Market Socialism: China and Vietnam adopted this model. Will Cuba succeed too?

Cuba's National Assembly nearly a month ago approved a program with 176 reform directions. If implemented, the country will significantly loosen state control over the economy.

Private entrepreneurs will be able to own several companies, not just one, as is currently the case. Businesses will gain the right to expand without the current limit of one hundred employees. Private companies and cooperatives will be able to independently import raw materials, export products, and obtain financing. State-owned enterprises will also gain more freedom, and agriculture should become less dependent on centralized resource distribution.

A special emphasis is placed on the Cuban diaspora. The authorities want emigrants to invest in businesses back home and participate in economic development. However, for now, these are only general principles: when exactly the reforms will come into effect and how they will work in practice is not yet known.

The reforms have been announced amidst a deep economic crisis. The country suffers from electricity blackouts, food and fuel shortages, a lack of currency, and a sharp decline in production. Hundreds of thousands of people have left Cuba in recent decades, further exacerbating the situation.

According to analysts, the announced reforms indicate that Cuba intends to follow the path of China and Vietnam, building a "market socialism" model. It combines the Communist Party's monopoly on power and ideology, along with state planning, with the development of private business and the attraction of foreign investments. Cuban President Miguel Díaz-Canel admitted that he extensively studied the experience of these two countries, which managed to stimulate economic growth without abandoning the one-party system.

Павялічыць

China began its "reform and opening-up" policy in 1978 under the leadership of Deng Xiaoping. Vietnam followed a similar path in 1986, launching the "Doi Moi" (Renovation) program. Both countries maintained a one-party system and the leading role of their communist parties, but simultaneously significantly expanded the role of the market, private business, and foreign investments.

As a result of the reforms, the private sector became one of the main drivers of the economy, farmers received strong incentives to increase production, state-owned enterprises gained greater autonomy, and the countries gradually opened up to international trade. Gradually, China transformed into the world's second-largest economy, and Vietnam today is among the fastest-growing economies in Southeast Asia.

A number of measures now announced by Cuba resemble precisely this path: greater autonomy for state-owned enterprises, expanded opportunities for private business, decentralization of resource distribution, partial liberalization of agriculture, and an attempt to attract capital from the Cuban diaspora. Another common feature is the gradual transition from universal subsidies to targeted support for the most vulnerable groups of the population and the desire to make enterprises operate according to market principles.

Will the Reforms Work

However, economists note that today's Cuba is in completely different conditions than China and Vietnam at the start of their transformations.

The island's population has decreased from approximately 11 to 9 million people in recent years due to mass emigration. More than a quarter of residents are already over 60 years old. The country has lost a significant portion of its skilled specialists, suffers from an energy crisis, lacks a strong export industry, and is virtually deprived of access to international loans.

The situation is further complicated by other problems: dilapidated infrastructure, a deep energy crisis, and the absence of a developed export-oriented industry, which at one time became one of the success factors for China, and later for Vietnam.

Cuban economist Pavel Vidal, a former employee of the Central Bank of Cuba and now a professor at Javeriana University in Colombia, points out that in the initial stage of transformations in China and Vietnam, agriculture was the main engine of growth.

Павялічыць

In Cuba, however, the situation is different: most of the population lives in cities, and the country itself has one of the oldest populations in Latin America. This means a severe shortage of labor, especially in agriculture.

According to Vidal, international integration plays an equally important role. He recalls that Vietnam managed to attract not only the capital of its diaspora but also its knowledge, business contacts, and international connections. In his opinion, if Cuba remains isolated from the global economy and financial system, the effect of the reforms will be very limited.

However, solving this problem will not be easy. Cuba is effectively on the verge of bankruptcy: the country has lost access to international credit due to loan defaults and is experiencing a severe shortage of foreign currency and liquidity.

American sanctions remain an additional obstacle. Although the embargo has been in effect for over six decades, Donald Trump's administration further strengthened financial and trade restrictions.

Recently, the U.S. State Department imposed new sanctions against the state conglomerate GAESA, which is controlled by Cuban security forces and through which a significant portion of currency operations on the island passes. This further deters foreign investment and complicates the work of foreign businesses. Notably, in early June, Spanish hotel chains Meliá and Iberostar relinquished management of most of their hotels in Cuba, citing legal uncertainty, deteriorating working conditions, and the energy crisis.

Павялічыць

In such a situation, it is difficult to imagine that reforms alone will be able to pull the Cuban economy out of crisis. Furthermore, much uncertainty remains regarding the transformations themselves: it is still unclear how far the government is willing to go and whether the announced measures will be fully implemented.

Experts acknowledge that the proposed package could be the most significant step towards a market economy since the Cuban Revolution. However, they recall that similar promises have been made many times before.

In recent years, authorities have already expanded opportunities for private initiative, allowed the creation of small companies, transferred land for long-term use, carried out currency reform, and permitted the establishment of micro, small, and medium-sized private enterprises. Some of these steps had a certain effect, but many were later restricted by new rules. Therefore, today the question is not only whether the reforms will be implemented but also how deep and irreversible they will prove to be.

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