The Cuban Economy: Another Perspective
News from Cuba | Wednesday, 20 October 2010
Brian Pollit on the Cuban economy
The Summer edition of Cuba Sí featured Francisco Dominguez’s appraisal of the background and current state of Cuba’s economic condition and prospects in “Making ends meet: Cuba’s economic challenge”. He stressed the difficulties of Cuba’s “underproductive, underexporting, overimporting economy” in sustaining its current high levels of social expenditure without a “substantial improvement” in “economic performance and productivity”. He is optimistic, though, that the favourable relations Cuba has developed within Latin America - notably Venezuela and Brazil - together with the diversified growth of trading partners in Asia - notably China - greatly reinforce Cuba’s ability “to take an enormous leap forward by a sustained high-tech transformation and restructuring of its economy”.
While there is no doubt that Cuba needs a substantial increase in its economic performance and productivity, Francisco’s portrayal of Cuba’s economic evolution over recent years is distorted by a major sin of omission. As an open island economy, Cuba’s development has always been powerfully shaped by the conditions governing its international trade. And Francisco asserts that in 2009 “the difference in value between exports and imports was 6 billion pesos deficit”. This would be an intolerable burden for a small economy operating in an international environment made the more difficult by the US trading embargo. Fortunately for Cuba, however, such a deficit results from Francisco’s assumption that the island’s trading balance is determined solely by its international merchandise trade, i.e. the exchange of goods. In fact, of course, it is derived from the exchange of goods and services. And, as shown in Table 1 below, despite a sharp fall in merchandise (goods) exports in 2009, Cuba’s balance of payments in current prices shows not a deficit of -6 billion pesos but a surplus of some 1.9 billion pesos. And this reflects the 21st century transformation of Cuba’s economy from one in which the historic dominance of commodity exports - comprised, until the crisis of the 1990s “Special Period”, overwhelmingly of raw sugar - has been displaced by the export of services. With the sole exception of the hurricane-afflicted year of 2008, the remarkable increase in the value of services - from 2.4 billion pesos in 2002 to 8.1 billion pesos in 2009 - has effectively eliminated the chronic balance of payments deficit experienced by Cuba in every year from 1961 to 2003.
The New Service Sector
Of what are these “services” comprised? Francisco advances the commonly held belief that tourism is Cuba’s “main revenue earner”. In fact, the tourist sector generated an average annual income of some 2.3 billion pesos over the years 2005-2009, amounting to less than one-third of the average annual export revenues ascribed to services during the same period. Moreover, the earnings attributed to tourism report gross, not net, income and the latter amounts to no more than one-third to one-half of the gross earnings reported for the sector. In reality, the decisive component in the expansion of Cuba’s export service sector lies in her ability to provide tens of thousands of medical, educational and other technical personnel to work overseas in the improvement of deficient public services in other developing countries. Cuba’s ability to do this reflects her enormous historic investment - sustained throughout the “Special Period” - in the development of training facilities that produce medical and other personnel willing and able to work in often arduous conditions, with skills adapted to difficult social and physical environments, in countries whose own professional classes are too small or too unwilling to provide such services themselves. Hugo Chavez’s Venezuela has been the most important destination for Cuba’s export of such professional services and Venezuelan finance has been crucial in generating the income so earned by Cuba not only in Venezuela but from several other Central and South American countries as well.(1) Moreover, Cuba does not only provide medical services overseas with its own doctors and nurses but has become a major centre for training medical and other students from Latin America and elsewhere. All this has been well-described in Cuba Sí by Julie Feinsilver (2) who also reports that Cuba’s export of professional services of all kinds accounted for no less than 69 per cent of Cuba’s total service earnings in 2008.
The Underemployment of Urban and Rural Labour
None of this is to deny Cuba’s urgent need to increase the productivity of its labour force. Francisco points to levels of unemployment of only 1.6 and 1.7 per cent in 2008 and 2009 but such impressive statistics flatter to deceive since they conceal the notoriously high rate of underemployment of much urban and rural labour. The collapse of the Soviet block deprived numerous Cuban factories - large and small - of the imported inputs vital for their productive activity, but even with greatly restricted productivity, much of their labour force was retained and remunerated. The same was true of activities in building and construction, now severely constrained by shortages of imported machinery, equipment and building materials. And while the rapid growth of the tourist economy created much-needed employment in the 1990s and beyond, its more recent stabilization showed that much newly excess labour had been retained. Yet more notable was the excess labour retained in the sugar economy. At the height of its development in the 1980s (not “the 1990s”) annual production was of the order of 7.6 million tonnes. The harvests of 2004-05 to 2008-09, however, averaged less than 1.2 million tonnes - a five year average last seen in 1903-1907. But even in the period of collapsing sugar production in the 1990s, the labour-force nominally employed by the sector remained at its 1980s level of some 400 thousand and this was only reduced by the formal (but still remunerated) redundancy of 100 thousand field and factory workers in the “restructuring” - or more accurately “destructuring” - of the sugar economy announced in 2002. Despite the massive downsizing of Cuba’s largest agro-industrial sector, with both land and labour devoted to sugar production continuing to diminish after 2002, agricultural production from 2002 to 2009 has largely stagnated. One consequence, as Francisco rightly notes, is that: “Reversing the agricultural decline is a priority for the Cuban government” since Cuba “now imports over 60 per cent of the food it consumes”. It might be added that with both domestic food consumption and imported food prices rising up to 2008, Cuba’s annual food import bill now rivals its gross tourist revenue.
But equally imperative is the need to divert labour from underemployed activities in the State sector, where salaries have been funded by large inflationary subsidies and heavy enterprise losses, into alternative small-scale employment in both town and countryside. The shedding of up to one million State jobs - beginning with the redundancy of 500 thousand employees by March 2011 - was announced by the Cuban Labour Federation in September 2010. Much of this was to be absorbed by newly-relaxed controls over urban private sector activities, notably in services. But it was also hoped that there would be a substantial transfer of labour to work in agricultural cooperatives and on newly-leased State farm land.
Structural Changes in Cuban Agriculture
There have been three significant changes in Cuba’s agrarian structure over the past thirty years. Firstly, from the late 1970s, in times of prosperity, a substantial proportion of Cuba’s peasant farmers were encouraged to join Agricultural Production Cooperatives (CPAs). These pooled the individual holdings of private farmers, or those loosely grouped in Credit and Service Cooperatives (CCSs), and the State made substantial investments in the construction of new housing, infrastructure and in the supply of machinery and other farm inputs. Such State support extended the provision of domestic electricity, piped water, easier access to schools and medical facilities and resulted in significant improvements in both living standards and in farm production. Secondly, in 1993, in times of acute economic crisis, Cuba’s State Farms were largely dismantled and converted into Basic Units of Cooperative Production (UBPCs) most of whose members had been workers in the old State sector. Though their organisational form was influenced by the established CPAs, they lacked the generous assistance offered to the CPAs in better times and were required to produce sugar and other crops with a deteriorating stock of farm machinery, a dearth of productive inputs to fertilize or irrigate crops and with limited investments in social infrastructure to improve living standards. Most UBPCs were inefficiently organized, low-productivity, loss-making enterprises but the fact that an important component of their members’ subsistence was derived from on-farm food production checked the flight of labour from the countryside to the food-hungry towns while sustaining the level of agricultural employment.
Thirdly, in 2008, and subject to limits on the size of holdings, legislation provided for the lease of idle State land by landless workers or cooperative farmers. It was estimated that no less than 1.7 million hectares of State-owned land was then classified as idle - the bulk previously under, or reserved for, sugar cane - and in December 2009 Raúl Castro reported that some 920 thousand hectares of this total had been transferred to over 100 thousand beneficiaries, with previously landless workers swelling the membership of the National Association of Small Farmers by some 60,000. The proposed redundancy of much State-employed labour in the coming months is expected substantially to increase the number of small-scale peasant farmers active on such State-leased land. Nonetheless, it must be stressed that to date the large-scale transfer of State land into the hands of an expanding peasantry has had little impact on the island’s food production and therefore has made little impact upon Cuba’s food import bill.
How Productive is Cuba’s ‘Idle’ Land?
Growing public attention has recently been given in Cuba to organizational deficiencies in the supply of farm inputs and in the collection and distribution of farm produce. It may be that the relaxation of constraints on private sector activities may alleviate such problems. But the principal explanation of the limited growth of production on hitherto idle land is of a different order. Firstly, the bulk of “idle” land held or transferred by the State was not suited so much for food production as for the extensive grazing of livestock, and its conversion into pasture-land often required the laborious manual eradication of marabú - a thorny shrub infesting much State land after years of productive neglect. Secondly, the universal experience of redistributing underutilized land to landless workers in particular demonstrates that for these to produce rapidly and efficiently, they must also receive credits, seeds, farm implements and other inputs, all supported by necessary know-how. It is plain Cuba’s substantial land redistribution since 2008 has made available neither the quality of land nor the vital assistance needed for it to make a swift or substantial contribution to national food production. It has assisted the growth of small-holdings supporting livestock while also securing a modest increase in the productive activity of rural labour. But it has yet to match the success of the well-known labour-intensive urban allotment programme which was able to tap a substantial pool of underemployed urban labour and, with the aid of organic compost, significantly improve urban vegetable supplies.
It is Cuba’s misfortune that major changes in land-tenure systems - as demonstrated with the creation of the CPAs in the 1970s - are likely to be most successful when the State disposes of the necessary material and organizational resources to stimulate productive performance. As with the UBPCs created in 1993, however, the process of major land redistribution effected since 2008 - and likely to accelerate in 2011 with an enforced exodus of redundant State sector workers - has lacked such support. The sluggish performance of Cuban agriculture hence awaits both substantial injections of material resources and the removal of the many organizational impediments that frustrate agricultural producers and consumers while impeding the island’s efforts to reduce food-import dependence.
External Balance of Payments for Goods and Services: Million Pesos at Current Prices, 2002-2009
Exports minus Imports
Source: Anuario Estadístico de Cuba, 2009, 5.16.
1.Brian Pollitt,“From Sugar to Services: an Overview of the Cuban economy”, The International Journal of Cuban Studies, Vol. 2, Issue 1, June 2009.
2. Julie Feinsilver, “Medical Diplomacy”, Cuba Sí, Winter 2009-10.