Cuba After Castro.

Businesses are lining up to mine the riches of the post-Castro Cuba to come. But its 73-year-old dictator may prove the least of the island's troubles.

In early January, Toronto's National Post reported that executives from 10 leading U.S. agricultural firms were on their way to Cuba to "develop agricultural links between the two countries and opportunities to support an emerging private sector there." Authorized by the U.S. Treasury Department, the trip included representatives of major agricultural companies, including Agco, American Cyanamid, Archer Daniels Midland, and Dow AgroSciences. Its senior personality was John Block, agriculture secretary in the Reagan administration.

Just a few weeks before, a bill that would have exempted sales of food and medicine from the U.S. trade embargo on Cuba had failed in the House by just a handful of votes--and only because the three Cuban-American members cashed in nearly all of their political chips to prevent its passage. Even Republican presidential candidate Gov. George W. Bush is against unilateral sanctions on food exports, or so he recently told the largest U.S. farm organizations, which claim that Cuba alone represents a potential of $900 million in annual sales.

Last year, Cuba's visitors included the president of the U.S. Chamber of Commerce and Republican Governor George Ryan of Illinois, both of whom remain anxious to promote trade with the island. These are straws in a political wind that is shifting fast, thanks to two assumptions. The first is that Cuba is already a golden opportunity that U.S. investors are watching be passed to others (Canadians, Europeans, Mexicans, even Israelis) because of a self-denying ordinance--the trade embargo--in place for nearly 40 years. The argument is that anachronistic, rigid Cold War politics are preventing American investors from making a killing on Castro's island.

The second assumption holds that the death of dictator Fidel Castro, now 73, will immediately spawn a free market revolution. The subtext is clear: even if present prospects are limited, U.S. firms should position themselves now for the great day imminent.

What's perhaps most remarkable is that the people making this case are not far-out leftist intellectuals or na[ddot{i}]ve church people, but hard-headed--and hard-hitting--business executives not known for sentimentality in the pursuit of the bottom line. The fact that many of them come from political sectors in the U.S. that form core constituencies for the Republican party suggests that--election year rhetoric and political promises notwithstanding--the next GOP administration may well take the lead in opening up relations with Castro's island.

While there may be good reasons for doing that, economics is not one of them. It isn't surprising that the real force behind the campaign to lift the embargo on food sales is the agribusiness lobby. Despite the perennial complaints of the farm community, no sector of the U.S. economy is so heavily subsidized. Thanks to a series of congressionally mandated soft credits, for many years now countries of questionable financial standing (most recently Saddam Hussein's Iraq) have been able to purchase massive quantities of U.S. foodstuffs with the U.S. taxpayer forced to pick up the bill in the event of default, which may be what the farm lobby has in mind here. Of course, it's difficult to see how Cuba could hope to pay for $900 million worth of U.S. foods, with its commercial deficit hitting new records in 1998 and only tourism and remittances from exiles preventing it from sinking in a sea of red ink. High oil prices and a slump in the price of sugar--with recent harvests the lowest in decades--have further dec imated the island's scanty resource base.

In spite of all the talk of economic reform, Cuba's miniscule private sector is sharply circumscribed by heavy taxes and strict government regulation. For example, family-owned restaurants (paladares) can only serve 12 people at a time, and can't employ outsiders.

Even though Cuba's tiny farmers' markets provide a disproportionately huge share of the country's food, delivery quotas imposed by the state act as a disincentive to production. Many Cubans today are going hungry, and diseases relating to malnutrition have been reported for the first time since the end of the war with Spain in 1898. Today, the average Cuban earns about $10 a month, putting Cuba on scale with nearby Haiti, which conversely has attracted no interest whatsoever from U.S. business people.

Tourism-revived, in part, by the legalization of the dollar in 1990--is presently Cuba's largest single source of foreign exchange ($1.8 billion in 1998). In fact, several major European hotel chains, notably the Spanish SolMelia group, are involved in joint ventures with the Cuban government. However, most of the inputs, including food and equipment, must be imported, severely limiting the potential boost to the local economy. While tourismenriched Jamaica claims to keep 18 cents of every tourist dollar, Cuba, which virtually prohibits the existence of small businesses, is unlikely to approach that figure.

Permitting Americans to travel to Cuba would drive tourism skyward, requiring thousands of new hotel rooms--a need American companies like Raddison, Hilton, Sheraton, and others could fill if they could reach an agreement with the Cuban government. An enclave tourist economy--stricter and far more self-enclosed even than the ones that exist in the Dominican Republic, Jamaica, Haiti, and other Caribbean islands--might lure U.S. hoteliers, but would require a major shift in U.S. policy, and also expose the Cuban government to dangerous influences. (While it's easy to keep tabs on the 60,000 Americans who are currently visiting the island, most illegally, to monitor 10 or 20 times that number, many of whom would be Spanish-speaking CubanAmericans, would be impossible.) Not surprisingly, neither Washington nor is Cuba ready for so drastic a departure.

Of course, many business executives have no illusions about Cuba today, but they imagine that, with Castro reaching a ripe old age, drastic change is just around the corner. This, too, may prove an illusion.

First of all, for the past 40 years Cubans have been told that they have a right to free education, housing, medical care, and cradle-to-grave security. For 30 of those years Castro delivered on his promises, thanks to a $6 billion annual subsidy from the Soviet Union. Since 1990, the Soviet transfers have virtually disappeared, but Cuban notions of entitlement have not. Surveys show that even recent arrivals from Cuba--people disaffected from the regime for political reason--show strong support for these "achievements" of the revolution. Any future government, whatever its form, will be under pressure to continue them, which is bound to work against the imperatives of a free market economy, and raise the costs of economic restructuring to politically prohibitive levels.

Second, thanks to massive expropriations of American property after 1960, if the successor regime to Castro has any intentions of attracting new American investment, Cuba and the U.S. will have to work our a complicated system of compensations and restitution. Certified claims presently run in the neighborhood of $6 billion--small potatoes for the U.S., but a huge burden that Cuba is unlikely to be able to shoulder in the near or even medium term. Moreover, the present government claims that the U.S. owes it as much as $80 billion to compensate for the 40-year-old trade embargo. What's more, Cuban-Americans who have become citizens of the U.S., but whose property was expropriated when they were still citizens of Cuba, have had their own claims piggybacked into U.S. law in the Helms-Burton Act (1995). All of which suggests that the new Cuban state will be born not merely a pauper but hopelessly in debt.

Further complicating matters, some expropriated properties have been transferred illegally to third parties, embroiling the U.S. in legal tangles with Great Britain, Canada, Spain, and other countries. In effect, even without Castro, Cuba is bound to be engaged in complicated, expensive property disputes which may take years to resolve.

Third, pre-revolutionary Cuba had the thirdhighest living standard in Latin America thanks to a special role it enjoyed where one-quarter of the U.S.'s sugar import quota was reserved for it. This situation began as a favor to U.S. interests that owned land on the island, but subsequently benefited the Cuban entrepreneurs who eventually took over much of the industry. President Eisenhower pulled that quota in 1960, dividing it among 16 other producers, none of whom are likely to surrender it willingly. Just what Cuba will live on in the future--even assuming the revival of a moribund, technologically outdated sugar industry--remains to be seen. So far no Third World country has developed through tourism alone.

Fourth, the notion that the Cuban-American community in Miami can provide most of the capital, human resources, and advanced entrepreneurial skills to revive the island's economy may prove to be illusory as well. The harsh fact is that most of the members of that community--who are one of the U.S.'s great immigrant success stories--come from the island's old "white" middle class, most of them descendants of Spaniards who emigrated to Cuba between 1898 and 1920. Cuba today is a much "darker" country, with possibly as much as 50 percent of its population black or mulatto. These latter may nor support the Castro regime with the enthusiasm they once did, but many fear, hate, and envy the Miami Cubans, and resent the notion that the island is theirs for the retaking. Such notions are broadcast almost daily on some Miami Cuban radio stations heard on the island. Certainly the fusion of the two societies--one Americanized, white, rich, successful, in some cases embittered, the other poor, dark, resentful, and humil iated--is potentially explosive.

In short, the eager-beaver entrepreneurs heading for the island--or wanting to--would do well to pause for reflection. It's a beautiful place, with lots of sun, sand, daiquiris, and exotic delights for those who can pay in dollars. As one of the world's last remaining Communist states, it also boasts a certain picturesque squalor, for those with an appetite for such things. But Cuba's own revolutionary history can't be overcome overnight, and the obstacles to economic growth that are its legacy will remain-with or without Castro.

Mark Falcoff is a resident scholar at the American Enterprise Institute and author of a forthcoming book on the future of U.S.-Cuban relations.