Succeeding on the margin

Last week, Anita Snow, an AP reporter who spent ten years working in Havana, wrote a fantastic piece about returning to Cuba and how things are changing for average Cubans. The entire piece is great and worth reading. What really caught my attention, however, was how the Cubans she quoted spoke about the reforms of the last few years and the possibilities created by the recent rapprochement with the United States. All of them talk about the new economic opportunities open to them and how they think their lives can continue to improve. This stands in contrast to many opponents of the new policy position toward Cuba here in the United States as well as many prominent dissidents, who focus much more heavily on issues of political rights and democratic transition.

This is certainly not to say that those issues aren’t important. Cuba’s status as an open dictatorship with a completely closed political system remains a stain on the Americas, not least because so many prominent democratic politicians openly fawn over Fidel Castro and the Cuban Revolution. Nevertheless, I think it’s very likely that right now, most Cubans are far more concerned with the potential economic benefits of reform than they are about political ones. Moreover, helping generate a sustained improvement in the material living standards of Cubans is a much more achievable goal from the perspective of US policymakers than a democratic transition. The negative effects of the embargo on Cuba’s economy are probably overblown, but allowing US citizens and companies to travel, work and invest in Cuba will almost certainly be a net benefit for the Cuban economy, improving the livelihoods of Cubans. In contrast, the current arrangement is a net negative for the Cuban economy and Cuban livelihoods, yet also has done nothing to generate a political transition, or even superficial moves.

There a definite value to human rights activists and dissidents in Cuba fighting for a political opening above all else. And in a perfect world, Cuba would be well on its way there. However, treating that as the price of entry for Cuba to have economic and political relations with the United States makes perfect the enemy of good. Cubans end up poorer than they otherwise might be, and still stuck living in an oppressive dictatorship. US policy toward Cuba needs to be geared to improving the lives of Cubans within the current constraints, while working to bring about the eventual political opening.

¿Pendejo, jalabolas o ideólogo?

Once again today, the Venezuelan government held a press conference in which major economic announcements were expected, specifically, related to the foreign exchange system. Unsurprisingly to anyone paying close attention to Venezuela since Hugo Chávez died in early 2013, the big announcements amounted to little more than a renaming of the existing system of extensive and complicated capital controls. This included some minor tweaks and a small devaluation and a new “free” rate where people are allowed to sell as many dollars as they want, but limited to buying $300 at a time.

Many people are interpreting this as proof that either Nicolás Maduro and those advising him have no idea what they’re doing or that they’re being overruled by factions within chavismo that benefit from the distortions caused by the current forex system. Outside of the hardcore chavista intelligentsia–who have spent much of the last year attacking Maduro from the left–, there is little consideration to the possibility that Maduro and his advisors are genuinely committed ideologically to these policies and believe that the orthodox reforms most people expect them to implement sooner or later will be counterproductive. This is not to discount the fact that there are definitely powerful members of the government who benefit personally from the current system and are fighting to keep it for reason of personal gain. Nor is it to argue that the current course has any real chance of creating a sustainable, productive Venezuelan economy. It is simply to argue that it’s worth considering it as a possible motivation for Maduro’s decision-making since it could inform how his government behaves in the future.

In his book A Failed Emprie: The Soviet Union in the Cold War from Stalin to Gorbachev, Vladislav M. Zubok notes that one of the most striking things in the declassified minutes from Politburo meetings all throughout the Cold War is the degree to which the leadership in the Soviet Union genuinely believed in Soviet ideology and how reluctant they were to abandon or even modify it. This includes even Gorbachev who was genuinely committed to reforming the Soviet to better fulfill its founding principles and ideologies, not to introduce proto-capitalism.

Similarly Fidel Castro is arguably much more ideological–and consequently, less cynical–than many give him credit for. For example, once the economy had stabilized following the collapse of the Soviet Union, he began rolling back many of the limited market reforms that had been implemented during the Special Period. Moreover, during the 1970s, Cuba maintained its support of lefitst insurgencies in Latin America and Africa, even though it alienated him from the Soviet Union, upon whose protection his government depended.

Of course, Nicolás Maduro and his advisors being ideologically committed does not preclude them from also being incompetent. Nor does any amount of ideological commitment change the simple reality that people respond to incentives and that the Venezuelan political economy creates countless incentives to exploit arbitrage opportunities and few incentives to produce goods and services. Nonetheless, why Maduro is making the decisions he makes matters, both for the opposition and others, because it informs how he might react to new stages of Venezuela’s economic crisis. A Maduro who is ideologically committed might react differently than one who is beholden to the interests of the enchufados or one who is simply too stupid to think of any new course of action.

Gusanos fleeing a sinking ship

Today, Barack Obama shocked the world by announcing that the United States and Cuba had reached an agreement to begin normalizing relations between the two countries after more than 50 years of conflict. The deal, brokered with help from the Vatican, Canada and Spain, centered around the exchange of the three remaining “Cuban Five” agents for a US spy in Cuba that few had known about. Additionally, Cuba released USAID contractor Alan Gross after 5 years in prison and 53 political prisoners. Obama, for his part, has exercised most of the authority he has as president to loosen the embargo, allowing for closer economic and social links between the two countries, though the embargo itself, codified into law under the Cuban Democracy Act and the Helms-Burton Act, will remain in place until both laws are repealed by Congress.

Beyond the usual acknowledgements that the embargo has been a half-century disaster that has done nothing to achieve its stated goals while executing a significant reputational cost to the Untied Sates, there isn’t much to say about this. It’s an exceptionally important event, but one so obviously necessary, it’s difficult to say anything unique about it.

More interesting, however, is what this says about the situation in Venezuela. Ever since Hugo Chavez took power in 1999, Venezuela has heavily subsidized the Cuban government–to the tune of 100,000 bbl/day of oil–in exchange for doctors, sports trainers and other Cuban experts coming to work in Venezuela. This has been a huge boon to Cuba, and provided the necessary cushion for the Castros to reverse many of the “Special Period” reforms made after the collapse of Cuba’s previous benefactor, the Soviet Union, pushed the regime to the brink in the early 1990s. It also proved useful to Hugo Chávez and Nicolás Maduro, as their close relationship with Fidel Castro provided them with a legitimacy among the Latin American left that would have been difficult to achieve on their own, while helping keep an increasingly irrelevant Castro in the spotlight.

In the past several years, however, the inevitable economic dislocations associated with a socialist revolution began to act as a drag on the Venezuelan economy. Oil production has still never recovered to the level it was at before the 2002 strike and then mass firing of oil workers by Chávez, and increasingly byzantine currency restrictions, labor laws and export licensing choked off most of what remained of Venezuela’s productive capacity. This has left it extraordinarily vulnerable to a price decline, which appears to have struck in force over the past few months. Venezuelan oil, which for a variety of reasons trades several dollars below the benchmark rates, has fallen from more then $95/bbl to less than $55/bbl since the spring.

While the Castros are many things, one thing they most certainly are not is stupid, particularly when it comes to staying in power. They were largely caught off guard by the fall of the Soviet Union at the end of the Cold War, and were forced to take extreme measures to weather the crisis. They were not going to be caught unawares a second time. Like a rat fleeing a sinking ship, the Castros clearly realized that Venezuela is not going to be able to pay for it for too much longer and had to look for other alternatives. Incidentally, most other “anti-imperialist” countries are either unable to help (Iran, Russia), or rather uninterested in helping (China). This left liberalization as the most viable backup plan. Rapprochement with the United States, and the possibility of ending the embargo has finally surpassed the political benefit of blaming the embargo for all of Cuba’s troubles in the Cuban government’s calculations. It doesn’t mean that Cuba is going to be a free-market democracy any time in the near future, but it clearly indicates that Cuba sees some degree of liberalization as its best way forward.

This is doubly bad for Nicolás Maduro. On the one hand, Venezuela appears to have been caught completely unprepared for this agreement. State-run media took hours to even acknowledge what happened, indicating that they did not have any prior warning that would have given them time to prepare their spin. That, in and of itself, shows how little the Cubans value the Maduro government despite all the money they’ve spent. Moreover, it represents a clear indication that the Cubans, who know as well as anyone, think the situation in Venezuela is not worth betting on. Finally, it poses some real problems for Maduro within the fractious chavista coalition. The general consensus is that Maduro’s power base sits in Havana and the radical civilian left of chavismo, as opposed to the more nationalist military wing. Maduro has heretofore done an unexpectedly good job of balancing the forces within chavismo, largely by showering the military with lagresse. However, a clear rebuke like this by the Cubans could undermine his legitimacy.

“Why,” the military chavistas might ask, “should we put up with this guy the Cubans picked if the Cubans don’t respect him at all?”

A few good reads

Over the weekend, I read a few great pieces about Latin America; two on Cuba and one on US policy in the region. I don’t have much to add but I highly recommend all three.

The Blind Spot– David Rothkopf (Foreign Policy)
A harsh rebuke of American foreign policy in the region which he characterizes as outdated, negligent, and as a result, defined by its blunders and crises.

Cuba’s Economy: Money Starts to Talk (The Economist)
Reporting on some of the reforms on the island and their economic effects.

Cuba After Communism: The Economic Reforms That Are Transforming the Island– Julia E Sweig and Michael J Bustamante (Foreign Affairs)
A more in-depth look at the economic reforms in Cuba under Raúl and the political pressures both on and off the island that are driving the pace and shape of the reforms.

¡Siempre hasta la victoria (del bloqueo)!

With former Senator Chuck Hagel’s nomination hearings for Secretary of Defense beginning today, I felt it might be interesting to look at what his views on the US military’s role in Latin America should be. Unfortunately, as far as I have read, no one has bothered to ask him anything about the surprisingly large role the US military plays there (I guess the Drug War isn’t that important?). In fact, the only bit on Hagel and Latin America that I have seen was this piece by Jennifer Rubin about his supposed weakness on the Castros. Since few things get me as fired up as the illogic of the Cuba embargo, I’m going to use this as an opportunity to go into a bit of detail about just how stupid it is.

Essentially, arguments in favor of continuing the embargo (or bloqueo, as it’s commonly known in Spanish) are that it dramatically weakens the Castros thereby increasingly the likelihood of a transition toward a democratic government and that it gives the US leverage in negotiations with Cuba. Conversely, they argue that lifting the embargo would strengthen the current government, weaken the US negotiating position, enrich the Castros with little benefit to the Cuban people and reward a violator of human rights and potential security threat to the US.

The problem with these arguments is that they bear little resemblance to objective reality. Simply put, if anything, the embargo strengthens the Castros far more than it weakens them. First, there is the obvious point that it’s difficult to argue for the efficacy of a policy that in more than 50 years has not led to a change in the Cuban government or even fomented a serious challenge to it. Cubans lack political rights, are getting poorer and there is almost no organized opposition to the regime. Even if one subscribes to the “any day now” philosophy of the embargo, there remains the fact that it serves as a potent propaganda tool for the regime, both domestically and internationally. Cuba’s economic woes are mainly the result of bad policy (believe it or not, planned economies are really, really inefficient), but the presence of the embargo allows the Castros to pin blame on something external and beyond their control. Si no fuera por el bloqueo works because many people, both inside and outside of Cuba, want to believe the model can work and because it plays on the strong current of anti-Americanism that runs throughout Latin America and is particularly (and justifiably) strong in Cuba. Whatever the Cuban government may say about the embargo, it benefits from its existence (even if the Cuban people suffer), so it hardly counts as leverage unless you really believe it’s about to topple the regime.

So would unilaterally ending the embargo strengthen the Castros further? It certainly might. It might also further enrich the ruling class as increased economic interaction with the US has in China and Vietnam (among a myriad of other things). Of course it could also make the lives of the average Cuban much better as well, as has happened in the aforementioned countries (and if the choices are oppressed and poor and oppressed and less poor, less poor is better, if not ideal). Furthermore, arguments in favor of maintaining the embargo because of Cuba’s human rights record or threat potential would hold up much better if not for the fact that we have robust trade relationships with countries with much worse records (China, Vietnam, Saudi Arabia) and who are bigger security threats* (China, Pakistan).

So long as Cuba has the sympathy of almost the entire world, and especially while it has an oil-rich benefactor in Venezuela, the embargo will most benefit the people it supposed to hurt (the Cuban governing class) and hurt those its supposed to benefit (the Cuban people in general, US interests in Cuba, international perceptions of the US). Arguments in favor of continuing the embargo either ignore this or hold Cuba to a standard that we don’t hold some of our most important allies to in order to justify it.

*In my opinion, Cuba isn’t a real security threat, and only ever was because of its role as a Soviet satellite state during the Cold War. However, it remains on the list of state sponsors of terrorism so I’ll acknowledge that, officially, the US does regard Cuba as a security threat.