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  October 25th, 2016 | Written by

Time for Cuba to Implement Economic Reforms

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  • The island’s well-educated workforce is one of Cuba's strengths.
  • Cuba's top-heavy, multi-layered bureaucracy drowns itself in endless clearances and red tape.
  • Foreign investors and developers swarming Havana will soon learn the approval process can be maddeningly tedious.

“We don’t need gifts from the Empire,” growled Fidel Castro, in a calculated rebuff to Barack Obama following his historic March visit to Havana. But the ailing Castro only underscored the widening gap between an aging, out-of-touch Communist Party and the Cuban people who had embraced the U.S. president with open arms.

Tens of thousands of restless Cubans are fleeing the island each year, having grown tired of dusty Communist propaganda and the debilitating hardships of miserable wages, disruptive consumer shortages, and programmed power outages. But over 11 million remain, betting that Cuba could, once again, become an economic engine in the Caribbean.

Cuba is at a tipping point. Fidelista ideologues and bureaucratic inertia could stall reform—driving many more millennials to exit. Powerful state-owned enterprises could fight to preserve their comfortable monopolies and repress private initiative.

More optimistically, Cuba could gradually evolve toward a balanced, hybrid economy where more efficient state firms share markets with home-grown private businesses and responsible foreign investors from around the world.

Over five decades ago, Cuba imported a Soviet system of highly centralized five-year plans that shut down private enterprise, choked off innovation, and obscured property rights. But since 2008, under the more pragmatic leadership of Fidel’s younger brother, Raúl, the government has published detailed remediation plans which, if progressively implemented—and that’s a big if—would gradually navigate Cuba to a more mixed economy with space for individual initiative and more openness to foreign influences and markets.

In my many travels crisscrossing the island in recent years, I’ve been repeatedly impressed by Cuba’s abundant promise. With wiser policies, Cuba could unleash economic expansion across multiple growth poles: sustainable tropical agriculture, diversified sources of energy, globalized healthcare and affordable wellness services, high-performance creative industries including music and the visual arts, steady streams of biotech innovations and computer applications, and tourism for all tastes and ages.

At the core of this sunny scenario stands the island’s well-educated workforce—the building block of a modern, service-oriented economy. To its credit, the revolution invested heavily in public schools, and universities are free to all who pass the competitive entrance exams.

But no one wants to work in agriculture, despite ample arable land. A mere 100 miles from Florida’s mechanized agriculture, Cuban farmers still labor behind horse-and-plow. Why? Because the bureaucracy refuses to give up on state-run agriculture that treats farmers like low-wage employees. If and when the Cuban state empowers those who till the soil to make decisions on investment, production, and prices, rural Cuba could blossom with tropical fruits, citrus groves, and organic produce.

Similarly, Cuba has the natural resources to be self-sufficient in energy, balancing hydro-carbons, bio-mass, wind, and solar. The government’s own documents outline smart energy projects—distressingly, most remain on paper. The top-heavy, multi-layered bureaucracy drowns itself in endless clearances and red tape. And bureaucrats hesitate to approve foreign investments in the “sensitive” energy sector, fearing the wrath of the hardline nationalists and allegations by state prosecutors of taking bribes from unscrupulous foreigners.

Today, Havana is swarming with foreign investors and developers. But they soon learn that the complex approval process can be maddeningly tedious—a major roadblock to growth that Cuba must exorcise.

Furthermore, Cuba’s renowned healthcare and bio-technology industries could become major earners of foreign exchange. With universal access to holistic, preventive care, Cuban citizens enjoy life expectancies equal to those in developed nations. In sharp contrast to the pandemic plaguing nearby Puerto Rico, Cuba’s integrated public health system has, so far, kept the Zika virus at bay.

Instead of having to send 40,000 medical professionals to work abroad, the government could pour resources into medical tourism. Already, fee-based medical services—for cancers, diabetes, and alcohol addiction—are available for wealthy or politically connected foreigners. But to take these income-generating practices to scale, Cuba must forge international partnerships with accredited foreign hospitals and insurers.

And if Cuba’s bio-technology industries are to break into global markets, Cuban firms must be willing to overcome their fears of being exploited by global pharmaceutical giants, and instead forge mutually beneficial partnerships with them.

Cuban universities graduate many well-educated technologists—who find work in places like Florida and Mexico. In its determination to control information flows and interactions among its citizens, the Cuban government has blocked internet penetration—driving young IT experts to emigrate. The presumptive heir to Raúl Castro, Miguel Diáz-Canel has recognized that his nation must embrace the IT revolution—but when will the government telecommunications monopoly open the island to international competitors?

Already, successful Cuban artists exhibit in galleries from New York to Barcelona, and dazzling salsa dancers offer intensive instruction in Vancouver and Zurich. World-class artistic and athletic talent has been nurtured over decades in highly selective national sports and arts institutes including the fabled Cuban Advanced Institute of Art. But for the creative industries to flourish on the island, the government must lift the many obstacles to financial transactions, commercial contracts, and intellectual property protection that frustrate local talent.

Today, the Cuban tourism industry earns a hefty $3 billion in annual revenues from 3.5 million visitors. This May in Havana, the minister of tourism laid out plans for tripling the number of hotel rooms over 15 years, building capacity for up to 10 million tourists and annual revenues of over $9 billion.

Meanwhile, visitors who cannot find rooms in hotels are flowing into newly renovated private bed and breakfasts. In colonial Trinidad, the number of private rentals outpaces formal hospitality beds by six to one. This emerging private tourism cluster also includes booming businesses in home remodeling, furniture manufacturing, transportation services and private dining and clubbing options.

But for Cuba to hit its 10-million tourism target, it will have to allow international investors to participate in prime hotel and resort locations—and overcome the resistance of state-owned hotel chains who prefer to keep the juiciest investments for themselves. The government will also have to fully accept that the private B&Bs are welcome partners to the state-owned hotels in national tourism development.

Most importantly, a healthy national private sector is emerging: the government has authorized some 500,000 Cubans to own their own small-scale private businesses. I’ve had the good fortune to meet many of these impressive millennials, across a wide variety of professions.

A visual designer, hard-working Yondainer Gutiérrez holds two jobs: as an independent contractor for international clients, and as co-founder and CEO of the Cuban online restaurant directory AlaMesa (to the table).

In 2012, Yamina Vicente transitioned from university teaching to launching Decorazón (from the Spanish for decoration and corazón, or heart), an event planning business. Her business now encompasses a network of some 18 private subcontractors.

Many more well-educated Cubans could exercise their entrepreneurial talents—when the government finally relaxes restrictions that force lawyers, engineers, architects, and other white-collar professionals to work exclusively in government offices.

In each of these promising economic sectors—agriculture, energy, healthcare, IT, the creative arts, tourism, and private enterprise—many Cubans know what needs to be done. But the politics is more challenging than the technical economics. Can Cuban reformers persuade the old guard to loosen its grip and risk change?

With smart, agile leadership and a little luck, Cuba could keep its best and brightest and ensure sustainable prosperity for those who bet on their beloved homeland.

Richard E. Feinberg, is a nonresident senior fellow in foreign policy at the Latin America Initiative of the Brookings Institution. This article originally appeared here.