The Worst of All Possible Cubas

Sunday, May 10, 2015
By Mike Gonzalez in The American Interest:

The Worst of All Possible Cubas

Three distinct patterns of transition out of communist rule exist: Russian, Chinese, and East European. The new American policy dooms Cuba to the worst of the lot.

President Barack Obama’s decision to recognize Raúl Castro’s government seems destined to produce exactly the type of post-Castro transition in Cuba that would be most inimical to American interests. It paves the way for a takeover by a military oligarchy-turned-business class that exists only because it has shown unswerving loyalty to the Castro family and its anti-American communist cause. It tilts the future of Cuba’s political economy toward a well-known post-totalitarian type: authoritarian kleptocracy.

Generally speaking, there are three recognized models of transition out of communist totalitarianism. The first is the Russian model of kleptocratic chaos, which has led to the rise of a strongman in Moscow whose claim to fame is stability. The second is the Chinese model, which is much more ordered, but comes at a price: the continued suppression of political and individual freedom. The third is the East European model, in which the people were allowed to vote communists out of office and, in many if not all cases, to hand power to formerly harassed dissidents.

In the instances of the first two models, members of the old nomenklatura have remained in the halls of power, where their mixture of autocracy at home and anti-Americanism overseas has continued to marinate. The transition has been from communism to something more akin to fascist corporatism, albeit without the ideological pretensions of the mid-20th-century examples. It is only in the third model that, for all its fits and starts, we have seen the greatest degrees of economic and political freedom emerge from totalitarianism. Only in Eastern Europe are there examples of countries that have gone through an outright break from communism and transitioned to democracy and free markets. Unstinting U.S. support for dissidents and persistent denunciation of communist oppression played key roles in the collapse of the system and in the pre-transition rise of the opposition.

President Obama has clearly dimmed Cuba’s prospects for Option Three by granting recognition and deeper economic ties to the Castro regime in exchange for zero concessions on human rights or democratic reforms. No Helsinki “basket three” here; no help for the formation of alternative elites and pro-democratic civil society movements. The generals who control different sectors of the economy, and the technocrats who work for them, have suddenly seen their chances to succeed Fidel and Raúl Castro vastly improved.

It may be tempting to conclude that it was not Barack Obama who may have consigned Cuba to a Russian or Chinese future but history itself that relegated the island to the Russian or Chinese model of transition. For those who succumb to this temptation, Cuba is so like these countries already that it is almost bound to follow one of their paths. But if we consider the pertinent parts of Cuba’s half a millennium of history, we would find that it is at least as disposed to political and economic freedom as Poland, Lithuania, or Slovakia. That is why Cubans who dare speak their minds are dismayed that a U.S. President would have made such a move. They accuse Obama of betrayal. They also understand that repression may now be extended for decades.

Clearly, the President and members of his Administration don’t see things in these terms. They believe they have placed a bet in favor of Chinese-style, piecemeal reforms at the cost of abandoning regime change. This much is demonstrated by the fact that the Administration is seeking to repeal the U.S. law that conditions lifting the embargo on the restoration of civil rights to Cuban society.

Academics at U.S. universities and think tanks who have long urged warm relations with the Castro government also support this course. In fact, many of them have for months and in some cases years worked closely with the technocrats of the Cuban regime to help them prepare for this moment. Many of these U.S. academics turn up their noses at the Cuban opposition and its dismay at Obama’s policy.

With the Administration and the academy dominating the Cuba narrative, few Americans realize that President Obama has in effect strengthened the hands of the communist generals and their accountants. American commentators (as well as a couple of Republican Senators who should know better) have been repeating the facile cliché that “communism will not able to survive an onslaught of McDonald’s and American tourists”—a somewhat tamer version of the traditional soft-power formula of “sex, drugs, and rock and roll.” There are plenty of examples, however, of lands that have been littered for decades with fast-food eateries and hipsters from Brooklyn, yet remain under the control of Communist Party apparatchiks (think China and Vietnam). And nobody has yet addressed the foreign policy consequences of a transition in Cuba that favors a Chinese or Russian model over an East European one.

Not all is lost, however. The presidential campaign ahead provides an opportunity to educate the American people. To do that, we must understand what each model has wrought in other countries.

The Russian model—with variations in Ukraine and Belarus—is widely seen as the most inept and corrupt of the three. “Privatizations” of state assets left many of the old Bolshevik managers of state-controlled enterprises in control of the new entities, yielding what Michael Weiss and Julia Pettengill called in a 2011 Henry Jackson Society paper “a kind of kleptocratic feudalism.” Dissidents never got a toehold politically or economically under Russia’s system of “state capitalism”, even under President Boris Yeltsin. And all these pathologies deepened under KGB-trained President Vladimir Putin, whose formula for establishing “order” seems to channel Al Capone. Dissidents in Russia continue to be intimidated, imprisoned, and occasionally killed while Putin keeps control over what Russians watch and hear. Under Putin, the merger between the Kremlin and the oligarchs has deepened, with public servants becoming directors of state enterprises or ones that have been re-nationalized. According to Weiss and Pettengill, “civil servants, who officially make five-figure salaries, are found to be the owners of multi-million dollar dachas, or wearing luxury watches that would cost half their yearly earnings.”

In foreign policy, Russia has proved to be deeply adversarial to U.S. interests. Putin pushes around neighbors unsheltered by Western institutions, invading Georgia, Ukraine, and, for all practical purposes, Moldova. Internationally, he has become a major obstacle to U.S. interests, helping to foil American aims from Syria to Iran to Venezuela. In Europe he supports (many say bankrolls) extremist parties on the Left and the Right that share an aversion to democracy, market economics, and the United States.

The Chinese model—with variations in Vietnam and Burma—has been more economically successful than the Russian one. China has benefited economically to the degree it has introduced economic freedoms since 1978, which it has done only selectively. In the political arena, the Chinese Communist Party remains firmly in control and ruthlessly suppresses individual and political rights. From the start, however, it was clear that the goal was a level of economic growth high enough to keep the population from rebelling, not economic freedoms per se and definitely not political freedoms. Whenever reforms appeared to be threatening Communist Party rule, as with the Tiananmen upheavals, politics trumped economics, and the experiment was scaled back.

After thirty years of change, all national corporations in the sectors that make up the core of the Chinese economy are still “required by law to be owned or controlled by the state”, according to Derek Scissors of the American Enterprise Institute. The government still owns all the key financial institutions, railroads, and grain distribution mechanisms. After 2002 the government made clear that it aimed to perfect state-led capitalism, which has since given rise to the Red Director phenomenon we see in Russia. “State enterprises draw their top executives from the same pool as does the government”, says Scissors.

Unsurprisingly, corruption is rife. People with connections to the Party—especially the children of present and former leaders (called “princelings”) and other close family members—benefit economically and politically from their links. They now rank among the wealthiest people in China (where, not incidentally, reporting on individual wealth is forbidden).

Internationally, the People’s Republic of China (PRC) is a thorn in the side of the United States, which it seeks to replace as the leading power in Asia. It bullies U.S. allies and democratic friends such as Japan, Korea, Taiwan, and the Philippines. The PRC has also reneged on promises it made to Hong Kong prior to the handover of the former British colony to Beijing to respect its high degree of autonomy and to allow it to elect its own leaders.

Of the three transition models, the East European one has produced by far not just the freest people, but also the most pro-American governments. Ten former Soviet satellite states or constituent Soviet republics are so friendly to the United States that they have become treaty allies. Some of their leaders rank among the most pro-American statesmen in contemporary Europe.

In reality, of course, there isn’t one European model, but ten of them—one for each of the seven former Soviet satellite states and three Baltic constituent republics that emerged free from the fall of the Berlin Wall and the dissolution of the Soviet Union. But the most successful countries, such as the Czech Republic, Poland, and Estonia, have several things in common:

  • The main leaders who took power after 1989 were pro-democracy dissidents and/or free market enthusiasts, many of whom had read, surreptitiously, free-market thinkers such as Ludwig von Mises, Milton Friedman, and Friedrich Hayek.
  • They believed that political reforms needed to come first; they sought a radical break with the Marxist-Leninist past and wanted democratic legitimacy for the economic steps they were about to undertake.
  • After gaining power through democratic means, they quickly pushed through radical reforms on property rights, currency policy, privatization, and taxes, believing that their window of opportunity was limited and that piecemeal reform was useless.
  • They understood that once the reforms were in place, there would be a backlash from the opposition, which they firmly resolved to ignore.
  • They received strong moral and financial support from the United States, which they regarded as a beacon of freedom.
Leszek Balcerowicz, known as the architect of Poland’s free-market reforms, called the window of opportunity “the era of extraordinary politics.” After countries become free, there is a brief period of euphoria that reformers need to use to advantage. “Bitter medicine is easier to take in one dose than in a prolonged series of doses”, he wrote in 1994. Mart Laar, the brilliant dissident who became Estonia’s Prime Minister at the age of 32, agrees with Balcerowicz. “The window of opportunity does not last long. It quickly gives way to the more mundane politics of contending parties and interest groups, which is normal in established democracies”, he wrote in 2007. “The countries that miss these opportunities risk macro-economic instability, excessive and chaotic state regulations, and massive corruption.”

In the Czech Republic, a voucher privatization program turned 80 percent of state assets into private ones within just five years of the fall of the communist government, creating an investment society in the process. Every adult was given the right to buy a voucher book for about the equivalent of an average weekly wage, and 75 percent of eligible adults participated. The process was overseen by Finance Minister Vaclav Klaus, a disciple of Friedman and Hayek, and President Vaclav Hável, an absurdist playwright who had been in and out of prison during the communist era.

East Europeans today enjoy high levels of political, economic, and individual rights. There have been populist opportunists and authoritarian recidivists from time to time, but from the Russian border to the Oder, and from the Baltic to Trieste, a dictator has not emerged in more than two decades. These nations are members of international democratic groupings such as NATO and the European Union and are model international citizens. None of this can be said of the countries pursuing the Russian or Chinese models.

As for Cuba, it is still far from initiating even the economic reforms that Deng Xiaoping undertook in China in 1978, despite the much-acclaimed “economic reforms” of the past few years. In a 2014 paper for the Brookings Institution, University of Pittsburgh Cubanologist Carmelo Mesa-Lago wrote that Cuba is actually closer to North Korea in terms of its political-economic structure: “Cuba and North Korea are two socialist economies with the largest role of a planned economy and state property and the smallest role of the market and private property.” The Cuban state has begun experimenting with land-use policies here and there, but still farmers are not free to choose what to grow, whom to sell to, or at what price. Even Richard Feinberg, a cheerleader for warmer ties with the Castros whose contempt for the dissidents is legendary (he recently said that they now must either negotiate with Raúl Castro or “perish”), admits that the regime’s reforms are puny. In a recent analysis he wrote, “Most land is firmly owned by the state, allowing just 15 percent for private farmers and another 7 percent for farmer cooperatives.” Small wonder, then, that just one third of Cuba’s arable land is being cultivated.

Another reform that has received much attention is the regime’s move to allow some Cubans to become self-employed. A closer look reveals, however, that self-employment remains a heavily regulated and highly taxed chimera. The government keeps a tight lid on which self-employment activities are permitted, giving the nod mostly to low-skill activities such as cleaning bathrooms. Most important, “university graduates cannot work on their own. Thus, an architect can be a taxi driver but not practice his or her trained profession privately”, says Mesa-Lago.

Moreover, the new co-ops that hire some private workers “must go through four bureaucratic stages to get approved and the final decision is left to the Council of Ministers”, reports Mesa-Lago. Furthermore, they are not really private-sector actors, because “the degree to which the co-ops will be fully independent from state intervention remains unclear.” In order to prevent private-sector growth, the tax on labor can reach 200 percent for co-ops with more than five employees. In short, the only reason any kind of private sector is being permitted at all is that an estimated 36 percent of the state labor force is superfluous to Cuba’s underdeveloped state-owned industrial sector. Unlike in China, according to Feinberg, foreigners cannot invest in or sell to the self-employed. “The Sino-Vietnamese reforms have advanced much more than Cuba’s in this area”, Mesa-Lago concludes.

Yes, Cubans in theory can now buy or sell their own house, also formerly forbidden. Here again, however, there is much less than meets the eye. After 55 years of communism, Cuba’s houses are in a bad state of disrepair. Some 230 structures collapse daily in Havana. Also, Cubans who want to buy a house must conduct their transaction through a state bank, supplying information that can be used against them by a regime they do not trust. On top of that, prices are well beyond the means of most Cubans. A low-end house might sell for as little as $5,000, but that amounts to 21 years’ worth of average wages. Small wonder that more houses are sold on the black market than in the legal one. As for building new homes, bureaucratic red tape means that Cubans must spend about 132 days at government offices to secure the necessary paperwork. Then they have to contend with shortages of materials, high prices, and shoddy quality.

As Feinberg concludes, “Cuba will remain a state-driven economy dominated by large government holding companies and the authorities will dictate the direction and the pace of change.”3 These holding companies will do business with capitalists overseas; indeed, this is how Raúl Castro can meld the Chinese model of crony capitalism with single-party rule. The holding companies all belong to members of the Cuban military, usually under the umbrella of the Grupo de Administración Empresarial, Sociedad Anonima (GAE.SA), the holding company that belongs to the Defense Ministry. Tourists who shop will do so at establishments that belong to TRD-Caribe. When they travel on the island or stay at hotels they will be dealing with Gaviota, and when they play golf they will give their greenbacks to CubaGolf. All three of these companies are under the GAE.SA umbrella.

Sitting atop GAE.SA is none other than CEO General Luis Alberto Rodriguez, Raúl Castro’s son-in-law. And behind all of them is the heir apparent, Raúl’s son Alejandro Castro Espin, who has let it be known that Cuba will not see an end to communism, nor to rule by the Castro family. “Alejandro Castro Espin has a different mentality than Raúl and Fidel Castro”, Guillermo Fariñas, an opposition member, told journalist Andres Oppenheimer this past February. “He wants to do like Vietnam, China or Russia, which have managed to get their enemy—the United States—to finance their dictatorships.”

The manner in which Communist Party rule was introduced in Cuba might lead some to conclude that the island was always more likely to follow the Russian and Chinese models. In Eastern Europe and the Baltics, Communist rule was imposed from without, by dint of the invading Soviet Red Army during World War II. In Russia and China, however, homegrown communist revolutionaries took power. These were, to varying degrees, popular communist-led revolts that followed on the heels of relatively short attempts to reform absolutist monarchical systems that had lasted for centuries.

The ideology the revolutionaries introduced may have been foreign, but the levers of power ultimately rested in the hands of men and women indigenous to China and Russia (with one notable exception in the latter case). Mao and the succession of Soviet leaders prior to the breakup of the Soviet Union may have been despots who implemented an absurd economic system, but they were not puppets of another state.

And, indeed, in Cuba the rebels who took Havana on New Year’s Eve 1959 were led by Cubans (again, with one notable exception, Ché Guevara). There the parallels break down, however. The guerrillas who accompanied Mao on the Long March in the 1930s and the Bolsheviks who overthrew the provisional Kerensky government in Moscow in 1917 were proud to call themselves communists. Not so with Fidel Castro and the other leaders. They went out of their way at first to insist they weren’t communists, even while they were busily nationalizing properties and implementing a Marxist blueprint through agrarian and urban reforms. Castro repeated his denials in English. During his 1959 trip to the United States, he asserted plainly: “I have said very clear that we’re not communists, very clear.”“I have said very clear that we’re not communists, very clear.”

Not until December 1961, after he was entrenched in power, did Fidel Castro admit on national television what the whole country already knew or suspected: “I am a Marxist-Leninist and shall be one until the end of my life.” Why he had to wait is easy to understand in the Cuban context. Cubans were mostly unhappy with the dictator Fulgencio Batista, but they had reason to be satisfied economically. As the Economist recognized in 2012, “In 1959 Cuba was one of the leading five Latin American countries on a range of socio-economic indicators. Life expectancy was close to that of the United States and it had more doctors per person than Britain and France.”

In terms of per capita food consumption, television sets per capita, literacy rates, and other indicators, Cuba was always among the top three in Latin America. And this wasn’t because a thinly layered upper class skewed the statistics. Its 58 national newspapers were the fifth-most in Latin America, in a country far smaller than Argentina, Brazil, or Mexico. Its inequality index was low by Latin standards—more than two times lower than Mexico’s and six times lower than Brazil’s—and it had steadily fallen during the democratic years of 1940–52, stabilizing (though not rising) during the Batista years.

This explains why, though he was welcomed initially, opposition to Castro’s expropriations grew so strong that hundreds of thousands fled and a police state had to be built to keep the rest in line. Indeed, throughout their long history, Cubans have repeatedly rebelled when absolutist leaders have tried to impose political and economic autarky; the desire for free trade and political freedom has persisted and won out in the end. An early outbreak of opposition came between 1717 and 1723 when vegueros, or tobacco planters, rebelled against the mercantilist policies introduced by the newly installed Bourbon King Philip V, whose colonial officials established el estanco, or a tobacco monopoly. Eleven of the rebels were hanged and their bodies were put on display on the roads leading to Havana. Hundreds of the vegueros fled west to get away from the monopoly’s reach and be free to trade with pirates. They settled in a region, Vuelta Abajo, unconnected by road to Havana. (By sheer chance, it turned out to be the best land in the world for growing tobacco.) Their flight presaged the Miami exodus by two and a half centuries.

As this brief history shows, Cubans are as inclined to freedom as East Europeans. Their dissidents are as admirable and numerous, too. This raises the following question: It is easy to understand why the Castros—Raúl, Alejandro, and what might be left of Fidel—prefer the Russian and Chinese models to the regime change in Eastern Europe, but why would Barack Obama?

Lack of support for pro-democracy dissidents overseas has been a hallmark of the Obama Administration since the beginning, starting with Iran in 2009. There is also the important fact that the dissidents-turned-leaders in Eastern Europe have been closely associated with the two most conservative of the past three Republican presidents, Ronald Reagan and George W. Bush. Men such as Poland’s Lech Wałęsa, the Czech Republic’s Hável and Estonia’s Mart Laar embraced pro-American values and freedoms of speech, association, and religion. They were often eloquent in displaying gratitude to President Reagan for his support of their cause while they were under Moscow’s dominion, and to Presidents Clinton and Bush for accepting them into the North Atlantic Treaty Organization as a guarantee against future Russian designs. Their attachment, however, was less to a party than to the values of the United States.

President Obama, however, has during most of his tenure seemed more eager to work with (“engage”) adversaries than with allies and friends. That includes, beyond the Iranian regime, the leaders of communist China and autocratic Russia. Obama has sought little contact and has developed no personal rapport with the freely elected leaders of Eastern Europe. He snubbed Poland and the Czech Republic by pulling out without prior consultation the anti-missile batteries they housed there. In Poland’s case, he announced the decision on the anniversary of the 1939 Soviet invasion of that country, an insult that will not soon be forgotten (and one to which the Administration was oblivious).

With Russia, Obama, Vice President Joe Biden and Secretary of State Hillary Clinton attempted a snake-bitten “reset.” Obsequiousness has also failed to work with Beijing, which routinely ignores Washington. There is perhaps little reason to be surprised, then, that with Cuba President Obama’s team is reaching out to the regime even if doing so dampens any hope for an East European-style collapse of communist power.

This leaves an opening for those seeking to succeed Obama in the Oval Office. They can make it clear that they will revert to the traditional U.S. policy of standing up for opposition leaders, be they dissidents or formal party leaders, who put their lives on the line against tyranny and oppression. They can be clear that what they will work for in Cuba is the East European model of regime change, whether there are official diplomatic relations or not. They can refuse to lift the embargo until the Castros restore civil rights to the Cuban people—the freedoms of speech, association, elections, religion, and union formation—as called for in the Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996.

Meanwhile, Congress can do its part by hanging tough on the Helms-Burton Act. It will be hard even for a Democratic nominee, whether Hillary Clinton or someone else, to actually campaign for a Caribbean version of the Russian or Chinese transitions.