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Now We're Cruising

By Lawrence Gutman

“America is going to break this country,” a Canadian vacationer remarked to New York Magazine’s Katie Van Syckle several weeks ago in Havana. “You thought United Fruit was bad. Wait until you see Airbnb.”

Pessimism regarding Cuba’s economic prospects is not hard to come by these days. In a recent op-ed for The New York Times, Florida senator and GOP presidential hopeful Marco Rubio described President Obama’s negotiations with the Castro government as a Faustian bargain that will empower the ruling class at the expense of ordinary Cubans.

“No Communist police state has ever unclenched its fist just because a McDonald’s has opened or an embassy has been established,” Rubio contends, and claims U.S. capital will invigorate the Cuban sistema while “prospects of political freedom for regular citizens are extinguished as elites with connections to the party become economic oligarchs.” Rubio cites China as an example where U.S. trade reinforces one-party rule, and envisions Cuba following a similar path should normalized trade become a near-term reality.

Although the Canadian tourist and Sen. Rubio paint different pictures of Cuba’s economic future, both see normalized trade as an inhibitor of diversification and growth, and as an enabler of monoculture and corruption. Yet regardless of whether the future brings an overdeveloped tourist sector or oligarchic state capitalism, the question of how Cuba’s economy will fare once the embargo disappears is garnering greater attention as bilateral trade looms closer.

And for good reason. Just one day after the publication of Sen. Rubio’s op-ed, Miami-based Carnival Corp., the world’s largest cruise line, won U.S. approval to start sailing between Florida and Havana in January 2016. For now, State Department-sanctioned voyages are designated as cultural or social impact cruises for passengers visiting relatives or traveling on humanitarian missions. How long that designation remains amid a boom in non-U.S. tourist cruises to Cuba will depend on congressional support for the embargo.

Yet despite recent signals that the GOP may ramp up its efforts to derail greater U.S.-Cuban integration, Carnival’s victory is generating attention from stateside competitors. Shortly after the White House sanctioned cultural cruising, Frank del Rio, the Cuban-born CEO of Norwegian Cruise Lines, congratulated Carnival in what may be the first veiled shot in the next battle to rule the Florida Straits. Officials from other Caribbean countries are already fearing a loss of tourism revenue when U.S.-based cruises begin docking in Cuba.

As the Canadian and Sen. Rubio contend, the U.S. tourism industry and Cuban elites may reap windfalls from renewed trade. Yet some observers are contending the notion that Cuba will revive its rum-soaked, corruption-riddled leisure sector or morph into a kleptocratic super-state financed by U.S. dollars.

In Investing in Cuba, a Financial Times report that underscores the growing willingness of investors to take Cuban markets seriously, Richard Feinberg cites “the remarkable economic success of Vietnam” as a viable model for Cuba to follow and improve upon.

Despite its status as a corrupt one-party state where “many deeply resent the lack of political freedoms and the monopoly of the Communist party,” Vietnam “has evolved into a hybrid system with a dynamic interplay between a hefty public sector of state-owned enterprises” and “a vibrant and expanding private entrepreneurial class.” It has also developed a diversified economy with significant tourism, manufacturing, and “booming” construction and real estate sectors driven by foreign and domestic investors.

Like Vietnam, Cuba is poised to transform from a net importer of staple goods into a net exporter of agricultural goods — a point echoed by former Democratic and Republican agriculture secretaries — and the island has the natural resources and human capital to develop a balanced economy. To cite but one example on the agricultural front, a recent PBS report on Cuban innovations in organic farming highlights the ways in which Cubans developed new and potentially exportable approaches to food cultivation during the economic crisis of the 1990s. Other growing domestic industries prepared to join regional trade corridors and supply chains include biotech and pharmaceuticals, computer engineering, and shipping and logistics.

Success in pursuing the Vietnamese model, Feinberg claims, will ultimately hinge on the willingness of Cuban policymakers to loosen restrictions on domestic entrepreneurs and encourage foreign direct investment (FDI) by authorizing new capital projects and reducing red tape. Vietnam has received over $235 billion in FDI across an array of economic sectors, and its annual inflows are growing by leaps and bounds.

Cuban policymakers have been pursuing a similar course for several years and, according to Ian Bremmer of Eurasia Group (and Senior World Policy Fellow), are well advised to continue doing so. The Peterson Institute for International Economics indicates that once the embargo is lifted, Cuba can grow its current base of about $500 million in FDI to rival or exceed the $17 billion brought in by the Dominican Republic (whose population of 10.4 million is nearly the size of Cuba’s). 

But what about the Canadian’s concern that Airbnb will break Cuba? Feinberg contends that Cuba can follow Vietnam in building a mature and developmentalist tourist sector that reaches beyond “sand and surf.” Policymakers can take advantage of the island’s long coastline, varied ecology, and urban centers to develop ecotourism, maritime sports, and cultural activities beyond the Havana-Varadero corridor. This may ultimately counterbalance the debauched spring break-style tourism that the Canadian fears. In fact, Cuban officials are acutely aware of leisure’s double-edged sword in the Caribbean. They are unlikely to dive headfirst into a form of tourism that will return Cuba to its pre-revolutionary economic model.

Sen. Rubio does cite Vietnam in his assessment of Cuba’s prospects, though he draws a different conclusion than Feinberg. Like China, Rubio argues, Vietnam “continues to be tightly controlled by the Communist Party … after throwing its doors open to American corporations.” Yet Cuba is not located in a neighborhood where free trade and single-party rule are commonplace. It’s worth asking whether authoritarian governance and highly centralized economic planning in Cuba can subsist amid greater bilateral integration in a region where democracy is increasingly the only game in town.

There is one additional point for Sen. Rubio and the Canadian tourist to consider when fearing the worst: Cuba is among the healthiest and most literate countries in the Western Hemisphere. Despite the absence of democratic institutions and the persistence of state repression, Cubans are accustomed to having certain expectations met by their government. It may sound Pollyannaish, but it stands to reason that these expectations can militate against forms of oligarchic capitalism or hyper-tourism that would leave them by the wayside. Ordinary Cubans have been resolving everyday challenges against great odds for decades. They now see economic opportunity in front of them as never before, and they have the model and the tools to seize it.

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Lawrence Gutman has conducted research on governance and foreign investment in Cuba as a Fulbright Hays Fellow and Tinker Foundation Fellow. He holds an M.A. in Latin American history from the University of Texas at Austin, and is based in New York. He tweets @lawrencegutman.

[Photo courtesy of Roderick Eime]

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