Foreign Investment in Cuba: The Limits of Commercial Engagement

By Werlau, Maria C. | World Affairs, Fall 1997 | Go to article overview

Foreign Investment in Cuba: The Limits of Commercial Engagement


Werlau, Maria C., World Affairs


With the demise of the former Soviet Communist bloc, Cuba suffered the loss of massive Soviet aid. This loss and the termination of traditional trade partnerships with the Soviet bloc had devastating effects on the Cuban economy after 1989. To foster a recovery, the leadership opened the door to selected aspects of capitalism. Although its overall adoption of market-oriented liberalization has been erratic and unenthusiastic, one consistent and visible aspect of the reform process has been the regime's eagerness to lure foreign investment. Capitalism had been virtually eradicated and bitterly vilified since Castro declared Cuba a Marxist-Leninist republic in 1961. Hence, the reforms, particularly the opening to foreign capital, have led to claims abroad that engagement--namely, commercial engagement--is the policy instrument that will lead to widespread economic and political reform and the eventual breakdown of Castro's regime. Founded on the premise that Communist rule will not be able to withstand the corrosive practices of liberal capitalism, engagement has become a fundamental element of the foreign policy of most countries toward Cuba.

The importance of U.S. policy toward Cuba is widely recognized given the geographic proximity and historic closeness of their relations. Yet, since the early years of the Castro government that policy has been founded essentially on political isolation and a comprehensive economic embargo that precludes business activities in Cuba. The Clinton administration has been particularly committed to encouraging a distinctive policy mechanism--which might be described as "focused engagement"--aimed at supporting the emergence of a civil society in Cuba.(1) Rumors of a coming dissension with Cuba abounded until February 1996, when President Clinton supported a toughening of policy and the codification of the embargo through the Cuban Liberty and Solidarity Act, known as the Helms-Burton law. Passed with an ample congressional majority, this law was part of the chosen response for Cuba's violent repression of an incipient, organized, peaceful opposition and the shooting down of two civilian aircraft of a Miami-based organization. Although "focused engagement" aspects of U.S. policy remain fundamentally unaltered, the Helms-Burton law has closed the door to U.S. business with Cuba until a transition to democracy is under way there or further legislation dictates a change in policy. Helms-Burton, however, has elicited heated debate, underscoring the value of analyzing engagement as a policy prescription.

This article is based on a much broader paper(2) and explores the reform-generating capabilities of foreign investment as an instrument of engagement in Cuba. Its emerging conclusion is that two primary factors inhibit its workability as an vehicle of reform and render the argument for commercial engagement fundamentally insupportable. First, the island's poor business prospects limit opportunities to attract a level of foreign investment that could affect the economy and society in a meaningful way. Second, Cuba's peculiar mode of foreign investment has been designed to secure regime survival by gaining access to foreign capital while suppressing the impact of its socioeconomic and political mechanisms. As a result, the most important reform-generating attributes of foreign investment are restrained while its detrimental side effects mostly appear to hinder the eventual establishment of a stable free market democracy.

CUBA'S DRIVE TO ATTRACT FOREIGN INVESTMENT

Selling Cuba

In the early 1990s, Cuba passed several constitutional and legal amendments to entice foreign investors into partnerships with state enterprises. Since then it has signed preferential trade and investment promotion and protection agreements with a number of countries, as visits to the island by foreign businessmen and trade missions have abounded. The U.S. business community has also shown interest in scouting Cuba's potential; according to The Economist, between 1994 and 1996 about 1,500 representatives of United States firms made "fact-finding" trips, often at the invitation of the Cuban government.

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