Monday, February 25, 2008

Prepare for Havoc in Havana

After nearly half a century, Fidel Castro is finally stepping down.
Ian Bremmer’s “J Curve” theory offers insight into what’s ahead for Cuba.
Stakes are high in Havana -- and oil and gold could ultimately benefit.

Prepare for Havoc in Havana by Justice Litle, Editorial Director, Taipan Publishing Group
The Economist calls him “the great survivor of world politics.” Fidel Castro first came to power in 1959 -- one year shy of half a century ago. He has managed to outlast 10 American presidents.
“El Comandante” also survived the cold war, the fall of the Soviet Union and decades of U.S. economic embargo. Now, finally, age and ill health have slowed him down when seemingly nothing else could. The 81-year-old Fidel has transferred power to his slightly younger brother, Raul. (Cuba’s new president is 76.)
The elder Castro’s influence will still be strongly felt. Fidel will continue to be First Secretary of Cuba’s Communist Party. His famously rambling speeches, which often went on for hours, will be replaced by newspaper columns. In his retirement address Fidel wrote, “I am not saying goodbye to you. I want only to fight on as a soldier of ideas.”
An Unfunny Joke
The Castro regime has no tolerance for humor. In modern-day Cuba, laughing at Fidel can still get you thrown in jail. Perhaps because of that humorlessness, communist leaders often fail to see the humor in their own windy statements. The idea that Castro is a “soldier of ideas” is a sad joke. If anything, he is a soldier of stagnation.
The ancient automobiles that cruise Cuba’s streets are a testament to both the ingenuity of the Cuban people and the utter backwardness of what Castro has done. Cuba under Fidel has been stuck in a time warp. Change has been painfully slow over the years, or hardly forthcoming at all, as the rest of the world has moved on.
Hope for Change
With the transition of power from one Castro to another, there is hope that Cuba can now truly change. And the slightly younger Raul does offer some noticeable differences from El Comandante. Where Fidel always spoke to the people in army fatigues, Raul presents himself in suit and tie. Where Fidel was known to ramble for hours, Raul speaks clearly and succinctly. Where Fidel was passionate, Raul is seen as pragmatic.
But no one should get their hopes up too much. The “old guard” is still very much in power. As mentioned earlier, Cuba’s new president is 76. His No. 2 man, known to be “a fierce Communist hard-liner,” according to The New York Times, is also 76.
Raul Castro summed up the reality of things with a simple statement to Cuba’s National Assembly. “Fidel is Fidel, you know that well,” he said. “He is irreplaceable, and the people will continue his work even though he is not physically here.”
A Necessary Enemy
In the past, a major facet of Fidel’s “work” has been keeping Cuba isolated.
The job was a lot easier with the help of the Soviet Union; a steady flow of funds helped El Comandante ignore the demands of a free market economy. When the Soviet money dried up, however, keeping Cuba isolated became a much trickier proposition. The regime had to walk a fine line between finding new ways to generate revenue and keeping the Cuban people sufficiently closed off from freedom.
America has kept Cuba isolated, too. Ever since 1960, Washington has maintained a policy of economic embargo, with the intent to punish Fidel and weaken his regime.
After nearly 50 years, it’s become clear that the embargo helped Castro more than it hurt him. While ordinary Cubans suffered, Washington’s policies gave Fidel a scapegoat to rail against. All revolutions need a cause célèbre -- an issue to champion or an enemy to fight against. For Fidel, America filled that role.
A History of Crackdown
To keep up his perpetual revolution, Fidel Castro had to keep Cuba as closed off from the outside world as possible. This is a big reason why Cuban-American relations never truly thawed; El Comandante simply didn’t want them to.
In his book The J Curve: A New Way to Understand why Nations Rise and Fall, political risk consultant Ian Bremmer describes how Castro operates:
Castro has proven many times he can upend any U.S. attempt to warm relations with tactics designed to ratchet up bilateral hostility. As in North Korea, Iran, and other regimes that rely on anti-Americanism to rally the population, Castro’s rhetoric is never more toxic than when he feels Washington is paying attention to his regime.
In 1980, when President Jimmy Carter offered asylum to a few “boat people,” refugees trying to flee Cuba by sea, Castro launched the Mariel Boatlift, sending more than 100,000 Cubans, many of them criminals and mental patients, out into the Florida strait toward the U.S. coast.
In 1996, when President Bill Clinton began to talk of a thaw in U.S.-Cuban relations, Cuban fighter jets shot down two private planes carrying Cuban-Americans, which had violated Cuban airspace to drop anti-Castro leaflets over Havana. As a consequence, Clinton signed the Helms-Burton act, which tightened sanctions on Cuba. Castro then seized the self-created opportunity to accuse Cuban dissenters of complicity with U.S. aggression bent on destroying Cuba’s revolution.
Understanding the J Curve
Bremmer’s “J curve theory” further explains why there could soon be havoc in Havana.
To grasp the J curve, imagine the letter J tilted to the right at a 45-degree angle. On the left side of the curve -- near the tail end of the J -- you have stable countries that are closed to the outside world. On the right side of the curve, you have stable countries that are open to the outside world.
Cuba itself, with half a century of one-party rule, is a prime example of a closed-but-stable country. There are a number of other countries -- like Turkmenistan, Myanmar, North Korea, and various Middle Eastern regimes -- that maintain stability by shutting out the world to as great a degree as possible.
The various Western democracies exemplify the “open and stable” ideal. An open and stable country has free speech, rule of law, functional institutions and the ability to endure significant changes in political leadership without turmoil or threat to the system.
The chief insight of Bremmer’s J curve theory is that, before a country can go from being “closed” to “open,” it has to pass through a transition period of high instability.
In leaving its “closed” ways behind, a country has to traverse through the bottom of the J curve -- where things are dangerous -- before it can rise up the open side of the curve.
A Dangerous Transition
To understand the dangers of traversing the J curve, consider the path of Russia.
When the Soviet Union fell, there was great rejoicing. The 1990s were to be a time of prosperity and rebirth for the new Russia. Optimism levels ran high as Russia’s leaders slowly but surely embraced free-market policies and Western democracy ideals.
But it soon turned out there was a problem. Russia’s citizens didn’t really “get” capitalism, as they had no prior history of free-market experience. The cultural norms and behind-the-scenes support mechanisms that make free markets successful were not in place, and so the withdrawal of Soviet ways created a vacuum. Organized criminals and sharp operators rushed to fill that vacuum, leading to a sort of “mafia capitalism.”
Russia’s privatization efforts of the 1990s turned out to be a giant fiasco. Instead of encouraging free-market ideals, the distribution of state assets made a mockery of those ideals. A handful of well-connected operators became multibillionaires almost overnight, while the average Russian got nothing.
By the close of the 1990s, many Russians were disgusted. There was widespread grumbling about how the new ways didn’t work… and even how the bad old Soviet ways were better.
For all the hope surrounding the fall of the Berlin Wall in 1989, and the collapse of the Soviet Union two years later, the 1990s were a big bust for Russia. By the end of the decade, the Bear was bankrupt.
Putin Backtracks
Today, as we know, the Bear is back. After the glum ‘90s, essentially two factors turned Russia around: $100 oil and Vladimir Putin.
The relentless rise in the price of oil and gas has taken Russia from defaulting on its debts to stashing hundreds of billions in the bank. And many observers, both inside Russia and out, view Vladimir Putin’s presidency as a stunning political success.
But it is important to note how Putin has succeeded. He has done so, in large part, by making Russia a much more “closed” type of place. Rather than embracing openness, Putin has increased stability by moving Russia further up the left side of the J curve.
In an article titled “Putin’s Iron Grip on Russia Suffocates Opponents,” The New York Times details just how closed the new Russia is:
Over the past eight years, in the name of reviving Russia after the tumult of the 1990s, Mr. Putin has waged an unforgiving campaign to clamp down on democracy and extend control over the government and large swaths of the economy. He has suppressed the independent news media, nationalized important industries, smothered the political opposition and readily deployed the security services to carry out the Kremlin’s wishes.
Brother, Can You Spare Some Oil?
Political talents aside, Vladimir Putin owes his success to oil. Russia is politically stable in large part because it is rich.
The Cuban regime, on the other hand, does not have a mother lode of oil and gas revenues to tap. Cuba has historically needed a benefactor -- a friendly source of funds -- to keep the game going.
For a very long time, Cuba’s main benefactor was the Soviet Union. Today that role falls to Venezuela.
Hugo Chavez, Venezuela’s fiery leftist president, has an intense devotion to Fidel Castro. He has proven that devotion by supporting the Castro regime with oil and cash.
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Troubling Choices Ahead
As a result of all this, Raul Castro, Cuba’s new president, has some troubling choices ahead.
He will have to figure out how to modernize Cuba without threatening the old guard (of which he is very much a part). He will have to recognize the clamor of young Cubans hungry for change on the one hand, and the still-powerful sway of Fidel and the hard-line communists on the other.
Cuban-American relations will be another big headache. Should Cuba finally embrace America if the embargo shows a chance of being lifted? Or would such a move jeopardize the vital flow of funds from Venezuela?
Should Cuba throw open the economic floodgates and let the capitalists come rushing in, or tread more slowly and carefully?
Regime Tension
Cubans are different from Russians. Given Cuba’s pre-Castro history and close proximity to the United States, Cubans have more familiarity with the natural workings of capitalism. Many are entrepreneurs behind closed doors, finding ways to better their lives in spite of the regime.
This independent spirit presents a real danger to Cuba’s old guard. In Russia and China, the populace willingly accepts authoritarian rule in exchange for the promise of increasing prosperity. In Cuba, there could be much more willingness to simply push the old guard aside.
As head of the military -- and loyal younger brother to Fidel -- Raul Castro could feel strong temptation to crack down if Cuba appears to be changing too quickly.
Havoc in Havana
This is why the likelihood for “havoc in Havana” is high.
So far, the post-Fidel transition has been remarkably peaceful. But the Castro regime is still entrenched, still powerful, and likely more paranoid now than ever.
In fact, if Raul Castro isn’t paranoid right now, he should be. The regime is facing its greatest threat -- loss of relevance and loss of control. Expectations of change are bearing down like a freight train, even as Cuba’s main benefactor (Venezuela) expects things to stay the same.
There is obviously much more detail to the situation. The upshot, though, is that Cuba has a strong likelihood of becoming another major geopolitical hotspot in the next six to 18 months. America’s next president will have his (or her) hands full. And the “geopolitical premium” -- that extra risk factor that adds a few bucks to the price of oil and gold -- will probably rise even higher in result.

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