A Change of Course in Cuba and Venezuela?

A very insightful article on Cuba, Venezuela, and their relationships with the U.S., Russia, and China, by George Friedman and Reva Bhalla.

Strange statements are coming out of Cuba these days. Fidel Castro, in the course of a five-hour interview in late August, reportedly told Jeffrey Goldberg of The Atlantic and Julia Sweig of the Council on Foreign Relations that “the Cuban model doesn’t even work for us anymore.”

Once that statement hit the headlines, Castro backtracked. Dressed in military uniform for the first time in four years (which we suspect was his way of signaling that he was not abandoning the revolution), he delivered a rare, 35-minute speech Sept. 3 to students at the University of Havana. In addition to spending several minutes on STRATFOR’s Iran analysis, Castro addressed his earlier statement on the Cuban model, saying he was “accurately quoted but misinterpreted” and suggesting that the economic model doesn’t work anymore but that the revolution lives on.

Castro, now 84, may be old, but he still seems to have his wits about him. We don’t know whether he was grossly misinterpreted by the reporter during the earlier interview, was acknowledging the futility of the Cuban model and/or was dropping hints of a policy shift. Regardless of what he did or did not say, Castro’s reported statement on the weakness of the revolution was by no means revolutionary.

Sustaining the Revolution

There is little hiding the fact that Cuba’s socialist economy has run out of steam. The more interesting question is whether the Cuban leader is prepared to acknowledge this fact and what he is prepared to do about it. Castro wants his revolution to outlive him. To do so, he must maintain a balance between power and wealth. For decades, his method of maintaining power has been to monopolize the island’s sources of wealth. All foreign direct investment in Cuba must be authorized by the government, the most important sectors of the economy are off-limits to investors, foreign investors cannot actually own the land or facilities in which they invest, the state has the right to seize foreign assets at any time and foreign investors must turn to the government for decisions on hiring, firing and paying workers. Under such conditions, the Cuban leadership has the ultimate say on the social welfare of its citizens and has used that control to secure loyalty and, more important, neutralize political dissent.

But that control has come at a cost: For the revolution to survive — and maintain both a large security apparatus and an expensive and inefficient social welfare system — it must have sufficient private investment that the state can control. That private investment has not been forthcoming, and so the state, unable to cope with the stresses of the economy, has had to increasingly concern itself with the viability of the regime. Since Soviet subsidies for Cuba (roughly $5 billion per year) expired in the early 1990s, Cuba has been seeking an injection of capital to generate income while still trying to leave the capitalists out of the equation in order to maintain control. There is no easy way to resolve this paradox, and the problem for Castro in his advanced age is that he is running out of time.

Many Cubans, including Castro, blame the island’s economic turmoil on the U.S. embargo, a politically charged vestige of the Cold War days when Cuba, under Soviet patronage, actually posed a clear and present danger to the United States. There is a great irony built into this complaint. Castro’s revolution was built on the foundation that trade with the imperialists was responsible for Cuba’s economic turmoil. Now, it is the supposed lack of such trade that is paralyzing the Cuban economy. History can be glossed over at politically opportune times, but it cannot so easily be forgotten.

What many seem to overlook is how Cuba, in spite of the embargo, is still able to receive goods from Europe, Canada, Latin America and elsewhere — it is the state-run system at home that remains crippled and unable to supply the island’s 11 million inhabitants. And even if U.S.-Cuban trade were to be restored, there is no guarantee that Cuba’s economic wounds would be healed. There are a host of other tourist resorts and sugar and tobacco exporters lining the Caribbean coastlines aside from Cuba, which has largely missed the boat in realizing its economic potential. In other words, the roots of Cuba’s economic troubles lie in Cuba, not the United States.

But Cuba is in the midst of a political transition, and Fidel will eventually pass the revolution on to his (not much) younger brother, Raul. If Fidel is the charismatic revolutionary, able to sustain a romanticized political ideology for decades in spite of its inherent contradictions, Raul is the bureaucratic functionary whose primary purpose at this point is to preserve the regime that his brother founded. This poses a serious dilemma for 79-year-old Raul. Not only does he lack the charisma of his older brother, he also lacks a strong external patron to make Cuba relevant beyond Cuba itself.

It must be remembered that the geographic location of Cuba, which straddles both the Yucatan Channel and Straits of Florida, gives it the potential to cripple the Port of New Orleans, the United States’ historical economic outlet to the world. If these two trade avenues were blocked, Gulf Coast ports like New Orleans and Houston would be, too, and U.S. agricultural and mineral exports and imports would plummet.

Cuba has been able to pose such a threat and thus carry geopolitical weight only when under the influence of a more powerful U.S. adversary such as the Soviet Union. Though the Castros maintain relations with many of their Cold War allies, there is no middle, much less great, power right now with the attention span or the will to subsidize Cuba. Havana is thus largely on its own, and in its loneliness it now appears to be reaching out to the United States for a solution that may not hold much promise.

While Fidel has been making statements, Raul has been fleshing out a new economic strategy for Cuba, one that will lay off 500,000 workers — 10 percent of the island’s workforce. The idea is to develop private cooperatives to ease a tremendous burden on the state and have implementation of this plan in progress by March 2011. This is an ambitious deadline considering that Cuba has little to no private industry to speak of to absorb these state workers. The feasibility of the proposed reforms, however, is not as interesting as the message of political reconciliation embedded in the plan. Alongside talk of Raul’s economic reforms, Cuba has been making what appear to be political gestures to Washington through the release of political prisoners. But these gestures are unlikely to be enough to capture Washington’s attention, especially when Cuba is neither a significant geopolitical threat nor a great economic opportunity in the eyes of the United States. Cuba needs something more, and that something could be found in Venezuela.

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