Thursday, May 19, 2011

Cuba’s Pre-Perestroika

On 16-19 April 2011 the Cuban Communist Party PCC held its sixth Congress since the 1959 revolution, the first since 1997. The date is historic: on 16 April 1961 Fidel Castro proclaimed the socialist character of the revolution, the next day a contingent of Cuban exiles attacked the Bay of Pigs, two days later they were routed. The timing of this year’s Congress might be taken to suggest that Cuban socialism is in danger now as it was then; on Christmas’ Eve last year the party paper Grandma stated that «it [was] no longer the coming year but the coming country».

If so the frequency of Party Congresses leaves a great deal to be desired: one every almost-nine years, 14 years since the last one, in a period that saw the fastest and most complex changes on the planet, do not say much about the quality of democracy under Cuban socialism, even in its diluted form of «democratic centralism», prevailing on the island. Especially since the Cuban population is aware that Fidel Castro has transferred the Presidency of the country to his brother Raúl in 2008, but discovered only on 22 March 2011 that he had transferred to him also the direction of the Cuban Communist Party five years earlier (Renaud Lambert, «Ainsi vivent les Cubains», Le Monde Diplomatique, April 2011). A Party secret secretary seems bad form, to say the least.

Cuba today – mutatis mutandis - has reached the stage of economic and political development that the Soviet system had reached on the eve of Gorbachev coming to power in March 1985: a gerontocratic leadership, moreover transferring power within the family in North Korean style; an authoritarian political system; much talk of price liberalisation but continued generalised shortages of goods in excess demand at state prices, with rationing for the last 52 years; a dual currency, an unconvertible peso and a convertible one that replaced the dollar in 1994 (something that the Soviets thought of but fortunately refrained from doing); special economic zones to attract foreign investment; long-term leases of state assets in the tourism sector; leases of uncultivated land to landless farmers (about 140,000 leases in the last year); and endless talk about free private enterprises, still in practice restricted largely to self-employment (200,000 new licences since last October) and family firms in the service sector.

Inevitably, at the beginning of September 2010 even Fidel Castro recognised and stated, in an interview to the US monthly The Atlantic, that the Cuban model «does not work anymore». In mid-September the Cuban Workers Union CTC announced the suppression of 500 thousand public sector jobs by March 2011 (as already anticipated by Raúl on 1 August 2010). This was justified by «the need to raise production and the quality of services, to reduce the enormous social expenditures, to eliminate free benefits and excessive subsidies». The half a million are only 12% of public sector workers (who make up 80% of the active population, i.e. 4,400 thousand) one out of each four of them being regarded as redundant by Raoul, thus making total re-deployment from the public sector affect as much as 20% of active population (the figures are provided by Janette Habel, «Changement de cap a Cuba», Le Monde Diplomatique, October 2010; they add up only approximately. The FT of 24 April puts public employment at 85%, i.e. about 5 million). But bureaucratic impediments, lack of credit and of necessary material supplies, crippling turnover taxation, remain the main obstacles to the absorption of redundant workers through the growth of small scale private sector. The quality of education has suffered as a result of teachers leaving underpaid jobs; only 14% of the population uses Internet.

“We are convinced that the main enemy we face and will continue to face is our own shortcomings,” Raúl Castro said at the end of the Congress, echoing what Gorbachev might have said in 1985. The preliminary lineamientos (over 300 directives) of the Party Congress aimed at legalising what was already discrete current practice, such as price-fixing according to market principles (there has been a free peasant market for agricultural products since 1994, promoted by Raúl in spite of Fidel’s opposition), links between wages and productivity, greater autonomy for state enterprises. Above all there is a perceived urgency to open the economy, following the example of Vietnam and China. With the economic collapse of the Soviet economic and political system, Cubans lost their former benefactor and GDP fell by 35% during the «Special Period» of 1991-2000; today Venezuela’s subsidised oil in exchange for Cuban teachers and doctors is not enough to replace former Soviet support. Cubans now have to contend with the harsh reality of global markets, though they prefer to blame their aggravating economic backwardness not on globalisation but on their being denied access to it by the US trade embargo - perhaps the most myopic and counterproductive policy ever adopted by the United States towards a weak opponent.

There are bright spots. Since 1950, average life expectancy has risen from 58 to 77 years (as it did in Russia under Gorbachev). A recent issue of Foreign Affairs stressed that «Cuba is the only poor country in the world that can claim that health does not represent a fundamental problem for its population. Its success in this field is unrivalled». But tourism and nickel, the most dynamic sectors of the economy, were severely hit by the 2008 crisis; in the same year three successive hurricanes destroyed infrastructures worth $10 bn, equivalent to 20% of GDP. In 2009 agricultural production fell by 7.3%; the country imports 80% of its food, up from 50% in 2004, a growing vulnerability given the volatility of food prices over the last couple of years. Lending to Cuba by international financial institutions has been falling over the last four years, but total debt has been accumulating fast, from just over $16bn in 2006 to $20bn today, mostly towards China. (FT, 24 April 2011)

The ration card (tableta de abastacimiento) had some egalitarian merit in the distribution of basic goods, as an exceptional, temporary measure during short emergencies when established supply channels are suddenly disrupted by wars or natural calamities. Otherwise its continued persistent use since 1962, and the associated black/grey/multicoloured markets in which scarce goods are re-traded (whenever this is physically possible) at a premium, is a tragic misunderstanding of socialist values. Socialist planning ought to be capable of balancing supply and demand at stable prices, but if it fails it is much preferable to let prices do the rationing through price rises, at the same time subsidising the monetary incomes of the poorer groups of the population in order to support their real consumption levels. Yet the redistributive effects of market-clearing prices – in the absence of re-distributive, compensatory measures – are clearly undesirable. Urban poverty – i.e. inability to cover basic needs - is said to have risen from 6.3% in 1988 to 20% in 2000 (Mayra Espina, quoted by Jeanette Habel, «Cuba en quête d’un modèle socialiste renouvelé», Le Monde Diplomatique, January 2009).

Raúl recognises that the tableta is «irrational and unsustainable» but expresses vocal concern for the dangers of inequality, growth of the informal sector and the black market, themselves being generated in part by the rationing system: such concern should lead to generalised income subsidies rather than place a major drag on price-liberalisation. For without market-clearing prices you cannot imitate China and play with markets, with private entrepreneurship, hard budgets and export-led growth. A set up only too familiar from the last days of the Soviet régime.

o O o

In December 1969-January 1970 (the year of the 10 million tons of sugar) I visited Havana from Cambridge to lecture on investment planning at the Institute of Economics, following up on Richard Stone who had just been there to lecture on input-output models. In my course I tried to legitimise the use of an interest rate in investment selection, which was regarded then by Cuban economists as an exploitative bourgeois practice to be rejected. I pointed out that even Soviet Academician Stanislav Strumilin had advocated an interest rate within the Marxian Theory of Value, as the growth rate of labour productivity that reduced the labour value of future goods. I also argued that there was an implicit, shadow interest rate in investment choice in Soviet-type systems in the form of a minimum «recoupment period» within which additional investment costs had to be recovered by yearly savings in current operating costs.

I was curious to see what had been discussed in Cuban journals in the years immediately after 1959, and did some research in the Institute library. I was surprised to discover that the peak of the debate was a discussion between Che Guevara and Charles Bettelheim on whether or not the concept of value required a contradiction (sic). Bettelheim might as well have been sent to Cuba by the CIA, and perhaps he had been, to divert Cuban energies from the real tasks of building a socialist economy.

It was a memorable trip. Cubana Airlines from Madrid, stopover in Zander, Newfoundland, 17 hours on a propeller plane to Havana, stopover in the Canaries in the 17 hours on the way back to Madrid. Staying at the Hotel Nacional, together with large numbers of Russians and of the most gigantic multicoloured insects; lobster at every meal for a while, until I would have given anything for a sausage. Privileged access to free meals on a card and subsidised hotel shops, also for the spy-chaperon who was shadowing me all the time.

I visited Barradero beach (then deserted and to die for), Hemingway's house, a cigar factory, the most luxurious villa formerly belonging to the Rockefellers, with vast expanses of Carrara marble, beautiful succulents exotic flowers and colibri birds. I saw parts of the Cuban interior, including the Sierra, Santiago and its open sewers, sugar cane plantations where students and professors cut cane painfully and inefficiently at week-ends with dangerous looking machetes, a crocodile farm and the most over-built over-expensive cattle farm.

Empty shops everywhere, which two Italian town planners working there were planning to convert into cultural centres, and were horrified at my suggestion that it would be desirable to fill them with goods. Rationing for everything, not even tropical fruit was available for sale, though everything was available on the black market. An amazing display on the public roads of ancient-antique US cars, often cannibalised into the most curious hybrids. Buses (uauas) were driven around at terrifying speed, but I had a chauffeur-driven Alpha Romeo at my disposal, which Cuba had imported directly from Italy through a barter deal for nickel. I asked to be taken to the Bay of Pigs and, faced with vague promises, I went on strike i.e. refused to go on any other local trip until they did take me.

In Havana I met by chance an interesting young man, Carlos Vidali, a personal guest of Fidel’s being the son of Vittorio, the prominent Italian Communist who had traveled extensively in Cuba before and after the Revolution. Carlos arranged for me to meet the economy supremo Carlos Rafael Rodriguez, who firmly criticised my starry-eyed égalitarianism on pragmatic grounds. Only after my return to Europe did I learn that Carlos’ father was reputed – rightly or wrongly – to have had a role in organising Trotsky’s assassination.

According to Wikipedia
Vittorio Vidali – also known as Enea Sormenti, Jacobo Hurwitz Zender, Carlos Contreras, "Comandante Carlos" – was a colourful figure, a founding member of the Italian CP, Comintern agent and finally Communist MP in the Italian Parliament. He «was definitely involved in the May 24, 1940 failed frontal assault on Trotsky's residence in Mexico City, along with [Iosif] Grigulevich and Mexican painter David Alfaro Siqueiros. Vidali is thought to have been involved with the insertion of assassin Ramón Mercader into Trotsky's inner circle – Mercader was to kill Trotsky later that year», though the Italian version claims that Vidali’s presence in Mexico at the time of Trotsky’s assassination may have been «a sheer coincidence».

o O o

The shocking thing is that in over forty years since my 1970 visit not much has changed in Cuba by all accounts; not much is different from the Soviet days just before and just after the beginning of Perestroika, and a self-selected self-perpetuating small group of dogmatic and decrepit old men have been repressing the development of an entire country and its people for over half a century without having the slightest idea of what they are doing and why, heading for total and unmitigated disaster not only for themselves but also for the people they have taken it upon themselves to rule.


chilosi said...

What about the outside option? Not a possible theoretical one, but a probable alternative course (say, if Castro had not confiscated American properties or if the Americans had not overreacted and if Castro had not as a consequence become a Communist).

D. Mario Nuti said...

I take it you are asking: What If… Castro – who was not a communist to start with - had not been pushed into the Soviet bloc by American intransigence? And if Cuba had turned into an ordinary Caribbean dictatorship, given the improbable scenario of Castro implementing parliamentary democracy and a successful mixed economy?

On occasions I have played with counterfactuals (for instance, What If… Gorbachev’s perestroika had succeeded). But this is a harder one. Pass.

thedmaster said...

I was wondering, has the cuban convertible peso ever beeen targeted by speculative attacks ? And, being in a fixed peg with the dollar, wouldn't a first gneration currency crisis be possible, as it happened some time ago in Mexico? Does cuba have enough international reserves to avoid devaluation ?

D. Mario Nuti said...

In order to speculate against the convertible peso you would have to be able either to sell it short, or to borrow it with a view to sell it and buy it back later more cheaply to repay the loan at a profit.

For the convertible peso neither option is available. Similarly, one cannot speculate on the appreciation of China's yuan/renmimbi. Convertibility applies on a very limited scale, strictly controlled by the Central Bank. Hence there is no danger of significant speculative attacks.

Stefan said...

Something seems to be changing after all. "The Cuban Government announced it would allow all small private businesses to hire employees. It had previously restricted that privilege to specific occupations" (The Economist, 21 May).

D. Mario Nuti said...

The Cuban Government also announced the liberalisation of foreign travel - but there are still significant costs, delays and bureaucratic obstacles. Let's see how it is all going to pan out in practice.

None too soon, anyway.