The Cuban Market Mirage

By Jose Cardenas in Foreign Policy:

The Cuban Market Mirage

It’s a safe bet that neither Cy Tokmakjian or Stephen Purvis will be attending a Brookings Institution event next week on doing business in Cuba. Canadian and British businessmen, respectively, they each suffered through Kafkaesque ordeals in Cuba after they did just that, somehow running afoul of some regulation in Cuba’s opaque and arbitrary judicial system. After being imprisoned for months and robbed of their assets by the Castro government, they were finally released only after heavy diplomatic pressure by their governments.

Indeed, of all the justifications for President Obama’s about-face on Cuba policy — that it will serve to moderate the Castro regime’s behavior, improve human rights, or that it will transform U.S.-Latin America relations — perhaps the biggest whopper in defense of the new policy is that Cuba’s bankrupt economy represents a gold mine for U.S. producers and investors.

Thus, we are currently being treated to a succession of trade delegations, assorted junkets, and conferences — encouraged by the Obama administration — selling the American public on the notion that a U.S. economic windfall lies right around the corner.

Commerce Secretary Penny Pritzker, who told the Miami Herald that she will lead a trade delegation as soon as relations are normalized and embassies are open, was quoted as saying, “Companies are already going. Google led a delegation. You’re seeing people going to visit. That’s because, as I said, there’s enormous excitement — excitement from the entrepreneurial community in Cuba and excitement here in the United States about that. I think they deserve our support.”

However, if you look hard enough, not all U.S. officials are so sanguine. Pritzker’s own undersecretary for international trade, Stefan Selig, told the Washington Post, “We are embarking on a process that is complicated. We should remember Cuba is a small country, and a poor country. I don’t think we should be overly excited about the near-term economic prospects.” U.S. Department of Agriculture under secretary Michael Scuse recently cautioned an eager Senate panel that it was important not to “minimize the obstacles” in Cuba, such as the country’s limited purchasing power and its widespread market underdevelopment.

How could it be any other way? The reality of Cuba is that five decades of centralized political and economic control have impoverished the island both materially and spiritually. And the prospects are hardly uplifting. The dead hand of the regime still controls nearly 100 percent of economic activity and, to the extent there is any semblance of reform, it exists only at the margins.

For anyone eyeing Cuba from abroad, the Castro government lacks hard currency and infrastructure, has an abysmal credit rating, and restricts internet use. As one experienced foreigner points out, “Your state partner is also the supplier, the employer of your staff, the buyer, the regulating authority and the entity that taxes you. So it’s a complex place to enter into a normal business transaction.”

Pedro Freyre, a partner at the law firm Akerman who knows Cuba told Politico that, “While I think that the business community recognizes Cuba’s potential, there’s also the reality that Cuba is bankrupt. Cuba is grossly in need of investment… but they don’t have a philosophy, don’t have the legal infrastructure to support any kind of mid-level to even higher-level industry.” According to John Kavulich, president of the U.S.-Cuba Trade and Economic Council, “This is not Dubai just 90 miles south of the U.S., saying, ‘Please sell us your products.’”

To say trading with Cuba involves personal and financial risk is a gross understatement, as the ordeals of Tokmakjian and Purvis attest. Don’t look for or expect transparency, legal guarantees, and predictability — none of which the Cuban government is capable of providing. And don’t look for a local economy that rewards innovation, risk taking, or hard work. That’s the Cuban economic reality and no amount of irrational exuberance and ideological cheerleading changes those facts.

It is clear by now that Obama’s reversal of five decades of isolating the Castro regime rests on little else than hope; hope that just doing something different could translate into something good developing organically sometime in the future. But hope is a pretty thin reed on which to base a policy under such scrutiny, and that means sexing up its about-face on Cuba by convincing people that there really are immediate and tangible benefits to it — and that means selling the notion that bankrupt Cuba is like an overripe mango waiting to plucked by American business.