Cuba Reforms in Search of a Model
HAVANA TIMES — The island’s economic reforms are now in their fourth year, but they seem to have left more than one Cuban dissatisfied. People consider them too slow, shallow, lacking integrity and — above all — there’s no feeling that these have improved their lives substantially.
There is a certain truth to this, but what is also at play is a different style. Heading the country is a leadership that is more cautious about announcing successes; instead, they analyze the consequences of every move and try to change the model without criticizing the past strategies.
Marino Murillo (the head of the commission driving the reforms) said that the slowness is due to “a shortage of foreign currency liquidity; the global credit crisis, which makes access to credit more difficult; as well as the need to prepare ourselves mentally for the changes.”
The application of each of reform has been accompanied by absurd limits, regulations that evidence the lack of definition in the model to be built and reveal a fear felt by some sectors of the consequences of the changes.
People’s perceptions
“The changes here in the east where I live are very slow and they haven’t improved things for ordinary citizens,” says Ricardo Hernandez, a builder in Holguin Province who has been idle since returning from a mission in Venezuela.
A young professional in Santiago de Cuba said, “The reforms that would have the most impact haven’t been implemented yet; I’m referring to immigration, the dual currency, internet access and university graduates being able to work as self-employed workers.”
“The changes are slow but one has to adapt themselves, because the country is in kind of a bad situation,” said telephone operator Abelina Perez in Villa Clara Province. She added that she has to ask for help from her son because her salary “isn’t enough to live on.”
“Updating”
The dissatisfaction on the part of Cubans also has a subjective element. For decades, optimism marked the rhetoric that today is clashing with the blunt words of Raul Castro, who openly says the nation is on the edge of an abyss, wages are insufficient and the country’s unanimity is false.
Another contrast is the implementation of local pilot programs prior to carrying out widespread changes throughout the country. Previously ideas were put into practice more quickly, sometimes successfully but on other occasions concluding in ill-famed failures at huge costs.
In addition, the official line is stressing that these are not “reforms” but an “updating of the model.” This conveys the idea to people that no fundamental changes are being made, yet it gives the government the freedom to change everything without having to make a critical assessment of the previous model.
“Not resolving the major problems”
The dissident economist Oscar Espinosa said “the reforms are a failure and have wasted precious time. The transfer of land, for example, was made without providing farmers with the basic prerequisites and therefore the outcome is minimal.”
He adds that “self-employment is good because it gives life to the society, but it isn’t solving the main problems. We need to give impetus to small and medium-sized businesses, to let people import what they need and allow them to develop.”
Self-employment has now stagnated but it actually hadn’t grown much. Seventy percent of the new independent workforce is made up of people who had been “occupationally disconnected”; in other words, they were self-employed black market workers who have now become legalized.
Only 80,000 former government employees applied for self-employment licenses, a tiny amount given that the plan for layoffs foresees turning one million people into private-sector employees. The stagnation may be due to a lack of capital and insufficient provisions for starting businesses.
The theory and practice of reform
The work of researchers at the Center for the Study of the Cuban Economy suggest that the reforms slowed because the government wants to define the direction of the country and what will be the main guidelines for building that model.
They affirm that the reforms have theoretical depth but that in practice the most they have done is eliminate some prohibitions and have allowed for the issuing of some directives, which were already obsolete because the changes could not be comprehensive and coherent if they don’t know where they are leading.
They believe that it is important to define, for example, what agricultural model will be adopted and, based on that, clear the way of everything that impedes food production, ensure inputs, credit, and wholesale markets, and allow cooperatives to import and export.
President Raul Castro himself confirmed this week in parliament that they are making the “initial steps for the conceptualization of the country’s economic model and that they have approved (…) everything that sets the stage for executing the most substantial changes.”
These steps have included:
(1) The transfer of more than 1,300,000 hectares to farmers at no cost to them.
“But,” up until now, not allowing them to build houses on these properties, not selling them supplies or allowing them to import these, restricting the free sale of their produce, and providing very short periods of land tenure.
Among the new reforms announced is the transfer of hotel services to their workers. Photo: Raquel Perez
(2) The quadrupling of the number of people who are self-employed.
“But” limiting these to less than 200 trades and hampering their development (such as limiting restaurants to no more than 50 seats). Similarly, there are no wholesale markets, a lack of items in shops, bank lending is negligible and up until recently it was forbidden to form urban cooperatives.
(3) The allowing of access to hotels by Cubans who live on the island (with this group having become the second largest, behind the Canadians).
“But” they are treated like second-class tourists who pay premium prices, as they are banned from boat excursions, they receive poor quality treatment and service, and the hotels do not live up to their contracted packages with these customers.
(4) The allowing of cellphone use by Cubans, which jumped from 250,000 to 1.3 million users.
“But,” despite this growth, the costs remain among the highest in the world (a one minute local call costs around $0.40 USD).
(5) The creation of a national tax system.
“But” up until now the large state enterprises work under a central government budget and there are no taxes on the wages of most workers.
(6) The transfer of many services into the hands of their workers.
“But” this has only happened with a couple of taxi companies and hairdressers, while the government continues to study how to make similar steps with hotel and other transportation services.
(7) The reduction of food subsidies.
“But” people’s wages didn’t grow enough to compensate for this, nor was there an increase in the supply of products at lower prices in non-price-regulated state-run markets or private markets.
(8) The authorization of the purchase of automobiles.
“But” this was limited to used vehicles. New autos can only be bought buy a small number of citizens, after they obtain a letter of authorization from the government.
(9) The proposing of a decentralization of political power.
“But” this has only been experienced in the two newly created provinces (Artemisa and Mayabeque), and is being carried out with the upmost secrecy.
(10) The promotion of greater autonomy for state enterprises.
“But,” no clarification has been made about the role of the market, no questioning is raised concerning state monopolies, enterprise competition is not being promoted and the protection of unproductive firms remains.
Hey Grady, you obviously fail to understand the problems that Cuba faces. Cuba needs raw materials which do not exist in Cuba. Things like spare parts for tractors, light bulbs, ball point pens, etc. These materials must be purchased abroad. To do so requires cash up-front or some kind of credit mechanism. A one-time admin fee works on Planet Grady, but the rest of us use the black American Express Card. I do agree with you on one thing, the Cuban people are indeed the most valuable capital resource in Cuba. The Castros should let the capital seek its highest and best use…er, capitalism.
Good article, Fernando, but it seems to me that the most paralyzing element in the process of “updating the model” is a Soviet-style state monopoly money, banking and credit system. If this central element is not altered, there is little chance of Cuba’s economy becoming dynamic.
Perhaps the PCC does not understand what money truly is. Money is simply a denominated accounting instrument of credit generation. And so, the question, “What is money?” automatically becomes the question, “What is credit?”
Credit is an historically-evolved way for productive individuals to “super-barter” with other productive individuals. That is, it’s a way for one worker in one field, to barter with thousands of other workers, in a myriad of other fields.
Through credit, a young couple can super-barter their future productive potential with thousands of other workers who have already worked many months producing that house the couple wish to purchase. This super-barter is accomplished by the electronic issuing of credit in the amount of the purchase price, thereby pumping newly-created money into the nation’s money supply.
Cuba needs a cooperative banking system in which credit is extended to qualified borrowers for a lucrative, but one-time-only credit generation and payback administration fee, not for time-based interest–as under capitalism. This is because the socialist cooperative bank would not be renting the couple preexisting money, but creating new money based on the couple’s future creative ability.
If the PCC were to get its head straight as to the true nature of money and credit, it would come to understand that the Cuban people are the real “capital” of society; and that a functional money, banking and credit could put that human capital to work and bring forth the bounty of true socialism.
A typical Cuban response. Blame someone else for your problems. That’s cubanspeak for banks won’t lend us the money. Why? Because Cuba wants to borrow a 10-year loan with leadership that may not live 10 more weeks. Who wants to take a risk on Cuba? What bank wants to extend credit to a country that counts among their international allies North Korea, Syria and Iran! If the Cuban economic model made any sense, the money to finance it would be knocking the doors down. That’s how capitalism works. China and Vietnam have no problems with “foreign liquidity”. Imagine that.