Generational Change in Cuba?

by Bill O'Grady of Confluence Investment Management, 5/2/18

On April 18, the Cuban National Assembly elected Miguel Diáz-Canel as the new president of Cuba. On the following day, he was sworn into office. There has been much media conversation about a generational shift in Cuba. In this report, we will discuss the potential for change on the island nation, which has been communist since the 1959 Cuban Revolution.

We will begin this analysis with a refresher on communist government structure. A short biographical sketch of the new president will follow, which will include a list of previous heir apparents who were, for various reasons, deemed unworthy. Next, we will examine why Miguel Diáz-Canel emerged as the winner and what it portends for Cuban foreign and economic policy. Finally, we will conclude with potential market ramifications.

Typical Communist Government Structure

Marx envisioned that communism would lead to a “withering away” of the state as the proletariat would take control of the means of production across the world and thus the need for government would cease. However, Marx never detailed how this process would actually occur. Because this endpoint was undefined, as communist nations emerged, the revolutionaries who overthrew existing governments were forced to form replacement administrations. They generally settled on a parallel structure of government and party. Communist states usually only have one accepted party so the separation of party and state was mostly fiction. However, it was common to see the head of the government usually called the premier (as in the Soviet Union) or president (as in Cuba and China). In China, for example, the general secretary of the Communist Party of China and the office of the president are held by the same person. Recently, Chairman Xi was able to end term limits on the office of the president, allowing him to maintain that position past 2023.[1] Although the office of president in a communist state is generally ceremonial, in China, it was important enough for Chairman Xi to insist on keeping the position past two terms.

The elevation of Miguel Diáz-Canel to president isn’t significant in terms of Cuba’s power structure. Raúl Castro remains head of the Communist Party of Cuba and therefore holds the reins of power.[2] However, it is possible that the new president could become the leader of Cuba’s communist party when Castro, who is 86 years old, steps down. Then again, there is no guarantee this will occur. Osvaldo Dorticós Torrado was president of Cuba from 1959 to 1976 when he was replaced by Fidel Castro, who unified the government and the party under himself. As Fidel’s health deteriorated, he was succeeded in 2008 by his brother, Raúl, who held three positions of power—the presidency, leader of the Communist Party of Cuba and commander in chief of the military, the latter being a role he assumed after the revolution. As this history shows, the return to separating the presidency from the leadership of the communist party would not be unprecedented.

Who is Miguel Diáz-Canel?

In Cuba’s power structure, Miguel Diáz-Canel, at 58 years old, is rather young. He spent years as a government and party functionary, known mostly as a manager and not a visionary. During his military service, he was part of Castro’s security detail. He was the Communist Party of Cuba’s liaison to Nicaragua and has had close contact with the Castro family since the 1980s.

For the most part, he would be considered a “grinder.” He has performed in his positions competently but not spectacularly. There is nothing to suggest he has an independent power base. As for his aspirations, he wants to expand telecommunications and the internet across the island and improve the cultural lives of Cubans. However, he appears to view the economy in a manner consistent with the Castros.