Cuba's Survival -Socialism with Reality-

Spot Survey


Edited by YAMAOKA Kanako
March 1997
"Development of Politics and Diplomacy of Cuba"
1. The end of the Cold War caused by the disintegration of the Soviet Union greatly affected Cuba's politics and economy. Domestically, the economy, which had already stagnated in the 1980s, fell into a serious crisis because of the suspension of Soviet assistance. The government was obliged to reconsider the strategy of economic reforms, and because of the economic crisis, it also faced a possible political transformation.

2. Externally the United States' economic embargo against Cuba continues, and especially last year "Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996," which is called the Helms-Burton Act, was passed. This Act contains various problematic provisions, and has caused much criticism internationally, particularly from Europe and Western Hemisphere countries other than the United States.

3. The most controversial part is in Title III, the provisions stating that to companies and individuals of third countries that make investments in Cuba utilizing ex-U.S. properties, the ex-owner of the properties, if a U.S. citizen, shall be able to sue the company or individual which utilizes that property. Many countries of the European Union (EU) and the Western Hemisphere presented to the World Trade Organization (WTO) a complaint that the provisions violate domestic jurisdiction.

4. In Title II, another provision was added that in order to lift the embargo, the President shall need to have the agreement of Congress. The decision to suspend the embargo before required only presidential action, but now the Congress' agreement is also needed, which makes it even more difficult.

5. On the other hand, the request of democratization from the international circle to Cuba has recently become stronger. The EU and Western Hemisphere countries which criticize the U.S. economic sanctions, assert at the same time that Cuba needs to democratize itself. In Europe, especially Spain, since the new prime minister Aznar was inaugurated last year, turned to claim democratization to Cuba. Latin American countries which have accomplished the transition to civil democratic government over the past decade, also demand democratization including respect for human rights and free elections with a plural party system.

"Cuba's economic structure"

6. The Cuban government adopted a Soviet-styled centrally planned economy, and managed it with a character of further centralization, but that system had already stagnated in the second half of the 1980s. The economic reforms which have been put into practice in the 1990s are aimed toward solving problems caused by the drastic change in international circumstances, but it can be also interpreted in some part that with the reforms the government has tried to solve the structural problems which have existed since before 1990.

7. The economic performance of Cuba showed positive growth rates from 1959 to the 1980s. The mechanism which realized this growth is the import substitution industrialization, and the factors of the institutional framework which supported it are:
(1) the favored trade under the Council for Mutual Economic Assistance (CMEA) system, and Soviet assistance such as subsidies;
(2) state (almost complete) interference in the economy;
(3) centralized financial system;
(4) large-scaled and vertically-integrated organizations of enterprises;
(5) the homogeneous and stable domestic consumption based on the employment security, egalitarian wages, and the full social welfare system.

8. On the other hand, however, under this development model, production factors were inefficiently utilized. For example, in the case of labor relations, although the production quota system and Taylor system (so-called scientific management) were introduced, the agreement of productivity between the state and the workers was not necessarily established. In order to seek employment security and egalitarianism, material incentive was suppressed, and work discipline was left loosened. Furthermore, as the job classification was divided in detail, formation of skills of the workers was not well done. In the 1980s, wages rose at higher rate than productivity, and macro-economic imbalance was triggered, which led to the deterioration of balance sheets of enterprises, as well as inflationary fiscal subsidies.

9. The economic stagnation in the second half of the 1980s occurred because of both of the domestic factors depicted above, and external factors; tightened economic sanctions of the United States, lowered sugar prices and the drop of petroleum prices, which reduced Cuba's income through reselling Soviet oil in the international market, and the debt crisis, among others. However, the Soviet assistance under the CMEA system continued, and at the end of the 1980s, Cuba's level of imports reached their highest level, and therefore, the majority of the reasons for the economic stagnation are caused by domestic factors.

"Economic reforms after the disintegration of the Soviet Union"

10. Cuba having had domestic structural problems, the Soviet Union collapsed and the CMEA system disappeared. From 1990 to 1993, the Cuban economy dropped sharply. Yet after that, thanks to various economic reforms, the economy began to recover, and the growth rate of last year(1996) was 7.8 percent. A particular point to be noted is that the productivity growth rate was higher than the average wage rate.

11. Economic reforms have been realized both externally and internally. Externally, the government suspended the monopoly of external trade, introduced foreign investments, and legalized the possession of dollars. Internally, it did the following: approved diverse forms of possessions; created free markets of agriculture and stock raising, industrial products, and fishery; divided the banking system which was monopolized by the National Bank of Cuba; introduced monetary and financial policy with order and balance; downsized the enterprises; introduced labor reforms such as favored wages and material incentives in some important sectors, flexibilization of production organizations and the wage system.

12. Among those reforms noted above, the introduction of foreign investment is the policy which the government considers that Cuba is to rely on for development in the long term. In September, 1995, the foreign investment law was revised 13 years after the first law. The new law loosened some limits to foreign investors. Furthermore, in June, 1996, free trade zones and industrial parks were legalized. The main areas in which more foreign firms have invested are tourism, mining, light industry, real estate development, among others. The investments are growing, but there is now a concern that the Helms-Burton Act may affect the growth. There are few retreats among the firms which have already invested in Cuba, but the firms which had considered investments may hesitate or reduce their commitment in Cuba.

13. Although the Cuban economy is in the process of recovery, with the U.S. embargo, the debt problem, and the domestic structural problems, its future cannot be viewed with optimism. It is necessary that Cuba transforms from the import substitution model to a development model with export substitution, and for that purpose, the government is required to further advance drastic reforms. However, in that process, it would not be able to totally abandon the social safety net which was brought by the Revolution, such as equal distribution of basic goods, free education and medical services. In order to maintain its social accomplishments and develop the economy, to have good relations with many countries and to keep sovereignty of the state, it will require more renovations both economically and politically.

Preface (153KB) / Kanako Yamaoka

Executive Summary

Chapter I
1. Introduction
2. The Fluctuation of anti-Cuban legislation at the U.S. Congress
 (1) Torricelli Act
 (2) Helms-Burton Act
 (3) Problems of the Act
3. International Reactions to the Helms-Burton Act
4. Conclusion
Chapter II
1. Introduction
2. Historical Background
 (1) Post-Revolution Institutional Change
 (2) Economic Growth performance until the End of the 1980s
 (3) Extensive Import-Substitution Industrialization Mechanism
 (4) Institutional Structures of Extensive Import-Substitution Industrialization
3. Structural Crisis in the Second Half of the 1980s
4. Conclusion
Chapter III
1. Introduction
2. From Composite Crisis to Partial Recovery
3. Economic Reforms and Their Results
 (1) Participation in the International Economy
 (2) Relationship Between State and Economy and Financial System
 (3) Corporate and Labor Reform
4. Problems
 (1) Expanded External Debt, Strengthened Economic Sanctions and Harmful Effects of Recognition of Dollarization
 (2) Balance of Power and Relationship Between the State and the Economy
 (3) Sustainability of Corporate and Labor Reform
5. Conclusion
Chapter IV
1. Introduction
2. Introduction of Foreign Investment after the Disintegration of the Soviet Union
 (1) New Foreign Investment Law
3. Prominent Investment Areas
 (1) Tourism
 (2) Real Estate
 (3) Other sectors
4. Free Trade Zones and Industrial Parks
5. The Influence of the Helms-Burton Act on Investments
6. Labor Issues in Foreign Investment
7. Conclusion

References (295KB)