Is Cuba Undergoing A New Path or a Tactical Adjustment?

By Ricardo Torres  (Progreso Weekly)  

HAVANA TIMES – On June 27, the Cuban government announced a set of economic measures meant to address the country’s delicate socioeconomic situation. Here are some of the ideas being discussed:

  • A variety of provisions to stimulate exports, including in the non-state sector.
  • A greater capacity for the management of resources and labor force to the state enterprise.
  • Flexibility in the planning and design of alternatives for the productive use of remittances.
  • Stricter control of the budget, and expenses.
  • And the creation of options to retain the outflow of foreign currency associated with the individual purchase of scarce products in the domestic market.

Some are very specific measures, while in other cases they are areas in which various proposals are being analyzed.

The announced transformations have indisputable merits. In the first place, the salary increase applied to the public sector is accompanied by other structural measures aimed at increasing supply and improving the internal integration of the economy. Also, several of the modifications point to two of the most lagging areas of the reform: exports, which are key to a small economy; and the state enterprise.

On the other hand, the links between the public, private and cooperative sectors are promoted, which is a step in the right direction.

During the presentations, the idea that the economy will gradually move in a direction based on economic-financial mechanisms, which will replace the administrative guidelines, was highlighted. The role of the financial system, and the centrality of exports, was also highlighted, and the idea that even greater changes in the planning and management of the economy should be expected.

However, it is difficult to evaluate the announced proposals in full since there were no details offered. In most cases the intentions are good, but it is in the implementation where the game is decided. Despite this, some specific cases merit a preliminary analysis.

The increase in wages in the public sector is, in the eyes of the average citizen, the most far-reaching measure. The new amounts represent a not insignificant increase for the majority of the beneficiaries, taking into account the starting point.

It was announced that the decision presupposes budgetary resources in the order of more than 7 billion pesos, which result in an average increase of almost 400 pesos per employee, although the salary differentiation is extended within the measure.

To put it in perspective, that figure constitutes 10.7 percent of the total planned budget expenditures for the year 2019.

However, its success depends on a productive response that seems difficult to materialize. Regardless of the intentions and wishes of the decision-makers, the only guarantee that it effectively improves the welfare of the beneficiaries lies in an increase in the supply of goods and services in a proportion similar to the movement of demand. This change not only has to correspond in magnitude, but in its structure. That is, products that citizens want to buy with that additional money must be offered in greater quantity.

Here lies the greatest challenge. It is clear that supply in Cuba is noticeably stagnant and that delays the reaction to changes in demand because of a wide range of restrictions, ranging from the functioning of companies to the availability of resources. The nature of domestic production processes determines that a portion of these resources are imported, a feature that will not change in the medium term.

The supply could also increase through the importation of final consumer goods, but the current situation in the balance of payments does not anticipate an appreciable increase in these. In short, the dynamics of supply is conditioned, to a large extent, by the availability of imported supplies or consumer goods, which require foreign exchange. Although a collapse of Cuban trade is not occurring as in the 1990s, the external financial situation does not anticipate such a process.

The calls to maintain prices at current levels directly contradict the deployment of economic mechanisms. The market, which always acts under a specific regulatory framework, operates both for supply and for demand. If the offer does not increase, the price increase is the inevitable adjustment mechanism. Its negation means that other equally negative processes such as scarcity, long lines or the black market are triggered.

If you have to choose between these two paths, the market is an incomparably better alternative, because it offers transparency. You know how much prices increase and that information is accessible to all agents and decision makers. This gives an idea of the delay of the offer. The additional resources temporarily available to producers would allow them to invest in new ways to increase production, which would act to moderate prices.

Unfortunately, this last link is the one that is broken in the Cuban context. This is due not only to resource constraints, but also to institutional rigidity and administrative prohibitions. The expansion of production involves the purchase of products and means of production, which as a rule are not available to producers. There is also the misperception that this temporary increase in profits is negative, because it is understood that it is not legitimate. It is not credible to think that economic mechanisms can help us increase production and stop acting in other spheres. And this does not include the even more complex discussion about the accumulation of wealth and capital.

If we want to unleash a virtuous process of growth, we must admit that a certain level of differentiation is inevitable.

The problems faced by the Cuban economy, briefly described in the explanations of the decision makers, are well known, and have been profusely analyzed in the central planning models and studies. The centralized allocation of resources severely weakens the horizontal relationships between sectors and entities of the economy: the export sector and its suppliers, state and private sectors, foreign and domestic companies, among others that could be mentioned.

This is accompanied by the almost total substitution of the economic-financial mechanisms by their corresponding administrative ones. The passive role of prices and other financial categories deprives the economic system of the signals needed by its agents, including the government, to make timely and agile decisions that are coherent with the improvement of efficiency. These and other distortions that are generated actually reinforce each other and result in a seemingly inexplicable phenomena such as the “import mentality,” the coexistence of scarcity and idle capacities, or the cancellation of incentives for hard and innovative work in broad sectors of society.

The weaknesses of the model that generate delays, shortages and lack of opportunities are not fundamentally the result of the isolated actions of unscrupulous citizens, or “unqualified cadres,” or less creative entrepreneurs. These behaviors respond to a socioeconomic environment that has shaped them for decades. It is true that the U.S. sanctions significantly reduce the development threshold of the Cuban economy, but it is also true that many countries that were not subject to pressure of this magnitude failed miserably, including some with practically infinite resources. We don’t have to look to Eastern Europe, China and Vietnam are clear examples.

For the sake of the more humble segments of Cuban society, it is desirable that the announced plans be successful. More importantly, though, I hope it constitutes the prelude to a more radical transformation of the economic model that offers greater shares of prosperity.

Unfortunately, you have to tighten your belt to unlock decisions that have been postponed numerous times. The fact is that gradualness often brings problems that are sometimes more serious than those it intends to avoid. This has been shown to be the case over the past decade.

10 thoughts on “Is Cuba Undergoing A New Path or a Tactical Adjustment?

  • July 15, 2019 at 1:36 am

    Cuba has cheated foreign investors who came to Cuba either to make money and or help the Cuban people. The current government in Cuba is very corrupt. People have learned to cheat and steal or they will starve. Cuba had over 10 years warning of what going to happen but refused to change their practices. Many tourists are ready to stop going to Cuba. Much good land in Cuba has done very little for the last 30 years while food was imported at 5 to 7 times the cost in foreign exchange of buying the equipment to make fertilizer and imports of other basic farm items and no till equipment from China

  • July 14, 2019 at 5:24 pm

    Por favor Munuel, traduccion es posible?

  • July 14, 2019 at 8:03 am

    Robert M. You Surly Have Not Been Shown or Seen The Real Honest Cuba. Clean Cuba, There is Only the Country side where the people really have Nothing you can say it is Clean. Safe: Cuba Has lost the Respect for the People & the People,s Respect for there Government is Long Forgotten, Nihilistic Youth is Cuba,s Future. Safety for Tourist & Canadians has Fallen & Dangers are in every Foot Step we Take, Very Volatile to Extreme Changes are a way of life in much of Cuba. Robert M. You are only fooling & joking with your words & Miss Leading. I have investigated & found in Cuba if there is a Buck to be made we will all be Miss Led as Canadians or Tourist. That is Cuba, Can we Blame Them for there Swindling & Theft of the Tourist to Survive & Possibly Create a Better Life. I can Honestly tell you I have shared in there Hunger as I walked with the Country Cuban People through There much wasted Land & I only understand Very Little as to Why this is . Yes I Have Walked Where No Tourist walk & My Money could Not Feed my Family properly unless we Moved & today the Food they are fighting over. More then four years with a Feeling I Could Help & Provide a Cuban Family & Children, Today I Find myself believing Cuba No Longer wants Outside Help & My Living in Cuba Created Many Problems, Is That The Cuban Swindle when a Canadian Walks Too Fare Into Cuba.

  • July 13, 2019 at 6:07 pm

    Go there for couple months and live like a real Cuban.

  • July 13, 2019 at 1:10 pm

    I have read lately that infinite use of known resources, mostly use by the developed countries of the northern hemisphere of planet Earth is not sustainable. In other words capitalist system induced endless growth is showing signs of a sputtering engine although the propaganda agents The Attention Merchants are busy trying to make sure we all need that other ‘ thing.’ Successful this agents are in influencing our minds to have us keep wanting more ‘ unnecessary things.’ I admit their effort is so pernicious that me too is influenced . It must be working at our sub conscious level because even when we are awake we are only conscious 40%. High level sport competition, warfare activity, life saving efforts are known to elevate our conscious level higher though. Have a nice day and try to live one day at a time. Projections into the future most always get fuzzy.

  • July 13, 2019 at 11:37 am

    “but it is also true that many countries that were not subject to pressure of this magnitude failed miserably, including some with practically infinite resources. We don’t have to look to Eastern Europe, China and Vietnam are clear examples.”

    What? What?!?! This is such total BS. China and Vietnam were both subject to INTENSE US sanctions. I’m not going to say whether they were as strong as sanctions against Cuba or not, but the US blocked out both countries for decades from large parts of the world. Vietnam had been bombed by the US for more than three decades and then, after the country reunified, the US had the international community embargo Vietnam until 1992. How does this article make sense?

  • July 12, 2019 at 11:06 pm

    Robert – There’s absolutely nothing good about communism. It’s a cancer just like the Castros are.

  • July 12, 2019 at 10:52 pm

    Obviously Robert Michalski your knowledge of Cuba is very shallow and your opinion matches that! As for Christianity “is everywhere”, that is the history of Latin America including the conquistadors, the inquisition and in Cuba, Hatuey being burnt at the stake. You are correct about the so-called “respect” which is key to the educational system and imbued in children from the creche onward. In the communist dictatorship system, the requirement for that “respect” goes upward to respecting all forms of authority without question with the ultimate authority being the Communist Party of Cuba and First Secretary Raul Castro Ruz.
    The purpose of education in Cuba is defined as:
    “The state promotes the patriotic and communist education of the new generations.”
    If as you claim Cuba is as you claim a “very safe, humble, and clean country”, why is it that right now you can read an article in Havana Times, about the failure to collect garbage which litters the streets, and how is it that the jails are full with Cuba having the fourth highest rate of incarceration in the world?
    If by use of the word “humble” you intend reference to the minimum wage of 400 pesos per month ($16 US) and the pension of 200 pesos per month, you may be correct in equating poverty with being humble.
    “Things” in Cuba are run by dictatorship!

  • July 12, 2019 at 4:29 pm

    Go to Cuba without foreign $. Then try to find a job, working for whatever company or enterprise the government owns, they own them all, and even with the so called “salaries increase” , make a living with the few products the government controlled groceries and markets sell, live like that for a year, with no freedom of speech, etc. Then I would gladly like to read your next post…

  • July 12, 2019 at 3:23 pm

    My opinion is Cuba is a very safe,humble,and clean country due to the way things are run.There aren’t starving people, health care is taken care of.People make due with what they have.Respect and Christianity is everywhere. The weather is terrific.
    I think people who have it all as in Canada will always want more.It’s nice but there are a lot of unhappy people here too.The world is just filled with too many people who just want more and more,they should start looking to God.
    Just my opinion.

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