A Review of The Cuban Economy at the Start of the Twenty-First Century

From the Inside and Out

by | May 15, 2005

The Cuban Economy at the Start of the Twenty-First Century Edited by Jorge I. Domínguez, Omar Everleny Pérez Villanueva, and Lorena Barberia David Rockefeller Center Series on Latin American Studies, distributed by Harvard University Press, 2004, 390 pages.

The profession of an independent economist in 21st century Cuba is unusual. Like unofficial journalists, such economists are targets of government repression. Several of them were imprisoned in the March 2003 crackdown on the opposition. Twenty years in a primitive jail is a heavy price to pay for economic opinions.

The collection of essays edited by Jorge Domínguez, Omar Everleny and Lorena Barberia is particularly welcome to Cuba scholars and observers because the material is current and comprehensive. The book is a stimulating mixture of opinions of Cuban and non-Cuban experts on what happens and how in one of the world’s most complex economic systems. It also helps us understand why the role of economists and sociologists in contemporary Cuba is so valuable. Both professions will have important roles in the future “batalla de ideas” that Cuba needs but does not have.

In a system in which economic information is strictly controlled and policy has lurched back and forth, it is not easy to produce objective analysis of the options. Statistics in Cuba—the lifeblood of a social scientist—are also not as straightforward as the outsider might assume. Fidel Castro himself loves statistics. In his December 2004 speech to the young Communists, he quotes 97 of them in a short section. But his government does not like to publish statistics that cast the Revolution in a negative light. It restricts access to the Internet (e-mail is more widely available for hard currency) on the grounds that the government has the right to defend Cuba from enemy propaganda. The Cuban government does publish some statistics that seem accurate. However, I have met Cuban government ministers who seriously claim that unemployment is negligible and heading to zero. You receive a different answer if you ask those on the streets of a Cuban city during working hours. An official of an international NGO told me of one barrio in Havana where there were 5,000 youth who were neither in education nor employment.

Where there are difficulties about publishing the true figures they simply do not appear. No foreign exchange reserves are public knowledge. In December 2004, Planning Minister José Luis Rodríguez claimed 5% annual GDP growth but admitted this was based on the Cuban government’s own formula, not that used by the rest of the world. On health statistics, analysts need to recognize that whatever the merits of Cuban medical system, all the statistics are provided by Cuban doctors, subject of course to government influence.

That said, much can be learned from economic developments in Cuba. Major adjustments have been made after Cuba lost the largesse of the Soviet bloc. Perhaps surprisingly, the authors of the essays generally detect little strategic planning, although features like the dollarization of the economy (reversed in November 2004) and the development of new sectors like tourism and biotech have been important. Cuban economist Pedro Monreal mentions the 1950s Chevys as a monument to Cuban creativity. I would agree but also note that being an economist in Cuba is akin to experimenting in a modern car design center, with some of the best materials to work with, including diagnostic kits. Unfortunately the director of the center prefers the old model, even if it stops and stalls. He likes the manual windows and lack of AC. They are more predictable—and what you can’t have you don’t want.

Before reading the set of essays I jotted down what I see as the core principles of Fidel Castro’s economic policy:

  • The economy serves the Revolution and control rather than the other way around.
  • A loathing of consumerism, and visible inequalities in purchasing power. He dislikes what is happening in China. Hence he refuses to develop sectors like real estate, retail, automotive etc.
  • The state should control all hard currency receipts derived from economic activity of Cubans and the dollar remittances from Cuban-American families.
  • Individual Cubans do not need material motivation in the Cuban economy. They are entitled to education and health, but not material satisfaction. The scant attention to housing and public transport is one result.
  • A reluctance to repay loans except under unavoidable pressure. He views the world’s financial system for developing countries as unjust.
  • A preference for the barter form of trade. This derives from largesse received during the Soviet era and can be seen in current relations with Venezuela and with others such as China
  • Foreign trade and investment with countries that are not close revolutionary allies of Cuba spell vulnerability.
  • No wonder, as Jorge Domínguez says, Cuban “economists tear their vestments” in frustration. So do many other educated Cubans.

But the purpose of control is served. Key mechanisms of the current Cuban economy—multiple exchange rates, formation of state-sponsored oligopolies, systematic lawless behavior and corruption—are well documented in the book. One of the most important effects of these features is that there is virtually no ‘multiplier’ from dollars or other currencies in circulation. The philosophy of the state is that once used in a transaction the currency should be consigned to the central coffers (the ever more dominant role of the Central Bank). How they are then deployed is a political decision.

One senses throughout these essays a tragic squandering of opportunities. Cuba is not a sun, sand and sugar economy. It has, as Monreal and Everleny observe, other assets like substantial nickel deposits and a well-trained, literate and disciplined workforce. Cuba is a fertile land that—with better technology and more owner-producers—could be rapidly transformed from a major food importer to a net exporter.

Cuban creativity and ability to survive is strong. But the essays by Mayra Espina Prieto and Viviana Togores point out the realities of the fading capacity of Cuban wages to meet even minimum needs. Hence, many turn to various illegal activities and have a desperate dependence on family remittances. Togores and Garcia conclude that monthly per capita income in Cuba at the end of the 1990s could not meet basic food needs. Inequalities abound, as those who live in Cuban cities know. It is not just the access to dollars, or tourism tips. But there is systematic elitism—like special clinics, foreign trips—offered by the communist party and military to its own. Tourism apartheid is particularly distasteful. As Domínguez says, ‘to each according to his connections, from each according to his luck.’’ Dollar bills or Chinese TVs are delivered to those who toe the line.

How does foreign investment fit in? Everleny notes the recent downward turn in new projects. I disagree that this trend has been due to ‘the world economic crisis, the US blockade and the deteriorating relationship with the EU’ Yes, the EU took a stand on human rights, but I know of many commercial projects that were being pushed after this, but received no Cuban response. Fidel Castro wants enough FDI to fund his apparatus of control, to reward those in it and his education and health services. But no more. What foreign investment has been permitted is small for a country of Cuba’s size. Foreign joint ventures probably employ fewer than 200,000 people in total. Those foreign investors who do make money have to accept the political rules. They cannot contract staff directly but only through state agencies. And the party is never far away. One major investor I know has to contend with 27 Communist Party branch organizations in his plant. The essay by Dwight Perkins compares Cuba to Vietnam and China. In Vietnam in particular the openings to outside investors were made much more enthusiastically and efficiently than by Cuba. The Vietnamese growth rate hardly dipped after the Soviet demise and exports increased 17 fold in 12 years.

Lorena Barberia’s chapter on Remittances to Cuba is a thought-provoking analysis. How can it be that after 46 years of Revolution, Cuba’s second largest source of hard currency comes from family members who send their gifts from an economy which is hostile to Cuba and whose economy, according to the Cuban government is on the verge of collapse? How can it be that Fidel Castro allows some Cubans to receive such money when probably half of the population has to survive without it? The answer is that the arrangement is politically important for both the U.S. and Cuban governments. For the former it keeps the Diaspora in touch and fulfills a basic bridging need for family units. For the Cuban government it reinforces the dependency syndrome. Money Cubans receive should not be related to their own work efforts but should be something that can be cut off if the government so decides. And the dollars nearly all end up in Cuban government shops!

A final thought. The economists who research in Cuba are indeed part of a growing consensus about what needs to be done. They know that Cuban independence does not need to be sacrificed if a strong, diversified economy is promoted and innovative ideas allowed to circulate. Crucially the Cuban individual with his education needs to be motivated to work for him or herself as well as the common good, for example by paying taxes. Many in the Cuban government, I believe, agree this is the way forward. Two who tried to show more flair than was acceptable were fired in 2004—Tourism Minister Ferradaz and Energy and Mining Minister Marcos Portal. They were managing the two leading economic sectors for foreign investment. It shows that even in official circles economics remains a frustrating and risky profession in 21st century Cuba.

Spring/Summer 2005, Volume IV, Number 2

Paul Hare was British Ambassador to Cuba from 2001-2004. The views he expresses here are personal. He read Politics and Economics at Oxford University and then qualified as a lawyer. After working for five years in the private sector he joined HM Diplomatic Service in 1978. He has also been posted at the EU delegation in Brussels, Lisbon, New York and Caracas.

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