Thursday, September 27, 2012

Cuba – In Search of an »Orderly Transition«

Cuba – In Search of an »Orderly Transition«
26/09/2012 By Uwe Optenhoegel and Florian Pronold

For the first time since the demise of the Eastern Bloc Cuba's socialist
rulers are undertaking serious reform. However, the leadership lacks
courage and trust in the people.

In Cuba, some things work differently. The visit to the island by Pope
Benedict XVI at the end of March 2012 brought this home once again. The
Western media tried to engineer a meeting of Cuban dissidents with the
Holy Father and to get the Pope to commit himself to hauling the Castro
brothers over the coals for their human rights policy. The Pope did
nothing of the sort, heeding the advice of his Cuban bishops who had
preached cooperation. The Catholic Church also knows that the small
group of regime opponents are not a force at the moment and thus cannot
be a vehicle of change.

And change is happening in Cuba at all levels: economic, political and
social. But it is coming primarily from the heart of society, fuelled by
the ongoing economic misery and recently spurred on by speculation about
the health of Venezuelan President Hugo Chavez. This is because Cuba's
current economic model depends to a considerable extent on his
subsidies. Cuban socialism is not a carbon copy of the East European
version. Cuba is not half as Catholic as Poland. The Cuban trade unions
remain the Party's »transmission belt« in workplaces, but there is no
patriotic mass movement with ideas of its own, such as Solidarnosc in
the 1980s. In Havana there is neither a charismatic workers' leader in
the same mould as Lech Walesa, nor a civil rights advocate of the
stature of Vaclav Havel.

The Pope limited himself to vague criticisms of Marxism and talked about
human rights only in carefully weighed words about Christian charity.
Instead, before the eyes of the world the Vatican criticised the 50-year
US embargo as inhuman and gave his blessing to the new line of
cooperation between the Catholic Church and the Cuban state in the
transformation process. The basis of this alliance is the fact that the
Church no longer questions the legitimacy of socialism in Cuba. As
Cardinal of Havana, Jaime Ortega, has emphasised in numerous talks with
Western politicians that the Catholic Church regards Cuban socialism as
the result of a people's campaign for national independence and thus as
identity-shaping, in contrast to the situation in Central and Eastern
Europe where in 1945 socialism rolled into most countries mounted on the
tanks of the Red Army.
The Myth Is Fading

However, Cuba's myth is fading. Social services, once the pride of the
Revolution, are no longer affordable and are becoming markedly poorer.
Nevertheless, the regime is holding on to the ambitious social policy of
the Revolution: in recent years the share of education, health care and
social security in GDP has increased. Given the poor economic
performance, however, even these priorities are not enough to maintain

The inefficient economy has alienated the people from the government.
The generation who lived through the Revolution and benefited from it is
slowly dying out. The unproductive planned economy offers the young
generation the prospect neither of work nor consumption. The relatively
homogenous and egalitarian society distinguished by the overcoming of
social injustices and racial barriers is a thing of the past. Beneath
the surface of power political stability Cuban society is diversifying.
Fidel Castro elevated Marx's proposition »From each according to his
abilities, to each according to his needs« into a maxim. This promise
has lost credibility. In Cuba social exclusion can be seen once more.
This development touches a nerve in the Cuban psyche. Anyone without
access to the »peso convertible« linked to the dollar easily falls into
poverty. Particularly affected are the growing number of old people
living alone and Afro Cubans. At the same time, individual origin is
once again becoming important for educational success.

Even the government of President Raul Castro no longer closes its eyes
to all this. For the first time since the end of the Eastern Bloc Cuba
is seriously on the path of reform and trying to modernise the centrally
run economy. At the beginning of the 1990s, the economic crisis caused
by the demise of real socialism was still interpreted as externally
induced. In contrast, the current crisis is seen as a consequence of
Cuba's lack of its own economic model. No one has expressed this more
emphatically than Raul Castro himself, who said before the Cuban
National Assembly in 2010: »Either we change or we go under«. Mistakes
are admitted and the focus is on putting them right. The time is also
over in which Cuban officials declare that every problem on the island
is due to the US embargo. The embargo has long performed a dual function
for Cuba. It continues to do the country considerable economic damage,
but at the same time it has a stabilising effect domestically: it makes
it possible to cultivate the bogeyman of an overbearing imperialistic
neighbour against whom one can only defend oneself with revolutionary
discipline and unity.
Chávez Keeps the Ailing Economy Alive

The state of the economy as reform of the economic model gets under way
is extremely poor. Half a century after the Revolution Cuba has not been
able to get its planned economy off the ground. Within the framework of
the division of labour of the Council for Mutual Economic Assistance
(COMECON) the country was committed to deliver sugar or other foodstuffs
and raw materials. When the Eastern European economic community and thus
the Soviet subsidies ceased Cuba had to completely rebuild its economy.
Fidel Castro passed this task on to his brother and then Defence
Minister Raul and his »Forcas Armadas Revolutionarias« (FAR). The
successful completion of this mission marked the entry of the Cuban
military into the economy, at least in its more modern sectors. Since
then they have extended their influence and today are the pragmatic
driving force behind the reforms. Although in this way collapse was
avoided the economic sectors built up since then – tourism, nickel
exporting and, to a certain extent, health services and biotechnology –
have not developed enough to cover the country's need for foreign
currency. For years Cuba has lived with a structural foreign trade
deficit, with high foreign debts and, as a result, a shortage of
liquidity. When Hugo Chavez came to power in Venezuela at the end of the
1990s Fidel Castro found a new source of subsidies. Although they kept
alive the ailing planned economy, at the same time they stymied the
promising reform efforts, a serious wrong decision that cost Cuba a lost
decade with regard to economic policy.

Meanwhile, the island has an economic structure in which the
»productive« sectors account for only around a quarter of value added,
with the service sector accounting for the rest. Cuban economists talk
of a »dysfunctional tertiarisation« that threatens the healthy
development of the economy. Since the beginning of the 1990s the Cuban
economy has not been in a position to ensure the necessary
recapitalisation, the basis of its very existence. Gross fixed-asset
investments fell by 47 per cent between 1989 and 2007. In 2006 they
accounted for only 13.5 per cent of GDP and remain at this level today.
This is half the level of 1989 and around half of what is regarded as
necessary for sustainable growth. Thus Cuba lies below the Latin
American average of around 20 per cent. The country is de-industrialised
and there are almost no intact value chains, to say nothing of the
dilapidation of the infrastructure.

The dual currency that followed dollarisation at the start of the 1990s
continues to have grave consequences for Cuba's wage earners. It became
the main catalyst of social differentiation. Wages were paid in the
Cuban peso, which has little purchasing power. Most basic necessities
are traded in the convertible CUC, however. For this reason Cubans who
have access to foreign currency are much better off than their fellow
countrymen who do not. People acquire hard currency either through
remittances from Cubans living abroad, through tourism or through
foreign trade. Generally speaking, additional incomes from remittances
and from the black market or private economic activities significantly
exceed regular incomes. Thus paid work is becoming increasingly
unimportant. This system creates entirely the wrong incentives. The
fact that a waitress, a taxi driver or the cleaners at a tourist place
earn four times as much as a doctor or a teacher is leading to the
inversion of Cuba's social pyramid. Consequently, many young people are
asking themselves whether it's worth getting a good education. And more
and more highly qualified professionals are emigrating to places where
they can earn good money even without qualifications.
The search for a new development model

Against this background the government has been introducing economic
reforms since summer 2010 which became official policy with the adoption
of the "Guidelines on Economic and Social Policy" at the Sixth Party
Congress of the Communist Party in April 2011. The Guidelines represent
a »roadmap« for seeking a new sustainable development model. A debate is
going on concerning the future balance between the state, cooperative
and private sectors. There is no doubt that the reforms are intended to
rescue socialism and not to weaken or abolish it. The turnaround is
supposed to be brought about by privatisations in crafts and small
businesses, as well as private production and marketing of foodstuffs on
land leased from the state on a long-term basis. Furthermore, the
decentralisation of decision-making and budget components to provinces
and municipalities as well as more autonomy for state enterprises is
under discussion. The distribution of land has already been going on for
around two years. Besides this, Cuba is strengthening the cooperative
sector and is cutting back the widespread social subsidies, for example,
food ration cards and canteens in state-owned workplaces.

But the bulk of the economy will remain under central planning and the
most important means of production will remain in state ownership. The
guiding principle of the reforms is farewell to a paternalistic state.
The goal of this agenda is to reduce wage costs by making people
redundant in the state sector and to raise the extremely low labour
productivity in state-owned companies. The private sector now being
created and the cooperatives are supposed to absorb those made redundant
and improve the availability of goods and services. The new
self-employed are supposed to improve state finances through their
taxes. In agriculture the measures are supposed to lead to a rapid
increase in production in order to substitute imports of agricultural
products (Cuba's food import rate is around 80 per cent) and to give the
state some financial room to manoeuvre.
Where Are Job Seekers Supposed to Find a Job?

The labour market is characterised by massive underemployment and low
productivity. Already by April 2011, 500,000 state employees were
supposed to be laid off, rising to 1.3 million by 2015. Given a working
population of 4.9 million this is a very ambitious goal. But this reform
measure has barely taken off. Even Cuban experts were unclear as to
where the army of job seekers were supposed to find jobs. The list of
professions set free for self-employment seemed as though it was from
the nineteenth century, not the twenty-first. It is now slowly being
extended to include modern professions. However, labour market reform is
proceeding, albeit more slowly than planned. According to the trade
unions, in 2011 around 800,000 employees were affected by implementation
or restructuring processes.

The expansion of crafts and small businesses has been more successful.
According to official data the number of »cuenta propistas« – »employees
on their own account« rose from around 145,000 in 2008 to around 360,000
at the end of 2011. In part, this is likely to be the result of the
legalisation of what were previously black market businesses. Pensioners
are also coming back into the labour market. By 2015 the sector is
supposed to account for around 35 per cent of employees and a similar
share of GDP.

The obstacles to the success of this reform measure are in the small
print, in the realisation of accompanying or preparatory measures to
enable the new micro and small businesses to operate in the first place.
This includes the setting up of credit lines, regulations on tax and
social security, import and export provisions, structural reform in the
banking system and so on. This process has proceeded sluggishly so far.
It remains to be seen whether the incentives made available so far are
sufficient to persuade the population to use their scarce resources and
the organisational and improvisational capacities honed on the black
market within a legal framework. Bureaucratic irresponsibility and the
primacy of political control could also stymie people's initiative and
willingness to take risks.

But even if the reforms were a total success the effects would largely
be limited to the domestic market and the labour market. For Cuba it
would be a major step forward to improve the supply situation and give a
permanent place to private initiative and responsibility. But the
leading Cuban economists also know that this would be merely one step on
the long way to a more sustainable economic model. The agenda of further
structural reforms is long: a new policy is needed with regard to
foreign direct investment, a company and macroeconomic innovation
policy, a reorientation of foreign economic policy, establishing a
functional tax system, integration of the two currencies and a growth
strategy that finally gives the state a certain financial leeway.

Summarising how things stand at the moment one could say that although
the modernisation process is moving slowly and is too tightly
controlled, at least it is continuous. And it is rather a matter of
trial and error than a master plan. In terms of overall economic growth
the effect of the reforms was still negligible by 2011; in previous
years growth was between 2.5 and 3 per cent. However, one thing is
clear: if the roadmap is implemented it will change Cuban socialism

While economic reform is already under way, the transformation of the
political system that many expect has been much slower. The government
is well aware of the difficulties and the President never gives a speech
without mentioning the necessary »change of mentality«, although with
limited effect. Not least the numerous middle ranking cadres of the
Party have a whole host of power and privileges to lose if there is more
transparency, part privatisation of economic sectors and
decentralisation. Raul Castro has repeatedly addressed the opponents of
reform and has called on sceptics in the Party and in the political
leadership to change their mentality or step down. There are many
indications that Cuba is on the way to a two-speed state: economically
the Party congress's reforms are being implemented, while politically
some sections of the Party reject rejuvenation and adaptation of
structures to the new realities.

Whether the Party bureaucracy will do itself a favour by maintaining a
blockade is doubtful. This is because economic reforms are already
taking on their own momentum. The economic changes are not only being
steered by other groups in the leadership who are less ideologically
entrenched, but in individual reform areas policy is being discussed
with experts from outside the government, a novelty in Cuba that is
making the political process somewhat more transparent to the public.
Should Europe Go for Change through Rapprochement?

The EU and its member states are following the Cuban reform process with
interest without being able to develop a sustainable stance. Instead,
they are creating obstructions of their own. Official policy is
continuing to follow the »Common Standpoint« inspired by the
conservative Spanish government under Jose Maria Aznar in 1996. The
point of this is to link an improvement in economic relations to
progress with regard to human rights. This policy has not achieved its
aims, however, and it has been clear for some time that it has failed.
In the meantime many EU member states have concluded bilateral
cooperation agreements with the island, thereby circumventing the policy.

To date, the human rights situation has been a sensitive issue in
relations with the European Union. Amnesty International also continues
to point out violations in its reports. However, there is reason for
hope. In spring 2011 through the mediation of the Catholic Church not
only were all political prisoners released who were sentenced after the
conflict with the EU in 2003, but dozens of other cases were dealt with.
»The European Union, which had made the arrest of 75 opponents of the
regime a key issue in bilateral relations, must acknowledge their
release if it doesn't want to lose credibility«, writes Bert Hoffmann of
the GIGA Institute for Latin American Studies. Given the proven
ineffectiveness of the »Common Standpoint« the question arises for
European policy of whether it should finally emancipate itself from
backing the US embargo policy and rather fall back on a tried and tested
European policy, »change through rapprochement«.
Going Its Own Way

The reform process that is now under way has taken on proportions
comparable to the beginning of reform in China or Vietnam. Like the
Asian reference model Cuba is setting out on this path under the
leadership of the Party. However, to date the economy has not been
opened up to anything like the same extent as happened in Asia in the
mid-1980s. At the current stage of globalisation the classic path of
catch-up industrialisation is probably blocked for Cuba. Opportunities
could be opened up by establishing a cluster economy, developing niches
on the world market, which appears to have been done successfully in
biotechnology. The production factor needed for that is the only one
that Cuba has in abundance, a well educated population.

Havana is banking on a »transición ordenada«, an orderly transition.
Only in this way can the Revolution be saved, according to the
»comandantes«. There should be no attempt to copy a model but rather to
seek the country's own strategy to overcome the crisis. Whether the
pragmatic path propagated by Raúl Castro is pursued consistently remains
open. Even if the reform measures succeed further structural challenges
remain. However, on the basis of the good educational level and with a
combination of Cuban composure and improvisational skills acquired
during hard times the reforms could provide a way out of the economic
agony. To date, it sometimes looks as if the leadership lacks courage
and trust in its own people to put forward bolder reforms. The key to
success lies in Cuba alone. However, transformation without any risk
whatsoever and entirely under control will scarcely be an option. And
only the future will show whether it will be possible to continue the
course taken »without haste but without pause« (Raul Castro) in the face
of Cubans' dissatisfaction with their economic situation.

The original German version of this column was published in Berliner
Republik (Issue 3+4, 2012)

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