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Prospects for the Cuban Revolution in the Post-Communist Era

Paper by Dr. George Lambie, University of Wolverhampton,
8 October 1997

Introduction

The effect of the disintegration of communism and the breakdown of the CMEA was catastrophic for Cuba and perhaps no other country in peacetime this century has suffered such a dramatic and sudden downturn in its economy. Between 1988 -1993 there was a total fall in the island's imports from $8 billion to $1.7 billion, a decline of over 80 percent. Faced with unprecedented economic and social problems, in 1991 the Cuban government launched the "Special Period in Peacetime", which contained a "zero option" contingency plan for total isolation of the economy. In the medium term Cuba has began to reorient its economy towards the market, which includes a drive to attract foreign investment and increasing emphasis on hard currency exports such as tourism and bio-technology products, combined with a series of internal reforms, including the legalisation of certain areas of self employed private enterprise, the re-introduction of food markets, granting permission for the population to transact in US dollars and the establishment of Western style taxation and budgeting systems.

Unquestionably those in charge of economic strategy have done an outstanding job to rescue the Cuban economy from total collapse and the measures that have been taken so far have in the main been essential and unavoidable. For Cuba to have overcome the immediate crisis and now be registering modest levels of economic growth is a testament to the strength of its political and social system and distinguishes the revolution from the fragile socialist experiments of its former allies.

However, now that Cuba has clearly proved that the collapse of Soviet communism will not automatically mean the end of the revolution, what options are open to the island?

One thing is clear, Cuba cannot return to the conditions which existed during earlier decades of the revolution, or sustain itself by clinging on to the remnants of the old economic system. Change is inevitable, but the form it should take is the subject of much dispute both inside and outside Cuba.

The Rejected Model: Neo-liberalism and Free Market Economics

Over the past decade since the collapse of communism Cuba has been able to observe the effects of the free market formula for transition and the signs are not encouraging.

The Red Cross have recently predicted that in the winter of 97/98 millions of people in the former USSR will face malnutrition and starvation because of increasing levels of poverty. Society has begun to break down and the Mafia control much of social and economic life. Foreign consultants working in the Ukraine talk of a country with no hope and no prospects for the future. In Eastern Europe, particularly the former East Germany, Hungary, the Czech Republic and Poland things are not so desperate but after a decade of market reforms, democratisation, and foreign investment, there is still no clearly sustainable economic development model emerging. On the one side the old state system still supports in some form the majority of the population but is in continuous decay and its ability to provide deteriorating, on the other side a combination of foreign and domestic capital has begun to stimulate economic activity in certain areas but this process has tended to be fragmentary and not geared to any kind of national recovery plan. Economic activity cannot be measured by new factories, five star hotels and shops full of brand name goods. The real indicator of a healthy economy its the rate of capital accumulation and domestic retention and from this perspective performance is poor as domestic capital haemorrhages out through foreign luxury imports, capital flight and profit repatriation by foreign investors. The additional cost these countries have had to pay for the dubious privilege of receiving foreign investment is to make their banking and financial systems completely open to international market regulation and accept Structural Adjustment Packages from the multilateral agencies.

These are superficial economies without a basis for integrated and sustainable development or a viable accumulation strategy. Their exposure to the world market and global capital has made them the sources of cheap labour and the risk takers for the mature capitalist economies. In the global economy of the late 20thC there can be no market solution to underdevelopment because transnational capital is too restless and free to scour the world for returns and will not commit itself to medium or long term investment. Even FDI is affected by this short termism and the demands it places on recipient countries are often so great that its real value is debatable.

The most advance example of transition is the former East Germany but many studies have emerged which suggest that even with vast flows of benign investment for reconstruction and unification, conditions for the majority of the population have not significantly improved and the decline of the welfare state is causing poverty and insecurity for many . The integration process is beginning to equalise conditions across Germany as it unfolds but this means a falling standard for West German workers.

Neo-liberal economic programmes as developed in Latin America also offer little hope for Cuba.

The power of the market cannot be denied, nor is it easy to condemn those former socialist countries which have chosen to confront the seemingly intractable problems of the collapse of communism by embarking on neo-liberal strategies. Advocates of the market can also provide evidence of the success of the neo-liberal model, as in the case of Chile, or simply by pointing to the apparent efficiencies which the market brings to production and distribution systems and the provision of some services. However, less attention is paid to the inequalities the market generates, its inefficient use of resources or the creation of a mass consciousness motivated by levels of consumption which are environmentally unsustainable. Moreover, crude economic indicators like GDP which are used to measure market performance are increasingly being discredited, and such performance is less impressive when set against alternative standards like the UNDP's Human Development Index which reflects human values and gains in life quality.

The market is presented by its advocates as a neutral economic mechanism that can be developed and perfected with the right technical expertise, but in practice it is a political device for achieving certain outcomes which are usually stratified along class lines. The intellectual and philosophical foundations of free-market economics are also based on untested assumptions about human nature and a fairy tale called "perfect competition" The quest for an imaginary utopia is at the core of market orientated beliefs, although the system that is erected on these beliefs is presented as reality and it is other systems that are deemed to be utopian.

Despite the lack of evidence that free-market economics offers a viable route for post-communist or developing countries or that such principles were employed by the capitalist powers in their most dynamic phases Cubanologists like Ritter and Pérez López continue to advocate the neo-liberal route for Cuba and see the island's insertion into the world market and "allowing world prices to guide domestic economic actors", as a road to prosperity.

Pérez López in a recent article shares the view of many analysts when he talks of Cuba's "inevitable transition to the market" Pérez sees this transition coming about through the gradual strengthening of the "second economy" consisting of the black market, the new self-employed businesses and other sectors of the dollar economy. For him this economy is a reservoir of entrepreneurs. He acknowledges however that the consequences of its increasing strength will be growing corruption, disobedience to state regulation, use of political power to gain property, growing crime, increased inequality which have already been experienced by Cuba's former allies in the socialist camp. But this is seen as a natural and inevitable process, a reality that Cuba must face. Once the market is victorious and the state run economy has been defeated and transformed by the "second economy" it is presumed that recovery and "economic growth" will naturally follow.

Problems with the neo-liberal prescription

In practice the difficulty with the market prescription, and the establishment of representative democracy and political pluralism as experienced in the rest of the Caribbean, Central and South America, and in the former socialist countries, is that while in some cases it may have brought technical economic growth, it does not seem to have led to improvements in the standard of living of the majority of the population. Besides, in contrast to Cuba, the concept of growth with equity has been abandoned

One could argue that if Cuba took the neo-liberal option the US embargo would end and capital would flood into the island and stimulate rapid economic growth. However, if this were to happen the island's "Cinderella" status may not last, nor would the current advantages it offers to investors in tourism, skilled workforce and viable exports, and soon Cuba would be competing for investments against very low wage economies like Haiti and China. Besides it is not clear if Cuba would be able to take back its pre-revolutionary sugar quota displacing other suppliers or fully establish a relationship of "natural" exchange that is sometimes presumed to exist between the two countries. The most likely scenario is that the gains of the revolution would be swept away and the Cuban economy organised to suit the restructuring needs of US capital in the global environment, as is the destiny for the rest of the region under such programmes as NAFTA, the most advanced component of the far more ambitious Enterprise for the Americas Initiative (EAI). In this context independent regional initiatives such as the ACS and even MERCOSUR have a limited shelf life.

The free market gives no guarantee of development and would certainly undermine the principles of the revolution. However, the market is a powerful force and it is "real" in the sense that it represents the a dominant mode of thought and a prevailing economic system. These "realities" will inevitably affect, but need not necessarily determine, Cuba's development.

2) The Structuralist or "Market Socialist" Option.

Clearly the Cuban government want to avoid the negative social and economic effects that a rapid transition would engender and a neo-liberal route seems to have been rejected. It would appear at the moment that the Cuba is experimenting with market mechanisms to test their effects and clearly many Cuban economists and intellectuals have been influenced by Western debates on market socialism.

Market Socialism, the Prescription

In this mixed economy formula the state would retain firm control over key sectors of the economy, while allowing private enterprise and foreign investment to function in designated areas. According to Carranza this model would be based on:

"... a decentralised market economy with high level of state participation. State and private enterprises alike would operate according to a market dynamic that would demand a high level of efficiency and profit"

But market regulation need not be at the expense of the socialist achievements of the revolution:

"...the theory is intended...to increase the rate of economic growth and economic efficiency, and to reintegrate the Cuban economy into the world economy, without diminishing or threatening the achievements of the revolution or compromising Cuba's independence"

In this model primary export industries such as sugar, nickel and tobacco would be structured down and emphasis placed on import substitution stimulated by foreign productive investment. The model supposes a form of compromise between planned prices and market forces - some might argue a combination of the worst of both worlds. Although there is no single Asian transition model the experiments in China and Vietnam may be taking a similar route.

Externally this view is partly supported by Keynesian economists such as Andrew Zimbalist. Zimbalist, however, is less sanguine about the potential of foreign investment, realising that it will produce diminishing returns and cannot be relied upon as the driving force behind the reconstruction of the Cuban economy. He therefore argues that Cuba's recovery should be founded principally on increases in internal economic activity and production, which he believes could be achieved by releasing the entrepreneurial spirit of the Cuban people. Fundamental to this strategy would be the encouragement of small businesses through a freeing up of current restrictive legislation on this sector and the provision of state incentives in the form of loans and training etc.

This perspective is underlain by a "technical" approach to Cuban development which in its crudest form consists of replacing Soviet manuals with Western ones. Finding the right expertise and applying it to Cuban circumstances is seen as the way forward. In this context Cuban's are often surprised to find that a clear set of rules and techniques do not exist in the west: a set of accounts presented in Berlin by a German firm which appears in profit would represent a deficit if presented in New York. What has not become sufficiently clear is that the technical is ideological, including economic theory. However, a technical solution to the problems Cuba faces is attractive to certain sectors of the population as perceptively noted by Dilla who states:

"... in Cuba there is the emergence of a potentially hegemonic technocratic bloc, who have privileged access to the world market. This bloc has the capacity to appeal to wide sectors of the population, including the traditional bureaucracy, the self employed salaried workers in the most dynamic sectors of the economy and intellectuals"

Of course there are some technical solutions which may be applied to the challenges Cuba faces as it engages the world market, and skills in negotiating contracts with foreign capital, and an understanding of western accounting methods, budgeting techniques, banking regulation etc. are important whatever economic model the island chooses, but such methods alone do not constitute a development programme in themselves. As Castro himself has pointed out:

"We must appeal to people's consciousness, and the other mechanisms, the economic factors,...we must use these economic mechanisms in material production, but with this concept, as an auxiliary means or instrument of political and revolutionary work; because believing that these methods will give us the miracle of efficiency and economic and social development is one of the most ridiculous illusions there could ever be."

However, in some ways the market socialist route is an attractive soft option, and some analysts might argue that Cuba seems to be moving in this direction at the moment.

Problems with Market Socialist Option

Firstly, there are considerable theoretical weaknesses in attempting to blend socialism and the market and this option is based on wishful thinking rather than any rigorous analysis. Secondly, a radical Keynesian strategy along these lines may no longer be feasible in a globalising world economy in which capital reigns supreme, diminishing the powers and controls available to the nation state. Commenting on this problem, and the effects of the market in general, Dilla again perceptively notes:

"The market is a too powerful mechanism to incorporate as a docile instrument of socialist construction"

In a recent study of financial strategies open to Cuba an international specialist in fiscal policy arrived at a similar conclusion:

"The more Cuba enters the international economy, and the more dependent it becomes on international markets to rebuild its economy, the more control that these market actors will have on the nature of Cuban development. As these actors tend to harbour an underlying bias against socialist economic designs, and they have a fairly narrow (and short-term) conceptions of what constitutes "healthy economic fundamentals", this market control will be in sharp contrast to the ambitions of Cuba's current policy makers"

In this strategy foreign investment would continue to play a key role and every attempt would be made to attract such investment in a competitive market. This would mean presenting Cuba as a country with good infrastructure, cheap labour, liberal rules on the repatriation of capital, an educated workforce etc. Investment on these terms has been essential to bring collapsed and undercapitalised sectors of the economy back to life and develop new sectors like tourism, however how far should this process be allowed to grow? What is the critical point where Cuba begins to seek foreign investment as a habit and forgets to assess whether it is still a viable vehicle to achieve socialist objectives?

In Britain FDI over recent years has increased dramatically and is seen by all political parties as a positive development. However, such investment is a double edged sword and recent studies show that it brings no medium or long term economic benefits but is a drain on resources and produces a net financial loss rather than a gain. Multinational investors are also now not satisfied with favourable economic conditions such as skilled labour, and good infrastructure they also seek to influence high level political decision makers to serve their interests.

Moreover, such ideas as a Cuban stock market, free trade zones and other trappings of the market that the market socialist option assumes, hold enormous dangers for Cuba's socialist project and very few benefits. A Cuban securities market would require a totally convertible Cuban currency to minimise investor risk, but by the same measure it would leave Cuba with little control over foreign investments or its own currency, exposing the economy to the whims of the market. Foreign investment must be managed by a centralised bank based system or monetary policy and hence economic policy controls will be lost.

One could conclude therefore, that the ultimate result for Cuba of taking the structuralist option would eventually be the same as that offered by the free market option: loss of national control and integration into the international system dominated by the rule of money and its concomitant (global) class divisions. As noted earlier even developed nations which have attempted to maintain a social democratic Keynesian model in the period of neo-liberalism and globalisation have had poor results. In every case the role of the state in guaranteeing minimum standards of social welfare and employment has been compromised, because of pressures to maintain the profitability of enterprises and satisfy the demands of currency speculators and global capital. As Mark Wickham-Jones very convincingly argues in the era of globalisation and enhanced capital mobility, social democratic politics is almost synonymous with capital flight. The prospects therefore look bleak for a small and weak developing country entering the same system.

Dr George Lambie
Department of Public Policy and Managerial Studies
De Montfort University,
Leicester UK

Tel. +44 116 2577792
Fax +44 116 2577809
Email GRL@DMU.AC.UK

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