Cuba's Entrepreneurial Socialism

Cuba has become a good place to do business -- for all but U.S. firms. Our economic embargo hurts not only Cuba but, increasingly, us as well.

MAKING sense of Cuba's economy is not easy. There's a joke I heard when I was in Havana recently: The CIA sends an agent down to live in Cuba and report back on the state of the economy. He returns six months later, babbling, and is carted off to an asylum. "I don't get it," he mutters over and over. "There's no gasoline, but the cars are still running. There's no food in the stores, but everyone cooks dinner every night. They have no money, they have nothing at all -- but they drink rum and go dancing."

It's an economy of loaves and fishes, where things somehow come out of thin air, ingenuity, and sheer will. It's also an economy that is recovering from the crisis triggered by the disintegration of the Soviet Union and the collapse of the socialist bloc. From 1989 to 1993 Cuba's gross domestic product declined, according to official estimates, by 35 percent. Imports dropped 75 percent, and the deficit reached 33 percent of GDP. Oil imports from Russia fell from 13 million tons in 1989 to less than 7 million tons in 1992. Cuba not only had to replace the oil and support it had received from the Soviet Union but also had to establish an entirely new set of trading partners, because 85 percent of its trade had been with the socialist bloc. Making matters worse was the U.S. economic embargo.

The Cubans prefer the term "economic blockade" -- not unreasonably, since the United States does not simply decline to do business with Cuba but directly interferes in Cuba's trade relations with other countries.

The pettiness of the blockade is striking as one looks at the particulars of its enforcement over the past several years. A Swedish corporation, for example, has been prohibited from selling a sophisticated piece of medical equipment to Cuba because it contains a single filter patented under U.S. law. Dozens of other transactions between Cuba and foreign corporations -- involving spare parts for x-ray machines from France, neurological diagnostic equipment from Japan, parts to clean dialysis machines from Argentina, Italian-made chemicals for water treatment, and many others -- were likewise prevented by U.S. law.

But in spite of U.S. harassment and meddling, Cuba has found scores of new trading partners, and has embarked on joint ventures and foreign-investment projects with firms from Argentina, Australia, Brazil, Canada, France, Germany, Great Britain, Israel, Italy, Jamaica, Mexico, Russia, Spain, and other countries as well. These projects range from the construction of five-star hotels to enterprises in mining, oil exploration, telecommunications, and biotechnology. And many of the projects are not small. Investment projects include a $1.5 billion deal with a Mexican telecommunications company, a $500 million nickel-mining venture with a Canadian company, a $500 million mining deal with an Australian company, and a $500 million textile deal with a Mexican company. A Monte Carlo-based company built a new terminal in Havana harbor for cruise ships, which has already opened for business. At last count there were 240 joint ventures in Cuba, involving fifty-seven countries in forty areas of the economy. The foreign investment projects announced to date total some $5 billion.

For seven years Cuba has been actively investing in new modes of production, restructuring the economy, and establishing new trade relations around the globe. Now the investments may be starting to pay off. After five years of a sinking GDP, the economic decline came to a halt in 1994: Cuba showed a slight growth in GDP of 0.7 percent. The GDP grew by 2.5 percent in 1995. In the first half of 1996 (the most recent figures available at the time this magazine went to press) the GDP was growing at 9.6 percent, with continued annual growth projected.


AT the level of daily life the economic recovery is dramatic. In 1989 the Malecón, a six-lane seaside highway, had more Chinese Flying Pigeon bicycles on it than cars. The occasional car would be a tourist taxi, or an aging Lada (an inexpensive Fiat manufactured in Russia), or a Chevrolet from the 1950s. Although Cuba's economic infrastructure and basic social institutions were holding (schools, hospitals, and factories were still operating), by 1992 and 1993 electrical blackouts occurred in residential areas for most of the day several days a week. Homes had water for only a few hours a day. Lack of fuel oil forced factories to cut back production. Buses were rare, unpredictable, and liable to break down.

Last summer, watching the traffic on the Malecón, I could barely believe I was in Havana. On the street in front of me were a bright-green new Suzuki Sidekick, a new Mercedes-Benz truck, a new Honda sedan, a new Toyota van -- and a constant flow of Ladas and '57 Chevies. For those with dollars gasoline was plentiful. Down the road a bit was a new Fiat dealership. Half the models in the showroom cost about $12,000; the others, vans and small trucks, were going for $22,000 or $23,000. A few hundred yards away was a gleaming new hotel, its massive foyer all marble, with Mozart playing softly. A touch-screen computer gave information in several languages about services, restaurants, and shopping. The cheapest rooms were $150 a night, the executive suites $400. And it was obviously not just a tourist hotel: it had conference rooms and a business center with computer facilities, fax machines, photocopiers, laser printers, copies of Cuba's foreign-investment laws, and full-color directories of banks, hotels, restaurants, government offices -- and anything else one might need if one were, say, thinking of initiating a joint venture somewhere on the island.

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