In the past 12 years, there has emerged a series of excellent, rigorous books on Cuba and U.S.-Cuban relations. I suspect it’s the change on either side of the Florida Straits that shook Cuban studies out of its torpor to produce ground-breaking research on economics on the island, the birth and growth of entrepreneurship in Cuba, and the openings and possibilities for policy change within the U.S. embargo law.
Richard Feinberg’s Open for Business: Building the New Cuban Economy is another addition to this welcome and growing body of literature. It’s made all the better because it distills and sandwiches between two covers the research and analysis that Feinberg has been producing for the Brookings Institution as non-resident senior fellow in a semi-regular monograph series that has covered everything from joint ventures to settling property claims. Those pieces—by my count, four total—helped set the intellectual momentum and roadmap for a number of the recent changes, certainly on the U.S. side of the straits and, I suspect, on the Cuban side as well, though more indirectly and, quite likely, surreptitiously.
The book opens up with a victory lap, of sorts, detailing reactions of Cubans on the island—where Feinberg was at the time—to the December 17, 2014, announcement by Cuban President Raúl Castro and U.S. President Barack Obama. On that day, both presidents announced in rather dramatic fashion that the two countries had agreed to restore diplomatic relations and that Obama would exercise his executive authority to loosen the embargo. It was a change the author and many others had been advocating for—myself included—for years. In telescopic fashion, Feinberg then describes the fast-paced changes that followed leading up to Obama’s March 2016 historic visit to the island—arguably one of the most important diplomatic initiatives of the past 30 years.
But Feinberg is no starry-eyed idealist or ideologue when it comes to the economic dysfunction on the island and the very real challenges ahead for an economy waking up after a half century of a smothering Castro-style, personalistic socialism. Nor is he a business hustler trying to score a commission by making unrealistic claims about the potential of the Cuban economy to prospective investors. He’s too much of an economist for that, and he applies his economic chops to objectively detail the state of the Cuban economy and different paths and pitfalls for its future.
In the first set of chapters, Feinberg lays out in detail the very serious challenges the Cuban economy faces and the reforms it must undertake if it is to provide for its own people in the global economy. It’s a daunting set of reforms, all with institutional, political and even ideological implications for the socialist country: unifying the country’s dual currency system; freeing prices to reflect supply and demand; establishing wage policies that reflect productivity; and integrating the country into global capital markets, to name just a few.
To complicate matters, as Feinberg describes, the regime of laws and practice for attracting and governing foreign direct investment needs a dramatic overhaul. The book highlights the challenges for current and future investors by summarizing the history of other countries and their companies in the closed economy. As he explains, many of those problems remain, even under the much-anticipated 2014 foreign direct investment law. Original, detailed case studies of foreign investors in joint ventures with the government also give texture and balance to our understanding of the business climate in Cuba even when the government is supposedly on-board with the project. On balance, despite several real opportunities—in everything from organic farming to biomedical products to tourism—the story is not encouraging. A top-down opaque process for decision-making, a repressive and heavy labor contracting and tax system (in which investors pay the state for its employees and the state pays the workers a small fraction—around 10 percent—of what it received) and inconsistent application of laws (especially regarding state anti-corruption campaigns), even for joint ventures, mean that the Cuban market still has some severe disadvantages in attracting much-needed hard-currency foreign investment.
Nevertheless, even in these conditions, Cuban entrepreneurship has emerged and grown. Part of Raul Castro’s lineamentos have included legal provisions that allow for the formation and limited expansion of cuentapropismo—or the self-employed sector. The space created for these small-scale entrepreneurs was intended by the state to both generate tax revenue for its near-empty coffers and to provide a means of sopping up the million-plus redundant state workers that the government had originally intended to let go. The famously resourceful Cuban population has rushed to fill this opportunity. Feinberg estimates that 20 percent of the country’s 5.1 million active workforce—or more than one million individuals—is now employed in this sector. Added to this are some 575,000 farmers who own or lease their own private plots to produce for market-driven agricultural market. In addition, Feinberg argues that “600,000 to 1 million (or possibly more) workers can be reasonably be placed [in the] private sector.” (p.132)
Many of these numbers are well-known and have been discussed elsewhere. What makes Feinberg’s contribution to the discussion—here and in his earlier work on the topic—are the conversations with individual entrepreneurs. The personal histories and backgrounds both give an inspiring perspective on this phenomenon and provide information that allows the author to make important inductive conclusions about the sector, including categorizing the types of activities the cuentapropistas are engaged in, their sources of inputs and capital, and the obstacles to their growth. They are illustrated with what I suspect are (amateur photographer) Feinberg’s travel pictures.
The book ends on two new—to my knowledge—contributions from Feinberg. The first is a chapter on Cuban youth, titled “Millennial Voices: Ambitions and Voices;” and the second is a set of scenarios for how things could play out in Cuba. Given Cuba’s demographics, heavily skewed to an aging population due to the massive outflow of younger Cubans to the exterior and a population growth rate of -0.15, what Cuban youth want and expect is an essential question. How active, empowered, optimistic, and vested is the next generation of entrepreneurs, politicians, technocrats, and general citizens in Cuba’s post-Castro future? Those answers will be key in determining which of the scenarios that Feinberg lays out in the following chapter is most likely.
While by no means a statistically valid sample, the chapter on millennials could have used some tying together at the end. In this case Feinberg has identified one of the most important—and unknown—variables for what will happen to Cuba in the next generation. More could have been done to attempt to generalize some of these conversations, supplemented with other data on attitudes. Granted both of these are difficult given the small personalized nature of Feinberg’s sample of 12 and the limitations of polling on the island (the only survey to be done has been by Bendixen and Armandi International, though how accurate remains unclear). But other options could have been explored for data, along with a stronger effort to draw some tentative conclusions, to fill out what remains a critical piece of Cuba’s puzzle.
In the final chapter, Feinberg thoroughly (and bravely) lays out what he believes are three scenarios for Cuba’s future, “inertia and exit,” “botched transition and decay” and “the soft landing.” The author is understandably tentative in predicting any particular scenario or even weighting one over the other as more likely. What makes the scenarios compelling and important, though, is Feinberg’s consistent look across all through the same variables—giving both him and the reader the ability to compare across the scenarios and making it easier to track events and changes over time. If Cuba ends up following a different path than the ones detailed by Feinberg—which is possible—the author has done us a service in laying out the different factors at play.
My only quibble on this last point is that not included in this book is Feinberg’s most recent Brookings monograph on the $2 billion in pending U.S. property claims. As a result, one other central issue remains unanswered, and oddly it’s one that Feinberg has already analyzed extensively. I suspect it’s because the book was in its final throes when the monograph came out in late 2015. Or perhaps he’s holding it for the first chapter of his next book: Open for Business II: The Sequel. Or at least I hope so.