Richard Feinberg analyzes a Cuban economy in transition
BY MIMI WHITEFIELD
Since the mid-1970s when he was a graduate student in international
economics, Richard Feinberg, now a professor at the University of
California San Diego, has been fascinated by the challenges of reforming
He first focused on Eastern Europe but then spent decades working on
Latin American policy, serving in posts in the White House, U.S.
Treasury, the Department of State and in Washington-based think tanks.
During the Clinton administration, Feinberg was special assistant to the
president and senior director of the National Security Council's Office
of Inter-American Affairs.
So when Cuban leader Raúl Castro first began making tentative reforms to
Cuba's centralized economy, it was perhaps a foregone conclusion that
Feinberg's interest would be piqued. He began researching and writing
about Cuba's economic reforms in 2010, visiting the island as often as
possible and making research trips to Nicaragua and Vietnam as well.
As a nonresident senior fellow at the Bookings Institution, he wrote
extensively about the international response to Cuba's fledgling
reforms, foreign direct investment in Cuba, and emerging entrepreneurs
and an incipient middle class on the island. The culmination of his
research is a new book, "Open for Business: Building the New Cuban
Economy" (Brookings Institution Press, 2016). He'll discuss the book at
the Miami Book Fair at 3:30 p.m. Nov. 19.
Feinberg recently answered questions about his book, the state of
U.S.-Cuba relations and what the future might hold for the economy of a
nation just 90 miles from U.S. shores.
Q: You were in Havana on Dec. 17, 2014, when the United States and Cuba
announced they were working toward normalization. Describe that morning.
A: On D17, as that historic moment is now known, I was attending a large
conference on U.S.-Cuban relations hosted by the Foreign Ministry. Raúl
Castro's speech was projected live on a big screen. In unison, the
ecstatic audience — stunned by their president's unanticipated policy
reversal — jumped to its feet and spontaneously sang the Cuban national
anthem. Friends embraced, wet tears streamed down the cheeks of many.
One Cuban colleague turned to me and whispered, "I feel such a relief,
as though a huge burden has been lifted from my shoulders." Another
Cuban woman added, "I too feel as though a dark cloud has dissipated,
for the first time in my life I can glimpse the sunlight." Cubans were
so taken aback by the news that many thought it miraculous. Indeed, the
date of the announcement was none other than the celebrated day of Saint
Lázaro, the patron saint of cures and miracles!
Q: The title of your book is "Open for Business: Building the New Cuban
Economy." Do you think at present Cuba is open for business? If not,
what stage is it at?
A: At present, the slogan "Open for Business," which is lifted from
Cuban government investment promotion brochures, is still more of an
aspiration than a current reality. "Open for Business" traces Cuba's
efforts to rebuild its economy following the disappearance of its
long-term patron, the Soviet Union.
The book explains how the resilient Cuban leadership began to open the
island's economy to establishing relations first with Europe and Canada,
and then with the dynamic emerging market economies — most notably,
China, Brazil, Venezuela — while at home authorizing the launching of
small-scale private businesses and, more haltingly, opening a window to
foreign investment — all this without yielding power over most economic
resources and decisions. I describe success stories in this new local
private sector and among a number of foreign-owned joint ventures.
But I also shine a cold light on the many remaining obstacles and risks
frustrating entrepreneurship and innovation.
Q: Inside the Cuban hierarchy, there's been some pushback against some
of the business opportunities offered by the Obama administration to
forge closer economic ties. What do you think is behind this?
A: The Cuban authorities like to say that the Obama administration has
taken some positive steps but that much more needs to be done. You could
say the same thing about Cuban domestic economic reforms: some good
progress, but there's still a long way to go before the conditions are
in place for a true economic renaissance.
We do not have access to the key decision-makers within the Cuban state
and ruling Communist Party, so we can only speculate as to why they are
moving so cautiously on economic reforms, and on opening the economy to
international commerce, including with the United States. But several
factors are probably at play.
Ideologically, the old guard, and some younger leftists, fear that
opening to globalization and to market forces will jeopardize what they
see as the genuine gains of the revolution, including social equity,
universal social services, and a fiercely defended national sovereignty.
Politically, some in power most probably fear that deepening economic
reforms, by gradually empowering an emerging private sector and an
internationally connected middle class, could eventually threaten the
political monopoly of the hegemonic Communist Party. Bureaucratically,
over 50 years the Cuban state has become so multilayered, so burdened
with thick red tape and so risk-averse that the decision-making
procedures are broken.
Raúl Castro and his aging colleagues seem to lack the vision and energy
to drive comprehensive reform, so the Cuban people will have to wait
until 2018 when new leadership — a new generation — comes forward.
Q: At this point, do you think U.S. regulatory changes have done much to
encourage and help Cuba's "cuentapropistas" [self-employed workers, or
literally, "on-your own-ists"]? If not, why not?
A: The Obama administration brilliantly connected the dots between a
surge in U.S. visitors, Cuban-American remittances, and the emerging
private sector on the island. U.S. visitors are staying at private
bed-and-breakfasts, dining at private restaurants (paladares) and
nightclubs, are purchasing artisan wares and consuming high-quality
Cuban artistic creations. Remittances are providing the main source of
capital driving investments in these and related businesses in what I
label the dynamic "private tourism cluster."
The Obama administration has sought to encourage Cuba's cuentapropistas
by giving them access to U.S. commerce but with a few exceptions. The
Cuban government has not opened channels for such cross-Straits
exchange. The Cuban authorities object to policies that give priority to
the private sector, preferring their state-owned enterprises. Also, the
U.S. has yet to shake loose its financial system from the sanctions
regime — and international trade moves on credit.
Q: Name three things that need to happen to further open the Cuban economy.
A: 1. National leadership that removes ambiguity and sets forth clear
goals and objectives, rallies public opinion behind a new economic
vision and that empowers a team of younger, dynamic and committed
technocrats to decisively drive reform.
2. Expand the list of occupations open to private endeavor to include
white-collar professions, such as law, architecture and engineering, and
create a secure legal framework that provides the necessary protections
for entrepreneurship and investment, both private and cooperative.
3. Make real the slogan "Open for Business" by accelerating the approval
procedures for joint ventures with foreign investment. The current
investment rates — at a woefully inadequate 8-10 percent of GDP — cannot
drive growth, as the Cuban authorities occasionally recognize. In
particular, Cuba faces a national security crisis in two critical
sectors: energy and agriculture. These can only recover with serious
injections of international capital and technologies. The expanding
tourism sector is generating investment capital, but the stated
government goals of tripling the number of rooms within 15 years will
also require many international investment partnerships.
Q: In the book, you selected 12 Cuban millennials and asked them to
answer 10 questions about their professional lives, reforms they would
like to see in their country, and their future goals. Were there common
themes in their answers and what conclusions did you draw?
A: In some respects, the Cuban millennials appear similar to their
counterparts around the world: alert, ambitious, hard-working,
postponing family for professional success, cosmopolitan in outlook and
interested in world travel, measuring their own creativity and results
against global standards. But they do not display the sense of
entitlement or self-importance often attributed to millennials in the
Looking forward, Cuban millennials are probably less likely to endorse a
U.S.-style free-market politics than a European-style social democracy.
But if the Cuban economy continues to falter, many young Cubans will
vote with their feet and exit. The Cuban economy does not have to equal
the wealth elsewhere to keep Cubans from emigrating, but it must narrow
the gap in order for the brain drain to slow to healthier rates.
I should add: Every one of these millennials approved of the decision by
Barack Obama and Raúl Castro to normalize diplomatic relations — and
they hope that economic relations will normalize as well.
Q: Before leaving office, the Obama administration has tried to make its
Cuba changes irreversible. Do you think it has succeeded, or are these
changes susceptible to an unraveling, depending on who wins the
A: At this point in the electoral cycle, [most] polls are predicting a
victory by Hillary Clinton, and she is pledged to continue Obama's
policies of greater openness and engagement. For his part, Donald Trump
has expressed diverse opinions on U.S.-Cuba relations.
However, if by "irreversible" you mean, does the current policy have
such strong domestic constituencies that it would not be politically
feasible to turn the clock backward, I'm not so sure. Opinion polls have
showed popular support, but truly thick network ties, including of trade
and investment, have yet to reach critical mass. One missed opportunity:
the Cuban government could have sought agreement on a framework for
settling the 6,000 authorized property claims by U.S. firms and persons,
and thereby created powerful pro-engagement constituencies. It has
preferred a go-slow approach to bilateral negotiations.
Q: In your book, you describe three possible future scenarios for the
Cuban economy. What are they, and which one do you see as most likely?
A: Peering out to 2030, I imagine three scenarios:
1. Stalled reform, where forces of inertia and immobility maintain their
grip and many millennials exit;
2. An ugly botched transition descending into economic stagflation and
an explosion of criminal vices;
3. A sunny, soft landing, where comprehensive economic reform yields
higher per capita incomes and consumption, and the political outcome is
wide open. For the third sunny scenario, I cite four precedents —
Vietnam, East Germany, Costa Rica, Nicaragua. While vastly different,
all are cases of reasonably successful transformations to more
market-oriented, decentralized economies definitively integrated into
Personally, I believe that the sunny soft-landing scenario offers the
most benefits for the largest number of Cubans as well as for
inter-American relations, and I believe it is the most probable outcome.
But that might be confusing preferences for predictions.
Better to conclude that history is not predetermined: If Cubans decide
that this is their best outcome and they see it clearly, it is more
likely to occur. In that case, the slogan "Open for Business" will
become a vibrant reality, to the benefit of the Cuban people and their
many international partners.
RICHARD E. FEINBERG
Career: He has spent four decades dealing with U.S. foreign policy.
Currently professor at University of California San Diego's School of
Global Policy and Strategy and a non-resident senior fellow at the
Government service: White House, Department of State and U .S. Treasury.
Served as special assistant to President Bill Clinton and senior
director of the National Security Council's Office of Inter-American
Affairs. While at the NSC, he was the principal architect of the first
Summit of the Americas in Miami. Peace Corps volunteer in Chile.
Education: Bachelor's degree in European history, Brown University;
Ph.D. in international economics, Stanford University.
Personal: His two grown children, Sonya and Aaron, live with their
families in the Miami area.
Source: Economist Richard Feinberg analyzes a Cuban economy in
transition in a new book | In Cuba Today -