Cuban Situation

Cuban Situation

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Cuban Situation


Cuba needs cows. In January of 2004, a Cuban delegation visited Florida to inspect beef and dairy cows to repair Cuba’s languishing cattle industry. Moreover, under the auspices of the U.S. Trade Sanctions Reform and Export Enhancement Act in 2000, the United States exported $350 million dollars worth of American agriculture products to its island neighbor in 2000 (Bussey 1). This budding trade relationship is symptomatic of a broader move by Cuba to fully re-insert itself in the global economy. Deprived of the protective cocoon of Soviet trade agreements and faced with economic crisis and stagnation, Cuba’s leaders have responded with limited economic reforms. It is clear, however, that Cuba will not emulate the rapid liberalization of much of Eastern Europe and Latin America. A brief review of Cuba’s economic performance since the fall of the Soviet Union reveals a trend of liberalization bred of necessity. Nevertheless, the mixed performance of the Export-Processing Zones and the government’s grudging acceptance of tourism reveal a tension between Cuba’s need for foreign currency and direct foreign investment and a desire to insulate and preserve Cuba’s existing domestic apparatus. This tension underlies Cuba’s ongoing economic transition and has prevented wholesale market liberalization. Cuba’s future movement towards market reforms will be carefully managed by the Castro government to protect Cuba’s revolutionary legacy and to maintain control of political opposition.

The fall of the Soviet Union devastated the Cuban economy. Cuba’s GDP contracted by 35-50% from 1989-1993 (LeoGrande quest 5). As a percentage of total Cuban trade, the Soviet Union’s share fell from 66% in 1990 to 15% in 1994 (5). Moreover, Russia reneged on its oil agreement, and fitful exports caused energy shortages in Cuba. Production and consumption plummeted.

From 1986-1991, Castro undertook a rectification campaign to stabilize the economy as the Soviet Union decreased its support and eventually collapsed. The plan “focused on re-centralizing economic planning authority, dismantling the [Soviet-sponsored socialist management system] and market mechanisms, abolishing the free farmers markets launched in 1980, and combating corruption” (4). In addition, Castro tried to address the massive trade imbalance by reducing imports and reinvigorating the export sector. This program was a resounding failure. More domestic and far-reaching reforms were necessary to save the economy from crisis. Economic disaster had erected a serious challenge to Cuba’s socialist program.

In 1991, Castro’s announcement of a “Special Period in a Time of Peace” marked the beginning of Cuba’s new era of liberalization.

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It sought to “control and limit consumption, reduce expenditures, and strengthen domestic food production” (5). The plan called for increased direct foreign investment and reduction in the size of state, not unlike some of the prescriptions of the Washington consensus. In 1993, the government undertook a series of domestic structural reforms and introduced “free farmers markets, the transformation of most state farms into cooperatives, the legalization of self-employment in most occupations, the reduction of subsidies to state enterprises, the reduction of price subsidies on nonessential consumer goods, and the legalization of dollars” (5). In 1995, Cuba passed a constitutional amendment to allow up to 49% foreign ownership of joint investment ventures, and the state declared some [sectors] eligible for 100% foreign ownership (7). Despite these first steps to liberalization, Cuba has limited its reform package in order to control and regulate its impact on Cuban society.
The Cuban leadership has made every effort not to jeopardize the socialist project with fast paced market-oriented reform. In 1994, near the end of Cuba’s economic crisis, worker assemblies affirmed that “reforms had to be ‘politically correct’ and could ‘never’ compromise socialism” (Stable 176). Consistent socialist redistribution policies have afforded the state with undeniable popular legitimacy. Moreover, Castro endured a period of political and economic uncertainty with his appeals to the “symbols and history of la patria as the principal source of ideological legitimation” (179) and Cuban leaders rallied their people around the “principles of unity and equality” (190). Cuba still boasts a fiery nationalism and largely preserved national unity even during the worst of economic hardships. Though it remains difficult to judge public sentiment in Cuba, the endurance of the Cuban people during severe austerity is a testament to a continued commitment to a revolutionary legacy. Market reforms attack the integrity of the state socialism, which continues to carry significant weight among the leadership and the people.

The reticence of the government to implement economic reform can also be explained by a desire to retain absolute political control. In 1996, Vice-President Carlos Lage remarked that “political criteria” (178) guided the reform process. According to Stable, the failure to respond appropriately to the crisis of the early 1990s can be attributed to political calculations of Cuba’s leaders (177). Prescriptions for economic recovery included the reduction of state subsidies and the growth of a private Cuban entrepreneurial class, but the government feared the fallout from a drastic increase in unemployment and the rise of an uncontrollable middle class. As such, the government proceeded with caution and limited reform.

Nora Hamilton’s essay “Mexico: The limits of State Autonomy” can be used as a useful lens for understanding the tension produced by Cuba’s gradual liberalization since the end of Soviet sponsorship. Hamilton argues that the interests of national and international capitalism curtail the sovereignty of the state by forcing it to maintain the conditions necessary for capitalism to thrive (Hamilton 81). Hamilton suggests that the world economy reduces the ability of national economic and social structures to protect disenfranchised citizens or to attain social justice. The Cuba/Mexico comparison is useful because Cuba’s success in implementing revolutionary ideals contrasts heavily with Mexico’s post-revolutionary experience. The Cuban revolution was aimed explicitly at loosening the capitalist shackles on state autonomy and ushered in a social revolution that rejected dependency on the United States. Castro’s Cuba heavily emphasized egalitarian social services, including tremendous investment in the education system and medical services. Cuba nationalized the sugar industry and neutralized the leverage the American sugar quota system which had largely drained the agency from Cuba’s leaders to pursue balanced economic development. Though Cuba came to rely heavily on the Soviet Union for preferential trade agreements, loans, and aid, this dependency did not compromise the Cuban vision of social justice. The Soviet Union sheltered Cuba from the inflationary effects of OPEC’s policies, purchased Cuba’s sugar and nickel at higher than market prices, and provided significant amounts of aid and expertise to reduce Cuban imports (Eckstein 261). This support allowed Castro to pursue a domestic agenda that aimed to transcend restrictions of capitalism described by Nora Hamilton.

However, the fall of the Soviet Union has forced Cuba to fully re-insert itself into the international capitalist economy and to rely on foreign investors to rescue the languishing economy. The influx of investment has bred a conflict between domestic maintenance of the revolutionary legacy and the imperatives of foreign capital. The failure of the Export-Processing Zones and the government’s ambivalence toward tourism are manifestations of the tension created by a transition from state socialism to more market-oriented policies.

The failure of Cuba’s Export-Processing Zones (EPZs) captures the disparity between the objectives of Cuba’s current government and of foreign investors. In 1997, Cuba opened free-trade zones and industrial assembly plants, called export-processing zones, to lure foreign investment to Cuba. In “The Structure of Dependence,” Theotonio Dos Santos describes the deleterious effects of the dependence of Latin American economies on foreign capital. His indictment of foreign investment concludes that “the industrial and technological structure responds more closely to the interests of the multinational corporations than to internal development needs” (Santos 324). According to Dos Santos, dependent capitalism “reproduces backwardness, misery, and social marginalization” within the recipient country and generates a “high rate of exploitation of labor” (325).

For many, the EPZ’s stunk of dependent capitalism and raised the specter of Mexican maquiladoras. These fears have proved groundless. Mindful of the destructive potential of foreign investment, Cuban government retains a vice-like grip on labor relations in Cuba and still controls wages and hiring (Stable 179). The Cuban government guarantees extensive benefits for EPZ workers and sets the wage more than 50% above the national minimum wage (Willmore 5). Cuba has resisted the imperatives of foreign capital and sought a compromise between an investment and just working conditions. It should come as little surprise, however, that the EPZ experiment has failed. By 2000, only several EPZs were in operation with no plans for more on the horizon. A UN report in 2000 explained that the EPZs failed to attract investment because of overly high wages and low returns to investment (7). Cuba’s reticence to reform has managed to curtail the power of foreign capital but has stymied the flow of much needed investment.

Unlike EPZs, the tourism industry has experienced spectacular success, but it raises similar questions about the conflict between economic growth and Cuba’s revolutionary past. After the revolution, the Cuban government spurned tourism because of its association with “the social ills of pre-revolutionary Cuba, especially gambling, prostitution, and foreign cultural and economic domination” (LeoGrande Quest 9).

However, born in the 1970s and blossoming in the 1990s, the tourism industry offered a source of hard currency the government could not ignore. It generates more hard currency than any other sector, including sugar, in Cuba. The number of visitors doubled from 1983-1989 and quintupled from 1990-99. Tourism accounted for 12.6% of GDP in 1999, up from 0.3% in 1981 (9). The growth potential of tourism remains enormous, and Cuba’s leaders released plans in the summer of 2002 to triple tourist numbers, to some six million by 2010 (Economist “Bitter pills”). However, tourism, with its influx of foreign currency, has contributed to a growing stratification of Cuban society and has reduced the state’s control of the economy. Nevertheless, tourism has “become so vital to the economy that the government has no choice but to endure its social and political costs” (9). The growth of the tourism industry has shown that economic necessity can trump the Cuban leadership’s ideological commitment.

New impetus for reform

A thriving civil sphere and recent economic shocks on the Cuban economy increases the likelihood of continued economic liberalization. A growing private sector has increased pressure on the government to pursue economic reform. By 1999, the private sector employed 15-20% of Cubans (NACLA 18). In winter 1995, Castro complained that “recent economic reforms had spawned a ‘new class’ of Cubans hostile to the values and institutions of state socialism” (Leogrande Enemies 212). Despite Castro’s discomfort, the government relies on the private sector for tax revenues and continued economic growth. In “Cuba’s Quest for Economic Independence,” William LeoGrande writes that
despite its growing economic importance, the private sector is regarded with suspicion by the government, tightly regulated and periodically harassed… Fidel Castro dislikes and distrusts the emerging private entrepreneurial class, but he cannot do without their productivity, their tax revenue, or the jobs they provide. (LeoGrande quest 11)

This new class of Cubans has erected a challenged to Castro’s state socialism and is part of a new “civil sphere” calling for economic and political reform in Cuba. In “Cuba in Transition,” Gerardo Otero and Janice O’Bryan seek to assess whether the emergence of a “‘civil sphere’—here defined as civil society and private market economic activities—challenges state-socialism in Fidel Castro’s Cuba” (Otero 30). Otero and O’Bryan conclude that, though the state had permitted some liberalization to fulfill economic and legitimacy needs, the Cuban state seems determined to suppress the civil sphere’s political and economic leverage. The government’s repressive tactics have thus far managed to subdue a growing civil sphere intent on expanding its influence. Nevertheless, this new constituency promoting change promises to challenge the government’s future efforts to subsume economic development to political considerations and will form the backbone of future support for gradualist reform.

Recent external factors have contributed for mounting stress on the Cuban economy and make it more likely that the government will continue a process of reform. The Sept 11 attacks resulted in a plunge in tourism revenue, which has put Cuba’s economy back into recession. In addition, a festering debt crisis restricts Cuba’s potential for growth and continued foreign investment. In 1999, Cuba’s hard currency debt sat at $11 billion, mostly to European and Japanese banks. Cuba needs to develop new revenue earning schemes or must continue to dismantle the socialist state.

There is little evidence to show, however, that the Cuban leadership will suddenly go belly-up and conform to the “Golden Straitjacket” (Friedman). In 2002, the Cuban National Assembly passed an amendment to “make Cuba’s socialist system ‘irrevocable’” (Economist “Disaster”). Some 99.7% of eligible voters supported the measure. Several days after the passage of the amendment, according to government estimates, some nine million Cubans took to the streets to support the legislation. Though it remains difficult to gauge popular sentiment given the power of the state and restrictions on Cuban civil liberties, it appears that Cubans’ commitment to socialism continues to carry significant weight and the Cuban leadership seems prepared to streamline reforms to control the potential political destabilization effects of liberalization. Given Cuba’s paroxysmal political crackdown in the spring of 2003—some 75 prominent dissidents were imprisoned and three were executed for hijacking a boat (Economist “Disappearing)—it appears that Cubans will continue to march to Castro’s tune… for now.

Works Cited

Bussey, Jane. “U.S. May Become Cuba's Bread Basket in Wake of 2000 Trade Bill, Miami Herald, Jan 19, 2004.

Dos Santos, Theotonio. “The Structure of Dependence.” The American Economic Review. Vol. 60, No. 2, May 1970.

Eckstein, Susan, “Capitalist Constraints on Cuban Socialist Development,” Compative Politics, Volume 12, 1980.

Economist Magazine. July 4th, 2002. “The disaster is now “irrevocable.”

Economist Magazine. April 10th, 2003. “Disappearing into a Caribbean Gulgag.”

Economist Magazine. July 13, 2002. “Bitter Pills.”

Friedman, Thomas. The Lexus and the Olive Tree. New York: Anchor Books, 2000.

Hamilton, Nora. “Mexico: The Limits of State Autonomy,” in Latin American Perspectives, Issue 5, Summer 1975, Vol 11, No. 2.

Haney, Patrick J. and Walt Vanderbush. “Plicy toward Cuba in the Clinton Administration,” Political Science Quarterly Fall 1999.

“Inside Cuba,” in NACLA Report on the Americas. March/April 1999, pp. 16-47.

Leogrande, William and Julie Thomas. “Cuba’s Quest for Economic Independence,” Journal of Latin American Studies 34.

Leogrande, William, “Enemies Ever More.” Journal of Latin American Studies, 1997.

Otero, Gerardo and Janice O’Bryan, “Cuban in Transition” The Civil Sphere’s Challenge to the Castro Regime,” Latin American Politics and Society 44:4.

Perez-Stable, Marifeli. The Cuban Revolution. New York, NY: Oxford University Press, 1994.

Willmore, Larry. Export Processing Zones in Cuba. May 2000. http://www.un.org/esa/esa00dp12.pdf
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