by Robert Sandels
Cuba-L Analysis
10/14/07
The US economy is showing unmistakable signs of exhaustion and imminent collapse due to perpetual war and massive indebtedness. Yet few pundits ask how well free-market absolutism is working out for us. This lack of curiosity about fundamental assumptions stands in contrast with the nationwide consultation the Cuban government is promoting with the Cuban people on how well their socialist economy is working out for them.
Just How Bad Off is the Cuban Economy?
Supporting the Bush administration's view that the Cuban economy is in ruins are monthly reminders from Commerce Department Secretary Carlos Gutierrez.
Gutierrez, the guardian of US commerce, has never given a major speech explaining what he has done to reverse the immense US trade imbalance, but gives on average one speech per month advising Cuba on what to do about its economy.
The Gutierrez stump speech is always the same: the "success" of the failed US free trade policy in Latin America; imaginary great leaps forward in the least progressive states such as Colombia, El Salvador and Peru; and the "prison" that Fidel Castro has made out of a once prosperous and free Cuba.[1]
He describes the Cuban economy in the most dismal terms and promises that the blockade will not be lifted until socialism is replaced with a market economy. Of course, that formula can be turned around: If socialism persists, the blockade will go on giving it time to consolidate and placing the US permanently outside the Cuban economy.[2]
Two recent surveys "prove" how really awful the Cuban economy is. The Economist Intelligence Unit proclaimed in February that Cuba was one of the worst places in the world to do business placing 80th out of 82 nations surveyed. Chief complaints were bureaucratic delays; restrictions on foreign investment as measured by a decline in the number of joint ventures; an unreliable workforce; but also financial obstacles to doing business there because of US pressures on foreign banks to quit Cuba, which the survey implicitly blames on Cuba.[3]
Another survey, this one by The Heritage Foundation's Index of Economic Freedom, rates the Cuban economy today at precisely 69.3% unfree, the worst in the Americas below Venezuela and Haiti. The index measures such things as business, investment, property rights and labor freedoms.
Researchers for this index seem not to notice that what they are really measuring is not freedom but rather how much other economies are like the one in the United States. It's not surprising then that the United States leads the world in this survey with an economy 82% free. (Cuba is 29.7 %.)
No measures of wealth distribution are cited so that Haiti comes in at a respectable 52.2%. Guatemala is singled out as one of the "best" (62.2%) for its "low government expenditures."[4]
By some measures not employed by The Heritage Foundation or The Economist, the Cuban economy is doing well. Using its own formula for reporting GDP, Cuba projects a healthy 10% growth for 2007 compared with 12.5% in 2006 and 5.8% in 2005. Growth in the first quarter this year was a promising 11%.
Tourism has slipped moderately so far this year but revenues from exports are rising. For 2006, GDP growth was fueled mainly by trade with Venezuela and China. Between 2004 and 2006, exports to China rose by 134% and exports to Venezuela by 31.5%. Exports of medical and other services went up 53% over 2005, and of goods by 27%. The overall increase in exports was 45%.[5]
Errors and Distortions
The two surveys would have been more enlightening had they measured the serious problems capitalism has helped create in Cuba since the market openings adopted in the early 1990s to counter the economic crisis (special period) caused by the end of Soviet assistance.
With three successive years of impressive growth, attention in Cuba has turned away from economic survival to survival of socialist principles challenged by low wages, shortages, dysfunctional public transportation and a host of other problems.
On November 17, 2005, Fidel spoke of the need to rethink basic economic policies, cataloging mistakes of the revolution. He alluded to errors not noticed by the revolutionary leadership. He described purchasing inequalities due to remittances from abroad, labor indiscipline, corruption, bureaucratic rigidity, pilfering of state property, waste, inefficiencies, the excessive subsidies to the consumers - problems he blamed for widespread disaffection. All of this, he said, was more harmful to the revolution than was US imperialism. He warned that only Cubans could defeat the revolution and he promised a campaign of reform and renewal.
One of the policy failures Castro cited was central to the Cuban socialist model - subsidies that everyone gets whether they need them or not; whether they work or not. Subsidies and the ration book would have to reassessed, said Castro. He railed at the "parasites," made idle by access to foreign currency. "Either we destroy these deviations and overcome these problems or we die," he warned.[6]
Reliance on the wage incentive to increase productivity and workplace discipline would seem to the capitalist to be as great a contradiction in a socialist economy as the market distortions and deviations Fidel thinks could kill the revolution.
However, in a 1995 speech, during the height of the economic crisis, Fidel explained that these apparent contradictions need not undermine the integrity of socialism. "The key," he said, "is the question of power." It is not the bourgeoisie that has the power but the people.
"If the workers have it, not the rich, not the millionaires, then we can make policies that favor the people, respecting the agreements made with certain foreign companies, respecting everyone and the interests of everyone."[7]
What about the development of "communist consciousness" which internalizes the needs of society and does not require the whip of the wage to contribute to the economy? Cuba cannot wait until the communist consciousness has taken root, said Francisco Soberon, president of the central bank.
In one of the most articulate and complete statements of the dilemma, Soberon addressed the problems due to income differentials resulting from remittances and informal work as well as corruption and theft. Soberon noted that the market openings of the special period caused a setback in advancing toward the objective of greater socioeconomic equality.
In this 2005 speech to the National Assembly, Soberon said the result was to create more inequality and the waste of state resources leaving the state to ponder how to manage the economy without abandoning "the politically strategic objective of creating a communist consciousness." [8]
"I believe we must search for economic formulas based on our specific conditions which, during the period, in which a communist consciousness is forged, will guarantee a greater contribution of each to our socialist society."
While the idea of making goods and services equally available to all without regard to work may sound good, under the circumstance of the economic crisis and the income differential it helped create, "such a distribution system has highly iniquitous consequences," said Soberon.
"The question," he said, "is how to find a formula for distribution that motivates everyone to contribute their maximum to the economy because when they do, it is good for them, for their families and for society. At the same time, it inhibits those who have found very questionable ways to receive high incomes without contributing to the national economy, and who can profit abusively from the work of those who create the country's wealth."
The current national search for the right formulas, therefore, is neither particularly novel nor a departure from the line of critical thought initiated by Fidel.
Raul's National Conversation
In his July 26 speech, interim President Raul Castro called for a broad popular consultation with the communist party and mass organizations on what to do about production bottlenecks, bureaucratic arteriosclerosis, work indiscipline, and the other problems the limited market openings insinuated into the socialist model.
Labor unions, workplaces, Committees for the Defense of the Revolution (CDRs) were all encouraged to challenge anything except socialism itself, so that as the April 2008 elections approach, the government might act on proposals that bubbled up from the great national debate. This would be government by consensus.
In the United States, every period of economic reform in Cuba is misunderstood or misrepresented. Foreign commentators have difficulty deciding what to make of economic openings and closings. Assuming that the only acceptable economic reforms are those leading to market capitalism, they do not know how to interpret Raul's push for greater efficiency in state enterprises (perfeccionamiento empresarial). On the one hand, introducing sound business practices like cost accounting might seem to the anxious capitalist like the long-awaited meltdown of Cuba's socialist structure. But on the other hand, a more efficient economy incorporating some capitalist practices might just perpetuate socialism.
Capitalism as the Default Economy
Whenever there is movement toward greater foreign investment, predictions multiply in the United States that socialism is withering away. Plans are made in Washington and Miami for building shopping malls and condos along the Havana waterfront.
But Cuban officials since the mid-1990s have explained that the openings were a limited adaptation of market principles as an alternative to neo-liberal capitalism embraced almost everywhere else in Latin America with disastrous results - an outcome never acknowledged in Washington.
When the government began partially closing some of the openings, especially in self-employment and foreign investment in 2003 and 2004, critics called it a step backward and described Castro as "conservative," when in fact it was a step forward in socialism
These are conclusions drawn from the assumption that free-market capitalism is part of the natural order and any economy straying from it is inevitably drawn back as if by some economic law of gravity. And, it is widely assumed that Fidel Castro is the force holding Cuba back from resuming its place in the capitalist cosmos.
Fidel's Health as a Macroeconomic Indicator
Therefore, commentators and policy makers continue to focus on Castro's health, fueling speculation about a supposed reversal of policies - perhaps even adoption of unfettered capitalism. Castro's health has become a major macroeconomic indicator of where the economy is headed.
The formula for this indicator is: Fidel dead or too sick to command plus Raul equals reforms. Fidel still in command minus Raul equals no reforms.
That's the way Los Angeles Times writer Carol J. Williamns saw after Castro was shown looking much recovered in a meeting with a Chinese official in April. Williams thought his apparent return from "death's door" meant he might resume active leadership and rein in Raul's would-be reformers.[9]
But no so fast, just five months later, as Fidel continued his recovery and continued writing his reflections for the press, the same Times writer reported on his "receding role in steering a Cuban populace that has moved on from his hard-line views on the virtues of sacrifice and austerity."[10]
In all this speculation, US policymakers seem not to notice that the United States has made itself increasingly irrelevant to the Cuban economy. Other trade and investment partners have taken its place. Instead of crippling the economy, the blockade has pushed Cuba beyond the US gravitational pull.
Replacing the United States are, among others, China and Venezuela. China and India, both possessing great advantage against the United States due to their huge dollar reserves, are eager to invest in Cuba's oil potential and have cemented other economic partnerships with Cuba in manufacturing and transportation. China has numerous joint venture deals with Cuba and is currently selling thousands of buses to Cuba contributing to a bilateral trade of $2 billion in 2006.[11]Venezuela is now Cuba's chief trading partner with bilateral trade in 2006 of $3 billion.
These partnerships, along with the development of regional integration through the Alternativa Bolivariana para Las Americas (ALBA), are the sort of alliances that the United States seems unable to develop for itself, most notably its collapsed Free Trade Area of the Americas. This leaves Secretary Gutierrez to extol US partnerships with some of the most troubled economies such as El Salvador, which has a remarkable 70.3% free economy rivaling even the freedom of the "hyper wealthy United States."[12]
Notes
[1] http://www.commerce.gov/NewsRoom/SecretarySpeeches/index.hml>
[2] While he was CEO of Kellog, Gutierrez explored the possibility of doing business in Cuba. The cereals company participated in a trade fair in Havana in 2002. Associated Press, 12/02/04.
[3] South Florida Sun Sentinel, 02/11/07.
[4]Index of Economic Freedom 2007, The Heritage Foundation, 01/05/05.
.
[5] Balance preliminar de las economías de América Latina y el Caribe 2006,
Comisión Económica para Latino América y el Caribe (CEPAL).
.
[6] FidelCasto speech, 11/17/05.
http://www.cuba.cu/gobierno/discursos/2005/esp/f171105e.html
[7] Fidel Castro speech, 08/06/95.
[8] Speech, Juventud Rebelde (Havana), 12/23/05.
[9] The Los Angeles Times, 04/30/07.
[10] Ibíd., 09/16/07.
[11] Agencia Cubana de Noticias, 09/28/07.
[12] Index of Economic Freedom 2007.

