Last week's annual conference on foreign investment in Cuba was organized by the National Association of Jurists and the Ministry of Economic Planning. After the Revolution, Cuba nationalized foreign-owned assets and rejected foreign private capital until 1982, when the Council of State authorized joint ventures (empresas mixtas) with foreign investors.
The push for foreign capital efforts intensified after the Soviet trading block collapsed. In 1995, the National Assembly passed a statute letting foreign investors establish wholly-owned entities (empresas de capital totalmente extranjero), authorizing duty-free zones and industrial parks, and letting investors operate through partnerships (asociación económica internacional) with the government. During the decade that began in 1993, Cuba also signed over 50 bilateral investment treaties -- primarily with European, Latin-American, and Asian countries -- to offer more protections to investors from these countries.
Nevertheless, foreign private capital was sometimes viewed askance as ideologically inconsistent. No more, thanks to the Lineamientos, the Cuban Communist Party's 2011 policy blueprint for updating the socialist model (here in English). From this perspective, attracting foreign private capital furthers -- rather than undermines -- socialist ideals. The island is not for sale, but dozens of priorities for capital investment have been identified across the economy, many for industrial infrastructure.
To pull this off, Cuba will have to reimagine financial capitalism and renew its legal forms. For example, much of U.S. corporate law revolves around shareholder primacy -- the disputed notion that maximizing shareholder gain justifies harms to a corporation's other stakeholders, e.g., employees. The island now faces the opportunity to implement the opposing view that corporations serve society rather than just owners.
Figuring out how to tame the market while exploiting its animal spirits for the public good won't be easy, but doing so comes at a good time for Latin America.
Consider the region's recent history with financial markets. During the 1980s, the region was plagued by debt crises because foreign banks had lent themselves and the region into ruin. The Reagan administration responded with the Brady Plan, a creative way to restructure sovereign debt by securitizing it. The Plan helped banks and borrowers and created a new asset class -- securitized emerging market debt.
Then came the punishing Washington Consensus, the neoliberal prescription urged by the International Monetary Fund and the World Bank. Latin American countries swallowed this bitter pill through structural adjustment programs and legal reforms that surrendered local control over global markets. The resulting social dislocations galvanized a New Left in the region. The governments of Chile, Argentina, Uruguay, Venezuela, Ecuador, Bolivia, Nicaragua, and Brazil have all tried to roll back neoliberal reforms.
The 2007 financial crisis forced the countries that had pushed deregulation to address its own domestic consequences, re-regulate financial markets, and jumpstart their economies with government spending. Latin America was left alone to form intra-regional trading blocks and to nurture internal markets, efforts that, arguably, contributed to the region's prosperity. More leadership is needed, however, to keep building a pragmatic alternative to neoliberalism.
Cuba could thrive as the region's geopolitical power broker. For over half a century, Cuba has resisted its good neighbor to the North, including attempts by the U.S. to destabilize the state by starving the island and promoting civil unrest among its people. Can any other country in the region -- indeed, the world -- claim that?
Will Cuba maintain this tradition of self-determination while playing a bigger role in a global financial market formed in the image of the Washington Consensus? I certainly hope so. Letting foreign investors repatriate profits while safeguarding the island's sovereign prerogatives is part of the answer.
Another part might be appealing to socially responsible investors. To its credit, Cuba enjoys near universal goodwill, except, of course, in my Miami zip code. With the right framing, this goodwill can become investment demand for socially responsible investment. For example, almost any of the pending infrastructure projects could qualify as development finance.
The World Bank and regional multilateral banks like the Inter-American Development Bank have cornered this market in other countries, but Cuba is not a member of these organizations. So the island can structure its own financing market for reconstruction and development. This could result in the design of new asset classes, something investors want to diversify their portfolios.
I look forward to when I can allocate my TIAA-CREF account to the island's Antonio Gramsci Diversified Fund or the High Growth Low Hegemony Asset Pool. In the meantime, one can start small. Perhaps the island's friends can use crowd funding platforms to set up off-shore microfinance or charitable investment funds.