clammed up. Ocial data suggest that output of many crops fell last year; the price of food rose by 20%. That may be partly because farmers are bypassing the ocial channels. Granma, the ocialand onlydaily newspaper, reported in January that a spontaneous, self-organised and regulated wholesale market in farm products has sprung up in Havana. That looks like the future. Letting go is hard to do Reducing the state’s share of the economy has been even more contested. Raúl originally said the government would lay o 500,000 workers by March 2011 and a total of 1.1m by 2014. That timetable has slipped by several years because the government has been reluctant to allow suciently attractive alternatives for workers to give up the security (and the pilfering opportunities) of a state job. But including voluntary lay-o s and plans to turn many state service jobs into co-ops (as has already happened with small barber’s shops, beauty parlours and a few taxi drivers), some 35-40% of the workforce of 4.1m should end up in the private sector by 2015, reckons Mr Everleny. By October 2011, he says, some 338,000 people had requested a business licence, 60% of whom were not leaving state jobs, suggesting that they were simply legalising a previous informal activity. As happens to small businesses the world over, many fail in the rst year. Few of the cuentapropistas have Ms Nicolas’s 6 business experience. Many clearly nd it hard to distinguish revenue from prot. ANEC is organising training courses. But the government has stalled an attempt by the Catholic church to set up an embryonic business school. If cuentapropismo is not to be a recipe for poverty, the government will have to ease the rules. Mr Everleny wants to see private professional-service rms being established: architects, engineers, even doctors. Already the taxes levied on the new businesses have been cut, but they are still designed to produce bonsai companies, in the words of Oscar Espinosa Chepe, a dissident economist. Lack of credit is another obstacle. Start-up capital for new businesses comes mainly from remittances. In a pilot scheme the government approved $3.6m in credits in January, nearly all for house improvements. As for deregulation, Raúl has taken some simple and popular steps, lifting bans on Cubans using tourist hotels and owning mobile phones and computers, and last year allowing them to buy and sell houses and cars. But reforming SOEs is far more complicated. They have been told to introduce performance-related pay. The boldest step was last year’s abolition of the sugar ministry. In principle, SOEs that lose money will be merged or turned over to their workers as co-ops. But a planned bankruptcy law is still pending. So is the elimination of subsidies and the introduction of market pricing. Mr Ugarte of ANEC thinks much of this will happen this year, along with a new law to introduce corporate income tax. The pace of change has picked up since the party congress set up a commission with 90 sta under Marino Murillo, a Politburo member and former economy minister, to push through the reforms, says Jorge Mario Sánchez at CEEC. By 2015 there won’t be the socialist economy of the 1990s, nor the same society. But there are several gaps. For one, the government seems undecided what to do about foreign investment, a key element in the rapid growth in Vietnam and China. It has cancelled some of the joint ventures it had signed (often in haste) during the Special Period, and such new agreements as it is entering are almost exclusively with companies from Venezuela, China and Brazil. Odebrecht, a Brazilian conglomerate, has reached an agreement under which it will run a large sugar mill in Cienfuegos for ten years. Many foreign companies are keen to invest in Cuba but are put o by the government’s insistence on keeping a majority stake and its history of arbitrary policy change. Ocials worry that foreign investment brings corruption. Raúl has launched an anti-corruption drive with the creation of 1 The Economist March 24th 2012 SPECIAL REPORT C UBA 2 a powerful new auditor-general’s oce. Several hundred Cuban ocials, some very senior, have been jailed, as have three foreigners. Raúl rightly sees corruption as politically incendiary at a time of rising inequality. But he is tackling the symptoms rather than the cause. People who were making $20 a month were negotiating contracts worth $10m, says a foreign diplomat. The guidelines involve only microeconomic reforms. Raúl’s macroeconomic recipe has so far been limited to austerity: he has managed to trim the scal and current-account decits. The trickiest reform of all will be unifying the two currencies, by devaluing the CUC and revaluing the peso. It would help if Cuba were a member of the IMF and the World Bank and had access to international credit, but so far the government has shown no interest in joining. Mr Vidal of CEEC points out that for devaluation to provide a stimulus, rather than just generating ination, the economy would have to be far more exible. That will require a political battle. 7 Politics Grandmother’s footsteps With no sign of a Cuban spring, change will have to come from within the party (mainly abroad), and on SMS messages within Cuba. Raúl’s decision to let Cubans buy mobile phones and computers has probably had more impact than he or anyone else expected. Unocial estimates now put the number of mobile phones on the island at 1.8m. Antonio José Ponte, a Cuban writer who has lived in exile in Madrid since 2006, says they are used to take video and photos of police beatings of opposition activists. These images are transmitted to Miami television stations, which broadcast them, and then sent back to the island on memory sticks, CDs and DVDs. Communications are priced to discourage their use. In Santa Clara a young man queues to use his e-mail account at the post oce for $1.50 an hour. There are private internet connections, but they cost even more, he says. He has a memory stick in his pocket. He and his friends trade lms and music. The authorities wage a constant campaign against clandestine satellite-television connections. In 2009 Alan Gross, an American working for the American government, was arrested for illegally handing out satellite phones and internet equipment; last year he was jailed for 15 years. Information technology has opened a crack in the Cuban monolith, but it is a small one. Within Cuba, Ms Sánchez is relatively unknown. No serious observer thinks a Cuban spring is around the corner. A survey of 190 Cubans conducted for Freedom House, a Washington-based advocacy group, found that over 90% of them had access only to government media. The government has acted ruthlessly to crush dissent. When in 2002 activists gathered the 10,000 signatures needed to ask the National Assembly to debate their request for multiparty elections, the regime responded with a counter-referendum in which 8m citizens were persuaded to vote for a constitutional amendment to declare socialism irrevocable. A year later many of those activists were among 75 opposition members given long sentences in show trials. THE ONLY CUBAN apart from the Castro brothers whom the rest of the world might have heard of is Yoani Sánchez (pictured). In 2007 she began a blog, Generation Y, in which she mixes political commentary with observations about daily life. Now 36, a philologist and writer of maturing skill, she has a fortnightly column in Spain’s El País and has won numerous The small, still voices of dissent journalism prizes abroad. She expresses a new kind of opposition in Cuba, one that the government nds hard to handle. The traditional dissident groups on the island are small, facThe regime has long sought to control access to the internet. tion-ridden and heavily inltrated by state security. Some are opIn this, as in many things, it has been helped by the economic portunists and have been easy for the regime to caricature as embargo, which prevents American companies from hooking agents of the United States. But some are very brave people who the island up to the many undersea bre-optic cables in the Cahave faced constant harassment. Mr Espinosa Chepe and his ribbean. Instead, Cuba has an infuriatingly slow narrow-band wife, Miriam Leiva, live in a small, dark Havana at, piled high connection from a Russian satellite. According to the national with books. He says that state security occupies a at on the next statistics oce, at the end of 2010 there were 724,000 computers oor as a listening post. He was one of those jailed in 2003. In on the island, giving 1.8m users access to a state-run intranet. The 2010 Raúl released the 52 who remained in prison. 434,000 who could connect to the internet were mainly profesMr Ponte concludes that change can’t come from the opsionals using it at their workplace. position because of its isolation and division. In the short term Ms Sánchez, who built her rst comchange can come only from the Communist Party itself. What puter herself, began posting her blog uschance is there of that? ing the internet at tourist hotels. She and On the last Thursday in January around 150 people are her husband and fellow-blogger, Reinaldo crowded into a community centre in El Cerro, a working-class Escobar, insist that they are journalists, district of Havana, for a discussion about citizen participation not political activists, and plan to launch in local government. The audience is a mixture of academics an online newspaper aimed at cuentaproand locals, many of them party members. The event is one of a pistas. Nevertheless, the attention she gets regular series of public debates organised by Temas, Rafael Herabroad irritates the government. She has nández’s journal. The three speakers all complain that top-down been denounced on television as a centralism has crushed local initiative. Of the score of audience cyber-terrorist, and has repeatedly been members who intervene, most agree. Will our political class be denied an exit visa. She is insulted and prepared to cede power to our districts and town halls? asks 1 threatened by pro-regime bloggers who she says are state-security agents in disguise. But the international visibility of Raúl’s decision to let Cubans buy mobile phones and social networks protects me a lot, she computers has probably had more impact than he or adds. She reports anything untoward on Twitter, where she has 200,000 followers anyone else expected The Economist March 24th 2012 7 SPECIAL REPORT C UBA 2 one. Not once in two hours has Fidel Castro been mentioned. Mr Hernández believes that the economic reforms have far-reaching political implications. If they are to work, there will have to be decentralisation, the rule of law and a reduction in the power of the state. To achieve this, the party will have to change its ways. At a closed party conference held on January 28th and 29th, Raúl Castro reiterated his calls for a separation between party and government. That will not be easy to achieve. Cuba’s 1976 constitution denes the Communist Party as the directing force of society and the state. It has 800,000 members, and another 700,000 in its youth wing. The party bureaucracy has been accustomed to exercising power at all levels in a top-down fashion. It is opaque, secretive and illiberal. Much of the resistance to change can be explained by bureaucratic inertia and the fear of loss of power and the perks that go with it. Many who feel that they have devoted their lives to the revolution are embittered by the idea that the reforms are opening up a route to acquiring moneyand eventually power outside the party. Ideology may also play a part. Mr Machado Ventura and Ramiro Valdés, the next two in the hierarchy of the 14-member Politburo after Raúl, are both tough Stalinists. At the 2011 congress Raúl admitted that the party had failed to promote a new generation of leaders. He has started to work on that. As well as Mr Murillo and Adal Yzquierdo, the economy minister, who are both technocrats, the congress appointed two younger political leaders to the Politburo: Miguel Díaz-Canel, the minister of higher education, and Mercedes López Acea, the party secretary for Havana. The council of state and the council of ministers now include more women and more black Cubans than ever before. The average age of the powerful provincial party chiefs is 44. There is no political opening in Cuba yet, but there are one or two cultural chinks of light. Books are still being censored, but a few more critical ones are being published, along with lms and art works. On the other hand La Rotilla, an annual alternative-music festival that attracted thousands of young people, was cancelled last year after the government tried to take it over. Church and state The most intriguing political development is the growing role of the Catholic church. Raúl has chosen to use it as an intermediary to engage with Cuban society. He holds regular talks with the Catholic cardinal of Havana, Jaime Ortega, which are mirrored at lower levels. The church is urging the government to grant individuals more socio-economic freedoms, says Orlando Márquez, the cardinal’s spokesman. It also argues for the recognition of freedoms of expression and organisation. But it is cautiousits critics say timidin pushing these ideas. Cuba is not Poland, where the church led the opposition to communism in an overwhelmingly Catholic country. Although around 60% of Cubans are baptised as Catholics, only 5% are practising, says Mr Márquez. Santería, a syncretic Afro-Cuban religion, has more adherents. But the government has gradually relaxed curbs on church activities. Its growing educational e orts are unocial but mostly tolerated. Last year, for the rst time since the revolution, the image of the Virgin of La Cobre was paraded around the island to vast crowds. On March 26th Pope Benedict is due to visit Cuba, as his predecessor did in 1998. Some Cuban exiles say that Raúl has cleverly co-opted the church. That is too simplistic. What the church is providing is a meeting place in which conversations between the party and some of its opponents and critics can take place. But to nd the Castros’ strongestand most impotentopponents, you have to cross the short straits that separate Havana from Miami. 7 8 Cuban-Americans The Miami mirror Cubans on the other side of the water are slowly changing too AS AFTERNOON TURNS to evening in Máximo Gómez Park, named for a hero of the independence war against Spain, some three dozen mainly elderly men and a scattering of women play dominoes, banging the tiles down on the ceramic table tops. This timeless scene could be anywhere in Cuba. In fact it is on Calle Ocho, a stretch of SW8th Street in Miami, in the heart of what is known as Little Havana. With its cigar stores, Cuban restaurants, and memorial to those killed in the failed attempt to invade the country at the Bay of Pigs in 1961, Calle Ocho remains the spiritual home of exiled Cuba. But much of it has come to look like any street in gritty urban America, with its payday loan shops and cheap supermarkets. Nowadays Little Havana is full of Central Americans; most Cubans have long since moved up and out. In the rst 15 years after the revolution half a million Cubans arrived in Miami. A few were Batista’s henchmen eeing vengeance; the vast majority were business and professional people whose property was threatened with seizure or who simply did not want to live under communism. Thanks to generous federal assimilation aid and to their own entrepreneurial drive, they turned Miami from a sleepy tourist resort into a dynamic business hub. A small minority engaged in violence, notably the terrorist bombing of a Cuban civilian aeroplane over Barbados that killed 73 people in 1976. More signicantly, they built one of the most powerful political machines in American history, dedicated to overthrowing the Castros through the economic embargo imposed from 1960. Three of the four congressional districts in Miami are held by Cu- 1 The Economist March 24th 2012 SPECIAL REPORT C UBA lowed any American to send up to $2,000 a year to Cuban citizens; and authorised more direct ights and travel by religious and educational groups. The State Department also began regular talks with Cuban ocials. Progress halted when Cuba arrested Mr Gross. The Obama administration beat back an attempt in Congress in December to overturn its easing measures, but shows no sign of wanting to open up further. Neither does Cuba. In 2009 Raúl appointed Bruno Rodríguez, an inept hardliner, as his foreign minister. The economic costs of the embargo to Cubahigher shipping charges, shortages of some medicines and components, tourist revenue forgoneare far outweighed by its political benet to the regime. It has allowed the Castros to maintain a siege mentality. Even so, the United States and Cuba co-operate smoothly on practical issues, such as hurricane monitoring, coastguard matters, anti-drug work and patrolling the perimeter of the Guantánamo naval base. And the embargo has sprung leaks: in the past few years the United States has sold Cuba food worth up to $960m a year (though it insists on settlement in cash). Worms no more 2 ban-American Republicans, as is one of Florida’s Senate seats. (Robert Menendez, a Democrat, sits in the Senate for New Jersey, now home to some 85,000 Cuban-Americans.) That political machine explains why America has not established normal relations with Cuba, as it has done with China and, since 1995, with Vietnam (with which it was at war two decades earlier). It’s a policy based on revenge. It sells well, but it has nothing to do with what’s going on in Cuba, says Joe Garcia, a former hardliner who has twice run and lost as a Democratic candidate for the House of Representatives in Miami. The embargo gives the United States leverage, counters Lincoln Diaz Balart, who spent 18 years in the House before handing his district over to his younger brother. He envisages bargaining access to the US and its billions in mass tourism, investment and credit for the legalising of political parties and the liberation of political prisoners. Mr Diaz Balart, who has been unable to visit Cuba since 1959, insists that Raúl’s reforms are windowdressingthe only change is an increase in repression. Over the decades there have been tactical shifts in American policy. Jimmy Carter re-established partial diplomatic ties. Under Bill Clinton, America began to o er aid to dissidents but also liberalised some travel. After Cuba responded to a provocative campaign of overights by exiles by shooting down two light aircraft in international airspace, killing their four crew, Congress in 1996 approved a law known as Helms-Burton, which attempted to extend the embargo to foreign companies and barred the administration from supporting Cuba’s return to the IMF. Perhaps most importantly, it stripped the White House of the power to end the Cuban embargo. Only Congress can now lift it completely, and only when both Castros are out of oce and free elections on the way. George Bush junior tried to increase the pressure on the Castros, curbing travel and remittances to the island by CubanAmericans and instructing the US Interests Section in Havana to o er more aid to dissidents. That merely gave Fidel cover to crack down on them. Barack Obama has returned to some of the policies adopted by Messrs Carter and Clinton. He has removed all restrictions on travel and remittances by Cuban-Americans; alThe Economist March 24th 2012 Mr Obama’s policies reect the changing nature of the Cuban-American population in south Florida as much as developments on the island. Some 400,000 of that population, now totalling 1.2m, have arrived since 1980, often as economic migrants rather than political exiles. They retain close ties with the island. In the check-in queue at Miami airport for one of the eight daily charter ights to Havana, almost everybody is carting two or three huge bags lled with gifts or goods to sell. There’s been a move to a border economy, says Carlos Saladrigas, a Miami businessman. That has been welcomed by Raúl, who has said that Cuban-Americans should no longer be despised as gusanos (worms), Fidel’s term for them, but seen as part of the nation. Mr Saladrigas believes the changes in American policy should go much further. In 2001, together with other CubanAmerican businessmen, he set up the Cuba Study Group to challenge the embargo. In business we know that if a strategy hasn’t worked for 53 years, you change it, he says. Roots of Hope, a group set up by Cuban-American university students, has also taken advantage of Mr Obama’s measures. Its aim is to help Cuba’s youth to empower themselves, says Tony Jimenez, one of its founders. Its members collect second-hand mobile phones to give to young people on the island. Yet the evolution of the Cuban-American community has not been matched by political change. That is mainly because older Cuban-Americans vote in large numbers, and for the cause. Their children, and more recent arrivals, are less likely to vote and care more about their life in the United States. Anyone who publicly questions the embargo has to be brave. For years there’s been a genuine fear of speaking out in Miami, says Mr Saladrigas. I know people who’ve dissented and lost their jobs or had to close their shops. But the pressure is lessening. In 2007 Neli Santamaria began organising discussions about Cuba policy at her café on Calle Ocho. Ten or 20 years ago I would have been bombed, she says. Now she just gets slandered on the internet. Several prominent businessmen make it clear they would invest in Cuba if the embargo was lifted. There is an eerie similarity to the ranting insults that pass for debate on each side of the Florida Straits. Perhaps that is not surprising. As Mr Saladrigas notes wryly, one of the things I’ve learned on my trips to Cuba is that they’re just like us: stubborn, proud, even arrogant. To the outsider, observing political change in the two Cubas resembles watching a tortoise race in which neither reptile has strayed far from the starting line. 7 9 SPECIAL REPORT C UBA After the Castros The biological factor Who and what will follow Raúl? CLIMB INTO ONE of those stately 1950s Plymouth sedans at Havana’s Plaza de San Francisco and head west, and you take a journey through Cuban history. The splendid stone churches, palaces and town houses of Old Havana are testament to four centuries in which Cuba was Spain’s ever-faithful isle, its most durable American colony. Drive along the wave-swept Malecón, and you will glimpse the cupola of the now-shuttered Capitolio, built in reverent imitation of the Capitol building in Washington, DC. Carry on to Miramar and you come upon the vast compound once occupied by the Soviet embassy. Having been a Spanish possession, an American neo-colony and then a Soviet client, for the rst time in its historyor at least since 1510the island is really on its own, wrote Hugh Thomas, a British historian, in 2001. That seemed true then. Cuban ocials would refute it now, pointing out that they have secured normal relations with the whole of Latin America and a close alliance with four of its countries, as well as inuence in Africa and ties with rising China. Havana has 181 foreign embassies, more than Madrid, even if most are small posts whose diplomats down their mojitos and struggle to build close relationships with Cuban ocials. Above all Cuba now has Venezuela’s Mr Chávez. Yet he is a contingent asset: his aid will last only as long as his grip on power. Might o shore oil bring relief? At the end of January the Scarabeo 9, a deepwater rig built in Asia to get around the American embargo, appeared on the horizon o Miramar. In the next few weeks its operator, Spain’s Repsol, will announce whether or not it has found oil in commercial quantities. But even if it has, the oil will be costly and dicult to extract. Carry on westward in that sturdy Plymouth, and in 45 minutes you come to the scru y town of Mariel, overrun with bicycle-rickshaws and best known as the site of a boatlift in 1980 when 125,000 people left the island. Outside the town, Brazil’s Odebrecht is building a deepwater port and a container terminal for the giant ships that will soon traverse a widened Panama Canal. The new port complex, to be operated by Singapore Ports, will be a special development zone with factories producing Given his age, Raúl seems unlikely to stay in charge for more than another ve years or so 10 for export. Much of the $975m for the infrastructure comes from Brazil’s National Development Bank. Mariel is likely to be an important part of Cuba’s future as a capitalist country. Brazil, like China, Spain and Canada, is investing on market terms. When Brazil’s president, Dilma Rousse , visited Cuba in February she refrained from public criticism of its human-rights record. Ocials in Brasília insist that, just like the United States, they would like to see political freedom on the island, but they go about it di erently. The imperative of change Offer to readers Reprints of this special report are available. A minimum order of five copies is required. Please contact: Jill Kaletha at Foster Printing Tel +00(1) 219 879 9144 e-mail: [email protected] Corporate offer Corporate orders of 100 copies or more are available. We also offer a customisation service. Please contact us to discuss your requirements. Tel +44 (0)20 7576 8148 e-mail: [email protected] For more information on how to order special reports, reprints or any copyright queries you may have, please contact: The Rights and Syndication Department 26 Red Lion Square London WC1R 4HQ Tel +44 (0)20 7576 8148 Fax +44 (0)20 7576 8492 e-mail: [email protected] www.economist.com/rights There is no obvious alternative to Raúl’s reforms. But the Future special reports paternalist state produced an inManufacturing April 21st fantilised society, and as it reInternational banking May 19th treats popular anger could easiChina’s economy May 26th ly mount unless living stanThe Arctic June 16th dards rise. The other clinching Previous special reports and a list of argument for change is what forthcoming ones can be found online: Cubans call the biological faceconomist.com/specialreports tor. Given his age, Raúl seems unlikely to stay in charge for more than another ve years or so. Cubans were in awe of Fidel. They are less so of Raúl, and may not be at all of his successor. Who might that be? Mr Ponte, in Madrid, fears a dynastic temptation. Although Fidel largely kept his children out of sight, Raúl’s son, Alejandro, acts as his national security adviser; his daughter, Mariela, is a prominent campaigner for gay rights; and one of his sons-in-law, Colonel Luis Alberto Rodríguez, runs part of the armed forces’ business empire. But none of the three is on the Central Committee, let alone the Politburo. The chances are that the next leader will come from among current or recent provincial party secretaries, like Ms López Acea or Mr Díaz-Canel. What is the destination of change? The reformist economists think that Cuba should move towards market socialism as practised in Vietnam or China, but others dismiss the parallel, citing cultural and geographical di erences. Cuba could look for models closer to home. Fidel was determined to turn his island into a world power. While Fidel’s obsession was the world, Raúl’s is Cuba, a foreign diplomat observes. Geographically, Cuba is a declining part of a rising Latin America. It has several big assets, including its highly educated workforce and, potentially, the capital of its diaspora. The high-tech industries of Costa Rica, the tigerish dynamism of Panama and the social democracy of Brazil all o er things that Cuba could emulate. There are less attractive political models, near and far. For example, it is not hard to imagine a Cuban Vladimir Putin emerging from the army or the security services. A somewhat less bad scenario, envisaged nearly 20 years ago by Jorge Domínguez, a Cuban-born political scientist at Harvard, would see Cuban politics start to resemble Mexico’s under the long rule of the Institutional Revolutionary Party. The Communist Party would establish a loyal opposition of quasi-autonomous parties, hold a fairly free election which it would probably win, and use that to negotiate with the United States. But then again the Cuban people might have other ideas. 7 The Economist March 24th 2012