Reforming the Cuban economic model (1): Causes and prospects
By Salim Lamrani

A CubaNews translation. Edited by Walter Lippmann.

Faced with economic sanctions imposed by the United States over 50 years ago, a global financial crisis and recurring productivity problems, Cuba is compelled to make far-reaching reforms to its socioeconomic system if it wants to save its social achievements and lifestyle. While the current troubles can be partly put down to external factors, there’s no denying that Cuban society has its own share of responsibility. As Cuban President Raúl Castro said to the IX Congress of the Young Communist League on April 4, 2010, “today more than ever before, the economic battle is our main task and the focus of the ideological work of our cadres, as it is on this work that the sustainability and survival of our social system rest”. [1] A few months later, on December 18, 2010, he delivered a more alarmist speech to the Cuban Parliament, trying to make the government and the population aware of their roles: “Either we straighten things up or accept that we don’t have any more time to live on the edge and leap into the void, and at this rate we will”. [2] Fidel Castro, the historical leader of the Cuban Revolution, approved the discussion and offered his help to update the island’s economic model. [3] In order to avoid collapse, Cuba had no choice but make significant structural and conceptual changes to its economic system. It was as simple as that.

The external factors

Coming into force in July 1960, and continuing, Washington’s unilateral sanctions remain the greatest obstacle to Cuba’s economic growth, as they affect all sectors, and especially the most disadvantaged social groups. Condemned unanimously for the nineteenth time in October, 2010 by 187 countries gathered in the General Assembly of the United Nations, these economic sanctions not only prevent any substantial trade between the two nations –except for a small number of foodstuffs sold since 2000– they’re also of a retroactive and extraterritorial nature. Indeed, since the Torricelli and the Helms-Burton Acts were passed in 1992 and 1996, respectively, together with other restrictions concocted by the Bush Administration in 2004 and 2006, Cuba’s trade with third countries has been on a downward trend. [4]


Accordingly, since 1992, every ship docking at Cuba risks a six-month ban from U.S. ports, which gives rise to heavy surcharges to an island whose trade depends basically on sea transport. Likewise, since 1996, everyone who invests in property that Cuba nationalized in 1959 is bound to see their assets frozen in the United States. Besides, since 2004, for example, car makers –regardless of their nationality– willing to sell in the U.S. market must prove to the Department of the Treasury that their products have not even one gram of Cuban nickel. And the same goes for all food and agricultural companies worldwide. Danone, for one, will have to provide evidence that its products have no Cuban raw materials. Hence the retroactive and extraterritorial effect of the
se provisions, designed to deprive the Cuban economy of a huge income and Cuban exports of the world market. [5]

Throw in the economic, financial, energy, food and environmental crisis and its terrible impact on developing countries in general and Cuba in particular. The price of raw materials for food items, which account for 83% of Cuba’s trade, has doubled since 2007, whereas the price of mineral resources that Cuba exports –such as nickel, cheaper by more than 50% nowadays– has continued to fall, upsetting the balance of payments and causing serious liquidity problems. This is why, between 1997 and 2009, Cuba suffered a net loss in excess of 10 billion dollars and a 15% reduction of its purchasing power. Moreover, the economic sanctions also prevent Cuba from getting funds from either the IMF or the World Bank. To this we also have to add the toll taken by recession on the Cubans who live overseas –mainly those settled in the U.S.– and the island’s annual income from tourism. [6]


To cap it all, between 1998 and 2008, Cuba was affected by a total of 16 hurricanes that caused losses worth more than 20 billion dollars [7]. For instance, Hurricane Gustav left a trail of destruction in its wake when it hit the Caribbean in late August 2008, turning the provinces of Pinar del Río and Matanzas and the Isle of Youth Municipality into a pitiful sight. Eighty percent of the Isle of Youth’s 25,000 houses were partially or totally destroyed, as were almost 102,000 (45%) in Pinar del Río. Fidel Castro compared the devastation to that caused by “a nuclear attack”. [8] Then, in September 2008, Hurricane Ike destroyed, among other things, 323,000 houses and 700,000 tons of foodstuffs, not to mention most of the power grid and the drinking water reserve. [9] On the other hand, a drier-than-usual rainy season stretching from November 2008 to June 2010 crippled Cuban agriculture and therefore the country’s ability to export goods like tobacco, rum and sugar. [10]

As a result of all of the above, Havana was forced to block all outgoing financial transfers since 2008 to prevent the flight of foreign capital and renegotiate Cuba’s foreign debt given its difficulties to pay. Regarding economic development, the growth rate in 2010 was 2.1%. [11]

Notes:

[1] Key address by Army General Raúl Castro, President of the Council of State and the Council of Ministers and Second Secretary of the Communist Party of Cuba, at the closing session of the 9th Congress of the Young Communist League, República de Cuba, April 4, 2010. http://www.cuba.cu/gobierno/rauldiscursos/2010/esp/r030410e.html (visited on March 26, 2011)

[2] Key address by Army General Raúl Castro, President of the Council of State and the Council of Ministers and Second Secretary of the Communist Party of Cuba, at the closing session of the 7th Legislature of the National Assembly of People’s Power’s 6th Session, República de Cuba, December 18, 2010. http://www.cuba.cu/gobierno/rauldiscursos/2010/esp/r181210e.html (visited on April 2, 2011)

[3] AFP, Fidel Castro endorses changes proposed by brother Raúl, November 18, 2010.

[4] Salim Lamrani, État de siège, Paris, Éditions Estrella, 2011.

[5] Ibid.

[6] Partido Comunista de Cuba, Resolución sobre los lineamientos de la política económica y social del partido y la Revolución, Prensa Latina, April 18, 2011. http://www.prensa-latina.cu/Dossiers/LineamientosVICongresoPCC.pdf (visited on April 20, 2011). See also: Andrea Rodriguez, Alza de precio de alimentos afecta a Cuba, AP, April 15, 2011.

[7] Ibid.

[8] Fidel Castro, A nuclear strike, Granma, September 3, 2008; Ronald Suárez Rivas, Housing, the Greatest Challenge, Granma, September 2, 2008

[9] Marta Hernández, Más de 320 000 casas dañadas, Granma, September 11, 2008; Orfilio Peláez, Pérdidas millonarias en la vivienda, Granma, September 13, 2008; Granma, Cuba prioriza alimentación de damnificados por huracán Gustav, September 5, 2008; Prensa Latina, Cuba prosigue evaluación de daños y recuperación tras huracán Ike, September 11, 2008; Freddy Pérez Cabrera, Recuperar todo lo relacionado con la producción de alimentos, Granma, September 11, 2008; EFE, Los supermercados de La Habana presentan problemas de abastecimiento, September 16, 2008; Wilfredo Cancio Isla, Perdidas 700,000 toneladas de alimentos, El Nuevo Herald, September 12, 2008; AP, Cuba Estimates Gustav, Ike Damages at US$5 Billion, September 16, 2008; Granma, Información oficial de datos preliminares sobre los daños ocasionados por los huracanes Gustav e Ike, September 16, 2008.

[10] Key address by Army General Raúl Castro, President of the Council of State and the Council of Ministers and Second Secretary of the Communist Party of Cuba, at the closing session of the 7th Legislature of the National Assembly of People’s Power’s 6th Session, República de Cuba, December 18, 2010, “Year 52 of the Revolution”, op. cit.

[11] Ibid.

* Doctor of Spanish and Latin American Studies at Paris Sorbonne-Paris IV University and Paris-Est Marne-la-Vallée University and French journalist, specialist on relations between Cuba and the United States. His latest book is titled Etat de siège. Les sanctions économiques des Etats-Unis contre Cuba, Paris, Editions Estrella, 2011, with a prologue by Wayne S. Smith and a foreword by Paul Estrade. Contact: Salim.Lamrani@univ-mlv.fr




 

Reforming the Cuban economic model (2): The internal factors

By Salim Lamrani

From a domestic viewpoint several factors of the state apparatus are worthy of mention –to say nothing of many others closely related to the state of siege imposed by the U.S.– like bureaucracy and corruption at middle-management level (and sometimes at the top) which breed a thriving black market, a lack of critical debate, poor productivity, uncontrolled growth in the public sector, insufficient production of raw materials, industrial and infrastructural undercapitalization, and the problem of Cuba’s ageing population.

Bureaucracy

A very serious problem that hangs over whole sectors of the Cuban society, bureaucracy was a topic long avoided by the media. Today, however, the press often decries the laziness, incompetence and excesses of the bureaucratic apparatus. The daily Granma –Cuba’s main newspaper and its Communist Party’s mouthpiece– has leveled fierce criticism at bureaucracy and championed a “change of mentality” in an article titled Burocratismo, de regla a excepción (Bureaucracy, from rule to exception) where it says: “There are still those who turn a blind eye to the new scenario that is being constructed for Cuba's economy and society. Some because they have bureaucracy in their blood, inoculated as if it were a deadly virus. Others because they don’t want any change in the system of red tape, delays, impunity, and the ‘fine’ or ‘bite’ [i.e., the charging of illegal fees] required to bring any procedure to a successful close. (…) [Many officials] enjoy their eight hours a day as executioners, making many people’s life miserable”. He goes on calling the government to tear out “this parasitic plague from the heart of public administration”, especially with a view to setting in motion the new regulations to increase the private sector. [1]


Another daily, Juventud Rebelde, has also railed against bureaucracy, its “autocratic and vertical methods” and its “insensitivity to people’s problems”, describing this behavior as “unforgivable and paradoxical”, particularly in this stage of great changes in Cuba. These bureaucrats, the article reads, don’t even deign to answer people’s e-mails in more than 30% of the cases and refuse to “attack any evil at its roots. No less worrying is the way laws, regulations and even people’s rights are steadily violated under the very nose of those who are in charge”. [2]

Alfredo Guevara, the father of Cuban cinema and a personal friend of Fidel Castro’s, has voiced support for the government’s reform drive and urged the leadership to stop the out-and-out “statification” of society. “We are starting to go through a process of destruction of the Cuban society, and I hope we achieve a state that limits its functions and let society develop,” [3] which would be “a great contribution in terms of independence and maturity.” Guevara has often downgraded Cuban bureaucracy, calling it “ludicrous and inefficient” [4] as much as he has the State’s counterproductive paternalism. In his words, “bureaucracy (…) is made of shallow leaders who think their only task is to manage things. The State is not bureaucracy, but then again, a disproportionate State engenders an ideological-bureaucratic problem”. [5]

Cuban President Raúl Castro has cautioned those in favor of keeping the status quo unchanged: “We will be patient and at the same time persevering when faced with resistance to change, be it conscious or not. I warn you that all bureaucratic resistance to the strict fulfillment of the agreements of the [6th Party] Congress, overwhelmingly backed by our people, will be futile.” [6]

Corruption


The phenomenon of corruption, so deeply rooted among the state’s middle-management level –including tax inspectors and sometimes the government’s upper echelons– is no less endemic to Cuba. [7] The black market has been rampant since the collapse of the Soviet Union, mainly as a result of people’s troubles to make ends meet, as Raúl Castro himself recognized outright: “Wages today are clearly not enough to satisfy all needs and have thus ceased to play a role in ensuring the socialist principle that each should contribute according to their ability and receive according to their work. This has bred forms of social indiscipline”. [8] Now, a pay raise must come together with an increase in production, which leads to higher incomes.

A study specifically requested by Fidel Castro in 2005 revealed the extent of fuel theft in Cuba’s 2,000 gas stations, where for 45 days the employees were replaced with social workers, who were sent home with full pay. The first published report showed that more than 50% of the fuel was being stolen until then, to the point that all gas stations started to make 100,000 dollars more every day, that is, 115% more than before the staff was replaced –this figure reached 553% in the province of Santiago de Cuba alone– which proved that over 80% of the State’s fuel was being robbed and sold later in the black market. [9] Such a huge diversion is impossible without the active complicity of high officials in key positions. In the past, several ministers have been ousted, brought to justice and passed stiff prison sentences in cases of corruption and embezzlement. [10] Not long ago three other ministers were removed from office for a number of reasons. [11] In light of such alarming facts, Fidel warned of a total collapse of the system: “This country can destroy itself, and so can this Revolution (…). We could destroy it ourselves, and it would be our fault”. [12]


Aware that high officials were also involved in corruption, Raúl Castro has sent a clear message to managers at all levels: “We must struggle to eradicate falsehood and deceit once and for all from our cadre’s behavior at any level”. Incredibly enough, he used two of the Bible’s Ten Commandments to make his point: “Thou shall not steal” and “Thou shall not lie”, and evoked the Inca civilization’s three ethical and moral principles –“Don’t lie, don’t steal, don’t be lazy”– as a guide for everyone holding a post of responsibility. [13] Indeed, the black market feeds on the large-scale deviation of goods imported by the State and gets top leaders involved of necessity. Raúl Castro has said so very clearly: “In the face of violations of the Constitution and the law there is no alternative but to have recourse to the Attorney General’s Office and the courts, as we have already started to do, to see to it that offenders are held accountable, whoever they may be, because all Cubans without exception are equal before the law”. [14]

Gladys Bejerano, vice president of the Council of State and the person in charge of the Cuban Government’s crackdown on corruption, admits the plans to curb embezzlement was a top priority but also a greater challenge. A recent audit undertaken this year has it that barely 46% of the public entities evaluated in Cuba had positive results. Managers in the rest of the state organizations had doctored their ledgers in order to divert items to the black market in complicity with the accountants who had to assess their entity’s financial health. [15]

The case of Esteban Morales is highly enlightening, as it sheds light on the tug of war between the Communist Party’s most progressive and critical sectors and its darkest and most conservative elements. In an article he posted on the website of the National Union of Cuban Writers and Artists (UNEAC), Esteban Morales, an economist, party member and specialist on racism and the U.S.-Cuba relations who also has a reputation for being honorable, tagged corruption as the main danger facing the Cuban revolutionary process. He accused some government officials –without naming anyone– of getting rich by illegal means and condemned their plans to transfer public goods to private hands just in case the regime fell, not unlike what happened in the former USSR: “There’s no doubt the counterrevolution is gradually taking positions at certain levels of the State and the Government,” he remarked, using as an example the recent distribution of land in usufruct and countless cases of “fraud, illegalities, favoritism and bureaucratic slowness”, as well as other cases involving top officials who had misappropriated funds and opened bank accounts in foreign countries. [16]

No sooner had his severe and unforgiving but essentially true views been published than Morales was dismissed from the Communist Party and his article removed from UNEAC’s website. Nevertheless, taking into account the great support he received from fellow Party members –including Raúl Castro– an Appeals Commission of the Central Committee overruled the decision made by Esteban’s Party cell leaders and gave him back his membership. [17]


A culture of debate

Cuba’s lack of a true culture of critical debate holds back economic growth, a fact well within the top leadership’s understanding. Fidel Castro himself has deplored the façade of unanimity that the Island, and particularly the national media, so often flaunts:

“Here we have long tended to assume that people’s criticism of and complaints about wrong things amounts to playing into the enemy’s and the counterrevolution’s hands. Sometimes they are afraid to report something because they think it will be useful to the enemy. But we have found out that the media’s role is very important in the fight against those wrong things and have therefore encouraged people’s critical awareness, convinced that it should increase much more. [18]

Raúl Castro has also lashed out at silence, indulgence and mediocrity while appealing to people’s candor: “We must not fear disagreement (…) as it’s always better to have differing views than unanimity sprung by make-believe and opportunism, not to say that it’s a right every one must enjoy”. Castro denounced the “excessive secrecy we have grown used to practicing for more than 50 years” to conceal mistakes, faults and oversights. “We need to change the mentality of all our officials and citizens,” [19] he added, and proposed to limit political terms to 10 years “in order to undertake a systematic rejuvenation along the whole chain of command”. [20] About the media, he pointed out:


“Our media has covered the Revolution’s achievements at length, and so have we in our speeches, but we must get to the heart of the matter (…). I’m in favor of the fight on secrecy, because it’s underneath that decorated carpet where our faults hide away, as do those who want to keep it like that. I remember times when I have personally instructed the newspapers to print this or that critical opinion (…) and the great bureaucratic apparatus has reacted at once, saying, ‘That’s not good, except to dishearten our workers’. What workers lose heart? As in the case of Camagüey province’s big state-owned dairy farm El Triángulo, where one of the trucks was broken and they gave all the milk they produced to some pigs they were breeding. I told a Central Committee secretary in charge of agricultural farms there, ‘Have all this published in Granma’. That’s when some people came to me saying ‘That’s not good except to dishearten our workers’. What they didn’t know is that I had given the relevant instructions to print that myself”. [21]

In a speech delivered on August 1st, 2011 to the 7th Legislature of the Cuban Parliament, Raúl Castro stressed society’s need for critical debate and controversy: “All views must be studied, and when there’s no consensus they will be submitted to the highest authorities for a final ruling, a procedure no one is entitled to hold up”. [22] He called to put an end to “the habit of being triumphalist, apologist and formalistic when addressing the national situation” and write articles and TV and radio programs the form and content of which catch people’s attention and encourage public debate” in order to keep the media from giving them “boring, improvised and superficial reports”. [23]

Granma had no less mercy on the culture of secrecy cherished by officials who keep the Cuban press from providing accurate information by forcing our journalists to enter a true bureaucratic maze of permits to write about anything. Thus the newspaper condemned “the lack of understanding on the part of many administrators and directors who seem oblivious to people’s rights and their annoyance when the media fails to report in due time the whys and wherefores of any given event or measure”. Such man-made snags to people’s access to information violate “the democratic principles” laid down in the Constitution of the Republic. “By providing systematic, truthful and diverse information that makes it possible to know the facts from every possible angle we are not doing people any favor, but respecting one of their rights”, the daily concluded. [24]


Sectarianism

Despite the Cuban President’s efforts to do away with discrimination, it’s still common among some of the higher-ups in Government. Raúl Castro made a public appearance on TV to condemn some examples of religious intolerance “deeply rooted in the mentality of more than a few officials at all levels”. He brought up the case of a woman –a Party leader and a brilliant professional– who in February 2011 was removed from her post and received a 40% pay cut just because of her Christian faith, in violation of Article 43 of the 1976 Constitution, which bans all forms of discrimination. The President denounced then and there “the damage caused to a Cuban family owing to the attitude of an archaic mentality fueled by pretense and opportunism”. Recalling that the victim of this discriminatory action had been born in 1953, the year when the Moncada garrison was attacked by Fidel Castro and his followers to show their opposition to Fulgencio Batista’s dictatorship, Raúl Castro said:

“That’s not what I went to the Moncada for (…). I also mentioned that July 30, the day of the said meeting, was the 54th anniversary of the murder of Frank País and his faithful companion Raúl Pujol. I had met Frank in Mexico and saw him again in the [Sierra Maestra] Mountains, but I don’t think I’ve ever met anyone with a purest soul, so brave, so revolutionary, so noble and humble. I turned to one of those who were responsible for the injustice and told him: ‘Frank believed in God, and as far as I know he was always a churchgoer. What would you have done about Frank País?’” [25]

Nonetheless, relations with the Roman Catholic Church have never been better since the triumph of the Revolution in 1959. Little by little, the confrontational situation has made room for dialogue and knocked the rough edges off the days when “excesses were committed by both sides”. Raúl Castro also leveled fierce criticism at those practices that “threaten National Unity, our main weapon to underpin our sovereignty and independence”. In his words, it’s imperative that bring down “the psychological barrier put up by apathy, immobilism, pretentiousness, two-facedness, indifference and insensitivity, which pave the way for all sorts of abuse. Our worst enemy is not Imperialism, much less their puppets in our midst, but our own mistakes, those we can learn from if we study them honestly and thoroughly”.


Poor productivity

Productivity is also a problem endemic to a society used to receiving the same pay regardless of the quality and quantity of its output. Civil servants couldn’t care less about productivity and efficiency issues. Sure enough, “people have no economic culture”. On the other hand, the Sovietization of the Cuban economy as of 1968, when all private businesses were nationalized, had terrible consequences in terms of performance. Rather than tailoring the economic policy to the particular characteristics of the country, Cuba simply copied the Russian model, a mistake now ascribed by Raúl Castro to both the Cuban leaders’ lack of experience and the geopolitical situation of those days. “We do not intend to copy anyone again, not only because of the price we had to pay that time but also because we often make bad copies”. [27] The Cuban Government proves to be aware of its economic needs when it acknowledges that “spontaneity, improvisation, superficiality, failure to meet our goals, shallowness when doing feasibility studies, and a flawed investment program” are a serious risk to our nation. [28]

Despite its remarkably fertile land and a great potential to be a major exporter of raw materials for food production, Cuba imports 83% of its food, like, for instance, 47 million dollars’ worth of coffee each year when it’s perfectly possible to grow first-class coffee in the Island. In 1975, post-war Vietnam requested Cuba’s help to produce coffee, and now that country is the world’s second exporter of the grain… thanks to Cuba’s experience and knowledge. An amazed Vietnamese diplomat once asked his Cuban counterpart about this paradox: “How come you taught us to grow coffee and now you buy it from us?” [29] Well, it’s not hard to explain: of the 6.6 million hectares of farmland available in the Island in 2008, 3.6 million were abandoned or underused. [30]

The revolutionary government’s agricultural policy stands as one of its most consequential failures. This strategically dangerous dependence is accounted for by a number of factors. First, agricultural work is by definition a difficult and unrewarding task, especially in a society where human development has reached a level without precedent in Latin American and Third World history. Truth be told, it’s not easy to talk people who hold university degrees into leaving for the countryside to grow coffee or wheat for the same pay office workers earn. To that end, it’s essential that “agricultural workers make a fair and reasonable income for their dedicated work” [31], said the Cuban President. As of 2008, of the 1.8 million hectares of uncultivated land, over one million was given in free usufruct –by lots of 13 to 40 hectares– to private individuals and cooperative farms for a period of 10 and 25 years, respectively. Likewise, the government decided to cut in 60% the price of agricultural consumables and products in an attempt to encourage people to invest in this field. [32]

The uncontrolled growth of the sector and the weakness of the production infrastructure

The uncontrolled growth of the public sector is an undeniable reality: nearly 84% of an active working population of 5.2 million is employed by the State. Never mind that some sectors are overstaffed: the public function is in charge of employing the Cubans. Overemployment allows for certain social stability, even if almost a million jobs are considered to be little or no productive. [33]

Industrial and infrastructural undercapitalization has become a serious obstacle to the economy. Cuba is badly in need of new investments, mostly in foreign capital, but many potential investors change their mind when faced with the threat of U.S. sanctions. [34]

An advanced demographic transition

Taking into account its sound human development index, Cuba can be said to have reached as advanced a level of demographic transition as that of countries like Argentina, Uruguay or Chile. The Island is faced with the problem of an ageing population whose life expectancy at birth is almost 80 years. According to the National Bureau of Statistics (ONE), nearly two million people (17.8% of the population) are over 60, and there will be almost twice that number twenty years from now. [35] With 1,551 centenarians at this moment in time, Cuba must deal with two problems: the obligation to pay their pensions –in 2009, retirement age went from 55 to 60 years for women and from 60 to 65 years for men– and the lack of generational renovation and its fallout on society and the economy, considering that the number of inhabitants dropped in 2010 as a result of a low birth rate. [36]


Notes:

[1] Félix López, Burocratismo, de regla a excepción, Granma, January 29, 2011; EFE, Diario oficial arremete contra burócratas, January 29, 2011.

[2] José Alejandro Rodríguez, Menos respuestas cuando más se necesitan, Juventud Rebelde, July 6, 2011.

[3] AFP, Figura histórica del castrismo aplaude la ‘desestatización’, November 23, 2010.

[4] AFP, Transición del ‘disparate’ al socialismo, dice Guevara, June 24, 2011.

[5] AFP, Figura histórica del castrismo aplaude la ‘desestatización’, op. cit.

[6] Raúl Castro, Toda resistencia burocrática al estricto cumplimiento de los acuerdos del Congreso, respaldados masivamente por el pueblo, será inútil, Cubadebate, August 1, 2011.

[7] AFP, Fisco cubano combatirá corrupción de inspectores, July 26, 2011.

[8] Key address by Army General Raúl Castro, President of the Council of State and the Council of Ministers and Second Secretary of the Communist Party of Cuba, at the closing session of the 7th Legislature of the National Assembly of People’s Power’s 6th Session, at the International Conference Center, December 18, 2010, “Year 52 of the Revolution”.

[9] Andrea Rodríguez, Castro revela cifras de robo de combustible en Cuba, AP, December 7, 2005.

[10] Esteban Morales, Corrupción: ¿La verdadera contrarrevolución?, Progreso Semanal, April 20, 2010; Mauricio Vicent, Corrupción al modo cubano, El País, May16, 2010; AFP, Cuba condena a veinte años de cárcel a empresario chileno Max Marambio, May 5, 2011.

[11] Key address by Army General Raúl Castro, President of the Council of State and the Council of Ministers and Second Secretary of the Communist Party of Cuba, at the closing session of the 7th Legislature of the National Assembly of People’s Power’s 6th Session, at the International Conference Center, December 18, 2010, “Year 52 of the Revolution”, op.cit.; Granma, Electa Teresita Romero vicepresidenta de la Asamblea Provincial del Poder Popular en Sancti Spíritus, April 2, 2011; EFE, Destituciones por corrupción en gobierno de Sancti Spíritus, April 2, 2011.

[12] Key address by Cuban President Fidel Castro Ruz at the Commemoration of the 60 th Anniversary of his admission to the University of Havana, held in the University’s Main Lecture Hall on November 17, 2005. http://www.cuba.cu/gobierno/discursos/2005/esp/f171105e.html (visited on April 2, 2011).

[13] Key address by Army General Raúl Castro, President of the Council of State and the Council of Ministers and Second Secretary of the Communist Party of Cuba, at the closing session of the 7th Legislature of the National Assembly of People’s Power’s 6th Session, at the International Conference Center, December 18, 2010, “Year 52 of the Revolution”, op.cit.

[14] Raúl Castro, Toda resistencia burocrática al estricto cumplimiento de los acuerdos del Congreso, respaldados masivamente por el pueblo, será inútil, Cubadebate, August 1, 2011.

[15] Juan O. Tamayo, Régimen cubano reconoce aumento de corrupción, June 22, 2011.

[16] Esteban Morales, Corrupción: ¿la verdadera contrarrevolución?, UNEAC, April 8, 2011. http://www.uneac.org.cu/index.php?module=noticias&act=detalle&tipo=noticia&id=3123 (visited on August 11, 2011).

[17] Andrea Rodriguez, Cuba: comunistas reincorporan a académico expulsado por críticas, AP, July 8, 2011.

[18] Ignacio Ramonet, Cien horas con Fidel, La Habana, Oficina de Publicaciones del Consejo de Estado, 2006, Tercera Edición, p. 604.

[19] Key address by Army General Raúl Castro, President of the Council of State and the Council of Ministers and Second Secretary of the Communist Party of Cuba, at the closing session of the 7th Legislature of the National Assembly of People’s Power’s 6th Session, at the International Conference Center, December 18, 2010, “Year 52 of the Revolution”, op.cit.

[20] Raúl Castro, Texto íntegro del Informe Central al VI Congreso del PCC, April 16, 2011. http://www.cuba.cu/gobierno/rauldiscursos/2011/esp/r160411e.html (visited on June 3, 2011).

[21] Key address by Army General Raúl Castro, President of the Council of State and the Council of Ministers and Second Secretary of the Communist Party of Cuba, at the closing session of the 7th Legislature of the National Assembly of People’s Power’s 6th Session, at the International Conference Center, December 18, 2010, “Year 52 of the Revolution”, op.cit.

[22] Raúl Castro, Toda resistencia burocrática al estricto cumplimiento de los acuerdos del Congreso, respaldados masivamente por el pueblo, será inútil, Cubadebate, August 1, 2011.

[23] Raúl Castro, Texto íntegro del Informe Central al VI Congreso del PCC, April 16, 2011. http://www.cubadebate.cu/opinion/2011/04/16/texto-integro-del-informe-central-al-vi-congreso-del-pcc/ (visited on April 20, 2011).

[24] Anneris Ivette Leyva, El derecho a la información, Granma, July 8, 2011.

[25] Raúl Castro, Toda resistencia burocrática al estricto cumplimiento de los acuerdos del Congreso, respaldados masivamente por el pueblo, será inútil, Cubadebate, August 1, 2011.

[26] Ibid.

[27] Key address by Army General Raúl Castro, President of the Council of State and the Council of Ministers and Second Secretary of the Communist Party of Cuba, at the closing session of the 7th Legislature of the National Assembly of People’s Power’s 6th Session, at the International Conference Center, December 18, 2010, “Year 52 of the Revolution”, op.cit.

[28] Partido Comunista de Cuba, Resolución sobre los lineamientos de la política económica y social del partido y la Revolución, op. cit.

[29] Key address by Army General Raúl Castro, President of the Council of State and the Council of Ministers and Second Secretary of the Communist Party of Cuba, at the closing session of the 7th Legislature of the National Assembly of People’s Power’s 6th Session, at the International Conference Center, December 18, 2010, “Year 52 of the Revolution”, op.cit.

[30] Andrea Rodríguez, Rebajan precios de insumos agrícolas en Cuba, AP, August 5, 2011. See also farmer Ventura de Jesús’s comments in Un buen agricultor suburbano, Granma, May 21, 2011.

[31] Key address by Army General Raúl Castro, President of the Council of State and the Council of Ministers and Second Secretary of the Communist Party of Cuba, at the closing session of the 7th Legislature of the National Assembly of People’s Power’s 6th Session, at the International Conference Center, December 18, 2010, “Year 52 of the Revolution”, op.cit.

[32] Andrea Rodríguez, Rebajan precios de insumos agrícolas en Cuba, op. cit.

[33] Paul Haven, Cuba: Pequeños empresarios, factor clave de reformas económicas, AP, January 31, 2011.

[34] Partido Comunista de Cuba, Resolución sobre los lineamientos de la política económica y social del partido y la Revolución, op. cit.

[35] EFE, El envejecimiento poblacional en Cuba continuó en aumento en 2010, July 7, 2011.

[36] AFP, Aumenta cantidad de centenarios y disminuyen nacimientos en Cuba, May 20, 2011. See also EFE’s Centenarios cubanos develan secreto de la longevidad, May 27, 2011.

* Doctor of Spanish and Latin American Studies at Paris Sorbonne-Paris IV University and Paris-Est Marne-la-Vallée University and French journalist, specialist on relations between Cuba and the United States. His latest book is titled Etat de siège. Les sanctions économiques des Etats-Unis contre Cuba, Paris, Editions Estrella, 2011, with a prologue by Wayne S. Smith and a foreword by Paul Estrade. Contact: Salim.Lamrani@univ-mlv.fr



Reforming the Cuban economic model (3): The social and economic measures

By Salim Lamrani

The economic and social measures

From December 1st, 2010 to February 28, 2011, a draft program of socioeconomic reforms developed by the Communist Party of Cuba’s Economic Policy Commission was the object of public debate through the Cuban trade unions [1] in 163,000 meetings attended by nearly 9 million citizens, who made over 3 million comments. Of the 291 items in the original document, 16 were integrated into others, 94 remained untouched, 181 were redrafted, and 36 new ones were added, for a total of 311 items [2] in a final version that modified 68% of the initial proposal and was submitted to the VII Party Congress for approval by the thousand delegates present as representatives of 800,000 Party members nationwide. [3] Then it was sent to the Cuban Parliament, whose members gave it the go-ahead in a plenary session held on August 1st, 2011. [4]

Hard pressed to find a solution to the danger of bankruptcy, the Cuban government designed a five-year plan to put expenditures on a level with the available resources and get as little indebted as possible in the process. [5] Raúl Castro stressed the seriousness of the situation: “We are convinced that the only thing that can make the Revolution and Socialism fail in Cuba, risking the future of our nation, is our inability to overcome the mistakes we have made for more than five decades”. [6]

Two highly consequential measures must be underscored here. The first one entails a structural revolution of labor with the dismissal in the medium term of almost half a million Government employees –10% of jobs in the public sector– and a full million in five years. [7] Those that are affected by this decision will have three choices: accept relocation in understaffed sectors, become self-employed, or apply for farmland in usufruct. Until now, any fired worker would get full pay until they found a new job, but now they will get unemployment benefits for up to five months, namely 100% of their salary in the first month and 60% thereafter. All overstaffed sectors will be restructured so as to keep the minimum number of workers they need. However, the government has given assurances that “the Socialist State will protect every citizen and use the social welfare system to make sure that those unable to work receive the minimum protection they need. There will be subsidies in the future; not for products, but for Cuban men and women who really need them for one reason or another”. [8]

The second measure, no less important, involves the state economy’s opening to private entrepreneurship, among other reasons to legalize the growing black market and to collect taxes in a country where people are hardly ever subject to taxation. Accordingly, the government has decided to decentralize and pass on to private individuals a share of its 90% control over the island’s overall economic activity and limit itself to manage and exploit the existing strategic resources in an effort to spur development. To that end, around 250,000 new licenses were granted in a variety of fields and almost 178 new activities have been opened up to self-employment, ranging from restaurants (now allowed to have 50 rather than only 12 chairs [9]), retail trade, and tenancy. Cubans can now try their luck in 83 sectors and even hire labor, a prerogative until now exclusive to state organizations, joint ventures, and foreign companies, and subject to a tax amounting to 25% of the employee’s salary. [10] The move was highly successful. [11] In six months, the number of small businesspeople shot from 157,000 to over 320,000, a growth rate likely to hit the 500,000 mark and then reach a plateau. [12] The first positive effects have become especially noticeable in terms of state tax revenues. [13]

Private businesses will pay a gradually increasing tax of up to 50% of their profits and around 25% of them for social security purposes. [14] An annual income of up to 5.000 pesos will be tax-free, whereas those who make 50.000 pesos or more will pay up to 50%. Under the new tax code, businesspeople can now deduct up to 40% of their income tax for professional expenses, as opposed to the previous 10%. [15] All in all, self-employed Cubans will have to pay a 25% to 50% income tax (depending on where they are within the 5.000-to-50.000 plus income bracket); a corporate tax of up to 25% of the salary; and a value-added tax of 10% (5% for the food and drinks outlets), in addition to a social security contribution of 25%. [16]

In order to cope with the shortage of raw materials, the government has allocated significant investments to the purchase of consumables exclusively for the private sector, where owners will have to deal with three major risks: finding customers, get credit and beat bureaucracy. [17] The top leaders have given their assurance that the reforms have no way back and promised small enterprise owners a new bank policy to get loans [18], particularly in the field of agriculture. [19] Government estimates have it that the new measures are expected to yield around a billion pesos in taxes. [20]

Furthermore, the state will be no longer in charge of workplace dining halls, worker transport vehicles, beauty parlors and taxicabs, among other activities to be taken care of by their own employees, which gives corporate Cuba’s talent more elbowroom to manage their budget. [21]


The ultimate goal is to increase productivity, reinforce labor discipline and provide a wider wage scale to help Cubans meet their needs, as well as the removal of “egalitarian” practices in income distribution and some unduly free benefits. [22] Raúl Castro admitted that “the excess paternalistic, idealist
and egalitarian attitude adopted by the Revolution in the interest of social justice” had been a mistake, as well as the fact that “Many of us take socialism for freebies and subsidies, and equality for egalitarianism”. As of now, salaries will depend on labor productivity [23] and all Cubans will have “equal rights and opportunities” as part of a policy based on working, deemed at once “a right and a duty” and something “to be paid on the basis of quantity and quality”. [24]

On the other hand, Raúl Castro made an appeal to “eliminate so many irrational prohibitions” –the reason for our thriving black market– “that we have had on the books for years without paying heed to the existing circumstances, only to create a real breeding ground for a great deal of unlawful activity on the fringes of the law that frequently leads up to different degrees of corruption. One can reach a life-tested conclusion: irrational prohibitions encourage contravention, which in turn fuels corruption and impunity”.

He also rejected the useless formalities people have to go through to swap houses or sell cars to each other. [25] Any Cuban or permanent resident from another country can buy and sell houses, which until now could only be exchanged or inherited and were therefore the object of many unlawful arrangements. However, both Cubans who live overseas and foreign nationals are denied this right and no one will be allowed to own two or more houses. The law on the seizure of assets from those who leave for foreign countries is abolished, so the émigrés will be able to bequeath their property to their next of kin up to the fourth grade of kinship, as long as the heir(s)-to-be can submit proof that they have lived for at least five years with the said relative. [26]


With a view to eliminating inequality, Cuba is also compelled to end the dual currency system –the ordinary peso that makes up the wage most Cubans get and the convertible peso reserved to the tourist sector– as the latter (equivalent to one US dollar) is worth 26 of the former. [27]

Essential as these structural changes may seem, a market economy is not on the government’s agenda. The basic principle that “only socialism is capable of overcoming all difficulties to preserve the achievements of the Revolution” is here to stay. Therefore, the economic model will be governed by planning and up-to-date methodologies, organizational methods and management techniques. [28]

At the macroeconomic level, Cuba aims for higher efficiency to limit the state’s financial role to loss-making sectors. There are two types of solutions in the offing, a short-term one to eradicate the deficit in the balance of payments through fewer imports and more exports, and a long-term one to boost economic growth and improve people’s living standards, based on greater economic efficiency, motivation to work and a more equitable redistribution of the country’s net income. [29]

In the long run, Cuba must find sustainable solutions to become self-sufficient in food and energy production, make the most of its human resources, improve the quality of traditional products, and develop new value-added goods and services. [30]


State enterprises and cooperatives

State and mixed-capital enterprises, cooperative farms, usufructuaries and small private businessmen will have more independence, albeit none can accumulate too much property. Decision-making will be less centralized to have a more effective corporate sector. Enterprises will have more authority over, and more responsibility for, the management of their human, material and financial resources –which reduces the number of bureaucratic barriers– and non-subsidized commodities markets where they can buy supplies. [31]

Any loss-making state company with insufficient working capital in their balance sheets or unable to meet their obligations will be gradually put into liquidation. No enterprise will get any more funds to produce goods and services, but once they meet their production target and pay their taxes they may use the remaining profits for their own purposes, say, to pay bonuses. Likewise, salaries in the public sector will depend on results, and no organization will be bailed out for their losses. [32]

Based on “the free association of labor”, the cooperatives will retain ownership over the means of production, which they can use as they deem fit (leasing, usufruct…) and be able to partner with other similar entities, for instance, in buying-and-selling operations for cost-cutting purposes. Nevertheless, ownership cannot be leased out or sold to other cooperatives or non-state enterprises. They can also have a wage scale of their choice. [33]


Social policy

Preserving the “achievements of the Revolution” such as access to health care, education, culture, sports, leisure pursuits, social security and welfare for those who need it will be the priority, together with steps to cut down on “excessive social expenditures”. [34]

Regarding education, university enrollment will be consistent with the country’s economic and social demands, and more places will be assigned to technological and scientific studies. In the field of health there are plans for a territorial reorganization of primary care centers as well as to develop traditional and herbal medicine and promote preventive medicine. Finally, in addition to other funding solutions to the issue of Cuba’s ageing population and its economic dependence, wage earners will pay more taxes. [35]

Salaries will play a key role in Cuban society insofar as it would make it possible to “reduce the number of giveaways and excessive personal subsidies by compensating the neediest”. Established in 1963 to lessen the effects of economic sanctions and widespread speculation on raw materials and thus avoid a food crisis, the ration book, “which benefits everyone whether they really need it or not”, stands out as a serious drawback, as it favors without distinction those who contribute to society’s wealth and others who live on social welfare and produce nothing in return. [36]

In Raúl Castro’s words, the ration book “has gradually become an unbearable burden on our economy, a disincentive to our workers, and the trigger of various types of illegalities”. [37] The number of rationed items is being reduced little by little and will eventually be down to zero to eliminate bartering and to  discourage the black market. [38] Cigarettes, for instance, were taken out of the ration book in September 2010. [39] Rice and sugar (except for the monthly subsidized rations) can now be bought in any domestic market, [40] whereas the price of oil rose 10%. [41] Pay raises will make up for the elimination of the ration book.

Nevertheless, Cuba will keep in place the food services provided in hospitals and schools “to protect vulnerable people” and the workers’ canteens running where most needed, albeit charging unsubsidized prices for the food thus provided. The state has also undertaken to “make sure that social welfare helps those who really need it”. [42]

Industrial and energy policy

Ranking high on Cuba’s success list are the pharmaceutical and the biotechnological industries, the island’s fourth source of income after the service, tourist and nickel industries. [43] The goal is to become technologically self-sufficient in these fields and reinforce the patent registration and copyright policies in international markets.

As to energy, Cuba must be less dependent on foreign countries and produce more oil and gas in underwater oilfields recently discovered in the Gulf of Mexico as it improves its refining capacity with a view to importing fewer by-products. However, important investments are in order which Cuba cannot afford. Furthermore, the energy used for the production of goods and services will not be subsidized. [44].

In order to save electric power –given rising oil prices– Cuba has announced a gradual 15% to 285% increase in electricity charges for the greatest consumers, that is, those who consume more than 300 kWh every month. These users, who account for 5.6% of the population, will have to pay between 1.50 and 5 pesos for any additional kWh instead of the usual 1.3%. Households using less than 100 kWh will keep on paying 0.09 peso per kWh. The state set an example in 2010 by using 10% less energy than the previous year. The price of fuel and diesel also went up –by 10% and 18%, respectively– considering that over 50% of the fuel Cuba consumes goes to electricity production. [45]

Tourism

As the Island’s second source of income, the tourist industry is bent on improving service quality –which is way below international standards– and create more destinations nationwide to avoid overcrowding in the summer. Besides, in order to give foreign tourists more possibilities, now private citizens may rent out a part of their homes.


Transportation and housing

Transportation remains a serious problem in Cuba with significant fallout on both the economy and people’s well-being. The existing network must be upgraded and reorganized. Railroads and ships are a priority for economic and environmental reasons, and ports across the Island will be enlarged for trading purposes.

Housing is another very serious problem, given the insufficient number of houses and the bad condition of many of them. Cuba needs to build 100,000 houses per year, taking into account the decades-old shortfall in construction brought about by the economic sanctions. At any rate, responsibility for this activity will be no longer exclusive to the state: as of now, the private sector can take charge. In November 2010, the nation’s cash-flow problems forced the State to stop subsidizing construction materials. [46]

Conclusion

The Cubans have a big challenge in the offing. Little as they can do to overcome the main obstacle to development –the economic sanctions the White House and the U.S. Congress have not lifted despite the world’s unanimous will– they can take pride in having created the least unjust nation on Earth and achieved the highest human development index on the Third World. And yet, the fight against bureaucracy, the black market, corruption, poor productivity, ineffective economic policies, the strong dependence on foreign food and fuel, too much prohibition, the lack of critical debate, and the underestimation of work are still the Government’s priorities. The Cuban people, and especially the younger generations, will have to rise to the occasion, come to terms with reality and remain faithful to their history of struggle and resistance and to the teachings of their National Hero, the Apostle José Martí, when he said that “the prime duty of people (…) is to be people of their time”.

Notes:

[1] Andrea Rodríguez, Raúl Castro pide apoyo a central sindical cubana, AP, November 1, 2010

[2] Raúl Castro, Texto íntegro del Informe Central al VI Congreso del PCC, April 16, 2011. http://www.cubadebate.cu/opinion/2011/04/16/texto-integro-del-informe-central-al-vi-congreso-del-pcc/ (visited on April 20, 2011).

[3] Partido Comunista de Cuba, Resolución sobre los lineamientos de la política económica y social del partido y la Revolución, op. cit.

[4] Raúl Castro, Toda resistencia burocrática al estricto cumplimiento de los acuerdos del Congreso, respaldados masivamente por el pueblo, será inútil, Cubadebate, August 1, 2011.

[5] Partido Comunista de Cuba, Resolución sobre los lineamientos de la política económica y social del partido y la Revolución, op. cit.

[6] Raúl Castro, Texto íntegro del Informe Central al VI Congreso del PCC, April 16, 2011, op. cit.

[7] AFP, Gobierno cubano anuncia reglas para apertura de negocios y despidos, October 25, 2010.

[8] Key address by Army General Raúl Castro, President of the Council of State and the Council of Ministers and Second Secretary of the Communist Party of Cuba, at the closing session of the 7th Legislature of the National Assembly of People’s Power’s 6th Session, at the International Conference Center, December 18, 2010, “Year 52 of the Revolution”, op.cit.

[9] AFP, Cuba baja los impuestos y amplia ‘paladares’ para estimular negocios, May 27, 2011.

[10] Juan Carlos Chávez, Impuestos en Cuba llegarán hasta el 50 por ciento para trabajadores privados, El Nuevo Herald, October 26, 2010.

[11] Paul Haven, Cuba: Pequeños empresarios, factor clave de reformas económicas, op. cit.

[12] AFP, Otorgan en Cuba 171.000 nuevas licencias, March 21, 2011; Ivette Fernández Sosa, Trabajadores por cuenta propia sobrepasan las 300.000 personas, Granma, May 21, 2011.

[13] Andrea Rodríguez, Erario cubano comienza a ver resultados de reforma, AP, May 16, 2011

[14] EFE, Cubanos se preparan para nueva cultura tributaria, October 22, 2010.

[15] Mark Frank & Eric Faye, Cuba dévoile un nouveau code fiscal pour les petites entreprises, Reuters, October 22, 2010.

[16] Paul Haven, Cuba Makes Self-Employement Rules Official, AP, October 25, 2010; AFP, Cuba: jusqu’à 50% des revenus des commerces privés soumis à impôt, October 25, 2010.

[17] Paul Haven, Cuba: Pequeños empresarios, factor clave de reformas económicas, op. cit.

[18] EFE, Anuncian nueva política bancaria de créditos, April 1, 2011; Raúl Castro, Key address by Army General Raúl Castro, President of the Council of State and the Council of Ministers and Second Secretary of the Communist Party of Cuba, at the closing session of the 7th Legislature of the National Assembly of People’s Power’s 6th Session, at the International Conference Center, December 18, 2010, “Year 52 of the Revolution”, op.cit.

[19] EFE, Gobierno cubano da créditos a campesinos, July 11, 2011.

[20] Juan Carlos Chávez, Impuestos en Cuba llegarán hasta el 50 por ciento para trabajadores privados, op. cit.

[21] Partido Comunista de Cuba, Resolución sobre los lineamientos de la política económica y social del partido y la Revolución, op. cit.

[22] Ibid.

[23] Key address by Army General Raúl Castro, President of the Council of State and the Council of Ministers and Second Secretary of the Communist Party of Cuba, at the closing session of the 7th Legislature of the National Assembly of People’s Power’s 6th Session, at the International Conference Center, December 18, 2010, “Year 52 of the Revolution”, op.cit.

[24] Partido Comunista de Cuba, Proyecto de lineamientos de la política económica y social, op. cit.

[25] Key address by Army General Raúl Castro, President of the Council of State and the Council of Ministers and Second Secretary of the Communist Party of Cuba, at the closing session of the 7th Legislature of the National Assembly of People’s Power’s 6th Session, at the International Conference Center, December 18, 2010, “Year 52 of the Revolution”, op.cit.

[26] AFP, Cubanos de la isla podrán comprar casas y autos, July 1, 2011.

[27] Partido Comunista de Cuba, Resolución sobre los lineamientos de la política económica y social del partido y la Revolución, op. cit.

[28] Ibid.

[29] Ibid.

[30] Ibid.

[31] Ibid.

[32] Ibid.

[33] Ibid.

[34] Ibid.

[35] Ibid.

[36] Key address by Army General Raúl Castro, President of the Council of State and the Council of Ministers and Second Secretary of the Communist Party of Cuba, at the closing session of the 7th Legislature of the National Assembly of People’s Power’s 6th Session, at the International Conference Center, December 18, 2010, “Year 52 of the Revolution”, op.cit.

[37] Raúl Castro, Texto íntegro del Informe Central al VI Congreso del PCC, April 16, 2011, op. cit.

[38] Partido Comunista de Cuba, Resolución sobre los lineamientos de la política económica y social del partido y la Revolución, op. cit.

[39] Key address by Army General Raúl Castro, President of the Council of State and the Council of Ministers and Second Secretary of the Communist Party of Cuba, at the closing session of the 7th Legislature of the National Assembly of People’s Power’s 6th Session, at the International Conference Center, December 18, 2010, “Year 52 of the Revolution”, op.cit.

[40] EFE, Cuba libera venta de azúcar y sube precio del arroz, February 12, 2011.

[41] AFP, Cuba sube precio de aceite comestible, April 2, 2011.

[42] Partido Comunista de Cuba, Resolución sobre los lineamientos de la política económica y social del partido y la Revolución, op. cit.

[43] EFE, La isla recibe al primer millón de turistas en 2011, April 11, 2011.

[44] Partido Comunista de Cuba, Resolución sobre los lineamientos de la política económica y social del partido y la Revolución, op. cit.

[45] EFE, Cuba sube tarifas eléctricas para grandes consumidores domésticos, October 29, 2010.

[46] AFP, Raúl Castro elimina subsidios a materiales para reparar y construir casas, November 18, 2010.

* Doctor of Spanish and Latin American Studies at Paris Sorbonne-Paris IV University and Paris-Est Marne-la-Vallée University and French journalist, specialist on relations between Cuba and the United States. His latest book is titled Etat de siège. Les sanctions économiques des Etats-Unis contre Cuba, Paris, Editions Estrella, 2011, with a prologue by Wayne S. Smith and a foreword by Paul Estrade. Contact: Salim.Lamrani@univ-mlv.fr




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