Economic Reforms in Cuba over the Past Decade

Photo: Ernesto Verdecia.

By Miguel Alejandro Hayes Martinez  (El Toque)

HAVANA TIMES – In 2008, there was a crack in the Government’s economic policy: withdrawing the ban on Cubans staying in hotels freely. Thus, they would become a source of revenue with the money families abroad were willing to spend so that Cubans living on the island can enjoy these facilities. Plus, the hard currency from Cubans who were able to pay for these holidays, because of their own hard work and not always illegal means.

This was the first important sign that would go on to mark the Government’s economic focus over recent decades: not producing enough, it dedicated itself to collecting hard currency. The economic reforms process began soon after, in 2011.

The precursor

In 1991, the Soviet Bloc collapsed. However, measures in the ‘90s came almost at the end of the decade, to then be semi-paralyzed in the early years of the new millenium. Over those years, ordinary citizen’s pockets were hard hit, but the state-controlled economy didn’t seem to be on the brink of collapse. The Cuban State was able to secure a wage for every worker. It wasn’t enough, a ridiculous sum, a modest stipend more than a salary, but it was able to give something, and that was the key.

The purchasing power of this sum wasn’t important (hustling and remittances have always been around), or the fact that many of the State companies were running at a loss. But the symbolic act of paying a wage every 30 days couldn’t stop. It was the basic essential for them to continue to exercise power. They could govern with incompetent companies, but not without paying a wage.

Although in 2011, the state-controlled economy was finding it harder and harder to cover this salary/stipend to its almost four million employees, every month that went by. If the Government, as the de facto owner of state-led and military-owned companies, had always been able to pay a wage up until then, the blueprint of paying without producing what’s needed had already been laid out.

The “great” reform

The reforms process came. This involved granting authorization – although still with great restrictions – to something that had been wiped out for over 40 years: self-employment and small private businesses. There were so many restrictions that the private sector was born at great disadvantage, doomed to low-tech services and vulnerable to blows from Stalinist sectors of the Communist Party.

Other measures that accompanied the Government’s basic collection strategy also followed. In that same year, citizens were legally able to buy and sell houses and cars. Up until then, these activities had always been illegal and were subject to many irregularities. Plus, in 2013, travel permits were no longer required, which meant that for the majority of Cubans, the only requirement needed to travel abroad was the possession of a passport.

This set out the framework for Cuban economic reforms: given the State’s incompetence in production, this gave room for private actors to come onto the scene (in keeping with the State’s collection strategy, which could be seen since 2008).

Economic results

Ten years after the reforms were implemented, the direct issue of state-led companies’ insolvency and lack of generating revenue still hadn’t been solved. Inefficiency and low profitability continued, even in companies that had a positive balance.

On the other hand, the reforms’ results were not enough to void the effect of other factors (which the private sector is not responsible for), which tie the hands of the Cuban economy. However, it would be unfair to ask something of the reforms process that it didn’t intend to do. All it wanted to do was achieve the bare minimum and that’s exactly what it did.

The salary/stipend issue was resolved. By 2013, the State was in a better position to pay its workers, as part of the burden of public wages had been lifted after almost a million of them obtained employment in the private sector. Furthermore, the reforms allowed the Government to ensure it collected hard currency, via taxes, on income that would offset the value the public sector didn’t produce. In a roundabout way, the private sector put up money to finance State inefficiency.

Homo economicus cubanus

The fact that the Cuban Government extended the homo economicus cubanus to a new subspecies is especially important. This is the private sector worker must be at peace with the State’s ideology, just like a public sector worker needs to be.

A private business owner’s existence depends upon authorization granted by institutions controlled by the Government. Flirting with illegality to get a hold of supplies, as well as their vulnerability during audits in an environment where any detail could be considered a crime, means that not standing up to the status quo is an almost necessary condition to be a private business owner. It is within the Government’s power to make them disappear, and both know this well.

The Government is responsible for authorizing imports and controls the Law and its interpretation, and they can call upon any regulation that suits them if “the defense of Socialism calls for it”; it has the final word of its inspectors and decree-laws from any ministry.

However, the business owner isn’t the only private worker, their employees are also considered private workers. An independent worker normally earns a lot more than public sector workers, although the gap was a lot clearer before 2020 and the implementation of wage reform. So, private work has been the best alternative for any average Cuban citizen who doesn’t receive remittances and doesn’t see hustling as an option.

Given the fact that competition for these positions is high, it’s better not “to look for problems with politics” (the owner who takes care not to run into problems demands the same attitude from their workers, it’s a must). The chain becomes longer when this person working in the private sector has family and they also need to be careful about what they say or write.

The chances are the private owner has a lot more to lose than a public official (the latter is not an owner of means of production), just like an average worker in the private sector has a lot more to lose than their public counterpart.

As if that weren’t enough, hurdles you need to jump at the beginning and the State’s discretion to authorize a business mean that this right to private economic activity can become a privilege. Once a private actor is legal, it’s in their best economic interests that the Government enforces the same red-tape for its competition, whether they like it or not.

Beyond the reforms process

As the reforms process involved creating the basic conditions of any modern-day economy, it needed to allow the essential: the ability to sell assets (property and vehicles), enjoy hotels and be able to move across borders (which was taken advantage of as a way for importing for the private sector).

As a result, the reforms that sought the basic essentials to keep the Government in power were limited to reestablishing – with many shortcomings – what should have never been eliminated. This is translated into the restoration of rights that had been taken away (private economic activity, the sale of goods and assets, travel) with implications for the national economy.

Substantial transformations in the Cuban economy have revolved around allowing or banning some private activity, with some steps forwards and others backwards. For example, it was recently approved that private businesses can register as a legal entity (SME). While these economic actors and national private businesses have existed for years, they haven’t been legally recognized as such. Also, a vague and selective import mechanism was authorized for private businesses.

From another point of view, it could be said that the State went back on what it had defended as socialism, to build Communism, as a way out. The Government has been unwilling to pay the political cost of the mistakes it makes and the solutions that are applied to fix these mistakes. Furthermore, it tries to apply these solutions to its failure as the main economic actor and make such appear praiseworthy.

Footnotes

The economy is not taking off, but the Government has ensured the bare minimum (sector that creates employment opportunities and tax revenues for collection), while joining groups that are in fact key to it staying in power. This doesn’t mean that the economic reforms were negative; they were openings. What we need to be asking ourselves is what official discourse has sold to us as reforms. In order to do this, we need to look at what motivated these measures, to understand their nature and their possible results.

Cuban economic reforms have had a high cost in terms of progress and experience, as a lot of time has been wasted in steps forward and setbacks linked to permissions and granting economic rights, instead of weaving them into the design of real reforms, with well-defined objectives, actors, deadlines, alliances and chains, and assessment methods.

Cuban society continues to be conditioned to discuss the degree of opening of these reforms. A discussion that focusses on the dispute of where to allow (new) privileges. We wear ourselves out discussing how this affects those in power, leaving how this benefits society to one side, to what extent, why, how, when; that is to say, how this opening is used.

While this discussion was underway, the Government decided what reforms it would introduce, and how it would distribute their benefits.

Read more from Cuba here on Havana Times.



One thought on “Economic Reforms in Cuba over the Past Decade

  • Circles, this is the type of article I really like. Lots of meat on the bone. Not easy reading but worthwhile. Stay in touch with this author.

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