‘The socialist economy is not the suppression of the market’

HAVANA – Cuban professor Julio Carranza offered the Progreso Semanal staff opinions on the current economic situation on the Island. He highlights the need to accelerate implementation of pending economic reforms in the country.

PS Staff: Cuba’s current situation requires essential changes. There exist many opinions on how to achieve it. Which ones would you point out?

Carranza: Initially, and in my opinion, the necessary process of changes in the Cuban economy have been delayed over time. As for me and other colleagues, we have been raising the need since 1995, when our book “Cuba: the Restructuring the Economy, a Contribution to the Debate” was published. The situation was different then, but in essence the type of transformations needed, the thick of it, are the same ones we proposed, obviously with the needed updates and calculations based on information derived from the current situation.

It was not until a few years ago that with the evolution of the Cuban panorama and the different national and international events a clearer consensus was reached in this regard, expressed in important official documents, such as the Conceptualization of the Cuban economic model, which gives a broad framework for the realization of that process, and then the new Constitution, which reaffirms those needs.

Some important transformations have been made since then, but the necessary depth and comprehensiveness have yet to be achieved.

Regarding the different existing proposals, I share with other colleagues the criterion that the country should move towards a decentralized, efficient, diverse, and inclusive socialist economy — never towards the restoration of capitalism.

The process that we argue for and propose, since the publication of the aforementioned book, supposes the diversification of the forms of management and property, including state (or public) property, cooperative property and private property for small and medium-sized companies, all integrated in a system with strengthened and legally recognized institutions. Another characteristic is the prevalence of the leadership of state (public) companies, which must reach an important level of decentralization, and act in a regulated market that poses strong financial restrictions. But the existence of other forms of property is essential to allow greater efficiency to those (state), which in turn is an essential factor in establishing harmonious leadership over the rest of the economic agents of the system.

This process also involves another series of measures for the economy to function properly as a dynamic system. These include the reform of monetary / exchange rates and state enterprises —both issues are essential— the legal establishment of SMEs (small and medium sized enterprises), the adjustment of budgetary spending, the creation of markets for means of production (wholesalers), the greater activation of credit, the adjustment of national and foreign investment policy, the decentralization of foreign trade, the adjustment of fiscal policy, and the establishment of a regulatory framework to articulate everything else. All of these measures have been detailed in previous texts, as well as by other colleagues. In short, these must lead to the growth of economic efficiency, but also of social efficiency, based on the growth of labor productivity and dignified employment, an essential factor in social inclusion.

At this point I would highlight that the transformations are either addressed comprehensively, taking care of the sequentiality and the simultaneity between the different measures, or they will not work well. That is an essential question, it does not mean everything at the same time, but everything in an adequate and well thought-out sequence.

For example: In the current conditions, since the established non-state sector has nowhere to obtain part of its supplies legally and systematically, it finds illegal or extra-legal routes, the only ones available in the absence of the necessary wholesale markets for products, tools, machinery, etc. This leads to the diversion of resources, often from state companies, which then spurs all sorts of corrupting economic agents that affect the dynamics of the economy and the ethical conduct of many people, with all the implications that this has. A comprehensive reform can largely prevent all this and organize the economy and society as a whole in a positive and productive dynamic. There will be problems and contradictions to attend to always, but when the system works they can be adequately controlled and overcome.

I am increasingly convinced that the path for reform is comprehensive progress. The recent statements by Cuban President Miguel Diaz-Canel, at a meeting of the Council of Ministers, seem to be an important signal in the right direction.

I began by pointing out the brakes put on economic reform. Now the problem has been complicated because the situation is very tense and all forecasts warn of notable contractions in the economy as a consequence of the current world crisis caused by the Coronavirus pandemic, and the criminal blockade, a policy increasingly reinforced by the Trump administration, which has a strong impact due to the open nature of the Cuban economy. This does not mean that the blockade has the capacity to paralyze the economy or its transformational process, but its consequences and conditions cannot be ignored.

In other words, the crisis must be managed while adequately advancing the pending transformations, a complex but possible process. And in my opinion a necessary alternative.

Progress must be systemic and coherent, which, as I’ve pointed out, does not mean everything at the same time — stages must be defined. It is useless to advance in one sector without the coherence of the other. For example, the reform of the state company would not be effective if it is approached as an isolated entity without steps being taken with non-state SMEs, and vice versa. Without an adequate institutional framework, no company of any kind could effectively and legally advance.

There are also other important aspects which require action. The government has worked on defining the strategic sectors to concentrate investment in the current circumstances. In this sense, the impact of the pandemic implies many changes. In the case of tourism, for example, studies indicate that in the short term it will no longer have the previous potential due to the effects on the markets. This sector has incurred heavy investments in recent years, the effect of which is temporarily canceled due to the crisis, while food production is increasingly important. It is essential to put the country’s installed capacities to work as fully as possible in sectors that have conditions to operate under the current conditions, and invest in them. From that perspective, the agricultural sector (including agriculture and industry) is the most important now.

This does not mean that tourism does not maintain its strategic importance for the future, since the natural and cultural conditions of the country are very favorable for this activity, and the already established infrastructure is excellent, but it will not have an immediate positive impact in managing and overcoming the crisis. The center of gravity of the economy, if I can use this expression, will have to be temporarily moved to other sectors.

In my opinion, it is time to tackle all this rigorously.

PS Staff: There is talk of the importance of the private sector in the Cuban economy, both now and in the future, depending on the development conditions that are allowed. What is your criteria? Specifically in the social sphere, what impact could the expansion of what is currently referred to as self-employment (cuentapropismo) in Cuba have?

Carranza: As I pointed out before, a unique, more diverse and dynamic economic system is necessary where the different forms of ownership and management form an organic part of it under the leadership of the state sector. A decentralized system with more flexible and strategic planning forms, while at the same time as a market regulated from the state, but with economically based regulations which are attended to by all economic, state and non-state agents.

The non-state sector (cooperative and private) would not lead the economy, but its legally recognized existence in dynamic small and medium-sized companies is essential for the entire system to function well. First, because it generates a large amount of employment that the state sector cannot retain if it intends to be efficient; second, because it guarantees certain production and services that can contribute significantly to the growth of the economy and that, as historical evidence has shown, the state sector cannot perform as efficiently; and third, because it allows the mobilization of internal capital (savings) and external capital (remittances), which would otherwise be inactive, or would not reach the country.

Currently self-employed workers account for almost a third of all employment. Furthermore, the non-state sector is the most important food producer, an activity absolutely essential for development and national security. Add to that that the non-state sector has stimulated creativity and initiative, especially among the younger generations currently highly impacted by migration and generally with high levels of qualifications and technological learning.

It is why I consider the economy’s non-state sector to be very important. I think it is a mistake to speak of the socialist part of the economy and the private part. The economy is one, it is a system. In the case of Cuba, we defend and argue the socialist character of that system to which all sectors, state and non-state, would dynamically join with the necessary proportions and regulations, but all dynamically interacting.

To the question of whether there may be social sectors affected by this dynamic, the answer is yes. Any economic policy is accompanied by effects of this type. In fact, as a consequence of the difficult conditions that the Cuban economy has faced since the 1990s, in combination with some of the measures that were taken to face it, the inequality rates in Cuba have increased over the years. Although the Gini index — an indicator that measures inequality — has not been published for a long time, specialized observations show this fact.

This is a very important issue. In a socialist system, the principle that no one should be left unprotected is inalienable; it is the role of social policies willing to serve these vulnerable sectors and adequately offset the negative effects of economic policies. But these should be more focused and efficient, not with generalized subsidies to the entire population, as has been the case so far. This does not exclude — on the contrary, it reinforces — the universal and free nature of certain social services such as education, health, public safety, etc. They are inalienable conquests. The joint approach to social policies and certain state subsidies would be an important part of the socioeconomic system, but with a corresponding economic and social foundation that is supported by an adequate and progressive fiscal policy. Seen in this way, they are perfectly viable and sustainable by the state.

PS Staff: In this call for the development of small and medium-sized businesses, what role could non-agricultural cooperatives play? What measures would be needed, or what obstacles should be removed, to make that role possible?

Carranza: Cooperative forms, both agricultural and non-agricultural, must be an important part of the new forms of management and ownership. There is already extensive experience in this, which helps to identify what works and what does not.

Part of what affects cooperatives is what affects other economic agents, for example the lack of a market for means of production and a more dynamic credit system, in addition to a more economically based and adequate fiscal policy in order to work well. In the specific case of agricultural cooperatives, the high level of interference by government structures operating in the agricultural sector has been a negative, including the lack of efficiency of collection mechanisms, price management, etc. These lessons must also be taken into account for non-agricultural cooperatives.

On the important subject of agriculture, I would like to underline that since the 1990s decisions have been made that have changed the forms of ownership and management in this strategic sector. Of an agricultural production that was mostly state owned, only 18 percent of cultivated land managed directly by the state remains. The rest works under non-state forms (different types of cooperatives, beneficial owners, individual farmers, etc.). However, the agricultural production subsystem, characterized by strong forms of intervention and control of government structures, including the marketing and resource allocation activities carried out monopolistically and inefficiently by Acopio, continues to be the same as before these changes. This is due to dysfunctionalities in agricultural and agroindustrial production, mainly food, which is expressed in the insufficient current results. It is a problem of the greatest urgency that in my opinion must be solved. It is part of the comprehensiveness of change.

PS Staff: Day zero, referring to the process of monetary and exchange unification in Cuba, was announced a long time ago. Some steps have been taken to indicate that this process has already started, but the final steps have yet to be taken. Do you consider this a good moment to carry it out? And why?

Carranza: Government authorities, at the highest levels, have repeatedly recognized the need for currency reform and their willingness to implement it. However, it is still pending. This reform, on the one hand, is necessary and urgent, and on the other, it is extraordinarily complex.

It is necessary and urgent because the existence of the diversity of exchange rates between the different circulating currencies and the overvaluation of the Cuban peso (CUP) in the state sector lead to strong distortions in the measurement of the economy. There is talk of the need for an “export and import substitution mentality,” but the conditions of the economy under the current monetary and exchange system lead to the opposite. Appealing to that mentality is good, but not changing the conditions that prevent it is like preaching in the desert. It is also complex. In itself it represents an important change in the proportions and types of resources in the hands of different economic agents, including companies, workers and the general population. In fact, there would be companies that could fail due to the change in the exchange rate because they are currently dealing with the overvaluation of the national currency (CUP).

The essential and most complex point of monetary and exchange reform is precisely the exchange rate. This is also a price within the economic system, but of such importance that it impacts almost everyone else. The current difference between the various existing rates is such that their reform would imply the need for a general price reform, an issue that needs to be addressed with the appropriate criteria, including the debate on the market, but not only over the market.

A point worth noting is that the second national currency established a few years ago — the convertible peso (CUC) — was intended to replace the direct circulation of dollars. This meant maintaining a certain equivalence between the new CUC and the dollar, in addition to a certain offer for that currency. However, for different reasons, the character of the CUC has been denaturing and no longer plays the same role it did in the beginning, since it does not have the same endorsements with which it was conceived.

It’s one more reason for monetary unification. But, in my opinion, this does not exclude the direct use of currencies in specific circumstances (duty-free zones) that allow different economic agents and the general population that has this currency (remittances included), to go to these locations to carry out the so-called “border imports.” One must also consider that today millions of dollars leave the country in the hands of informal (non-illegal) importers, who bring goods to the country which could as easily be imported by the state (means of production included) and sold in the duty-free zones at adequate prices and leaving a reasonable commercial profit in the state coffers. This does not mean that private imports are prohibited, but the state could take control of that activity in better conditions and convenience.

Although some of that has been done with the special currency stores that have opened, the mechanism is still unstable, inefficient and slow.

Earlier I was referring to the need for comprehensiveness in transformation. The monetary and exchange issue, which is part of it, has to be addressed despite its tremendous complexity since it is necessary to combine the urgency of the crisis with the strategic aspects of the transformation. This does not mean that the devaluation or sequential devaluations are implemented immediately, but there is no doubt that it must be addressed as soon as possible and in correspondence with the rest of the transformations.

Over time many decisions were postponed and now they must all be addressed. In stages, with all its complexities, but we can, we have to be able to, since there are not many other options left. I understand that there are teams of high-level specialists working with the government specifically on monetary and exchange reform, but, I insist, this would not make sense as an isolated measure; it is part of a comprehensive reform.

A final idea: under the current international circumstances any socialist alternative is difficult, but at the same time not only necessary but possible. The current pandemic leaves the world with many unanswered questions and also with many lessons. One is the inability of capitalism as a global system, especially in its neoliberal version, to effectively protect the interests of the vast majority of humanity, as well as the sustainability of the planet. Evidence of this has been in abundance for quite some time and is now reinforced dramatically everywhere with the effects of the COVID-19 pandemic.

But of course, in the general sense, the existence of this evidence does not mean that the world will necessarily and immediately go down an alternative route, since the limits are always political. But when speaking of a socialist alternative it is necessary to debate what we understand by that, and especially in the specific conditions of each country.

…the socialist economy is not the suppression of the market. Neither is it the total suppression of private property over the means of production. It is, in my opinion, the suppression of the hegemony of capital, the subordination of the private interest to the public interest, and the subordination of the market to society.

Cuba faces complex situations, but as I understand socialism, the socialist economy is not the suppression of the market. Neither is it the total suppression of private property over the means of production. It is, in my opinion, the suppression of the hegemony of capital, the subordination of the private interest to the public interest, and the subordination of the market to society.

The state and its institutions must be the guarantee of all this in a dynamic of adequate inclusion and representation: A socialist and democratic state in the deepest sense of that concept. In particular, the transformation of the economy requires very rigorous and specialized technical and statistical analyzes, but these must not be distanced from clear social and political considerations and objectives. Otherwise we would fall into “cold technicalities,” which would not contribute to the nation project that I share.

Although it has gone through enormous difficulties, has obtained extraordinary achievements, and has also made costly mistakes, some without justification, the Cuban Revolution as a historical process is essentially a nation project that supposes the full independence, sovereignty, self-determination and national security of the country, as well as economic and social development, the fair distribution of wealth, inclusion and democracy.

Both dimensions are part of the same process and mutually condition each other. Without sovereignty and self-determination there would be no future for the nation where the legitimate interests of Cubans fit. Is it difficult to achieve these goals in these times? Yes. But is it impossible? No.

Note: Julio Carranza holds a PhD in economy and is a Cuban professor.