Relaunching the economic model initiative

HAVANA – The rawness of the moment has become the center of attention. The economic siege by the U.S. is regenerating and expanding, and takes advantage of the structural weaknesses of the Cuban economy to wreak havoc. The government’s policy is inevitably focused on managing the hits and the search for short-term solutions, but it must also resume the continuity of the process of updating the economic model initiated in 2011.

After decades of blockades and threats of all kinds, the external aggression is a variable that must be internalized as an exogenous constant. It is a fact that requires permanent denunciation, but is beyond our control. What we have the power to decide is the internal design of our economic policies.

The problems that economic policies tend to face in any country can, in principle, be grouped in atypical circumstances that temporarily change the level of certain partial or global equilibria. The strangulation from more essential and complex distortions that are plainly located in the economic structure determine its performance and vulnerability when exposed to adverse circumstances. Generally, tackling solutions to structural problems require, in addition to a consistent and timely design, allocation of large resources and the patience for their maturation over time.

But economic policy options are not limited to these two components. There is a third which contains the principles of the prevailing order in the national economy and the way in which economic agents are constituted and related. What is known as the Economic Performance Model.

It is there where the essence of the process started with the so-called Updating Plan lies. A plan that mobilized so many dreams and today is caught between contradictions and conceptual setbacks. It is here where one can, and should, act promptly.

Almost a decade ago many good ideas were hatched. One being the need to overcome the excessive statism of the economy towards greater heterogeneity of property forms. For this, the emergence of small private enterprises was initially accepted and stimulated and at the same time the cooperative property was declared as a supposedly predominant actor within non-state forms. In addition, the fundamental role of direct foreign investment for the development of the economy was finally accepted.

One problem with these ideas was that most hit a dead end. The idea of a private sector, for example, was mostly shelved. But the most serious oversight was the need to dignify the non-governmental entrepreneurs instead of labeling them as hoarders, corrupters, embryos of capitalism, etc. The fact is that some state media outlets still reinforce these prejudices, which is absolutely insane for our society.

Also, institutions that facilitate training, advice, financing and representation, which would accompany the emergence of this sector, were not created.

Non-agricultural cooperatives which seemed so promising have been slow to develop. Those that were authorized were generally induced from state establishments, and mostly associated with gastronomy, personal services and construction. As for the creation of “autonomous” cooperatives — to differentiate them from the “induced” ones — the experiment began with a 24-month approval deadline. Even then the approval rate by the Council of Ministers was very low, and made worse on August 30 when they were halted because of the latest round of regulations.

A campaign launched to lure foreign investment, kicked off in 2014 in the Special Development Zone, has not resulted in the expected GDP growth of 5 to 6 percent percent expected. It is true that the external siege has diminished some of its attraction, but Cuba has not moved from the denunciation to the generation of new and more daring initiatives to attract foreign capital. Restrictions on employment and the dangers of operating with a currency that does not guarantee its monetary functions seem obstacles too high for investors, who were already confronting the risks of sanctions imposed on the country. Meanwhile, the potential advantage that investment from Cubans living abroad can provide has not received the necessary embrace, despite the challenge it would impose on the blockade.

One of the good ideas created was the recomposition of the sources of personal income, which would seek the gradual reduction of egalitarian forms of distribution and the aspiration to convert income from work into the fundamental path for the satisfaction of personal needs. Indeed, several products were removed from the rationing system, the prices of some essential products were reduced, and a significant salary hike was given to those who fall in the budgeted sector.

But the same distortions of the past persist: the pay is still not enough and does not properly reward complexity, responsibility and results; the remuneration does not satisfy the needs of the labor force — although now it should improve. Therefore state institutions have developed non-monetary compensation supplements that in many cases end up taking the form of privileges — discretionary and asymmetric.

Another point of action of the new economic model was in the transformation of the management of state enterprises. The objective of empowering entrepreneurs to define their production, prices, employees, salaries, investments, among other things, advanced slowly. It was hindered by the distortion emanating from the creation of the OSDEs (Business Management Organizations of the Ministry of Agriculture), and by the persistence of a mechanism for allocating resources inconsistent with the aspiration towards decentralization.

The main bottleneck of this  reform lies precisely in the planning mechanism. The emergence of non-governmental forms and the eventual autonomy with which state enterprises would operate implies a greater presence of market relations. This forces the authorities to move from a model of direct allocation of resources — like the one prevailing today — to a mechanism for driving and manipulating markets.

But this transformation never happened. With the rules published in the Extraordinary Gazette 21, in 2014, elements of flexibility were introduced. But these good ideas crashed against the currency allocation mechanism, which in the long run keeps companies totally dependent on their central allocation.

Much of the current tensions authorities are forced to handle on a daily basis would be mitigated if the obstacles to the full deployment of internal forces were deflated. In 2018, according to the ONEI (National Office of Statistics) figures, more than 2 million residents of working age were not employed, nor were they looking for employment, and were not part of those enrolled in higher education. Presumably, a non-negligible part of them was working on the margins, in other words, in that strip of the second economy that the government has failed to incorporate into the model.

Not giving this priority, and thereby wasting an already unrecoverable time, undermines the sustainability of the socialist project, and a sovereign and prosperous nation. Extraordinary circumstances in the 1990s led us to substantial transformations in the operating model that led to our economic recovery. The difficult situation and formation of a new government next October seems an ideal moment to relaunch the Updated Economy.