The Cuban strategy for the economy in the era of COVID-19

The extraordinary events of 2020 related to the COVID-19 pandemic and the exacerbation of sanctions from the United States have precipitated the onset of Cuba’s worst economic crisis since the collapse of the Soviet Union. Only under these circumstances was the minimum consensus achieved in the development of an “Economic-Social Strategy to boost the economy and face the global crisis caused by COVID-19,” announced on July 16 of this year, which attempts to rescue the most important proposals from the country’s economic ‘update.’ The new document tries to combine the changes in the economic ‘model’ with specific measures to promote the recovery of production.

The Cuban economy has been trapped for decades on a path of very low growth that has lost momentum in recent years, accompanied by a worsening of income distribution and the accumulation of structural failures. These factors have been unequivocally associated with the shortcomings of the Cuban economic model. The pandemic itself changes many things in the world, such as trade and the (previously unstoppable) expansion of value chains, although it also offers interesting opportunities for Cuba, such as the revaluation of health systems. This reconfigures the possibilities of international intervention, a key aspect for a project that seeks progress in the Island’s conditions. Any strategy for Cuba must be accompanied by a change in the model, regardless of the situation. This transformation is essential, because through it the instruments are built and the actors emerge that would allow an acceleration of growth, promote productive transformation, and improve income distribution.

In the Cuban case, the transformation of the model and the impulse of the economy are two processes that have to take place simultaneously, but they are of a different nature. “The Strategy…” does not clearly distinguish between these two processes, nor does it clarify how the institutional framework will be transformed, which is essential for the monitoring and evaluation function, and also requires a system of indicators and measurement criteria. The model has to be transformed because the current one does not allow the Island to respond to the challenges of its development in the 21st century. It is in its transformation that Cuban society will find tools to face its challenges.

The document is structured around sixteen key areas. This style gives continuity to the practice of ‘sectoring’ the economy and society, which is consistent with an administrative and vertical vision of conducting social processes. In fact, the areas have more to do with the ministerial structure than with the nature of the productive or social activity that gives them meaning. If analyzed from the point of view of production, these ‘areas’ comprise almost all of the Gross Domestic Product, with the exception of those that are not proper economic sectors.

This problem is inherited from the “2030 Plan“, in which eleven strategic sectors had been identified. A small country with scarce resources cannot have so many priorities. In this context, what is important is diluted. Worse still, it is evidence of learned behavior in the organizations of a centrally planned economy. They understand that if they are not listed in the ‘priorities,’ the allocation of resources is compromised, which will make the organization’s performance even more difficult.

This aggregation of ‘areas’ also has consequences for the integration of the document, since the language itself conveys the notion that it is fundamentally an imprecise sum of proposals that come from the respective agencies in charge, instead of constituting an organic strategy, a result of deep debate and the maturation of the discussion. This can be seen in that the levels of preparation of the proposals vary according to the areas. In some, very specific figures are included that do not correspond to the level of projection of a national strategy, while in other cases they are very general.

This very structure makes it difficult to understand what the general objectives are, since the transversal policies, what is truly transcendent, are subsumed within the respective sections. Digging deeper, this is not surprising, since the transformation of the model has been included as part of the specific policies for each area. This is not new, but it is still serious.

The absence of horizontal policies with their own entity generates contradictions throughout the document. For example, the Strategy mentions in numerous parts the need to expand the role of the private and cooperative sector and its interaction with the rest of the productive actors. However, this principle is far from being homogeneously contemplated by all the areas, which once again reflects a convenient management of the participation of this sector in the national economy. Basically, it takes care of the expendable, either due to lack of resources or poor institutional capacity.

Overall, the Strategy announces with sufficient clarity two processes that will be strengthened in the coming periods: dollarization and advancement of the private and cooperative sector. In both cases not without contradictions. Dollarization is an inevitable consequence of the severe balance of payments crisis. The recurrence of these crises should serve to establish that they are essentially due to structural problems, and that the Cuban economic model does not have the cushion to act on these failures.

The proposals in the document are committed to managing the crisis, instead of accompanying the administration of the situation with measures of greater depth. Along these lines, there are misplaced statements such as “… applying the principle of not importing what can be produced in the country.” Cuba is a small and open economy, and it will continue to be. The mercantilist administration of foreign trade is one of the causes of the productive disarticulation that even reaches the export sectors. Cuba does not need to import less, on the contrary, because under that scenario the productive apparatus runs out of oxygen.

Instead, Cuba has to export more and better integrate the domestic productive fabric, reducing the waste of resources and making better use of the productive capacities already installed. This cannot be done without an organic vision of the role of the private and cooperative sector in the model. The current system of management of the economy cannot provide that either because it is vertical and administrative.

The above weaknesses result in the Strategy lacking focus, and a clearly established time horizon. The fields of the transformation of the model and the economic reactivation are mixed, without clear limits between one and the other.

Likewise, it reveals two serious problems faced by those in the government and other institutions who are committed to a transformation that produces a model of sustainable prosperity. On the one hand, the enormous resistance that this change must face. Most of the five-year period since 2016 has been wasted in superficial discussions and counterproductive zigzags that have left the country in a bad way to face a calamity of this magnitude. On the other, the diminished institutional capacity to implement the transformation that the Island requires, the deficient quality of the main documents, including their own writing and style, show a future with great difficulties if the postponement of the already inevitable changes is perpetuated.

Building a new public sector capable of responding to Cuba’s contemporary needs is a decades-long task, and it is imperative to start right now. Still, true political will is the key to moving forward. Now that the pandemic and the sanctions have made it possible to see clearly the great weaknesses of the Cuban economy and the model that contains it, this may be the definitive opportunity to provide the nation with a realistic program of economic transformation and reactivation.