Tag Archives: Economic Melt-Down


A near-encyclopedic volume on Cuba was recently published by Charles Scribner’s Sons but has received surprisingly limited publicity- at least from my perspective up here in winter-time in the True North. I have not yet seen the volume myself nor have I even seen the Table of Contents. However, the description of the substance of the volume below looks interesting.

If my finances were infinite, I would certainly buy a copy, even though the price ranges from $284.44 to $454.95, depending on the seller.

I contributed two essays on the Cuban economy. These are available here:

Archibald Ritter  “The Cuban Economy, Revolution, 1959-1990”

Archibald Ritter, “Cuba’s Economy During the Special Period, 1990-2010”

Here is a brief description of the volume:

Editor in Chief: Alan West-Durán, Northeastern University

 Associate Editors: Victor Fowler Calzada, Unión de Escritores y Artistas de Cuba (UNEAC); Gladys E. García Pérez, Unión de Escritores y Artistas de Cuba (UNEAC); Louis A Pérez, Jr., University of North Carolina; César Salgado, University of Texas; Maria de los Angeles Torres, University of Illinois, Chicago

Charles Scribner’s Sons,  An Imprint of Gale, Cengage Learning 2011


In an exceedingly complex and changing global situation,  understanding Cuba is an important and challenging task. The Scribner CUBA: People, Culture, History is a reference work that goes beyond a mere presentation of facts, biographies, and “ready reference” information, which is widely available on the Internet, to offer deep interpretation. The book will offer on the one hand, twenty-one interpretative essays on major topics in Cuban history, culture and society, as well as over one hundred twenty-five shorter essays on artistic, literary, and nonfiction works; major events and places of cultural significance.

The major essays will not only cover Economics, Sugar, Tobacco, Religion, and Food, but also Cuba and its Diasporas, Ecology and Environment, Sexuality, Gender, Race and Ethnicity, the Arts, Language, Sports and Cuban Ways of Knowing and Being, among others.

The short essays will focus on specific literary works, photographs, paintings, political documents, speeches, testimonies, historical dates, key places and cities on the island and abroad. For example:  literary works include “Los Versos sencillos”; “Paradiso”; and “The Mambo Kings Play Songs of Love”; works of nonfiction include: “Cuba: Azúcar y Población”; “Indagación del choteo”; and La historia me absolverá”; works of visual art: “La Jungla”; and “Los Hijos del agua conversando con un pez”; works of music: “Guantanamera”; “Misa cubana”; and “Mambo #5”; cinema: “Lucía”; and “Fresa y chocolate”; events: “Violence and Insurrection in 1912: A Racial Conflict”; and “January 1, 1959”; and places of cultural significance: “Baracoa”; “Holguín”; “Isla de Pinos”; “Spain”; and “New York,” to name a few examples.

By combining longer overview pieces with short and focused descriptive and analytical ones, CUBA  aims to give the curious and interested reader a way to comprehend the country by presenting the major forces that have shaped the island historically and culturally. Rather than overwhelm the reader with thousands of entries and biographies, CUBA offers a close look at major themes that are emblematic to the country’s unique history. CUBA is a reference guide for readers undertaking a journey of comprehension; it is not a work that presumes to have all of the answers.

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Poor Fidel: Repudiated by his Own Brother and Reduced to Playing “Chicken Little’”


Fidel Castro and Iranian President Mahmoud Ahmadinejad,
Holding Hands, January 12, 2012:

By Arch Ritter

I almost feel sorry for Fidel – but not quite.

His own brother Raul, the National Assembly, and the last Party Congress have repudiated the various economic programs, policies and institutional structures that he implanted in Cuba for almost half a century. The Communist Party Conference on January 28 will implicitly reiterate what the Congress has already approved. Raul Castro’s economic reform agenda is steadily, inexorably and permanently reversing Fidel’s economic heritage – though not his political institutions.

If Fidel Castro understands what is going on, he can’t be too happy that a major part of his life’s work is being cancelled. On the other hand, he likely is pleased that the political system that he imposed on Cuba remains pretty much intact. There is virtually no sign that political reform may be forthcoming.

Fidel Rejected; Critics Vindicated

For almost half a century, Fidel constructed dysfunctional institutions and pursued counterproductive economic policies. (See Fidel’s Phenomenal Economic Fiascoes: the Top Ten) Worse still, he implanted and maintained an authoritarian regime that denies authentic participatory democracy and fundamental human rights to Cuban citizens. One result has been poverty for most Cubans by any international standard, though obscured by creative statistics.  Moreover, two million Cubans have left Cuba and many have made fine contributions to their new countries.

While Fidel’s economic visions, strategies and policies are being continuously repudiated by the current economic reform process, many of his critics have been vindicated. In the past, Fidel responded to criticism by incarcerating the critics (e.g. Oscar Chepe.) Others were demoted, fired, shunned, ostracized and pushed into exile. But the ongoing reform process is an official Cuban certification  that many of the critics were on the right track while Fidel was taking Cuba down a blind alley. Silencing criticism and commentary damaged economic policy and the Cuban economy, because errors could not be “nipped in the bud” or reversed quickly.

If only Fidel had taken and understood an “Economics 100” explanation of how markets operate and can serve as a mechanism for the social control of economic activity, Cuba’s economic experience surely would have been much better.

“Henny Penny” the Blogger

At this time, fortunately for Cuba, Fidel seems to have been pushed aside into a role where the real economic damage he can do is minimized. His principal activity now is to write “op-eds” or “Blog entries” or as he calls them, “Reflections”. (See Reflections of Fidel Castro) Fidel seems to be trying to reinvent himself as a seer or clairvoyant pronouncing sagely on the future of the human species and the significance of the events of the day. Though excluded from domestic governance and policy making, his ego perhaps may be assuaged by having his “Reflecciones” widely distributed through all the media which are still monopolized by the Communist Party. Following 50 years precedence, no-one else has access to the media in order to contradict or criticize his assertions or to make alternate arguments and analyses.

Fidel has made himself a prophet of doom – or perhaps an re-incarnation of “Chicken Little” or “Henny Penny”, running to tell the world “The sky is falling! The sky is falling!” Why is the world headed for disaster and the human race bound for extinction? Well, financial crisis, nuclear war, global warming, NATO, the G20 and now, Fidel’s latest concern, “fracking” (or hydraulic fracturing for natural gas and oil.) Who is responsible for all of this? Why of course the United States.

Fidel also comments on issues of the day such as the high quality of Hugo Chavez speeches and the perversions practiced especially by the United States but also the G20. While his commentaries have been “over the top” for a long time, they now seem to be increasingly incomprehensible. His latest Reflection for example (See The Best President for the United States) argues that a robot would do a better job than Obama as President. It includes the following sentence:

“I imagined Obama, very articulate with words, for whom, in his desperate attempt to be reelected, the dreams of [Martin] Luther King are more light years away than the closest inhabitable planet.”

This is not a mistranslation. At least Fidel could be provided with better editors. Otherwise, it will seem to readers that he may be losing out to Father Time rather quickly.

See also: Fidel’s Phenomenal Economic Fiascoes: the Top Ten

Cuba’s Achievements under the Presidency of Fidel Castro: The Top Ten

Fidel’s No-Good Very Bad Day

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

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Can Cuba Recover from its De-Industrialization? I. Characteristics and Causes

By Arch Ritter

[Note: a subsequent Blog Entry will analyze “Consequences and Courses of Action” ]

Since 1989, Cuba has experienced a disastrous de-industrialization from which it has not recovered. The causes of the collapse are complex and multi-dimensional. Is it likely that the policy proposals of the Lineamientos approved at the VI Congress of the Communist Party of Cuba will lead to a recovery from this collapse? What can be done to reverse this situation?

One of the last Cane-Harvesting Machines Fabricated in Cuba, en route to its Destination, November 1994

Perhaps it should be noted to begin with that the  manufacturing sector of many if not most high income countries have shrunk as a proportion of GDP and especially in terms employment. This has been due to the migration of  labor-intense manufacturing to lower wage countries, most notably China and India, as well as technological change and rising labor productivity in many areas of manufacturing. However, given Cuba’s income levels and its historical record, it could and should be expanding its manufacturing base and perhaps even increasing employment in the sector rather than remaining in melt-down phase

I. Characteristics of Cuba’s De-Industrialization, 1989-2010

The accompanying Charts and Tables, all using data from Cuba’s Oficina Nacional de Estadisticas, indicate the severity of Cuba’s manufacturing situation.

Chart 1 illustrates the almost 60% decline in the physical volume of industrial output – excluding sugar – from 1989 to 1998. By the year 2010, the level of output was at 49.9% of the 1989 level. This does not constitute a recovery.

The physical volume of output by destination is presented in Appendix Table 11.2 below. This Table indicates industrial output including sugar in 2010 was at 43% of its 1989 volume. Products for Consumption were at 81.8% of their 1989 value in 2010. Some product areas had improved, namely manufactures for consumption and “other manufactures” but food drink and tobacco production were at 71.5% of their 1989 volume. Footwear and clothing were at 21.8% of their 1989 volume.  Equipment production had almost totally disappeared and was at 6.6% of their 1989 volume in 2010. Intermediate products were at 34.7% of their 1989 volume, despite a near 50% increase in volumes of mineral extraction. .

Volumes of industrial output by origin or industrial sub-sector are presented in Appendix in Table 11.1 Some manufacturing sub-sectors have virtually disappeared with production at very low levels as a percentage of 1989 levels. For example, for the following sectors, 2010 levels as a percentage of 1989 levels were as follows:

  • Textiles:                                     6.9%
  • Clothing:                                      27.8%
  • Paper and paper products:        6.5%
  • Publications and recordings:   18.0%
  • Wood products:                         12.3%
  • Construction Materials:           27.1%
  • Machinery and Equipment:      0.4%

On the other hand, pharmaceutical production increased dramatically, with 2008 production at 822% of the 1989 level. Tobacco, drinks (presumably alcoholic) and metal products were approximately at the 1989 levels. But almost everything else was around 25% of the levels of 1989 or less.

The collapse of the sugar agro-industrial complex is well known and is illustrated in Chart 2.

II. Causal factors

There are a variety of reasons for the collapse of the industrial sector.

1.      The initial factor was the ending of the special relationship with the Soviet Union that subsidized the Cuban economy generously for the previous 25 years or so. This resulted from the shifting of the Soviet Union to world prices in its trade relations with Cuba rather than the high prices for Cuba’s sugar exports as well as an end to the provision of credits to cover Cuba’s continuing trade deficits with the USSR. The break-up of the Soviet Union and recession in Eastern Europe also damaged Cuba’s exports. These factors reduced Cuba’s imports of all sorts, especially of imported inputs, replacement parts, and new machinery and equipment of all sorts.  The resulting economic melt-down of 1989-1993 reduced investment to disastrous levels and resulted in cannibalization of some plant and equipment for replacement parts. The end result was a severe incapacitation of the manufacturing sector.

2.      The technological inheritance from the Soviet era as of 1989 was also antiquated and uncompetitive, as Became painfully apparent after the opening up of the Soviet economy following Perestroika.

3.      Since 1989, levels of investment have been continuously insufficient. For example, the overall level of investment in Cuba in 2008 was 10.5% of GDP in comparison with 20.6% for all of Latin America, according to UN ECLA, (2011, Table A-4.)

4.      Maintenance and re-investment was also de-emphasized even before 1989. After 1989, maintenance and re-investment were a category of economic activity that could be postponed during the economic melt-down – for a little while. But over a longer period of time, lack of adequate maintenance of the capital stock has resulted in its serious deterioration or near destruction. This can be seen graphically by the casual observer with the dilapidated state of housing in Havana and indeed the frequent “derrumbes” or collapse of houses and abandoned urban areas.

5.      The dual monetary and exchange rate system penalizes traditional and potential new exporters that receive one old (Moneda Nacional) peso for each US dollar earned from exports – while the relevant rate for Cuban citizens is 26 old pesos to US$1.00. This makes it difficult if not impossible for some exporters and was a key contributor to the collapse of the sugar sector.

6.      The blockage of small enterprise for the last 50 years has also prevented entrepreneurial trial and error and the emergence of new manufacturing activities.

7.      Finally, China has played a major role in Cuba’s de-industrialization as it has done with other countries as well. China has major advantages in its manufacturing sector that have permitted its meteoric ascent as a manufacturing power house. These include

  • Low cost labor;
  • An industrious labor force;
  • Past and current emphases on human development and higher education;
  • A relatively new industrial capital stock;
  • Massive economies of scale;
  • Massive “agglomeration economies”;

But of particular significance has been its grossly undervalued exchange rate that has permitted it to incur continuing trade and current account surpluses and amass foreign assets now amounting to around US$ 3 trillion. Indeed, in my view, China has cheated  in the globalization process and captured the lion’s share of its benefits through manipulation of the exchange rate, and has contributed to the generation of major imbalances for the rest of the world, including both the United States and Cuba among other countries. .

China’s undervalued exchange rate has co-existed with Cuba’s grossly overvalued exchange rate that has been partly responsible for pricing potential Cuban exports of manufactures out of the international market. The result is that Cuba is awash with cheap Chinese products that have replaced consumer products that Cuba formerly – in the 1950s as well as the 1970s – produced for itself.

With respect to the sugar sector, there are a number of factors have been responsible for its decline.

1.      Most serious, the sector essentially was a “cash cow” milked to death for its foreign exchange earnings, by insufficient maintenance and by insufficient re-investment preventing productivity improvement.

2.      The monetary and exchange rate regimes under which it labored have also damaged it badly. Earning one “old peso” for each dollar of sugar exports has deprived the sugar sector of the revenues needed to sust4ain its operations.

3.      Finally the decision by former President Fidel Castro to shut down close to half the industrial capacity of the sector and try to convert former sugar lands to other uses sealed its fate.  In view of Cuba’s natural advantages in sugar cultivation, the sophistication and diversity of the whole sugar agro-industrial cluster of activities, the high sugar prices of  recent years and the competitiveness of ethanol derived from sugar cane, this decision was foolish in the extreme.

Next: Part II, The Consequences of Deindustrialization and Possible Future Courses of Action. will be published in the next Blog Entry

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Cuba’s Economic Reform Process under President Raul Castro: Challenges, Strategic Actions and Prospective Performance

The Bildner Center at City University of New York Graduate Center organized a conference entitled “Cuba Futures: Past and Present” from March 31 to April 2. The very rich and interdisciplinary program can be found here: Cuba Futures Conference, Program.

I had the honor of making a presentation in the Opening Plenary Panel.  The Power Point presentation is available at “Cuba’s Economic Reform Process under President Raul Castro.”

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English Version of Partido Comunista de Cuba, “Proyecto de Lineamientos de la Politica Economica y Social”: Viable Strategic Economic Re-Orientation and / or Wish List ?

A complete English translation of the “Lineamientos” has just been published by Walter Lippmann, the Editor-in-Chief of CubaNews , the free Yahoo news group on Cuba.

The “Draft Guide for Economic and Social Policy” for the Fifth Congress of the Communist Party is available here: http://www.walterlippmann.com/pcc-draft-economic-and-social-policy-guidelines-2010.html

What follows here is the Blog entry for November 11, 2010 on the “Guidelines”.

I. “Structural Adjustment” on a Major Scale

On Tuesday, November 9, a major document appeared for sale in Cuba entitled “Proyecto de Lineamientos de La Political Economica y Social” or “Draft Guide for Economic and Social Policy.”  The purpose of the “Guide’ presumably is to spark and to shape public discussion and education on the economic matters that will be the focus of the long-postponed Sixth Congress of the Cuban Communist Party to take place in April, 2011. It also provides the essentials of the new approach that will likely be adopted at the Sixth Congress.

It can be found in its entirety, courtesy of the Blog Caf Fuerte. (http://cafefuerte.com/, here: Projecto de Lineamientos de la Politica Economica y Social,

The “Guide” is a broad-reaching and comprehensive document that puts forward 291 propositions for the improvement of the functioning of the Cuban economy. It signals a break in the four years of near inaction that the Cuban economy endured since Raul Castro took over as acting and then actual President – and the ten years of paralysis from about 1995 to 2006 under President Fidel.  It amounts to a major process of “structural adjustment” of the sort that was begun in 1992-1994, but was then stalled when the Cuban economy appeared to rebound after 1994.  The document is also a contradiction and maybe a “slap-in-the-face” for Fidel Castro, as it indeed indicates that the Fidelista-style Cuban model – his life’s work – is not working. (See “Fidel’s No-Good Very Bad Day” and The “FIDEL” Models Never Worked; Soviet and Venezuelan Subsidization Did.)

II. General Character of the Proposals

The Table of Contents provides a quick idea of the scope of the document:


Contours of Economic and Social Policy

I           Economic Management Model

II          Macroeconomic Policies

III        External Economic Policies

IV        Investment Policy

V         Science, Technology and Innovation Policy

VI        Social Policy

VII       Agroindustrial Policy

VIII     Industrial and Energy Policy ix

IX        Tourism Policy

X           Transport Policy

XI         Construction, Housing, and Hydraulic Resource Policy

xii        Commercial Policy.

The Introduction summarizes the basic objectives required to overcome the principal problems of the economy. These include putting into productive use the unused lands constituting almost 50% of total, raising agricultural yields, developing new mechanisms to reverse the process of industrial and infrastructural de-capitalization, eliminating excess and redundant employment, raising labor productivity, recovery of export capacity in traditional exports, undertake studies in order to eliminate monetary dualism, and provide improved capacities for more decentralized regional development.

The “Contour” section then states that “…only socialism is capable of overcoming the difficulties and preserving the conquests of the Revolution, and the implementation of the economic model prioritizes planification and not the market”. However, the next paragraph states “…socialism is equality of rights and equality of opportunity for all citizens, not egalitarianism.” The latter sounds less like “socialism” and more like “social democrat” if not the common approach of most Western countries. The latter quotation makes the former somewhat hard to interpret if not meaningless.

The document then goes on to list the 291 propositions under the 12 different headings. A few of the more interesting propositions are summarized below:

  • Wholesale markets for supplying state, cooperative and self-employment enterprises will be established. (9)
  • State enterprises will decide themselves how to allocate their investment funds, and normally will not receive budgetary support for this. (13)
  • Insolvent enterprises will face liquidation. (16)
  • Workers incomes in state enterprises will be linked to enterprise performance (# 19)
  • Monetary and exchange rate unification will be “advanced” (54)
  • The taxation system will be advanced in terms of progressivity and coverage, and will be based on generality and equity of its structure. (56 and 57)
  • The centralized character of the determination of the planned level and structure of prices will be maintained. (62)
  • Recover the place of work as the fundamental means of contributing to the development of society and the satisfaction of personal and family needs. (130)
  • Modify the structure of employment, reducing inflated staffing and increasing employment in the non-state sector (158-159)
  • Eliminate the ration book as a means of distributing products. (162)
  • Improve agriculture so that Cuba is no longer a net importer of food, prioritizing import substituting activities, reviving citrus fruit production, augmenting sugar production. (166, 174, 179, 194.)
  • Promote export-oriented industry (197)
  • Develop a range of new industries such as tires, construction materials and metallurgy (213, 215, 216)
  • Restructuring of domestic retailing and wholesaling. (283-291)

III. Preliminary Evaluation

This document will receive a great deal of attention inside and outside Cuba. It provides fodder – along with the recent legislation on self-employment – for analysts and observers of Cuba, who have had little of hard substance on which to base their analyses of Cuban policy under the “Raulista” Presidency for some time.

In some senses, this document is remarkable. It sets out an ambitious reform program for much of the Cuban economy. It may indeed constitute a “Wish List” of all the types of policy improvements and changes that would be nice to have. The question is “can and will they be implemented?”

This document also is a major risk for the Raul Castro Administration. It provides a check-list of tasks that will be difficult to achieve. If future implementation and economic performance is far below the expectations that are now being raised to high levels, there could well be a serious fall-out for the Government and the Party.

The document is also broad and ambitious but does not set any clear priorities and does not propose a sequence of actions. Everything can’t be done at once. How should the policy changes be phased or sequenced?

Some observers are skeptical and perhaps cynical regarding the “Guide” – for good historical reasons. In her Blog Entry entitled The Art of Speaking Without Speaking (http://www.desdecuba.com/generationy/?p=2088) Yoani Sanchez states:

When you grow up decoding each line that appears in the newspapers, you manage to find, among the rhetoric, the nugget of information that motivates, the hidden shreds of the news. We Cubans have become detectives of the unexpressed, experts in discarding the chatter and discovering — deep down — what is really driving things. The Draft Guidelines for the Communist Party’s VI Congress is a good exercise to sharpen our senses, a model example to evaluate the practice of speaking without speaking, which is what state discourse is here.

The Guide undoubtedly could be seen as an economic rescue program designed to rescue also the Communist party of Cuba, which faces steady de-legitimation as the economy deteriorates – even as the official GDP statistics appear to rise steadily.

What is missing from the “Guide”? Here is a first brief listing. Further analysis will be incorporated here later.

1.      Nothing is said regarding labor rights. A vital part of the reform approach if labor is to be used effectively would be freedom of association, collective bargaining and the right to strike. In the absence of these, pressures and insights from the grass roots to improve economic policy and its effectiveness are suppressed.

2.      Nothing is said regarding freedom of expression and the right to criticize the policies and institutions openly, honestly and continuously. The absence of this right leads to economic inefficiency and corruption as argued elsewhere. ( Freedom of Expression, Economic Self-Correction and Self-Renewal)

3.      No further elaboration of how the self-employment or micro-enterprise sector is presented, suggesting that the recent reforms are the end of the journey not a first step.

4.      The dedication to centralized determination of prices is problematic. If maintained strictly, it would make the decentralized decision-making allotted to enterprises for investment, the hiring of resource inputs, etc. meaningless, and the problems of trying to run the economy from a few office towers in Havana would continue.

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Cuba’s Achievements under the Presidency of Fidel Castro: The Top Ten

NOTE: For additional articles on various aspects of Fidel Castro’s presidency, see:

Fidel Castro: The Cowardice of Autocracy

Fidel’s Phenomenal Economic Fiascoes: the Top Ten

Fidel’s No-Good Very Bad Day

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

On September 17, I published and entry on this blog entitled “Fidel’s Phenomenal Economic Fiascoes: the Top Ten” but stated that I would also write a statement on Cuba’s greatest achievements under the leadership of President Fidel Castro. Here it is.

There certainly were economic policy blunders from 1959 to mid-2006 when Fidel Castro stepped aside in favor of his brother Raul. However, as is well known, Cuba made major achievements over these years in socio-economic terms. I will begin with a quick summary of Cuba’s socio-economic performance from 1959 to 1990 and 1990-2010, and then proceed to a listing of the Tip Ten Achievements

I. Socio-Economic Performance, 1959-1990

While the performance of the Cuban economy from 1959 to 1990 period was mixed, major improvements were made in terms of socio-economic well-being. The summary of changes in a few key socio-economic indicators in Table 1 illustrates the absolute and relative improvements achieved in human well-being. Life expectancy and infant and child mortality are summary indications of nutrition, income distribution and poverty and the quality of a nation’s health care system. Literacy and educational attainment are key factors in the investment in human capital and in citizen empowerment in a modern economy.

(click to enlarge)

Cuba’s rankings for these indicators in 1960 were relatively high in the Latin American context so that it was building on reasonably strong foundations.

However, despite improvements in the rest of Latin America, Cuba raised its relative ranking for all five of the socio-economic indicators vis-à-vis the rest of Latin America (excluding the English-speaking Caribbean.)  However Cuba’s economic ranking – in terms of the purchasing power of GDP per person – fell well down the list in 1990 placing Cuba at the 14th rank. As a result, Cuba placed at #10 in the UNDP Human Development Index.

II.        Socio-Economic Performance 1990-2010

Despite the economic difficulties of the 1990s, Cuba continued to improve its socio-economic performance in relative and absolute terms, at least as these are measured by the indicators in Table 2. Cuba continued to lead the Latin American countries in infant mortality and the education indicators. The improvements in education and health indicators and rankings occurred despite weakening of resource allocations and problems of maintaining quality. Cuba’s success in these areas was due largely to the quality and quantity of the educational systems built up in the previous1960-1990 period and institutional momentum.

(click to enlarge)

III.             Top Ten Achievements

Here is a listing of the Cuba’s socio-economic and economic achievements under the Presidency of Fidel Castro. They are not presented in order of importance. Some are the result of specific policy decisions or design or negotiations of Fidel Castro, though others are not.

#1        The 1961 Literacy Campaign

#2        Reorganization of the Health Sector

#3        Redesign of the Educational System

#4        Rapid Expansion of the Tourism Sector

#5       Provision of Medical Services to Latin America and Other Countries

#6        Survival in the Face of the 1989-1993 Economic Melt-Down

#7        Winning Economic Support from the Soviet Union, 1961-1990 and Venezuela, 2004-2010

#8        Establishment of the “Polo Cientifico” and the Development of the Bio-Technological Sector

#9        Dedication to their Jobs by Cuban Citizens during the Catastrophic Decline in Real Wages and Incomes after 1990

#10      Fruitful Collaboration with Foreign Enterprises

IV.             Achievements in Detail

#1        The 1961 Literacy Campaign

The 1961 literacy campaign was an inspired approach to improving educational levels among the relatively large proportion of the population that was illiterate in 1959. This was done at relatively low cost with strongly motivated volunteers. It quickly improved literacy rates immensely, though there is some disagreement as to the quality of the literacy that was achieved.

#2       Reorganization of the Health Sector

Cuba succeeded in reorganizing its medical system so as to provide universal access to health services, and managed to obtain excellent results relative to the amounts of resources that it was able to devote to the health sector.  As a result, Cuba’s health indicators improved quickly and remain among the very best in Latin America (See Tables 1 and 2)

#3        Redesign of the Educational System

Cuba’s reorganization and expansion of the educational system in the early 1960s also made education universally accessible and increased investment in people (human capital.) As a result, Cuba moved from 5th place in Latin America in terms of literacy and school enrolment in 1970 to 1st in 2007 – a fine achievement.

#4        Rapid Expansion of the Tourism Sector

As a result of the 1989-1994 economic melt-down, it was decided to earn foreign exchange by expanding the tourist sector. This required massive involved massive investment by both Cuba and foreign enterprises and the rapid shifting of resources to the sector. This was done and by 2008, Cuba was earning almost MN 2.4 billion from tourism.

#5        Provision of Medical Services to Latin America and Other Countries

By the latter 1990s, Cuba had a major surplus of medical personnel, with doctors and nurses posted in small tourist hotels and day care centers. However, this was converted into a major humanitarian asset, with Cuba’s provision of medical assistance to many countries in need, and expanding the Latin American Medical School outside Havana. The services of medical personnel are also exported to other countries – paid mainly by the Government of Venezuela. The foreign exchange earnings from medical (and educational) service exports amounted to MN 6.1 billion, almost half of Cuba’s foreign exchange earnings in 2008, as indicated in the accompanying chart.

#6        Survival in the Face of the 1989-1993 Economic Melt-Down

With the loss of Soviet subsidization and the near 40% decline in income per capita from 1989 to 1994, Cuba reorganized its economy, “depenalizing” the use of the US dollar, legalizing farmers’ markets, liberalizing self-employment and promoting new economic activities and exports etc. With no support from the international financial institutions of which it was not a member, thanks to the embargo with the United States, Cuba survived, at a cost borne almost directly, immediately and totally by its citizens.

#7       Winning Economic Support from the Soviet Union, 1961-1990 and Venezuela, 2004-2010

As noted in an earlier blog, The “FIDEL” Models Never Worked; Soviet and Venezuelan Subsidization Did posted on September 9, 2010 ,  Cuba received generous subsidization from the Soviet Union for a substantial period of time. An estimate of the amount of the subsidization is presented in the accompanying chart.  Presumably President Fidel Castro is responsible for negotiating this support. Similarly, Cuba has received substantial support from President Chavez of Venezuela through export and investment credits, low-cost oil imports and generous payments for Cuba’s exports of medical services.  How beneficial any of this assistance has been is debatable partly because it has been and is unsustainable and it has made possible the continuation of economic policies and institutions that have been counterproductive in the longer term. Fidel Castro can undoubtedly take the credit for these special relationships.

(click to enlarge)

#8        Establishment of the “Polo Cientifico” and the Development of the Bio-Technological Sector

To my knowledge, there has been no careful analysis of Cuba’s huge investment in the “Polo Cientifico” and the Bio-Technological sector. Indeed, I have not seen any analysis of the investment in the sector so I cannot judge accurately if it has been commercially viable so far or not.

However, Cuba is beginning to achieve major exports of pharmaceutical products amounting to MN 296.8 million pesos vis-à-vis MN 233.4 million for sugar in 2008.  These exports should continue to increase in future and the investment in the sector may be valuable. Moreover, Cuba’s investment in the “Polo Cientifico” has built a professional and institutional foundation for future success in pharmaceutical and other scientific areas.

#9        Dedication to their Jobs by Cuban Citizens despite the Decline in Real Incomes after 1990

I have always been impressed at the professionalism of many Cuban citizens that I have known over the years since 1990. In the face of huge declines in the purchasing power of their incomes, they continued to work seriously and with dedication in medicine, the Universities, the schools, the public service, or other employment. Many professionals and others in effect subsidized their state sector employers by earning other incomes that permitted them to survive in the unofficial economy. We have all heard of the doctors and engineers forced to provide taxi services on the side in order to make ends meet and continue to function in their professional capacities. The dedicated work of countless citizens over the difficult years of the Special Period, 1990-2010, is essentially what has brought about some recovery since the depths of the depression in 1993.

#10      Fruitful Collaboration in Nickel, Oil, Gas and Electric Power Generation with Sherritt International

Cuba opened up to foreign direct investment in joint venture arrangements with state firms. This has paid off handsomely, most notably with Sherritt International (nickel, cobalt, oil, gas, and electric power) and other enterprises as will be argued later in this Blog.


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Has Cuba’s Catastrophic Decline in Real Wage Levels Been Reversed?

The level of “real” or “inflation-adjusted wage levels collapsed catastrophically in the economic melt-down of 1989-1993. Has this been reversed during the alleged economic recovery from 1994 to 2010?

The chart below indicates that real wage levels may have increased steadily after 1994, but they are still a small fraction of their pre-melt-down level. This Chart is based on calculations presented by Pavel Vidal Alejandro, an analyst in Cuba’s primary economic research institute, the Centro de Estudios sobre la Economia Cubana (CEEC), also reproduced below.

According to this data, Cuba’s real wage collapsed from high of around 190 pesos (Moneda Nacional) to 20 pesos by 1993, recovering only slowly to 2008. For those who observed this collapse in the early 1990s, these figures are indeed credible.  How Cuban citizens reliant upon peso incomes survived through this catastrophic decline constitutes several million stories of endurance and innovation – or the practices encapsulated by the “Special Period” terms “resolver”, “luchar”, “conseguir” and “inventar”.

Chart 1: Cuba: Real Inflation-Adjusted Wages, 1989-2009
(Pesos, Moneda Nacional)

Source: Pavel Vidal Alejandro, “Politica Monetaria y Doble Moneda”,
in Omar Everleny Perez et. al., Miradas a la Economia Cubana,
La Habana: Editorial Caminos, 2009, p.35

The 1989-1993 economic contraction – approaching 40% of GDP – resulted from the termination of the subsidization from the former Soviet Union camouflaged in the form of credits never to be repaid, the above market prices paid for Cuban exports, the below-market prices for Cuban imports with that country.  In terms of official statistics on aggregate per capita economic growth rates, it would appear that the Cuban economy has fully recovered and surpassed the 1989 level by about 20% in GDP per capita terms as indicated in Chart 2.

Source: the author on the basis of statistics from the Oficina Nacional de Estadisticas, Anuario Estadistico de Cuba, various issues and UN ECLAC, Preliminary Overview of theEconomies of Latin America and the Caribbean, various issues

“Where’s the economic recovery? We don’t see it.”

But this raises the question: How could the economy recover so fully while real wages are still only at about 22 to 25 % of the 1989 level? This is indeed a puzzle. Citizens of Cuba have observed the contradiction for some years, as suggested by the saying mentioned above.

One possibility is that the GDP statistics are dubious. Indeed the Cuban government adopted a new approach to measuring GDP relabeling it as “Sustainable Social” GDP, measuring the value of services not at the cost of their provision but at an estimated evaluation of their worth internationally.  This revised GDP measure increased Cuba’s GDP per capita and increased the ostensible growth rate as the service sector expanded.
A second partial explanation for the immense gap between overall economic performance levels and wage levels is that substantial portions of the goods and services produced in the economy are pilfered and distributed through the ubiquitous underground economy so that revenues seem seldom to permit higher wage and salary payments but actually more is produced but leaks out of official circuits.

There are undoubtedly other factors explaining this situation as well.

“Resolver”, “luchar”, “conseguir” and “inventar”

How have Cuban citizens managed to survive with real incomes still around 22 – 25% of their 1980s levels. In fact, many Cubans have been able to generate incomes higher than the official wages and salaries. The additional sources of income include:

  • “Income in kind” ranging from lunches for workers, food supplements for seniors;
  • “Income in kind” and special access to transportation and housing for well-placed government officials (e.g. use of official vehicles for private purposes);
  • Illegal but tolerated salary supplements for employees of joint foreign-state enterprises and embassies;
  • Remittances from abroad;
  • Legal self-employment incomes;
  • Home produced goods and services for exchange or sale with friends and neighbours;
  • Informal (un-registered or underground) economy activities;
  • Pilferage from the state sector for resale or personal use.

If citizens can tap such other income sources, as many or most do, then they can survive reasonably well. However, there are some that have no access to any of these additional sources of income – or perhaps only simple survival activities such as selling cigarettes or Granma in the street. Which groups of citizens fall into this category? Perhaps the following:

  • Some pensioners;
  • Workers in the state sector outside the major cities;
  • Some agricultural workers

However, given that the rationed monthly food allowance is meager and on balance covers around 10 to 14 days of food requirements, while the rest of food requirements and basically everything else must be purchased from the dollar stores – where products bear a 140% sales tax – or the farmers markets or self-employment sector or the underground economy , these individuals obviously are in dire straits.

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