Looking to save its economy, Cuba turns to market liberalization

When Miguel Diaz-Canel was inaugurated as president of Cuba in 2018, he declared that there was "no room in Cuba for those who strive for the restoration of capitalism." Yet in a surprising and bold move to save the Cuban economy, the president just opened up most sectors of work to free enterprise.

Marc Frank of Reuters reported on the 2,000+ new activities that will be eligible for private business licenses:

The measure, coming as the Caribbean island seeks to recover from an economic slump, will expand the field from 127 activities to more than 2,000, Labor Minister Marta Elena Feito Cabrera was quoted as saying. She spoke at a council of ministers meeting that approved the policy. She said there would be 124 exceptions, but the media reports provided no details.

For many years, the Cuban government only allowed a handful of private markets to legally operate. Among the sanctioned sectors were dining, vacation rentals, and taxi services. As international travel to Cuba increased during the Obama administration, these sectors did very well. It was a common observation that in Cuba, taxi drivers made (a lot) more money than doctors.

But the last few years have been hard on these Cuban entrepreneurs, who rely heavily on tourism spending. President Trump’s sanctions on Cuba led to a downturn in visitors, and when COVID-19 started to spread, the tourists disappeared altogether. Foreign capital that used to flow into Cuba dried up overnight.

The state-run sector has been suffering too. A bevy of factors, including the collapse of Cuba’s ally Venezuela, has put a strain on the socialist economy. Basic goods are scarce and the government is strapped for cash. Cubans spend their days waiting in lines.

By opening more sectors to private business, the Cuban government hopes to find relief from its financial troubles.

Cuba’s opposition to capitalism is still a beloved, national narrative. In a tweet, the Cuban president effectively said that his hands are tied; he is only changing the policy as a result of external forces. The U.S.-Cuba embargo is too harmful. The effects of a global pandemic are too great.

Some have observed that Diaz-Canel has known this type of reform was necessary for a long time, but that traditional factions within the government wouldn't allow it. The current economic environment gives the president cover to drift from communism in a way that his predecessor, Raul Castro, could not.

Cuba’s opposition to capitalism is still a beloved, national narrative.

Is this policy change good for Cuba? Many believe it will be, but it’s going to be a bumpy ride. The state sector will continue to struggle, offering employees measly compensation. The private sector, in the near term, won’t offer much more.

But when travel to Cuba once again becomes the norm (and I think it will), Cuban entrepreneurs will thrive. Foreign cash will flow more freely into Cuba and throughout the island. Ultimately, everyone will benefit, including the government.

When this happens, we will see a new problem arise: extreme inequality. This, of course, already exists in Cuba, but not at a very large scale. State-sector employees will see the relative affluence of their private sector friends and family. This may drive resentment towards the government, one another, capitalism, socialism — all of it. But with its back against the wall, the Cuban government believes it has no other option. Things are going to get really interesting.