Cuba's path out of underdevelopment: A historical look at Cuba's economic development
By Roberto Jorquera
Since 1959, the Cuban Revolution has been an inspiration to millions around the world. Though a small, underdeveloped nation, Cuba has been able to demonstrate what is feasible with a democratically controlled and planned economy, and to dramatically improve the living conditions of the majority of Cubans. Its successes have been achieved in spite of an economic blockade by the United States since 1960 and the collapse of 80% of its trade (with the Eastern bloc) in 1991.
In its effort to remain loyal to its socialist principles, while also relating to the capitalist world economic order, Cuba's economic and political development since the revolution has gone through various stages. Studying these gives us a better understanding of the challenges now facing the revolution.
Economic principles
The first decade of economic development after 1959 was dominated by the agrarian reform law of 1962, which converted 40% of landed property into state property, distributed a further 40% to small rural producers and left the remaining 20% in the hands of medium and large landowners. The redistribution immediately ended much of the rural unemployment that had plagued Cuba for centuries.
The main industries and the banking sector were also nationalised and a democratic system of workers' participation was introduced, based on a system of elected workplace delegates.
In his roles as head of the National Bank and Minister of Industry, Ernesto "Che" Guevara was a central figure in debates, throughout the early 1960s, over what sort of economic structure was needed to begin Cuba's socialist transition. These debates on economic policy reflected a wider political debate about the alliance with the Soviet Union. The old guard of the Popular Socialist Party was in favour of copying the Soviet economic system, but Che and others in the July 26 Movement were critical of Soviet bureaucratic practices, including in the economy.
For Che, the success of the economy had to be measured by more than just statistics. In 1964, in an interview with an Argentinian journalist, Che stated:
"A socialist economy without communist moral values does not interest me. We fight poverty but we also fight alienation. One of the fundamental aims of Marxism is to eliminate material interest, the factor of `individual self-interest' and profit from humans' psychological motivations.
"Marx was concerned with both economic facts and their reflection in the mind, which he called `facts of consciousness'. If communism neglects facts of consciousness, it can serve as a method of distribution but it will no longer express revolutionary moral values."
Thus, the new socialist economy had to not only encompass new organisational principles that allowed workers to participate in its functioning, but also needed to enhance workers' socialist consciousness and build the "new socialist person". In the view of Che and his co-thinkers, this was vital if the revolution was not to degenerate, as the Soviet Union had.
Cuba's economy throughout the 1960s was based on Che's budgetary finance system, which stressed moral and material incentives, volunteer work and efforts to promote workers' consciousness.
At the founding of the Communist Party of Cuba, in 1965, Fidel Castro argued: "Socialism means not only material enrichment but also the opportunity to create an extraordinary cultural and spiritual wealth among the people, and to create an individual with deep feelings of human solidarity, free from the selfishness and meanness that degrade and oppress the individual under capitalism."
By the early 1970s, however, Cuba's economy had been forced by the US-imposed blockade and the failure of the campaign for a 10 million tonne sugar harvest to tie itself to the Soviet bloc; Cuba joined COMECON in 1972. Although the economic relationship was generally beneficial for the Cuban economy, it did create political distortions within the economic structures, which were not recognised until the 1980s.
Socialist consolidation
In the 1970s and early 1980s, Cuba consolidated its economic development and introduced the Organs of People's Power, which substantially democratised decision-making.
Economic observer Carlos Tablada noted, "Between 1960-70 and 1981-85 average annual national economic growth rose from 3.6% to 6.7%. Over the same period the value of gross investment doubled and annual labour productivity growth rose from 0.4% to 5.2%. The growth rate of industrial output [rose from] 4.8% in 1962-70 to 8.8% in 1981-85."
Tablada also noted, "Between 1958 and 1989 life expectancy rose from 62 to 74 years … The number of inhabitants per doctor fell from 1832 to 303 over the same period, reaching 274 in 1990 … Infant mortality stood at 10.2 per thousand births in 1990 as against 15 for the developed world, 52 for Latin America and 76 in the underdeveloped world …
"The illiteracy rate was reduced from 23.6% to 1.9% between 1958 and 1989. Over the same period the number of children attending secondary school multiplied 12.2 times, the number of university students 9.2 times. The percentage of the population covered by social security rose from 53% to 100%."
Further achievements include the only heart transplant program in the underdeveloped world, which, by 1996, had carried out more than 90 operations, free of charge. By 1991, there were 300,000 teachers in the country, giving Cuba the highest per capita rate of teachers in the world. By 1989, Cuba's aid donations to developing nations had reached US$1.5 billion.
By 1990, 30,000 medical personnel from Cuba had worked in more than 20 countries and treated more than 60 million people. At the time, Cuba had more doctors abroad than the World Health Organisation. Furthermore, between 1982 and 1985, for every 625 Cubans there was one civilian aid worker overseas; in the US the ratio was one aid worker per 34,704 inhabitants.
By the 1980s, Cuba's economic achievements were second to none in the underdeveloped world, and in many areas its achievements had surpassed those of the developed world. Recently, 100 doctors from England went to Cuba to study the success of its health system. In 1995, Fidel Castro visited Harlem in the US where he offered to send Cuban doctors to Harlem or anywhere else in the US in need of medical care.
Early in 2000, the Cuban government presented an official proposal to the US Department of State to send Cuban doctors to poor regions in the US, mainly around the area of Mississippi and to train up to 500 doctors from ethnic and minority groups. This would include 250 Afro-Americans and 250 from Hispanic, native and other underprivileged groups.
Cuba's ability to achieve these gains has been in large part due to the democratically-planned and socially-owned economic system that it had introduced following the victory of the July 26 Movement in 1959. In the following two decades, however, this success faced a stern test.
Cuba survives with principles intact
In the mid-1980s, the objective political and economic situation began to pose major challenges for the Cuban Revolution. The economy was starting to show signs of stagnation and increased bureaucratic practices. The gains that it had made since 1959 were in jeopardy. The prime economic and political challenge for Cuba was to survive while maintaining the principles of the revolution.
Cuba's crisis deepened with the collapse of the Soviet bloc in the late-1980s and Washington's tightening of the economic blockade backed by the passing of the misnamed Democracy Act (known as the Torricelli Bill) in 1992 and the Cuban Liberty and Solidarity Act in 1996 (known as the Helms-Burton Bill).
These measures extended the blockade, in particular, penalising foreign countries and companies that do business with Cuba. For instance, any ships that dock in Cuba are banned from US ports for six months afterwards and executives of any company that invests in Cuba are denied entry to the US.
The legislation also allows US citizens to sue any company using property nationalised by the revolution. This aspect is aimed at stopping foreign companies from investing in Cuba by allowing Cuban-Americans whose businesses were nationalised to sue them. In fact, this legislation was drafted by lawyers of the Bacardi rum company whose former property has become part of a Cuban joint venture with the French company Pernot.
The attempt to force other countries to abide by the blockade has had the effect of alienating other countries from US policy on Cuba. A motion condemning the US blockade has been put to the UN General Assembly every year, with well over a hundred countries regularly supporting it and with only the US and Israel opposing. However, the US's position as a superpower means such objections against it can't develop into much beyond the condemnations.
The US government hoped Cuba's economic crisis plus the increased economic damage from the blockade would lead to the collapse of the Cuban government and impair the revolution's socialist example. The right-wing, Miami-based Cuban American National Federation (CANF) even appointed a "transitional government" (with US endorsement) in anticipation.
However, the ingenuity of the Cuban people and their ability to adapt has resulted in the revolution surviving for over ten years after the collapse of the eastern bloc. The Cuban government secured more than 80% of popular support in the last national election.
Rectification period
In 1986, the Cuban government launched the "Campaign of Rectification of Errors and Negative Tendencies". It aimed to increase the people's participation in the economic and political processes and was a return to the ideas of Che Guevara: relying on heightened political consciousness rather than material incentives and bureaucratic control to run the economy.
In 1987, President Fidel Castro noted: "The most serious error of economic policy between 1975 and 1985 was undoubtedly the reliance upon economic mechanisms to resolve all the problems faced by the new society, ignoring the role assigned to political factors in the construction of socialism."
In 1991, at the fourth party congress, Castro explained that the "rectification process constituted the revolution's strategic counter-offensive … which provoked an extraordinary turnabout in our society, facilitating the revival of the roots, principles and genuinely humane, ideological and ethical values that gave breath and life to our own kind of socialism".
The campaign also anticipated the economic and/or political collapse of the Soviet Union. By the mid-1980s, the Cuban leadership was aware of the problems that the Soviet Union was facing and Cuba was ready to deal with its collapse.
The rectification campaign's main purpose was to reverse negative tendencies that had crept into economic practices, rather than fundamentally change economic policies. It did this through improving political motivation and accountability of industrial managers, further democratising workplaces, removing material incentives, improving work norms, increasing investment in key industries, raising the minimum wage and introducing some unavoidable austerity measures.
Frank Fitzgerald, a US-based sociology professor, writes in his book The Cuban Revolution in Crisis: From Managing Socialism to Managing Survival: "By December 1986, more than 400 administrators in Havana, including 120 enterprises and work centre managers, had been removed from their posts, as had 85 grassroots party leaders, because of their unwillingness or inability to change their behaviour."
While overall living standards dropped slightly for most Cubans, the national economy was stabilised and there was more popular participation in politics. Its success reflected the Cuban leadership's awareness of and willingness to address the problems in a way that the Stalinist Soviet bureaucracy was incapable of doing.
Most importantly, the campaign was a test of the health and popularity of the socialist character of the revolution — a test that was passed with flying colours.
Special period
In September 1990, in response to the deteriorating economic relations with the Soviet Union, increased political and economic pressure from the US and tougher relations with the rest of the capitalist world, Castro announced that the country had entered a "special period in a time of peace".
Economic relations with the rest of the capitalist world were made more difficult by the worsening terms of trade, and Cuba's unilateral moratorium on the payment of its foreign debt to capitalist institutions meant it was no longer able to receive long-term loans from these institutions.
At the October 1991 fourth congress of the Communist Party, Castro outlined some of the difficulties:
"Up to the end of September, the Soviets had delivered all the fuel but only 26% of the total goods that they had promised. Almost no foodstuffs had arrived in the first five months of the year, and deliveries had not yet caught up by the end of September: Cuba had received only half of the promised split peas, 7% of the lard, 16% of the vegetable oil, 11% of the condensed milk, 47% of the butter, 18% of the canned meat, 22% of the powdered milk, 11% of fresh and canned fish."
As well, Cuba had received no detergent, less than 5% of the expected supplies of soap and just over 1% of the spare parts needed to repair Soviet-made television sets and refrigerators. Cuba faced what became known as "the second blockade". If the revolution was to survive, it needed to become more self-sufficient in basic foodstuffs and products, and find the money to keep its basic industries running.
The Cuban leadership opened a discussion before the fourth party congress that led to an opening up of the economy to foreign investment in order to stimulate domestic productivity and increase funds available to the government.
The system of People's Power was strengthened and workers' parliaments were introduced to rejuvenate the local councils that had been set up since 1961. These parliaments were given more responsibility for developing economic policy and in implementing it in local areas.
In the national and provincial assemblies, direct election of delegates was introduced. Previously, national delegates were elected from delegates to the provincial assemblies, and delegates to the provincial assembles were elected from delegates to the municipal assemblies. Delegates could be nominated by the mass organisations.
According to Fitzgerald: "About one-third of those nominated and … elected to the provincial and national assemblies were not members of the party or of its youth organisation. Party members still predominated in these assemblies, but the new nominating process opened them to greater numbers of non-party members."
Economic changes
In 1993, Castro noted: "The essential thing isn't just to survive but also to develop … As a matter of principle … resources must be shared amongst us all … [if workers are unemployed] we will guarantee a large part of their wage. Nobody will be left without support … [Cuba has been] deprived of more resources than any Latin American country, but we haven't closed any schools, hospitals, clinics or medical services at all, and we haven't thrown anybody out of work with no pay."
In 1993, after much discussion, the government established Unidades Basicas de Producción Cooperativa (UBPC — Basic Units of Cooperative Production). As a result, the state's share of total agricultural land fell in 1994 from 75% to 34%, while its share of cultivated land fell from 80% to 25%.
The purpose of the UBPCs was to allow more self-management in the agricultural sector by permitting cooperatives to sell more produce directly to the market. However, a set percentage still had to be sold to the state.
Other measures included the legalisation of holding US dollars by Cuban citizens (this facilitated the inflow of remittances from Cuban families abroad) and the self-financing of industries (with the goal of reducing subsidies from the central government budget).
More resources were pumped into the biotechnology industry, resulting in the value of its exports jumping to US$800 million in 1990 from zero in 1988.
Foreign investment was encouraged in order to provide the resources and funding needed to keep some industries functioning. Foreign investment was permitted in all sectors except health care, education and arms-related institutions.
In 1993, Cuba's exports dropped to only US$2 billion, which was a significant reduction from its peak of US$6.5 billion in the 1980s. However, Cuba had been able to increase that amount toUS$3.8 billion by 1997.
The 1995 Foreign Investment Law was introduced, allowing some profits to be tax-free and profits could be repatriated in convertible currencies. Investments were guaranteed against nationalisation and free-trade zones were allowed, although the ministry of labour has kept the right to set the minimum wage in the zones.
Ken Cole, in his book Cuba: From Revolution to Development, observed: "The more Cuba enters the international economy, and the more dependent it becomes on international markets to rebuild its economy, the more control these market actors will have on the nature of Cuban development.
"As these actors tend to harbor an underlying bias against socialist economic designs, and they have a fairly narrow (and short-term) conception of what constitutes `healthy economic fundamentals', this market control will be in sharp contrast to the ambitions of Cuba's current policy makers."
Yet, while Cuba's "relinking" with the capitalist world market is fraught with dangers, it's clear that it would otherwise have been impossible to reverse the economic collapse the early 1990s. As a result of the inflow of foreign capital, growth of the tourism sector, the increase in remittances from abroad and the decline in government subsidies to loss-making firms, the country has managed to achieve an average 4.1% growth rate since 1994.
By the end of 2000, "socialist austerity" had achieved the following economic gains: debt as a proportion of GDP has declined; the state budget deficit has been brought to under 3% of GDP; the money supply, while still vastly excessive, continues to fall; the peso has appreciated from around 150 to one US dollar to 20 to one; labour productivity has risen by 12% in five years; and the unit cost of producing sugar has fallen by 18%. A new progressive income tax system is beginning to function. There have been modest increases in wages, living standards and working conditions but much remains to be done.
Matters have now reached the point where Cuba is being accepted as less of a credit risk by international financiers, with the interest charge of 15-22% previously levied on Cuba and confined to short-term borrowings only being replaced by long and medium-term loans at lower rates. Joint ventures and investment in extensive activities such as mining, tourism, oil exploration and refining, agriculture, perfumes, rum, beer, agriculture and engineering have enabled paralysed and underutilised productive capacity to be set in motion, earning foreign exchange, creating tens of thousands of jobs and providing tax income. This revival has been achieved without any support from the International Monetary Fund or the World Bank.
Many concessions and changes have had to be made by the Cuban Revolution in order to survive. What is positive is that these changes have not been imposed from on high but have been made with the involvement and participation of the majority of the Cuban people. This democratic participation of the vast majority of the Cuban people over the main directions of the Cuban Revolution continues to be the underlying cause of its survival.o
