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 27, 2014 at 4:25 pm

    OK, I’ll take the bait. Which part, however minuscule, do find to be incorrect?

  • January 27, 2014 at 4:23 pm

    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

    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

    As usual MP is “partly” corect

  • January 27, 2014 at 1:37 pm

    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

    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

    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

    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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