Where Does the Cuban Economy Go from Here?

Por Mario Vizcaino Serrat  (OnCuba)

HAVANA TIMES — Juan Triana Cordovi became one of Cuba’s most renowned economists thanks to a very popular video that circulated in 2013, where he was seen speaking about the island’s economic situation, its past and its future without mincing his words much.

In this interview for OnCuba, the researcher for the University of Havana’s Center for Study of the Cuban Economy delves into the main issues facing the country’s economy today.

Let’s talk about the foreign investment law approved last year. Is it a fully developed law, does it have any serious defects?

Juan Triana: The current law improves on the previous one. It makes a whole series of processes and procedures more transparent. It establishes a response time for a series of business ventures. It establishes tax exemptions that the other law didn’t define too well.

If we compare it to other investment laws in Latin America and the Caribbean, in countries that could be considered our competitors, such as the Dominican Republic, Costa Rica, Nicaragua or Panama, our law lacks some of the advantages that these others afford the foreign investor. We’ll have to learn and improve over time. No law is perfect.

We always hear the same pronouncements about productivity and wages in Cuba: “For wages to go up, productivity has to increase first.” What is your opinion?

JT: What happens in Cuba is that those companies with high incomes do not yet have strong enough incentives for their workers to produce more exports. I am speaking of the large [State] export companies, which aren’t more than fifteen: the sugar, nickel, rum, biotechnology, medical services and tourism industries.

As I see it, they haven’t been given enough incentives. These sectors generate a lot of profit, enough for us to be providing considerably greater incentives to their workers. Our regulations, however, have prevented this.

That changed recently. Today, companies have a bit more freedom when it comes to what they pay their employees and we are seeing large differences from one sector to the other.

The problem is that, in those unproductive State sectors, wage rises depend, not on productivity, but on the resources and revenues of the State. We still have a very large – I would say excessively large – administrative system. Because of this, a great many workers who are decisive and essential for the revolutionary project are paid very little. I am speaking of doctors and teachers, the column that holds up the Cuban revolution.

To pay doctors and teachers more you have to pay other administrative employees less or not at all. Many of those employees aren’t needed in those positions.

Our government expressed the need to relocate some 500,000 workers to other sectors, as a means of rationalizing expenses and to be able to earmark those resources to other sectors. This process has to continue to expand. In one or two years, more than 13,000 State-run food and service establishments will become cooperatives, and the State will stop spending a considerable amount of money it will be able to devote to teachers, for instance – particularly primary school teachers, who are essential to the education of our children and youth.

What is your opinion about employment agencies, which operate as intermediaries between the foreign employer and Cuban employee, and take a considerable percentage of those salaries?

JT: I am one of the people who don’t agree with having employment agencies in Cuba. We have the institutions we need to make do without employment agencies, or at least for these to be an additional service a company uses if they need it. This is one detail that places us at a disadvantage with respect to other investment laws in countries in the region.

Are there any prospects of changing that?

JT: Not that I know of. You’d have to ask the Minister of Foreign Trade and Investment.

You’ve defended the idea that Cuba should not copy economic models from other countries, not from China, Vietnam or any other place. Wouldn’t those models be good for Cuba?

JT: Building an economy is a systematic learning process and, as such, it is important to know and learn from the successful and unsuccessful experiences of other countries. One thing is getting to know, learning from and applying methods; trying to copy the Chinese, Vietnamese or Swedish models is quite another. We’re not Chinese, Vietnamese or Swedish.

Cuba has unique characteristics. As a country, it is much smaller than China, which has 1.5 billion inhabitants. We only have 11 million. We have a Western culture, patterns of behavior different from the Chinese. Though it’s hard for some people to admit, Cuba is a country with fairly generalized middle-class cultural and behavioral patterns, with consumer habits typical of the middle class and lower middle class. That’s been one of the great achievements of the revolution: to pull people, many people, out of poverty, to educate these people, or at least afford them a high level of schooling. As these people become more educated, their aspirations, consumer habits and cultural patterns change also.

If you compare the aspirations, consumer and cultural habits of Cuba’s population to those of other countries, they resemble the middle-class aspirations found in a Latin American country more than they do those of China and the lowest-income sectors in that country.

Will the Cuban economy be based on a greater number of non-State forms of production in the future?

JT: I believe that, some time ago, it was announced Cuban socialism would keep the chief means of production in the hands of the State. That means that those which are not fundamental will come under other forms of ownership, such as cooperatives, whose growth has been gradually encouraged. There will also be private individual ownership.

Everything having to do with education, health and other services that continue to be essential must remain in the hands of the State. Some areas within productive sectors that, owing to their importance and Cuba’s characteristics, are decisive, must remain in the hands of the State, at least for now – and perhaps for 10, 15 or even 20 years.

Today, there are nearly half a million self-employed people and nearly a million and a half non-State workers, which is 26% of the workforce in Cuba. Nearly 500 cooperatives have been approved, more than 300 are already working and there are others about to be approved. Three years ago, there weren’t even 300 private restaurants and now there are more than 2,000. There are thousands of rooms being rented out privately and making up an important “hotel chain” which perhaps only the Gaviota corporation can compete with. Cuba is definitely a different country today.

Do you believe the complete lifting of the US blockade on Cuba would substantially improve our economy?

JT: The easing of some aspects of the blockade should have a positive impact on the nation’s economy. The fact that the United States and Cuba have announced they are working to re-establish diplomatic relations changes Cuba’s image. There are now dozens of companies and businesspeople visiting Cuba, interested in the island as a place for business and investment once again. Being barred from having commercial and investment relations with the United States and the financial persecution the blockade has entailed and continues to entail took Cuba off the visual field of businesspeople.

In the short term, the greatest impact had by this will be felt in the tourism industry. The fact US citizens are no longer required to ask for a specific permit to travel to Cuba – even if they’re required to fall under a general license – can increase the number of visitors. Last year, some 90,000 Americans travelled to Cuba.

The fact Cuban émigrés will be able to send more remittances will also have a huge impact on the country’s effective demand, the average Cuban’s purchasing power and, consequently, the degree to which business can be incentivized. Business performance is one of the things that allow us to gage the performance of the country as a whole.

The quality of services in Cuba is generally bad.

JT: It may be bad, but tourists are still coming and staying at hotels.

But US tourists have the reputation of being very demanding.

JT: Well, 92,000 have already stayed at Cuban hotels. The thing is, the product many US tourists are looking for isn’t the one Cuba promotes, which is sun and beaches. Many of these people are looking for urban tourism, cultural tourism. We have student tourism, something that’s barely ever mentioned. The University of Havana has semester exchange programs with US universities, and the services are offered by small, private tourist companies in Cuba.

Let’s turn now to the issue of Internet access, indispensable to Cuba’s development, as you yourself said in the video that was circulated two years ago. Is there any good news about this that Cubans can know about right now?

JT: Internet is to contemporary economies what the railroad was to 19th century economies: either we get on the Internet wagon or we’re left behind. It’s that simple.

Today, there’s far more clarity about this than there was 20 years ago. Cuba is among the least developed countries in term of Internet use, despite the political aim of having Internet reach everyone and have an important social use. Cuba has to make a huge leap forward, taking on the risks and challenges this entails, because the Internet is not an opportunity but a necessity for the country’s development and the development of our companies, our government and, most importantly, our people. It is also a right, a civil right. Above all else, the Internet is public property. In Cuba, it has to become more public and it has to be widely used, because it is one of the ways to encourage greater participation in our country’s most important decisions.

To be able to connect to the Internet for 2 hours every day, at the current rate, a Cuban citizen would need to pay 10 years of their full salary to be able to do this for a single year. Therefore, it’s impossible to do this. We need infrastructure, technology; we need more companies and competition. The world of communications is highly competitive. New products and services are constantly appearing. We can wait all the time we want, but time will not wait for us.