July 2014

By Roger Keeran and Thomas Kenny

In 2011, Cuban authorities adopted bold new Guidelines (Lineamientos) to deal with Cuba’s economic problems. Modified by pubic debate and adopted by Cuba’s parliament, the Guidelines now have the force of law and are embodied in regulations. In May 2011, after a visit to Cuba, we published an article, “Whither Cuba?” in which we argued that in spite of certain similarities between the Cuban problems in 2011 and the Soviet problems in 1985 and in spite of certain similarities between the solutions pursued by Mikhail Gorbachev known as perestroika and the Cuban reforms (actualizacion, or update), the differences in the two situations and the two sets of reforms were much greater than the similarities. Therefore, little reason existed to suppose that Cuba was heading down the path that ultimately destroyed Soviet socialism.

In February 2014 we visited Cuba again. This time we interviewed or re-interviewed workers, journalists, union officials, intellectuals, and academics. These discussions along with an examination of written material have not caused us to change our conclusion, but they have deepened our appreciation of the problems Cuban faces and the challenges faced by the new reforms and the differences with Soviet history.   In this essay, we will revisit the question of whether the reforms signal a return to capitalism in Cuba and add some new insights.

The Problems

By nationalizing virtually all productive property and regulating economic activity by centralized planning in place of the market, competition, exploitation, and the pursuit of profit, Cuban socialism has achieved monumental gains for working people, including economic growth, full employment, free health care and education, housing, nutrition, and a high cultural level.   Socialism, however, does not automatically produce a utopia. State ownership and centralized planning engendered their own problems. Without the fearsome discipline of the market, socialism faces problems of motivation, productivity, efficiency and the quality of goods and services. Providing all people with employment can lead to overstaffing and inefficiency. Administering a large state fairly according to rules can lead to bureaucracy, red tape and delays. Ensuring all people of the basics of a decent life can lead to rationing, lines, and limitations on the quality and variety of consumer goods. Rationing and shortages can lead to corruption and a black market. Centralized planning can lead to a lack of initiative and responsibility at the local level.

Though such problems may be inherent in the nature of socialism, they have been exacerbated by the conditions of its birth. Never has a socialist revolution had the privilege of developing freely on its own terms. No socialist country could avoid imperialist attempts to suffocate it by invasion, diplomatic isolation, economic warfare (sanctions, blockade, sabotage, and military pressure), émigré terrorism, assassination, psychological warfare, and more recently the encouragement of “democratic movements,” and the use of cyber warfare and social media. Socialist states have always had to maneuver in a hostile world, a world even more hostile after the disappearance of the socialist bloc in the Soviet Union and eastern Europe.

In dealing with its economic problems, Cuba has always faced two disadvantages that did not pertain to the Soviet Union or China. First, aside from abundant arable land, beautiful beaches, forests and nickel ore, Cuba does not possess abundant natural resources. It has lacked gas, oil, coal, iron, tin, and most other resources. (Though recent discoveries of offshore oil reserves may address one of these deficiencies in the future.) Secondly, it has had to endure the fifty year U.S. blockade that deprived Cuba of export and import markets and greatly added to cost of imported medicine, food , capital goods, and consumer goods. According to some estimates in half a century the blockade has cost Cuba $975 billion, and without the boycott the Cuban standard of living might well equal Western Europe.[1]

None of these problems offset the unmistakable advantages of socialism for the mass of people, and none of them doomed the socialist project. Nonetheless, they did and do require constant attention and creative solutions. Cuba has revised its socialist model several times in attempts to deal with its economic challenges. Sometimes, the new models have had to correct deficiencies engendered by earlier ones.

1.     First Model, 1960-1970. In the first period of the revolution, Cuba nationalized the big foreign companies, distributed land to the landless, developed a planning system, and coped with the U.S. blockade by developing trade with socialist countries. In this period, Cuba emphasized moral incentives over material incentives and set ambitious goals for rapid industrialization to be financed by the intensive production and export of sugar.

2.     A Model Like Eastern Europe, 1970-1985. In this period Cuba joined the CMEA (the Council for Mutual Economic Assistance, an organization of European socialist states designed to coordinate economic activities and develop economic, technical and scientific cooperation. In this period, Cuba developed its first Five-Year Plan that stressed the production of sugar and that placed more emphasis on material incentives in the pattern of the Eastern European socialist countries.

3.     Rectification, 1985-1990. In this period, Cuba attempted to rectify the mistakes of uncritically applying Soviet economic recipes to the Cuban situation. Cuba abandoned some market mechanisms it had tried and enhanced economic centralization. It also tried to diversify the economy away from sugar by developing biotechnology, pharmaceuticals, tourism and nickel production.

4.     The Special Period, 1991-2010. The collapse of the Soviet Union and Eastern Europe meant the sudden loss of over two-thirds of its exports and a drastic contraction of its whole economy. The economic crisis was exacerbated by the intensification of the U.S. blockade by means of the Torricelli Act (1992) and the Helms-Burton Act (1996).   In response, Cuba devised a new model that enforced belt-tightening, conserved foreign exchange, turned state farms into co-ops, allowed limited private enterprise in the retail sector, allowed remittances from Cuban exiles, and stressed the rapid build-up of tourism.   To ensure that the remittances and tourism would bring in desperately needed foreign exchange, Cuba instituted a dual currency system.

The Special Period proved to be a very resourceful way of countering the extremely grave crisis posed by the collapse of the Soviet Union and the intensification of the blockade. With the policies of the Special Period coupled with the help of loans from China and oil from Venezuela, Cuba managed to bring its economy and standard of living back to pre-crisis levels.   Meanwhile, however, several new economic problems emerged. First, the world economic recession of 2008 hammered Cuban export markets, and this remains a problem. Moreover, in 2007-2010, several hurricanes caused widespread destruction.   On top of these problems, the Special Period policies resulted in some unintended and unwelcome consequences related to the dual currency system.

Because of the difference between the Cuban Universal Currency (CUC), (which was used by tourists and those sending remittances from abroad) and the Cuban peso was roughly 1 to 25, Cuba was able to take in much needed foreign exchange.   This difference in value also made access to the CUCs extremely desirable and gave its recipients considerable advantages. Consequently, work in restaurants, hotels, taxis, and other parts of the tourist industry with access to payment or tips in CUCs became in many cases more attractive and more lucrative than work in the professions for which people were freely educated.   There was thus a demoralizing and inefficient “brain drain” from teaching and other professions to tourism.   It also contributed to inequality, the black market, and corruption. For example, since the preponderance of the two million Cuban-Americans living in the United States are Cubans of European or mixed-race background, the preponderance of the billions of dollars of remittances went and are going to their relatives of European or mixed-race backgrounds in Cuba. This has exacerbated racial economic differences.  

The only way out of these difficulties required eliminating the dual currency.   Without causing tremendous economic dislocation, the dual currency could only be eliminated gradually by increasing Cuban wages and reducing the need for foreign exchange. This in turn required increasing productivity and efficiency to make Cuban products more competitive and to reduce the need for imported energy and raw materials. It also required increasing self-sufficiency particularly in food, since Cuba spends about $1 billion annually to purchase food abroad. Similarly, recouping export markets lost in the 2008 downturn required increasing productivity and efficiency.  

All of these considerations—addressing some the endemic problems of socialism and combating problems caused by the 2008 downturn as well as those generated by the Special Period—provided the impetus for the “update” reforms inaugurated in 2011.   Another circumstance that makes the reforms pressing is the uncertainty of the international situation. Because of China, the Venezuela’s Bolivarian Revolution, and progressive, social democratic governments in Brazil, Bolivia and elsewhere, Cuba now has more friends and support abroad than in the recent past, but none of these was guaranteed to last. China’s support for fraternal socialist lands has wavered before. The Bolivarian Revolution is not consolidated. And social democratic governments come and go.

Both Fidel Castro and Raul Castro have underscored the urgency of the reform. Fidel said, “the Cuban model doesn’t work for us anymore.”[2] In December 2010, Raul Castro said, “We either rectify things, or we run out of time to continue to skirt the abyss [and] we sink.”[3]

Understanding the nature and gravity of the problems faced by Cuba is an important component of making a political assessment of the Cuban reforms.   The essence of opportunism as defined by Lenin is not in making compromises or concessions to the class enemy but in making unnecessary compromises and concessions.   In our view, the crux of the problem with Gorbachev’s perestroika and glasnost was that that they involved unnecessary concessions to American imperialism and compromises with capitalist ideology and practices.   Gorbachev’s policies were less a requirement of the objective situation than of the class interests of a petty bourgeois sector that had developed in Soviet society rooted in years of growth of the second economy.

Though the Soviet system had problems that needed to be addressed. Gorbachev’s policies involved five unnecessary policies of opportunist retreat:

*The liquidation of the Communist Party of the Soviet Union,
*The handover of the media to anti-socialist forces,
*The unleashing of nationalist separatism, and
*The surrender to U.S. imperialism,
*The wholesale privatizing and marketizing of the socialist economy.

Though the first four of these processes are not going on in Cuba, a certain reduction of the state’s role and a certain augmentation of private economic activity and the market is occurring.

Though the Cuban reforms today may be cheered by those connected to the Cuban second economy and by those who desire to undermine socialism, they are a response to very real problems that if unaddressed threaten the future of Cuban socialism. To the extent that the reforms are compromises with the market and capitalist ideas, they are necessary compromises. The short term goal is to eliminate the balance of payments deficit, enhance flows of external income, substitute domestic produce for imports, and increase economic efficiency, work motivation, and income. The long -term goal is to achieve food and energy self-sufficiency, the efficient use of human resources, a greater competitiveness and new forms of production.[4]

The Policies of Actualizacion

Still, the question arises: even if the Cuban reforms today are more necessary than the Gorbachev reforms of the late 1980s, are not the Cuban moves themselves similar in many ways to Gorbachev’s and do they not pose the same danger to socialism as Gorbachev’s reforms?

Many of the guidelines do bear a resemblance to Gorbachev’s policies, and these have drawn the most attention.   Unquestionably, many of the guidelines aim to increase the role of the market, private enterprise and local autonomy, and hence to reduce the role of state planning, state employment, and state subsidies. A course that increases the size of petty bourgeois interests does pose dangers. Invariably, voices will arise that want to push things faster and further toward capitalism. In the prologue to the Spanish translation of our book, Socialismo Traicionado, Ramon Labanino, one of the imprisoned Cuban Five, speaks of the need at this moment to “be alert and vigilant in order to avoid errors and weaknesses that could bring us to failure.”

Many things about the handling of the updating so far, not the least that men like Labanino are aware of the Soviet history, give confidence that Cuba can avoid the pitfalls that doomed Soviet socialism.

Most importantly, in adopting the Cuban Communist Party Draft Economic and Social Policy Guidelines, the Sixth Congress of the Communist Party of Cuba (PCC) affirmed that the government’s commitment to socialism and to preserving the livelihood, security and standard of life of the Cuban people. In the PCC’s words, the government will “continue preserving the achievements of the Revolution, such as access to medical attention, education, culture, sports, recreation, retirement pensions and social security for those who need it.”

Also, of crucial importance, the formulation and implementation of the guidelines occurred and are occurring in a process that differed widely from what happened in the Soviet Union. The Cuban “updating” emerged from a highly democratic process and the mass participation rank and file Communists and workers. In Cuba, the development of the guidelines in 2010 through their ongoing implementation in 2014 embraced popular consultation and discussion and the building of mass consensus. The process began in December 2010 through February 2011 with discussions by the people as a whole, followed by discussions by the party in every province, and then by discussions at the Sixth PCC Congress in April. In total 163,079 meetings occurred in which 8,913,838 people participated. These discussion modified or incorporated 68 percent of the original 291 guidelines, modified 181 others, and created 36 new guidelines. Discussion of the guidelines also occurred in the letter pages of Granma, radio phone-ins, internet blogs, and the trade unions. One observer noted: “A key point here is that the drafting of new employment law involves a process of consultation with the CTC (the Central Confederation of Trade Unions) so detailed and extensive that unions have a de facto veto.”[5]

Because of this mass involvement, the Cuban people are united and confident about the direction of the updating.   The question of whether Cuba is going back to capitalism is more prevalent outside Cuba than inside. No one with whom we spoke expressed the slightest fear that the updating would hurt the interests of workers or threaten the future of socialism.

The Cuban “updating” is a multifaceted and sweeping effort that involves 291 guidelines touching nearly every corner of economic life.   In another difference from Gorbachev’s approach, the Cuban reforms are almost exclusively geared to economic changes, not changes in politics, ideology, the media, and foreign policy. Moreover, many of the guidelines are geared to peculiar Cuban conditions and have no resemblance to Gorbachev’s perestroika. For instance, some of the guidelines have to do with encouraging the cultivation of currently unused land and developing rural areas by giving unused state farmland in usufruct to those who can produce food for national consumption. Some of the guidelines have to do with a return to the socialist principle of distribution — “from each according to his ability, to each according to his work,’’— that is to say, rewarding workers for their productivity, from which the Cubans had moved away during the Special Period.

To increase productivity and efficiency, the responsibility for various national enterprises will devolve to the provinces and municipalities. These lower levels will acquire control over their own revenues and are expected to operate on the basis of financial profitability. The sugar industry for example will reduce the number of personnel and each mill will become a separate enterprise. Decentralization involves a departure from central planning, and this can cause complications for what centralized planning remains, and it can also introduce inequalities as some localities enjoy more favorable conditions than others. Still, decentralization does not necessitate tampering with the fundamentals of socialist ownership and the provision of social needs. All socialist countries have experimented with various mixes of centralization and decentralization.

The state plans to reduce other activity including as many as a million or more jobs. The state will also eliminate workers’ cafeterias with subsidized meals or will transform them into commercial eateries. The state will limit number of months of eligibility and the size of unemployment benefits. The state also plans to eliminate the subsidized ration book for those who can afford to buy food. The idea is to do these changes in a gradual and systematic way, so that those losing state jobs find employment in an invigorated private sector.

Though the reforms involve an expansion of private enterprise and thus capitalist relations of production, the expansion is highly regulated.   According to one estimate, as of 2014, 450,000 Cubans work in the private sector in farms, cooperatives and small firms.[6] As of December 2013, 78 percent of the workforce was in the public sector and 22 percent in the private sector. The goal of the updating is sixty percent in the public sector and forty percent in the private sector.[7] The private and cooperative sector will embrace almost half of the workforce by 2015. In this process, the state will lease to private individuals such enterprises as in-home restaurants (paladares) , bakeries, barber shops, beauty salons, watch, bike and auto repair shops. The state is raising the number of permissible customers for in-home restaurants from 12 to 50 and suspending taxes for a year for those paladares that employ up to 5 persons.

Market relations are expanding. People with access to foreign exchange will be able to use the tourist facilities and purchase cell phones, telephones and computers. People will be able to buy and sell automobiles, houses and apartments and to build private homes and hire private building crews.

The guidelines attempt to handle such controversial aspects as privatization and foreign investment in ways that guarantee the living standards of workers and the future of socialism. For example, the expansion of cuentapropistas (workers on own account or the self-employed) is being done not only to absorb those displaced from state employment but also to encourage workers in the illegal second economy to become part of the legal economy. A trade union official told us about a relative who had worked as an illegal taxi driver, where he was often arrested, paid no taxes and had no social benefits. Now as a cuentapropista he drives a cab legally, pays taxes, and receives social benefits, including eventually a pension.[8] Moreover, all of the cuentapropistas are eligible to join trade unions. The unions are devising strategies to recruit them and to offset the petty bourgeois thinking that could arise with the expansion of self-employment.

The updating seeks to expand foreign investment, beyond what was allowed by a 1997 law. Already in the plans is a new Mariel container port financed by Brazil. At the same time, the updating seeks to minimize the potentially harmful consequences of foreign investment. For example, the law creates incentives for joint ventures. It excludes investment from Cuban exiles. It requires joint ventures and other forms of enterprise to hire labor through the state-run Cuban agencies. It requires foreign investors to follow the labor code in terms of environmental, health and safety protections and social security. With the exception of high-level management, companies must employ Cuban citizens and residents for all positions.
Though all of these changes are breathtaking in their sweep and aspirations, Raul Castro and the PCC are implementing them cautiously with an eye to thwarting unintended consequences. At the Sixth Congress of the CPP, Castro said, “The challenge is clear: higher output levels in material production, by volume and efficiency are essential; but have to be made in the context of socialist relations of social production, socialist property relations.”[9] On the licensing of cooperatives, Castro said, “We cannot hurry in the constant approval of these cooperatives. We shall go at a suitable pace.” In 2013, Castro issued a stern warning to entrepreneurs against rushing headlong in violation of the guidelines.[10]

In a similar vein, the party has warned people not to expect the updating to lead to privatizing the economy. In 2010 the PCC declared: “In the new forms of non-state management, the concentration of ownership in legal or natural entities shall not be permitted.”[11]

In July 2013, Marino Murillo, a top economics official in the Cuban government, reinforced this idea before the National Assembly of People’s Power: It is not correct to say that in Cuba today a transformation of property into private property is taking place. Do not mistake the transformation of property for the modernization of management. They are two different things….[12]
What is being transferred into private hands is not ownership but the management of socially owned property.[13]
Clearly, the path ahead is not without danger. Referring to the Paris Commune, Karl Marx said, “World history would indeed be very easy to make, if the struggle were taken up only on condition of infallibly favorable chances.”[14] So it is with the Cuban actualizacion. The Cubans are undertaking a course with certain risks and with no infallibly favorable chances, but they are doing so gradually and cautiously with their eyes wide open and with the entire population involved. It is a course that is contradictory, but necessary. They are doing so with the understanding that, as Raul Castro said, to do nothing risks falling into the abyss.
Those in the United States who are watching the Cuban developments with intense interest and boundless hope, could give concrete aid to the Cuban updating process by redoubling the effort to free all the Cuban Five and to end the criminal U.S. blockade.


[1] Interview of Manuel Yepe, Havana, Cuba, February 18, 2014. Yepe is a former diplomat and now a journalist. As a young man he was an assistant to Che Guevara. See also: Cuba vs Bloqueo: Cuba’s Report on Resolution 65/6 of the United Nations General Assembly entitled “Necessity of ending the economic, commercial and financial blockade imposed by the United States of America against Cuba” (July 2011), 54.

[2] Quoted by Anton L. Allahar and Nelson P. Valdès://cuba-1blogspot.com/2014_05_01archive.html#6955777, 36.
[3]<<www.economist.com/sites/default/files/20120324_Cuba.pdf>> , March 24, 2012 .
[4] Allahar and Valdès, 41.
[5] Steve Ludlam, “Cuba’s Socialist Development Strategy,” Science & Society 76, no. 1 (January 2012), 2.
[6]The Economist, Feb. 15, 2014.
[7] Interview of Marta Nunez, Havana, Cuba, February 18, 2014.
[8] Interview of Lic. Anibal Melo Infante, Department of International Relations, Centro De Trabajadores de Cuba, (CTC) Feb.17, 2014.
[9] Raul Castro, at the Sixth Congress of the Communist Party of Cuba.
[10] “Cuba: Raul Castro Issues Stern Warning to Entrepreneurs,” Associated Press (December 21, 2013).
[11] Quoted by Allahar and Valdès, 41.
[13] Letter, Marce Cameron, Green Left Weekly, July 1, 2012. Marce Cameron has produced a useful blog, “Cuba’s Socialist Renewal.”
[14] Marx to L. Kugelmann, April 17, 1871 in Karl Marx and Frederick Engels, Selected Works in Two Volumes, Vol. II, (Moscow: Foreign Languages Publishing House, 1962), 464.