Cuba’s Strategic Economic Re- Orientation ” Cuba’s Strategic Economic Re- Orientation for: “Governance and Social Justice in Cuba: The International Dimension”

Cuba’s Strategic Economic Re-Cuba’s Strategic Economic Re-OrientationOrientation

for: “Governance and Social Justice in Cuba: The International Dimension”””

Symposium organized by FOCAL, Canada; CRI-FIU, United States; and FLACSO, Mexico.

June 9, 2006

Archibald Ritter, Carleton University, Ottawa Canada.

OutlineOutline::I. IntroductionII. Origins of the New Development Strategy:

• Castro’s Vision• The New Geopolitical Context• Economic Recuperation

III. Cuba’s New Development Strategy• New Export Foundation• A Knowledge Economy and Society• Institutional Strategy• Rebuilding the Infrastructure: La Revolucion

Energetica !• Renewed “Sucrophilia” ?• Socialist Purification: Combating Economic Illegalities and

CorruptionIV. Central Problems

• President Castro• US Policy towards Cuba• Openness; Transparency; Accountability; Democracy

VI. Conclusion

I. I. Origins of the Origins of the New Development New Development

StrategyStrategy

1. President 1. President Castro’s VisionCastro’s Vision

1. 1. President Castro’s VisionPresident Castro’s Vision

1. Castro’s Vision:1. Castro’s Vision:Not clearly articulated, but expressed piecemealNot clearly articulated, but expressed piecemeal

on numerous occasions; especially Speech of on numerous occasions; especially Speech of November 17, in the November 17, in the Aula Magna, U de la HabanaAula Magna, U de la Habana

Probable fixation on his “Legacy”Probable fixation on his “Legacy”

Main Elements:Main Elements:– Personal and National Leadership in Anti-US & Personal and National Leadership in Anti-US &

Anti-Imperialist Crusade; Anti-Imperialist Crusade; – Irrevocable “Socialism” and Political Continuity;Irrevocable “Socialism” and Political Continuity;– Socio-Economic Purification;Socio-Economic Purification;– Re-ordering of Cuba’s Place in the International Re-ordering of Cuba’s Place in the International

System;System;– Return to Prosperity.Return to Prosperity.

2. The New Geopolitical Context2. The New Geopolitical Context– The US in TroubleThe US in Trouble::

• Incapacitated in the Iraq quagmire; Incapacitated in the Iraq quagmire;

• Economic vulnerability with external deficits and debt;Economic vulnerability with external deficits and debt;

• Loss of reputation and moral authority in much of the Loss of reputation and moral authority in much of the worldworld

– Emergence of China and spin-off benefits for Emergence of China and spin-off benefits for Cuba: Cuba: • A Chinese depot for the Caribbean area?A Chinese depot for the Caribbean area?

• Chinese resource investments (nickel & oil exploration)Chinese resource investments (nickel & oil exploration)

• Major new creditsMajor new credits

• Like-minded re Governance and Human RightsLike-minded re Governance and Human Rights

A Latin American Opening for Cuba ?A Latin American Opening for Cuba ?– Chavez as a new Sugar Daddy or Petroleum Chavez as a new Sugar Daddy or Petroleum

PapaPapa– Evo MoralesEvo Morales– Ollanta Humala in Peru? No. Ollanta Humala in Peru? No. – Colombia: UribeColombia: Uribe– Ecuador & Mexico (Lopez Obrador?)Ecuador & Mexico (Lopez Obrador?)– Centre-Left friendly regimes: Argentina & Centre-Left friendly regimes: Argentina &

Uruguay Uruguay (entry into Mercosur?)(entry into Mercosur?)

– Social Democrat, friendly regimes: Brazil, ChileSocial Democrat, friendly regimes: Brazil, Chile– Good Caribbean relationsGood Caribbean relations– MajorMajor US unpopularity in Latin AmericaUS unpopularity in Latin America

3. Economic Recuperation3. Economic Recuperation• Economic Recovery is real, but Slow.Economic Recovery is real, but Slow.

• Official GDP numbers suggest that Official GDP numbers suggest that GDP of 1989 has just been surpassed GDP of 1989 has just been surpassed in 2006 by 14%.in 2006 by 14%.

• The Economist’s GDP estimates The Economist’s GDP estimates (5.2% growth in 2005; 4.5% probable (5.2% growth in 2005; 4.5% probable in 2006) suggest that the 1989 level in 2006) suggest that the 1989 level of income per capita has just been of income per capita has just been reached. i.e. 16 lost yearsreached. i.e. 16 lost years

• Recuperation makes reversal of Recuperation makes reversal of earlier reforms easier for Castro.earlier reforms easier for Castro.

. 

III. III. Cuba’s New Development StrategyCuba’s New Development Strategy1.1. Past StrategiesPast Strategies

• 1961-1964: Instant Industrialization

• 1964-1970: the “10 Million Tons” Obsession, plus the “New Man” & Extreme Centralization

• 1970-1989: Soviet Model & patronage;emphasis on sugar, nickel and minor (never-

emerging) exports;

• 1992-2005: emphasis on tourism, remittances, nickel, with a weakening sugar sector

2005- Onwards: A New Approach

III. Cuba’s New Development Strategy, III. Cuba’s New Development Strategy, continuedcontinued

2. New Export Foundation:2. New Export Foundation:

• Continuous problem for Cuba since Continuous problem for Cuba since 1961: paying its way in the world1961: paying its way in the world

• Merchandise Trade Deficits have Merchandise Trade Deficits have persisted and will continuepersisted and will continue

III. Cuba’s New Development Strategy, continuedIII. Cuba’s New Development Strategy, continued

2. New Export Foundation, continued:2. New Export Foundation, continued:1.1. Nickel: Major expansion expectedNickel: Major expansion expected

– Sherritt Expansion; ($450 million)Sherritt Expansion; ($450 million)– Chinese Investment Prospect: a doubling of production? Chinese Investment Prospect: a doubling of production?

(?? $500 million?)(?? $500 million?)

2.2. Medical Services: already well-launchedMedical Services: already well-launched– Doctors for Rent; - “Medical Tourism”Doctors for Rent; - “Medical Tourism”

– Biotechnical Exports: Pharmaceuticals etc.Biotechnical Exports: Pharmaceuticals etc. , some , some potentialitiespotentialities

3.3. Petroleum Extraction and Processing:Petroleum Extraction and Processing:– Refining of Venezuelan Oil in Cienfuegos for the Refining of Venezuelan Oil in Cienfuegos for the

Caribbean ?Caribbean ?

– Increased extraction, self sufficiency and export ?Increased extraction, self sufficiency and export ???

– Prospects for Major New Oil Discoveries ?Prospects for Major New Oil Discoveries ?????

4. Sugar Revival?4. Sugar Revival?

5. Continuing Tourism, Remittances, 5. Continuing Tourism, Remittances, Cigars, etc.Cigars, etc. but de-emphasizedbut de-emphasized

III. The New Central Development StrategyIII. The New Central Development Strategy, continued:, continued:

3. A Knowledge Economy and Society:3. A Knowledge Economy and Society:

Major Expansion of Higher Education:Major Expansion of Higher Education:• 500,000 plus university students, says Castro 500,000 plus university students, says Castro

( 60% of the population aged 18 to 23 )( 60% of the population aged 18 to 23 )

• 122,000 ”professors;”122,000 ”professors;” student faculty ratio: 4.1/1 student faculty ratio: 4.1/1[ Does Castro understand the phenomenon of “diminishing [ Does Castro understand the phenomenon of “diminishing returns”? ]returns”? ]

• 958 University Campuses 958 University Campuses ( 1 for every 11,700 persons )( 1 for every 11,700 persons )

• Universidad de Ciencias de Computacion, Universidad de Ciencias de Computacion, – established September 2005; established September 2005; – Former Lourdes military baseFormer Lourdes military base– 2,000 students2,000 students– Focus on distance education and curriculum for literacy Focus on distance education and curriculum for literacy

….for ….for

Exportation of Educational ServicesExportation of Educational Services

4. Institutional Strategy:4. Institutional Strategy: • Return to Centralization;Return to Centralization;• Intense containment of self-employmentIntense containment of self-employment• The “Battle of Ideas”The “Battle of Ideas”

– A Personal Extra-Party, Extra-State Parallel System A Personal Extra-Party, Extra-State Parallel System managed by Castromanaged by Castro

• War Against CorruptionWar Against Corruption• Los “Los “Trabajadores SocialesTrabajadores Sociales” ”

– Anti-corruption monitors or policeAnti-corruption monitors or police– Key operatives in “La Revolucion Energetica”Key operatives in “La Revolucion Energetica”– ““Redeemed Youth” with special functions and statusRedeemed Youth” with special functions and status

• Patriarchal Distribution of goods by the StatePatriarchal Distribution of goods by the State– Plus the “Political Patronage Economy”Plus the “Political Patronage Economy”

In sum: In sum: more “voluntarism;”more “voluntarism;” less “market” less “market” more Presidential central controlmore Presidential central control

5. Rebuilding Infrastructure– Urgent needs in Housing:

• A state of disastrous disrepair and collapse in many areas

• Major campaign announced; • But do-it yourself in a normal way continues

impairedPlus: water systems;

sewage systems; streets & sidewalks; public buildings etc.

All require urgent maintenance and reconstruction;Plus: Personal infrastructure such as homes

generally have major maintenance backlogs

5. Basic Infrastructure, continued: : La Revolucion Energetica

- Frequent failures and blackouts impose major costs on citizens

- Major elements: 1.1. Conservation measures: Conservation measures:

- replacement of light bulbs, fans, refrigerators, etc replacement of light bulbs, fans, refrigerators, etc - pressure cookers, and electric rice makers provision’ pressure cookers, and electric rice makers provision’

courtesy of Fidel;courtesy of Fidel;

2.2. Shift of cooking from gas to electricityShift of cooking from gas to electricity

3.3. Increased Investment in Repairs and MaintenanceIncreased Investment in Repairs and Maintenance

4.4. New Generating Capacity: small & mini generators; New Generating Capacity: small & mini generators; gas-fired generation gas-fired generation

5.5. Alternate energy sources, namely windAlternate energy sources, namely wind

The Small Generator OptionThe Small Generator Option (“Grupos electrogenos de emergencia”)(“Grupos electrogenos de emergencia”)

- a.k.a.: The “Home Depot Solution”a.k.a.: The “Home Depot Solution” to to

electricity generation::electricity generation:: - Replacement of Thermo-electric Plants Replacement of Thermo-electric Plants

with small generators with small generators

- Plus 4148 mini-generators for back-up Plus 4148 mini-generators for back-up purposespurposes

- At a cost of around $2 billion ???At a cost of around $2 billion ???

- DispersedDispersed around the Islandaround the Island

The Small Generator OptionThe Small Generator Option

(“Grupos electrogenos de (“Grupos electrogenos de emergencia”)emergencia”)

- A quick fix for energy provision to ensure Fidel’s A quick fix for energy provision to ensure Fidel’s LegacyLegacy

- Economically sillyEconomically silly- Economies of large scale generation will be Economies of large scale generation will be

foregone;foregone;- Petroleum feed-stock will have to be transported by Petroleum feed-stock will have to be transported by

truck around the Island to the generators;truck around the Island to the generators;- Large collateral investments needed for storage and Large collateral investments needed for storage and

protection of diesel fuelprotection of diesel fuel- Maintenance problems will be multiplied Maintenance problems will be multiplied - Potential for theft is increased;Potential for theft is increased;- Synchronization of electrical supply to changing Synchronization of electrical supply to changing

demand throughout the day will be more difficultdemand throughout the day will be more difficult

Another of Fidel’s “good ideas”?Another of Fidel’s “good ideas”?

5. Renewed “5. Renewed “Sucrophilia”Sucrophilia”1961-1963: Instant Industrialization 1961-1963: Instant Industrialization

plus plus Sucrophobia I Sucrophobia I : Ignore sugar: Ignore sugar1964-1970: Extreme 1964-1970: Extreme Sucrophilia ISucrophilia I

• ““Honour & prestige of the Revolution” are based on Honour & prestige of the Revolution” are based on producing the 10 million tonsproducing the 10 million tons

• All non-sugar sectors sacrificedAll non-sugar sectors sacrificed

1970-1985: steady role for sugar economy;1970-1985: steady role for sugar economy;1985-2003: “Milk the cash cow to death”1985-2003: “Milk the cash cow to death”

• Extract foreign exchange for investment elsewhere;Extract foreign exchange for investment elsewhere;• Starve the sector of resources through exchange Starve the sector of resources through exchange

rate treatment: rate treatment: – $US 1.00 sugar exported earns Cu $US 1.00 sugar exported earns Cu

Peso 1.00 for the sectorPeso 1.00 for the sector• Other countries capture Cuba’s market shareOther countries capture Cuba’s market share

2003 – 2006: 2003 – 2006: SucrophobiaSucrophobia II : “Shut it down” II : “Shut it down” – About 70 of 156 sugar mills were closed;About 70 of 156 sugar mills were closed;– Only about 30 of the remainder were actually in Only about 30 of the remainder were actually in

operationoperation– Results: Results:

• collapse of sugar harvest (1.1 m tons, in 2006) collapse of sugar harvest (1.1 m tons, in 2006) • Ghost towns and regional dislocation;Ghost towns and regional dislocation;• Probable unemployment, but not in Cuban Probable unemployment, but not in Cuban

statistics;statistics;• Collapse of the whole sugar “cluster” of activitiesCollapse of the whole sugar “cluster” of activities• Irreversability?Irreversability?

2006 Onwards:2006 Onwards: Sucrophilia IISucrophilia II: a return to sugar?: a return to sugar? - Provoked by high sugar prices Provoked by high sugar prices

- arising from Brazil’s sugar-ethanol link);arising from Brazil’s sugar-ethanol link);

- But not linked to ethanol production in the energy But not linked to ethanol production in the energy strategy;strategy;

- Probably too late to revive the sector.Probably too late to revive the sector.

66.. Socialist Purification Combating Socialist Purification Combating Economic Illegalities and CorruptionEconomic Illegalities and Corruption

Character and DimensionCharacter and Dimension

Innumerable varieties. A few that I have Innumerable varieties. A few that I have observed directly:observed directly:

• Security guards at cigar factory sell cigars to passersbySecurity guards at cigar factory sell cigars to passersby

• Security guard at dollar store pilfers an item to sell to a client at Security guard at dollar store pilfers an item to sell to a client at 20% of the official price20% of the official price

• An official at a state institution uses the public vehicle and its An official at a state institution uses the public vehicle and its chauffeur as private propertychauffeur as private property

• A taxi driver provides a ride with the meter off and for a feeA taxi driver provides a ride with the meter off and for a fee

• A foreign organization pays a salary supplement in Convertible A foreign organization pays a salary supplement in Convertible Pesos to its Cuban employeesPesos to its Cuban employees

• A citizen buys a birthday cake from an unlicensed bakerA citizen buys a birthday cake from an unlicensed baker

• A citizen sets up a satellite dish, receives foreign, and providesA citizen sets up a satellite dish, receives foreign, and provides 24 24 hour cable service to neighbourshour cable service to neighbours

How significant are these illegalities? – Pervasive– Cuban citizens assert that everyone is

involved. – It is often stated that everything imaginable is

available on the black market, via pilferage from the state sector.

– Examples of magnitude:• Gasoline theft and replacement of all “pisteros”

• Charcoal and wood provision provide most cooking fuel in some rural areas

• Messengers and coleros: one on every block in some areas

• Cigar making and vending

Causes:Causes:11. Colonial roots:. Colonial roots: Contraband trade with the French, Contraband trade with the French,

British and later the United States as well as with British and later the United States as well as with pirates;pirates;A large informal economy existed in the 1950s A large informal economy existed in the 1950s attracting the attention of the 1951 IBRD (Truslow) attracting the attention of the 1951 IBRD (Truslow) Mission to CubaMission to Cuba

22. . Central Planning System Central Planning System The rationing system, forced many people to become The rationing system, forced many people to become

became mini-capitalists,became mini-capitalists,Planning system also promoted illegalities: Planning system also promoted illegalities:

Enterprise managers must resolve problems via the Enterprise managers must resolve problems via the illegal exchange of goods. illegal exchange of goods.

3. 3. Common Property Resource Phenomenon:Common Property Resource Phenomenon: state property belongs to no one and to everyone; if state property belongs to no one and to everyone; if one person does not help himself to it, someone else one person does not help himself to it, someone else will insteadwill instead..

4. 4. Economic Arbitrage and Economic Arbitrage and Monetary/Exchange Rate DualityMonetary/Exchange Rate Duality

5. 5. Limitations and on Restrictions on legal Limitations and on Restrictions on legal Micro-enterpriseMicro-enterprise promote promote underground activity underground activity and illegal actions: and illegal actions: Restrictive licensingRestrictive licensing

Excruciating regulationsExcruciating regulationsHeavy taxationHeavy taxation

6. 6. Economic NecessityEconomic Necessity and Illegalitiesand Illegalities– Illegal economic actions are necessary to Illegal economic actions are necessary to

survive. Why?survive. Why?– The central reason: people earn "The central reason: people earn "Moneda Moneda

NacionalNacional" "old pesos" but their earnings are " "old pesos" but their earnings are insufficient to purchase the basic foodstuffs. insufficient to purchase the basic foodstuffs.

– People must find additional income in "old People must find additional income in "old pesos" or pesos" or convertible pesos.convertible pesos.

The Campaign since October 2005:– October 17: some 15,000 “Social Workers” take

over the gas stations to prevent pilfering of gasoline

– October 17: Military intervention in the management of the Port of Havana

– October: fulminations about the “new rich” from cuenta propismo and corrupt practices;

– November 7-9: raids on “mercados agropecuarios” (aimed at sales by farmers prior to fulfilling their state quotas)

– November 17-18: Castro’s 5-6 hour speech

• aims at legal micro-enterprise

• alludes to deficient Ministers and officials;

• Late November: “Late November: “Operacion AranaOperacion Arana” against illegal ” against illegal satellite TV access;satellite TV access;

• November 29: Operation against un-licensed November 29: Operation against un-licensed bicycle taxis in Havanabicycle taxis in Havana

• November 22: electricity, pensions and salary November 22: electricity, pensions and salary increases:increases:

• Pensions (minimum): from 150-164 pesos per Pensions (minimum): from 150-164 pesos per monthmonth

• Electricity rates: increasing plus escalationElectricity rates: increasing plus escalation• Wage increases averaging 43 pesos per Wage increases averaging 43 pesos per

monthmonth• • March 22: Ejercito Nacional de Vigilancia, within the March 22: Ejercito Nacional de Vigilancia, within the

CDRsCDRs

Consequences of Economic Illegalities::Consequences of Economic Illegalities:: Complex and Mixed. Complex and Mixed. – Truly criminal activities are socially and economically Truly criminal activities are socially and economically

noxious.noxious.– Widespread low-level pilferage from the enterprises and Widespread low-level pilferage from the enterprises and

institutions:institutions:– noxious though necessary: helping "make ends noxious though necessary: helping "make ends

meet."meet." – SELF-DEFENSE IN A DYSFUNCTIONAL SYSTEM ?SELF-DEFENSE IN A DYSFUNCTIONAL SYSTEM ?

– Other types of illegalities (payment of income Other types of illegalities (payment of income supplements in cash or in kind) supplements in cash or in kind)

largely benign.largely benign.– Unlicensed (and thence illegal) self-employment: Unlicensed (and thence illegal) self-employment:

mainly positive consequencesmainly positive consequences

Basic economic reforms are requiredBasic economic reforms are required

Preaching, policing punishment and proscription are Preaching, policing punishment and proscription are unlikely to work effectivelyunlikely to work effectively

Necessary Reform measuresNecessary Reform measures– liberalizing the licensing, tax and regulatory regimes for liberalizing the licensing, tax and regulatory regimes for

all legitimate micro-enterprise; all legitimate micro-enterprise; – reducing the scope for arbitrage by unifying the current reducing the scope for arbitrage by unifying the current

dualism or the Cuban economy; dualism or the Cuban economy; – reducing the all-encompassing role of the state so as to reducing the all-encompassing role of the state so as to

reduce the inclination to pilfer. reduce the inclination to pilfer. – Achieving real improvements in living standards so that Achieving real improvements in living standards so that

people's survival imperatives no longer require illegal people's survival imperatives no longer require illegal actions is also necessaryactions is also necessary. .

Unfortunately, these economic reforms and a return to Unfortunately, these economic reforms and a return to prosperity are some distance away.prosperity are some distance away.

V.V. Central ProblemsCentral Problems1 Comandante en Jefe Fidel Castro

– Economic Savoir-Faire Unimproved:• “We have cost the people too much in our process of

learning…..The learning process of revolutionaries in the field of economic construction is more difficult than we had imagined.” Speech, August 2, 1970

• “The price of oil nowadays is not in keeping with any supply and demand rule; it’s not a price that is in keeping with economic rules either…. The reason behind it is the shortage of this product together with the increasing and extraordinary demand for it.”

Speech, Nov 17, 2005

VI. ConclusionVI. Conclusion1.1. Is Cuba in Transition? To What?Is Cuba in Transition? To What?

• Political Paralysis;Political Paralysis;• Institutional Regression Institutional Regression • Geo-Political ReorientationGeo-Political Reorientation• Strategic Economic ReorientationStrategic Economic Reorientation““In Transition to No-where.”In Transition to No-where.”

2.2. Prospects?Prospects?• Some Economic Recovery;Some Economic Recovery;• Task of Economic Transition: More DifficultTask of Economic Transition: More Difficult• Task of Political Transition? Even More Task of Political Transition? Even More

DifficultDifficult

3.3. Hope for the Future?Hope for the Future?– In the Short Term?In the Short Term? ModestModest

3. Hope for the Future?3. Hope for the Future?In the

Longer Term?

Yes!

Thank you very much;

Arch Ritter