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Weekly UpdatesChanges in Cuba's tourism industry will be slow to come, if they come at all, because the Cuban people have become acclimated to a command economy. Moreover, those who work in Cuba's hospitality industry, particularly general managers, have little incentive to change from the current arrangement to a U.S.-style model. Nevertheless, if title disputes can be resolved and if U.S. companies are willing to operate under Cuba's joint-venture structure, they could profit handsomely should the U.S. embargo be lifted.
Keywords: Cuba tourism; command economy
In 1994, when CQ last examined the status of Cuba, Glenn Withiam, who was then editor, posed the question, "When looking at Cuba, do you see it as the glass half full or half empty?" My 1994 CQ article, "Tourism and the Transformation of Cuba," approached the Cuban tourism situation as the glass half full. In retrospect, that assessment was not entirely wrong, given how tourism has grown and has been the main mason for the stabilizing of the Cuban economy The authors of "Cuba at the Crossroads" have similarly adopted a glass-half-full approach. Their optimistic tone is admirable, but the basic premise that a change to a U.S.-style market economy could occur following a regime change is overly optimistic.
The reason I make that statement is that Cuba is a command economy, and virtually everyone living and working today in Cuba has never known anything else. When Fidel Castro is no longer with us, I expect a fairly smooth transition to the next regime. Though some changes are certain, I doubt that we will see radical short-term changes.
Virtually everything in Cuba is owned by the government--every vehicle, every home, every major business. You have use of that asset only as long as the government officials want you to have it. Foreign companies can have a part of a hotel, for example, but can never own it outright. Small private businesses, such as paladars, home-based restaurants, may be owned by Cuban people, but the operators face many restrictions on what they can and cannot do.
In this interim period, during which Fidel Castro is presumably convalescing, his brother Ratil is maintaining the general status quo. He is, however, making subtle changes to make things somewhat better for the average Cuban. Infrastructure has improved, with better public transportation, better health care, more services, more access to better food and other essentials, and, most important, no more daily blackouts. It remains true that the local stores have little on their shelves, but many goods are readily available in the hard currency stores.
Most urban Cubans have some access to CUCs, the hard currency accepted in the country. When a visitor arrives, that person must change money at one of the many banks and currency exchanges widely available in most major hotels. The current rate is approximately $1.20 CDN = 1 CUC. The U.S. dollar rate is about $1USD = .89 CUC; however, a 20 percent discount is then applied to that rate. The hard currency market rate of exchange is controlled by the government and is not based on any external currency market fluctuations. Moreover, the role of hard currency has not changed over the past decade; the only difference is a change from U.S. dollars to CUCs. Fidel Castro once again has shown a brilliant approach to handling the hard currency situation as he did a decade ago, when he legalized the holding of foreign currency by Cuban nationals.
The accompanying articles cite tourism statistics, but one has to be careful in examining the reported tourism statistics. In fact, Venezuelans are the number-one visitors to Cuba, followed by Mexicans. Canada has fallen to number three in terms of tourism to Cuba. The real tourism market is concentrated in the Varadero and eastern provinces around Cayo Coco. A great number of hotels in the Havana area have been converted to what is euphemistically called "health tourism." Only a few true tourist hotels and business hotels remain there. The balance have been converted to places to stay for Venezuelan hospital patients who come here for treatment in Cuba's health clinics such as the one for ophthalmology-related treatment. These ordinary people receive free medical treatment as a result of a program that is a treatment-for-oil exchange program between Hugo Chavez's government and Cuba. Most of these people are new to traveling and have little or no money to spend. They may never have stayed in a hotel before, and many do not have such services as plumbing in their homes. These individuals are nevertheless counted as tourists, thereby masking the true tourism numbers. One suspects that the real rate of tourism is declining more than the Cubans are willing to admit.
Some of the turmoil in tourism arrivals is due to unbelievable political wrangling in once-leading companies like Cubanacan. It is not unusual for political cronies to oust extremely effective managers when they feel threatened by their success. In Cuba, if you are let go from a tourism company, not only do you lose your job, but you may also be turned out of your accommodation and forbidden to work anywhere in the tourism industry ever again--thereby destroying your livelihood. Beyond that, you may not get a reference to the government agency that controls all hiring by foreign companies. That kind of abusive power dominates Cuban society. Although residents of most nations would never accept such authority, it is ingrained into the Cuban psyche and therefore readily complied with. Gaviota, the fastest-growing Cuban hospitality company, is actually operated by the Cuban military.
The authors of the accompanying article have done a thorough review of the historical context of Cuban tourism. They certainly have it right when they say that cultural training will be a necessity if U.S.-based hospitality companies wish to enter the Cuban tourism industry. It would take a revolutionary upheaval to be able to run a hotel, for example, based on U.S. management principles. First of all, all Cuban employees are paid by the government. A joint venture company agrees to "purchase" the labor from a government agency that acts like a temp agency. The rate paid to the government agency is substantially higher than the rate paid to the employee by the government.
While there is little doubt that the American management approach would be an excellent approach to running hotels in Cuba, the bureaucratic infrastructure and psyche of the Cuban people will be extremely difficult to overcome. It would be naive to suggest that a transition to a full market economy based on U.S. management principles would take place following a regime change in Cuba.
Another important issue that American companies wishing to invest in Cuba will have to face is that of disputed properties. Many properties are claimed by Cuban expatriates as theirs, dating from the Castro revolution. Given the dispute over land title, I find it difficult to expect an American hotel company to invest in a property such as the Riviera on the Malecon in Havana, which was American-owned prior to the revolution. Vast numbers of properties fall into this category. New construction would have to be classified as a joint venture between the Cuban government and the hotel company.
I see the likelihood of resistance to changes in the current hotel industry structure. When one looks at income distribution among Cuban nationals, one can generalize that about 1 million Cubans are what we would classify as wealthy, perhaps another million are what we could classify as "comfortably well to do" and the remaining 9 million fall into the "getting by" category. Hotel managers fall into the middle category and are much better off than the average Cuban. Given the autocratic system they have to work under and the status they achieve as a hotel manager, it is not likely that this group is going to be open to new management approaches. The average Cuban likely lives in a rural area, and when one talks to these people they still refer to "the triumph of the Revolution." Their lot has improved greatly under the Castro regime, and that fact helps to bolster the status quo. Change will be slow to come to Cuba after Fidel. I find it hard to believe that the "key to the minds and hearts" of the Cuban people is through hotel managers.
As the authors suggest, the U.S. embargo on Cuba has been a total failure. Cuba remains perhaps the only area where the rest of the world enjoys a competitive advantage over the United States, and the world has made the most of it. The U.S. embargo has given the Castro regime an external target to blame for any of its failures and has served to fuel anti-U.S, sentiments in the Cuban population. The Cuban expatriates are not going to come back to Cuba and pick up where things left off sixty years ago. They will not get the kind of reception they feel they deserve, as many Cubans, rightly or wrongly, hold the belief that the expatriates deserted them to flee to the United States.
The authors state that "the long-term interests of both the United States and the U.S. tourism industry are best served by nurturing economic development and reform, not in choking off this reform via the continuation of an embargo" (p. 403). I agree wholeheartedly with this assessment, but the critical moment may have passed. Ten years ago, perhaps, the lifting of the embargo might have led to more Americanization of Cuban industry, but the subsequent improvements in the Cuban economy brought about by tourism have undermined the potential influence of American investment. The rest of the world has made the most of its opportunity to achieve competitive advantage over American industry. Sixty years of history will be difficult to overcome.
None of this is to say that American hotel companies will not be interested in investing in the Cuban tourism industry. When the embargo is eventually lifted, American tourists will almost certainly flood into Cuba. If the disputed-properties issue is resolved and American investors can accept Cuba's command economy approach, their investment will be handsomely rewarded. Americans will feel safer staying in hotels with brand names they recognize. Given this scenario, I think the authors will be extremely busy providing cultural sensitivity training not only for the local managers but also the U.S.-based managers who will be posted to Cuba.
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