Changes in Cuba’s Economic Policies, If Not Now, When?

By Ricardo Torres  (Progreso Weekly)

HAVANA TIMES – Less than a year after the VIII Communist Party Congress, the truth about the economic ‘update’ exceeds every pessimistic forecast. If full implementation of 22 percent of the Guidelines caused some concern at the VII Congress, presently we are racing against time to come close to even those previous results.

Since 2016, we have witnessed with disbelief a phenomenon that highlights the great obstacles that hinder Cuban reform. In the public discourse we hear less and less mention of updates, guidelines, and/or the implementing commission. So it is not surprising that calls to consider “postponed” decisions are being received with hope and enthusiasm.

In December 2015, during the National Assembly sessions, some representatives complained about the rise in food prices. Among factors considered responsible for this one stood out: changes in commercialization and the greater role of the non-state sector. In April 2016, it was decided to undo what little had been achieved in this area. It took a year for the final versions of the documents of the VII Congress to be published, which took place in July 2017.

In March 2018, a session of the Council of Ministers recognized that the transformations had lost momentum. What was disturbing were the reasons given: the simplest measures were implemented first, and the process has now slowed because of the corresponding complex decisions to make; and, some things have not turned out according to plans, therefore, they must be rethought and readjusted — this last reason resulted in the decision to “perfect” self-employment, equivalent in practice to a clear setback despite the fact that the central documents approved the establishment of small and medium-sized companies. Cooperatives remain in the “experiment” category eight years later.

What really went wrong in the economic update?

Economic growth in the past decade (2009-2019) was 2.3 percent annually, which compares unfavorably with the previous decade (6.2 percent). After 2016, that number drops to 1.4 percent. It is true that this result was obtained amid favorable, but unsustainable, relations with Venezuela. And the world economy also grew less after the 2009 recession. Even the Human Development Index fell for much of the decade.

Given that the Island exhibits good performance levels in health and education indexes given its income level, the only way to improve values in the future will be determined by the increase in wealth. Exports, a key aspect of accessing foreign exchange and sustaining imports, have had a terrible decade largely due to the collapse of economic exchange with the Bolivarian nation, and the inability to develop other markets. The case of rum, and more recently honey and charcoal, demonstrate that when there is a product that is intelligently placed on foreign markets, sales can grow no matter the sanctions.

Regarding the employment structure, the results are even more contradictory. The non-state sector is blamed for the loss of employees from state entities. This despite the fact that it was the government itself that indicated that the public sector workforce should be reduced by more than a million jobs. What happened was that more people emigrated or went to the informal sector than those who ended up being self-employed or joined cooperatives.

If the country had had the same economic activity rate in 2018 as in 2009, there would be around 830,000 additional employees in the formal sector, which would mean billions of additional pesos in taxes paid to support better social services for all. Unfortunately, it must be said that we managed to Latin Americanize the structure of employment. Without the private sector, many more would have gone into informality or other countries.

Increasing the volume of investments and changing their structure to favor material productions sectors was an objective being achieved, especially after 2014. However, the efficiency of those investments is another matter. Amid serious distortions in material planning, property structure, and the monetary-exchange environment, it is not surprising that their performance is uncertain, exacerbating the lack of foreign exchange and external indebtedness. Agriculture and international tourism clearly illustrate the previous point.

With such an imbalance, it is not uncommon for the economy to grow poorly and with greater macroeconomic imbalances. Although official figures show relatively low inflation rates, on the ground inspection suggests that, in specific markets such as food, the reality has been different.

The population’s monetary liquidity has increased more than 10 percent since 2013, fueled by the growing fiscal deficit, economic stagnation and the contraction of imports. This manifests itself, above all, in scarcity. Under these conditions, the pressure for price increases will continue for the foreseeable future. This, together with the situation of external finances, explains the extent of dollarization.

All of the above was accompanied by higher levels of inequality, whose only cause, apparently, has been the limited and defective expansion of the non-state sector. Not a mention of informality, the precariousness of social services, or the urgent reform of social protection mechanisms in a heterogeneous society.

Lessons for the ‘new phase’

Now that it is time to review everything that has happened, the first great lesson is: ‘Don’t leave for later what you can do now.’ There is no guarantee that in the future things will be better. What was not done, or was half done, becomes a drag. The introduction of hasty and disorderly changes in extreme situations can only make things worse.

The sequence of the transformations is decisive. It seems logical to start with the simplest changes, but it is not always the most convenient. The merit and effect of the measures is not measured essentially by the number of decisions that accompany them, but by their depth. In this sense, the ownership structure and the coordination mechanism (central planning, absence of market) precede the rest of the transformations.

For example, after an endless list of resolutions, counter-resolutions and ‘measures,’ the state enterprises have lost ten valuable years to begin a real restructuring. Nowadays the bureaucracy that surrounds it is greater, and various types of public companies have been consolidated and now obey different rules.

From a political point of view, it is counterproductive that the very institution created to implement the ‘update’ has become irrelevant. Incredible as it may seem, as the process was formalized and codified in new and what were termed “qualitatively superior” documents only slowed down the progress.

Countless temporary work groups, advisory teams and the like, have recently proliferated, whose tasks are identifying obstacles and creating more problems. The importance of the academy is rediscovered for the umpteenth time, when the Science and Technology Council had already been established in 2012, precisely with the task of acting as an interface between the social sciences and the decision-makers. 

What happens in Cuban institutions that it becomes so difficult to adhere to a minimum schedule of transformations? Why do we insist on creating parallel mechanisms instead of making existing ones work?

Loss of confidence in institutions is a serious consequence of this process. Despite the fact that the governing documents contain contradictions and ambiguities that pose challenges for their implementation, stripping them of their referential nature for economic policy undermines the validity of the political process that gave rise to them. Both the party documents and the Constitution codify lines of transformation whose abandonment or delay means slamming of the brakes to the popular mandate.

The constant mention of the more difficult international scene, besides being convenient, reveals a great inconsistency. The guidelines and the subsequent process have been based on the premise that an essential part of the country’s economic problems are due to internal causes, and it is possible to trigger actions to correct those failures.

None of the documents indicate that the proposals require a favorable, almost ideal, external context as a condition for their success. On the contrary, a country in genuine transformation is one that surely alters the correlation of external forces in its favor.

The recovery of the economic ‘update’ will surely win the support of many honest Cubans, but valuable years have been lost. Between the restructuring of the international order and the COVID-19 epidemic, the world has changed.

If a new external insertion was called for in the 1990s in order to return to the path of economic growth, now we will have to come to terms with our own demons. There are no more masks.