EXCERPTED FROM Cuba Under Raúl Castro: Assessing the Reforms Carmelo Mesa-Lago and Jorge Pérez-López Copyright © 2013 ISBN: 978-1-58826-904-1 hc 1800 30th Street, Ste. 314 Boulder, CO 80301 USA telephone 303.444.6684 fax 303.444.0824 This excerpt was downloaded from the Lynne Rienner Publishers website www.rienner.com Contents List of Tables and Figures xi Preface xiii 1 Cuba’s Economic and Social Development, 1959–2012 1 2 The Domestic Economy, 2006–2012 27 3 International Economic Relations, 2006–2012 75 4 Social Welfare, 2006–2012 119 5 The Reforms, the National Debate, and the Party Congress 169 6 Assessing the Reforms: Impact and Challenges 219 List of Acronyms 255 References 257 Index 277 About the Book 295 ix 1 Cuba’s Economic and Social Development, 1959–2012 As necessary background to understand the reforms that are be ing implemented by Raúl Castro, this chapter summarizes the history of Cuban economic and social policies during the revolution (1959 to 2012), following a typology of “idealist” and “pragmatist” cycles. 1 In the chapter we identify eight such cycles and for each of them we analyze internal and exter - nal causes, describe policies that were implemented, and evaluate out comes. Idealist and Pragmatist Cycles in Cuba’s Economic and Social Policies The socialist central-planning or “command economy” model, introduced in Cuba in 1961, remains today as the basic form of economic organization, although substantially transformed and without some of its original ele - ments. Economic and social policies have swung eight times since 1959, giving rise to cycles of different intensity and length that have alternated from movement toward or away from the market. For the sake of simplic - ity, herein “idealist” cycles are those dominated by policies that move away from the market, while “pragmatist” cycles are market-oriented. During idealist cycles, the political leadership generally set ambitious goals—for instance reaching the highest level of industrial production per capita in Latin America within four years, producing 10 million tons of sugar annually and subsequently reaching annual production of 20 million tons, creating an unselfish “new man,” and reaching food self-sufficiency within a five-year period. These goals were not achieved and their pursuit contributed to adverse economic and social performance and even crises. 1 2 Cuba Under Raúl Castro Such failures raised the threat (real or perceived) of regime instability and prompted the political leadership to adopt market-oriented policies in order to boost economic performance and preserve or strengthen the regime and maintain control. Pragmatist cycles have resulted in moderate improve - ments in economic performance 2 and living standards, but have also brough t about some adverse social effects, such as rises in unemployment or in - equality. Typically, once the political leadership felt that the regime had been sufficiently strengthened under pragmatist policies, it launched a new idealist cycle, thus perpetuating a policy seesaw. Economic logic dictates that Cuban authorities would maintain and strengthen pragmatist cycles that bring about positive economic results. But such rationality has not been followed by the Cuban political leadership be - cause, in our opinion, it has perceived that market-oriented policies entail a certain loss of economic influence, decentralization of decisionmaking, and emergence of economic actors independent from the state and hence a loss of the latter’s economic power and, potentially, political control. Thus, we argue that political logic (preservation of the regime and control) has sur - mounted economic logic, giving rise to recurring idealist cycles. Moreover, increases in unemployment and inequality and other negative effects asso - ciated with the market seemed unacceptable to the political leadership, at least through the decade of the 1990s. Most of the cycles have lasted between five and six years, creating insta - bility and uncertainty and hampering long-term economic growth. During the first pragmatist cycle, market-oriented policies were introduced slowly and timidly, while they were implemented more boldly in the second and third such cycles. In contrast, idealist cycles tended over time to become weaker. The Eight Cycles: Characteristics and Effects Since 1959, there have been eight policy cycles under Cuba’s revolutionary government, with the first one divided into three subcycles. Four of the cy - cles have been idealist, three have been pragmatist, and one has been char - acterized by policy stagnation: 1959–1966: Although difficult to classify, this was mostly an idealist cycle, with some facets of pragmatism particularly in 1964–1966; this period is divided into three subcycles: market erosion, introduction of orthodox Soviet central planning, and debate over socialist models. 1966–1970: Fidel’s adoption and radicalization of the Guevarist model, a strong idealist cycle. 1971–1985: The Soviet timid (pre-Gorbachev) economic reform model, the first well-identified pragmatist cycle. 1986–1990: The so-called Rectification Process, the third idealist cycle. Cuba’s Economic and Social Development, 1959–2012 3 1991–1996: Crisis and market-oriented reforms, the second and strong - est pragmatist cycle up to this point, under the “Special Period in Time of Peace.” 1997–2003: Slowdown and halt of the reform, a cycle of policy stagnation. 2003–2006: Reversal of reforms, the fourth idealist cycle, although weaker than previous idealist cycles. 2007–present: Raúl Castro’s structural reforms, the third and strongest pragmatist cycle of the revolution. During each of the cycles there were changes—often contradictory—with respect to eleven policy areas: collectivization of the means of production; centralization of economic decisionmaking; role of the state budget; foreign investment; allocation of goods through rationing (rather than through mar - kets and prices); agricultural free markets; self-employment; voluntary (un - paid) work and labor mobilization; egalitarianism; moral versus material in - centives; and expansion of free social services. Idealist cycles are characterized by an increase in the degree of collec - tivization and centralization in decisionmaking, decline in the role of the state budget as an instrument of macroeconomic management, de-emphasis or phasing-out of foreign investment, rise in the importance of administra - tiv ely set ration prices rather than market-determined prices, increased re - strictions or disappearance of free agricultural markets and self-employment, upsurge in labor mobilization and use of voluntary work, escalation in egal - itarianism and predominance of moral incentives over material incentives, and expansion of free social services. Policies during pragmatist cycles are diametrically opposite, albeit with divergent degrees of intensity according to the cycle: de-collectivization, decentralization of decisionmaking, greater role of the state budget in macroeconomic management, increased receptivity to foreign investment and steps to promote it, wider use of market prices versus rationing and controlled prices, introduction or expansion of free agricultural markets and self-employment, reduction or elimination of labor mobilization and volun - tary work, decline in egalitarianism, predominance of material incentives, and cutback of free social services. We assess the effects of idealist and pragmatist cycles through the per - formance of seven economic and social indicators: economic growth, mon - etary liquidity (excess money in circulation or monetary overhang), fiscal deficit, deficit in the goods trade balance, open unemployment, income dis - tribution, and poverty incidence. Unfortunately, the latter two indicators cannot be evaluated quantitatively because of the lack of official statistics, but they will be assessed qualitatively and through estimates from foreign and Cuban analysts. 4 Cuba Under Raúl Castro Internal and External Factors That Influence the Cycles The ideology and decisions of Fidel Castro were the principal internal fac - tors shaping the policy cycles on the island for nearly fifty years, until ill - ness forced him to turn over his leadership role to his brother Raúl. As unchallenged leader of the revolution and founder of the regime, Fidel wielded immense power, holding concurrently the key political posts in the country: chief of state, president of the Council of State and of its Execu - tive Committee, first secretary of the Cuban Communist Party (PCC) and head of its Political Bureau, and commander in chief of the armed forces. As president of the Council of State, he nominated the president of the Supreme Court, an institution subordinated to the Council of State. The only significant political institution that Fidel Castro did not head was the Na - tional Assembly of People’s Power (ANPP), the top legislative body in the country. In practice, the ANPP has limited power; it meets twice a year for two to three legislative days at a time, with the Council of State governing during the rest of the year through decrees. Finally, as chief of state, Fidel was constitutionally granted the power to declare a state of emergency and under such conditions to modify the exercise of constitutionally enshrined rights and duties. Fidel’s proclivity for centralization, collectivization of the means of production, egalitarianism, and labor mobilization strongly predisposed him toward antimarket policies. And yet he was willing to adopt ostensibly