The Cuban Market and its Inconsistencies

By Nery Ferreira   (Progreso Semanal)

HAVANA TIMES — In the Conceptualization of the Cuban Model, “the State recognizes the market, it integrates it into the way the planned economy works, and it adopts the necessary measures to regulate it.”  Reading this paragraph, I was reminded of the crushing statement an expert made when he had previously said that “the market is a terrible boss, but an efficient employee if used properly.”

Not using the market properly has been – and still is – one of the country’s economic failures; not to mention the fact that it has also functioned without recognizing its mechanisms.

And this inconsistency came to light, a month ago, an example among so many others, when the Havana provincial government implemented price caps for private taxi-drivers, because they had increased their “normal” fees “for no legitimate reason”.

And so the government gave life to the purpose of “adopting necessary measures to regulate the market”; just that doing this right is maybe one of the most difficult things to do, as researcher Juan Triana Cordovi warns.

In order to do this, he believes that the objective of the regulation and its coherence with the desired outcome must first be validated in a very precise way; clearing up when and how it will be implemented, the cost of making this regulation come into effect, collateral damage, those who will benefit from the regulation and those who will be negatively affected by it.

Ariel Terrero, a journalist who writes on economic matters, thinks that the story of the taxi drivers, despite being a small example, confirms the instability and mess that a market creates without state control. “If the government in the capital is partly responsible in the crisis, it isn’t because it intervened to put things in order, but for delaying to do so.”

“We have to create conditions so that its the producers or suppliers who are competing against each other to sell their products, instead of what we have today in almost every sector of the economy, where its consumers competing against one another to buy what they need,” says Oscar Fernandez.

Taking a different line of thought, economist Oscar Fernandez Estrada believes that the correction of distortions in the market doesn’t need to be resolved with prohibitions, limitations or directives.

“If instead of imposing price controls administratively – an irrational measure from the point of view of market stability – the government had thought about how to increase transport services in the capital by mobilizing existing [transportation] resources, which are under-used today, in a creative manner, things would have ended in a completely different way,” he adds.

He goes on to say that “if financial incentives had been offered to increase the number of private car owners dedicated to public transport, then a “shock” in the supply of services would have had a positive impact on prices in a stable way, without having to nurture resentment from a key economic player which also has a social role, and from their work depends numerous Cuban families.

There could have been countless ideas to accomplish this end. The truth is that the problem with private taxi-drivers emphasized this old State practice, which has never proved to be efficient. Like what happened with the crackdown on street carts marking agricultural products in 2016 and at other times too.

Regarding debt…

Up until recently, before the beginning of the current reforms process to be exact, talking about the “market” in Cuba was somewhat like referring to science fiction, as it was generally viewed as the synonym of capitalism, and as a result, the impetus behind private property.

Far from this rationale, Triana Cordovi argues that the market isn’t exclusive to the capitalist economy and that it is in actual fact “an independent institution which exists whether we want it to or not. We can recognize it and not accept it, and it works however it wants to, like it always has on this island.” You can even regulate it in keeping with the objectives of the society you live in, but without leaving out its objective laws.

According to Professor Oscar Fernandez Estrada, recognizing the market – an idea which was put forward at the 6th Communist Party Congress in 2011 and doesn’t exempt the inconsistent ups and downs like what happened with taxi drivers in the capital – is a turning point in our previous understanding of Cuban socialism.

He said, “No arrangement has existed thus far with the ability to successfully substitute its role, coordinating millions of interactions which are produced between economic entities, or between people, companies, organizations and governments.

“You can’t hide or contain the market with directives. The idea of not being able to steer it, or that arrangements derived from it will always be socially destructive or unfair, is untrue too. The State can and should establish laws and create and shape incentives.”

Not using the market properly has been – and still is – one of the country’s economic failures; not to mention the fact that it has also functioned without recognizing its mechanisms.

According to Triana, in this case, it’s also up to the State to anticipate future events in the market. “That’s why you need to have a strategic planning concept, and Cuba doesn’t have one. Here, scarce assets are managed so that the system continues to operate, based on limitations which hardly let it work. One of the virtues of this transformation process, which is in full-swing right now, comes from rescuing long-term plans.”

Another more obvious doubt is the pricing system, which “has lost the capacity to fulfill one of its functions: serving as a compass for the rest of the economy. In contrast, the market has gained the ability to put prices above those which would be fixed in an environment of real competition,” Ariel Terrero adds.

Looking to other horizons

Could the market take up a bigger space in our system? Fernandez Estrada summarizes: Progressing towards an economy where this works with a lot more structure and coherence is absolutely fundamental for it to work better.

“It could (and should) extend its presence further in Cuba, without progressing a shred in any privatization process. State companies don’t need to be made private, they just need to be truly autonomous.” Furthermore, economic players (state and private) should enter relationships together, do business together and compete freely with each other, starting from a relatively level playing field.

Without stopping to acknowledge the fact that such a process can’t be taken on naively, the expert reminds us that planning carried out in recent decades hasn’t prevented the development of individualism. “Cuban society isn’t saving itself from the social phenomenon of selfishness, choosing one economic model or another. In order to prevent this, a much more rigorous redesign is needed which stems from education, culture, as well as the way politics are implemented.”

Fernandez adds, “we have to create conditions so that its the producers or suppliers who are competing against each other to sell their products, instead of what we have today in almost every sector of the economy, where its consumers competing against one another to buy what they need,” he pointed out.

“This economy,” he summarizes, “needs a much broader participation of the private sector, both the national and foreign private sector, in different forms and scales, which doesn’t mean privatizing the economy but opening up spaces to new initiatives.”