In Print: Open for Business: Building the New Cuban Economy

Many observers are wondering how Cuba and its economy will react to the opening of relations with the United States, and Richard E. Feinberg, a senior fellow in the Latin America initiative at the Brookings Institution, explores the question in his book Open for Business: Building the New Cuban Economy. A longtime scholar of Latin American affairs, Feinberg served as special assistant to President Clinton and senior director of the National Security Council’s Office of Inter-American Affairs.

Feinberg first discusses the assets and liabilities of Cuba’s economy and population and traces how it got to where it is today. Trading with Cuba has long been difficult. For the past 50 years, political and social goals have dominated economic policy at the expense of productivity. Since the collapse of the Soviet Union, Cuba has entered into economic partnerships with several emerging economies—China, Brazil, Mexico, and Venezuela. Brazil, for instance, invested in the modernization and expansion of the Mariel Port complex, a historic transportation hub and potential site for light-industry plants.

But Cuba’s economic partners have become disillusioned with the bureaucratic and economic costs of doing business with the island nation. Joint venture companies must hire from a list of workers screened by a government employment agency. The government sets the salary scale, so it can be hard to motivate and retain employees. Overall wages are low.

International companies could play a significant role. With its pristine beaches, thriving arts scene, and low costs, Cuba would do well to focus on tourism (and, many hope, not the prostitution and drugs that often accompany it in the Caribbean). That means building more hotels and other tourist facilities. But, although the Cuban government lacks resources, it is reluctant to offer international companies much equity.

Entrepreneurs face numerous obstacles—an underdeveloped banking system, a scarcity of commercial rental space, restrictions on business growth. For instance, when a private firm employs more than five workers, the payroll tax rate increases—a disincentive to expansion. The Cuban government, Feinberg writes, must decide whether it wants a dynamic private sector. If so, it can start to change some of these policies.

The emphasis on social goals does have benefits for companies and Cuban citizens. Cuba has an astonishing literacy rate of 99.8 percent. Other advantages, mentioned by the millennials Feinberg interviews, are universal health care and legally required equal pay for women. But several of the young people he talked to feel they will have to go off-island to fulfill their ambitions. They expressed the hope that the Cuban economy will improve once relations with the United States open up.

Feinberg ends by presenting three possible scenarios for the future of the Cuban economy: stagnant, deteriorating, or a soft landing by 2030. He thinks the sunny scenario could well occur, but admits that view may simply be his preference rather than a well-grounded prediction. The optimistic scenario, he says, would present a great opportunity for urban planners and architects, particularly in Old Havana. The hard part, but essential, would be “transitioning from a command economy to a smart state based on price signals and rule-based regulations.”

Joan Mooney is a longtime writer and editor who for many years was senior editor of AutoExec, the magazine of the National Automobile Dealers Association.