Hard-Liners Seek to Reverse Economic Liberalization

Cuba: Hard-Liners Seek to Reverse Economic Liberalization
November 25, 2013 | Economics | The Americas

Hard-liners within the Cuban leadership are moving behind the scenes to
roll back even the half-steps taken by President Raul Castro in recent
years, attempts to open the island economy that had been applauded by
the outside world. As the Castro era reaches its end — both Raul and
brother Fidel are set to leave politics in 2018 — Communist Party
conservatives jockey for position and work to set the agenda for a
post-Castro Cuba.
Most recently, the government on Nov. 1 announced the closure of all
privately owned movie theaters and video game arcades. These enterprises
were never legal, according to Havana, which said it took the action to
"bring order" to independent businesses. The closures came a few days
after Cuba's Vice Minister of Culture said that video arcades promoted
"frivolity, mediocrity, pseudo-culture and banality."

Background

Raul Castro replaced his brother Fidel as the Cuban head of state in
2008. After ascending to office the younger Castro introduced several
economic reforms that he said would modernize and open the economy.
Although he camouflaged the moves as "updates" to the communist system,
they included capitalist ideals such as decentralized planning,
privatization of state-owned assets and efforts to attract foreign
investment.

Two of the most important changes implemented by Castro were regulations
allowing private ownership and legalizing private business, following
the lead of earlier Chinese reforms. For the first time in decades,
Cubans could buy and sell cars and homes and run their own businesses.

Under the regulations, Cubans now can privately own more than 200 types
of businesses, including farms, restaurants, bed and breakfasts, taxis
and barber shops. "Entertainment" was also eligible for self-employment
under the new regulations.

More than 79 percent of Cuba's workforce remains employed by the
government. But there are now 442,000 self-employed people on the
island, according to official estimates. Approximately 70 percent of the
country's farms are now managed by independent farmers who now sell
products directly to the public. Before, farmers were required to give
their crops to the state.

In July, the government conducted an unusual public briefing on the
reforms. Politburo member Marino Murillo, a reformer, told journalists
that the government was moving to allow Cubans to create wealth and
participate in the market. He also explained plans to allow companies to
retain half their profits and to reward profitable businesses while
shuttering those that consistently lost money.

The government expanded the number of acceptable private industries in
September, adding 12 categories of private businesses, including real
estate brokers and seamstresses. At the same time, the government
"clarified" approved activities. For example, seamstresses were allowed
to make and repair clothing but could not participate in "the sale of
manufactured or imported clothing." Government auditors began visiting
small businesses to review their activities and issued warnings to some.

In a move widely opposed by small business owners, the government also
banned the sale of imported goods. It gave vendors until January to
liquidate their inventories. Small business owners and radio station
hosts condemned the move, saying it forced Cubans to purchase
higher-priced, lower-quality goods from state-owned stores and undercut
promises made by the government.

Havana justified the action by saying it was implementing "order,
discipline and obedience" in the self-employment sector. Most recently,
the government shut down theaters and video arcades, announcing: "These
measures are corrections to continue bringing order to this form of
management, fight impunity and insist people live up to the law."

Analysis

The recent pullback on economic reforms signals an internal struggle
between reformers and hard-liners within the Cuban government. Many in
the government worry that broad economic reforms will imperil the
state-controlled system established by Fidel Castro and they fear
revolutionary political and economic changes will follow.

Raul Castro, who has spearheaded the reforms, seems to understand that
change is necessary to save Cuba's moribund economy. However, he also
appears cognizant of the dangers of moving too quickly and of angering
conservatives in government. He has taken pains to avoid the appearance
of undercutting the system established by his brother or lauding the
free-market economy advocated by the United States.

Agreeing to reinstate some controls over economic freedoms is likely an
effort to mollify hard-liners and avoid larger curbs on reforms. Raul
Castro and the reformers almost certainly understand that abrupt changes
would test the patience of the powerful Communist Party elites who
oppose reform. While Raul has some protection as the brother of the
aging and infirm Fidel, he is not untouchable and could lose control of
the party if he moves too quickly to implement change.

Public discontent also could prompt hard-liners to pull back on change.
The Communist Party remains concerned about popular revolution and the
overthrow of its system. It is not likely, for instance, to tolerate
public demonstrations.

While reforms have had minimal success to date, slapping restrictions on
new economic freedoms could be disastrous for Cuba. Rescinding economic
policy could discourage international investment and create renewed
economic hardship.

As Cuba approaches 2018, the year Raul Castro says he will leave power,
Communist Party leaders on both sides of the question are likely to
increase efforts to position themselves for a post-Castro Cuba.
Reformers will attempt to push their model further while hardliners work
to rein in change.

The most likely scenario is that Cuba will continue to implement minor
reforms while avoiding significant moves that might prompt a backlash.
As long as the Castro brothers retain power the island will allow some
modernization — but not enough to tarnish Fidel Castro's legacy or
suggest a new fealty to the U.S. economic model.

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