Economist Carmelo Mesa-Lago’s View of Cuba’s Future

By Vicente Morin Aguado

Carmelo Mesa Lago, screenshot.

HAVANA TIMES – At his 86 years of age, Carmelo Mesa-Lago speaks loud and clear, he is far-removed from any “ism”, focusing on his supreme obligation of serving others. Cuba still hasn’t recovered from the 1992 crisis, when East European socialism collapsed and made the island’s GDP drop 35% overnight. Foreign factors are critical yet again.

HT: Can the Communist government save itself this time? What is the magnitude of today’s crisis?

Both Raul and Diaz-Canel have said, on more than once occasion, that there are differences between the two situations, and I agree with them. Cuba’s trade with the Soviet Union and Eastern Europe in 1992 accounted for 72%, and this has fallen to 22% with Venezuela. It’s important because the greater trade diversification is, the greater the chances are that the crisis won’t be as bad. The country’s main sources of revenue today, didn’t exist in 1992: first of all, exports of professional, medical services; tourism was very weak back then and now it is the third source of foreign currency, and the other one (the second source of income) are remittances. Last but not least, the private sector was tiny in Cuba, while it now accounts for 30% of the workforce.

So…

We have to bear in mind the fact that Cuba’s trade relationship with Venezuela went from 22% to 8%, we have Trump’s actions that have reinforced the embargo, measures that affect tourism. The waiver was lifted on Title III of the Helms-Burton Act and has paralyzed foreign investment, because companies are afraid they will get sued. Of course, there’s Covid-19 and Cuba has practically shut its doors to tourism and this represents some 3 billion USD [annually].

Covid-19 in the United States too

Covid-19 has had a great impact on employment in the US, many have lost their jobs and are unable to send money back to Cuba anymore. It’s estimated that the loss from remittances will be no less than 1 billion USD.

Photo: Annie Mansfield

Talking about solutions, expanding the private sector, let’s say small and medium-sized enterprises, SMEs, clashes with Fidelista thought, which proclaims the superiority of the great socialist companies. What can be refuted about this contention?

It’s a great lie. You just have to take a look at the so-called inflated workforce, unproductive public employees. The overall figure up until 2015 was set at 1.8 million, which was the equivalent of 35% of the workforce in the ‘90s, according to economists Pedro Monreal and Omar Everleny. Even since then, the problem had been dragging its dead weight until Raul came into power (2007) and contemplated the need to transfer these workers to other production activities, private ones in fact.”

However, on May 6th, Granma, the Cuban Communist Party’s newspaper, attacked economists whose names it didn’t mention, for defending SMEs and the China-Vietnam model.

It’s nothing but letting farmers, cooperative members, beneficial owners, to plant what they want to plant, to sell to whomever they wish, setting prices of their products according to market prices. These countries used to suffer regular food shortages. Today, they are self-sufficient when it comes to farming and Vietnam exports 250,000 tons of rice a year to Cuba, which the island could produce for itself.

Talking about Cuba giving producers freedom is heresy. Government leaders say that social achievements would be lost, inequality would grow, both of which are flagships of Communism. What has economic experience taught us?

In 2007, Raul recognized the State’s inability to financially support social programs, so they needed to be cut.

According to the regime’s semantics, Fidel’s own brother Raul called them “inappropriate gratuitousness”

Social spending has been cut considerably. In 2007, it accounted for 55% of the State budget, falling to 36% in 2018. In the case of healthcare, Cuba has exported approximately 40,000 professionals. I believe that family doctors are the most important out of all of these services, who were introduced in the mid-’80s. Well, half of the doctors are abroad right now, they bring in revenue in hard currency, but this reduces the population’s access to primary health care.

Raul Castro’s slogan referring to economic reforms was “without haste, but without stopping.”  Photo: Annie Mansfield

During Raul Castro’s 10 years in power (2008–2018) some 60 hospitals were shut down, as well as over a thousand neighborhood doctor offices. Even so, the government talks about equity vs. inequality.

Raul’s reforms haven’t been able to get the economy off the ground, but they have had an adverse impact from a social perspective. Self-employed workers, workers in SMEs, earn five to ten times more their counterparts working in the public sector. Also, purchasing power has dropped compared to what it was in 1989. In 2018, wages adjusted for inflation, real wages, were 40% lower than they were in 1989. Average wages in the public sector are the equivalent of 30-something USD per month. The government has itself recognized that this isn’t enough to cover the population’s basic needs. So, inequality already exists, it’s not something that will happen, it’s already been happening in Cuba for years now.

Definitely. If we were to ultimately accept Fidel Castro’s successor’s good intentions, how would you assess his reforms?

In my books, I not only praised the path that Raul was taking, but I also warned of the problems he was facing: the process was extremely slow, he used to say, “without haste, but without stopping.”

There was a lot of bureaucratic red tape, regulations, laws, that stood in the way of the emerging private sector’s development. To give you an example, there is ACOPIO, the intermediary state-led company that is responsible for buying harvests from farmers, setting prices below market prices, which is considered a deterrent for production and rightly so.

There used to be private intermediaries, who didn’t stick to regulations, but they paid farmers well, regularly supplying the private markets.

In the end, lawmakers at the National Assembly re-established ACOPIO’s role, accusing private companies of earning too much money.

Cooperatives in different non-agricultural areas also began to develop and then stopped; they only reached some 18,000 members nationwide of the 600,000 registered independent workers in the country. For nearly a decade the government has said these types of co-ops are in the experimental phase.

There are many obstacles, the most absurd being taxes on the workforce. In private businesses, the amount of tax you have to pay grows according to the number of employees you have. If Cuba has surplus labor, how can they punish the people who are creating jobs? There is also a double tax on monthly and annual income, which overburdens the sector and prevents it from developing.

This reform didn’t work in practice because Raul was doing one thing with his right hand and the stubborn-headed group of leaders, Machado Ventura and company, would intervene and place obstacles in his way.

You have been in Cuba post-Revolution, you speak about your country, our country, with great familiarity.

Let me tell you about the last time, three years ago. There were 9 of us in the family, we went to eat in state-run and private restaurants. The difference was huge. In a small, private restaurant, the food was a lot better, and the service was also excellent. If I am a hotel manager and it just so happens that there is a private business across the street, it’s in my best interest that this private business doesn’t do well. This is a fundamental hurdle.

Photo: Annie Mansfield

Let’s think about the possibility of profound change, headed by those who are in power. They will need considerable resources, a large loan maybe?

Cuba doesn’t belong to international financial organizations, i.e. the World Bank, International Monetary Fund and Inter-American Development Bank. It would have to first ask to join the World Bank, and the US would stand in its way. According to the Helms-Burton Act, Cuba’s system and leadership needs to change first.

Are we stuck down a dead-end street?

There is large consensus among Cuban economists, both on and outside the island, that Cuba has to first move towards getting rid of central planning; it failed in the Soviet Union, it failed in all of Eastern Europe. China and Vietnam don’t have central planning, there isn’t a gigantic company that oversees everything. Markets and the private sector are the most dynamic.

The minister of Economy, Alejandro Gil, says that “everything that needs to change has to be changed,” and I want this change to happen, but until I see concrete measures being implemented in this sense, I refuse to get mixed up again.

The worse thing is the obvious contradiction between discourse and action.

The voices of change are repressed. The case of economist Omar Everleny Perez Villanueva is tragic because he was the most renowned economist outside of Cuba, and he was fired first from his job as the Director of the Center of Studies for the Cuban Economy, and then he was kicked out of the Communist Party and expelled from Havana University. All of this because he gave an interview to a foreign journalist. The real reason was that Omar clearly outlined the problems that existed, and the hardline leadership didn’t agree with his ideas.

He would like Cuba to move towards a mixed economy, which is something that most academic economists in Cuba support. A mixed economic system where the private sector plays a key role, not a complimentary role like it does in Cuba today.
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NOTE: Read more of Carmelo Mesa’s work here: www.mesa-lago.com



5 thoughts on “Economist Carmelo Mesa-Lago’s View of Cuba’s Future

  • The views of this economist expressed in this post like so many other economists sound more like a postmortem and less like a forecast.

    Reply
  • Unless the Cuban government starts making some drastic changes, “postmortem” is the right word.

    Reply
  • I agree with author, Vicente Morin Aguado. That is comforting because his macro economic credentials far surpass mine.

    However, I do have long term optimism about the Cuban economy. No centrally economy controlled government has been able to permanently withstand the effects of free market economics and free enterprise. Not the USSR, not Vietnam, not Venezuela. Economics is an unstoppable force. One only has to look at the size and growth of the free market economy in Cuba, some legal and some not. None of this free market growth has been a result of a proactive decision of the Cuban government believing it is best. It has come in spite of the government’s best efforts to restrict it. But eventually the Cuban government realized it could not stop it and was forced to license some of it in an attempt to try to regulate it and derive some taxes from it. The government makes some attempts at times to eliminate unlicensed free market activity but eventually has to pull back recognizing they would be destroying an essential part of the economy.

    The Cuban government is now at the point where their slice of the national economic pie has decreased to where they can no longer afford the vast plethora of social programs of old and must cut back. Fewer free houses, less goods included in the libreta, lesser portion of petroleum costs subsidized by the government, and the list goes on and on. More Cuban citizens are earning their own free market income and paying for more of their living costs without reliance on the government. Simply put, they are loosening or eliminating their economic dependence on the government and finding economic freedom.

    Now this process away from a government controlled economy is sometimes painful, sometimes two steps forward and one back. It is slow but unstoppable. No government is stronger than the laws of economics.

    The pain associated with the changes and the rate of change will depend totally on the Cuban government’s decisions to resist vs. slowly accept the inevitable. Diaz-Canel appears to be very intelligent. And he is another step removed from the past. While I do not think changes to a free market economy will occur rapidly, nor without pain, I do see as unstoppable long term.

    Reply
  • Carmelo Mesa-Largo makes some excellent points. Furthermore, he does so in a sober and thoughtful way. There is no hysterical sloganeering or backward looking ‘good vs evil’ rhetoric.
    The El Dorado of an ‘equal’ society has not been achieved. I have been travelling to Cuba for 25 years and I have noted that inequalities have always been there. Less so than in other parts of the world but always present to an extent. For all you dreamers, inequality is an inherent aspect of human nature. At best, we can put counterbalancing measures in place to lessen it’s cruel impact on those who find themselves at the bottom of the ladder. Some people refer to such measures as ‘progressive’ or ‘socialist’. Others would use the descriptions ‘humane’ or ‘decent’.
    It would seem that Mesa-Largo can see a path to change. This path will inevitably involve an increasing role for the private sector. As Bob Michaels mentions, these changes are unstoppable.
    I don’t see these changes happening with any kind of sudden jolt. There are those who have some kind of ‘magic wand’ theory. If there is a sudden change in a particular direction, then all will be rosy and fine. This is unlikely.
    Berlin Wall Coming Down moment would unlikely given where the power currently lies.
    Breakdown of Society and a period of violence and subsequent power struggle also seems unlikely. It is certain that there are those who would wish to instigate this from outside but the likelihood of sustained bloodshed as occurred tragically in Former Yugoslavia, thankfully seems unlikely.
    The changes will more likely be slow and laborious. To an extent they will be begrudged. But they will happen.
    Hopefully Cuba will retain its hard won independence to a significant degree. Hopefully the changes will involve far greater self sufficiency. Hopefully there will be healthy economic relations with other countries but no future over-reliance on one specific foreign power (China) as there has been in the receding past (USA, Russia).

    Reply
  • Nick is correct when he writes of Cuba:

    “I have noted that the inequalities have always been there. Less so than in other parts of the world”.

    That reflects the equality of poverty level in the “mass” of Cubans with only the privileged (7% Party members), being excepted. A communist success story.

    After over sixty years, the economic “progress” of Cuba can be summarized in one brief sentence:

    Downhill, all the way.

    Reply

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