FROM CHAOS TO A SOCIALIST MARKET ECONOMY: A CONTRIBUTION TO THE UNDERSTANDING OF CURRENT CHANGES AND TRENDS IN

Domingo Amuchastegui

The final collapse of Cuba’s alliance with the former foreign investments, extremely limited approaches to Soviet Union—a process that unfolded between issues such as a new banking system, “finqueros,” co- 1979 and 1989—brought the Cuban economy to a operatives, self-employment, and other initiatives. In complete state of disarray, leading to an unparalleled essence, it was a lot of patch-work guided by two ba- chaotic set of developments. How to deal with them sic notions: scaffolding the crumbling system and became crucial and extremely conflicting. sheer survival. ’s strong refusal to give in to demands At this particular moment, society was faced with from various Cuban leaders and academics for signif- staggering shortages and needs, and regardless of the icant internal reforms and to similar friendly sugges- fact that most were demanding major chang- tions from abroad was based, essentially, on a new es aimed at surmounting the crisis and improving sort of “holy trinity”: reforms would inevitably lead their precarious livelihood and despite the threats of to a loss of control, and if we lose control, we lose social and political tensions, Fidel Castro persisted in power. A sequence of events was there to prove it: maintaining such a course of action. Finally, at the first and foremost, the events in Eastern Europe, the National Assembly, in 1995, he stated that the time Tiananmen Square events (1989), and the collapse of had come to put an end to the idea of more reforms. the Soviet Union (1989–1991) along with domestic Scaffolding the crumbling system proved to be a use- events such as the early warnings represented by the less attempt. A growing set of chaotic developments (1980), MGR (Navy)-Cuza case went from bad to worse: monumental inflation, (1988), Ochoa-Abrantes case (1989), the social acute financial instability, bloated exchange rates, clashes at Cojímar and Regla (1992), followed by prolonged default of its international obligations to what is known as the Maleconazo and the “balseros” foreign creditors, lack of international credit, very (rafters) crisis, both in 1994. few investments, extreme shortages in every area, Instead of a comprehensive and orderly redesign of bankruptcy and collapse of most of the existing in- the system—following, for example, the experiences dustries and services, followed by more unemploy- of FAR’s Perfeccionamiento Empresarial—Fidel ment and increased rates of poverty. Yet the system Castro resorted to a number of tactical moves known did not collapse and managed to survive. to all of us, such as massive public spending, in- A quarter of century later—and despite whatever creased subsidies, default of Cuba’s foreign debt, criticisms and objections we may have about Fidel temporary free circulation of the U.S. dollar, dual Castro’s handling of its most complex crisis—the currency system, promotion of the tourism industry, Cuban leadership, now under Raúl Castro, and in a growing role for remittances, a limited space for close consultation with his brother Fidel, remains

261 Cuba in Transition • ASCE 2012 very much in power and faces no significant chal- were organized in 1993, are moving from a very re- lenges from its local opposition or the United States, stricted framework of state regulation to a new legal and is currently engaged in an encompassing process framework of property and organizational setting, of reforms and changes that entail a complete rede- closer to family/private cooperatives, where the fami- sign of the economic, social, cultural, institutional, ly farms (“fincas”) become the basic unit of the new and political foundations of the Cuban experience, type of cooperatives. Members can set up small, indi- something that many in Cuba still believe should, vidual outlets to sell their output or sell it through and could, have been adopted since the late 1980s. the existing free markets. Many private farmers (“fin- queros”) and cooperative members are among the ECONOMIC CHANGES wealthiest within an expanding wealthy sector. Some Agriculture of the more visible evidence of this new wealth are Close to 1.5 million hectares of land have been grant- two-story houses, with garages, bought or built in ed in usufruct (Decreto-Ley 259/Decreto-Ley 282) towns nearby farms, cities, and beaches; ownership of to private farmers (“finqueros”) and to different types different vehicles, including automobiles and trucks; of cooperatives, with more than 70% of this land al- holiday vacations in Varadero or in other tourist re- ready under cultivation (produce, rice, sugarcane, sorts; and homes fully equipped with a range of coffee, and tobacco), animal husbandry, cattle rais- home appliances and electronic devices. These newly ing, production of timber, and other activities. wealthy have been investing in restaurants, trucks Terms of usufruct will be extended from 10 years to and cars, construction, and money lending; they also 30, including family inheritance rights but without own a large percentage of the savings accounts in the fragmentation. The consensus seems to be that the Cuban banking system. land will eventually become family/private property sooner rather than later. The best individual per- Services formers are being rewarded with additional land con- Turning over hundreds of services to individuals, cessions (from 13.45 to 40.26 hectares). Permission families, and coops (barbershops, beauty parlors, has been granted for the construction of homes and restaurants, repair shops, garage services, and many other shelters on the allotted land. The ability to others) has been another major change in govern- market products grown on this land to the tourist in- ment reforms. dustry, directly to hotels, resorts, and restaurants, Major public transportation services connecting without any sort of state mediation, is another major towns, cities, and provinces are currently in private incentive. hands, by individuals operating cars and trucks they The forced government procurement mechanism— own, or by small companies owning three, five or six the much hated ACOPIO—is being downsized and vehicles. These transportation services providers are increasingly replaced by free market relations regard- making thousands of pesos a day. The adoption of ing the products that can be grown on the land, to Decree-Law 292 (permitting the sale of vehicles) has whom products can be sold, and prices. The govern- given rise to thousands of transactions involving ve- ment is also increasing support to farmers in the form hicles, many of which are being bought in order to of new lines of credit and loans, tax reductions, as expand private options in the transportation and car- well as expanded supplies for the special needs of go sectors. farmers (farm tools, equipment, seeds, fuel, etc.). Significant private services can also be found in the State farms are rapidly disappearing, either because tourist industry. Approximately 30% of rooms, they have been broken down into cooperatives or be- apartments and houses rented involve private hands cause they have transformed themselves into cooper- (in towns and small cities in the countryside percent- atives known as “integrales.” The UBPCs (Unidades ages are much higher), providing “bread and break- Básicas de Producción Agropecuaria), which held al- fast” (B&B) facilities (lunch and dinner are option- most 50% of the most productive land when they al). Foreigners who have bought new apartments

262 Understanding of Current Changes and Trends in Cuba from government real-estate projects have the right following reasons: (a) waiting to see if he/she is suc- to subcontract their property. The owners of real es- cessful in managing the trade or business that is being tate rentals have high incomes and can afford to trav- started; (b) gauging if the new business is going to be el abroad and even have bank accounts in foreign sufficiently profitable; and (c) lack of trust in govern- countries. With the approval of Decree-Law 288, the ment policies, fearing that at some point there might housing sector has become part of the expanding be some sort of reversal of policies as happened in the market relations and thousands of apartments, hous- past. es, and even mansions are being sold at very high Small businesses (which are very different from prices, from 50,000 to 250,000, 500,000, 700,000 “cuentapropistas”) in the form of start-ups are flour- CUC and even more. An important indicator of this ishing everywhere and in every field. Examples are emerging real estate market is the number of people many: making furniture (doors and windows includ- who are hurrying to register their homes. Having an ed), fences (one of the main urbanization features official property deed was completely irrelevant in nowadays), mattresses, shoes, clothing, leather bags, the past, but now things are changing rapidly. Tens luxury items like jewelry and sculptures, construction of thousands have registered before and after the companies/coops, and production of many other housing legislation. Before 2010, only 92,500 fami- commodities, including religious items, and services lies had registered their homes (at the time, 70% of such as gyms and wedding planners. Some small Cubans had not registered their homes), but in 2011 business owners have become already extremely alone 140,000 did so; in the first quarter of 2012, wealthy by Cuban standards, such as those engaged 133,000 had already registered their homes. Property in furniture and fence-making, construction, and ar- rights are becoming extremely important. tisans. The latter have already achieved one import- The size of the paladares (private restaurants) is an- ant goal: to get organized and build their own arti- other clear indicator of the pace of reforms. Starting sans guild, the Asociación Cubana de Artesanos with a ceiling of 12 seats in the mid 1990s, currently (ACA), a bargaining instrument and an influential the limit has gone up to 50 seats. The number of pa- tool in negotiating with Cuban authorities, an im- ladares has multiplied by the hundreds, not only in portant turning point in an expanding civil society. major cities but in small towns and along important If commercial advertising is an important indicator paladares highways. The B&Bs and the represent a of a growing economy, then this is a major fact in serious, and very healthy, competition to the state Cuba’s current developments. Brochures, pamphlets, sector in terms of quality services, productivity, and fliers, cards, signs and billboards, videos, magazines, prices, and at the same time, are a major source of websites in the Internet (and the infrastructure and highly rewarding employment (providing access to material resources behind them), are broadly present foreign currency and CUC). A B&B provides, on av- in major cities, small towns, the countryside, and paladar erage, from 4 to 6 jobs; a small will provide even along highways. State-sponsored tourism jour- jobs for some 12 to 15 people. Private hiring has no nals and even the telephone Yellow-Pages are devot- limits anymore and salaries, and tips, are not subject ing growing space to the “sector no-estatal” (non- to regulations of any sort. state sector). Registered “cuentapropistas” (self-employed) are Specialized courses in marketing techniques, finance, close to 400,000, involved in all kinds of trades, from business administration, the foundations of small service providers in small cafeterias, to plumbers, and medium size businesses (PYMES), promotion of electricians, carpenters, construction workers, me- cooperatives in industrial/urban economies, and oth- chanics, various types of handymen, and all sorts of ers areas of expertise, are already incorporated into street vendors and peddlers. According to unofficial the curriculum and postgraduate courses in higher estimates for every registered “cuentapropista,” there education and at various levels of Party and Govern- are 3 that have not registered yet due to one of the ment training institutions. Retooling cadres and ex-

263 Cuba in Transition • ASCE 2012 perts has become a high priority. Foreign experts are subsidies. The Cuban economy consisted of frequently invited as lecturers by various universities some 3,700 economic units (industries, services, and other government institutions. The Catholic and others). Fewer than 900 met the standards Church is also engaged in similar activities. Books on of production, productivity, profits, and man- the above topics and on the promotion of PYMES agement set out by the FAR-inspired Perfeccio- are being sold by state institutions while research namiento Empresarial; the rest were not even centers and various publications, including Temas, close and—again and again—it was acknowl- are fully committed to critical discussions and dis- edged that the state could not go on subsidizing semination of them. unviable businesses. The Lineamientos (Guide- The Banking System lines) adopted at the VI Party Congress (in After a major reform in the mid-1990s to be able to 2011) have stressed that such cases are absolutely meet and serve a market socialist economy, the bank- incompatible with a healthy economy and that ing system faced an awkward situation: it had been the only solution would be to close them down, completely redesigned to serve market principles and although this has not been reported as happen- techniques which, at that time, were minimal. In ing yet. 2011, through Decree-Law 289, the banking system 2. How to deal with this challenge is a major head- was finally given the powers to accomplish its goal re- ache and no specific policies have been an- garding a socialist market economy facing a new real- nounced by Cuban authorities. Many in Cuba ity: the socialist market economy was now a very tan- suggest that such industries and services provid- gible reality, still unfolding and expanding. ers should become cooperatives; others, point at fire sales to promote PYMES; yet others insist From two simple functions before the 1990s— that many of the former should be closed down personal savings and payments—Cuba’s banking because there is no way to save them or “retool” system today encompasses practically all the func- their industrial profiles. tions of any banking system in a market economy, from lines of credit to mortgages, from individual ac- 3. Assuming either cooperatives and/or PYMES counts to plastic money. The breadth of activities is should take over such industries and services pro- clear from a brief review of Decree-Law 289. The viders, a recurring challenge is how would they number one priority of the banking system is to sup- function in terms of the raw materials, tools, port all kinds of private ventures, from small busi- spare parts, equipment, fuel or machinery they nesses to “cuentapropistas,” to businesses and/or might need? Will they have access to wholesale families in need of funds to finance major repairs. stores and warehouses to buy the necessary sup- plies, as it is being done with private/cooperative In addition, it should be highlighted that at present farmers? Even more, will they have access to im- there is also an important group of individuals en- ports and be able to engage in exports, including gaged in a very profitable “private” banking activity: its financial implications? No definitions or poli- money lending. These private lenders are ready to cies have been announced or discussed publicly, provide funds to start up a business. and the whole issue remains one of the complex Pending Issues challenges currently faced by the reform process Alongside these promising developments, several in Cuba. Meanwhile, most of such needs and other issues are still waiting for crucial definition, supplies are subject to an enormous host of policy development, creation of institutional arrange- black-marketeering. ments. They include: 4. Equally challenging, complex, and still lacking 1. First and foremost, what to do with the state- clear-cut policies, time-table, and decisions, is owned industries and services providers that have the issue of the dual currency system and its mul- been operating at a loss for more than 20 or even tiple implications. This issue continues to be a 30 years and that have survived because of state subject of considerable debate as to how and

264 Understanding of Current Changes and Trends in Cuba

when the current system should be replaced by a workshops, literature, recommendations, papers single-currency system. Discussions have regarding its nature, characteristics, and poten- brought up two recurrent lines of argument: tial roles can be found throughout universities, first, tackling the dual currency issue demands as research centers, and publications. a prerequisite levels of production and produc- 7. Recently, in April and May, two important offi- tivity throughout the economy that currently are cial statements were made. First, Vice President still very far away from being achieved; and sec- Marino Murillo announced that cooperatives in ond, establishing a rate of exchange for commer- the urban/industrial/services economy would cial and family needs is by no means less com- now receive support and a boost from the gov- plex, and sooner or later includes not just ernment (a first step toward PYMES?). And Vice increased reserves and credibility, but also Cu- President Esteban Lazo pointed out a most cru- ba’s reinsertion in the international monetary cial trend: 3 to 5 years from now, more than system and some degree of settlement of U.S. 45% of Cuba’s GDP will be generated by the and Cuban claims over property. And so far, ev- “non-state sector.” These two “official state- ery Cuban official or academician discussing this ments” effectively indicate the shaping of im- issue sees neither easy nor short term solutions. It portant developments in a short term perspec- is precisely in this context that the Feinberg Re- tive. port (Brookings Institution) is extremely relevant and explains why it was welcomed in numerous The External Sector quarters of Cuba’s academia and government of- ficials. “Zonas Especiales de Desarrollo” (ZED) have been designated in or nearby the most important city-port 5. Salary reform, and its two underlying topics of areas of Cuba. These ZEDs are already hosting most financial stability and individual incentives, is of the major investment projects from Venezuela, also extremely important and very closely related Canada, Spain, , Brazil and others. ZEDs fol- to the issue of the currency, production and pro- low the pattern of industrial parks, tourist resorts, ductivity. A debate as to what should come and other similar arrangements mostly in Asian first—the salary reform or significant incre- countries, and currently mining, oil, selected indus- ments in production and productivity—has tries and services, tourism facilities with 99–year been going on for years. Although there might land-leases such as for marinas and golf courses (De- be some middle ground, without increasing pro- cree-Law 273), and various real estate projects. ZEDs duction and productivity, implementing huge will play a very special role in attracting foreign in- incentives would lead to a new wave of inflation vestments and in reshaping the dynamics of Cuba’s and worthless paper money without real results. economic recovery. 6. Although the concept of PYMES has been used frequently used in this paper, until now there is A new foreign investment law that will replace the no “official” recognition of it in approved or 1995 law is in the making—if not already pending legislation or regulations, which does completed—at the time of this writing. To offset the not mean that they do not already exist and play obstacles connected to the U.S. embargo (the recent a role in the new modeling of Cuba’s socialist outcomes on Havana Club and ING Bank are im- market economy. Yet it is an overwhelming con- portant reminders of how relevant these obstacles) as sensus that the current reform/changes in poli- well as the many blunders made by the Cuban gov- cies in Cuba will have to adopt and promote the ernment in trying to attract foreign investors. Very concept and multiple implications of the serious efforts will have to be made to attract invest- PYMES. Among the leadership and in academia ments not only as a source of hard currency, new there is absolute certainty that PYMES will be a technologies, and markets, but also as an important key component of the new redesign. Debates, source of employment under an entirely new set of

265 Cuba in Transition • ASCE 2012 rules and regulations that will avoid the obstacles and Culture blunders of the past. Five years ago, in 2007, Cuba witnessed an import- This legislation will have to address, either in the leg- ant national debate. Intellectuals, artists, Party mem- islation itself or in a separate piece of legislation, the bers, officials at various levels, and the political class participation by Cubans abroad in reference to in- at large were involved for almost a year in a sort of vestments and property rights, something that was chain reaction in which Party policies and figures— completely omitted by the Lineamientos. This is par- past and present—were discussed and criticized. As ticularly important regarding Cuban-Americans, never before, this national debate did not meet any once a formula is achieved by which they can bypass restrictions whatsoever from the top leadership. It or overcome the U.S. embargo. was, indeed, a major catharsis about past experiences, but it was also a clear demand on the need to rede- As already mentioned, something that has not been sign the totality of the system and its future. defined yet is the access and interactions of Cuba’s new private sector with the external sector, as export- The debate went a step beyond and the floor was giv- ers and importers, as well as suppliers and contractors en to the people in the form of hundreds of thou- of foreign investors in Cuba. Whatever is said or sands of assemblies across the nation. Everyone spoke done with regard to this relationship will have to pro- out criticizing the past, the present, and putting for- vide flexible and rewarding arrangements for the new ward ideas and recommendations. What happened “non-state sector.” here cannot be ignored, dismissed or minimized. It A Different Society was a turning point, and the Cuban leadership fully By 2015–2017, 1.8 to 2 million people or even more acknowledged what was going on. What came after, (close to 50 percent of Cuba’s labor force) will not step by step, measure after measure, law after law, is depend for their livelihood on a state job or on a state inextricably connected to that debate; it was a lesson salary. And just this one fact reveals the true nature, and a clear message to the Cuban leadership. scale, and complexities, of current and future changes Culture has become one of the most powerful ener- in Cuba. Inevitably, such a society will have to re- gizers of the current dynamics of change in Cuba, re- shape, change, adjust, and create a very different eco- gardless of Party and Government control and influ- nomic redesign, as well as a totally different constitu- ence over the media, especially the print media. But tional, institutional, social and political setting in other channels of culture such as universities, movies, which half or more of its population will be econom- theater, radio programs, art galleries, film festivals, ically independent from the state. And these chal- conferences, and workshops, media from the Catho- lenges are not too far ahead. lic church, blogs, websites, and other means of com- munication are pushing forward in support of ex- THE ROLE OF CULTURE AND LEADERSHIP panding and accelerating reforms and changes. Such The developments outlined above point toward a an influential form of media as TV today is largely complete redesign of the chaotic Cuban economy based on popular programs from U.S. networks and along the patterns of a socialist market economy. to a lesser extent those from Europe. Programs from They also provide the opportunity to examine and China and typically celebrate the achieve- discuss some of the most important trends currently ments of their respective economic reforms. unfolding. But at the same time, these reforms and changes in the economic system cannot be separated Culture is Cuba’s dimension that interacts the most from two other dimensions—culture and with ideas, experiences, models, influences, and dis- leadership—that are equally important and whose cussions across the world. Culture is a net “importer” influence on society cannot be separated. Some re- of alternatives that represent a strong feedback in flections concerning these two dimensions are imper- shaping or reshaping the articulation of different ative in understanding current developments in Cu- projects connected to the current reforms and chang- ba. es, thus becoming a major source of enlightenment.

266 Understanding of Current Changes and Trends in Cuba

Culture and its components and key players have cern and a well-established policy to address it has been, and will continue to be, a pillar in support of been implemented over the last 25 years. A whole changes and reforms in Cuba. new generation that can be described as the post-rev- Leadership olution, or as it was called in the early 1990s, “Gen- Many may wonder how and when the Cuban eración Intermedia” (Intermediate Generation), con- leadership—dominated at its highest level by the sisting of young UJC leaders and cadres (engineers, older generation or “históricos” (meaning partici- mathematicians, economists, accountants, doctors, pants in the most important episodes of the revolu- social scientists, and others) in their late 20s and early tion prior to 1959)—will step aside and promote 30s, and today in the late 40s and mid-50s, form this younger generations and leaders. For the most part, generation. Some of them were promoted even to the experts have focused almost entirely on Fidel Castro’s Politburo and top government positions since late leading role, to a lesser extent on Raúl Castro’s, and 1980s. The names of Luis Orlando Domínguez, Car- hardly on other “históricos” or younger leaders. Such los Aldana, Humberto Pérez, Roberto Robaina, Nel- emphasis tends to be extremely inaccurate and par- son Torres, Victoria Velázquez, Marcos Portal, Juan tial. Carlos Robinson, Carlos Dotres, Orlando Rodríguez Romay, Wilfredo López, Carlos Lage, Felipe Pérez Predicting changes inside the Cuban leadership may Roque, Pedro Sáez, José Luis Rodríguez, Fernando point to the following tentative observations: Remírez Estenoz, Carlos Valenciaga, Jorge Luis Sie- In the absence of any serious challenge to the existing rra, and others, became rising stars for ten or twenty power structure within Cuba or from direct interven- years until they were dismissed, demoted, or expelled tion from the United States, the top level of the Cu- from Party and Government positions, with some of ban leadership will remain stable until Raúl Castro— them even losing their Party membership. The rea- seeking to set the example of the “10–year term”— sons for their downfall—one after another, at differ- steps down five years from now (excluding unfore- ent stages of their careers—were not for the most seeable biological outcomes, such as the recent death part connected to political differences or conflicting of Casas Regueiro). Should his not be around any- issues in economics or foreign policy, but to major more, this decision should be easier to implement policy implementation/administrative blunders, cor- and perhaps would be implemented sooner. ruption scandals, wrongdoings, and personal miscon- From the ranks of the remaining “históricos,” every- duct that, in most cases, were fully documented and thing points to Ramiro Valdés Menéndez, Politburo informed to the membership of the Party and nation- member and (second) vice president of the Council wide. Today, all of them are “history,” back to their of State, to rise in importance in the leadership due private lives and professions, some even as “reformed to his political credentials, authority, and perfor- businessmen.” mance, especially over the last 25 years. This is an Some foreign observers saw this as “the end” of the overwhelming perception inside Cuba, including younger generation. Big mistake, showing lack of un- among many young technocrats, due to Ramiro’s in- derstanding of Cuban dynamics. Those who got credible “retooling” from a military figure to a first “out-of-the game” were just a few, and what we have class technocrat with ample international experience. today is that more than 90% of Cuba’s power struc- In case of an earlier stepping down of Raúl Castro ture (Central Committee, Council of Ministers, pro- and most probably of Machado Ventura, the most vincial Party leaders, and in the leading officers’ qualified—again, this is the dominant perception— corps of FAR/MININT) are from younger genera- would be Ramiro but, for obvious reasons of age, for tions. A few examples to illustrate the current dy- the short term. namics of promotion are the following: Concerning the promotion of a younger leadership, the first thing to highlight is that this is not a prob- Three of them have already been promoted to the lem that has not been dealt with. It has been a con- Politburo (Miguel Díaz-Canel Bermúdez, 51, much

267 Cuba in Transition • ASCE 2012 praised repeatedly by Raúl Castro when he was first These leadership changes are a clear indication of the secretary of the Party in Villa Clara and Holguín; decision of the “históricos” to promote the younger Marino Murillo Jorge, 51, a technocrat emerging generations to replace the older and declining genera- from the ranks of FAR’s Perfeccionamiento Empre- tion. It clearly points out to the standards to be fol- sarial; Mercedes López Acea, 52, Party cadre with lowed for the coming promotion of an additional very good credentials as Cienfuegos First Secretary); 20% of new members of the Central Committee and two of them (Díaz-Canel and Murillo) have been how this will be reflected in the Politburo. It will also promoted to government vice presidents. be a clear sign that by the time Raúl Castro steps down, many of these new generation representatives Looking at some of the key positions in the Cuban may have been promoted to even higher and more government today, we can see many of them already important positions in the Party and Government. in the hands of the post-revolution or “Generación Intermedia.” Murillo is not only a member of the Po- The most positive outcome would be for this scenar- litburo and Vice President, but he is also in charge of io to take place within the next five years and even the extremely important Comisión de Imple- better, for some of the younger leaders in their 50s to mentación y Desarrollo de los Lineamientos (Guide- take over effectively between now and some time be- lines) adopted at the VI Congress of the Party; Díaz- fore 2020. This younger generation will be the one in Canel was recently promoted to vice president; Divi- charge of leading the second big stage of the com- sion General Onelio Aguilera Bermúdez, 54, is cur- plete redesign of the Cuban experience, along the rently chief of the most powerful army in Cuba (the lines of a modernized socialist market economy with Eastern Army); Bruno Rodríguez Parrilla, 53, is all its economic, social, cultural, and political impli- Minister of Foreign Affairs. cations.

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