The Latell Report February 2007

The China Model and Cuba

Like other observers I have often speculated since the transfer of power in Havana last summer that Raul Castro and other Cuban leaders are attracted to “the China model.” But is any comparison between countries of such vastly different realities useful? What in the mix of initiatives taken by Mao’s successors over the last twenty-eight years might Fidel Castro’s heirs be interested in pursuing? Like Castro, most Cuban leaders abhor the corruption, materialism, and growing social inequities of contemporary China. It is difficult to imagine they would permit a new class of millionaires on the island or a free-wheeling, largely capitalist society resembling China’s today. Few if any of them envision an industrialized, rapidly urbanizing Cuba that produces enormous quantities of consumer goods for the American market. And if China’s economic reform process were to be imitated in Cuba, how would leaders insure against the kind of violence and instability that occurred in Beijing’s Tiananmen Square in June, 1989? In short, how can it be reasonably postulated that, in defiance of Fidel Castro’s well known contempt for and fear of the China model, his successors might be attracted to it? Don’t they appreciate that the risks could outweigh the advantages? Surely they do, yet many seem already to have concluded that once Fidel Castro passes from the scene (and possibly before), they will have no better alternative than the early China model, that is to say, the first stage of reforms implemented there between 1979 and 1983. China opened its economy to market forces and stimulated vigorous economic growth while repressing political expression independent of the ruling communist party. That dichotomy is attractive to Fidel Castro’s heirs. Like the Chinese leadership, they have no intention of allowing free speech, assembly, or political participation.

But they also recognize they will have to open and liberalize the centrally planned economy. If they are to prevent social instability, they will have to provide more opportunity, higher living standards, material rewards, and stimulus for the masses of disenchanted Cubans, especially the youth. Simply stated, they will have to provide the populace with bread rather than the distracting revolutionary circuses Fidel Castro regularly staged. Thus, despite the risks, his successors probably are now busy designing plans to gradually emulate the first stage of China’s economic reform experience. Mao died in 1976 and it took his heirs some time to build enough political capital to launch the process that resulted in the abandonment of many of his stubborn orthodoxies. The dismantling of the centrally planned economic system began with a speech to a communist party plenum by Deng Xiaoping, on December 18, 1978. Deng enjoyed considerable legitimacy because of his ties to Mao beginning with the Long March in the 1930s, but had to proceed slowly nonetheless because of entrenched opposition from the Maoist old guard. He and his reformist allies began with no blueprint or plan. They were willing to try almost anything that might fan economic growth, create employment, and improve conditions in the countryside. They improvised and tinkered, never intending to create a full-market system. According to Harvard University scholar Dwight Perkins, the reformers believed that agriculture and foreign trade were the two sectors of the economy most in need of reform. He has written that “Mao’s bias against foreign technology and foreign products had severely hurt China’s modernization.” Food production was also calamitously impaired. The reform process began in earnest in January 1979 in agriculture as the decollectivization of rural society accelerated and markets for farm goods were gradually opened. The crucial change was in moving from the fulfillment of central plans toward profitability to measure performance. By late 1983, the end of the first phase of the reform process, the Maoist system of oppressive people’s communes had ceased to exist through most of China. Household agriculture became the norm instead and the production of food for profit soared.

The second major area of reform during those early years was the creation of special economic zones that introduced market mechanisms and, for the first time, encouraged foreign investment. These initiatives quickly resulted in the breakup of the monopoly on foreign trade held by state corporations. Strategically located near the thriving capitalist enclave of Hong Kong, the special zones proved to be powerful engines of industrialization and growth. Incentives provided to foreign investors attracted huge capital inflows. The foundations of modern Chinese industry and commerce were established. A third major area of innovation was in the service sector. Private restaurants and personal services had been suppressed by the ideologically intransigent Mao. Commerce and finance were entirely state owned. But as most of those old strictures were abolished or ignored beginning in 1979, small scale enterprise immediately flourished. The labor force engaged in these activities expanded exponentially. Perkins notes that traders and transport workers were the first to take advantage of the new opportunities. Then, new restaurants and shops sprung up everywhere and labor contracting services proliferated. Once the new small enterprises were legalized, millions of people were prepared to supply them. With some exceptions, the capital investments needed to establish the new service activities were small. And, according to Perkins, nothing comparable to the Mafia-style organizations that distorted and beleaguered service markets in post-communist Russia developed. In his study of the Chinese reforms, University of California scholar Barry Naughton emphasizes that China was the only socialist, centrally-planned country to undertake system transformation without falling into a profound economic crisis. But of course, ten years after the first tentative steps taken by Deng Xiaoping, central Beijing was gripped by the terrible violence and repression of Tiananmen Square. In Havana today, those opposing poles –dramatic economic progress and political peril-- are being carefully weighed and sifted as Raul Castro and the new leadership around him consider how they should proceed.

Dr. Brian Latell, distinguished Cuba analyst and recent author of the book, After Fidel: The Inside Story of Castro’s Regime and Cuba’s Next Leader, is a Senior Research Associate at ICCAS. He has informed American and foreign presidents, cabinet members, and legislators about Cuba and Fidel Castro in a number of capacities. He served in the early 1990s as National Intelligence Officer for Latin America at the Central Intelligence Agency and taught at Georgetown University for a quarter century. Dr. Latell has written, lectured, and consulted extensively.