Cuba Product Prices Remain in the Clouds

Causes and Possible Solutions

Pedro Campos

Photo: Juan Suárez

HAVANA TIMES — The price of products in Cuba – particularly farm products essential to the population – show no signs of decreasing. The bureaucrats blame producers, cooperatives and intermediaries. In their assessments, however, they neglect the true causes of this situation, for the simple reason that their measures are the true culprits behind high product prices and food shortages.

Let us first consider some of the main (and more evident) causes of this phenomenon, their systemic interrelation and ultimate solutions to the problems at hand.

The Main and Most Evident Reasons for High Prices in Cuba

1-     Low wages. The government pays its salaried workers (which constitute the majority of the work force in Cuba) measly, arbitrarily determined wages. The effect of this on production is threefold. Firstly, it fails to incentivize workers. Secondly, it prevents the creation of an effective product demand (I say effective because there is a real demand, there are real needs, but the possibility of actually purchasing those products is missing, because of the low purchasing power of the population). Thirdly, it fails to balance the cost of labor power with the cost of products, a situation detrimental to the worker, as is to be expected of an economy that has continued to function on the basis of salaried labor with no regard for its true value or the economic laws of its market.

2-     The two-currency system. The government pays its employees in devalued Cuban Pesos (CUP) and sells its products in Cuban Convertible Pesos (CUC, 1 CUC = 25 CUP) at hard-currency stores, or TRDs (a store chain belonging to the Revolutionary Armed Forces) that people must turn to in order to purchase essential products that aren’t sold at subsidized prices through the ration booklet and are not available in CUP. This forces all non-State producers who sell products in CUP to raise their prices to bring them on a par, as much as possible, with the CUC, such that they earn enough, through their sales, to purchase what they need in the CUC market. The purchasing power of the Cuban Peso is minimal, as are people’s effective salaries and, without people who have the money to purchase products, without a market, a normal correlation between offer and demand is impossible.

3-     The high costs of maintaining the bureaucratic apparatus. “State socialism” demands the establishment of a gigantic, non-productive bureaucratic apparatus which consumes enormous quantities of resources, not only in order to control its companies, but also to ensure a politically and militarily strong State. Hence its enormous political institutions, such as the Communist Party and its various grassroots organizations, its huge military and security apparatus and its propaganda and international affairs mechanisms, all of which are sustained by the work of Cuban laborers, who receive low salaries and suffer high taxes and product prices.

4-     The high taxes imposed on producers. A series of high taxes, both direct and indirect, are applied to producers, particularly “non-State” producers. The direct taxes consist in payments made to the National Tax Administration Bureau (ONAT), amounting to 50 % of incomes, for earnings equal to or in excess of 60 thousand CUP (2,400 CUC). The majority of non-State workers skirt this tax by reporting lower incomes in their statements. The indirect taxes stem from State product requisitioning, whereby products are bought from producers at low prices, and the absence of a wholesale supplies market, which obliges producers to purchase their raw materials and means of production at high prices. These high taxes increase production costs and, therefore, product prices.

Photo: Juan Suarez

5-     The monopoly of State hard-currency stores. Cuba’s military has a monopoly on retail sales of food products in CUC through these hard currency stores. There, products are sold at two and a half times (250 %) their production cost, for a profit margin of 150 % (in any modern market, normal profit margins oscillate, on average, between 10 and 30 %).

6-     The absence of competition. The existence of this monopoly makes competition, which would force retail prices to drop, impossible.

7-     The State requisitioning mechanism. The State takes in part of what farmers and cooperatives produce at very low prices. This bureaucratic apparatus, inept at gathering and distributing products, fails to gather some products and to deliver others at their final destinations, causing shortages that bring prices up. The low prices the State pays producers forces them to increase prices at the “free” market.

8-     The high costs of transportation. In Cuba, one liter of the cheapest gasoline available costs 1 CUC, that is, 25 Cuban Pesos, while the average salary is barely 20 CUC a month. This, as is to be expected, raises the price of transporting agricultural products to the city.

9-     Restrictions on food product sales. In Cuba, it is illegal for producers to directly sell beef on the market. Cheese producers in Camaguey aren’t authorized to sell their product in Havana, where the largest demand exists. These restrictions hinder production, prevent sales and pave the road towards the high prices charged for these products in the military’s hard-currency monopoly. The same holds for clothing, shoe wear, cars and other products.

10-  The imperialist blockade. This is the cause the government constantly invokes to justify the economic mess it has brought about. For years now, the United States has allowed Cuba to import US food products (the restrictions apply only to the form of payment). Everyone knows that Cuba imports several hundreds of millions dollars’ worth of food products from the United States annually and that the military monopoly maintained through hard-currency stores takes full advantage of the “imperialist blockade.” If the blockade did not exist, it would be very difficult for the government to maintain its current economic monopoly and, therefore, competition would have a better chance to flourish and, of course, food prices would decrease. Therefore, the blockade is, in effect, a factor that increases retail food prices.

The Systemic Interrelation of these Factors

An overview of the “State socialist” system reveals that, in fact, it has been nothing other than a form of monopoly capitalism, disguised in order to maintain the wage exploitation of labor and forms of State ownership that guarantee an economic monopoly, a voluntaristic experiment, if we follow the cannons of so-called “Marxism-Leninism”, which Stalin dogmatized in his Concerning Questions of Leninism.

One of its gravest mistakes was blaming the market for high product prices and having sought to control it in an arbitrary fashion, forgetting that all markets are governed by laws and that they are, not the cause, but the result of a given type of economic system, which is ultimately determined by the predominant way in which the labor force is exploited. The slave economy had its own type of market. The capitalist market corresponds to an economic system where wage labor predominates.

Photo: Juan Suarez

The architects of “State socialism” never did grasp the Marxist insight regarding the socialist revolution (the gradual transition from salaried labor to free work associations) and, as such, maintained the form of exploitation characteristic of capitalism, wage labor. At the same time, it sought to eliminate the market that corresponds to such relations of production and tried to impose a form of “socialist distribution” – based on a misguided egalitarianism – on society, a combination that has nothing to do with Marxist socialism.

Only when forms of freely associated labor (cooperativist, self-managed and independent labor) characteristic of true socialism prevail will we have a socialist economy and market. We know this will be reached gradually and peacefully, from within capitalism, but only through libertarian and democratic economic policies, not though impositions and much less through the expansion of salaried labor.

Those who advance Cuba’s “reform process” want to rectify the situation brought about by their misguided policies through a number of market mechanisms which are even more thoroughly controlled by the State and by extending forms of wage labor exploited by domestic and foreign private enterprises. In other words, by strengthening and perfecting the current, nonsensical State monopoly capitalism which they call “socialism.” We have, thus, more of the same: capitalism for the State, miserable, wartime “socialism” for the workers.

To top things off, they hope that the lifting of the US blockade will get them out of this mess, by affording an avalanche of tourists and US capital that will strengthen the alliance between Cuba’s State monopoly capitalism and US capitalists: a kind of virtual annexation.

As way of a conclusion, the main causes behind high product prices “State socialist” Cuba are to be found in the leadership’s aberrant conceptions, in its economic voluntarism and in the State monopoly over the production and distribution of products and consumer items, which inhibit production and raise prices arbitrarily.

Possible Solutions

The capitalist one: free market and labor force, the privatization of State property, unregulated wage exploitation by domestic and foreign private companies.

The socialist one, defended by those of us on the democratic and socialist Left: prioritizes support for free productive associations, cooperatives, free and broad self-employment and the co-management and self-management of State companies by workers, coupled with the development of other forms of production.

The democratization of society, unthinkable without freedom of expression and association, is a precondition for both.


15 thoughts on “Cuba Product Prices Remain in the Clouds

  • January 29, 2014 at 5:13 pm
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    Do you care to enlighten me? Self-responsibility and ethics has nothing to do with democracy, much less morality since once the people elect their representatives there is no easy way to remove them from office, ergo said representatives have incentive whatsoever to respect the will of his electors and make true his or her electoral promises.

    If anything, you can say that the system is rigged to breed corrupt politicians and thats precisely the opposite of responsibility, ethics and even morality and the voters know too well that fact; thats why the polls turnout is ridiculously low in most western democracies.

    Is not entirely a hopeless situation; strict laws that forbid individual donations to elected representatives and make accepting bribes an act of treason plus automatic dismissal when satisfaction levels falls below 30%,will go a long way to return the system to what founders intended but hell will freeze before politicians vote for something contrary to their own interests.

  • January 29, 2014 at 12:15 pm
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    There is a logical path from democratic elections to prosperity, but it is not a certain path. Corruption, poverty and the return of despotism is also one of the logical paths. It takes a culture of self-responsibilty, morality, ethics, respect & decency to keep the country moving on the better path.

    It is possible the transition from the current dictatorship to democracy will be (relatively) peaceful. But it’s far from certain and it won’t be without bumps along the way.

    Consider the examples of Eastern Europe. Some countries have managed the transformation peacefully, (eg. the Baltic states), while others look like they are sliding toward civil war (Ukraine). Others missed the transformation and slipped into despotism (Belarus).

    It’s not a good omen for the future that the regime continues to eliminate dissidents & opposition leaders, instead of allowing them to contribute to Cuba’s future.

  • January 29, 2014 at 11:29 am
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    Then transition in Cuba is doomed to failure from inception, because one of the main features of what these days pass as democracy is precisely NOT to be accountable for their own actions and politicians go as far as to grant themselves immunity to guarantee that they are never going to be personally accountable for anything.

    In general, politicians only care about their voter base on election time and there is nothing you can do as individual to influence the vote of your representative in key issues of your interest. The worst they can possibly face is losing the next election and that means nothing to them since most of times they get lifetime benefits from the position they held, plus they’ll have the bribes er.. contributions from the different interests groups that are their real masters and can if needed provide a well payed position for services rendered.

    I’ll say it again: there is no logical path between democratic elections and economic prosperity and Haiti and pretty much any poor country in the hemisphere is a clear counter example of that assumption.

    Cubans simply can’t ignore the inevitable economic collapse and subsequent chaos involved in regime change based on empty promises and so far every single transition plan fails to present a viable alternative, so instead they bet for improving what they have as flawed as it is,

  • January 29, 2014 at 9:34 am
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    I don’t think any Cuban pro-democracy activists imagine the transition from Castro dictatorship to democracy & prosperity will flow quickly and smoothly.

    The point to democratic elections is that the people elected will be responsible to the people to find workable solutions. A multi-party legislature, lead by a coalition government of reconciliation, would be the best option to work toward an inclusive and functional Cuba.

    It took the Castro’s 55 years to create the mess that is Cuba today. It will take a generation at least to fix it.

  • January 29, 2014 at 9:24 am
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    What has this or the previous comment got to do with anything that is being discussed.

  • January 28, 2014 at 6:08 pm
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    Could be, but it doesn’t seems the case. His discussion of low wages is reduced to:

    “Firstly, it fails to incentivize workers. ”

    Mostly irrelevant to the price of products.

    “Secondly, it prevents the creation of an effective product demand (I say effective because there is a real demand, there are real needs, but the possibility of actually purchasing those products is missing, because of the low purchasing power of the population). ”

    Again wrong, the demand is there, is just that people can’t afford the products at the market prices with such low wages. This point directly contradicts his premises, since the direct implication is lower prices across the line.

    “Thirdly, it fails to balance the cost of labor power with the cost of products, a situation detrimental to the worker, as is to be expected of an economy that has continued to function on the basis of salaried labor with no regard for its true value or the economic laws of its market”

    Again wrong, low costs of labor translate directly in lower prices of the end product. Notice that I’m not refuting that the situation is detrimental to the workers, I’m only saying that artificial low wages result in overall lower prices than the competition at the same level of technological development and in many cases is the only way they could ever sell at international market prices.

    “This forces all non-State producers who sell products in CUP to raise their prices to bring them on a par, as much as possible, with the CUC, such that they earn enough, through their sales, to purchase what they need in the CUC market. The purchasing power of the Cuban Peso is minimal, as are people’s effective salaries and, without people who have the money to purchase products, without a market, a normal correlation between offer and demand is impossible. ”

    Wrong again, he fails to understand that the double currency is simply masking the distortion. The equilibrium of course exists even if the black market is the one acting as regulator agent, but the real value of the products in either currency is still high compared to the nominal salary converted to the same currency. It only looks like it drives the prices up compared to the subsidized market, but thats an apples to oranges comparison.

    ” The high costs of maintaining the bureaucratic apparatus. ”

    Wrong again, the bureaucracy is relatively cheap compared with other factors and is payed in the same devalued CUPs as the rest of the population. Their main source of income comes from the state ownership of the means of production, not from taxation, so thats not a factor in high prices either.

    I can go on and on with most of his post, but is kind of pointless. His intentions are good, but to me it looks like he is getting to conclusions without even knowing the basics of economic science.

    And even with the right theoretical foundation, understanding the chaos of the Cuban economy is not an easy task and without understanding of the issue, how you can even try to fix it? The Cuban government has been trying for a while and as you can see is blunder after blunder and the plan from the opposition is reduced to three points:

    1. Democratic elections
    2. ???
    3. Profit!

    What they need is real intellectuals working in actual solutions without political interference, wishful thinking or selling the country to the lowest bidder.

    Do you know of any?

  • January 28, 2014 at 12:19 pm
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    You are correct on the standard economic principle about low wages effect on prices, but I think what Pedro meant was that prices “seem” high, due to the artificially low salaries most Cubans have. This applies to the local peso sector. Those with CUCs can afford much higher prices, simply because CUCss are worth so much more than CUPs.

    Besides, in the unreal land of Cuba, the wages paid to workers bears no relationship to the actual cost of production. And that’s part of their problem.

  • January 27, 2014 at 4:25 pm
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    OK, I’ll take the bait. Which part, however minuscule, do find to be incorrect?

  • January 27, 2014 at 4:23 pm
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    John, you are way out there. I can easily say I have never met anyone not on some serious psychotropic medication that thinks the way you think.

  • January 27, 2014 at 4:13 pm
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    I tend to agree. In most countries black market prices are below the legal prices. People pay a lesser price if they are willing to take the risk of getting into trouble with the law or the risk of no comeback if the goods are faulty. The exceptions to this are things that are in limited supply such as tickets for sporting events or concerts. This would suggest that the government is setting the prices too low. In fact pricing is incredibly complex with five different brackets for eggs. The normal quota on the libretta, extra on the libretta, normal price, black market price and price in the Far shops. I think the only way out of the mess is to raise the prices in order to knock out the black market and at the same time do away with the libretta except for the most needy but peg the price to same as the market value.

  • January 27, 2014 at 3:52 pm
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    As usual MP is “partly” corect

  • January 27, 2014 at 1:37 pm
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    LOL Wow you are special!!!

    I’m working with a personal trainer as part of a rehab for a surgery I had recently…..and boy is he totalitarian!

    I had also best have a talk with my parents (or as you call them, my nuclear family) I might have a bone to pick with them.

    You know…I can instantly tell you have no children. It’s just so obvious. You would be singing a different tune were it otherwise!

  • January 27, 2014 at 11:28 am
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    An excellent article . The problems of the state -run economy were precisely detailed .
    The cooperative solution; the DEMOCRATIC solution from the bottom up and without government interference is what we anarchists would approve .
    A capitalist solution , by its very nature , is a totalitarian solution that would be no better than the state monopoly that currently exists and in all likelihood would be far worse. Top down never works well for the bulk of the population who are at the bottom of that pyramid and as half the world living in poverty under capitalism clearly shows.
    Democracy is the answer and democracy is majority rule that can only be achieved by a bottom-up economy and government ( so long as government is required at all) .
    The anarchist central belief that all government long enough in power inevitably becomes self-preserving , corrupt and totalitarian is totally valid as can be seen in both Cuba and the United States .
    The world needs a democratic society and that cannot be had with top-down forms in economy or government such as we now have.
    The problem is that a majority of people prefer being told what to do because our cultures are based upon four totalitarian forms : government, economy, religion and the nuclear family.
    Both societies…the WORLD… needs democracy and an end to these totalitarian forms as they are now constructed and that will take massive education to create the necessary change in our totalitarian mentalities.

  • January 27, 2014 at 10:56 am
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    LOL, Pedro, no offense but you should get some lessons in basic economics before even THINKING on writing an article on this. Low wages affect NEGATIVELY the product prices, after all if everyone is equally poor they can’t simply afford the products, the produce will rot in the stalls, so the seller is forced to lower the prices or return home empty handed.

    Of course, thats not limited to produce, besides transportation you also incur in a storage costs for everything and the more time you store something before selling it, the less profit you obtain from it. As a result, in most scenarios is better to lower the prices to move the inventory even if that means slightly less profit per item sold.

    The reason the prices are that high is because the population (at least a significant portion of it) CAN pay for it, period and the reason for that are quite opposite to the points you made. For instance, the dual currency MASKS the actual income from a significant amount of Cubans, so even if their salary is low, they earn many times more than the general population and can afford higher prices without that much of a burden.

    You are right about offer monopoly for many economical sectors, when you have absolute control of a market you dictate the prices (basically my way or the highway) and thats a pervasive phenomenon in Cuba.

    Also related to the previous point is the FACT that most sellers don’t care about profit. They earn a fixed salary regardless of whether they work or not, so they almost never try to maximize profit and instead wait patiently for depreciation (aka sale) to purchase the merchandise at a lower prices then resell it at a large margin (sometimes even in the same store)

    And that’s even leaving aside remittances (that are significant) and the illegal activities (that are so commonplace on Cuba that the “busqueda” is normal),

    The point is pretty simple: a significant portion of the Cuban population has access to other sources of income that are way larger than their nominal salary and THEY can afford the high prices, so the sellers (private or state, it really doesn’t matter) don’t have an incentive to lower prices at all.

  • January 27, 2014 at 10:35 am
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    Pedro’s perfunctory attempt to include the US embargo as reason #10 for the ridiculously high prices of commodities in Cuba falls short. The truth is even if there were NO embargo, as long as the Castros control the means of importing products into Cuba, the setting of product prices falls squarely on Castros shoulders. For the Castro apologists who are slow to grasp, this means that even if an American philanthropist chose to import 1 million pounds of chicken to Cuba at no cost to the regime, it is the Castros who set chicken prices on the shelves in the CUC stores. A supermarket owner (who doesn’t exist in Cuba) has no say in what chicken costs. The price of chicken is set by some bureaucrat and his internal pricing scheme has nothing to do with demand or costs of import. Recent car prices confirm this. It is the lack of competition, or internal embargo imposed by the Castros and not the weak US embargo that is too blame for high commodity prices in Cuba.

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