As Cuba’s economy craters and private businesses grow, here’s what’s holding up change

When Cuba’s prime minister recently visited a staunch ally abroad, he got an unexpected scolding in front of media cameras.

Belarus leader Aleksandr Lukashenko, breaking with protocol that holds that sensitive topics among friends are best discussed behind closed doors, complained to Prime Minister Manuel Marrero that Cuba has been too slow in solving its decades-long economic woes.

Lukashenko’s message to Cuba: It’s time to act.

“There is no movement,” Lukashenko told Marrero. “We have the warmest relations. At the political level, we have absolutely no differences. But you, as a practical person who heads the government, understand perfectly well that the basis of all this, the foundation, is the economy.”

Cuba is going through the worst crisis it has experienced in decades, with widespread shortages of food and medicines, rolling blackouts and a sky-high 400% annual inflation rate. The calls on the communist leadership to open up the economy to the market are getting loud, even from close political allies.

In 2021, the island’s Communist government began allowing Cubans to own small and medium enterprises for the first time in decades. Even with the government’s severe restrictions — such as limiting how many people they can hire or how much money they can take out of bank accounts — the new businesses have been unexpectedly successful. What the government calls ‘non-state economic actors’— including cooperatives and the self-employed— currently employ more than a million people and surpass the government as significant importers of food and other essential goods.

But deep divisions at the top of the regime regarding how much freedom to give the new private sector, compounded by a leadership vacuum, are creating paralysis and keeping the country from adopting broader market reforms.

Cuba remains a closed communist society, where discussions at the top are closely guarded from public view. The following account was pieced together from interviews with about a dozen participants or close observers of the Cuban government’s moves, including entrepreneurs in Cuba, Cuban Americans who do business on the island, and experts closely watching Havana’s limited steps to allow a private sector.

The tensions at the highest levels of the government over the island’s future are in large part a consequence of the 2016 death of Fidel Castro: Where before one man was indisputably in charge of all important decisions, now competing groups share power and little of consequence happens if they are not all in agreement.

Aged revolutionaries block change

Among the people most opposed to any change that smacks of capitalism are hardliners who have the most invested in the regime that has ruled Cuba since 1959: Men in their 90s, with deep roots in the Revolution and historic ties to Castro, who still serve in high-profile positions and who enjoy a standard of living vastly superior to the average Cuban. They resist market reforms, seeing them as a betrayal of Marxist ideology and a challenge to continuing authoritarian rule.

“There is a fear that the opening up the process will lead to loss of power, to loss of control,” Carlos Alzugaray, a former Cuban diplomat who lives in Cuba, said during an event organized by the David Rockefeller Center for Latin American Studies at Harvard University in October.

Alzugaray, who often presents the views of the Cuban government on foreign media, said Cuban leaders need to be as pragmatic as the Communist leaders in China, who successfully embraced capitalism while retaining political control.

“It doesn’t matter whether a cat is white or black, as long as it catches mice,” Alzugaray said, quoting Chinese reformist leader Deng Xiaoping. “If socialist state companies do not work, why keep them? Why defend them if they don’t work?”

That Alzugaray feels free to make such remarks is a telling sign of the internal debate taking place in Cuban society about the private sector.

While some Cuban officials have publicly or privately supported the expansion of private business, “the problem is there are darker forces that stop the momentum, hold up change or limit it,” said Carlos Saladrigas, a Cuban-American businessman from Miami who has long been involved in efforts to support entrepreneurs on the island.

It is hard to put names on those dark forces, he says, because the decision-making process in Havana remains opaque.

But the people interviewed by the Miami Herald agree that old-guard members of Castro’s guerrillas, like commander Ramiro Valdés, 91, once the feared head of the Interior Ministry, and the rest of country’s security apparatus are among the most hostile to market reforms.

In the midst of the debate, the country’s hand-picked president, Miguel Díaz-Canel, is trying to perform a difficult balancing act, occasionally coming out in defense of small private businesses but making sure to cast himself as a devoted fidelista.

“The country’s top leadership is made up of people who have very dogmatic views of reality and are very attached to certain things from the past,” Alzugaray said. “A closed ideological vision prevails in many sectors, in people from the old guard like Ramiro Valdés or in new people like Díaz-Canel.”

Observers also blame a bloated bureaucracy for the lack of urgency.

In the Harvard event, Alzugaray pointed the finger at the “immense Cuban bureaucracy that enjoys much discretionary power in implementing changes.”

Bureaucracies usually “get a life of their own” in Marxist authoritarian systems, Saladrigas said, creating obstacles that water down policy decisions and retain control. “We saw that in the former Soviet Union, and we are seeing it in Cuba,” he said.

Without a clear sense of who is really in charge, bureaucrats have become more reluctant to take risks, said John Kavulich, the president of the U.S.-Cuba Trade and Economic Council, a New York group monitoring business with Cuba, who has three decades of experience dealing with Cuban government officials.

He describes officials in the Díaz-Canel administration as “either frightened or untrusting, and certainly not risk-takers.”

“They don’t have a political compass or philosophy that’s guiding them,” he noted. “It’s just, ‘how do I make it from today to tomorrow?”

The power players

The people interviewed agree that several groups are currently vying for power in Cuba, though they said it is hard to identify government factions clearly.

There are at least five centers of power in the country:

▪ The administrative branch of the government, including Díaz-Canel, Prime Minister Marrero, the Council of Ministers, the individual ministries and big state-owned companies.

▪ The Communist Party, “the superior leading political force of society and the State,” according to the country’s 2019 Constitution.

▪ GAESA, a vast business conglomerate run by the military, which runs most of the island’s economy, especially the tourism industry.

▪ The military itself, which manages other industries outside GAESA and has developed close relations with the Russian and Chinese military, and whose generals and other top current and former officials hold leadership positions across the government.

▪ The Interior Ministry, which oversees the police, the state security apparatus, and intelligence and counterintelligence agencies. The intelligence services have the most to fear from a transition to a market economy that could bring demands for regime change.

In this power game, the military seems to have the upper hand.

They exert notable influence not just by commanding the armed forces and security agencies but also through GAESA, whose finances are believed to be untouchable, even by the Ministry of the Economy. The generals have seats in all the major decision-making bodies, including the Communist Party’s Politburo, the Central Committee and the Council of Ministers. The country’s prime minister, Marrero, is a former army colonel who later served as tourism minister. Ultimately, the military may see the private sector as an unwelcome competitor.

Beyond ideological concerns, mid-level bureaucrats and Communist Party officials, hardliners in official media and others who live on government salaries see little gain in allowing some Cubans to get richer while they themselves remain on the meager state payrolls.

Cuban entrepreneurs who spoke to the Herald anonymously to talk about their interactions with government officials said they have identified some people within ministries whom they consider allies, who see the opening to private enterprise as the way out of the economic crisis. But they declined to share the officials’ names on the record so as not to jeopardize their government jobs.

In general, they say, those open to reforms are younger technocrats who have had more opportunities to travel abroad and experience life elsewhere.

The divisions have become more apparent as private enterprises have expanded and private grocery stores — selling imported goods, but also food, clothes and other items produced locally— have popped up around the country.

Government officials, including Díaz-Canel, have defended these enterprises as necessary, even though they go out of their way to emphasize that the businesses are under the strict control of the socialist leadership.

But Cuban authorities have ignored calls to allow the private enterprises to get foreign investment and financing.

Even as Cuba experiments with private enterprise, government officials, generals and Communist Party leaders have heavily courted traditional allies like Russia, China and Belarus, hoping for a lifeline to keep the economy afloat without giving more space to capitalism. That strategy worked well for Fidel Castro, who struck a deal with Soviet leaders in the early days of the Revolution that resulted in billions of dollars in subsidies during the Cold War.

But these days, despite Díaz-Canel’s foreign tours and the strengthened military ties with Russia and China, Cuban authorities have little to show in terms of investments or more money flowing to the island.

That’s because those traditional allies also want Cuba to speed up its promised reforms. That includes Russia’s Vladimir Putin, whom Cuban authorities asked for guidance on managing the emerging private sector.

“Cuba today is Russia — more precisely the U.S.S.R, at the end of the 1980s. Basically, everything is prohibited, but something is already allowed,” Boris Titov, the chairman of the Russia-Cuba Business Council, told Russian businessmen gathered in Cuba earlier this year. He told them he thought market reform is “inevitable” in Cuba.

“This is the painful reality that conservatives in Cuba have to deal with now: The rest of the world today bases its relationships on business, on investments,” said Ric Herrero, the executive director of the Cuba Study Group, an organization comprised of Cuban-American business leaders and young professionals based in Washington. “Political solidarity only goes so far these days.”

Who is in charge?

The lack of decisive action as the economic situation continues to deteriorate highlights a key question: Who is in ultimately charge in Cuba now?

“There seems to be a sort of paralysis and a lack of clear hierarchy in the decision-making process that has grown worse in the last couple of years,” said a source who has interacted with the island’s authorities over the years to help American companies do business with Cuba and who asked to remain anonymous to speak about meetings with Cuban officials. “What was once a fairly clear power hierarchy is now sort of a patchwork, and it’s a guessing game as to why a proposal is getting denied and who is making this decision. And that’s a fundamental change.”

When Fidel Castro was alive, the Cuban government had one voice: his. But divisions started to arise soon after his brother Raúl Castro succeeded him.

After Castro handed power to his brother amid a medical emergency in 2006, Raúl embarked on a mission to ensure the survival of a communist government 90 miles from the United States. He rallied party support in 2011 for a set of limited market reforms that included allowing private ownership of enterprises under tight restrictions.

But it took another decade for that to begin to happen.

Not only did Raúl Castro fail at implementing his own market reforms, he was unable to force the retirements in 2016 of some old-guard heavyweights like commanders Valdés and José Ramón Machado Ventura, veteran commanders who were close to Fidel Castro since the 1950s. Both men are widely considered staunch Marxist ideologues.

Machado, 93, gave up his seat as second secretary of the Communist Party in 2021, though he has not entirely retired and is frequently seen in government meetings and official visits around the country. Valdés, 91, a former aide to Fidel Castro who headed the Ministry of Interior and the intelligence services for years, is still the country’s first vice prime minister.

Raúl Castro’s last big project, to secure an orderly transition to a government not formally led by a Castro, has turned into another flop.

Trying to ensure no single person could suddenly dismantle socialism in Cuba, he devised a model of shared power between a president, who was also meant to be the Communist Party leader, and a prime minister in charge of administrative decisions. In the meantime, he let the military take over most of the island’s economy and expanded the reach of the state security apparatus to stifle any potential dissent.

Under Díaz-Canel, who took over Raúl Castro’s job as president in 2018 and became the secretary of the Communist Party in 2021, such a governing scheme has resulted in a lack of clear leadership, mismanagement, botched policy responses and increased repression.

In the past two years, Díaz-Canel presided over the largest anti-government protests in decades and the migration of almost four percent of the Cuban population — the largest exodus since the earliest years of the Revolution.

Publicly, Díaz-Canel is a staunch defender of Fidel Castro’s orthodox ideas, presenting himself as a leader seeking “continuity” rather than reform. Going live on state television, he personally ordered a crackdown on peaceful protesters who took to the streets in July 2021. His government is holding about a thousand political prisoners in Cuba’s decrepit jails.

However, some Cuban entrepreneurs and Cuban Americans doing business with Cuba told the Herald they believe Díaz-Canel understands the need to expand the private sector. But he lacks the power to push reforms, despite his position at the top of the Communist Party.

In a telling sign of the internal struggle taking place, Díaz-Canel recently spent several minutes defending the decision to allow Cubans to own businesses after he was asked in state media whether the policy amounted to “neoliberalism” — a dirty word in socialist Cuba, where it is simply understood as a synonym for capitalism.

But just allowing limited private enterprise will no longer cut it, says Pavel Vidal, a Cuban economist who believes the country’s problems are too big and too urgent, including a mushrooming foreign debt, a devalued currency, a sharp decline in exports and triple-digit inflation.

Vidal, who teaches at the Pontificia Universidad Javeriana in Colombia, believes economists in Cuba, both in academia and in the Ministry of the Economy, know the situation is dire. But he said they are either “not convinced about the alternative, which is an economy more open to the market and the private sector, because of ideological reasons, or don’t have the political power to enact the changes.”

Whatever the reason, he added, the outcome is the same: “The cost of doing nothing is very great.”