Tag Archives: Economic Growth

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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Pavel Vidal Alejandro, “Cuban Economic Policy under the Raul Castro Government”

Posted on July 6, 2010 by Arch Ritter

An excellent  study on Cuban economic policy has recently been published by Pavel Vidal Alejandro of the Centro de Estudios sobre la Economia Cubana, University of Havana.  “Cuban Economic Policy under the Raul Castro Government” is published through the Institute of Developing Economies of the Japan External Trade Organization. Attached is the Hyperlink:

http://www.ide.go.jp/Japanese/Publish/Download/Report/2009/pdf/2009_408_ch2.pdf

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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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