Foreign Investment Law - More Apartheid

Foreign Investment Law: More Apartheid
JORGE A. SANGUINETTY | Miami | 2 Mayo 2016 - 12:02 pm.

At first glance, the Cuban Foreign Investment Law (Law 118, April 2014)
seeks to attract capital to the country in order to raise its production
level, especially as regards exportable products. Attracting foreign
capital is perfectly legitimate for any economy, but in the context of
Cuba several observations are in order.

All countries, even the richest, benefit from foreign investment; that
is, the flow of capital from other nations to increase the productive
capacity of the country (direct investment) or acquiring existing
properties or equity instruments (financial investment). The Cuban
economy needs these forms of investment, but especially direct
investment, not only to solve its chronic production crisis, but for
other reasons, all of them vital. One of them is to create an investment
capacity capable of increasing the nation's meager capacity to generate
resources for investment. That is, the Cuban economy under the Castro
regime has been unable to generate investments sufficient to ensure the
replacement of those in place when they were expropriated, or to create
enough well paid jobs. In other words, so-called Cuban socialism has not
even been able to bring about the "simple reproduction" (Marxist term)
of its economy, which should scandalize those who still believe in this
type of economic organization.

Another reason to attract foreign capital to Cuba goes beyond what is
seen with the naked eye, and consists of attracting managerial talent of
all kinds to an economy that not only lost a catastrophic proportion of
its endowments of capital - physical financial, human and social - but
also their management capacity.

Expropriations of companies in 1960 were followed by a massive loss of
managerial, administrative and technical staff, which affected all their
operational aspects. These operations included their technical and
production processes; the management of personnel and wages; financial
administration and the handling of investments; and the organization of
sales, inventory, distribution and marketing, among others. To keep the
businesses running and prevent production stops, and the consequent mass
unemployment they would entail, the expropriations were followed by the
replacement of executive staff with people politically and ideologically
aligned with the revolutionary government. But the new executive staff
generally lacked their predecessors' technical and administrative
qualifications, the effect being immediate drops in production and
efficiency levels at virtually all businesses. This deterioration of the
nation's productive capacity was the main reason that Cuba would need
substantial subsidies from the Soviet Union, first, followed by
Venezuela. Over time this dynamic of managerial degradation, in which
loyalty to the Government took precedence over the quality of
administration, worsened, and Cuba gradually lost the culture of
production efficiency that had made it solvent and relatively prosperous
until 1959.

This was part of the legacy of inept economic management that Fidel
Castro dumped on his brother Raúl. The Cuban economy now must recover
not only a portion of the investments that have been mishandled and lost
due to more than 50 years of administrative negligence, but also restore
a substantial part of its degraded administrative capacity. Otherwise
Cuba will once again lose the resources invested in physical capital, as
it not complemented by the technical and managerial human capital needed
– as has already occurred in several cycles since the beginning of the
Castro era. Hence, the Foreign Investment Law not only serves to attract
physical capital, but also the human capital to manage it, as has been
the case with foreign investments in Tourism, which has important
implications for Cubans.

A notable feature of this law is that it excludes, subtly but
categorically, Cuban residents on the island from participating as
investors in the economy, but not necessarily those who reside off it.
In this regard the law is ambiguous and subject to being applied at the
Government's discretion. The problem is that such a prohibition affects
all Cuban citizens in many ways, whether or not they are entrepreneurs
or investors. Castro's expropriations were not limited to the private
properties that existed before 1960, but included the rights of citizens
to invest in their country, to create the wealth needed for development,
to make decisions that directly affect them, and to enjoy the benefits
of active participation in the nation's economic affairs. But the new
Foreign Investment Law excludes Cubans, who are not only to be barred
from being investors in their own country, but also from being
executives of these investments for an obvious reason: foreign investors
will prefer to take their own executives to Cuba, because they trust
them more than those assigned by the Cuban government, as called for by
the Law.

The Law's Article 30.1 states that the employees under these foreign
investments will be hired "by an employing entity proposed by the
Ministry of Foreign Trade and Foreign Investment and authorized by the
Ministry of Labor and Social Security." With these restrictions Cubans
are destined to not only be employees of state or foreign companies, but
also to occupy lower-ranking jobs in their country's economy. "The
tourism apartheid that existed in Cuba for several years resurges, and
legally, through this new official disposition."

Under these conditions the effects of the normalization of relations
between Cuba and the US will depend on the degree to which the Cuban
economy liberalizes, as determined by Washington and Havana. The
unconditional lifting of the US embargo without Cuba liberalizing its
economy will only aggravate the economic apartheid to which Cubans are
subjected. As Cuban citizens are economically weaker, this means that
they will have fewer opportunities to acquire political power. In other
words, the Foreign Investment Law tends to confirm President Obama's
dilemma, as described in a a previous article in this publication: if he
liberalizes too much (lifting the embargo) without Castro introducing
internal reform, he will not achieve the (secondary) objective of
improving political conditions for Cubans. Even worse, he'll end up
lining the pockets of the Castro family and its entourage, bolstering
their political power and possibly dismantling the self-employed sector,
which they won't need if new investments generate sufficient employment.
The US Congress may want to consider these points before lifting the
embargo without getting anything in return.

Source: Foreign Investment Law: More Apartheid | Diario de Cuba -
http://www.diariodecuba.com/cuba/1462186972_22069.html