How to Break the Chains on Cuba’s Economy

Pedro Campos

HAVANA TIMES — The extremely low growth of Cuba’s GDP during the first half of the year (0.6 %), acknowledged by the government, has revealed that the reform measures aimed at stimulating the economy are inadequate and prompted more and more criticisms among the country’s economists.

In addition, the number of Cubans entering the United States through the Mexican border or risking their lives in the Strait of Florida to reach this country is harrowing. According to data from the US Immigration Service, 14 thousand Cubans have crossed the Mexican border and 2 thousand have been captured in the high seas by the US Coast Guard over the past 12 months – record figures for this last five-year period.

These facts, coupled with the island’s aging and dwindling population, should be enough to invite those interested in pushing the Cuban economy forward, particularly those currently responsible for “steering” it, to think about the need for implementing other types of measures. One cannot expect to get different results by doing the same things over and over again.

President Raul Castro, the top figures of the “reform process” and many Cuban economists have acknowledged the need to unleash the country’s productive forces. If a survey were conducted, the vast majority of Cuban citizens would probably also be in favor of this. The question, then, is what is the leadership waiting for.

Freeing up the country’s productive forces, however, implies free trade in the broad sense of the term, and that is something the bureaucracy does not approve of, because it would undermine its control over the market. The recent Customs regulations that came into effect, aimed at preserving the State-military monopoly in the clothing, footwear and appliances market, made this clear.

The proposals below are a contribution to the current debate surrounding the poor economic results achieved this year. Were they implemented in their entirety, they would work to bolster production, increase the availability of high-demand products in the domestic market, free up exchange among the country’s different forms of production, stimulate monetary circulation, increase the purchasing power of Cuban pesos and citizens, lower prices and place the economy under the control of the general citizenry.

These are fourteen keys needed to open the locks that currently keep Cuba’s productive forces in chains and depress the country’s economy.

1. Free the domestic market of all current restrictions, controls and prices set by ACOPIO (the state farm products purchasers) and other bureaucratic entities. Let cheese produced in the province of Camaguey be sold freely in Havana and all types of establishments for the sale of farm, industrial and craft products, or offering different services, be set up, applying a basic tax on these. Prices ought to be decided on the basis of an agreement between sellers and buyers.

2. Lift all restrictions on access to the foreign market, such that any Cuban wishing to import or export a given product, be it for personal or commercial reasons, may do so without being subjected to too many control mechanisms or steep taxes.

3. Modify the current tax policy, which restricts the growth of the self-employed sector, and limit its application to profits (not to incomes pure and simple, as is the current practice).

4. Allow all professionals, including medical doctors, architects, engineers and others, to become self-employed.

5. Lift restrictions on the creation of autonomous cooperatives of every kind and eliminate bureaucratic hurdles and taxes for these for the first three years of operations. Those wishing to set up a cooperative should only be required to submit a letter of incorporation with the basic information about the company’s capital, members and acceptance of the internationally accepted cooperative principles.

6. Make it possible for international organizations to make loans and provide machinery and equipment directly to cooperatives, taking as a starting poing the principle that cooperativism is the soul of socialism.

7. Allow State companies to be managed by workers, with full autonomy to buy, sell and receive credits, such that worker collectives become empowered to choose the management, organize and control administrative mechanisms and distribute part of the profits among members, after setting aside the sums needed to reproduce the means of production and pay taxes.

8. Transfer ownership, or offer credit to purchase through installments, the lands made available to small farmers, such that these feel a degree of security to make long-term investments in housing, warehouses, irrigation systems, land improvements, machine purchases and others. Remove the obligatory requirement of having to join a credit and service cooperative, which in actuality is a State mechanism for controlling harvests and the sale of products.

9. Establish regulations for private companies that exploit salaried labor, with a view to guaranteeing that workers enjoy rights, part of the company’s profits (in addition to their monthly salaries), collective employment contracts, the right to create free trade unions that will defend their interests, social security payments, paid holydays, 40-hour work weeks, overtime payments, transportation and worker cafeterias offering products at low prices and other facilities workers may require.

10. Freedom to advertise products, actively search for customers and sources of raw materials, both in Cuba and abroad (through high-speed Internet and freedom of a commercial press).

11. Eliminate the two-currency system once and for all and establish exchange rates that make for a more favorable relationship between the Cuban pesos and international hard currencies.

12. The State should cease to manage companies, except basic service providers (such as water and electricity), and these should pay their employees a part of the profits, in addition to monthly stipends. The incomes of the State, province and municipality should come from taxes, to be applied in a transparent fashion at all levels and controlled by base-level mechanisms and through regular reports to citizens.

13. Health and education should continue to be subsidized by the State, which is to guarantee health and education for all. Health professionals, however, should be allowed to create individual or collective clinics, to be administered by medical collectives, and to set up practices and even minor surgical hospitals. Groups of teachers should also be permitted to create schools, to be administered by the staff that, in addition to teaching the syllabus established by the Ministry of Education, may incorporate complementary or specialized programs. Such clinics and schools would charge for their services on the basis of an agreement with their clients and would pay taxes on their profits.

14. The decentralization of power, currently concentrated in the State, from the control of taxes, through the creation and administration of budgets, to the control of local police forces, justice and others, strictly necessary for the autonomous functioning of communities.

These and other measures aimed at freeing the economy, socializing it and bringing it under the control of citizens, with a view to democratizing society, as freedom of expression and association, the separation of powers and the direct and democratic election of all public officials also aim to do, should be implemented without much delay to avoid a greater catastrophe. A broad, nationwide democratic debate that can open the way to a new and dearly needed constitution is also something we no longer postpone.

What of the US blockade/embargo? The direct and indirect contribution of this policy to Cuba’s stagnation have already been expounded on elsewhere, but, as its lifting does not depend on us Cubans, it is best to concentrate on those things we can tear down here: the internal blockade that hinders the development of a people’s economy. Perhaps without this internal blockade, the other will collapse of its own weight.
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Photos: Elio Delgado Valdes



36 thoughts on “How to Break the Chains on Cuba’s Economy

  • December 3, 2014 at 11:30 am

    Maybe the burocracy fully accepts that there is lack of oversight & control & is also aware that it’s ability to control overall corruption has been lost. This could be why they are abandoning certain economic sectors & taxing revenue rather than profit as this would guarantee that retail prices will already have a premium built into them that will reflect cost to the vendor + taxes +- market demand, regardless if products are stolen from the state or purchased from it somehow. Taxing gross revenue will net the largest possible tax bill for the government & After all, if I understand properly, there is no official wholesale market & Cuba is still an island. EFFICIENT co-ops & state entities should be easily able to dominate in this environment. Taxing revenue will also allow the revenue branch to do an end-run around the broken distribution system (Although this c-a-n have the effect of institutionalizing corruption). While taxing profit rather than revenue does allow for more rapid capital expansion, I think that such is not a desired outcome. Anybody knows that a plural economy is better than one dominated by monopolistic entities (state entities notwithstanding in Cuba) & inflated expenses are easily a way to subvert taxation as I see it all around me. My guess that auditing the vendors would allow the state to just take back self-employment ventures where under-reporting of income is found/assumed, or to simply remove them from the system by not renewing their licenses (should the state decide to be more benevolent). In Canada the government can confiscate all business properties & personal assets accumulated by the owners based upon GOVERNMENT estimates of what the profits actually probably have been. This is all done through the tax courts & I have a very successful friend that is very aware of this. He overstates his income so that every time he is audited the government ends up owing HIM money. He has been audited twice & now they leave him alone! BTW, most market economies are simply levying consumption taxes at the retail level these days & are addicted to them. I’ll stop my leftist postings if I am way out to lunch somewhere here in my meek understandings of the unique “dance process” I refer to as “Cubanomics”.

  • September 26, 2014 at 10:41 pm

    Mr. Ed Miliband, leader of the British Labour Party visited Scotland and expressed his opposition to the YES campaign. If the YES voters had won the referendum then the “they” to whom you refer would have had no say. “They” would not have pulled out, Salmond and the Scottish Nationalist Party would have forced them out. The leaders of the Trade Unions in Scotland made it very clear that they were opposed to separation.
    You are correct in saying that government employees in the UIK (military, bureaucrats, police) are not supposed to comment upon politics and similarly neither does the Queen and members of the Royal family. The Queen’s position as Head of State in Scotland would have been unaffected. Similarly Scotland would have remained a member of the Commonwealth. It would have had to negotiate is position with the EU.
    You are incorrect about business people, industrialists and trade unionists, all of whom along with employees and members have a perfect democratic right to express their viewpoint. That Dani is called democracy.

  • September 26, 2014 at 4:42 pm

    Dani, first let me agree with yoiu about agricultural subsidies in Europe or indeed elsewhere. Their is always talk in agricultural circles about the need for “a level playing field” but in reality that is the last thing sought. If subsidies ceased, production would continue and each commodity would be produced where it is most economical. The subsidies are a consequence of government planning – by all different political parties. Subsidies do not necessarily lead to increased or more efficient production. Those highly subsidised cows in Europe are not more productive in consequence. Cuba has few farms – the odd exceptions being cooperatives. In general 3 or 4 acres is all that the so-called ‘farmers” can look after. I know about efficient productive agriculture and it just cannot be done on 3-4 acres. I am not taliking about the large acreage grain farmers of the prairies whoim I have described publicly in the past as “Triple A farmers” – “April, August and Arizona.” Cultivate in April, sow in May, harvest in August and then go off to Arizona.
    The problem you speak of regarding prices and the Cuban consumer reflects the dificulties inherent in a political system that tries to control everything. Markets are subject to a wide variety of pressures. Maybe the regime could increase the monthly handouts from 500 pesos to 700 per capita. But on the other hand one could to use Martin Luther’s phrase, “let freedom reign.”
    Certainly, were the Government of Cuba to seek my professional advice, I would first form a panel of about six recognized high ability farmers from different parts of the world, to assess and advise upon the formation of farms of sufficient size to be integrated livestock/crop businesses, managed by imported managers accustomed to market pressures. labour relations and profit. Of necessity in Cuba these would have to be termed “cooperatives” and the land would have to remain owned by the State. But who owns the land is not significant, what matters is who farms it!
    Amongst those six in my mind, are one who is CEO of a vegetable growing business that having commenced in 1965, now farms over 180,000 acres of vegetables and potatoes on land in England, Scotland, Poland, the Czech Republic and Spain. Another is a member of a family that has well over 500 Jersey cows (high butterfat) on their farm and manufactures all of it on farm into ice cream.
    Way back when, Fidel Castro employed Dr. Reg Preston from the Rowett Research Institute in Aberdeen to start a beef production program and establish an instructional college. Little did he know that Preston was the source of humour in Scottish beef producing circles because although trying to turn the cow into a pig, his few experimental animals tasted awful. By turning a cow intoi a pig I should explain that the cow as a ruminant can break down the cellulose in forage, whereas the pig is a single gut animal like ourselves. Preston fed his experimental animals on barley. Flavour disappeared! After about vfive years, Preston left for the US but the remnants of his agricultural station remain some 25 km east of Havana.
    Another of Fidel’s concepts was in 1989. He declared that within five years there would be 150 new dairy farms in the Province of Sancti Spiritus. Nothing happened.
    Well you asked for some practical proposals and set me ticking.
    I would add something else. The people I have in mind would contribute their valuable brain power for expenses only. Without exception they answer to challenge!
    Yes I have deep agricultural experience bbehind me and when a European was quoted in the American Journal of Animal Science – not about animals, but about the people who work with them.
    On a final note, I do not imagine for a moment that this makes any difference to our respective political views, but it is I hope stimulating.

  • September 26, 2014 at 6:28 am

    Carlyle. I think carefully what I write. My comments are a mixture of response to Pedro’s original post and the sort of thing I would do. The fact that you think they are imaginative I take as a complement.
    If you read my comments properly, you would have seen that I said that the planning needed to come from farmers themselves. Also you aren’t correct regarding prices. Farmers are currently able to set their own prices for produce above that sold to the government. This isn’t ideal but if the government moved immediately to market led prices the cost of food would sky-rocket beyond the reach of a lot of Cubans (the trouble with a lot of the commentators here is that they can’t see any consequences to any change).
    I can’t see what is so outrageous about the government providing grants and subsidies to encourage production. The EU subsidise every cow more than the average persons wage in the third world.
    Again other than sneering, I don’t see what is so outrageous or what you have against setting up an ombudsman and consumer watchdogs. Rather than this extreme negativity, you come up with some practical proposals.

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