​Cuba’s economic reforms - Socialism with neoliberal characteristics

​Cuba's economic reforms: Socialism with neoliberal characteristics?
Nile Bowie is a political analyst and photographer currently residing in
Kuala Lumpur, Malaysia. He can be reached on Twitter or at
nilebowie@gmail.com
April 16, 2014 11:26
Reuters/Enrique de la Osa

Havana has prioritized foreign investment and private enterprise,
slashed state-sector jobs, while seeking closer cooperation with the
European Union. Will Cuba's latest market-based reforms undermine the
social gains of the 1959 Revolution?

Times are complicated in revolutionary Cuba. President Raúl Castro is
well into his second term and plans to officially step down in 2018; he
is now laying the groundwork for a new generation of leaders to take the
reins of the island nation.

In an effort to address the stagnating economic conditions that have
burdened the country since the collapse of the Soviet Union, President
Raúl unveiled reforms in 2010 aimed at moving the island's outdated
command economy toward a mixed economy with greater emphasis on market
mechanisms and self-employment.

Cuban authorities have acknowledged the difficulties posed by
maintaining massive subsidies across various sectors, and plan to
transfer up to 40 percent of the workforce into the private sector by
2015, where workers will be expected to pay taxes on their income for
the first time.

The state has laid off some 500,000 workers, in addition to eliminating
more than 100,000 non-essential jobs in the nation's national health
service to cut costs. Havana has simultaneously relaxed prohibitions on
small business activity and the individual hiring of labor. Former
state-employees are now encouraged to start small businesses by driving
taxis, opening barbershops, clothing shops and restaurants.

The state employs around 79 percent of the 5 million-strong labor force,
while around 436,000 Cubans currently work in the private sector,
according to government figures. Reforms are becoming bolder and Cuban
politicians have recently approved a new law to draw in greater amounts
of foreign investment, while tax-free special development zones have
also been introduced. In these zones, foreign companies will be able to
transfer their tariff-free profits abroad, receive contract extensions
for up to 50 years, and retain full ownership entitlements, a drastic
departure from decades of Soviet-style central planning.

Public health indicators suggest that Cuba has some of the highest
quality health services in the developing world, which is provided to
citizens free of charge. Despite a severe lack of resources due in part
to decades of being under an economic embargo imposed by the United
States, the country has one of the highest literacy rates in the world
and free universal education for its citizens; it has also become one of
the world's leading exporters of teachers and doctors.

Cuban leaders have acknowledged how the country's traditional state-run
economic model can no longer support the across-the-board subsidies that
fuel socialist programs and welfare services, giving rise to new
legislation that would make the country much more reliant on market
mechanisms and foreign capital.

Reagan's ghost in Havana?
It may be seen as ironic that Cuba, with its history of sweeping
nationalizations of corporations that dominated the economy before the
revolution, is now sacking masses of state-sector workers and adopting a
capital-friendly growth model intent on cutting down the public sector
in favor of private enterprise and profit.

Cuba's decision to break from its traditionally closed economy and
toward a free market system with neoliberal characteristics is not a
signal that the country plans to yield toward unhinged capitalism. In
the view of pragmatic thinkers in the Communist Party, these reforms
represent an attempt to update the economic model, allowing Cuba to
define its own distinct system appropriate to modern developments and
external circumstances.

In essence, the Cuban leadership is attempting to develop a different
model of market-socialism better suited to advancing the ideals of the
revolution: egalitarianism, social justice, and resistance to
imperialism and US dominance. Cuban leaders have acknowledged the
negative features of market reforms, which can often exacerbate income
disparities and entrench cronyism, and have pledged to maintain its
public health services, universal education systems, and other features
that do not adhere to the ideology of free market capitalism.

Cuban workers will have three main avenues of employment to choose from.
While the largest portion of workers will run small businesses and
shops, the government has prioritized the agricultural sector to promote
food self-sufficiency. The state subsidizes land, seeds, and
chemical-free fertilizer for farmers and vegetable growers, and
agricultural collectives are also seen as a viable career path.

Other workers will find employment in sectors that rely on foreign
investment. Cuba's newly-passed foreign investment law, which comes into
effect in June, offers attractive incentives to foreign companies. Taxes
on profits have been reduced from 30 to 15 percent, and companies will
be exempt from paying taxes for the first eight years of operation;
foreigners doing business on the island would be exempt from paying any
personal income tax.

An exception remains for companies that exploit the country's natural
resources, such as nickel or fossil fuels, which will pay taxation rates
as high as 50 percent. Foreign investment will reportedly be allowed in
all sectors, however investment and marketization will be barred in all
fields related to medical services, education and national defense to
safeguard the country's socialist system.

Ending the embargo
The US unilaterally imposed a near-total embargo on Cuba in 1962
following the nationalization of properties belonging to US citizens and
corporations, which remains in place to this day. Washington has kept
Cuba on a list of 'state sponsors of terrorism' since 1982, while the
embargo has been consistently strengthened under several US
administrations despite the United Nations calling for its end for 22
consecutive years.

Cuban authorities claim that the economic damages accumulated after half
a century as a result of the implementation of the blockade amount to
$1.126 trillion, and President Raúl knows he needs erode the foundations
of the embargo before significant economic growth can take place. Havana
believes that getting the European Union into its corner is the best way
to move forward, and negotiations with representatives from Brussels are
set to begin in late April. Havana will try to overturn the EU's 'common
position' on Cuba enacted in December 1996, which calls for greater
human rights and democratic conditions in exchange for improved economic
relations.

The recent visit by French FM Laurent Fabius, the highest-ranking French
official to visit the island in 31 years, should be seen in this
context. According to diplomatic sources, Fabius was testing the waters
prior to the negotiations with EU members.

France has interests in winning contracts in markets where French firms
are traditionally weak, and understands the regional importance of Cuba
as investment pours in from both Brazil and Mexico, who are increasing
their presence in the country.

Normalizing trade relations with the EU would qualify as a major step
forward toward bolstering foreign investment, but the alignment of
business interests is not expected to have major reverberations on
Havana's positions on global political issues, where it is aligned
closely to Russia and China.

On the eve of Fabius' visit, state-owned media in Cuba published
critical commentary of the French municipal elections, criticizing
President François Hollande for doing "exactly the opposite" of what was
promised during his election campaign, and for conciliating "the
neoliberal demands of Berlin and Brussels." The editorial could be seen
as subtle way of the Communist Party reinforcing its political
nonalignment, or as a way of deflecting criticism from hardliners who
would prefer that Cuba maintains its distance from Western powers.

As more emphasis is placed on making Cuba an attractive destination for
foreign investment, Europe is expected to become more vocal in
supporting a change in US policy toward the island nation.

Cuba's diversification of trade relations also comes at a time when the
leftist government of Venezuela faces protests and serious economic
difficulties. The leadership in Caracas supplies cheap oil to Cuba and
also pays for Cuban doctors and other medical specialists sent to
Venezuela, while some economists claim that Cuba receives over $6
billion per year from this arrangement, representing a more significant
subsidy than that which the island received from the Soviet Union, which
paid above-market prices for sugar and other goods.

If attempts to enact regime change in Venezuela are realized, it will
have detrimental short-term effects on Cuba, which the leadership in
Havana seems to be well aware of. Much like other socialist governments
that survived the fall of the Soviet Union, Cuba is now reforming its
economy to conform to global capitalism, but unlike other countries that
have empowered their oligarchical elite through marketization, leaders
in Havana claim that the primary objective of attracting foreign capital
is to support social programs, the socio-economic development of the
country, and the distribution of wealth among all Cuban citizens.

Marketization may likely exacerbate income inequality and spur elite
corruption in the early stages, and these negatives features of
capitalism should be kept in check. If state-linked cronies are
perceived as being the most advantaged by foreign investment without
earnings being adequately channeled to social welfare programs and
development, it will have negative political ramifications.

If the new economic system can be leveraged to maintain socialist
benefits and bolster Cuba's biotechnology, pharmaceutical and renewable
energy sectors, the country may be in a position to assert its
independence more effectively through a mixed-development model that can
be replicated elsewhere.

The statements, views and opinions expressed in this column are solely
those of the author and do not necessarily represent those of RT.

Source: ​Cuba's economic reforms: Socialism with neoliberal
characteristics? — RT Op-Edge -
http://rt.com/op-edge/cuba-economic-reforms-market-852/