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HavanaJournal.com: Cuba Business

What about Cuba after Raul?

Posted March 18, 2008 by publisher in Cuba Business.
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By José Azel is a senior research associate at the Institute for Cuban and Cuban-American Studies, University of Miami. Dr. Azel was an adjunct professor of international business at the School of Business Administration, University of Miami. He holds undergraduate and master’s degrees in business administration and a Ph. D. in international affairs from the University of Miami.

    The succession from Fidel to Raul, programmed since the early days of the revolution, is now an official fact. It was an efficient, effective and seamless succession. The hallucination in which Raul Castro intervenes forcefully to end the communist era and inaugurates a new democratic and market oriented Cuba is not how the story ends. We need to rethink how Cuban communism will come to an end.

    Clearly, given Raul’s age and possible health problems there will be another succession in the not to distant future. And this next succession may not go as smoothly as the one from Fidel to Raul. Raul Castro’s perfunctory successor, Jose Ramon Machado Ventura, is 77 years old and not obligatorily seen as the next Cuban leader in the same way that Fidel had anointed his younger brother as his successor. Perhaps an interesting parallel can be made with the events in the Soviet Union following Leonid Brezhnev’s death in 1982. His successor Yuri Andropov, who was 78 years old, died two years later. He was, in turn, succeeded by the also elderly Constantin Chernenko who died a year after and was succeeded by Mikhail Gorbachev.

    Therefore, from a longer-term strategic perspective, the critical questions are not what economic reforms Raul may or may not introduce, but rather what follows after Raul. The younger brother has been in charge of the armed forces for nearly fifty years and has had the opportunity, over all those years, to appoint his military officers to any number of positions in government and industry. His most recent appointments of Machado Ventura, Casas Regueiro and others are illustrative. Accordingly, the most likely “after Raul” scenario will have a strong military flavor and will include his loyalists in the military and the communist party. Possible succession scenarios, among others, are a more or less classical military dictatorship, a triumvirate, or some other “first among equals” approach. Yet, there may be a more sinister plot in the making.

    Currently the role of the Cuban military in the economy is extensive and pervasive with the military managerial elite controlling, by some estimates, over sixty percent of the economy. The breath and depth of this military control of the country’s key economic sectors is astonishing. GAESA, the holding company for the Cuban Defense Ministry, is involved in all key sectors of the economy. Enterprises with innocuous sounding names such as TRD Caribe S.A., Gaviota, S.A. and Aerogaviota are all part of the vast economic involvement of Cuba’s Fuerzas Armadas Revolucionarias (FAR). There is every reason to expect that Raul Castro will continue to promote the involvement and monopolistic control of his armed forces in the economy as he has since the late 1980’s and the collapse of the Soviet Union.

    If we postulate that Raul Castro, as a matter of survival not ideology, is likely to introduce some tentative economic reforms, we need to note the corollary that he will simultaneously continue to expand the metamorphosis of his officers into businessmen. Arguably this can be viewed as a positive development where warriors turn in their weapons for calculators. But we need to look into our crystal ball for what happens next, when the Raul era comes to an end leaving FAR officers in political control as well as in control of all key sectors of the economy.

    In a system where enterprises are state owned and managed, the military officers turned business executives enjoy the privileges of an elite ruling class. Their standard of living is higher, they move into better homes, and the like. But these benefits are miniscule when compared with the opportunities to gain significant wealth via a position of equity ownership in the enterprises under their managerial control. It will not take long for the military elite to realize that managing government owned enterprises, as they have done under Cuban communism, offers only limited benefits - owning the enterprises is a far more rewarding and lucrative option. In the first instance they may enjoy some foreign travel and live in a nicer Havana home. In the second, the travel would be by privately owned executive jets to second homes in Paris or Madrid.

    Once the Castro brothers are no longer in the picture the military elite will be highly motivated to lead the way towards a privatization of the economy. Specifically the military officers will have every incentive to champion a manipulated privatization of the industries under their managerial control in order to monetize their managerial positions. Alas, this illegitimate and corrupt mockery of a privatization process will end up with the military managing team as the new ownership team initially controlling the cash flows and eventually creating the market conditions to monetize their equity position.

    A “liberalization” of the Cuban economy following its current militarization, if not conducted in a transparent democratic environment, is likely to make the military elite into instant millionaires as the new Cuban “captains of industry.” In another possible parallel to the Russian experience, only sixteen years after the collapse of the Soviet Union, we learn that: “Russia with 87 billionaires is the new number two country behind the U.S., easily overtaking Germany, with 59 billionaires…” (1)  Either Russian businessmen posses the most extraordinary entrepreneurial skills in world history or their ascendancy in wealth accumulation has a suspect origin.

    In a supreme ironic twist we could see a post-Fidel/Raul situation in which a fraudulent privatization takes place leaving the likes of Gen. Julio Casas Regueiro as the new majority shareholder of GAESA Enterprises with Raul Castro’s son-in-law Col. Luis Alberto Lopez Callejas as his CFO, Comandante Ramiro Valdez Menendez as the new CEO and sole owner of the newly created Cuban Electronics Group, Gen. Ulises Rosales del Toro as Board Chairman and controlling shareholder of the new Cuban Sugar Enterprises, Marcos Portal León, another of Raul Castro’s relatives, as president and COO of the lucrative Cuba Nickel, S.A. and more.

    By and large, the politically exhausted and by now apathetic Cuban population will not view these ownership changes as particularly undesirable or nefarious. They may even view them as a positive transition towards free markets and prosperity. The international community will also acclaim the generals as agents of change bringing a market economy to Cuba. Indeed, in this disheartening end game scenario Cuban communism will have come to an end, leaving the generals and their heirs as the nouveau riche devoid of a democratic culture.

    It is often argued that the introduction of economic reforms even in isolation of political reforms will lead sequentially and inexorably to democracy. Advocating for a China or Vietnamese transition model for Cuba, the unilateral lifting of the U.S. embargo, etc. are all offered as first steps on the eventual road to democracy. But decades after the introduction of economic reforms we are witnessing a China that, although certainly wealthier, is no less authoritarian.

    I am afraid that putative economic reforms conducted in a corrupt military controlled environment without hand-in-hand political reforms will lead only to a transfer of wealth from the state to the ruling military/party elite. Even if we posit that democracy will ultimately follow an economic opening, we need to heed the admonishment that, democracy delayed is democracy denied. (2) Cubans deserve better.

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Notes

(1) Luisa Kroll, “The World’s Billionaires 2008,” Forbes.com, March 5, 2008, http://www.forbes.com/lists/2008/03/05/richest-people-billionaires-billionaires08-cx_lk_0305billie_land.html.

(2) This is a rewording of former British Prime Minister William E. Gladstone’s famous “Justice delayed is justice denied.”

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