14ymedio, Carmelo Mesa-Lago, Pittsburgh, April 9, 2019 — The 60th anniversary of the Cuban Revolution is an opportune time to examine how things have changed and how things remain the same in the intervening years. The country’s market economy lasted until 1958 but, by 1961, had been transformed into a centrally planned economy overwhelmingly dominated by state-owned enterprises and collectivized agriculture. The market took a back seat to the central plan.
Though it has failed throughout world, this economic model survives largely intact in Cuba, resulting in monumental economic inefficiency that has negatively impacted growth. The dependence on the sale of sugar, which constituted 75% of total exports in 1958, was replaced with an 80% reliance on professional services and tourism.
Cuba was not exporting any professional services in 1958, while the number of tourists in 2018 was 18 times what it had been thirty years ago, with income from this activity 53 times what it had been back then.
Oil production is 79 times what it was in 1958 and Cuba now even produces natural gas. The dependence on energy imports has been reduced from 99% to 50%. Previously, social services were mainly limited to urban areas and were provided, at least partly, by privately-run organizations. Now those services are state-managed, virtually universal and free.
On the other hand, Cuba’s foreign debt is 190 times what it as in 1958, and that is after significant debt forgiveness by the Paris Club, Russia and other countries. Annual population growth in 1953 (the last time a census was taken) was 2.1% compared to a 0.2% decline in 2017 due to an increasingly aging population. The proportion of older adults rose from 9% of the total population to 20%. Cuba has the oldest population in the region, which has increased the health care and pension costs.
In regards to continuity, in the past six decades Cuba’s socialist economy has not managed to eliminate or significantly reduce its enormous reliance on trade with, or investment, aid and subsidies from another nation.
A 55% reliance on exports to the United States in 1958 became a 72% reliance on the Soviet Union and, since the beginning of the 21st century, a 44% reliance on Venezuela.
Between 1960 and 1990, the Soviet Union loaned Cuba the equivalent of 58.5 billion euros but only got back 450 million. The rest was written off as price subsidies and non-reimbursable aid. The collapse of the Soviet bloc in the 1990s led to a severe crisis in Cuba. At their peak in 2012, Venezuelan aid, subsidies and investment amounted to 11% of Cuban GDP.
In spite of substantial foreign assistance, the economy stalled — average annual growth from 2014 to 2018 was only 1.7% — due to the economic system’s inherent inefficiency. The target for 2019 is 1.5%, a quarter of the 6% officially acknowledged as the level needed to generate adequate growth.
In 2017, most manufacturing, mining, agriculture and fishing production was below the 1989 level. Only tourism showed a significant increase. Foreign trade has suffered a systematic decline: 6.76 billion in 2017.
The surplus generated by the Cuba’s primary source of foreign exchange — the export of professional medical services provided by doctors, nurses and related professionals — decreased 35% from 2012 to 2018 due to the economic crisis in Venezuela, which had been paying 75% of the cost of these services. Overall trade with Venezuela also fell from 44% to 17% of GDP, the supply of oil fell by half, and all the country’s investments in Cuba were halted.
These problems led to a cut of eight percentage points in social spending from 2008 to 2017 with a resulting decline in health and education services. From 1989 to 2017 the value of pensions fell by 50%, home construction by 80%, and the wage adjusted for inflation by 61%.
The US embargo is blamed for these problems. This was true 25 years ago but Cuba now trades with at least eighty countries, including the US, and has received investments from multiple nations. The embargo still has negative impacts — sanctions are imposed on international banks that do business with Cuba — but the fundamental cause of these problems has been the inability to generate exports to pay for essential imports, both of which have declined in recent years.
Between 2007 and 2018, Raúl Castro tried to solve these problems with market-oriented structural reforms. They had no tangible effect, however, due to extremely slow implementation, disincentives, taxes and an about-face starting 2017.
Neither the new president, Miguel Díaz-Canel, who favors continuity, nor the new Constitution, which was ratified on February 24, have changed the essential economic model. This is an absurd attitude given the collapse of the Venezuelan economy and the teetering of its regime due internal rebellion and international pressure. Maduro’s fall would further aggravate the current crisis in Cuba.
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