• This Blog on The Cuban Economy is dedicated to Cuba's Generation "A". Although inspired by Yoani Sánchez' blog "Generation Y" this is not dedicated to those with names starting with the letter "A". Instead, it draws from Douglas Coupland's novel Generation A which begins with a quotation from Kurt Vonnegut at a University Commencement that was brought to my attention by Andrew Johnston of Ottawa: ".. ... I hereby declare you Generation A, as much as the beginning of a series of astounding triumphs and failures as Adam and Eve were so long ago."

    The objective of this Blog is to facilitate access to research resources and analyses from all relevant and useful sources, mainly on the economy of Cuba.

BIBLIOTECA DIGITAL CUBANA

The Biblioteca Digital Cubana is a most amazing web site with links to a myriad of complete books on Cuban history and historical archives, geography, economy, archeology, ethnology, literature and natural sciences together with old art, photos and drawings and maps. It also includes a library of Cuban periodicals and journals going back to the earliest colonial times. It constitutes an incredible library resource with an immense and probably quite complete collection of historical documents on Cuba,

It is unclear to me at this time specifically who or what organization assembled this listing. It brings together collections on Cuba from many parts of the world and in particular the Biblioteca Digital de la Biblioteca Nacional José Martí or BNJM at http://www.bnjm.cu/bdigital.htm   It was brought to my attention through a Facebook posting by Haroldo Dilla a few days ago.

The address of the site is here:

 Biblioteca Digital Cubana  http://bibliotecadigitalcubana.blogspot.ca/

Just to provide a taste of the vast resource available at one’s finger tips, I include below a few sections of the collection, one on the English capture of Havana in 1744, a section on Economics and a section on Cartography. A few photos and maps from the collection follows as well:

Historia y Geografía

INVASIÓN INGLESA

Mapoteca

Economía  ENSAYOS

AGRICULTURA, APICULTURA, PESCA …

Starving Cubans at natanzasCubans, Starving at Matanzas, circa 1898

American Colonists Arriving in Cuba shortly after the Cuban War of IndependanceAmerican Colonists Arriving in Cuba, circa 1906

British Capture of Havana.jpgaaaBritish Capture of Havana, 1762

NESA01_K04-0460_UMap of Havana, circa 1700

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Infant Mortality in Cuba: Myth and Reality

 Roberto M. Gonzalez, Department of Economics, UNC, Chapel Hill

An interesting paper on Cuba’s Infant Mortality Rate (IMR) was presented at the 2013 meetings of the Association for the Study of the Cuban Economy by Roberto M. Gonzalez, a graduate student in Economics at the University of North Carolina. The paper is especially interesting as it focuses on one important indicator of the quality of the health system, human development and socio-economic development which ostensibly has been a major achievement for Cuba. Cuba’s exceedingly low Infant Mortality Rate has been a major “logro” of the Revolution and a source o pride since the early 1960s.

Gonzalez presents information and analysis that casts some doubt on the official IMR figures. His complete argument can be seen in the Power Point presentation that he made at the ASCE meetings here: Infant Mortality in Cuba

The essence of his argument is that Late Fetal Deaths (LFDs) or deaths of fetuses weighing at least 500 grams are abnormally high in Cuba compared to other countries while Early Neonatal Deaths (ENDs) or deaths occurring in the first week of life are abnormally low. In the chart below, Cuba’s high LFD in orange and its low END in green can quickly be seen as outliers for the countries of Europe.

New Picture (12)What’s going on here? Perhaps it is reflects an erroneous mis-classification system, or purposeful mis-reporting or possibly late term and mislabeled abortions (if there is any chance of infant ill-health or a congenital health problems.)

While perhaps further work is needed to analyze this LFD-END puzzle, Gonzalez work has certainly raised serious questions about Cuba’s long-vaunted Infant Mortality Rate.

New Picture (14a )

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Cuba’s New Real Estate Market

Phil Peters Cubas New Real Estate Market

 Phil Peters, Lexington Institute, Washington D.C.

 Latin America Initiative Working Paper; February 2014; Foreign Policy at BROOKINGS

Original Essay here:  Brookings, Cuba’s New Real Estate Market)

 TABLE OF CONTENTS

1.      Introduction

2.       Real Estate Laws and the Market Before 2011

3.       Law 288: The Legalization of Residential Real Estate Sales in 2011

4.       Legal Processes under Law 288

5.      The New Market in Operation

6.      Market Experiences

7.       Housing Stock and Construction

8.      Can Foreign Nationals Buy Real Estate in Cuba?

9.       Conclusions

 Appendix 1. Cuban Supreme Court decision  permits legalization of illegal transactions of the past  

Appendix 2.  One buyer’s view of the market

 New Picture (11).bmpa

CONCLUSIONS

The legalization of residential real estate sales in November 2011 is one of the most significant actions taken in Cuba’s economic reform program. It has impact on the vast majority of Cuban households, transforming the nature of residential property.

Before, a home was an asset to use and to pass on to heirs. Now it can be made liquid. At the family level, the result is instant capital formation, the creation of wealth through the granting of a new legal use for assets to which Cuban families hold clear title.

Cuban homeowners thus have new options, although not all the home related transactions practiced elsewhere are available to them. Notably, there are no home mortgages, nor is it possible to use one’s residence as collateral for a loan.

Still, this action has the effect of creating a vast new stock of capital in private hands that is being used for private ends in a new market driven by decisions of private parties. The market appears to be functioning according to clear norms, and transactions are effected without excessive taxation or bureaucracy. Moreover, this market is bringing an inflow of capital from Cubans abroad. The creation of this new market is a clear case of the government ending burdensome controls and allowing a major expansion of private economic activity.

This reform counts as a human rights improvement because it a) expands economic freedom and advances private property rights by ending a prohibition on normal, beneficial transactions that affected all Cuban families, and b) it ends a long despised aspect of Cuban immigration law by repealing the requirement that emigrants forfeit their property to the government.

The market is producing one effect that officials desired the reacomodo or “rearranging” whereby homeowners with excess space are selling, buying smaller homes, and coming out ahead with a bank balance from which they can live or retire.

But home sales alone are not destined to solve Cuba’s housing shortage. While the measures that encourage home construction are having an effect, they are still being developed and implemented and their full impact will not become clear for several years.

Except in the tourism sector, the option of using foreign investment to expand Cuba’s housing stock is not a topic of discussion, even though Cuba’s current laws governing foreign investment would not bar it. It is an open question whether the Cuban government could find profitable formulas where foreign investors could build moderately priced housing for sale to the Cuban public. President Raúl Castro announced that, after long deliberation, new policies will be adopted in March 2014 to encourage greater foreign investment in Cuba’s economy; these policies may open the door to housing projects developed with foreign capital.

Finally, the absence of mortgage finance stands out as a major impediment to expansion of this young real estate market. Demand in this market, and consequently the expansion of the housing stock, is constrained by the lack of credit. In a market where full payment must be made at the time of purchase, the universe of Cuban buyers consists mainly of those who have sold a home or those who receive capital from a relative abroad. A monthly payment of approximately $200 would amortize a $25,000 loan at a five percent interest rate over 15 years. While many Cubans cannot afford such a monthly expense, $200 per month is affordable to many who work as entrepreneurs or for foreign businesses or elsewhere in the hard currency sector, and it would put modestly priced housing within their reach. Assistance to low income buyers could further expand affordability.

A justice ministry official says that consideration is being given to having Cuban banks offer home mortgage loans or other lending mechanisms. “But if so, no one would be put out on the street in case of default,” she says, adding that “the system of social justice will never be put at risk.” One option in case of default would be for the state to assume ownership of the property with the resident permitted to continue residing there, she says

Philip-Peters-Lexungton-InstitutePhil Peters

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Proyecciones macroeconómicas de una Cuba sin Venezuela

Pavel Vidal Alejandro

from the  Cuba Study Group, Desde la Isla; original source:  full article

Análisis de Pavel Vidal acerca del impacto a la economía cubana en el supuesto caso de una reducción importante en la cooperación económica con Venezuela.

New PictureDesde inicios de la década pasada la economía cubana ha venido incrementando sistemáticamente sus relaciones con Venezuela. Actualmente el comercio de bienes representa el 40% del intercambio total de la isla, muy por encima del segundo lugar ocupado por China con 12,5%. En este porcentaje pesa sobre todo la importación de petróleo venezolano; en 2011 la factura llegó a US$2.759 millones. La importación del crudo venezolano cubre el 60% de la demanda nacional y además permite la reexportación de una parte del mismo. Solo el 50% del pago de las importaciones de crudo venezolan se efectúa dentro de los primeros 90 días, el restante 50% se acumula en una deuda a pagarse en 25 años con un tipo de interés del 1% anual.

 Continue reading: Vidal,  Cuba sin Venezuela

New Picture (11)

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Cuba’s Reward for the Dutiful: Gated Housing

 By DAMIEN CAVE FEB. 11, 2014; New York Times

Original Here: Cuba’s Reward

HAVANA — In the splendid neighborhoods of this dilapidated city, old mansions are being upgraded with imported tile. Businessmen go out for sushi and drive home in plush Audis. Now, hoping to keep up, the government is erecting something special for its own: a housing development called Project Granma, featuring hundreds of comfortable apartments in a gated complex set to have its own movie theater and schools.

“Twenty years ago, what we earned was a good salary,” said Roberto Rodríguez, 51, a longtime Interior Ministry official among the first to move in. “But the world has changed.”

Cuba is in transition. The economic overhauls of the past few years have rattled the established order of class and status, enabling Cubans with small businesses or access to foreign capital to rise above many dutiful Communists. As these new paths to prestige expand, challenging the old system of rewards for obedience, President Raúl Castro is redoubling efforts to elevate the faithful and maintain their loyalty — now and after the Castros are gone.

Continue reading: Cuba’s Reward for the Dutiful, Gated Housing

aa Apartments at a new housing development in Havana called Project Granma are for loyal Communists, families tied to the military and the interior ministry. Todd Heisler/The New York Times

 

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Cuba’s Conception Conundrum: A Valentine’s Day Puzzle

14febrero_down

By Arch Ritter

An interesting phenomenon, namely the seasonal character of the numbers of births in Cuba – and of course the accompanying though implied seasonality of conception rates – is apparent in Table II.5 of the 2012 ONE Anuario Demográfico[i]. This is illustrated in Chart 1 below.

 New Picture (12)

The number of births over the course of the year follows a clear pattern that is apparent in the six years illustrated in the Chart. The number of births peak from September to December, decline sharply during the months of January to April, bottom out from May to June and then rise again from July to September.

In view of the nine-month period between conception and birth, the chart says something interesting about the amorous character of Cuban citizens. The implication of the birth pattern is that conception levels are highest from January to April and lowest from August to October.

Why would Cubans be so much more amorous in the January-April period than the August to October period?   

Is it the weather? Perhaps the cooler sunny weather of Cuba’s winter months is more conducive to amorous events and conception. And, conversely, perhaps the heat and mugginess of summer and the autumn rainy season is less conducive to “amor.”

Is it economics? Possibly there is greater optimism and dynamism during the more prosperous times of the tourist high season (which once corresponded to the Zafra, when sugar was king.)

Is it tourism? The pattern of conception levels corresponds closely to the seasonal pattern of tourism in Cuba as can be inferred from Chart 2 below. ­.

Does Valentine’s Day itself generate more conceptions and related activities, given that births often spike nine months later in October?

If anyone has clearer and more definitive insights into this phenomenon, please let me know!

 New Picture (11)

index


[i] Cuba’s Oficina Nacional de Estadisticas (ONE) recently published the 2012 Edition of the Anuario Demográfico de Cuba 2012. Statistical information for Cuban demography is available comprehensively and conveniently. ONE’s coverage and presentation of demographic statistics is impressive. (In contrast, basic information on the economy such as unemployment, the consumer price index, trade and GDP is opaque, minimalist, not clearly defined, and now very late in appearing on ONE’s web site.)

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Time to hug a Cuban

Source:    http://www.economist.com/news/americas/21596532-rush-embrace-fading-outpost-communism-time-hug-cuban

A rush to embrace a fading outpost of communism

20140215_AMD000_0The Economist; Feb 15th 2014 |

HOW best to speed change in Cuba? The past few weeks have brought three different answers to that question, from the United States, the European Union and Latin America.

For more than 50 years the official American answer has been to try to asphyxiate Cuban communism through an economic embargo, and to encourage internal dissent. It was policy as tantrum, a counterproductive failure. Change is coming to Cuba—but from the top, not below. Since replacing his elder brother, Fidel, as Cuba’s president in 2008, Raúl Castro has unleashed economic reforms which, while officially aimed at “updating socialism”, are in practice introducing elements of capitalism. Some 450,000 Cubans work in a budding private sector of farmers, co-operatives and small firms.

Across the Florida Straits, the changes are causing long-monolithic support for the embargo to crumble. A poll taken in the United States for the Atlantic Council, a think-tank, published on February 11th found that 56% of respondents favoured normalising relations with Cuba. Days earlier Alfonso “Alfy” Fanjul, the patriarch of a pre-revolutionary sugar dynasty and long a pillar of anti-Castro Miami, told the Washington Post that he had made two trips to his homeland, talked to Cuban officials and would invest in Cuba “under the right circumstances”.

Barack Obama, who briefly shook Raúl’s hand at Nelson Mandela’s funeral in December, has lifted some restrictions on travel and remittances to the island. Many observers expect him to take further steps in that direction and to revoke Cuba’s anachronistic designation as a state sponsor of terrorism—once November’s mid-term elections are out of the way. But only the United States Congress can fully dismantle the embargo.

On February 10th the European Union, whose members maintain economic ties with Cuba, announced that it wants to start talks on a “political dialogue and co-operation agreement”. In practice many of its members have already sloughed off a “common position” adopted in 1996, a kind of embargo-lite that predicated closer links on promoting a transition to democracy. The EU was at pains to stress that this was not really a policy change, but it is.

One thing the EU will keep doing is to complain about the lack of human rights in Cuba. Latin America has already stopped bothering. Last month Raúl hosted a gathering of the Confederation of Latin American and Caribbean States (CELAC), a body set up in 2011 explicitly to include Cuba and exclude the United States. In Havana the bloc’s leaders signed a declaration that stated that regional integration should “respect…the sovereign right of each of our peoples to choose its own form of political and economic organisation”.

Many Latin American leaders see being friendly to the Castros as a cost-free way of showing that they no longer take political direction from Washington, DC, let alone Miami. (A handful would like to go further and be like the Castros.) Yet their declaration was a cavalier disavowal of the democracy clauses inserted into many regional agreements over the past two decades. It smacked of double standards: so quick to condemn dictatorships of the right, today’s crop of centre-left leaders are happy to give the Castros a free pass.

Oddly this rush to hug a Cuban comes as reform shows signs of stalling. The pace of private-sector job creation has slowed. The government has shut down private cinemas; it has ejected several Western businessmen. A special economic zone at a new Brazilian-built port at Mariel has yet to attract foreign investors, because of the restrictions they still face. Many Cubans felt insulted when they were granted permission to buy new cars—at astronomical prices.

The aim of the reforms is to allow the private sector to create the wealth that the state can’t. But the Communist bureaucracy still resists the notion that this has to involve creating wealthy people. If Raúl were to die before the reforms have created a broad coalition of winners, there would be a risk of backsliding.

In fact, the key to speeding change in Cuba probably lies in Caracas. Thanks to an alliance forged by Fidel and Hugo Chávez, Venezuelan aid accounts for around 15% of Cuba’s GDP. Years of misrule have brought Venezuela to the verge of an economic implosion. It is the fear of losing Venezuelan petrodollars, as well as apprehension about the “biological factor” (as Cubans call the death of the elderly Castros), that drives the island’s halting process of change. For other powers the best way to help is through efforts that support Cuba’s budding capitalism without offering the Castros any political endorsement.

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Venezuela and Argentina: The party’s over; [ time for Cuba to partner with Brazil ! ]

Latin America’s weakest economies are reaching breaking-point

Feb 1st 2014 | BUENOS AIRES AND CARACAS

Original essay here: http://www.economist.com/-latin-americas-weakest-economies-are-reaching-breaking-point


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Nicolás Maduro and Cristina Fernández de Kirchner at the CELAC Cumbre, Havana

WHEN the euro crisis was at its height it became commonplace for struggling European economies to insist that they were not outliers like Greece. Whatever their woes, they declared, Greece’s were in a class of their own. In Latin America, by contrast, the unwanted title of outlier has two contenders: Argentina and Venezuela. Both have been living high on the hog for years, blithely dishing out the proceeds of an unrepeatable commodities boom (oil in Venezuela; soya in Argentina). Both have been using a mix of central-bank interventions and administrative controls to keep overvalued exchange rates from falling and inflation from rising. Both now face a come-uppance.

High inflation is a shared problem. Argentina’s rate, propelled higher by loose monetary and fiscal policies, is unofficially put at 28%. Argentina’s official exchange rate is overvalued as a result, fetching 70% more dollars per peso than the informal “blue” rate in mid-January. Venezuela’s prices are rising faster still. Last year, during an awkward political transition after the death of Hugo Chávez to the presidency of Nicolás Maduro (pictured with Cristina Fernández de Kirchner, the Argentine president), the Central Bank stepped up money-printing to finance public spending, pushing inflation to 56.2%. A dollar fetches 75-80 bolívares on the black market, up to seven times the official rate.

Both countries have dwindling arsenals with which to defend their overvalued currencies. Venezuela’s reserves of gold and foreign currency, which stood at nearly $30 billion at the end of 2012, were down to just over $21 billion by last week. Only about $2 billion of that is in liquid assets. Ecoanalítica, a research firm, estimates that the government can also dip into around $13 billion of opaque, off-budget funds. Argentina’s reserves have also been tumbling (see chart).

Something had to give, and late last month it did. Argentina first allowed the peso to plunge, by more than 15% in the week starting January 20th, and then announced a relaxation of the government’s ban on buying foreign currency for saving purposes. Argentines making over 7,200 pesos ($900) monthly are now able to change 20% of their salary into dollars at the official exchange rate so long as they get approval from AFIP, Argentina’s tax agency. The dollars are transferred to their bank accounts, not released in cash, and hit by a 20% fee if withdrawn before a year. If that sounds complicated, it is still cheaper than buying dollars in the illegal market.

The government’s objective seems to be to close the gap between the official and blue exchange rates, alleviating the need to spend more of those precious reserves to prop up the official rate. Although the gap has closed a little, fear that devaluation will lead only to yet higher inflation explains continued high demand for dollars, even at the less favourable exchange rate. So too does the fact that only a third of Argentine workers meet the declared-income threshold for buying dollars, according to analysis by IARAF, a think-tank.

Guido Sandleris of the University Torcuato di Tella says the plan is doomed to failure unless the government becomes more open about its intentions and adopts a genuinely restrictive set of policies to battle inflation. Although the Central Bank this week raised one of its interest rates by a full six percentage points, rates remain below inflation, giving Argentines little reason to hold pesos.

On the fiscal front the government needs to reduce subsidies and remain unyielding in the face of workers’ demands for pay rises. Miguel Kiguel of EconViews, a consultancy, says wage increases to be negotiated in March and April must remain under 30% if they are to serve as an anti-inflationary anchor. That will be hard given lavish pay awards handed out to striking policemen last year.

Whether the government is willing to put prudence before politics is not clear. On the day that her government let the peso’s slide turn into a slump, Ms Fernández announced a plan to fund education for unemployed 18- to 24-year-olds that could cost 11 billion pesos. Her only reference to the currency’s fall was a tweet accusing banks of helping favoured investors to speculate on the peso. There are some people, she wrote, who “want to make us eat soup again, but this time with a fork.”

20140201_AMC257At least Argentina’s partial liberalisation of currency controls is a halting step towards normality. Venezuela, where the situation is even more perilous, is heading in the other direction. On January 22nd the government unveiled new rules under which a higher rate for non-essential transactions is set weekly (it stood at 11.36 bolívares to the dollar this week). The old rate of 6.3 still applies for government imports and basic items such as food and medicine, so reserves will keep falling as the government defends the currency.

Venezuela is running out of dollars to pay its bills. Although payments to its financial creditors of around $5 billion this year do not appear to be at risk, the country’s arrears on non-financial debt are put at over ten times that sum. These include more than $3 billion owed to foreign airlines for tickets sold in bolívares, and around $9 billion in private-sector imports that have not been paid for because of the dollar shortage. “Under the current economic model, and with this economic policy,” says Asdrúbal Oliveros of Ecoanalítica, “this [debt] looks unpayable.”

The effects are already apparent. Foreign airlines have placed tight restrictions on ticket sales; some have suspended them altogether. Many drugs and spare parts for medical equipment are unavailable. Car parts, including batteries, are increasingly hard to find; newspapers are closing for lack of paper. The country’s largest private firm, Empresas Polar, which makes many basic foodstuffs, is struggling to make some products. In a statement Polar said the government owed it $463m and that production was “at risk” because foreign suppliers of raw materials and packaging were threatening to halt shipments.

The government blames the crisis on private businesses and “irresponsible” use of hard currency by ordinary Venezuelans. It has ordered drastic cuts in dollar allowances for travellers, especially to popular destinations like Miami. Remittances to relatives abroad have also been slashed. In a bid to curb runaway inflation, it has introduced a new law restricting companies’ profits to 30% of costs. Long jail sentences await transgressors. Without a big injection of dollars from the state oil company, Petróleos de Venezuela, which brings in 96% of foreign earnings, the crunch will continue. Better terms for foreign investors in the oil industry would bring in much-needed cash and boost stagnant production. But unless the government abandons its antipathy to private capital, the prospect of new investment is dim. Shortages of goods are only likely to worsen. If Argentina is an outlier, Venezuela risks straying into a different category entirely.

cristina-fernandez-raul-castro-nicolas-maduro-foto-estudios-revolucionRaul, Cristina and Nicolás 

Raul and DilmaRaul and Dilma Rousseff

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EU to start talks with Cuba on a co-operation accord

Original Essay here: http://www.bdlive.co.za/world/americas/2014/01/31/eu-to-start-talks-with-cuba-on-a-co-operation-accord

New Picture (11).bmpsdf

BRUSSELS, JANUARY 31 2014 (Reuters) — The European Union (EU) will agree next month to deepen relations with Cuba in its most significant overture to the communist island since the bloc lifted diplomatic sanctions in 2008, people close to the matter have told Reuters.

Foreign ministers from the EU’s 28 countries will give the go-ahead on February 10 to launch talks with Havana on a special co-operation accord to increase trade, investment and dialogue on human rights. The pact could be agreed by the end of 2015.

“Cuba wants capital and the EU wants influence,” said one person involved in the talks who declined to be named because of the sensitivity of the issue. “This co-operation could serve as a prelude to much more.”

Two other people with knowledge of the negotiations told Reuters that a consensus had been reached in Brussels to give momentum to Cuba’s market-oriented reforms under President Raul Castro and to position European companies for any transition to a more capitalist economy there in the longer term.

While the initial effect of a co-operation agreement will be limited, the symbolism is huge for the EU, whose ties with Cuba had been strained since it imposed sanctions in 2003 in response to Havana’s arrest of 75 dissidents.  Although the EU lifted those sanctions in 2008, the normalisation of relations has been tortuous because of resistance from Poland and the Czech Republic due to their communist past.

Havana has rejected the EU’s “common position” on Cuba that the bloc adopted in 1996 to promote human rights and democracy in the country.

Furthermore, the US, Cuba’s long-time foe that has kept an embargo against the Caribbean island since 1962, had exerted pressure on Brussels to try to isolate Havana. Washington has not sought to block the EU’s latest efforts, people close to the talks said, while Poland and the Czech Republic now back a deal with Cuba.

In a sign of impatience with the status quo, the Netherlands sent its foreign minister to Havana in January. This first such trip by the Dutch since the 1959 Cuban Revolution broke with EU policy to limit high-level visits. Spain, a former colonial power in Latin America and the Caribbean, has also been pushing for a change of approach since ailing, long-time Cuban leader Fidel Castro handed power to his younger brother Raul in 2008. Some EU countries see the 1996 “common position” policy as outdated because 18 EU governments have bilateral agreements with Cuba outside the common position, making it hard for the bloc to speak with one voice.

Still, Spanish Foreign Minister Jose Manuel Garcia-Margallo has been adamant that the “common position” will remain for the time being while the European Commission, the EU executive, negotiates the co-operation pact.

“If Europe wants to have a presence when there’s a transition in Cuba, the EU has to start working now.

“It’s right to start dialogue now so that Europe isn’t absent when a transition happens,” said Carlos Malamud, head of Latin American research at the Real Instituto Elcano, a think-tank in Madrid.

A co-operation pact, which the EU has used as a tool in the past to strengthen relations with Central America and Asia, is not likely to increase trade greatly because Cuba sells very little to Europe. Besides cigars and rum, Cuba’s exports are not of huge interest to the EU, but Brussels believes developing business ties is the best way to press for change in Cuba. The EU is Cuba’s biggest foreign investor and Cuba’s second biggest trading partner after Venezuela, and a third of the tourists to the island every year come from the EU.

Cuba recently opened a Chinese-style special economic zone and is preparing a new foreign investment law. The country is seeking foreign investment at its port facilities in Mariel Bay to take advantage of the expansion of the Panama Canal.

27-eu-flag-buttons-plus-nato-eu-4763120

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POTENTIALS AND PITFALLS OF CUBA’S MOVE TOWARD NON-AGRICULTURAL COOPERATIVES

Below is an analysis of  Cuba’s move toward non-agricultural cooperatives, presented at the meetings of the Association for the Study of the Cuban Economy in July 2013 and published in the Proceedings of that Conference.

The complete essay can be read here: Cuba’s Move towards Non-Agricultural Cooperatives

  By Archibald R. M. Ritter

In the process of re-analyzing the issues and problems facing the Cuban economy following the July 2006 accession to power by Raúl Castro, it was concluded that much of the state sector of the economy — and the planning process under which it operated — was irredeemably inefficient. Numerous attempts had been made to improve its operation, but all were without significant success. This was typified sharply by the collapse of the sugar agro-industrial sector, by the inability of the non-sugar industrial sector to be revived after its collapse in 1989-1992, by the continuing shortcomings of the consumer economy and by the burgeoning of the underground economy. In response to this continuing predicament, Raúl Castro’s Government produced the “Draft Guidelines for Economic and Social Policy” of October 2010 with a final version in May 2011, which notably called for the establishment of an enabling environment for small enterprise, among other things. The “Guidelines” document also included a section on the promotion of new non-agricultural cooperative enterprises. This institutional form was the object of considerable analysis within the Cuban Government between 2008 and 2012.

On December 11, 2012, a battery of new laws and regulations on cooperatives were published in the Gaceta Oficial No. 53, including two Council of State Decree-Laws, two Ministerial Resolutions, one Council of Ministers Decree, and one Ministerial “Norma Específica de Contabilidad.” This legislation outlined the structuring, functioning, governance and financial organization of the new cooperatives and provided the legal framework within which they were to operate. It permitted and defined a new type of economic institution for Cuba, one that would have been out of the question under the presidency of Fidel Castro, but that holds the potential for revolutionizing the institutional structure of the Cuban economy. The legislation presented the cooperatives as “experimental,” and indicated that after some 200 were initially approved, the institutional form would be reappraised and modified as appropriate. There is therefore some uncertainty regarding the long-term character of the legislative framework governing the structure and functioning of the cooperatives. However, in our judgment, the reform will more likely be more “loosening” rather than restricting – assuming that Raúl and his successors do not return to the de-marketizing and centralizing orientations of the previous “Fidelista” era.

In essence, the new legal regime for non-agricultural cooperatives provides for ownership and management of the enterprise by its employees, with mainly independent management and control –– over the setting of prices, the purchase of inputs, decisions regarding what to produce, labor relations and the remuneration of members.

Reforms of state enterprises were announced on July 7, 2013 by the Minister responsible for the reform process, Marino Murillo (Frank, 2013). State enterprises were to be granted greater control over their profits – retaining 50% thereof for their own uses – as well as over wages and salaries, investment expenditures, and the purchase of imported inputs. It was still unclear as to whether prices were to be controlled by the state planners or by market forces. It is still too early at the time of writing to say whether these changes in the regimen for state firms will amount to a reliance on the forces of supply and demand for their social control. However, they signal a shift towards a more mixed economy, greater decentralization of economic management, and a diminished role for the central planning authority.

This type of worker ownership and management within a market environment could be regarded as a variant of “market socialism.” Cuba is launched on a path towards a hybrid type of mixed economy with a still-significant state sector, an expanding small enterprise sector, a joint venture (foreign and domestic state enterprise), and now an employee-owned and managed sector.

Only Yugoslavia prior to its break-up included a large part of its economy under a unique form of workers’ management, though it still seems to have involved authentic workers management in theory more than in practice (Carson, 1973). Most other countries have cooperative enterprises of various types that survive and thrive. However, while some cooperative enterprises are large and highly successful, no form of cooperative model has taken over a majority share of the economy in any country since Yugoslavia disintegrated in 1990-1992.

If Cuba’s new legislative framework for non-agricultural cooperatives is sustained, and if they actually function as they are intended, their governance and operation will be quite democratic and egalitarian in terms of the decision-making process within the enterprise and the distribution of income among members.  The adoption of this cooperative model, involving workers’ ownership and management and operating under market mechanisms, could turn out to be a major institutional innovation for Cuba. In the current context of the existing economic structures in virtually all of the countries of the world, this might prove to be innovative and perhaps revolutionary, though it is still too early to judge.

 

THE COOPERATIVE ALTERNATIVE

 THE 2012 LAW ON NON-AGRICULTURAL COOPERATIVES

 POTENTIAL OF THE COOPERATIVE COMPONENT FOR THE CUBAN ECONOMY

 DIFFICULTIES AND LIMITATIONS OF CUBA’S COOPERATIVE LAW

 IMPLEMENTATION BEGINS

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SUMMARY AND CONCLUSION

            Cuba’s December 2011 initiative for the establishment of non-agricultural cooperatives may permit the emergence of larger scale non-state enterprises that could operate with greater effectiveness than state enterprises. Moreover, such cooperatives may well have advantages over private sector enterprises particularly regarding the equity of their income distribution arrangements and also workers’ incentives and levels of commitment.

If this initiative is implemented broadly in the Cuban economy, it could constitute a change and perhaps an improvement of historic dimension. With much of the state sector of the economy converted to cooperative institutional forms, Cuba could become a country of “cooperative socialism,” which would be quite different from the highly centralized and state-owned system to which it has aspired for half a century.

However, authentic cooperatives are not easy to establish, to manage or to operate effectively. There are also a number of uncertainties and potential problems which are specific to the Cuban case, judging from the legislation. Perhaps the more serious of these potential difficulties include firstly, the approval process which is unclear and susceptible to control from the center; secondly, the nebulous role of the Communist Party in the functioning of the enterprises; thirdly, the limited possibility of hiring of non-member workers;  is very limited and finally, the uncertainty as to whether or not cooperatives providing professional services of various sorts will be permitted.

It is wise that the government is proceeding cautiously and that it is considering the cooperative enterprises’ first phase as “experimental” and tentative in character. The legislative framework within which these cooperatives operate can then be modified on the basis of the initial experience. This pragmatic approach is pointedly different than the decision-making process under President Fidel Castro, in which substantive policy shifts and institutional changes were determined by the President and implemented rapidly such that the full foolishness of the decisions would become apparent only after it was too late to change course.

If it comes to fruition as it is envisaged in the cooperatives legislation, the role of worker management and of worker control could constitute a significant degree of “economic democracy” for Cuba.  This would be a significant and, indeed, a paradoxical development in view of the near complete lack of authentic democracy in Cuba’s political system. Will democracy in the workplace generate a strong pressure and impetus for the spread of genuine participation in the political sphere?

 [1] I would like to thank Ted Henken and Jorge Pérez-López for valuable substantive as well as editorial contributions in the preparation of this essay.

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BIBLIOGRAPHY

Carson, Richard. Comparative Economic Systems. New York: Macmillan, 1973.

Caruso-Cabrera,  Michelle. 2013. “Cuba shows beginnings of free enterprise—sort of,” CNBC, July 12.

Ciudad de La Habana.2010. Proceso de reducción de plantillas. (Power Point Presentation) August 24.

Cuba Libre Digital.  “La burocracia ‘socialista’ consume a las nuevas cooperativas no agropecuarias.” 10 de enero de 2013.

 Decree 309, Council of Ministers. Gaceta Oficial de la República de Cuba, Número 53. 11 de diciembre de 2012.

Decree-Law 305. “De las cooperativas no agropecuarias.” Gaceta Oficial de la República de Cuba, Número 53. 11 de diciembre de 2012.

Frank, Marc.  2013a.  “Cuba’s non-farm co-ops debut this week amid move toward markets,” Chicago Tribune, June 30.

Granma. September 11 and 14, 2012.

Horvath, Branco. “Yugoslav Economic Policy in the Post-War Period: Problems, Ideas and Institutional Developments,” American Economic Review, June 1971.

International Cooperative Alliance. WebSite: www.ica.coop (accessed January 15, 2013).

Juventud Rebelde. 18 de diciembre de 2012. Debate sobre la nueva ley de cooperativismo : Se buscan socios.http://www.cubainformacion.tv/index.php/economia/47243–cuba-extiende-las-cooperativas-a-a-la-traduccion-la-informatica-y-la-contabilidad. Accessed January 16, 2013.

La Nación. “Primeras cooperativas no agropecuarias en Cuba comienzan en una semana.”  San José, Costa Rica. 23 de junio de 2013.

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Partido Comunista de Cuba. VI Congreso. Lineamientos de la Política Económica y Social del Partido y la Revolución. La Habana, 18 de abril de 2011.

Peters, Phil. Reforming Cuba’s Agriculture: Unfinished Business. Arlington Virginia: Lexington Institute, 2012.

Piñeiro Harnecker, Camila. (Compiladora). Cooperativas y Socialismo: Una Mirada desde Cuba. La Habana: Editorial Caminos, 2011.

Piñeiro Harnecker, Camila. “Las cooperativas en el nuevo modelo económico,” in Pavel Vidal Alejandro and Omar Everleny Perez Villanueva (Compiladores) Miradas a la economía cubana: El proceso de actualización. La Habana: Editorial Caminos, 2012.

Piñeiro Harnecker, Camila. “Visiones sobre el socialismo que guían los cambios actuales en Cuba.” Revista Temas, No. 70, abril-junio de 2012, La Habana.

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