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    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
    standards.

    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
    fundamentally.

    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)

    http://www.social-europe.eu/2012/09/cuba-in-search-of-an-orderly-transition/