Cuba’s Reforms Favor Foreign Investment, Create Low-Wage Sponge

Cuba's Reforms Favor Foreign Investment, Create Low-Wage Sponge
Kevin Edmonds
The Other Side of Paradise
October 31, 2013

For over 50 years the island of Cuba has defiantly stood its ground in
the Caribbean, rejecting a capitalist economic model in favor of a
system that has served the needs of its people, first, and those of the
international economy, a distant second. As a result of this
determination, the Cuban model has been hailed for its successes in
social and cultural development—particularly in the fields of healthcare
and education. During the 1980s and 1990s when the Washington Consensus
was at its peak in the hemisphere and was restructuring neighbouring
economies such as Jamaica, Haiti, and the Dominican Republic along free
market lines, Cuba maintained its self-determination by staying outside
of the reach of the International Monetary Fund and the World Bank.

A key aspect of the economic restructuring which spread across the
majority of Latin America and the Caribbean was the implementation of
export processing zones, or EPZs. The International Labour Organization
(ILO) defines EPZs as "industrial zones with special incentives set up
to attract foreign investors, in which imported materials undergo some
degree of processing before being (re-)exported again." After studying
the macroeconomic and social effects of EPZs for nearly 30 years, the
ILO has criticized this model of development, arguing that it places
downward pressure on wages and labor standards in what they refer to as
"the race to the bottom." Additionally, the geographically isolated
nature of EPZs makes workers especially vulnerable, as the zones
"present employers the opportunity to circumvent worker's rights with
impunity."

It is primarily for these reasons that Cuba's decision to establish a
465 square kilometer EPZ at the port of Mariel, 45 kilometers west of
Havana, has been met with a great deal of concern. The shift of the
primary port facilities from Havana to Mariel is part of a massive
project that seeks to turn Mariel into Cuba's most important hub for
cargo and light manufacturing. The $900 million project has largely been
funded by Brazilian capital and will be managed by the Singaporean firm PSA.

It appears that the decision to construct the Mariel EPZ is in reaction
to the earlier economic reforms undertaken by Raul Castro that have
created a large amount of unemployment. For example, in 2010 alone, Raul
Castro announced that one million workers in state-owned firms would
lose their jobs in order to streamline the Cuban economy; workers were
encouraged to become entrepreneurs or find employment in the private
sector. Thus it is likely that the adoption of the export processing
zones will act as a low-wage sponge for the significant amount of
surplus labor created by the increasing liberalization of the Cuban economy.

During the last major economic crisis faced by Cuba—which came about
with the fall of the Soviet Union and ushered in the "Special Period"
starting in 1991—the Cuban state reorganized itself along pragmatic
lines, opening itself up to increased international tourism. By 1994,
tourism revenues surpassed those of Cuba's traditional sugar exports,
making international tourism Cuba's most important source of income.
While the decision to open up to international tourism was critiqued as
a return to the bad old days of foreign exploitation under Fulgencio
Batista, the Cuban government was heavily involved in the emerging
tourism industry, arguing that the influx of foreign income was now the
lifeblood of the Cuban economy. With EPZs, the same line of thought can
no longer be argued.

Unlike the regulated and heavily state-owned tourism model, the adoption
of EPZs provides a space similar to export processing zones elsewhere in
the world where foreign corporations pay no tariffs on imported material
and machinery, and where they enjoy a 10 year tax holiday where they may
transfer all of their profits abroad without paying any property or
sales taxes. The Cuban government has publically defended the EPZ
project, stating that "the Zone will function on the basis of special
policies with the goal of promoting sustainable economic development by
stimulating international and domestic investment, as well as
technological innovation and the concentration of industry."

It must be noted that this is not the first time that Cuba has tried to
adopt this economic model. In 1997, Cuba briefly experimented with the
establishment of four export processing zones, but they garnered little
international interest due to the ongoing U.S. embargo. However, this
most recent decision to construct EPZs is a significant jump that
embraces some of the most controversial and arguably damaging aspects of
the now discredited Washington Consensus. The ILO has demonstrated that
unless EPZs have significant backward and forward linkages to the rest
of the host economy, they are of little economic benefit. At worst they
are simply a site where cheap and often female labor is exploited.

Whether the construction of the EPZ at Mariel will be an isolated
occurrence, or the start of a shift towards a Chinese/Vietnamese
EPZ-based economy, remains to be seen. Perhaps the decision to turn over
a portion of Cuban territory to the demands of international capital is
an overture of economic reform intended to bolster relations with the
U.S. What is clear is that if Cuba does decide to embrace EPZs as a
major part of its economy without establishing numerous economic
linkages to the domestic economy, the pro capital policies that are
demanded by this model will pose a significant threat to Cuba's progress
in the areas of genuine and sustained human development. If Cuba, like
so many others who have embraced the EPZ model, is not careful on this
new economic path, it may end up sacrificing its self-determination and
human development only to receive increased levels of poverty in return.

Kevin Edmonds is a NACLA blogger focusing on the Caribbean. For more
from his blog, "The Other Side of Paradise,"
visit nacla.org/blog/other-side-paradise. Edmonds is a former NACLA
research associate and a current PhD student at the University of
Toronto, where he is studying the impact of neoliberalism on the St.
Lucian banana trade. Follow him on twitter @kevin_edmonds.

Source: "Cuba's Reforms Favor Foreign Investment, Create Low-Wage Sponge
| North American Congress on Latin America" -
http://nacla.org/blog/2013/10/31/cuba%E2%80%99s-reforms-favor-foreign-investment-create-low-wage-sponge