Milk and Rum, or Economic Reforms the Cuban Way

I don’t pretend to claim that as far as the almost 200 countries in this volatile world are concerned, all of them are very different, since in certain respects many are indeed similar to each other. But Cuba is different. It’s in a class by itself. Cuba is Latino and Caribbean, Afro-American and tropical, and socialist (or communist, as it is most often called in the West). As a socialist country, Cuba’s external relations are specific:  strong ties with Venezuela as well as China and Vietnam. The latter two – being visited these days by Cuban leader, Raul Castro – are also labeled in the West as “communist”, but they are more accurately state capitalist countries.

One can find the term “Cuba” as many as eight times in the Index in my book “Truth, Errors, and Lies: Politics and Economics in a Volatile World” (www.volatileworld.net). There are many reasons for this. One being Cuba’s very high Human Development Index (HDI) of 0.776 (for its meaning and methodology see p. 157-66 in my book; in short – HDI is a weighted measure decided by 1/3rd education, 1/3rd healthcare, and 1/3rd GDP) which places this country in the 51st position in the world. This is remarkable, since GDP per capita (in purchasing power parity) is hovering around 10,000 USD, which is about 90 percent of the world average. Regarding the HDI, Cuba is by far better off than, say, Ukraine (77th), Colombia (88th), or Turkey (92nd), and only ten places behind Poland (HDI of 0.813). This is undoubtedly the positive result of social policy carried forward by the government according to socialist values. Illiteracy in Cuba is virtually non-existent. However I haven’t seen many people reading books, the selection of which is quite miserable, and there are just a few newspapers (and I find them rather boring…). There is also a developed network of public healthcare and it shows; the life expectancy in Cuba – 80.6 years for women and 76.2 for men – is one of the highest in the world, matching Denmark and better than the U.S. Yes, indeed, on average the Cuban people are living a little bit longer than Americans. To be sure, the quality of life is still lagging significantly behind the Western standard, at least according to certain metrics, but many Cubans live enjoyable lives, despite a lower level of material consumption.

I’m afraid that most people don’t realize that the rate of growth in post-socialist countries in transition, that is for about 400 million people of East Central Europe and the former Soviet Union, for the last 20 years has been on average a miserable 1.8 percent. And so was the case for the Caribbean nation of 11.5 million people. Such slow growth has been the result of the collapse two decades ago of the Soviet Union – a significant political and economic ally of Cuba until the collapse 30 years ago– and the ill-advised American embargo. The latter factor is the most often quoted explanation for weak economic progress and too often used as an excuse for the economic mismanagement.The Cuban economy will not have a bright future if the government will just stick to its concept of so-called actualizacion. It reminds me somewhat of the failed reform efforts undertaken in Poland and elsewhere in the region in the 1970’s and 1980’s, and with some regard even as far back as the second half of 1950. Yet the system is not working. It’s very difficult – if at all possible – to have in the tropical Caribbean region the labor productivity as high as, say, in Scandinavia, but it’s neither the climate nor the American sanctions that are the main reasons for the economic inefficiencies. This is a systemic challenge.

It is true that Cuba has accomplished a lot over the last twenty years, being a truly independent country for the first time ever, although its reliance on assistance from Venezuela is too far going. Were it to cease, the country would be in dire straits again. However, the main direction of ‘actualizacion’ is correct. The reforms are aimed at deregulation and encouraging private economic activity, yet the changes are far from satisfying. There is an urgent need for much more economic liberalization and to this end President Castro could learn a lot from China (second economic partner after Venezuela) and especially from Vietnam, especially considering there is a necessity to get rid of economy of shortages. Compared with what I’ve seen there during my previous visits – in 1978, 1984, and 1989 – at least now there is a kind of consumer market, although very limited. Certain basic goods – for instance, rice or powder milk – are still distributed in an administered way, through the system of coupons (and, of course, extremely low prices). At the other end, the market for cars or foreign tourism doesn’t exist at all, so even money can’t buy everything.

Then Egalitarianism? Not really; on the contrary. Nobody knows exactly what income inequality measures in at in Cuba, but the Gini coefficient must be close to 0.40, or even higher than that. It’s not yet as much as in Mexico or Brazil but it is by far more than in the post-socialist European countries. Of the many Cuban paradoxes, one is that such large inequality has been created by the desire to save the Revolution. For this reason a system with a parallel economy and double-currency has been established. Although the Revolution ideology points decisively to fair income distribution – and rather egalitarian and not elitarian society – the reality is going in the opposite direction.

Two currencies are in circulation. The Cuban peso and the so-called peso convertible, officially on par with USD (however, there is a ridiculous policy to charge a hefty 10 percent ‘penalty’ commission while changing dollars – because of bad Cuba-US relations, as the pseudo-argument goes – so don’t go there with the greenbacks; take euro, GBP, or Canadian dollars). And now there are two parts of society: the one (minority) which has access to hard currency – and therefore to the growing share of a much better supplied market – and the one (overwhelming majority) which doesn’t enjoy such privilege. Convertible peso – the currency that all transactions for foreigners actually take place in – are available for people receiving remittances and other overseas transfers and for the narrow part of society having access to tourists. As for the latter, there is a growing number of them and already in the mid-1900s, tourism had taken over the sugar industry as the main industry. It wasn’t easy, since the production of sugar was cut down almost nine-fold, hence it was much more difficult than the restructuring of the coal industry in Britain or Poland, or defense industry in Russia or Slovakia.

The system – although weird – does work for the time being; barely, but it works. However, the monthly salary of an assistant professor of economics at the famous Universidad de Habana is a low 800 pesos, which is equivalent to 24 USD! A woman working in museum makes just 10-12 USD per month! You can bet that – considering the subsidies and low prices for a number of goods and services – the purchasing power is 10-15 times higher, but the system in unsustainable. It must be changed, and the sooner the better. And there is only one way to do it: a kind of escape forward that will free the prices and proper wage and income adjustment, without losing the positive social protection and investment in the human capital system. Don’t throw away the baby with the bathwater. To this end Cuba can learn from the experience of both, East Central Europe and China and Vietnam; I think even more from the latter than from the former. When I was first time in Vietnam – in 1990 – the consumer market there looked similar (or rather worse) than now in Cuba. And now the Vietnamese market works and the rate of economic growth allows for the doubling of GDP every ten years. While in Cuba it is only about 40 percent higher than twenty years ago, in Vietnam it is fourfold more…

Cuba is and will remain forever an island, a beautiful island and so rich in culture! But at this time of globalization and vast economic, cultural and political changes it cannot stay the course that this brave nation has been able to do for such a long period. The system must change. If Cuba wants to avoid the calamity of chaos and being once again a semi-colony of the US, it should go towards a specific Caribbean – and Latino, and tropical – social market economy. It’s difficult but feasible. My concern is that there is still not enough determination to go in such a direction. There is too much of a naïve belief that ‘actualizacion’ can work enough to meet the challenges and address the issues of durable growth. It won’t.

So what’s next? Another revolution? Hardly. When I was asking people – from university professors to taxi drivers – what chance is there to see a crowd of people spontaneously demonstrating at the Plaza Revolucion in the way Egyptians do at the Tahrir Square in Cairo, the answer was short and clear: one percent. Well, maybe a little bit more, but just a little. There is no chance that there is going to be any kind of ‘revolution’ soon, unless playing music and dancing were to be forbidden. But this is not going to happen. The Cuban people – so hospitable and friendly – love music. You will find it on every second corner. They love to enjoy their way of life. So far they somehow manage, also because it is easier to buy the famous rum, or el ron cubano than milk… I hope that it will soon be easy to get them both.

6 Responses to "Milk and Rum, or Economic Reforms the Cuban Way"

  1. Matt Dubuque   July 16, 2012 at 9:22 pm

    That's an absurdly unscientific comment that you make when you claim that you have not seen many Cuban people reading books.

    Are we supposed to rely on your limited experience there and take that comment as gospel?

    I have seen an extraordinary amount of books and people reading them in Cuba in my extensive travels there.

    And are you claiming that reading is popular in the USA, where TV addled voters struggle over three syllable words?

  2. Grzegorz W. Kolodko
    Kolodko   July 24, 2012 at 5:57 am

    You may wish to see my 200 photos album from Cuba at http://www.facebook.com/notifications?id=16418798…. Enjoy! Comments welcome.

  3. Grzegorz W. Kolodko
    Kolodko   July 24, 2012 at 6:02 am

    @ Matt Dubuque. When I claim that I haven't seen many Cubans reading books (say, as many as I see in a number of other countries with as high HDI) it is not "an absurdly unscientific comment", as you written, but the facts. If you know the data, still better the data on comparable ground with some other countries, do quote it instead of talking that the arguments of somebody else are "absurdly".

    • Matt Dubuque   July 30, 2012 at 10:00 pm

      It's an anecdote, plain and simple, nothing more, and an outlier at that.

      Nothing at all scientific about it.

      It would NEVER pass peer review. Or do you despise the scientific method and fact checking?

  4. anum   June 2, 2013 at 9:02 am

    it will take some self-discipline, determination and hard work to be successful. http://discounthomewarehouse.com/

  5. Anum   June 29, 2013 at 10:22 am

    I locate few helps over here related by this post to accomplish my task nicely. I highly recommend this. Thanks a lot Hallmark Christmas Ornaments