FT journalist Cardiff Garcia has written a long blog on Cuba’s troubled economy and the dilemma its leaders face in negotiating removal of the US embargo.
The Cuban state still directly controls most of the economy and employs the majority of the population: between about 60-75 per cent of the workforce, depending on how you account for off-the-books second jobs and participation in the limited private sector.
State salaries are abysmally low, roughly the equivalent of $25 USD per month by official figures. In real terms, wages have never recovered from their collapse when Soviet subsidies to Cuba ended more than twenty-five years ago. Pensioners such as my 89-year-old great aunt Juana receive the equivalent of $8 USD a month and a few supplemental items from what is left of the “libreta”, or ration book.
Billions of dollars in remittances from relatives in Florida and elsewhere remain crucial to the economy. Healthcare and education are free but under-resourced, offering little meaningful choice. The country’s ossified economy and terrible demographic trends — a consequence both of very weak fertility for a developing country and emigration — long ago started pressuring the government’s ability to fund them.
Cardiff Garcia, “The US and Cuba: incrementalism, reversal risk and the Dictator’s Dilemma“, FT Alphaville blog, 21 March 2016 (free access; one-time registration required).
Cardiff Garcia quotes long passages from Entrepreneurial Cuba (First Forum Press, 2014), a book co-authored by Carleton University economist Arch Ritter and Baruch College (CUNY) sociologist Ted Henken:
“The existence of a flexible second economy (providing employment and efficient production) within the official planned economy provides state socialism with a very convenient, short-term subsidy, even if its long-term impact can be quite corrosive.
“Furthermore, this subsidy is provided through the active self-exploitation of a large part of the workforce (working in a state job as an air-traffic controller by day, while moonlighting as a clandestine airport cabbie by night, for example).
…
“The outright prohibition of activities the government prefers to keep under state monopoly (such as the import-export business and most professions) allows it to exercise symbolic control over the population and impose an apparent order over Cuban citizens and society.
“However, this control comes at the cost of pushing all targeted economic activity (along with potential tax revenue) back into the black market—where much of it lived prior to 2010 as evidenced by the high proportion of [cuentapropistas, or private businesses] who are found in government surveys to have been “laboralmente desvinculado” (unconnected to the state sector) prior to becoming legally self-employed.
“On the other hand, the inclusion and regulation of the many private activities dreamed up and market-tested by Cuba’s always inventive entrepreneurial sector would create more legal employment opportunities, a higher quality and variety of goods and services at lower prices, while also increasing tax revenue to target inequality and fund social programs.
“However, these benefits come at the political cost of allowing greater citizen autonomy, wealth and property in private hands, and open competition against long-protected state monopolies (Celaya 2013a and 2013b).
…
“Calling attention to the unique institutions of state socialism and tracing the linkages between state agents and private entrepreneurs affords us an insider’s view of the corrosive effect of the second economy on state socialism.
“Such an approach also reveals a major historic instance of what Max Weber called “unintended consequences”: the party-state’s instrumental, if inadvertent role in its own demise.
“Therefore, Cuba along with the few other remaining outposts of state socialism face a difficult if not impossible dilemma: ‘[T]o survive in a world of competing states, they are compelled to institute and sustain market reforms. Yet the spread of markets erodes the commitment to the party and paves the way for regime change.’ (Nee and Lian 1994: 284).”
Mr Garcia describes the Ritter/Henken volume from which he quotes as “probably the best available book on the evolution of the modern Cuban economy”.
Of related interest is the first part of an Alphville podcast, which contains an interview of Cardiff Garcia, hosted by Shannon Bond:
I spent a month in Cuba on sabbatical from November to December of last year. I’m also Cuban-American, with a couple of family members still living in Havana, and I believe there’s quite a lot of misunderstanding about how the Cuban economy really works. [Emphasis added.]
Cardiff Garcia, “Alphachat: the Cuban economy, and Caroline Freund on emerging-market billionaires“, 25 March 2016.
Alphachat is available without charge at the link above, and on Acast, iTunes, or Stitcher.
