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A Feasible* Cuban Socialism ?

November 27, 2012

Following 3 trips to Cuba it’s maybe time for me to state a position on the future of Cuban socialism. Those who know me know I am not normally so slow to voice my opinion.

Following the 1959 revolution Cuba was unshackled from US support & influence. This was replaced by Soviet support & influence until that too ended with the collapse of the Soviet Bloc. Since the early 1990s Cuba has been largely free to determine its own domestic and foreign policy, subject of course to what foreign powers will permit such as with the US embargo. This freedom works on at least two levels – deciding national policies on things external and domestic, as well as the freedoms of people within Cuba to make decisions and go about their business. This post is not about foreign policy but more so domestic Cuban policy and peoples freedoms.

I have deliberately used the term ‘feasible socialism’ to denote a socialism which is achievable, lasting and works. As stated in a previous blog post there are various types of socialisms, various models, as there are various types of capitalisms. The present Cuban state socialist model does not work; I suggest you would be hard pressed to find any person who agrees that it works. State socialism has the state involved, in one way or another, in almost all aspects of the formal economy and society. The state plans, directs, produces and provides. This model is broken and seems beyond repair for a number of reasons. Even if the Cuban state quickly found an annual source of billions of dollars of foreign export earnings, such as a large oil field, the model seems unsustainable. It is unproductive, bloated and promotes petty corruption. What is does provide is not of a consistently high standard for foreign visitors or Cubans, and in many ways, it is far from generous. The state cannot provide what it cannot afford. A general example may be found with work. Cubans employed by the state do not work for the wages they receive, given the unrealistically low levels at which wages are set in relation to the actual costs of living. They will do a job for the access it provides to additional income, be it tips in hard currency, items that can be ‘liberated’ and sold/traded through informal networks or the black economy, or whatever manner extra income is derived.

Over employment in the State sector may be up to 20%. That is, there are 20% more workers than there are genuine and necessary jobs. By contrast, New Zealand has a lean state sector. Politicians who argue that the NZ state sector is ‘bloated’ are either ignorant (which I don’t believe) or are pushing an ideology. Of course our state sector must be realistic and productive, which it is. The likes of Key, English, Banks et al are trading in ideologies rather than realities when they argue otherwise. Cutting the state to the bone solves nothing and actually creates troubles that take a long time to fix. Likewise, the Cuban state socialist ideology of filling every space in the economy and creating work for all has serious dysfunctions which must now be fixed. Ideologies need to be flexible to meet social-economic-environmental realities rather than realities somehow matching ideology. Key and English et al must deal with reality, so must Cuba. The current Castro, Raul, is pragmatic enough to realise things have to change. How much and in what direction is the challenge.

The State has made some efforts. It has issued several hundred thousand new licenses to small business owners to provide goods and services. These are either sole traders or micro level enterprises. Surplus state land has been offered to several hundred thousand new farmers. Thus far the states effort to divest itself of various functions has focused on the creation of markets for basic domestic consumption and the production of basic food items. These are matters the state does not need to concern itself with. There are also plans being enacted to lay off up to one million state workers over a period of time. In an economy employing somewhere five and a half to six million people, this might show the level of surplus workers who do not have genuine and necessary jobs. The process of downsizing the workforce has been slower than initially anticipated. The Cuban states reforms to date have proven inadequate to create the additional jobs necessary in the non-state sector. Of several hundred thousand new licenses offered for self-employment a high proportion, maybe 70%, were issued to people without previously known employment. This may indicate those people working in the informal or black economies that chose to become legitimate. Whilst this has the benefit of bringing these activities into the formal economy, thereby creating a source of tax revenue for the state, it does show that more is yet needed to downsize the state workforce.

It seems to me that two urgent matters for the Cuban economy are the creation of markets and better linking effort and reward. The creation of markets and matching effort and reward has been openly discussed in Cuba the past few years. Castro, the Raul variety, has encouraged such discussion. This does not inevitably mean the creation of a capitalist economy, markets do not automatically equate to capitalism. Markets can be capitalist in nature but they can also be socialist. Exactly what form the market in Cuba might take is a Cuban decision for Cubans to make. I can only speculate and suggest. A very simple definition of market might be ‘a system which allocates resources and facilitates the trading of goods and services. Another urgent matter is the creation of some link between effort and reward in work. That is, the effort expended in work is matched with some financial reward. Rather than working for the informal rewards it offers, work in Cuba should formally reward people for the quality and quantity of what is produced. Again, this does not automatically denote a capitalist economy. It might, but could be done in other ways as well.

I think a possible model presently exists in the form of the UBPCs – Basic Units of Collective Production – established in the 1990s with the break-up of the large state farms. The UBPCs were handed the task of producing food on the former state farms. The state retains ownership of the land but basic management decisions are made by the workforce collectively including a mix of produce to grow. The success of the UBPCs has varied, some are very successful whilst others less so. The state has continued some involvement (interference depending how you look at it) in what is produced and in what quantities. Export items such as tobacco or produced for the ration card are subject to state set quotas and pricings. Various inputs are still decided by the state.

Recent state decrees have permitted some flexibility in what is produced and how it is sold. Further changes promise to deliver additional opportunities for UBPCs to expand and innovate. The organiponico in Alamar I have previously blogged about (and will do so again shortly) is a UBPC. It is a model ‘centre of excellence’ organiponico and often visited by foreign groups. Importantly as well, it utilises a collective approach to the ownership of resources, decision making and spread of profits. Whilst not perfect, it does seem to promise one approach for a feasible Cuban socialism. Markets can operate to permit a more rational allocation of resources, supply and demand can be better matched, links between effort and reward established. The rewards of the enterprise are accrued collectively and socially – socialist in nature, rather than privately – capitalist in nature. Whilst one UBPC does not make an economy of course, the lessons of the organiponico do have some transferability. Apparently basic horticultural & agricultural market places and transport services will be turned over to individual or collective management. Unless highly restrictive conditions are put in place you might expect a more rational link between demand and supply. It will pay financially for suppliers at various points in the supply chain to match the demands of consumers at various points in the supply chain.

Going one step further it seems possible to create a wholesale market based on both individual and collective ownership of enterprises. Presently the supply of most items on a wholesale basis is sourced from the state either legally or illegally. Much of the food used in private restaurants or cafes, for example, are purchased either from state owned outlets or through the black economy. Basic agricultural implements, such as baby chickens & piglets for fattening or agricultural tools, are allocated through the state. One of the major impediments to the creation of a large wholesale market will be foreign exchange earnings. Most trade in foreign currency takes place through state mechanisms. The somewhat parlous condition of the national economy dictates that foreign currency is managed somewhat carefully. The state may be naturally reluctant to permit the free and open purchase of foreign technology if it means a spike in foreign debt. Think of the majority of Western economies that permit the free flow of capital on and off shore. Most such economies carry large private debt levels. Some of that debt is used for productive assets however a significant percentage is poured into consumption or the purchase of non-productive assets such as housing. The NZ experience of borrowing foreign money for speculative property trading or to purchase a beach home is an obvious example.

Worse yet in various cases this private debt ends up as public debt. The US is a prime example of excessive private consumption based on foreign borrowing being converted to public debt as the US economy threatened to implode post 2008. That is a lesson Cuba is wise to avoid and one which frankly they would be stupid to replicate. Thus, some control over foreign debt purchase makes sense for an economy needing to count its pennies wisely. That does not stop however moves to create domestic based wholesale markets. Where possible the state can foster and encourage the growth of local enterprises to supply wholesale items to meet local demand. Thus, local farmers and UBPCs can rear young chickens or piglets for sale to other enterprises for further fattening and slaughter. The meat can be on sold to restaurants or households. As existing technologies dictate, smaller scale collectively managed enterprises can supply basic agricultural inputs and implements. Necessary purchases of capital goods might be made through state stores on a cost plus basis or perhaps from foreign sources when the state has established some appropriate criteria for offshore purchases.

Markets can be created, both wholesale and direct public consumption. Mechanisms can be put in place to establish a link between effort and reward. The economy can be structured to some degree along the lines of private sole traders and larger workers managed co-operatives. The state need not involve itself in every aspect of the economy and society. Resources can be allocated on a more rational basis; workers can be paid for the actual quality and quantity of their work; decisions can be made very close to the point of production or consumption; incentives to enter the formal economy strengthened and those to operate in the informal economy weakened; and given resources currently available productivity throughout sectors of the economy should increase. There is scope to increase productivity within the existing technology and human capacity in the Cuban economy. This is ‘low hanging fruit’ which can be tapped using appropriate policy settings; it need not be the purchase of expensive new technology. Of course, once the policy settings are correct and yielding results, additional technologies and skills can multiply the benefits.

A final matter of note is some freedom within work – the ability for people to exercise some decision making within their work and enjoy the benefits of getting things right. This will disappoint people who simply equate freedom with a neo-liberal/libertarian notion of ballot box democracy or who see the future for Cuba purely in capitalist terms. I am contemplating a feasible socialism which goes beyond the current state socialism to mean something more local and democratic. Whether that is feasible or desirable for Cuba time will tell.

* Alec Nove (The Economics of Feasible Socialism Revisited, Harper Collins, London, 1991) defines a feasible socialism in the following terms. Established within the lifetime of a child already born; based on the realities of economics and human natures rather than resorting to some implausible assumptions (a leap of faith) in order to define a model of socialism; excluding any notion of a material abundance (applied to the Cuban situation we must speak in terms of an improvements in relative abundance); a national level system of direct democracy is implausible thus there will continue to be a state and division between leaders and led within systems of Government and industry; the possibility of abuse of power exists and therefore necessitates institutions to minimise its prevalence.

Nove suggests some following matters might combine to deliver a feasible socialism. A combination of central planning and markets; producers preferences of what to produce, how and when; consumer preferences will strongly feature in what is produced and when; competition between suppliers of goods and services; various types of enterprise structured along the following lines – State enterprises in the monopoly and core areas of the economy, autonomous state owned enterprises that is responsible to its workforce and has structures of workforce participation, collectively owned and co-operatively managed enterprises, small scale private enterprises subject to defined terms, self-employed individuals.

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One Comment
  1. Perhaps the best article I have ever read on the Cuban economy.

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