Author Archives: Ritter Arch

Fidel’s No-Good Very Bad Day

Posted on September 15, 2010 by Arch Ritter

A “Senior Moment”? On Wednesday September 8, former President Fidel Castro was quoted as saying: “The Cuban model doesn’t even work for us anymore”, when asked if Cuba’s economic system was still worth exporting to other nations, by Jeffrey Goldberg, of The Atlantic. A few days later, Friday September 10, Fidel said that it was a misunderstanding though Jeff Goldberg and Julia Sweig insisted that this is what he said. Had Fidel been experiencing a “Senior Moment?” Had he been speaking in jest- a throw-away line in a jocular conversation, but also revealing concerning his legacy to Cuba and the world? Was he misunderstood or misheard or mistranslated?

Fidel’s Economic Legacy: Rejected by Brother Raul and Questioned by Cuba’s Government

Then on Monday September 13, the Pronunciamiento de la Central de Trabajadores de Cuba announced the new policy on lay-offs in the state sector and expansion in the self-employment and cooperative sector employment. This statement outlines a new direction for the Cuban economy, namely towards greater reliance on the market mechanism, private ownership and entrepreneurship and a reduced role for the state and (attempted) planning. Cuba already had a “mixed economy” with a substantial private sector in agriculture and some 143,000 in non-agricultural activities, not to mention all those in the underground economy. However, the statement by the Cuban Federation of Labour indicates a major shift of emphasis towards a more marketized, decentralized, private-sector economy. This shift in direction for the Cuban economy negates all that Fidel has stood for regarding the economy in the past. Fidel was responsible for

  • the initial nationalizations of almost all the private sector, including self-employment in 1961-1963 and 1968 (with the “Revolutionary Offensive” )
  • the continuous fulminations against the self-employment and “capitalism” from a variety of perspectives
  • the shut-down of the farmers’ markets in 1986 with the “Rectification program”
  • the tight containment of self-employment after 1995 and
  • discrimination against self-employed Cuban citizens vis-à-vis foreign enterprise in joint ventures in terms of tax regimes.

President Raul Castro’s new approach instead is placing its faith in the small enterprise and cooperative sector, hoping that these will to come to the rescue of the economy by absorbing the underemployed labour in the state sector to be laid off in the next six months. . This is strong confirmation that President Raul Castro himself is convinced that the Cuban model is not working any more – if it ever did. It also is likely that the Communist Party and the National Assembly will not contradict Raul on this. I argued earlier that none of the variants of the “Cuban Model” had worked effectively. (The “FIDEL” Models Never Worked; Soviet and Venezuelan Subsidization Did) Many foreign analysts and observers had of course questioned the value of Fidel’s legacy in the economy as well as politically and in terms of human rights. It now appears that Fidel’s legacy is questioned by his own Government. President Raul Castro has implicitly rejected Fidel’s life work regarding the economy of Cuba.

A Difficult Day – and Situation – for Fidel

Fidel Castro allegedly said to the judges in his famous 1953 speech in his own defense at his trial after the unsuccessful attack on the Moncada army barracks “Condemn me, History will absolve me.” However, “History” will not absolve Fidel. It appears also that even the official versions of “history” under Cuba’s current Communist system will not absolve Fidel either. Small wonder that he is attempting to portray himself as the elder statesman, altruistically offering advice and warnings on international issues, many of which appear to him to be apocalyptic in character. How will Fidel respond to the official Cuban rejection of his vision of “socialism” that he has been attempting to impose on Cuba for almost half a century? . PS. It is instructive that the labour federation, the CTC, is placed in charge of implementing the lay-offs on the part of the government rather than trying to defend the interests of the state sector workers. This pretty much confirms the view of the CTC as an arm of the regime not an organization to defend workers’ rights and interests.

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The “FIDEL” Models Never Worked; Soviet and Venezuelan Subsidization Did

Posted on September 9, 2010 by Arch Ritter

“The Cuban model doesn’t even work for us anymore” stated former President Fidel Castro, when asked if Cuba’s economic system was still worth exporting to other nations, by Jeffrey Goldberg, of  The Atlantic magazine during an interview in Havana. (JIM WYSS ,  AND LUISA YANEZ, Miami Herald, September 9, 2010), broken.html.

Was this a throw-away line? A rare moment of candor and  self-criticism? Or a mis-translation? Or is the implication that Raul can’t make things work anymore. but he, Fidel, could if he were back in charge?

In fact, the “Cuban Model” was a series of “FIDEL” MODELs. None of them ever worked effectively. They were all characterized by a dictatorial, overpowering and personal control by Fidel himself. From 1959 to 2006, the central feature of Cuba’s economic existence was Fidel’s micro-management of the economy. This was observed and analyzed in 1962 by the French agronomist Rene Dumont who lamented Fidel’s itinerant and ill-informed decision-making on every issue or problem that came to his attention. We saw it in January 2006, shortly before he left office, with “La Revolucion Energetica” in which again he micro-managed the issue.

The abolition of private enterprise in 1961, 1963 and 1968 (with the “Revolutionary Offensive”) has been a continuous disaster, suppressing and wasting the energies and entrepreneurial capabilities of the Cuban people. The 1961-1963 “Instant Industrialization” strategy was a disaster, quickly aborted. Likewise, the 1964-1970 “10 Million Ton Sugar Harvest” plus “New Man” plus Hyper-Centralization were all fiascos that also were aborted in 1970.

The Cuban economic expanded steadily from 1970 to 1985. Unfortunately this success was ephemeral, based as it was on Soviet support as well as a convertible currency debt build-up that led Cuba ultimately to declare a moratorium on debt servicing in 1986.

Cuba’s “Golden Age” of economic prosperity from 1970 to 1986 or so was one of Soviet economic Orthodoxy under-girded by massive Soviet subsidization.  This subsidization of the Cuban economy occurred mainly through the pricing of merchandise trade products. The USSR paid a ruble price for its sugar imports from Cuban that was a multiple of the prevailing world price at official exchange rates for many years. At the same time, Cuba paid a price that was below the prevailing market price for its petroleum imports from the USSR. The accompanying chart, derived from the work of William Leogrande, and J. M. Thomas illustrates the magnitudes of the assistance. My own quantitative estimates placed the value of this subsidization at around 23% to over 36% of National Income in the 1980 to 1987 period. (See the Table at the bottom of this note for the detail of the calculations.)

When economic stagnation set in 1985, Fidel designed the “Rectification Process” which was supposed to correct previous errors, re-centralize and de-marketize the economy and reignite economic expansion. This also failed.

Then with the termination of Soviet subsidies came the economic melt-down and the “Special Period in Time of Peace”. The latter in fact is not “special” but instead is the real world. In the “Special Period” the expansion of 2004 to 2008 is in large part due to the special relationship with Venezuela and the subsidization that this has produced. President Chávez supports Cuba through low-cost oil exports to Cuba, export and investment credits, and generous foreign exchange payments for Cuban exports of medical services.

In summary, the various development models and approaches that have dominated in Cuba have been Fidel’s personal models. Fidel Castro is correct in stating that they don’t work anymore. However, they have never worked.

Source:

Ritter, Archibald R. M. “The Cuban Economy inb the 1990s: External Challenges and Policy Imperatives.” Journal of Interamerican Studies and World Affairs, 32:3; Fall, 1990.

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New Publication on US-Cuba Relations: Cuba-Estados Unidos, tan lejos, tan cerca

Posted on September 8, 2010 by Arch Ritter

Revista TEMAS, Cultura, Ideologia Sociedad, La Habana,

número 62-63 abril-septiembre de 2010

Web Address: http://www.temas.cult.cu/index.php.

After some three or four years trying to win approval within Cuba, a joint US-Cuba project on the relations between the two countries has finally come to fruition.

Rafael Hernandez, Editor of Revista TEMAS in Havana and Jorge Dominguez, Professor of Mexican and Latin American Politics and Economics, and Vice Chancellor for International Relations at Harvard University have succeeded in bringing together a multinational team of authors and in producing a study already published in Revista TEMAS in Cuba.

An English-language version is in process of publication in the United States with the title Debating U.S.-Cuban Relations: Shall We Play Ball? This is Jorge Dominguez second successful collaboration with Cuban authors in recent years, the first being The Cuban Economy at the Start of the Twenty-First Century, edited with Omar Everleny Perez Villanueva of the Centro de Estudios sobre la Economia Cubana, Universidad de La Habana, and Lorena Barberia also of Harvard.

An essay of mine is included in the collection, namely Estados Unidos-Cuba: potenciales implicaciones económicas de la normalización,

I must confess that I was surprised – but pleasantly surprised – that my essay was included in the collection. My expectation was that the essay would be rejected for ideological reasons.This article contains criticism of current economic policy and institutional structures. though couched in terms of an argument that the gains to Cuba from normalization with the United States would be significantly greater if a series of economic reforms were adopted. The reforms considered include

  • legalization of small, medium and cooperative enterprises,
  • relaxation of taxation and restrictions on self-employment,
  • modification of foreign investment policy to permit majority foreign ownership,
  • relaxation of controls on financial flows from abroad, and of course
  • monetary and exchange rate unification, among other things.

The absence of labor rights – the right to form independent labor unions, to bargain collectively, and to strike – is also discussed as a possible impediment to direct foreign investment in view of the opposition that US groups will have to US firms investing in Cuba under current conditions of the absence of labor rights.

The vetting process that the article underwent was rigorous but surprisingly un-ideological. A long series of critiques were made of the draft that arrived in Havana by the editorial advisors of TEMAS. Some of the criticisms were useful, some were ideologically oriented and a few were neither ideological nor useful. However, following Jorge Dominguez advice, I answered all the queries and criticisms as carefully as I could. Some I accepted. I changed some wording to be less inflammatory. Some criticisms I rejected as diplomatically as I could. In the end, my revisions were accepted by the TEMAS Editor, Rafael Hernandez.

One interesting change that the editors proposed and that I accepted was to remove the name of president Fidel Castro who I had referred to in mentioning the ambiguity of Cuba’s policies towards direct foreign investment, promoting it on the one hand but pronouncing against “globalization” – of which DFI is a part – with President Castro taking lead roles at the podium of the “Anti-Globalization” conferences that occurred for a number of years. The editor wanted Castro’s name removed from that discussion, but did not object to the discussion itself. This seemed to be a version of the hesitancy of many Cuban citizens to  mention Fidel’s name, but to use the hand motion of stroking a beard instead.

I will have to modify my criticisms of freedom of expression within Cuba – though only somewhat!

Below is the Title, Table of Contents, and Web address for the issue. The essay titles are hyper-linked to the TEMAS Web site though the connection often seems very slow.

Cuba-Estados Unidos: tan lejos, tan cerca

Reconfiguración de las relaciones de los Estates Unidos y Cuba, Jorge I. Domínguez, Profesor. Universidad de Harvard.

Enemigos intimacy. Paradojas en el conflicto Estados, Unidos-Cuba, Rafael Hernández, Politólogo. Revista Temas.

Cuba y los Estados Unidos en  las esferas de la defensa y la seguridad, Hal Klepak, Profesor. Royal Military College of Canada.

La seguridad nacional de Cuba frente a los Estados Unidos: conflicto y ¿cooperación?, Carlos Alzugaray Tret, Profesor. Centro de Estudios Hemisféricos y sobre Estados Unidos, Universidad de La Habana.

El terrorismo y el acuerdo anti-secuestros en las relaciones de Cuba con los Estados Unidos, Peter Kornbluh, Investigador. National Security Archive, Washington, DC

La política de la Unión Europea en el triángulo Cuba-Estados Unidos-España, Susanne Gratius, Investigadora. Fundación para las Relaciones Internacionales y el Diálogo Exterior (FRIDE), Madrid.

La Unión Europea y su papel en las relaciones Estados Unidos-Cuba, Eduardo Perera Gómez, Investigador. Centro de Estudios Europeo. Universidad de la Habana

Estados Unidos-Cuba: potenciales implicaciones económicas de la normalización, Archibald R. M. Ritter. Profesor. Universidad de Carleton, Ottawa.

Las relaciones económicas Estados Unidos-Cuba. La normalización pendiente. Jorge Mario Sánchez Egozcue, Investigador y profesor. Centro de Estudios Hemisfericos y sobre Estados Unidos, Universidad de La Habana.

Cuba, su emigración y las relaciones con los Estados Unidos, Lorena G. Barberia, Investigadora. Universidad de Harvard.

Los Estados Unidos-Cuba: emigración y relaciones bilaterales, Antonio Aja Díaz, Historiador y sociólogo. Centro de Estudios Demográficos, Universidad de La Habana.

Corrientes académicas y culturales Cuba-Estados Unidos: temas y actores, Sheryl Lutjens, Investigadora. Universidad del Estado de California, en San Marcos.

La diplomacia académica: los intercambios culturales entre Cuba y los Estados Unidos, Milagros Martínez Reinosa, Profesora. Universidad de La Habana.

Jorge Dominguez and Rafael Hernandez

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Raul Castro and Policy towards Self-Employment: Promising Apertura or False Start?

Posted on August 4, 2010 by Arch Ritter

In his speech before the National Assembly on August 2, 2010, President Raul Castro stated that the Council of Ministers had agreed to expand self-employment by eliminating various prohibitions in the granting of licenses and on some types of goods and services. and by making the employment of workers in such enterprises more flexible. At the same time, he referred to a strengthening of taxation on such enterprises.

If the policy environment is indeed liberalized, it will be a great thing for the Cuban economy and for people’s material levels of living. However, the reference to strengthened taxation is worrisome.

Advantages of an Apertura for Small Enterprise

What might be the impacts of the liberalization of self-employment as well as small enterprise (to five or ten employees)? Here is a quick listing of the benefits:

  • An increase in small enterprise would Increase competition, lower prices, improve quality and broaden diversity of the goods and services produced.
  • Productive employment  would be created
  • Incomes would be generated.
  • The average levels of incomes would be lowered in the small enterprise sector if it were opened up for free entry by anyone wanting to enter the area
  • Citizens would gain when reduced effort and time was necessary to obtain the goods and services necessary for survival.
  • Improved productivity of small enterprises would permit higher material well-being throughout Cuban society.
  • The massive underground economy would shrink.
  • Tax revenues from the sector would increase as it expanded .
  • Foreign exchange earnings and savings would occur as domestic products replaced imported products and as markets for tourists and for export expanded.
  • Innovation and Improvement would be promoted.
  • Urban and rural commercial revival would occur.
  • Improved general quality of life.
  • The culture of compliance and respect for public policy rather than regulation avoidance and illegality would in time take effect.

If one doubts the advantages of small enterprise liberalization, consider the arts and handicrafts sector. Before these areas were liberalized in 1993, the souvenirs and craft products available for purchase by tourists or Cuban citizens were of abysmal quality and without diversity, coming as they did from a number of state workshops. However, following liberalization, this area sprang to life. Very quickly the Place de la Catedral and Avenida “G” (de los Presidentes) were filled with vendors providing a rapidly widening range of crafts and arts. Very soon there were too many vendors for these locales and they were relocated to the Malecn, La Rampa, and the park between Avenida del Puerto and the Cathedral. They now constitute a major tourist attraction and earn significant amounts of foreign exchange for Cuba.

The apertura for the arts and crafts liberated the creativity, innovativeness, entrepreneurship and energies of Cuban citizens who quickly seized the opportunities available. They earn a living for themselves and make a valuable contribution to Cuban society. An apertura in all areas of the economy to small entrepreneurship would make similar contributions.

Art Market, Plaza de la Catedral, 1994

Market Stall for Sculpture, Malecon, circa 2002

 

Disadvantages of an Apertura for Small Enterprise

There are always disadvantages as well as advantages – costs as well as benefits – in economics and in the evaluation of public policy. However, I have trouble finding any disadvantages or costs in a liberalized policy environment for small enterprise.

There are three concerns, however.

First, would such an aperture worsen income distribution? In time, as some small enterprises increased in size, this would indeed likely occur. However, Cuba already has an income tax and system for taxing small enterprise so that this effect could be managed. But opening self-employment and small enterprise up to all possible entrants would also increase competition in the sector and push prices and thence incomes towards average levels.

Second, would an aperture encourage pilferage of inputs from the state sector – as has happened in the past? This is a possibility that has to be managed. It can be managed by establishing a market for inputs for the sector that is reasonable and fair. At present, it is difficult for small enterprises to obtain their necessary inputs – except at the Tiendas para la recaudacion de Divisas (TRDs) or (former) dollar stores – leading to purchases of inputs that have found their way out of the state sector. A reasonable market for the provision of inputs to the sector is thus vital.

Third, would an aperture lead to an expansion of “infractions” and illegalities as small enterprises tried to evade rules and taxes? This could indeed occur if regulations remained asinine and if tax burdens were impossible.  However, if an aperture to small enterprise were accompanied by the dropping of silly regulations and controls, and if the tax regime was made reasonable and fair, it is likely that compliance would improve. However, building a culture of respect for regulations and taxes will also take some time as the self-employed have come to view government as an enemy force imposing rules and regulations that are aimed not just at their containment  but also their elimination.

Current Policy towards Self-Employment

The current policy environment within which the self-employed operate is particularly difficult.

There are a variety of controls and prohibitions that seem designed to obstruct, contain and eliminate the “Cuenta-Propistas”. Here is a summary of the policy environment:

Controls and Prohibitions:

1. All activities are prohibited except those specifically permitted

  • All professional self-employment is prohibited
  • Of the initial 156 legalized activities 41 were prohibited in around 2005

2. The number of the self-employed is strictly controlled through the granting of licenses (See Chart 1.)

3. Taxation is onerous and indeed is much heavier than that facing foreign multi-national corporations in joint ventures. This is  a shocking type of discrimination against Cuban citizens (See Chart 2.)

4. There are numerous prohibitions

  • No access to credit;
  • No access to foreign exchange or imports (except through state “TRD” stores)
  • No advertising
  • No intermediaries
  • Limits on numbers of employees;

5. There are innumerable petty restrictions (See Chart 3.)

6. The political and media environment has been negative since 1995.

For these reasons, the self-employment sector has stagnated over the last 10 years following the initial expansion of 1993-1994 following its initial liberalization (See Chart 4.)

Possible Policies towards a Small-Enterprise Apertura

If President Raul Castro wished or was able to provide a definitive aperture for small enterprise, here are the types of policies that would be under consideration.

1. Liberalize Licensing: Let anyone and everyone open a small enterprise (  Result: competition will push prices downwards and quality upwards;

2. Permit All Types of Self-Employment, including Professional and High-Tech while maintaining state medicine and health systems intact;

3. Raise the limit on employees to 5, 10 or 20;

4. Provide legal sources for the purchase of Inputs;

5. Permit Access to Imported Inputs (outside TRDs and at the exchange rater available for the state sector);

6. Eliminate silly and vexations restrictions;

7. Make Microenterprise Taxation Simpler and Fairer;

8. Establish Micro-Credit Institutions;

9. Establish a Ministry for the Promotion of Small Enterprise.

However, needless to say, former President Fidel Castro undoubtedly would disapprove of any aperture judging from (a) the Initial near shut-down of small enterprise during the 1968 Revolutionary Offensive; (b). the further tightening of the prohibition on self employment during the “Rectification Program” of 1986-1990; and (c) His statement lamenting the 1993 opening to Self-employment in 1995.

On the other hand, Raul Castro has displayed a streak of pragmatism that seems to be lacking in his elder brother, witness his initiative in re- opening the farmer’s markets in 1994.  Moreover, his reputation is more for talking quietly and eventually acting rather than talking with grandiosity and making false starts. Time will tell.

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Entrepreneurship, Small Enterprise and the “Informal Economy”

Posted on July 7, 2010 by Arch Ritter

Katherine Hirschfeld,”SOCIOLISMO AND THE UNDERGROUND CLINIC: THE INFORMAL ECONOMY AND HEALTH SERVICES IN CUBA”, Cuba in Transition, ASCE 2006

Ted Henken, ENTREPRENEURSHIP, INFORMALITY, AND THE SECOND ECONOMY: CUBA’S UNDERGROUND ECONOMY IN COMPARATIVE PERSPECTIVE, Cuba in Transition, ASCE 2005

Ted Henken, SANTIAGO VS. HAVANA: CUBA’S UNDERGROUND ECONOMY IN COMPARATIVE PERSPECTIVE, Cuba in Transition, ASCE 2003

Archibald R. M. Ritter, : The Tax Regime for Microenterprise in Cuba,” C E P A L Review 7 1, August 2000

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Illegalities

Posted on July 7, 2010 by Arch Ritter

Archibald Ritter, “Economic Illegalities and the Underground Economy in Cuba”, FOCAL Background Briefing on Cuba, RFC-06-01

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Macroeconomy and Monetary

Posted on July 7, 2010 by Arch Ritter

Marc Frank, “Cuba’s economy to falter in 2009 -Cuban experts”, Reuters, HAVANA, May 18, 2009

Pavel Vidal Alejandro, “Los salarios, los precios y la dualidad monetaria”, Espacio Laical, Febrero de 2008

Archibald R. M. Ritter, “The dual currency bifurcation of Cuba’s economy in the 1990s: causes, consequences and cures”, CEPAL Review Nº 57, December 1995

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Freedom of Expression, Economic Self-Correction and Self-Renewal

Posted on July 7, 2010 by Arch Ritter

An important requirement for the sustained effectiveness of an economic system and society is the ability to analyze and criticize – freely, openly and continuously – its functioning.  Open analysis and criticism in a context of free generation and diffusion of information provide a necessary spur for self-correction, exposing illegalities, flawed policies and errors.  Free analysis and criticism are vital in order to bring illicit actions to light, to correct errors on the part of all institutions and enterprises as well as policy makers and to help generate improved policy design and implementation. This in turn requires freedom of expression and freedom of association, embedded in an independent press, publications systems and media, independent universities and research institutes, and freely-functioning opposition political parties.

The absence of free economic criticisms means that major policy errors or indeed fiascos are not “nipped in the bud” and terminated quickly but steam ahead to disaster. Some major examples of this in Cuba have been

  • The 1961-1963 instant industrialization strategy, aborted in 1963
  • The 10 Million Ton Sugar Harvest effort, from 1964 to 1970;
  • The attempt to use the “New Man” ideology as a labour mobilization device, 1966-1970
  • The shut-down of half of Cuba’s sugar agro-industrial complex (2002)
  • The billion dollar mini-generator component of the “Revolucin Energtica (2006)

Pluralistic democratic countries have free presses and open debate on the issues of the day.  Opposition political parties, academics, interest groups and NGOs, and journalists continuously analyze and critique public policy issues and proposals and the functioning of private and public enterprises and institutions.  Indeed, there is major competition among economic and business journalists as well as academics to be the most perspicacious analysts and critics of public policy.

Unfortunately much of this has been lacking in Cuba.  The media largely performs a cheerleader role, unless issues have been opened up for discussion by the President and the Party.  For example, there was virtually no public discussion or debate concerning the shut-down of half of the sugar sector in 2002, the attacks on self-employment, the dysfunctional parts of the “Revolución Energética” or of the imprisoning of the critics  – or so-called “dissidents” –in  2003.This means that public policies get announced and implemented full-blown without critical input into their formulation, and without subsequent criticism and early correction.

Are the restrictions on freedom of expression becoming more or less severe in recent years? Some indications suggest that there is some relaxation of such restrictions, notably:

  • On June 16 to 20, the Catholic church was able to organize the Semana Social Católica including a Panel on “Economy and Society” with Pavel Vidal Alejandro, Omar Everleny Perez, Carmelo Mesa-Lago y Cristina Calvo.
  • The presentation of information on the economy has improved over the last 10 years. The web site of the Oficina Nacional de Estadisticas is now surprisingly good and the Anuario Estadistico Economico is quite comprehensive and appears in a timely way. (However, the methodologies for the measurement of some fundamental economic data such as labor force, employment and unemployment, consumer price index, and national accounts are opaque and ambiguous so that the analyses based on them are not as strong as they could be.)

But on the other hand, there are also some indications of a hardening of the restrictions on freedom of expression.

  • The containment and harassment of the bloggers continues. They have been denied access to the web. They have been harassed and intimidated – unsuccessfully – by actions of state security. They have been vilified as “mercenaries” in the service of foreign powers. They have been denied the right to travel abroad. They are often denied the right to participate in relevant domestic events such as a conference on civil society and the new media! Their web sites and therefore their commentaries are available within Cuba only with difficulty. But they have not been shut down as of mid-2010, though this could change.
  • The expulsion of Esteban Morales, Professor of Economics and Political Science, University of Havana, from the Communist Party also represents a hardening of restrictions on freedom of expression. Morales comments on the character of racism in Cuba, Challenges of the racial problem in Cuba seemed reasonably innocuous. His April 22 essay entitled “Corruption: The True Counter Revolution” was more hard hitting. But being expelled from the Party looks to me like a reward, not a punishment. Of course, this is not correct, because expulsion from the Party usually means exclusion from foreign travel which is vital for academics as a means of buttressing their inadequate Moneda Nacional incomes.

  • Certain areas of the economy appear to continue to be off limits to analysis and scrutiny, notably the bio-technological industry and the conglomerate enterprises that straddle the peso and the convertible peso economies.
  • The political decision-making process on economic and other matters within the highest levels of the Government continues to be a “black box,” the workings of which we can only speculate about.  Cuban Universities need some real Departments of Political Science!

The near-absence of checks and balances on the policy-making machinery of the state also contributes to obscuring over-riding real priorities and to prolonging and amplifying error.  The National Assembly, dominated by the Communist Party, meets for very short periods of time – four to six days a year – and has a large work load, so that it is unable to serve as a mechanism for undertaking serious analysis and debate of economic or other matters. The cost for Cuba of this situation over the years has been enormous.  It is unfortunate that Cuba lacks the concept and reality of a “Loyal Opposition” within the electoral system and in civil society.  These are vital for economic efficiency, not to mention, of course, for authentic participatory democracy.

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The Economic Consequences of Lifting the US Travel Restrictions on Cuba

Posted on July 1, 2010 by Arch Ritter

On Wednesday, June 30, 2010,  the House Agriculture Committee approved  by 25 to 20 to take the Travel Restriction Reform and Export Enhancement Act (H.R. 4645) for a vote in the House of Representatives. This bill was introduced in the United States House of Representatives on February 23 2010 by Representatives Collin Peterson (D, Minnesota) and Jerry Moran (R, Kansas) with forty bi-partisan House cosponsors.

The Peterson-Moran Bill may be a winner. It would be difficult for Congressmen and Senators in the Republican farm states to vote down an agricultural promotion bill – even with the travel provision. The Bill is supported by a coalition of some 130 US organizations including the U.S. Chamber of Commerce, National Farmers Union, the American Farm Bureau Federation, AFL-CIO, the U.S. Conference of Catholic Bishops, the Brookings Institution, the Council on Foreign Relations and the Cato Institute.

A group of 74 of Cuba’s most prominent political prisoners, independent librarians, bloggers, independent journalists, magazine editors, clerics, intellectuals, artists, members of the civil society and of political organizations also supported the Bill in a letter to the Members of the United States House of Representatives and its Agriculture Committee. It is therefore difficult for remaining hard-liners in the US Congress to argue that the Bill is objectionable because it would be supportive of the Cuban Government.  Of course the Cuban Government would benefit from the foreign exchange earnings from tourism. But all citizens would benefit. Most important,  the process of normalization would be well launched.

Enactment of the Bill would generate major benefits for both countries. By modifying financial terms and requirements of sales to Cuba, it is expected that the US share of Cuba’s food imports will increase further. It is already the largest exporter of agricultural products to Cuba, with food exports reaching US$ 711 million in 2008. The U S quickly displaced Canada as the main food supplier following the 2000 liberalization of agricultural exports by the Bush Administration.

American citizens will acquire a right to travel that they lost, in large part, in 1961. However, Cuban Americans have been able to return to Cuba and many other US citizens have travelled to Cuba for educational and religious reasons, or illegally. In fact, in 2003, there were some 85,000 US visitors.  Last year, following the liberalization of travel for Cuban-Americans, this number was estimated at around 300,000.

Cuba will benefit from lower cost food imports from the US – though this will further reduce the incentive for Cuba to improve its own faltering agricultural economy, where the 2010 sugar harvest will likely be about 1 million tons, the lowest since 1908.

A Tourism “Tsunami ” for Cuba?

Free travel for US citizens to Cuba will produce a deluge of US visitors to Cuba. Among the varieties of tourists would be the following:

  • Curiosity tourism. There could be a huge tourist influx of US citizens wanting to see Cuba for the first time since 1961. Relatively few US citizens appear to have broken US travel restrictions so that the pent-up demand is enormous.
  • Family Reunification tourism. When all controls are lifted on the US side for travel to Cuba, a large increase in short-term visits by Cuban-Americans for family purposes is likely to occur. Such an increase already occurred in 2009-10.
  • Sun, Sea and Sand tourism. Many US citizens, especially from the North Eastern and Central parts of the country will likely follow the winter-escaping Canadians to Cuban beaches for one to two week periods.
  • “Snow-bird” tourism. Some US citizens, mainly retirees, will spend several of the winter months in Cuba. This will be limited until accommodation arrangements such as time-share condominium arrangements are possible.
  • Medical tourism. There may be some travel to Cuba for access to medical services which will likely continue to be inexpensive relative to the United States.
  • Convention tourism. Short-term visits for conventions could increase significantly.
  • Cultural and Sport tourism. One might expect more visits for purposes of interacting with and experiencing Cuban art, music, cinema, and sports.
  • Educational tourism. It is likely that American students and teachers at various levels would enroll or visit Cuban institutions of higher learning or cultural and sports centers for courses, years abroad, sabbaticals, language training etc., in much greater numbers than have been possible under the embargo.
  • “March-Breaker” tourism. Students from the US are likely to try a visit to Cuba for the March Break, instead of the Maya Riviera, Florida or elsewhere.

One could imagine US tourism quickly doubling the 2009 Canadian level of 915,000 and redoubling again in a decade or so, as Cuba’s capacity to accommodate more tourists expanded. This would perhaps double Cuba’s total foreign exchange earnings from tourism within a decade, which were already at about $US 2.6 billion by 2008.

The “Jitters” for President Raul Castro?

The Peterson-Moran Bill will also give the Cuban leadership the jitters as 50 years of pent-up tourism from the US inundates the Island.  While the Act is an economic “win-win” for both countries, the deluge of US visitors could have an impact on internal politics in Cuba.  It has often been said – perhaps with some truth – that the best ambassadors for the US are its own citizens. They undoubtedly will be treated warmly and will bring charm and goodwill as well as dollars. They may also bring “contamination” from the perspective of the Government of Cuba  as Cuban citizens learn more about life in the United States on a first hand basis. Increased knowledge and independent income generation will make Cuban citizens more restless – especially if the Cuban government does not immediately liberalize foreign travel for its own citizens.  Indeed, the Cuban government may attempt to decelerate the wave.

Negotiating normalization with Cuba is a politically contentious, complex but ultimately low priority issue for the Obama Administration given all the other problems it faces. It is helpful for Obama to have the normalization process move forward by independent bi-partisan Congressional action.

Will the Cuban Government respond constructively by releasing the political prisoners incarcerated in 2003, or by dropping the 10% tax on US dollar remittance payments and transfers?

Will the Cuban Government, in reply, liberalize travel abroad for its own citizens to the US and elsewhere?

Actions such as these would facilitate additional steps by the United States in the difficult process of normalization and reconciliation.

School Children, Parque Central Havana, Circa 1996

Photograph by the Author

 

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Bad News for Cuba’s Nickel Industry and Sherritt

Posted on June 28, 2010 by Arch Ritter

A major technological breakthrough in the production of “NPI”, a substitute for refined nickel mined and concentrated in Cuba – as well as Canada. Russia and Australia – is already having a major impact on the nickel market and causing reductions in the price of nickel. This will probably reduce Cuba’s foreign exchange earnings from nickel exports in future, and will likely halt any expansions of nickel mining for years or even decades to come.

A June 11 2010 report by Andy Hoffman in the Toronto Globe and Mail describes a new product, “nickel pig iron” or “NPI”,  that permits a low cost alternative to nickel with obvious implications for the Cuban, Canadian and international nickel industry. NPI is a low-cost and low-tech innovation in the production of stainless steel, developed since 2006 on China. It now accounts for about 10% of world’s $21-billion-a-year nickel market and is increasing rapidly in China, as indicated in the chart below. It also has a long way to go before it captures a large share of the Chinese nickel market.The emergence of NPI has reduced the demand for smelted and refined nickel from traditional sources and will likely lead to further reductions in future. The peak prices of nickel in 2006-2007 that resulted from the tightening market generated by sustained Chinese economic growth over the last 30 years and the general rapid expansion of the world economy from 2000 to 2007 are likely a thing of the past. The cost of NPI will put a permanent ceiling on nickel prices and perhaps reduce demand and mine extraction for traditional nickel in future.

The new technology is based on the direct smelting via cheap electricity of Indonesian or Philippine ore that contains very low levels of nickel – around 2% – but also around 50% iron ore together with coking coal and a mix of gravel and sand . This produces the NPI that is suitable for stainless steel products.

Hoffman estimates that future prices for nickel will remain below about $8.50 per lb. after peaking at about $24.00 a pound in 2007. This means that Cuba’s foreign exchange earnings will never again reach the approximate $2.33 billion of 2007. More likely they would remain around one third this level and then perhaps diminish if new mine development were to be halted because of sustained low prices and shrinking markets.

But there are some questions about the long term attractiveness of NPI.

  1. Does it produce a high grade stainless steel of consistent quality?
  2. To what extent is the electricity used for the smelting process subsidized?
  3. To what extent does the relative cost competitiveness depend on China’s grossly and obviously undervalued exchange rate?
  4. Will environmental concerns and potential pollution abatement costs of mining coal for coking purposes raise costs and reduce the competitiveness of China’s NPI production?

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