Cuba: Economy of commands or earnings? Joaquin Infante on economic changes
Interviewer Jose Alejandro Rodriguez, like Luis Sexto, is a popular and fearless critic in the Cuban press. As well as critical commentaries and interviews, he compiles the section of the paper dedicated to reader's complains about official incompetence and corruption – Marce Cameron, editor Cuba's Socialist Renewal.
[For more analysis and discussion on the economic reforms in Cuba, click HERE.]
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Dr Joaquin Infante interviewed by Jose Alejandro Rodriguez, translated by Marce Cameron
December 12, 2010 – Juventud Rebelde – Dr Joaquin Infante (pictured above), a wise and realistic man, recipient of the National Economics Prize, reflects for Juventud Rebelde on one of the key urgencies of the country: that the economy shifts from a crippling administrativism to an analysis of financial management.
Pushing 85 years, he has the neurons of a prodigal young university student; as if half a century devoted to the Cuban economy, from the manager's desk as well as research and teaching in academia, were not enough: two worlds that hardly ever converge. Generous, because he has always believed in the potential efficacy of socialism despite the lurches and the ups and downs it may have given us. Loyal, with that authentic loyalty of those who speak up and defend their views.
Joaquin Infante, doctor of economic sciences, answered the questions of this reporter, feeling himself to be judge and jury of the rugged paths of the Cuban economy to date, and of its challenges and destiny henceforth.
Cuba looks at itself in the mirror through the analysis of the Draft Economic and Social Policy Guidelines of the [6th Communist] Party Congress. What are the implications of a shift from administrative management to financial management of the economy?
Administrative management of the economy has a long history, from when we inserted ourselves into the "actually existing socialism" of the USSR: the cult of plans for material output, not of monetary values, of financial balances. We became accustomed — the country as a whole, enterprises and citizens — to always covering deficits and deficiencies whether or not results were obtained.
Finances smacked of capitalism to us, and this led to an extreme centralisation of planning and economic decision-making. With this rigidity and inflexibility, finances cannot function. This is reflected in the fact that we still have a monetary exchange in which convertible Cuban pesos are exchanged one-to-one with regular Cuban pesos in the state sector of the economy. The decision to export or import doesn't take into account the true value of the currency, nor does it allow us to know the true costs of production, of what is exported and imported.
Given the urgency of increasing exports and substituting imports, there must be a true exchange, not this fallacy of one [regular Cuban] peso, one dollar. In this way, exports will be stimulated and imports will become more costly. In a decentralised fashion, the enterprise analyses and decides on the basis of its real costs, and the exchange rate has a bearing on the firm's analysis because this is the starting point for measuring its real costs.
How does the cult of the material economy, to the detriment of financial accounting, result in inefficiency?
Look, when I was the director of the state budget, in the 1980s, at least we only subsidised the products sold to the population at prices below their cost. But later on this deteriorated, and the budget began to subsidise thousands of products and productive activities. [The budget] was a rationed goods store. If you subsidise all production, nobody knows the cost of anything. So one of the key changes is that losses will no longer be subsidised. Thus, the enterprise will be obliged to become more efficient. Now you'll see how the director of the firm wants accounting that provides him with rigorous data to obsessively keep track of the costs.
But this implies a decentralisation of power towards the enterprise system. If your hands are tied so that you can't reward work excellence and quality; if [some] funds from earnings cannot be kept in the enterprise, as has been the case up to now, and everything goes up [to the ministerial level]...
This is the path of updating the [economic] model. Because until now, with the extreme centralisation, everything up to hard currency was included [in centralised planning]. Gross income was centralised, not net income. This would not even guarantee you simple reproduction of the costs you incur. This is just comfortable inertia. Will we now be prepared for such changes, after so many years of being padded by a centralised economic set-up?
The change of mentality is complex, if you were accustomed to them demanding that you measure production in physical units. Why, then, does the peasant, without knowing anything about economics, not suffer losses, and is profitable? When you delegate powers and measure by earnings, by efficiency and efficacy, the producer responds.
One sphere in which we need to be more flexible is wholesale pricing. It's inevitable that if I cannot have losses, I have to adjust these prices, which must be agreed to between firms. If I must be profitable and so must you, then we'll have to come up with a price that benefits both of us. Why must so many prices be decided by the Ministry of Finances and Prices?
But this implies that retail prices must also be flexible...
This is another matter. The transformations will be by successive approximations. First we have to change the type of exchange in the state sector, because the material economy continues to be: I assign you so many tons of fuel, even though you may not be efficient. Now, the price of fuel must be felt by the enterprise.
There needs to be flexibility in the prices, I repeat; but first the costs must be known. And the prices will need to change, this is life. But it's clear that the process of change will not be overnight.
Everything seems to indicate that we are moving towards a more rational socialist economic model. But in the immediate period ahead, until this process bears fruit, won't the updating involve difficulties and sacrifices?
We communists must be prepared to explain the situation that is brewing to the population, with sincerity. My understanding is that there will be an impact in 2001 and part of 2012. But we have no alternative but to straighten out so many things. If we don't do it, then we'll lose the socialism that has cost us so much and that we have given so much for. But in 2013 we'll start to see the benefits, of this I have no doubt.
Logically, with an economy that doesn't prosper, how can the social programs be sustained?
This is what happened in the last few years: much attention was given to the non-productive sector while the productive sector was abandoned.
You are one of the economists and accountants called upon by the Party and the National Association of Economists and Accountants to assist with the debates on the Economic Guidelines. Tell me, concretely, something that concerns you with regard to the old perception that predominates among many people.
Precisely this material conception of the economy. If they talk about productivity, they do so in physical units per worker. This is one of the most serious problems: we have not been taking into account financial values, which are those that reveal the health of an economy. It's not the same when sugar is six [US] cents [per pound] on the international market as when it's 30. It's not the same for a country to sell sugar of the highest quality, as to search for a buyer for second or third-grade sugar.
Capitalism is an old chameleon, with centuries of experience, that looks for ways to emerge from its many relapses and sustain itself. Socialism, with such noble ideals, is too young and inexperienced. It must pay a high price to achieve economic efficiency ...
These are complex matters that transcend generations. We used to think that we could change everything in a short time-frame. In 1967, when we stopped accounting for [economic] costs and ignored many economic laws, we thought we were going to create the New Man. Yet man with small letters must be stimulated [materially] to work. We forgot about the socialist law of distribution [i.e., of the transition period between capitalism and communism: "to each according to their work" — translator's note]. Socialism is equality of rights and opportunities, not egalitarianism. This standardisation [of incomes] causes loss of [work] motivation and breeds mediocrity.
There are leftist theoreticians who believe they're seeing the end of socialism in Cuba, and characterise the process of updating [of Cuba's economic model] as pure "economism". How would you respond?
These theoreticians, who have spent 70 years discussing how to build socialism without having done anything for this system, are dangerous. Now they begin theorising that we're deviating ... blah, blah, blah. It's one thing to play the guitar and another the violin. It's very easy to express an opinion and not put it into practice in a country with a critical financial situation, blockaded by the greatest power in the midst of a global economic crisis. Is it about talking, or is it about resolving the concrete problems of a country? I'm a practical theorist. Nobody has managed to construct an ideal socialism. Here we do things in our own style, for more socialism. And chico, what is socialism, if not to give wellbeing to the people and redistribute the resources in the best way possible?
What is the difference between a socialist [state] enterprise and a capitalist enterprise? Both must produce profitably and be cost-effective, self-financing. But in the capitalist firm the riches end up in the pockets of the owners, while in the socialist enterprise they are the property of the country and the [working] people. Moreover, for the latter to be efficient, we must eliminate many unnecessary restrictions.
One example of these restrictions is the excessive centralisation in which the socialist enterprise functions — or barely functions: all its earnings end up in the state coffers. And while in the end the fruits of production are redistributed globally, this hardly motivates the work collectives and the enterprise management's hands are tied when it comes to stimulating the workers.
It's very clear in the Draft Economic and Social Policy Guidelines that the state enterprises must be overhauled. The workers must receive incomes linked to their results. And the enterprise, after having complied with its commitments to the country, must be able to set aside part of its earnings for investments and worker incentives, including hard currency given that we have not achieved convertibility with the [regular] peso.
There is much talk about the sense of ownership. Because a very serious problem, with fatal ideological connotations, is that the worker does not feel as if he's the owner [of the enterprise].
If in the work collectives the incomes depend on the results (of the individual, the work collective and the enterprise as a whole) then everything will work towards this, because in the end they will receive a part of the earnings. For this, the workers need to be able to discuss and participate in the taking of decisions. The plan must be discussed down there with the worker.
And the problems of accounting, of costs, incomes and payments; when the enterprises have the power and we remove their straightjacket, they're going to solve these problems, because now you're struggling for efficiency. The firms with losses will go bankrupt, and this will affect everyone: workers and [managerial] cadres. This means things must function, even if they're not going to be perfect. But in this way we'll advance, improve.
The much-discussed decentralisation also applies to the territories, [granting them] the necessary horizontality. How can the potential of the municipalities be unleashed?
We're moving towards another kind of relationship between the state enterprise and the municipality in which it is located, such that the enterprise, with its earnings, will sprinkle the municipality with its [tax] contributions. The municipalities will be able to take many initiatives, including the establishment of industries with local resources. And this will resolve many problems there at the base; this is going to give a lot of life to the municipality.
Also very important is the separation of state and enterprise functions. If you're the government, you don't administer. The government regulates, it doesn't administer. The enterprise is the enterprise. The government regulates, establishes norms and supervises; but it cannot administer the economy.
With all these changes which are coming, do you believe that the choke of bureaucratism will be cornered?
When you put an end to administrative tutelage, and you are ruled by economic-financial results, you will be cornering bureaucratism. The priority is to change our conception of the economy, for more and better socialism. Planning to take precedence over the market, but spaces for the market. The fundamental resources managed and assigned according to the plan. But, having complied with the plan in the peasant agricultural sector with a list of certain products, for example, mechanisms of supply and demand will take over.
Of all these planned transformations, which in your opinion is going to be the most complicated?
The implementation of each one. And in particular the elimination of currency duality. Note that we have one type of one-to-one exchange for the enterprise sector, and another of 25:1 for the population. This peso in the enterprise sector is currently overvalued, and undervalued in the population sector. Because of this we must begin with the enterprise sector, so that we help it to boost the economy and strive for efficiency; and then, little by little, raise the value of the [non-convertible] peso to benefit the population.
When you look back on your life, don't you feel annoyed that many thing in which you've participated have been abandoned?
Yes, I feel nostalgia for the things we've tried to do and later were not achieved. I remember everything that Carlos Rafael Rodriguez did in the National Institute of Agrarian Reform, when I was director of Finances and Prices. We managed to make this institute cost-effective in 1965. So many things that were begun and later made no sense, that we've had to go back and rectify. But I don't regret anything, because life is a theatre performance with a single act and no rehearsals. I'm an optimist, at least I feel happy that, before I leave this world, we're going to take the right path. What I have left to live will be for this.
[The original article in Spanish can be found HERE. This above translation first appeared at Cuba's Socialist Renewal, a site edited by Marce Cameron to "open a window to the English-speaking world on the debates and changes taking place in Cuba and provide a space for discussion and debate among supporters, however critical, of the Cuban Revolution". Cameron is an activist with the Australia-Cuba Friendship Society (ACFS) and president of the Sydney University Cuba-Venezuela Solidarity Club. To follow or to receive email updates from Cuba's Socialist Renewal, click on the link.]
In fields and city streets, Cuba embraces change
Tuesday, January 25 07:23 pm
Across Cuba, new farmers are tilling fertile fields abandoned for decades and city streets are abuzz with market stalls as private businesses sow the seeds of what many hope will be an economic revival
In the biggest shake-up of the withered state-run economy since revolutionary leader Fidel Castro nationalized all private companies more than 40 years ago, the Communist-led island is laying off a million public workers and encouraging people to work idle state-owned land or set up businesses.
Since the 1960s, jobs on the Caribbean island have almost entirely been provided by the state, right down to trades like barbers and watch-menders. Many farm lands fell into disuse as Cuban agriculture stagnated under strict rules and low prices.
"Six months ago I didn't even remotely think of coming to the countryside. But in six months, the country has changed," said Juan, a retired army officer who trained as an agronomist but only returned to farming in December.
Tens of thousands of businesses have sprung up across Cuba in just a few weeks at the bidding of Fidel Castro's brother, President Raul Castro, with farms replanted, new restaurants opening daily and placid streets starting to buzz with trade.
A few blocks from hulking concrete government ministries decorated with portraits of revolutionary heroes that still provide the vast majority of jobs on the island, dozens of people now line up each morning to buy pizzas, underwear and pirate DVDs from the new generation of legal street vendors.
Until recently, most sellers of private goods operated illegally and risked fines and police abuse. Now they sell in the open, contributing to social security and the public purse.
"I've sold 20 films this morning and it's my first day, imagine what it will be like when people know I'm here," said Katrina, doing a brisk trade in Japanese animation, Hollywood films such as "Twilight" and Michael Jackson CDs.
But hurdles remain to making farms and other ventures productive. Even those grasping the opportunity offered by more liberal rules remain wary that new freedoms will be reversed.
For many used to state employment for life, the changes add new uncertainties to traditional worries about low salaries.
Havana cobbler Mario is unsure he will make more than his current government wage of $10 a month under new rules that will see him rent his store from the state, buy his materials and, crucially for the cash-strapped government, pay taxes.
"This could be good news, I just don't know yet, I won't until I know how much I will have to spend on rent and materials," he said, stitching a rubber sole in a dingy shop near Havana's grand but faded oceanside promenade.
Like many Cubans, Mario augments a meagre income with work on the side, mending shoes from his apartment. He worries that work will now be taxed and his total income will fall.
Others say they won't let taxes undermine their profits.
"I'm not really worried about that," said Caridad, 47, who opened a thriving restaurant on Christmas Eve on a highway to a Havana-area beach. She sells $5 lobster. "The government has no way of tracking how much I make, so I'll just under-report."
Permits to sell pirated goods will raise eyebrows at Western media companies but the trade makes clear sense to Katrina and hundreds like her in Havana as costs are very low.
DOUBTS
In other areas, the government still controls the sale of most inputs and says it cannot yet afford to sell at wholesale prices -- a limit on profits and perhaps a sign officials worry tax income will not replace state earnings elsewhere.
Caridad said her main concern is the reforms will stall.
As part of a ground-breaking economic opening in the 1990s to survive the collapse of Cuba's longtime benefactor, the Soviet bloc, Fidel Castro's government initiated an early attempt to allow private enterprise.
But, citing fears of corruption and social inequality, it later backtracked and reined in those activities as soon as the economy improved.
"This process has been set up so they can slow it down at any time," said Cuba expert Philip Peters at Washington-based think-tank the Lexington Institute.
"But in 20 weeks they increased the entrepreneurial sector by 50 percent via government-led reforms, and the people have responded. You can't scoff at that."
Juan, who declined to give his last name, is planting corn, tomatoes and bananas on his lush farm. He raises goats and will buy pigs -- all good news for Cuba, a net food importer.
Large state farms fell into disrepair when the Soviet Union collapsed in 1991. Short of oil, thousands of tractors were left to rot and farmers reverted to oxen for ploughing.
Over the past few months, 130,000 people have been given permits to work idle land with more freedom to sell crops on the open market. Prices previously fixed at a low level are now revised every month. The price for tomatoes, for example, has doubled at the farm gate.
"Before, people were feeding crops to the animals, because it wasn't worth selling at the price the government paid," said Diego Aleman, who works on Juan's farm. Another of Raul Castro's reforms makes it legal to hire labourers to work the land.
Two tractors ploughing his gently rolling fields were rebuilt from broken-down Soviet machines by one of Juan's neighbours.
However, even the Communist Party accepts the reforms so far have not done enough to raise food production, which has been battered by hurricanes in recent years. Nearly half of all farm land is still idle. At a party conference in April, peasant farmers will raise a number of complaints, especially about the price and availability of tools and materials.
In the past, seed, tools and materials were rationed. Now. government shops sell fencing wire, machetes and other tools but charge high prices, with a roll of barbed-wire costing more than double the average monthly wage.
"The fact they are just now allowing a farmer to buy a machete when he needs one, or to sell by the road, those are positive steps but show how far they have to go," said Peters.
'PRESERVING GAINS'
Years of socialist austerity and a U.S. trade embargo mean Havana is an oasis of calm compared to the chaotic traffic and impromptu street markets of other Latin American cities, its dilapidated but handsome architecture unadorned with hoardings, its palm-lined boulevards not choked with market stalls.
Cuba is proud of its low crime rate, educated populace and free health care, all gains that differentiate it from many poor neighbours and that supporters say partially offset widely-criticized limits on economic and political freedoms.
"A challenge for Cuba will be moving ahead without degrading some of its achievements," one Asian diplomat said.
Political reforms have been slow, although the government is releasing some political prisoners and Raul Castro's criticism of government failings has fostered public debate.
At the agriculture ministry last week, workers streamed into a gray office tower for an 8 a.m. start. When asked, most said they support the reforms and were sure the government will find positions elsewhere for those who lose jobs.
"Nobody should be left without a job because there is work to be done -- in the countryside itself we need masses of labour," said gray-haired Lazaro, a ministry official.
The government has promised to offer many workers new positions elsewhere but it is still unclear how the massive layoffs will play out. The pain may be muted because, as the refrain goes: "They pretend to pay us and we pretend to work."
In the meantime, others have set up profitable ventures.
A line of shoppers curling past her front garden gate to buy painted plaster frogs and plumbing parts, a woman who gave her name as Inisil lost her job at a state bus company last year.
"I'm now making 100 pesos a day, that's much better than my old job," Inisil said. At that rate, she earns her old salary of $20 a month in a week and has enough to employ a worker -- another innovation only recently permitted.
(Editing by Kieran Murray)