Cuban Economic Reforms: A New Hope?

Nicholas Partyka I Geopolitics I Analysis I July 17th, 2014

The following is Part Five of a multi-part project entitled, " A Crossroads for Socialism: Cuba in Transition ." This series of analyses, observations, and dispatches on Cuba focuses on the country's unprecedented, post-Fidel transition. With a heavy reliance on macroeconomic, geopolitical, and foreign policy analysis, Hampton contributor Nicholas Partyka seeks to pinpoint the nuanced economic, political, and social changes that are occurring on the island nation, and how these changes are impacting everyday Cubans.

Part One: Introduction

Part Two: The US Blockade of Cuba: Its Effects and Global Consequences

Part Three: When Profit-Mongering Meets a Common Good: Contrasting Societies (US and Cuba)

Part Four: A Socialism for the 21st Century

Perhaps the most significant changes occurring in Cuban society right now are the changes being enacted in Cuba's economy. Cuba is attempting a transition away from Soviet style central planning and state ownership towards a more decentralized model with small scale free markets. Many nations in eastern Europe attempted transitions away from socialism in the 1990s, but none met with particular success in developing capitalism. There are of course a host of very interesting reasons why this is the case, which we will not go into here for it is off topic. In general though, most of the former Soviet republics have not achieved the prosperity they perhaps thought would accompany the establishment of "free markets" and capitalism. Most of the former Soviet republics are peripheral economies in Europe. The Baltic state have enjoyed the most prosperity, and this is in some part due to their having become both EU and NATO members. Some of the rest of the former Soviet republics are second class citizens in the European economic scene like Poland, Bulgaria, and Romania. While others are already, or are in the process of becoming Russian satellite states, like Kazakhstan, Belarus, Kyrgyzstan, or Ukraine.

The example of these nations shows how perilous can be the course and uncertain the results of transitioning a national economy from a Soviet model to a more market-oriented one. And in these cases there was generally, Yugoslavia excepted, civil peace and some economic assistance (albeit based on the self-serving Washington Consensus) from the Western powers. Look at the trouble many Latin American nations had trying to transition towards socialism, or at least national sovereignty, in the 1970s and 1980s in the face of US hostility to that direction of change. We can get some kind of insight then into the situation facing Cuba today. The actual results are uncertain, the path to realizing the desired results fraught with difficulty. Like its neighbors in the hemisphere, Cuba will face the ire of the US as it struggles for continued independence of US imperialism. Cuba, as a result of US hostility will also have to go without most of the kinds of aid and development loans available to post-Soviet eastern bloc nations.

One of the most important reforms enacted thus far has to do with an increase in "self-employment". Part of the transition is a movement away from state control of all enterprises. Toward this end the government liberalized its rules about privately owned business. They began to encourage people to open up small cafes, restaurants, barbershops, hostels, and other service businesses. In many cases the entrepreneur pays a monthly fee to the government for a license and then get to keep whatever profit they make over and above that. The fee is low enough where it is generally not overly burdensome on small business owners; or so I was told by the owner of a small café in Santiago de Cuba called Los Amigos. This is a turn towards more private ownership and towards markets, but it is not an abandonment of socialism.

The idea behind the reform is to get as many workers as possible off the government payroll. The aim is of course to allow Cubans more freedom to choose their role in the economy, but also to increase their prosperity, and of course to relive the government of the responsibility to manage a great many of these enterprises that employ these workers. With an increase in workers working for themselves, with the creation of a private sector in the economy the government will be able to concentrate its energy and resources on high priority projects and programs. Of course, one of the challenges in this endeavor is that entrepreneurial talent does not just spring out of the earth fully formed. In a country like Cuba that has eschewed the private sector and capitalist style incentives for so long it has taken time, and will take more time to develop among the population the skills that go along with successfully running a small business.

Another very significant reform under way is the attempted elimination of the current ration card system. Right now all Cubans are entitled to a ration card that gives them right to buy various goods at subsidized prices. Of course, it is the government that pays for this subsidy. At present they government has a blanket subsidy of many kinds of staple goods. What the government would like to do is switch over to a targeted welfare system, much like what we nominally try to do in the US. As inequality has grown, so some have become well off enough not to need the subsidy that is embodied in the ration card. The government wants to try to save money by only giving out help to those who need it, and redirecting those saved dollars into high priority imports. This ration card system was a good idea at the beginning of the revolution given where Cuban society was at that point. Having enjoyed this system for so long many Cubans experience some anxiety about changing it. They are likely, and quite understandably, nervous about how any potential changes will impact them.

This sense of nervousness is compounded by another fact of economic life in Cuba today, the dual currency system. In Cuba right now there are two different currencies, both called the Peso that are in circulation. Much like Soviet Rubles, the Cuban Peso (CUP) was merely an internal unit of account, and only useful for trade with other socialist bloc countries. Neither was a convertible currency in the capitalist sense, that is neither was fit for doing business with capitalist countries. When the Soviet Union disappeared and Cuba had to do business with only capitalist countries it could either establish convertibility right away like Russians did, and accept the massive devaluation and impoverishment that comes along with that. Or, establish a new currency for use in foreign dealings. Given proximity, and its general international dominance, the natural choice for Cubans in the wake of the Soviet collapse was the US Dollar. Through much of the 1990s the Dollar circulated openly in Cuba. In order to get control of these Dollars so as to use them for important foreign dealings the government instituted the convertible Peso (CUC). These two currencies have coexisted ever since.

The issue is that most workers are employed by the government and get paid their salary in CUP, while most prices in stores are in CUC. The exchange rate between those two is roughly twenty four CUP for one CUC. One US Dollar exchanges for about eighty seven cents in CUC. Thus, those with jobs that allow them greater access to Dollars or CUC were able to afford a wider range of products than others who were not so fortunate. Thus, for example, those who work in the tourism industry and have access to tourists' tips are one group that gets an advantage. One of the government's main challenges is to eliminate this system. They need to get rid of one currency without destroying the purchasing power of the mass of Cuban people. This has to be accomplished through a series of adjustments in the level of prices and of wages. From what I was told by a knowledgeable Cuban at the Martin Luther King, Jr. Center, the government's plan is to be rid of one of the currencies, likely the CUC, by the end of 2015.

Another large sector of the economy being opened up by the government is agriculture. The government is giving away land to farmers on condition that they split the profit with the government. The government has tried to encourage small farmers to form cooperatives, and to be more productive by allowing them to sell their produce and keep all the profits if the farming is done on private land. The government is also trying to incentivize local and environmentally sustainable organic farming practices as much as possible. The idea is that if Cuba can become more food independent then it can achieve important goals like feeding its people increasingly healthier and well balanced diets, but can do so at a lower cost. This will be beneficial in that a healthier diet can reduce the long-run costs of healthcare, but becoming more food independent will enable Cuba to redirect valuable dollars into higher priority imports, like capital goods for example.

Small scale, local development projects related to organic farming and perma-culture ideas are becoming more and more common throughout Cuba. One such development project I was able to visit during my time in Cuba was in the front yard of someone's private residence. This project was not only growing food crops, but also had a pool for raising Tilapia, and a waterless toilet. Another similar though larger development project had a bio-digester for creating cooking and heating gas from excrement, a great variety of food crops, and solar powered cookers. The most common animals found on these kinds of projects are ducks, chickens, rabbits, pigs, and lamb. This is of course because they reproduce quickly and do not require a lot of room. The excrement from these animals can be used as fertilizer, fish food, or used in a bio-digester. The idea for many of these development projects is to limit waste, to fully utilize all available resources. The Cubans, due to the US blockade, do not have the luxury of throwing away as much as we do.

What impressed me most about these various development projects is the kind of "straight line" thinking embodied in their plans. The guiding idea behind these projects is to empower people to meet their needs in cheap, renewable, and sustainable ways. The Cubans are emphasizing ways and means that make people as independent as possible. In response to the challenges they face, the Cubans attempt as much as possible in their reforms to shorten the distance between persons and the things they need. Consider the waterless toilet. Clean drinkable water is not as accessible in Cuba as in America. Moreover, sewage systems are not as extensive in some rural areas. In response the Cubans have developed, or imported the idea of waterless toilets, that end products of which can be used as fertilizer. In response to a need for reliable cooking and heating fuel, for boiling water to drink, hot showers, hot water for cleaning the Cubans develop or import bio-digesters. The Cubans know that the shortest distance between two points is a straight line, and their development projects reflect their desire to provide for people's needs through cost effective and sustainable methods.

One big development that took place while I was in Cuba was that toward the end of my trip the National Assembly (ANPP) passed a new foreign investment law. Under the terms of the old law foreign investors were limited to a maximum 49% ownership stake, and were subject to various taxes. Under the terms of the new investment law foreign companies can have 100% ownership stakes, certain taxes have been lowered, and Cuba offered eight year window of other financial incentives in order to make it even more attractive. This law appears aimed primarily at attracting more investment for the tourist industry.

One significant element of this new investment law is that now, Cubans living abroad, including members of the exile community in the US, to invest in and own property in Cuba. This move has been seen as an important opening in Cuba's policy towards those who have left Cuba over the years. This allows both for family members living abroad to help their family in Cuba, as well as for the government to earn money from the wealthier segments of the Cuban Diaspora community. Given how successful some Cubans have been in other countries it is only natural that the government would try to soften its stance toward those who have left Cuba over the years. Cuba does have an interest in minimizing the strains placed on Cuban families from the separation imposed by the US blockade, and from the hostility of the Cuban government to those who left the island.

Of course, the regime wants to exclude those it thinks part of the Miami-Cuban exile community mafia. The interesting thing about doleing out CIA training, arms, contacts, and money is that you can't always control what happens to or is done with them after they're distributed. So even though the US government stopped officially encouraging Cuban exiles to conduct pirate raids, and acts of terrorism against Cuba decades ago the genie is out of the bottle. Just like with the Mujahedeen and the later Al Qaeda, once you give out training it can be passed on; and in some cases used against the teacher. There remains a faction of Miami-Cubans with CIA training and a deep commitment to the overthrow of the Cuban revolution. The Cuban government very obviously wants to prevent these people from getting into Cuba and trying to stir up trouble.

One of the most important prospects on the horizon for Cuba is a potential trade deal with the European Union (EU). A new more normal trading relationship between Cuba and the EU would be an immense boon to Cuba, and would definitely help them avoid some of the various nut-pinching tactics the US typically employs. Though we're hearing nothing about it in the American media you can be sure that the US is lobbying some important EU member states to reject any kind of normalization with Cuba. Right now the EU maintains a policy that, while not nearly as hostile as the US's blockade, is not entirely open to Cuba. The EU does have some "human rights" concerns about Cuba that it wants to address in negotiations for this trade deal. I won't comment here on the general hypocrisy about the way most European, as well as US, policy makers talk about and apply ideas of "human rights". These issues aside, if such a deal can be successfully negotiated it would be a tremendous step forward for Cuba, and would further increase the pressure on the US the end the blockade.

This very short description of some of the reforms being undertaken in the Cuban economy could not hope to do justice to the full scope of the social transformation implied by these among other reforms. In order to be brief I have only talked about some of the most important reforms, and only discussed some of their main effects. The process of reform in the Cuban economy will have unintended side effects that may complicate their process of transition. But, even from the small sketch given here, it should be obvious that important changes are underway. Changes that if successful will deepen the revolution, consolidate its gains, and put it on a sound economic footing for it future economic and social development.

If Cuba can accomplish this it will not only be a resounding victory for the Cuban people, and mark a turning point in their history. But it should also reinvigorate the prospects for socialists, and alternatives to capitalism generally, around the world. Cuba will not garner much attention from the capitalist press for its successes as it progresses through this project. But, nonetheless, it will stand out as a beacon to those who look for it. The capitalist media ignores even mild success stories like Iceland because their example of bucking the conventional wisdom is not something it wants propagated. Moreover, they ignore the most traumatic effects of their austerity "success stories", e.g. the Euro communities new favorite, Greece. Ignored are all the suicides of the elderly with no support, of the starving homeless, of the wiped out pensioner or saver; not to mention any other of the many forms of social dislocation imposed on the Greek population by the troika's unrelenting austerity demands. If the capitalist media will ignore these kinds of stories in nations that are unequivocally capitalist, one should expect only a deep and pervasive silence about a nation as heretical as Cuba having success. And one should expect, what reality shows to be the case, that the only stories the capitalist media will run about Cuba are those that seem to conform to its view of the island, and advance its narrative about Cuba.