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HavanaJournal.com: Cuba Business

Cuban Economy update via Green Left Weekly

Posted July 11, 2005 by publisher in Cuba Business.
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Marce Cameron | Green Left Weekly

On May 1, Cuba’s socialist government raised the country’s minimum wage — from 100 to 225 pesos per month — and sharply increased pensions for retirees. This was followed on July 1 by additional pay rises of 57 pesos for doctors and 43 pesos for teachers.

Other recent initiatives include the free distribution of rice cookers and pressure cookers to low-income households, and the June 27 announcement of a US$4 billion program to build 1 million new housing units over the next decade.

This year, Cuba’s gradual economic recovery entered a new phase, and the above measures indicate the government’s commitment to making sure the fruits of that recovery reach the poorest and most vulnerable citizens — those households whose only source of income is the salaries or pensions they receive from the socialist state.

Crisis

When Cuba’s main trading partners, the Soviet Union and the socialist states of Eastern Europe, collapsed in the early 1990s, Cuba was plunged into a profound economic crisis ó between 1990 and 1993 the economy contracted by 35%.

The US government responded to Cuba’s desperate situation by tightening its decades-long economic blockade of the island, hoping that this would bring about the downfall of the Cuban Revolution. The Cuban leadership mobilised the people to confront the crisis, which became known as the “Special Period”.

To avert total collapse, Cuba had no choice but to reintroduce elements of capitalism and concessions to market mechanisms ó more foreign investment, legal possession of US dollars, a free market in agricultural produce, expansion of self-employment, self-financing of state enterprises and a tourism-led recovery.

This greater reliance on market mechanisms brought some attendant evils with it. There was a sharp rise in social inequality during the 1990s, as a “new rich” sector emerged among the more successful self-employed entrepreneurs while others amassed small fortunes by plundering state property to sell on the thriving black market.

The social pyramid was inverted. For example, a hotel waiter serving tourists could make more money in tips in a single night than a surgeon earned in a month. The Cuban peso had become almost worthless. A social divide opened up between the minority who had access to dollars and those who didn’t, undermining the social solidarity, ethical principles and the political consensus which had underpinned the socialist revolution since Cuba’s working people had abolished capitalism in the early 1960s. There was a growth in consumerism and selfish individualism, accompanied by the growth of cynical disaffection among some young Cubans.

Cubans knew that they could not escape the pinch by borrowing from the World Bank or the International Monetary Fund without relinquishing the island nation’s economic sovereignty. Nevertheless , the leadership faced a difficult task in convincing the people of the need for years of sacrifice in order to get desperately needed investment funds, so that more of the meagre surplus could be diverted towards the construction of tourist hotels and the revival of industrial production.

As the economy began a gradual recovery in the second half of the 1990s ó the government launched the “Battle of Ideas”, a multi-faceted social, cultural and ideological counteroffensive against the corrosive social impact of the market concessions.

From 1999, the government began to increase wages and salaries in step with the economic revival. Today, Cuba’s economic output is approaching 1989 levels. But living standards for the majority of Cubans ó if measured by the quantity and variety of consumer goods able to be purchased with a typical wage or salary ó are still far below what they were before the Special Period.

Money isn’t everything, and this is especially true of socialist Cuba. Cuba is more than a post-capitalist society, it’s a people in power ó a mass social movement for the liberation of humanity.

In the neoliberal capitalist world, almost everything has been commodified and privatised. Private enrichment is exalted and capitalist ideology insists that human wellbeing must be purchased with a credit card.

Cuba is different. The revolution has immeasurably enriched people’s quality of life in ways which can’t be measured in dollars. This is what struck progressive US hip-hop artist Michael Franti when he visited Cuba. Franti, who attended a workshop on Cuba at the Brisbane Social Forum in 2002, had noticed how readily Cubans reach out for the companionship of others when they feel the need to.

Franti contrasts this to the US, where “retail therapy” is promoted as an antidote to stress, boredom and alienation. If being bombarded with advertising is considered oppressive, then by this measure, Cubans are among the freest people on Earth ó the only commercial advertising is around the tourist hotels.

How will the doubling of the minimum wage be felt by low-income families battling to make ends meet? The surprising answer is that it will certainly help ó but only a little.

Social guarantees
In Cuba, you don’t need much money to live in modest dignity. Cubans don’t pay a cent for world-class health care and education. Educational and cultural opportunities have expanded enormously during the past five years, thanks to the proliferation of new initiatives contained in the “Battle of Ideas”, such as the creation of university faculties in the community.

The crumbling colonial facades of Old Havana aren’t the only things that haven’t changed in Cuba ó the prices of pharmacy medications are the same as they were in 1960.

Rent is capped at 10% of household income, and 87% of Cubans own their own homes.

Water, electricity and telephone services are heavily subsidized and universally affordable. To see a movie, a museum or a baseball final costs at most a few pesos. State-subsidised monthly rations of rice, beans, sugar, milk for children and a few other basic goods ensure that nobody goes hungry or malnourished.

All this is possible because of the survival of Cuba’s planned economy. The revolution’s resilience has rested on four pillars: social ownership of the decisive means of production; economic planning to meet social needs; popular participation in decision-making, and the harnessing of the talent and creativity of Cuba’s working people to find solutions to the crisis; and the outstanding leadership role of the Cuban Communist Party and its historic leader, Cuban president Fidel Castro.

The revolution’s ongoing efforts to guarantee state-subsidised goods and services free of charge, or at prices that are readily affordable even to low-income Cubans, is one reason why the recent wage increases won’t result in anything like a doubling of Cuban’s purchasing power.

Two currencies
The other reason is that while people pay for these state-subsidised goods and services with income earned in one national currency, the regular Cuban peso, almost everything else must be purchased in another currency, the so-called convertible peso, at prices roughly comparable to what Australians would pay for the same items at a local supermarket.

Given that one convertible peso is equivalent to about US$1.10 and that Cubans must exchange around 24 regular pesos for one convertible peso at current exchange rates, a low-income Cuban family could easily spend a week’s wages on, say, a bottle of cooking oil, a box of sanitary pads and a can opener purchased at a state-run convertible currency store- even after the doubling of the minimum wage.

What this unfavourable exchange rate ultimately reflects is the vastly higher labour productivity, compared with Cuba, of the advanced capitalist countries which dominate the global economy with their high-tech industries and imperialist exploitation of the Third World.

Low-income Cubans still cannot afford many basic goods readily accessible to those who receive additional income from self-employment, productivity bonuses, relatives who send money from the US or black market activities.

Only higher levels of productivity, and hence the competitiveness of Cuban exports in the cut-throat global market, can make possible the further revaluation of the Cuban peso to the point where the cumbersome and divisive two-currency system can be eliminated. This, in turn, hangs on Cuba securing access to the necessary investment funds needed to modernise and expand its state-owned industries.

While Cuba still has a long way to go before it fully recovers from the Special Period, there are signs that a more rapid and sustained recovery may be underway. Cuba’s economy grew a modest 3% in 2004, but growth is expected to reach 5% this year.

Now that the socialist revolution has spread to the Latin American mainland, deepening collaboration between Cuba and Venezuela’s Bolivarian revolution is lifting Cuba’s siege, bringing cheap oil and a new source of markets, technology and investment based on the principles of solidarity and Latin American integration.

Cuba, which had to court foreign investors during the 1990s, seems to have little regard for the welfare of capitalists. In a June 13 article titled “Foreign Investors Get the Boot as Cuba Recentralizes its Economy”, Financial Times’s Havana correspondent Marc Frank noted that Cuba is winding back the numbers of small and medium-sized joint ventures with foreign investors.

“The firms have little choice but to take a loss in equipment, warehoused products, personnel training and other costs. Cuba is now interested in partnering only with well-known companies in strategic sectors of the economy, says Marta Lomas, [Cuba’s] foreign investment and economic cooperation minister.”

“What you have here”, one European investor told Frank, “is re-nationalization without compensation”.


From Green Left Weekly, July 13, 2005.

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