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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