How Cuba Survived

8-25-06, 11:00 am

From an economic point of view, Cuba’s growth performance from 1959 to 1989 was far from bad – despite strong external pressure, especially from the US embargo. Between 1959 and 1989, the Cuban economy recorded an average growth rate in its annual gross domestic product (GDP) of almost 5 percent. The average GDP per capita grew slightly more than 3 percent annually. As a consequence, over the same period, Cuba bears comparison rather well with the other Latin American countries. Cuban GDP in 1989 was only slightly less than that of Brazil and was at almost the same level as that of Mexico. On the contrary, at that time, it remained higher than that achieved by Argentina, Chile, Peru, and pre-revolutionary Venezuela.

Entry into the Council for Mutual Economic Assistance (CMEA) provided the Cuban economy with strong impetus; but in 1989, its national income remained less than half that of the USSR. The major feature of the Cuban economy over these three decades remained its dependence on external markets, mainly due to the island’s specialization in sugar. The influence of external factors has always been important, sometimes even decisive, in accelerating (CMEA) or decelerating (US embargo) the strategies implemented by the revolution. In spite of strong constraints, and some insufficiencies, these strategies made it possible for the national economy to realize considerable advances in agriculture, industry and infrastructure.

One of the brightest successes of the revolution is undoubtedly the creation of a high-quality pharmaceutical and biotechnological complex. The third plan (1986-90) supported the production of a broad range of goods in the electronics sector. However, even with this rather favorable assessment, we cannot overlook the insufficiencies and deficiencies that persisted in the Cuban economy at the end of the 1980’s. To recognize these weaknesses is to make a historical observation, but to consider relations between Cuba and the USSR as the continuation of a neocolonial pact, under the cover of socialism, is to make an ideological judgment. The Soviet Union did not own any means of production or land. Even if Cuba never succeeded in being a self-reliant country, its socioeconomic development only started in 1959 with the implementation of the socialist project.

The collapse of the Soviet Union pushed the Cuban economy into an extremely serious crisis. In the 1990’s, the government’s response was to maximize the flow of foreign currencies in order to increase imports and to guarantee both the needs of the people and the conditions of the recovery. The dismantling of CMEA, in which the foreign trade of Cuba was integrated and which protected it from the risks of the world markets, caused a brutal fall in exports (-79%) and imports (-73%) between 1990 and 1993. This followed sharp falls in investment and consumption, amplified by the hardening of the US embargo and foreign indebtedness. Productivity fell, as did GDP (-35% in volume between 1989 and 1993). The crisis hardly affected sugar production. The budget deficit grew because of increased needs for subsidies to publicly-owned enterprises and the political decisions to preserve, in spite of scarce resources, social cohesion by limiting the degradation of employment, wages, food distribution, education and health care. It was quite different in the Russian “transition” to capitalism.

It was in this extremely difficult context that the revolutionary government engaged in fundamental reforms of the 1990’s. The “special period in time of peace” began. Specifically, the response to the crisis consisted, initially (1990-93), of resisting external shocks by distributing the cost of the adjustment and the supply restriction. In a second response period (1993-96), the government attempted to reactivate the productive forces related to the sector of the economy that dealt with exports or foreign investment in order to achieve a quick and favorable reintegration into the world economy. In a third response period (1997-2000), the goal was to improve efficiency to reduce external pressure. The key measures in each period were geared toward equipping the economy with new growth engines to relieve the sugar sector and to generate cash receipts. The dollarized entries of capital associated with tourism, foreign direct investment and the sending of currencies from abroad favored growth recovery. The Cuban choice to remain socialist bore its fruits. Growth recuperación and macroeconomic internal balances took place at the end of 1994. Tourism replaced sugar as a strategic priority and is one of the keys to Cuba’s economic success.

Consequently, one of the most important structural reforms was that of the sugar industry. Despite the extent of the reformation, the “end” of sugar specialization took place in a few months and involved a broad consultation of the workers. Accelerated in 2002, these reforms meant that 70 sugar refineries would be closed; production would be concentrated in the most efficient centrales; management would be trained to accommodate the modernization of equipment; more than one million hectares would be released for stock-farming or cultivation; and above all, more than 100,000 workers would be retrained and employed in new areas. As for agriculture taken as a whole, where results recorded since the crisis are most disappointing, the dilemma is to solve the difficulties encountered without permitting land privatization.

It is clear that the role of the state is crucial in the present restructuring of the Cuban economy, as well as in its future successes – especially in socialist planning. The state effected this reorganization at a minimal socioeconomic cost and achieved its essential goal of preserving the socialist system, thanks to the centralization of a certain number of key decisions, the coordination between its micro and macro policies, and the affirmation of the primacy of social needs over any other interest. As a dollarized sector, tourism distorts access by Cubans to US currency, but the state organizes transfers of the receipts generated to ensure the continuity of the social system. Foreign direct investment and joint ventures were encouraged, involving autonomous outflows of capital and sometimes destabilizing the working relationships. The state protected the laws of labor and the role of trade unions while limiting wage differentials. Even during the dollarization period, each foreign firm paid wages in foreign currency through a “bridge company,” which paid, in a second step, the workers’ wages in Cuban pesos. The attention of the state had also to be redoubled in order to fight against corruption.

The sending of currencies from abroad increased the concern over inequalities, but the state has always firmly prevented all private accumulation of capital. Work for one’s own account was authorized, allowing the rise of a lot of activities (in trade, in craft industries, in the provision of services, and so forth), without legalization by the state of the recruiting of employees, except by the family holding the licenses. Stores were also opened where the transactions were conducted in dollars (or convertible pesos), as well as agricultural markets in which private peasants, recent recipients of land distributions, cooperatives and state farms can sell part of their production. Nevertheless, the majority of basic goods continues to be provided to the people, at very low prices, by the state food system (libreta), by the working canteens and by the restoration of collectives in schools and hospitals or directly by home-grown produce. Moreover, the army is frequently solicited to supply the official state markets with foodstuffs. The “free” sales made it possible for a number of peasants to grow rich, but these liquidities did not enhance capital dynamics or control any creation of value by the private use of wage-earning work. In brief, if the Cuban state had to admit, temporarily, the penetration of market mechanisms, it seems to have succeeded in submitting them to the benefits of the people. Thus, it is not possible to speak, until now, of a “transition” to capitalism in Cuba.

--Rémy Herrera is an economist at the National Center for Scientific Research at the University of Paris 1 Panthéon-Sorbonne, France.