Cuba Libre: A 500-Year Quest for Independence

by Philip Brenner

  Downsizing state employment actually had been under way since 1992, because of the exigencies of the Special Period. Recall that two-thirds of the military had been retired from service in the early 1990s. In addition, the government had started to redefine the responsibilities of central state institutions in a slow process of decentralization. Some functions were transferred to provincial governments and ministries gained increased autonomy to make decisions.6 But until 2011, the decentralization process occurred very slowly.

  Privatization

  The pace began to change in April 2011 when the PCC approved a major new program, “Guidelines for the Economic and Social Policies of the Party and the Revolution,” known as Lineamientos, or Guidelines.7 Cuban economist Juan Triana explains that the Lineamientos provided a fundamentally new orientation for the society. The “consensus that without development it will be very hard to sustain Cuban socialism,” he wrote, “is a departure from the past in which socialism was the guarantor of achieving development.”8 Notably, Cuba’s leaders acknowledged that development might need to place efficiency and growth ahead of values such as egalitarianism, and that this reorientation would require a greater reliance on market considerations in determining wages and even what enterprises produced.9

  We can appreciate the importance the leaders attached to the Lineamientos in seeing the process they used to finalize them. In December 2010, the government circulated a draft document and encouraged discussions about it in work centers, mass organizations, and schools. As a result, the initial 291 guidelines became 313 when the Sixth Party Congress took up the report in April 2011. Only 32 percent of the original 291 guidelines remained unmodified. Some were combined with others, and thirty-six additional guidelines emerged from the nationwide series of meetings.10

  The 313 Lineamientos established a process for expanding the number of permissible private (referred to as “non-state”) sector enterprises. It created a commission that initially listed 181 types of jobs that could be performed legally. Within two years, the commission added more than fifty other categories. The list includes mostly service jobs, such as barber or beautician, electrician, bricklayer, plumber, photographer, waiter, truck driver, flower seller, entertainer, sports instructor, and so on.11

  In addition, several regulations were eased. For example, paladares—the private restaurants in homes—were permitted to employ nonfamily members as workers (see a paladar in figure 24.1). The rule limiting the capacity of a paladar to twelve diners was changed at first to allow up to twenty diners. Later, the limits were scrapped completely. Bed-and-breakfast accommodations previously were confined to rooms within a dwelling occupied by the vendor. The modified regulation allows an entrepreneur to rent out a whole apartment or house—which became the most popular option for Airbnb participants when the company entered Cuba in 2015.

  Figure 24.1. Paladar Liliam in Havana. Photo by Giselle Garcia Castro.

  Previously, those applying for a license to open a private business had to wait months for approval, which was far from guaranteed. In contrast, as analyst Phil Peters notes, the first visible sign of a change as a result of the Lineamientos was the opening of a street-front office in central Havana that “posted instructions outside, assigned one staff member to answer questions and direct traffic of applicants lined up outside, and assigned four staff to taking applications. . . . Most licenses were granted within five business days.”12 The half-million mark of registered cuentapropistas was reached midway through 2015, though economist Richard Feinberg has argued that a more accurate estimate of nonstate sector employment is about 40 percent of the workforce—between 1.7 and 2.1 million people.13

  The Guidelines themselves, and the way they were implemented in the five years after the PCC approved them, roughly indicate the nature and extent of privatization that Cuba’s leaders envision for the country. The vision has the following features:

  Between 40 and 50 percent of Cuba’s workers would be employed in nonstate sector jobs, preferably by worker-owned cooperatives;

  The major resources of the country—nickel mines, oil fields, energy production—would continue to be owned by the state;

  The state would maintain a near exclusive monopoly to provide education, day care, and health care, though provincial and even municipal governments might gain more authority to engage in experimentation;

  Small, nonstate enterprises would provide many of the other services.

  Updating Cuba’s Agricultural Production

  Slightly more than 75 percent of Cuba’s population lived in urban areas in 2009.14 The plan to increase food production by enticing city dwellers to rural areas with the offer of free land began that year, but there were few takers. Aside from the expectation that the work would be difficult, the incentives were low and the hurdles were high.

  The program initially proposed to lease forty hectares to a family for ten years, provided it worked on the land (figure 24.2 shows a farmer’s market, while figure 24.3 displays a price list). But a family’s rights over improvements—such as a barn—remained unclear. Additionally, the government left in place bureaucratic mechanisms that interfered with decentralized decision-making and created obstacles that prevented the quick processing of loans and technical assistance or made it difficult for farmers to obtain essential supplies.15 Political geographer Garrett Graddy-Lovelace reports that there was a “thirty percent rate of food loss from field to store” in 2015 because farmers often lacked “bags, bushels, crates, and boxes to transport harvested crops.”16

  Figure 24.2. A farmers’ market in Havana. Photo by Philip Brenner.

  Figure 24.3. The price list at the Mercado 21 y J indicates that staples such as sweet potatoes cost 2.5 Cuban pesos per pound (about US$0.10 per pound); black beans, US$0.40/pound; yucca, US$0.13/pound. The average worker earns about 400 pesos monthly, or about US$17 per month. Photo by Philip Brenner.

  In 2012 and 2013, the government partially responded to the problems by easing and clarifying some regulations, especially for cooperatives. The area of land a cooperative (but not a family or individual) could lease was increased to sixty-seven hectares (about 165 acres), and leases could extend to twenty-five years instead of ten. Cooperatives also were permitted to sell directly to hotels and other tourism entities instead of going through a state entity. Both cooperatives and individual farmers were allowed to retain the right to the structures they had built on the land.17 Even so, cooperatives accounted for only 10 percent of land under cultivation by mid-2015.18

  Meanwhile, through its urban and suburban farm programs, Cuba continued to promote agroecology, emphasizing a minimum use of fossil fuels and locating producers close to consumers. Suburban farmers, though, faced obstacles that are uncommon for urban farmers. Plots in the suburbs are larger, which makes maintenance solely with human labor impossible. Transporting produce to cities also is more difficult to sustain without the use of fossil fuels for trucks. To overcome these hurdles, suburban farmers have relied on animal power—oxen teams—and the Agriculture Ministry set up collection stations to which farmers can travel by carts to deposit their produce.19

  Continuing Economic Problems

  Halfway through 2016, President Castro told the National Assembly and the country that the Cuban economy was suffering severe problems. Though he dismissed fears that a “collapse of our economy” was imminent, he acknowledged solemnly that it would be “imperative to reduce expenses of all kinds that are not indispensable, to promote a culture of conservation and the efficient use of resources available.”20 In fact, Reuters reported, “Cuban companies are already slashing work hours and limiting the use of air conditioning and cars in order to save energy.”21 Clearly, the reforms approved by the PCC’s 2011 Congress had not updated the economy sufficiently. Much still remained to be worked out after five years.

  This was essentially the assessment that
the Seventh Party Congress made at the conclusion of its April 2016 meeting. It accepted a report that stated only 21 percent of the Lineamientos had been fulfilled completely.22 Yet the Seventh Congress’s principal resolution offered almost no specific plans for dealing with the problems. There had been expectations among analysts prior to the Congress that it would approve some far-reaching innovations because this was the last Congress over which Raúl would preside as the country’s president. When the National Assembly reelected him in 2013, he said his current five-year term would the final one. Significantly, the Seventh Congress did reelect him as first secretary of the PCC, and that term will run until 2021.

  While critics deride Raúl for making changes too slowly, there is no blueprint Cuba can follow to achieve its goals of development with equity and independence. Vietnam is sometimes cited as a model for Cuba. But the two countries differ in significant ways that make it unwise for Cuba to adopt Vietnam’s practices without careful modification. Vietnam’s population is nearly nine times that of Cuba’s and its land area is three times larger. Even though both states are nominally communist, Vietnam’s culture is closer to a collectivist nature, while Cuba’s is closer to a Western individualistic one. Two major sources of economic growth for Vietnam have been the production of clothing and coffee. But Vietnam has notoriously terrible factory and farm conditions that Cubans would be unlikely to tolerate. In 2016, Vietnam was one of eight countries (out of seventy-five surveyed) that the US Labor Department cited for using child labor and forced labor in its garment factories and one of sixteen using child labor in coffee production.23

  The absence of a worthy model to follow is one reason we cannot neatly fit all the opponents of change in Cuba into one box.24 To be sure, there is a group we would label as self-serving survivalists. These are people who found ways to adapt to hardship through informal networks and illegal practices that economic reforms would disturb. Middle-level bureaucrats who try to stifle innovation, merely because “old habits die hard,” also would fall into this category.25

  Yet there are three groups of opponents who seem to be acting from well-intentioned motives. Resolute nationalists worry that some foreign investments could make Cuba vulnerable to the demands of another country and vitiate Cuba’s sovereignty. In a similar vein, security-oriented skeptics view an economic opening as a way for the United States to destroy the Cuban Revolution. Even former US commerce secretary Carlos M. Gutierrez acknowledged the legitimacy of this fear in remarking that some Cubans are “wondering what the US intentions are and whether US policy is designed to help the Cuban people or whether it is something more like a Trojan horse.”26

  This concern is shared by those in a third group. Resolute socialists worry that unfettered integration into the global economy will require Cuba to diminish beyond recognition its commitment to equity. They also fear that too great an emphasis on the market will lead Cubans to replace values of social responsibility and communal cooperation with extreme individualism and consumerism, especially given Cuba’s proximity to the United States.

  The situation of nonagricultural cooperatives illustrates how these motives for opposing change may operate to slow down the process. A municipal agency is able to approve a license for a cuentapropista—individual private business—but only the Council of Ministers can authorize the operation of a nonagricultural cooperative. As of mid-2015, there were a mere 329 functioning nonagricultural cooperatives, most of which were spun off from state enterprises located in Havana.27 At the same time, few licenses had been issued for most private professional activities—legal representation, architecture, business consulting, accounting—even though post-2011 regulations permit such professionals to form cooperatives.

  In a sense, President Castro acknowledged the legitimacy of opponents’ concerns by asserting, “We will continue the updating of our economic model at the pace we sovereignly determine, forging consensus and unity among Cubans in the construction of socialism.” He added, sternly, that the “speed of changes will continue to be conditioned by our capacity to do things well, since this has not always been the case.”28 Raúl’s general remarks about what Cuba must do to solve its economic problems actually contain three specific goals: (1) ending the dual-currency system; (2) acquiring hard currency for development; and (3) meeting energy needs with fewer imports.

  Ending the Dual-Currency System

  Recall from chapter 18 that the government initiated a dual-currency system during the Special Period as a way to deal with the dollars from remittances circulating in the country. The US dollar was legal tender in Cuba until 2004 when the government established that only Cuban Convertible Units (CUC) could be used as hard currency. It also established two fixed rates of exchange. The official rate used for international transactions is that one US dollar equals one CUC, which in turn equals one CUP, the Cuban peso. But domestically, the exchange rate was set at twenty-four CUP for one CUC.

  One can imagine how difficult accounting becomes when an enterprise needs to relate to a foreign firm, or must calculate what to charge for products that include domestic and foreign components. The dual-currency system acts to discourage foreign investors who need to rely on a consistent monetary instrument. This is one reason economist Emily Morris concludes that ending the dual-currency system would be “a greater step towards the transformation of economic decision-making from the state planning system to the market than the much-vaunted opening of the formal non-state sector, which still only accounts for twenty-five percent of national employment.”29

  A move to a unitary system would be quite disruptive for most Cubans. Cuban leaders have been debating and negotiating how such a transition could occur and what value would be assigned to the new currency in relation to the CUC and CUP. The change would likely generate inflation and hurt those on fixed incomes, such as the elderly, and so any change would also require a revamping of Cuba’s safety net and set of subsidies. Even before the 2016 economic decline, Cuban economist Pavel Vidal reported that “a high proportion of the population lives under conditions of extreme vulnerability.”30 Thus, it is understandable why Cuban leaders missed the 2016 deadline for creating a single currency—because the resulting shock and likelihood that many would suffer might have been too much for the country to weather in precarious circumstances.

  Acquiring Hard Currency for Development

  No one disputes that Cuba needs to increase the amount of hard currency it has available for development. But each of the three ways of obtaining hard currency—remittances, foreign direct investment (FDI), and exports—generates its own problems.

  Remittances

  Estimates of annual remittances to Cuba range from $1.4 to $3.4 billion. In January 2015, the Obama administration eased regulations to allow any US citizen to send an unlimited amount of money to a family member in Cuba, and up to $8,000 yearly to a nonfamily member. Remittances unquestionably help individual recipients to endure hardships. They are also a source of investment for some Cuban entrepreneurs. By one estimate, 80 percent of the recently opened large paladares had expatriate funding behind them.31 But remittances carry the undesirable side effect of increasing inequality and promoting conspicuous consumption. In addition, the government’s efforts to capture the hard currency for development—through taxes, pricing distortions, and fees—has diverted resources, generated antagonism, and produced poor results.

  Foreign Direct Investment (FDI)

  Foreign investors have tended to see Cuba as providing an unfriendly investment environment, even though regulations revised since 1993 grant an eight-year period with no tax payments on profits, allow a non-Cuban company to own 100 percent of an enterprise, and guarantee full protection against expropriation. But Cuba still “requires all applications for FDI to pass through a complex and nontransparent review process,” economist Richard Feinberg observes, “raising obstacles not present in many other Latin American and Caribbean countrie
s.”32 In addition, foreign companies have not been able to pay Cuban workers directly because the government collects the hard currency salaries from a company and pays its workers in Cuban pesos. For example, a Cuban who works for a foreign news bureau in Havana such as China’s CCTV might nominally earn 400 CUC each month, the equivalent of about US$400. But the company pays the $400 CUC to the Cuban state, which gives only 400 CUP (Cuban pesos) to the employee—the equivalent of about US$17. Many companies then feel compelled to pay such workers additional funds under the table without notifying the government, which raises their employment costs.

  These obstacles begin to explain why the extent of foreign investment has been less—and concentrated in fewer kinds of economic activity—than Cuban leaders projected. By the end of 2011, there were only 258 enterprises in which foreign entities had made investments. (Among the top fifteen countries on the list, Spain had the highest number of companies with forty-seven; Israel was fifteenth, with two.) Forty percent of these investments were in tourism, with far lesser amounts in nickel, agribusiness (mainly citrus), construction, communication, and transportation.

  Consider the much-touted Special Economic Opportunity Zone of Mariel, located about twenty-eight miles west of Havana. It consists of a new world-class port that can dock the super-Panamax container ships from the enlarged Panama Canal, the Mariel Special Development Zone (ZEDM), and a new rail connection to Havana (see containers in the Special Economic Opportunity Zone in figure 24.4). Construction of the port facility, which cost nearly $1 billion, was a joint venture with Odebrecht, the Brazilian engineering conglomerate; the port is managed by PSA International, a Singapore firm.33