Cuban economy on the threshold of 2024: crisis, challenges and opportunities

Allow me to begin this reflection on the Cuban economy with a question. Why is a comprehensive economic reform necessary, not just any reform?

The conditions that allowed the Cuban economy to function with reasonable growth rates, especially after 1975, changed abruptly in the 1990s, a trend that had already been noticeable since 1986, when, on the one hand, the external debt with the Western countries became a greater pressure at the same time that historical relations with the socialist bloc, mainly with the Soviet Union, began to deteriorate noticeably.

This situation has been making evident since then the need for a profound change in the economic model in force in the country, as well as in the development strategy, among other factors because the favorable relations with the European socialist bloc that allowed access to additional external resources were no longer available. This is in a context of hostility in U.S. policy that has not only persisted but has been reinforced.

These circumstances have been more than evident for 30 years and were what motivated the book written and published in 1995 with a proposal for restructuring the national economy (Cuba: La Restructuración de la Economía, una propuesta para el debate, Julio Carranza, Luis Gutiérrez, Pedro Monreal).

Since then to date there have been important changes, but we are still far from having carried out the comprehensive reform of the economy that in our opinion is essential.

In the last three decades, different situations have arisen in better and worse contexts, but in the last four years,

the country has found itself in a crisis that begins with a 10.9% drop in GDP in 2020, followed by slight recoveries of 1.3% in 2021, 1.8% in 2022 to contract again with negative 2% in 2023, which is about to end, which means that we are in a clear recession and still far from overcoming the critical situation.

 

There are important knots and serious tensions, not only economic but also political and social — some reinforce others — which is why it is necessary to think and act comprehensively about the situation.

Although this text essentially refers to the economic dimension, it is necessary to understand that social and political conditions are ultimately determining factors in the course of events.

Sixty-five years after the Revolution, and in the presence of new generations, we no longer have the same historical leadership and mystique that in the first decades allowed us to assimilate and compensate for material difficulties with the enthusiasm of great transformations and important material benefits, of inclusion and progress that the great masses acquired with the revolutionary changes.

What has persisted in one way or another is a strong policy of aggression whose expression, most important but not the only one, is the economic, commercial, and financial blockade that the country suffers from the United States, which becomes more harmful in current national and international conditions.

However, overcoming the current situation of great economic difficulties is a necessity despite the blockade, and in this sense, there is much to do and transform if we have the political will and a clear compass that allows the right course.

In the 1990s, when the Special Period was decreed, the situation was also very complex and although the economic model did not change completely, important transformations occurred that by the end of the decade allowed us to emerge from that crisis.

On the one hand, the economy was reinserted into the world market with the development of new sectors such as tourism, biotechnology, the export of professional services, as well as greater access to remittances from Cubans residing abroad, etc. On the other hand, foreign investment was reinforced with greater opportunities and incentives, especially in the tourism and mining sectors.

At the same time and in the opposite direction, the sugar sector, which had historically been the backbone of the national economy, was significantly reduced. The reasons were related to the fact that after the closing of the agreements with the socialist camp, Cuban sugar exports had to go to the marginal world market of this product, where prices were then frequently below production costs. Seen today, the consequences of that decision and how it was implemented appear to have been negative. Which deserves a specific discussion.

Internally, during that decade of the 1990s, important changes also occurred with the reduction in the number of government ministries, the forms of management of the economy were made more flexible to a certain extent, and free markets were opened, such as the agricultural one, which led to a major reform of domestic prices. On the other hand, the possession and circulation of foreign currency was authorized, self-employment was legalized and in agriculture, the so-called Basic Units of Cooperative Production (UBPC) were created.

By the beginning of 2000, new international alliances appeared with the government changes in Latin America, mainly in Venezuela. These new alliances, plus the maturation of the changes already mentioned, insufficient but important, contributed to getting out of the hole in which the economy found itself at that time, although without a strategic overcoming of the structural crisis being appreciated.

The changes were significant, but the economic model was not transformed to the necessary extent. Rather in the 2000s, after the recovery, the most profound changes slowed down, social policies were essentially reinforced with the Battle of Ideas program.

Since then, in different analyses, it has been calculated that to grow more than 5% of the Gross Domestic Product (GDP) an investment of more than 25% is required, which is still a long way off.

Since then, it was estimated that there were more than one million surplus workers employed in the state sector. However, despite these unresolved issues, during the first eight years of the 2000s, the general situation of the country’s economy improved notably compared to the harsh hardships of the Special Period of the 1990s.

This fact reduced the recognition and development of the necessary debate about the comprehensive reform of the economy.

The international financial crisis of 2008 and the impact it had on Cuba once again renewed the issue and debate on economic reform. In 2011, the authorities and government political bodies raised the need for a longer-term solution; this gave rise to important official documents, such as the Conceptualization of the new Economic and Social Model and the Economic Guidelines.

In the last three and a half years, since mid-2020, we have entered the most critical period of the economic crisis which, as noted above, is far from being overcome. The situation is very complex and perhaps its most visible expression is the current inflation, combined with the stagnation of the Gross Domestic Product, one of the most complex circumstances that any economy can face.

Although year-on-year inflation statistics are not very precise, they vary according to sources and generally, those that come from official sources do not include the important informal market (recently recognized at just over 30%), it is evident that a very significant part of the population currently receives income below the cost of the basic food basket.

That is to say, there is not only a problem of inequality but also of poverty. Of course, taking into account the characteristics of poverty in Cuba, which is not comparable, due to social policies, with that which exists in large sectors of the marginalized population in Latin American countries.

This situation, where there is a clear generalized supply deficit, is, in my opinion, the result of several factors, mainly three:

1. Clearly, the genocidal U.S. blockade policy, reinforced during the Donald Trump administration and not modified to date by the administration of President Biden.
2. The impact of the COVID-19 pandemic, which hit strategic sectors such as tourism and forced significant resources to be dedicated to confronting it, now adding the effects of the war in Ukraine on the world economy.
3. An insufficient, late, and disintegrated response in the sense of the necessary economic transformations, both at the level of the economic model and the development strategy.

To this must be added some decisions whose results were opposite to those planned, clearly, the monetary reorganization that began in January 2021.

Today it could be said that, at an economic level, the country faces three main crises and several additional problems:

1. Crisis of the economic model. In my opinion, the most important of all. This is expressed in low levels of productivity, intensity, efficiency, and functionality of the economy, amid a clear recession.
2. Macroeconomic crisis, aggravated in recent years, is expressed in the stagnation of the GDP, high levels of inflation, the budget deficit, the diversity of exchange rates, and the currently existing monetary chaos.
3. Sectoral crises. Fundamentally in; a) agricultural sector (insufficient food production), b) energy sector (insufficient availability of fuel, deterioration of thermoelectric plants, low use of alternative energies). The general deterioration of the various industries must be added.

Other important problems present in the current situation would be:

1. The demographic situation, characterized by a low birth rate, high levels of migration, especially of young people, flight of qualified labor force and population aging. All of this puts further pressure on the budget. The demographic decrease generates serious obstacles for the development of the country.
2. Generalized difficulties that affect the functionality of the economy. Inefficient operation of banks, post offices, infrastructure, communications, insurance, etc.
3. Serious problems with labor discipline, motivated by low salary incentives and high inflation. This results in reduced levels of productivity and work intensity.
4. Pressure of external debt. Despite various renegotiations, it continues to be a factor with a strong impact on the economy and its potential recovery.

It would be necessary to act on all these problems at the same time, on the conjunctural, sectoral, and strategic. At the same time, to well define the sequence of the transformation process; order is essential. To define well priorities and posterities.

Some important changes were made starting in 2013. The non-state sector was expanded with greater spaces for the exercise of self-employment. Subsequently, micro, small and medium-sized enterprises (MSMEs), private and cooperative, were legalized, there was some flexibility for foreign trade operations, spaces for foreign investment were expanded with new infrastructures such as the Mariel special zone, more lands in usufruct were handed over, etc.

In 2020, in official meetings of the Communist Party of Cuba and the government, a strategy is discussed and established to guide the advancement of the economy until 2030. In October 2020, talk begins about monetary reorganization.

However, throughout this period the transformations do not acquire the pace and comprehensiveness allowed by the officially approved documents (mainly the Conceptualization and the Guidelines) that seemed to express a sufficient political consensus for the changes, this even after the new Constitution was approved by the vast majority of the population in 2019, where the spaces for transformations were reinforced.

The problems and slow responses continued to put pressure on the economy. For example, overemployment was evident, which, among other factors, hampers the efficiency of state enterprises, which currently number approximately 2,900.

Over-employment in this sector has been estimated at more than one million. The need for more dynamic economic sectors is evident, as well as the need for greater foreign investment.

In my opinion, between 2011 and 2020, precious time was lost again, difficult to recover, despite the in-between brief but important opening of United States policy towards the country, during the presidency of Barack Obama.

In January 2021, it was decided to implement the so-called monetary reorganization, which was conceived as a comprehensive action on the economy in general. It had to imply an important change in relative prices to make the national economy more competitive, measurable and more dynamic. That is, the Reorganization assumed:

• Devaluation of the national currency.
• Establishing a single currency.
• Unifying exchange rates.
• Increasing the income of the population to compensate for the planned increase in prices.
• Increasing competitiveness.
• Increasing productivity.
• Increasing production.
• Increasing interest in work.

A devaluation of the national currency was carried out that suddenly multiplied part of enterprise costs by 24. This, in a very unfavorable context of contraction in supply, in the midst of the COVID-19 pandemic, without prior measures that, as part of the reform, encouraged supply (serious sequencing problems), therefore, the economy’s response was not productive, but inflationary.

The multiplication of enterprise costs and the increase in income, fundamentally salaries (later deregulated, generating problematic salary chaos) and pensions, the distribution of enterprise profits, often without productive support and based on price increases, plus the impact of international inflation, added to a serious supply crisis due to the contraction of production and imports, gave rise to a strong inflationary process out of control with all its economic, social and political consequences.

Almost three years after the Reorganization:

1. a) there is inflation that does not subside,
2. b) prices grow more than personal income,
3. c) there are several exchange rates and the informal one out of control,
4. d) work productivity has not increased,
5. e) nor the interest in formal employment,
6. f) in real terms there is a diversity of currencies circulating in the country.

That is to say, given the structural weaknesses and a serious sequencing problem, the Reorganization, contrary to what had been proposed, had an inflationary and non-productive effect. This gives rise to a complex and risky situation not only economic but also social and political. Originally it was stated that the minimum wage would be 1.3% higher than the basic food basket, however, the result has been very different.

The agricultural sector (an essential factor in supply) still has insufficient production. It had its peaks in yields and production in 2016, but its decrease, which continues to this day, begins in the years 2017-2018.

In 2014, investments in agriculture were 8% of the total, since then they have begun to reduce. Today they only reach 2.7%. It means that in the midst of the crisis, they were significantly reduced. On this point, we shall return later.

Below are some specific considerations that I believe are necessary for greater articulation and comprehensiveness of the comprehensive reform:

• Positive energy must be put into the reform, without dogmas or paradigmatic paralysis.
• Conceptual issues about socialism must be redefined here and now (we have written about this at length in other previously published texts).
• The problem of sequence is essential, in addition to the systemic conception. For example, municipal decentralization on which the official discourse has insisted so much is very important, but a country is not the simple sum of its municipalities.
• The reform must be comprehensive, but it has two essential and urgent components; 1) enterprise reform, essentially of the state enterprise, 2) reform of the agricultural production subsystem.

It is also essential to rethink the financing of the economy in general and the reform in particular. There is indeed a problem of lack of resources, but there is also a problem in the use of those available. This implies the need for a profound review of the national investment policy.

Without a doubt, there is serious pressure due to insufficient external financing, explained by the blockade, debt pressure, the contraction of exports, the restriction of credits (which are not only explained but also not only due to the blockade but due to the, often unjustified, unpunctuality in payments). On the other hand, and related to the above, the insufficient availability of foreign investment.

This entire situation must focus investment policy on priorities whose first two components are, in my opinion, food production and the recovery of the public health sector, currently seriously affected. Education and social assistance had to be added.

The concentration of investments in the tourism and real estate sector of approximately 33% of the total, which, although there are no official figures regarding its sources, on several occasions government authorities have expressed that they have a high national component, should be reviewed based on greater resources for the priorities identified above.

Without a doubt, tourism is a sector with high potential in Cuba and was essential to overcome the crisis situation of the 1990s. But it is also very vulnerable, not only to international situations such as the pandemic, wars, etc., but also very sensitive to external aggression, for example, recently the U.S. administration decided to require visa processing for European citizens who visit Cuba.

Sector 1 of the economy (producer of means of production) is going to be rearticulated through a strategic discussion. This requires an effective economic policy in all sectors that uses the tools and incentives available to increase exports and import substitution. (It is not just a simple appeal to “a will to export.”)

On the other hand, it is necessary to carry out the required operations for a greater opening of international credits. This means acting on the issue of external debt, which implies a better payment policy, renegotiations, swaps, and the possibility of using certain assets, including mortgages, with rigorous analysis, as part of debt service.

Achieving greater foreign investment for the reactivation of the economy is also essential and part of the comprehensive policy; this should include the expansion of special zones, sectoral schemes, new cutting-edge technological sectors, for which Cuba still has certain advantages, as well as how to understand and favorably use the spaces opened by the new and changing international geopolitical situation, considering important players such as Russia, China, the BRICS, etc.

Returning to the topic of investment policy, as has been noted, the tourism sector has maintained more than 30% of this total. It is obvious that the investment rate expresses priorities and this leads to an essential question and reflection.

Tourism reached its peak in 2018, then dropped abruptly due to the aggressive policy of the Trump administration and the impact of the COVID-19 pandemic. International markets have not recovered sufficiently, and as I noted before, they are quite vulnerable to external aggression.

Cuba today has approximately 91,000 rooms for an annual tourism of less than two million visitors. The Dominican Republic, for example, has 98,000 rooms, but for a sustained tourism of more than 8 million visitors per year.

There is no sufficiently clear explanation for the current level of concentration of investment in the tourism and real estate sector, when the country has clear priorities such as food production, among others.

I insist on the idea that, although there are no figures, based on the statements that can be found, tourism investment has a high component of national resources. This means that it would seem that this disproportion is not explained, at least solely, by the decision or preference of foreign investors.

Now I will refer to the important problem of the exchange rate:

The disorder of exchange rates that currently exists is an expression of the general state of the Cuban economy, also the result of a strong devaluation that the Reorganization gave rise to, with a new fixed rate of 24 Cuban pesos for one dollar that is clearly far from what could be considered the equilibrium rate.

Later, a new rate was introduced for certain sectors of 120 Cuban pesos per dollar (population and MSMEs). The informal money market moves with a rate currently above 260 pesos per dollar. The latter, obviously, is not the equilibrium rate either because it is also affected by speculation.

Probably a rate between 150 and 180 pesos per dollar could be closer to an equilibrium rate, but what I want to highlight here is that this is a technical discussion that must be carried out in depth to decide on a more accurate monetary policy. Without an equilibrium rate as a reference, the national economy could not be competitive. This requires a specific and fundamental discussion within the comprehensiveness of the reform.

Operations are carried out today with a dual and fixed exchange rate, but with a volatile informal rate and outside the control of the State. This informal rate, which also allows quick access to foreign currency, is essential so that the non-state sector of the economy (MSMEs) can close its operational cycle.

An exchange rate regimen with greater flexibility and greater State control seems more convenient, with an active monetary and exchange rate policy based on the economic strategy, but there are two difficulties for this objective. On the one hand, the State does not have sufficient reserves and on the other, and very importantly, State enterprises do not assist the current informal foreign exchange market, without which it could not be under adequate control and dynamics.

The problem of the general growth of supply and the participation of State enterprises in the exchange market is essential. Without that, it is almost impossible to control the exchange rate. While the non-state sector closes its cycle in the informal currency market, with all its distortions, the state sector (the fundamental sector of the economy) cannot even begin that cycle, tied to administrative and bureaucratic regulations in the allocation of international currencies.

All of these arguments lead to the central hypothesis we are trying to test here. The need for comprehensive economic reform, including first of all the reform of the state enterprise and the agricultural production subsystem.

Agricultural sector

As I have already pointed out, food must be an essential component of the supply and this should largely be nationally produced, which today is insufficient and which maintains a notable level of imports. For example, as national production of pork and chicken has fallen significantly, the increase in chicken imports, mainly from the United States (possible due to the exception that the blockade has established for this item) has been almost essential, from a market that, due to the blockade, does not allow obtaining credits.

Seven years ago, agricultural production and yields contracted, while investment in agriculture has fallen from 8% in 2014 to less than 3% now.

Agricultural production, in addition to its importance for the economy in general, is also a matter of national security and must be one of the urgent priorities of the reform. Although it has been the subject of multiple generally positive measures, the agricultural sector has not undergone a fundamental reform as a production subsystem and this is essential.

After 1990, important changes were made in the sector:

1. a) the creation of basic units of cooperative production,
2. b) the handing over of land in usufruct to individual producers,
3. c) the opening of markets.

However, it has maintained a low level of investment and a low level of current expenses. It seems evident that in the sector there are persistent problems of insufficient production scales for the non-state sector (with great weight today in food production), problems of centralization and marketing, including the repeated insufficiencies of the collection mechanism.

It means that the resources assigned to agriculture (both investment as well as current expenses) are insufficient for food production: irrigation systems, sack and packaging factories, agricultural machinery of all types, more fertilizers and herbicides, etc.

For the allocation of inputs for agriculture (the so-called technological package) there are three prioritized products: tobacco, rice, and potatoes. These receive insufficient allocations but much higher than those received by other fundamental crops. In recent times, rice and potatoes have benefited due to the climatic effects suffered by tobacco crops.

In short, it is important to understand that without an increase in resource allocations to agriculture it would be impossible to recover production to the necessary levels. This is a necessary, essential condition, although not sufficient.

If we talk about agricultural production by forms of ownership, not management, statistics show that state ownership approximately covers 79.3% of the total, cooperatives (CPA) 6.8% and individual farmers 13.9%. The question would be relevant as to whether this structure is the most appropriate or if it is convenient, even without significant modifications to ownership, to continue diversifying the forms of management, with an extension of usufruct, but with greater guarantees, scales, support and autonomy.

Changes in the agricultural production subsystem are essential: greater decentralization, larger scales to the non-state sector to allow more efficient use of land and increase yields, greater allocation of resources.

The problem of production scale is fundamental. Today, the average land in usufruct is 5.5 hectares per unit. The average for individual owners is 10.9 hectares. The average state farm is 700 hectares. Considering the contributions made by the different forms of management, including the private sector and cooperatives, it would be important to review the current scales that correspond to each of them, to expand those that are producing more and better.

Agriculture concentrates approximately 18% of the workforce, about 900,000 workers, equivalent to one-fifth of the total. Due to their form of management, not ownership, state farms own about 32.2% of the land. Cooperatives 32% and between individual owners and usufructuaries 35%.

Currently, among owners, usufructuaries and employees through these non-state forms, there are approximately 540,000 people, to which we should add the participants in the different forms of agricultural cooperatives. These statistics confirm the importance that non-state forms have today in agricultural production.

In short, this is why we insist on the need to review the scales of production and favor non-state forms through usufructs in better conditions, change the form of marketing by transforming the current collection mechanism, greater investment and resources, greater credits and a correct policy of incentives and subsidies. This is decisive for an increase in the supply of food and supply in general.

Budget deficit

A knot in the current situation of the economy is the budget deficit; in this regard, it is possible to consult interesting interventions by the current minister of finance. The deficit is monetized, the growth of money in circulation has been very notable after the reorganization, while income to the national budget has been occluded or reduced.

The problem of insufficient supply and inflation are knots that prevent salaries and pensions from being variants of adjustments because these in real terms have been taken to the extreme, which has political implications.

State enterprises, which are a fundamental contribution factor to the budget, have a very complex situation. There are many in unprofitable conditions and many others with minimum profitability rates, which implies limited contributions to the budget. This is impacted by the different exchange rates that operate in the national economy (24 to 1, 120 to 1, 260 to 1).

The fiscal policy is not sufficiently progressive and has income declaration verification problems, especially in the non-state sector, for example. Invoices are not issued as they should and invoices are a fundamental fiscal control document.

On the other hand, the bancarization policy that began during this year does not have the expected results. It is not that its purpose is positive and favorable for the general functioning of the economy. It is, but it has also suffered from problems of scale (it allows a very low level of availability of working capital for current operations, especially in the non-state sector), problems of sequence and necessary conditions, of infrastructure. That is, it was inopportune and disproportionate.

Although there was a relative reduction in the budget deficit from 17% to 11%, it has not only stagnated but is increasing again.

The National Assembly has approved a new increase in the deficit greater than 18% of the GDP, placing the national economy in an even more complex situation, since, among other factors, it hinders the effectiveness of a macroeconomic stabilization policy and therefore control over inflation.

The issue is complicated, but it should be addressed effectively. As is repeated ad nauseam, there is a serious problem of stagnation in the production of goods and services; in 2023 the GDP has contracted by 2%. This cannot be solved with rhetorical appeals to the need to produce more, to the need to create wealth. That is so, but in economics, the relevant question that must be solved is how to establish the conditions to obtain those results; that is, how to encourage production.

Therefore, enterprises (all) cannot be decapitalized through excessive tax increases as a way to balance the budget because this would affect their already scarce resources for production. It is through increases in production and profitability that a greater and healthy contribution by enterprises to the budget can be achieved. In economics, the order of the factors does affect the result. This supposes, as an essential and urgent condition, an enterprise reform, time and again postponed and underestimated.

On the other hand, spending must be well-adjusted. This was discussed in the recent National Assembly session, especially in the budgeted sector that employs more than 50% of the workforce in the state sector.

The policy for this sector must be adjusted, except for the health, education and social assistance sectors, where expenses should not be reduced, on the contrary. Although we must seek greater efficiency. These sectors are part of the very heart of the revolutionary process in Cuba, their deterioration must be stopped, and there should be no doubt about their priority.

The budget deficit should drop to at least 6%, a far cry from the recently approved level of over 18%. The parliamentary discussion on this matter has been, in my opinion, insufficient. With the current inflation, real wages and pensions have continued to adjust. The average salary today is approximately 4,000 pesos and the minimum wage is 2,100 pesos; pensions are generally even lower.

If all existing markets, essential today, are included in the calculation of expenses, the basic food basket in real terms is above these incomes, which, as we have already pointed out, is a serious problem.

Allow me to insist on a specific consideration related to the issue of income that the two most important social sectors deserve. Health and education, very affected by the real salary that their employees receive, both doctors and teachers, as well as paramedical staff and teaching assistants. The last session of the National Assembly approved an increase in salaries for these sectors, which is essential, but the necessary adjustments would have to be made so that this does not prevent the also fundamental general reduction of the deficit. Difficult and complex? Yes. Impossible? No.

New measures were approved to adjust subsidies, electricity rates, water rates, fuel prices, etc. (generally necessary measures), but due to the sensitivity and impact of these items, it is necessary to monitor their effects and make the adjustments that are required in an agile and timely manner.

In Cuba, the deficit has not worked as a stimulus to the growth of production. Unlike what happens in other international experiences, it does not grow sufficiently, even if the deficit is high. That is, the structural problems of the economy prevent a productive response to the growth in demand.

The current fiscal deficit margins are very close; this very clearly expresses the need for a greater contribution from enterprises and a more effective and progressive fiscal policy. But this is only possible with efficient and profitable enterprises.

On the income side, a more effective fiscal policy, on the expenditure side, salaries and pensions cannot be an adjustment variable, due to their current low level. Greater efficiency is needed in expenditures that should be subject to competition, the reduction of non-productive employment and a serious and effective confrontation with corruption and tax evasion.

Enterprise reform

The other and main heart of the comprehensive reform is the enterprise reform.

Today the Cuban economy is not what it was a few years ago, but much more diverse in its form of ownership and management. The public enterprise (majority) must exercise leadership in a more competitive and open system. For this, it must be profoundly transformed, not so that it stops being public but so that it stops being inefficient.

Before continuing I want to stop at a conceptual issue on which I have insisted in several texts: what is socialist or capitalist is not the enterprise, it is the system that articulates them all, led and guaranteed by the State.

The public enterprises of capitalist countries are not socialist enterprises because they are public, they are the public enterprises of a capitalist system. Likewise, private enterprises in Cuba (MSMEs) are not capitalist because they are private, they are the private enterprises of a socialist system. This conceptual definition seems to me to be of the greatest importance, because as expressed in the official discourse when calling the state enterprise as socialist, by exclusion it would be classifying all the others (which today constitute a complementary but essential sector of the economy) as capitalist, which automatically places them in an anti-systemic logic with all the consequences that this entails.

Public, cooperative and private enterprises are an integral part of a single system whose character is socialist, under the control of a State in the hands of the people, which must function democratically.

The reform of the state, public enterprise (leader of the system), and the greater opening to the private sector within the limits that are well established are two sides of the same coin and must advance simultaneously and in an integrated manner, with a systemic vision.

Enterprise profitability cannot be a precondition guaranteed by the price, much less in those public enterprises with the status of monopolies. The profit must be a result of the production and management of the enterprise, in a competition where all economic players compete on an equal footing. Obviously, there are essential exceptions that, for very justified reasons, must be subject to subsidies and price controls.

Likewise, it is very important to clearly define the difference between salary and profit distribution among workers. From a conceptual point of view, both incomes should not be mixed.

The basis of the price must be in the game of supply and demand and from there it must be regulated in a well-founded manner as necessary.

Today in many economic activities of enterprises, due to overemployment, the cost of wages is very high. This weighs down the enterprise because it maintains a workforce with low levels of productivity. In our opinion, and as is included in the 1995 book, a more precise classification of enterprises by their activity and scale is necessary.

The fundamental and strategic means of production must always be public, but this concept, the scales and the conditions must be redefined: establishing more precisely which sectors and up to what level they should be opened to the participation of non-state enterprises, without them losing leadership within the economic system.

Enterprises exist to fulfill certain functions and conditions; produce efficiently, innovate, generate employment. These indicators must be constantly measured, especially in public enterprises. Furthermore, they must operate within a regimen of strong financial constraints that compel efficiency.

Public enterprises have been handed over by their owners, the people, to the government to administer and manage them well, and there must be a clear system of accountability for the results obtained, not for their management, which must be autonomous. This is a fundamental concept.

For an enterprise law

A draft of the new enterprise law is circulating, its completion and approval is of the utmost importance to the economy. From what we know, it has components of positive advances, for example, it includes the issue of governing boards (a structure that we had already proposed in the 1995 book) to solve the so-called principal-agent problem. That is, a structure that allows greater control, not of management, but of strategies and results by the owners of the enterprise, representatives of the people and workers (principal), and the directors of the enterprise (agents) who would have the autonomy of management, but the obligation to account for the results and follow the general strategy defined by the governing board.

This is an essential issue because it has to do with how ownership relations are established, operated and reproduced, which as we know are determining factors in the character of a social-economic formation.

The text that we have seen also has other positive factors such as higher levels of decentralization and autonomy, cessation of the subordination of enterprises to sectoral ministries, etc.

However, this draft presents some insufficiencies and uncertainties:

1) only refers to state enterprises that it also calls socialist, it does not include non-state enterprises in the economy (definition problem).

2) decentralization is still limited.

3) the creation of a so-called ministry of assets is proposed, whose functions are not clear, nor how it is controlled. This presents a danger in terms of excessive centralization if very clear and precise criteria are not established in this regard; among others, which enterprises would be under its care, etc.

4) it is not clear what role the current higher business management organizations (OSDEs) would play, which until now and in most cases have hindered the necessary decentralization and autonomy of enterprises. It would be necessary to specify very well when such a structure is really convenient to only leave those that are fully justified.

5) so far, there is no clear statement on the change in the nature of planning, currently centralized and bureaucratic, when it should be more financial and strategic. The current nature of planning is an obstacle to the progress and dynamism that the economy needs.

6) the draft is not clear about the role of supply and demand and competition in price formation (it is said that enterprises will set prices).

7) it is not clear that the subsidies that are considered necessary should essentially be for the consumer, not the enterprise. On the other hand, it seems that there is still no consensus between the ministries because this law is not yet included in the agenda of the National Assembly, which is worrying due to the essential and urgent nature of this issue.

In the enterprise reform process, there are some essential issues. How to guarantee profitability? What is the appropriate limit and compatible with socialism that should be established for the privatization of assets? How to generate employment for those who are overemployed in the state sector? How to open the direct international insertion of enterprises, without intermediate enterprise structures, only the necessary technical advice from the Ministry of Foreign Trade? How to make public enterprises respond to the interests of their legitimate owners (functioning of the governing board)?

I consider it of the utmost importance to evaluate most rigorously other experiences of successful socialist reforms such as Vietnam and China. There, credit and banking, which is state-owned, are fundamental mechanisms for controlling the economy and enterprises. Credits are not and cannot be a “gift,” but rather a fundamental instrument of economic policy and with that rigor they must be used.

Decentralization and change in the character of bureaucratic planning is an urgent need.

The most advanced of the European socialist experience was the so-called LIBERMAN-KOSIGUIN reform, in the end, for different reasons, it was not successful, nor was Yugoslav self-management. They are processes that must be evaluated critically and rigorously in order, in the specific conditions of Cuba, to go beyond these limits.

Without the participation of public enterprises, most of them under conditions of decentralization, in domestic markets, including the monetary market and means of production, they could not function well. Neither do enterprises, given that these markets must be transparent in their operation and information.

Enterprise decentralization must be accompanied by strong financial restrictions and greater incentives. It is imperative to complete and approve an adequate enterprise law that is broader than the draft that is circulating and also a bankruptcy law.

Another fundamental issue is the greater articulation of the non-state sector of the economy (MSMEs, private and cooperatives) in the general dynamics of the economy and in the functioning of the markets with the necessary autonomy and guarantees, as well as the necessary and founded regulations that guarantee the integral functioning of the socialist system.

The productive chains that the entire economy needs cannot be established by decree, they are the result of the evolution of a dynamic economy and the effective use of the tools offered by economic policy.

It is essential to keep in mind the concept that I have frequently insisted on, that socialism is not the suppression of the market, nor the total suppression of private ownership. Socialism is the suppression of the hegemony of capital that must be guaranteed by the State in the hands of people’s power that can be exercised democratically. That is, to prevent the predominance of the interest of capital over the general interest of society and of workers in particular.

This must not only be reflected in the laws, but also in the way in which the policy is exercised, in the way in which social ownership over the fundamental means of production is guaranteed and in the way in which education and culture are reproduced and developed.

It is also imperative to consider the specific conditions of Cuba, an underdeveloped country, with a scarce endowment of natural resources, strongly blocked and in a very complicated geopolitical position. It would be absurd to ask a nation in these conditions to solve the great theoretical and practical problems of socialism; it must be answered based on the specific conditions of the country, without fatuous idealisms that only hinder the necessary transformations, from a socialist conception, yes, but without losing the horizon of what is historically possible here and now.

Conclusion

The comprehensive reform of the economy is not only essential, it is also urgent; the systemic nature and sequence of this process is fundamental.

The reform implies the whole, but its two hearts today are the reform of the state enterprise and the reform of the agricultural production subsystem. Without these two conditions, it is almost impossible to overcome the current situation of recession and inflation, regardless of how the international situation moves, which is complex and very uncertain.

The identified priorities such as food production and the recovery of public health must be supported with available resources.

Presenting and implementing a clear macroeconomic stabilization and anti-inflationary plan that today, despite official statements, is not seen, is essential to create the conditions that allow greater progress in the comprehensive reform.

The level of the current budget deficit recently approved for the year 2024 is an additional and strong obstacle to this objective.

It is also essential to redefine, focus, and efficiently finance social policies; without major taxes on the budget, as evidence shows, there is a large sector of the population today in vulnerable conditions that must be more effectively supported, especially the older population.

As we pointed out above, it is essential to conceptually redefine the socialism that should be in the concrete conditions of Cuba, today this is not merely a theoretical matter, it is a matter of practical importance, because it determines to an essential extent the course of action.

 

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*This text was originally posted on the author’s Facebook account. It is reproduced with his express permission.

Author

Julio Carranza