The Cuban Reformation: Don’t commit a YeltSIN!

by James Resnick, student of International Relations at King’s College London.

It’s no North Korea, but for over sixty years Cuba has been one of the most economically isolated and restricted countries in the world. Yet, it’s the case that Cuba has at least been economically liberalising since the fall of communism. While Cuban reform can’t be held on parity to the Gorbachev-era reforms of perestroika and glasnost, steps had been taken by then-President Fidel Castro, and have been extended by his son Raul. From the moment he assumed provisional power in 2006, Raul Castro has spoken bluntly about Cuba’s predicament, stating that “we reform, or we sink.” The acknowledgment that Cuba’s isolated and degenerated planned economy isn’t good enough for Cubans is welcome.

President Raul Castro has aggressively sought to economically reform his country, including ‘agricultural reform, the formalisation of a progressive tax code’ as well as ‘shrinking the size of state payrolls by allowing for a greater number of small businesses.’ Among the transitionary policies from planned economy to market economy, agricultural reform has been the most critical. In the case of Cuban agriculture, private farms happen to occupy less than a quarter of total arable land, and yet, more than half of Cuba’s food production is derived from these privately-owned farms. Hence, to increase domestic production, the state has handed almost 4 million acres of land to private farmers. Raul Castro has been much more of a reformist compared to his father, and that is shown not only in what has been achieved, but in the ambitiousness of his targets. For instance, in late 2010, [Raul] Castro pledged to ‘eliminate 500,000 state jobs in the first six months of 2011, with an eye to incorporating over 1.8 million workers into the private sector by 2015.’ While Castro’s naiveté can be exposed, given the fact the overly-ambitious targets were far from met, Castro at least epitomises a protagonist that wants to adeptly make the transition from a planned to market economy.

For the vast number of Cubans, to enjoy economic prosperity and improvements in material living standards requires economic liberalisation. It means loosening the restrictions on setting up a business, earning profits and retaining those profits as well as benefitting from consumer choice. However, rather than focusing on a comparison between a stagnant planned economy and a potentially thriving market economy, the focus should rather be drawn to the actual transition itself. What’s it like for a country to make the transition from a planned to market economy? Understanding the transition that is taking place better enables one to have a clearer sense of what is really happening in Cuba.

In a New York Times op-ed last week, Randal Archibold exposed the extent of inequality pervasive in Cuba, a direct result of the partially haphazard nature of the economic liberalisation. He highlights that transitionary inequalities occur, that as Cuba has economically liberalised, only a small minority of Cubans have been profiting from the benefits. Although it has now been recently scrapped, one important reason why only a few Cubans were profiting was that while most who work for the Cuban state are paid in Cuban pesos, the previously banned items such as mobile phones and computers were only available to those with the country’s convertible peso, which was worth 25 times as much as the national peso. Hence, Cuba’s dual currency system fueled the already increasing social and economic divisions, between state workers and the newly formed Cuban bourgeoisie. In making this transition, Castro should and is to some extent learning from history of the vast inequity that resulted from Boris Yeltsin’s policy of mass-privatisation in Russia during the 1990s. While privatisation was necessary, the way it was implemented created deep antagonisms and divisions between those employed by the state – including teachers, doctors, professors and policemen – and the “new Russians”, those who flocked to the newly-opened restaurants, nightclubs and casinos. In a continuation of his capitalist reforms, Yeltsin demanded loans from some of Russia’s most powerful oligarchs, such as Vladimir Potanin and Roman Abramovich, in exchange for undervalued oil and metal shares as collateral. Soon after, these “new Russians”, a tiny minority, became the owners of some of Russia’s most profitable assets. Hence, a negative externality of Yeltsin’s reforms was the establishment of a new oligarchy, an oligarchy that dominated society while at the same time broke off from the rest of society. Understanding the negative transitionary effects of Russia during the 1990s is critical for a country like Cuba. Already it is the case that a minute few are taking much of the Cuban economic gains, and Yeltsin’s reforms should act as a reminder of what happens if you don’t make an effective transition.

It would seem disappointing to simply suggest that profound inequality is a natural product of an economic transition. Indeed, even though Cuba is bifurcating between the heavily-subsidised urban poor and the new cosmopolitan bourgeoisie, Castro should at least be given credit for what he has achieved in softening these inequalities. This includes maintaining a universal healthcare system, increasing investments in public education and scrapping the heavily unpopular dual currency system. Added to this, to counter the possibility of committing a YeltSIN, replicating the mistakes of Yeltsin in the 1990s, a new state financial accountability bureau has begun the hard task of weeding out endemic corruption. The lifting of restrictions on imported goods such as mobile phones and computers is also beneficial to the Cuban mass, though the problem remains that the average Cuban simply doesn’t have a disposable income large enough to afford these luxuries.

Cuba most definitely needs to go through its restructuring, but it needs to do so in a way that at least seeks to be inclusive of all parties. The average monthly wage in Cuba stands at around $20, with living standards largely subsidised by universal healthcare, public education and minimum food rations. On the other hand, a new upper echelon has broken off from society. Though some would argue that the wealth of the uber-rich Cubans will eventually just to trickle down, it should be questioned, why can’t a country make a transition without creating such a divisive society? The fact that Castro has done much good indeed raises the notion that profound inequality is an inevitability. Castro must continue to protect state services that many Cubans rely upon and continue his hardline approach to corruption in order that he doesn’t commit a YeltSIN. The YeltSIN committed in the 1990s via pushing economic liberalisation too aggressively serves as a case study for why a gradualist approach is important if a country wants to be socially and economically inclusive.



New York Times

BBC News

The Independent

Foreign Affairs


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