There is a troubling reality that those of us who sympathize with the underlying objectives and achievements of the Cuban Revolution must confront: namely, that the Cuban economy as currently organized is incapable of producing the minimum supply of goods, services, and tax revenue needed to provide for the basic needs of the population. The overwhelming majority of food must be imported, the sugar industry has been decimated, and manufacturing is at a standstill and almost universally uncompetitive with foreign goods. Only a handful of industries—principally nickel mining, tourism, health services, and conceivably biotechnology—show any signs of potential. The state lacks the resources to pay workers anything close to subsistence wages, leaving them to resolver, meeting their everyday needs through illegal activities in the underground economy or, for a fortunate minority, through remittances sent by family members residing abroad. Two decades after the demise of the Soviet Union and the onset of the so-called Special Period, when Cuba opened up to foreign direct investment in a desperate attempt to keep its economy afloat, the country’s leadership has yet to elaborate a development model that reflects the imperatives of the 21st century.
One can debate how and why Cuba ended up in this predicament—the collapse of the Soviet bloc was unforeseeable, the reprehensible U.S. embargo increases transaction costs, a succession of hurricanes has devastated agriculture and housing stock, nickel prices have fluctuated, policy mistakes were made. The list goes on. But the fact of the matter is that, as President Raúl Castro has publicly and repeatedly acknowledged, the economic system that has prevailed for decades is unviable and urgently must be replaced. The government’s alarming failure to act accordingly over the many years that have elapsed since the collapse of the Soviet Union has resulted in severe hardship.
Conversations with Cuban youth today reveal that the costs of this paralysis go well beyond material deprivation: A generation has grown up deeply despairing of its future, profoundly skeptical toward revolutionary utopias, and all too frequently bereft of hope for any way out short of exit. It is in this context that the leadership has proposed and begun to implement a multi-faceted package of economic reforms. These measures, first articulated in Lineamientos de la política económica y social en Cuba (Guidelines on Economic and Social Policy in Cuba), an official document published in October 2010 that outlines 313 goals meant to “update” (actualizar) the Cuban economy. These guidelines were debated at thousands of meetings in neighborhoods and workplaces across the island in advance of April’s Sixth Congress of the Communist Party of Cuba, the first to be held since 1997.1 The long-awaited congress concluded its deliberations by approving changes more profound than any that have been attempted since the 1960s.2
Central to the economic reforms are provisions that will shift a significant portion of the workforce away from the sclerotic public-sector and into newly legalized private-sector activities; the number of layoffs ranges from a high of 1.8 million by 2015, according to some government declarations, to a more likely and scaled-down figure of 500,000 for now. Nearly 200 occupations previously limited to the state sector have been made legal, and the response by the population has been immediate: Three months after the Party Congress, more than 100,000 new licenses were granted for the establishment of small businesses.3 In a dramatic departure from past practice, entrepreneurs will be permitted to hire non-family labor, a measure that is intended to absorb workers who will be shed from the bloated state payroll.
Whether the reforms can revive the economy is highly uncertain, but the stakes could not be higher: If there are features of the Revolution that must be salvaged, surely they are the social gains that accumulated from 1959 until the beginning of the Special Period, gains that have been sustained to varying degrees since that pivotal moment in Cuba’s history. Yet they are expensive to maintain, all the more so in a society that, like the rest of Latin America but to an even greater degree, is grappling with the challenges of supporting a rapidly aging population (by 2025, more than a fifth of the population will be over the age of 60). Without an economic system that can generate jobs and wealth, whatever social advances have survived to this point—and nowadays these consist principally of access to health and education of fraying quality—will continue to erode. More troubling still, failure would inevitably exacerbate the trend toward widening social inequalities, which fuel the sense of alienation among segments of the population for whom the Revolution’s promise of social justice appears increasingly remote.
The reforms approved by the party congress constitute a qualitative shift from previous efforts to revive the Cuban economy. They are remarkable in scale and in scope. But the jury remains out as to their prospects, not only in terms of advancing the government’s twin objectives of reducing the hemorrhaging of state resources and increasing productivity, but also of the broader aim of enhancing social welfare. Three sets of questions stand out as highly contingent, yet crucial for responding to these uncertainties.
First, how internally consistent are the reforms, and what risks do they entail? Second, and inextricably intertwined, what are the additional, still to be defined elements of a reform agenda that will be needed to enable the government’s proposals to generate sustainable economic security and prosperity? Third, with regard to their potential to salvage the Cuban Revolution, to what extent do the unfolding reforms signal a transition toward a coherent strategy for development, one that envisions not only a return to fiscal solvency and economic growth but also an egalitarian approach to social welfare?
With regard to the first two questions, the foremost concern has to be with the fate of displaced workers. However true it may be that the state lacks the resources to pay hundreds of thousands of employees who, particularly in the manufacturing sector, often sit idle and produce nothing of value, those citizens and the households they support must have somewhere to turn for income. At least in the short term, unfortunately, it seems highly unlikely that self-employment and the incipient private labor market will be sufficient to accommodate the inevitable flood of job seekers. This is primarily because there is no guarantee that those who are laid off will have the skills needed to thrive in the newly authorized occupations, while lots of occupations that they may have suitable training for remain off-limits to private entrepreneurs. Cubans may now be free to start private businesses in an array of once prohibited fields, ranging from hairdressing to window repair to food preparation to retailing, as well as cultivating land that previously lay fallow on unproductive state farms. But not everyone is trained to cut hair, to fix windows, or to farm. If the substantial portion of the workforce that the government now considers redundant is not somehow absorbed into the new economy, Cuba could face a social catastrophe.
Prospects for rapidly expanding the supply of jobs will be increased if the authorities can implement an array of microeconomic reforms that have been anticipated but not yet specified in sufficient detail. This is where the question is one of internal consistency: Creating viable systems for allocating credit to new and existing companies, for example, would increase their likelihood of surviving and accelerate their potential for job-creating expansion. Yet so far it is not clear how the government will ensure this essential underpinning of a market economy. Consolidating tax systems whereby the state is able to capture a sufficient portion of companies’ profits so as to be able to sustain social investments, but without putting the companies out of business, is a no less daunting yet vital challenge. Equally important, the private sector will need reliable access to wholesale markets where companies can purchase much needed inputs, at accessible prices, and retail outlets where they can sell their goods and services.
That these critical foundations for a vibrant market economy are needed is not in question. Whether the government has credible plans for making them available is far less certain, and there is limited time to work out viable answers: Markets without enabling institutions have little likelihood of functioning effectively.
The longer-term question is whether Cuba’s leadership is proposing an integrated development strategy that draws on society’s strengths to build a plausibly desirable future. There is substantial and heated debate about this, both on the island and outside. On the one hand, as anyone who navigates the increasingly busy streets of Havana can attest, there is a buzz of economic activity that would have been unimaginable even a year ago. Change is definitely in the air, and alongside widespread fear about the anticipated layoffs, or to a lesser degree about the announced gradual reduction in the libreta—the monthly ration card that provides a small supply of food and basic consumer necessities—many Cubans voice a degree of cautious optimism that was absent before the Party Congress.
On the other hand, a recipe for stabilization does not a development model make. Indeed, as economist Pedro Monreal has pointed out in these pages and elsewhere for a number of years, what Cuba has required since at least the beginning of the Special Period is a comprehensive strategy for repositioning its economy in such a way as to take advantage of the strengths that emerged precisely as a result of the Revolution’s core commitments to social equity.4 Cuban officials justifiably trumpet the fact that the Revolution’s investment in primary through tertiary education has fostered a highly skilled workforce that could create value across countless knowledge-intensive industries as scientists, engineers, designers, and researchers. Tragically, however, that workforce increasingly finds that its only opportunities lie abroad.
A highly skilled population represents an invaluable asset that could be drawn upon if the government were to assign priority to strengthening industries that deploy a workforce with advanced training. It would be unfair to suggest that it has ignored the matter entirely (see Marguerite Rose Jiménez’s article in this volume on Cuba’s biotechnology sector). Yet notably absent from the list of occupations permitted under the Lineamientos are any that rely on high levels of education! Indeed, the roster of 181 professions that have been opened to self-employment read like a catalog of informal-sector service activity of the sort that governments throughout Latin America are trying to replace with formal-sector jobs. It is difficult to escape the fear that the opportunities opened up by the reforms are precisely those that a highly educated society should aim to have substituted with better-quality work and more value-creating industries.
For Cuba to embark on a path toward sustainable economic development, it must stimulate domestic demand for goods and services, yet this can be done only through a reform of the country’s dysfunctional system of exchange rates. The issue is complex, but in a nutshell, the country now operates with a dual economy. In one, the U.S. dollar has been replaced by the convertible peso (the CUC), which is pegged to a basket of foreign currencies; all but a limited set of essentials are available only in this currency. Cubans who have access to CUCs—through their jobs in the tourism sector or foreign-owned enterprises, family remittances, or transactions in the shadow economy—can secure an array of “luxury” consumer goods, from clothes to TV sets, albeit for a steep price. But for the remaining half or so of the population, those who rely exclusively on state salaries or on pensions, the prevailing currency is the Cuban peso, convertible into CUCs at a rate of 24-to-1. Public employees’ wages are paid exclusively in artificially depressed pesos that, when converted into CUCs, are essentially worthless. As a result, the large segment of the population that lacks access to CUCs also lacks any meaningful purchasing power.
The result is a stubborn drag on an economy in which only a fraction of society has the capacity to consume. More troubling still, this is a core source of a dramatic and worsening inequality, as the gap widens between those who can access CUCs and those who cannot. Cuba researcher Mayra Espina Prieto, featured in this volume, is among the Cuban social scientists who in conference presentations has identified a roughly 50% increase in inequality, as measured by Gini coefficients, between the mid-1980s and 2000. Despite the absence of definitive data, no close observer would question the assertion that the index has deteriorated further during the ensuing decade. According to Reuters, 85% of private savings in Cuba are held in only about 15% of the country’s bank accounts.5 To some degree this rising inequality may be mitigated by the shift of workers from under-compensated state employment into self-employment or wage labor for the emerging small-scale private sector. But that will have minimal impact and will not address the underlying problem: the urgent need to rid the system of the distortions generated by the current exchange-rate regime.
Nobody inside or outside the Cuban government denies that the situation is unsustainable, but it continues, for reasons that are on the one hand understandable, and on the other deeply disconcerting. The continuing exchange-rate regime is understandable because, as things now stand, the state collects inflated CUCs and converts them into artificially undervalued pesos in order to pay public-sector workers and have enough leftover to finance teetering social programs and the everyday costs of operating the system. Without the policy-induced gap between the two currencies, the state would crash, taking down with it the remnants of the (peso-funded) welfare programs that it continues to fund. This makes good sense.
But there is a darker side to the story: Closing the gap between the CUC and the peso would mean devaluing the CUC, and that is not in the interest of certain Cuban elites who thrive off their access to the CUC. Reforming the exchange rate would have a particularly powerful impact on the small number of Cubans who, often drawn from the ranks of the Armed Forces, earn handsomely from their leadership positions in major state enterprises and holding groups that on their own or together with foreign capital occupy the most lucrative niches in the economy. No scholarly study or journalistic account has mapped the actors in these segments of the economy or assessed their incomes, though Argentine analyst Carlos Pérez Llana hinted at this problem in a commentary published in May in the Taipei Times.6
That many of these people are high-ranking party members and that these firms are closely allied with the military is not trivial. It is difficult to escape the conclusion that in Cuba, as elsewhere in Latin America, inequality generates not only poverty—a topic that is strikingly absent from any of the documents put forth in connection with the reforms—but also wealth, and that those in whom wealth is concentrated stymie the introduction of policies that would redistribute resources more equitably.
The delay in correcting the distorted exchange rate suggests that, even if the most urgent questions on the table today appear economic, it is important nonetheless to recognize that Cuba is at a crossroads politically as well. In the United States and beyond, the mainstream media have spilled excessive ink dissecting the ramifications of Fidel Castro’s nearly complete disappearance from the scene—a product, perhaps, of a misguided assumption that the Revolution was all about a particularly charismatic and/or diabolical individual leader. Meanwhile, too little attention has been paid to who actually is wielding power in contemporary Cuba. As a result, observers have largely failed to illuminate the sources of regime stability amid a leadership transition in which Fidel successfully passed the baton, albeit to his slightly younger sibling rather than to a new generation. Those sources of stability may be the factors that constrain the reforms from moving in a more redistributive direction and that call into question the longer-term prospects for political continuity.
Considerations of politics in Cuba today have to acknowledge this dimension, that is, the interests that are served through the exercise of political power. This topic has been sorely neglected. At the same time, we must pay fresh attention to currents that emerge in contestation. Again, too little attention has been paid to the political messages to be derived from the debates that unfolded both before and after the Party Congress in April. The basic contours of reform have been reaffirmed, though there have also been important modifications to the initial Lineamientos, most notably a delay in the mass layoffs.7 More noteworthy still, commentators have entirely neglected the spaces of political innovation that have been percolating in Cuba, barely but not always beneath the surface, over at least the past decade. Noteworthy among these are the ubiquitous citizens’ and neighborhood associations, autonomous groupings—which are growing and consist largely but not exclusively of youth—and community-based economic cooperatives that are springing up in towns and barrios across Cuba.
A growing array of independent associations and advocacy groups has championed the rights of Afro-descendant Cubans, documenting and protesting patterns of exclusion that never disappeared entirely with the Revolution and that have grown more acute during the Special Period. While these actors, again predominantly youth, advocate cultural recognition and project their presence through public performances of various sorts, they also make claims on the state that are fundamentally material in nature, encompassing access to suitable housing, for example, and to higher education opportunities. From the perspective of the state, these forces are a potential source of dynamism in a society that has suffered from inertia, yet at the same time some of their priorities clash with the logic of reforms that, in the short term at least, seem destined to exacerbate inequalities.
These popular initiatives, some of which are analyzed in contributions elsewhere in this NACLA Report, often have only ambiguous ties to official channels for representation. There is little if any evidence, as well, that they are linked to the network of bloggers and dissidents who are championed in foreign media accounts of political dissent in Cuba. But in articulating unprecedented demands about social welfare and equality, about racial empowerment, individual autonomy and sexual identities, they will be important players in determining the future character of everyday life on the island. Considered in broader Latin American context, their insistence on popular agency is reminiscent of what we encounter in highly unequal societies virtually everywhere else in the hemisphere. Salvaging the Cuban Revolution is in part a matter of economic transformation, but more fundamentally, it is a matter of subaltern politics and resistance.
Eric Hershberg is Professor of Government and Director of the Center for Latin American and Latino Studies at American University. A former President of the Latin American Studies Association, he has served for nearly 15 years on NACLA’s Board of Directors.
1. Full text of the Lineamientos is available at cubalegalinfo.com/lineamientos-politica-economica-social-cuba/indice. For a thoughtful analysis of them, see Archibald Ritter, “El VI Congreso del Partido y los Lineamientos: un punto de viraje para Cuba?” Espacio Laical, suplemento digital, no. 132 (June 2011).
2. For an account of the debate and revisions effected at the Party Congress, see Información sobre el resultado del Debate de los Lineamientos de la Política Económica y Social del Partido y la Revolución (May 2011), available at scribd.com/doc/55084978/Tabloide-Debate-Lineamientos-VI-Congreso-Partido-Comunista-de-Cuba.
3. Agencia Venezolana de Noticias, “Trabajo por cuenta propia en Cuba genera nuevos empleos,” July 20, 2011.
4. See the following works from Monreal: “Sea Changes: The New Cuban Economy,” NACLA Report on the Americas 32, no. 5 (March/April 1999): 21–29; Development Prospects in Cuba: An Agenda in the Making (London: Institute of Latin American Studies, School of Advanced Study, Univsersity of London, 2002); “Cuban Development in the Bolivarian Matrix,” NACLA Report on the Americas 39, no. 4 (January/February 2006): 22–26; “El problema económico de Cuba,” Espacio Laical, no. 2 (2008): 33–35.
5. Marc Frank, “Cuba Grapples With Growing Inequality,” April 10, 2010.
6. Carlos Pérez Llana, “Cuban Revolution Has Lost Its Last Chance to Reform the Economy,” Taipei Times, May 11, 2011.
7. Marc Frank, “Cuban State Layoffs Move Slowly, Workers Uneasy,” Reuters, March 8, 2011.
Read the rest of NACLA's July/August 2011 Cuba Issue.