Where is Cuba going? Towards Capitalism or Socialism?

On September 13, a statement by Cuba’s trade union (CTC) published in Granma announced a whole series of sweeping changes in the country’s economy. These measures are the result of the serious economic crisis affecting Cuba, which has been hit hard by the recession in world capitalism. This underlines Cuba’s dependence on the world market and the impossibility of “building socialism in one country”.

The most striking of the measures announced in the CTC statement was the cutting of 500,000 jobs in the state sector by March 2011, as part of a process of reducing one million jobs. Around 85% of Cuba’s workers, 5 million, are employed in the state sector, so this would mean firing 20% of these 10% within the next 6 months.

The statement further explained that these workers will have to move to the non-state sector, through an increase in licenses for self-employment and family run businesses, some workers taking over their small business units and running them through cooperatives, the leasing of state owned premises and businesses to be run by the workers themselves, etc.

Job losses

In the past, workers who were made redundant would receive their full basic wage until they were allocated to another job. But now these 100% subsidies will be limited to one month, after which the workers will receive a further benefit of 60% of their basic wage which will be prolonged in time according to the length of their previous employment: those who have worked up to 19 years for a month, or two months for those having worked between 20 and 25 years, three months for those accumulating 26 to 30 years, and for a maximum of five months for those having worked more than 30 years.

Moreover, those remaining in state sector jobs will have their pay linked to productivity, a measure which had been already announced by Raul Castro but which not all companies had implemented because of the deep economic crisis that the Cuban economy has gone through.

The statement also repeated points made previously by Raul Castro to the effect that “oversized social spending” has to be reduced, and that “excessive subsidies” and “unwarranted gratuities” had to be eliminated. This seems to announce a complete overhaul of the welfare state system, moving from universal benefits to means tested benefits. It will probably mean the elimination of the rationing card which gives all Cubans access to a basic basket of heavily subsidised goods, mainly food. The expansion of self-employed licenses in reality will mean the legalisation of a de facto situation in which many Cubans have been forced to make ends meet by getting involved in the black market.


For the first time, small private businesses will be allowed to hire waged labour, and they will have to pay social security contributions for workers they employ. Those who will take advantage of the expanded licenses for self-employment and family run businesses will have to pay into a new tax system, including 25% social security contributions and taxes on profits of between 40% (for restaurants) to 20% for those renting out rooms.

The state hopes to increase tax revenue on the self-employed and small business by 400%. There are already in Cuba 170,000 cuenta propistas self-employed people working legally and there is probably a similar amount in the black market. This is down from a peak of 210,000 during the opening up of the economy in the early 1990s.

Money wages in Cuba are relatively low, but Cubans receive heavily subsidised or free housing, transportation, education, healthcare and foodstuffs through the rationing card. The problem is that the social wage no longer allows Cubans to live and they have to do a large percentage of their basic shopping in convertible pesos (CUC) which are exchanged at 1 for every 24 Cuban pesos in which they receive their wages.

The CUC shops are run by the state and operate on the basis of high mark-ups as a way for the state to recover hard currency which Cubans obtain through remittances from abroad and their legal, semi-legal and illegal dealings with tourists.

Other measures announced recently include the extension of the duration of leases of land to foreign investors, from 50 to 99 years. This measure was explained as providing "better security and guarantees to the foreign investors” particularly in the tourist industry. There is already talk of Canadian companies building luxury resorts complete with 18-hole golf courses on the island.

Cuba at the mercy of the world market

The measures announced, and others that have already been announced or that are in the pipeline, threaten to increase inequality, develop the private accumulation of capital, seriously undermine the planned economy and start a very powerful process towards the restoration of capitalism. All of these measures are the result of the serious economic crisis that Cuba has been facing in the last two years.

Hotel Nacional in Havana. Photo by Scatuchio.Hotel Nacional in Havana. Photo by Scatuchio. As we explained in an earlier article (Cuba 50 years later - part two), the Cuban economy is extremely dependent on the world market and as a result, suffers heavily from the movements of the capitalist economy. First, the price of oil and food increased massively in 2007-08. Cuba imports about 80% of all the food it consumes, a total of US$1,500 million, mainly from the US. Then, the price of nickel collapsed from a peak of US$24 per pound down to US$7 per pound in early 2010. As a result of these factors, the terms of trade fell by 38% in 2008 alone.

The world recession also affected negatively the important tourist industry and the remittances of Cubans abroad which amount to US$1,100 million. To all these negative factors we have to include the devastation caused by three hurricanes in 2008 which caused loses worth nearly US$10,000 million.

Cuba is now heavily dependent on the export of professional services (mainly doctors to Venezuela) for its income in hard currency which then allows it to purchase goods on the world market. This export of medical services is worth US$6,000 million a year, three times the income generated by tourism.

The combination of all these factors led to a record trade deficit of US$11,700 million in 2008 (up 70% from 2007) and a current account balance of payments deficit of over US$1,500 million in the same year (in comparison with a US$500 million surplus in 2007). Cuba is not a member of any international financial institution and in the context of the worldwide credit crunch and the US blockade it proved impossible to obtain any additional lines of credit. This led Cuba to default on its payments to foreign creditors by mid 2008 (Cuba’s foreign debt was US$17,820 million in 2007, or around 45% of GDP).

After having grown steadily in 2003-07, reaching peaks of 11.2% and 12.1% in 2005 and 2006, the rate of growth sharply contracted to 4.1% in 2008 and 1.4% in 2009. In 2008 the state had the biggest fiscal deficit of the decade, 6.7% of GDP, and was forced to implement a programme of adjustment, including a massive reduction in imports (including food).

All these figures paint a picture of a Cuban economy which has a very weak base and is heavily dependent on the world market. To summarise, you could say that Cuba exports raw materials (nickel), agricultural products (sugar), but mainly professional services (doctors), and receives income from tourism and the remittances. With the hard currency it earns, it has to import almost everything, from food to manufactured goods, not to speak of capital goods.

This really shows, not in a theoretical way, but in the cold language of economic facts, the impossibility of building socialism in one country. This was not possible in the Soviet Union, which after all, was a country spreading over a whole continent and with massive natural resources. It is even less possible in a small island 90 miles from the most powerful imperialist power on earth.

Collapse of Stalinism

What is truly amazing is the fact that the Cuban revolution has managed to resist after the collapse of Stalinism in the Soviet Union, on which it was completely dependent from an economic point of view (this is explained in more detail in Cuba 50 years later - part two). This is a testimony to the deep roots the Cuban revolution still has within the population. The so-called Special Period showed the determination of a whole people not to allow themselves to be enslaved again.

Crowd celebrating the Cuban Revolution on 26 July. Photo by stttijn.Crowd celebrating the Cuban Revolution on 26 July. Photo by stttijn. So what attitude should we take to these proposals? It is true that, in itself, the opening of small businesses is not a negative measure. A planned economy does not need to nationalise everything, down to the last barber shop. This was always a Stalinist caricature. In Cuba the nationalisation of all small and medium enterprises took place as part of the “Revolutionary Offensive” in 1968, when 58,000 small businesses, mainly in the cities, were expropriated. Ice cream vendors, barber shops, shoe repair shops, etc, all were nationalised.

This was a completely unnecessary step, which only resulted in the creation of a further layer of bureaucracy to oversee and manage these really small productive units. In the transition towards socialism, it is inevitable that elements of capitalism will continue to exist alongside the elements of a socialist planned economy. That includes a certain number of small businesses, shops and small peasant plots, etc.

In itself, that should pose no threat to socialism, as long as the key points of the economy remain in the hands of the state, and the state and industry is in the hands of the working class. On that condition, and only on that condition, a small private sector could and should be allowed, as long as the state maintains firm control over the commanding heights of the economy.

In the 1920s the Russian revolution was forced to make concessions to private production (mainly in agriculture) and offer concessions to foreign capital, through the New Economic Policy. Lenin was even prepared to offer to lease parts of Siberia to foreign capitalists. Given the extreme poverty of the young Soviet state, the Bolsheviks had no means of developing the colossal mineral potential of that huge region.

In exchange for investment and foreign technology, both of which the Revolution lacked, Lenin was prepared to allow foreign businessmen to open factories and mines on Soviet territory, employ workers and make profits, on condition that they respected Soviet labour laws and paid taxes. But the prior condition for making such concessions was that the working class, under the leadership of the Bolshevik Party, maintained control of the state. In reality, these offers were rejected because the imperialists were determined to overthrow the Soviet state, not trade with it.

However, such historical analogies have definite limits and can be misleading. The truth is always concrete. It is not a question of repeating general truths about the transitional economy but of analysing concrete facts and trends. We have to ask ourselves the basic question: in the given historical context, what will the concrete results of these policies be for Cuba?

The first problem is that Cuba has an extremely weak economic basis. The second is that it is only a few miles from the most powerful capitalist economy in the world. The third is that, as a result of years of bureaucratic mismanagement, the state owned enterprises are in a very bad state. Last but by no means least, the workers have no sense of controlling the industries where they work, and therefore no interest in questions such as productivity, efficiency and so on. There is a general sense of malaise and discontent that can lead to a mood of alienation that can pose the most serious danger of all to the future of the Revolution.

Everybody agrees that the present situation cannot continue, that “something must change” and “something must be done”. The question of questions is: what is to be done?

Will these measures work?

The notion that the problems of the Cuban economy can be solved by promoting the private sector is a most serious error, and one that can pose serious dangers for the future of the Revolution. This is shown by experience. There have already been some test cases for the privatisation of small businesses, including the leasing out of barber shops and one taxi firm.

A tobacco plantation. Photo by Monkey Cat.A tobacco plantation. Photo by Monkey Cat. The results have been uneven. Some barbers find that they cannot generate enough profits to afford the lease and tax they have to pay to the state, others are thriving. Taxi drivers in one firm where they are now forced to lease their vehicles from the company have complained that they have to work extremely long hours just to cover what they have to pay for the use of the taxi.

It is not clear how these businesses will be able to get credit or how efficiently they will be able to get supplies, etc. The experience of peasant cooperatives and private agricultural producers has not been very successful, as they have had to deal with an extremely bureaucratised state system for purchasing their produce, delays in payments, problems in accessing fertilisers and seeds, etc.

An official document refers to many of these newly created businesses collapsing within one year. This does not allow much room for optimism! Unlike the reforms in the 1990s this time private businesses will be allowed to employ waged labour. This will create a sizeable legal layer of private small capitalists: we are talking about 250,000 new licences on top of the existing 170,000. It is inevitable that this layer will develop its own interests and outlook.

A gulf will open up between the private and public sectors. In a situation where the state is not able to produce good quality industrial and manufactured goods, the private sector will tend to grow at the expense of the state sector. In other words, the capitalist elements will grow and the socialist elements will retreat. The idea that the state can keep the capitalist elements under control is utopian. To the degree that the private sector becomes stronger, the market elements will assert themselves.

Two contradictory and mutually exclusive tendencies will exist side by side. Sooner or later one of them must prevail. Which one? That sector will ultimately prevail which attracts most productive investment, and on that basis, succeeds in achieving a higher level of labour productivity and greater efficiency. The present moves to relax the restrictions on foreign investments will mean a rapid increase in the flow of foreign capital to the private sector, starting with tourism and spreading to other key sectors.

The battle between the two trends will not be won by ideological speeches and exhortations but by capital and productivity. Here the crushing weight of the capitalist world economy will prove decisive. The main threat to the planned economy does not come from a few taxi drivers or barber shops but from the penetration of the world market in Cuba and from those elements in the bureaucracy who, privately, favour the market economy as opposed to a socialist planned economy.

Let us speak frankly: There is a strong current amongst Cuban economists, which is advocating these measures because they are in favour of abandoning the planned economy altogether, introducing market mechanisms at all levels and opening up the country to foreign investment in all sectors. That is, they are in favour of capitalism.

These people are basically proposing a “Chinese way”, although, because of the strong criticism which has developed in Cuba against China amongst left wing intellectuals, they prefer to talk of the “Vietnamese model”. The change of terminology is irrelevant. A rose with any other name will smell as sweet. And capitalism with any other name will smell as bad.

Regardless of how they want to describe their model, the proposals are clear. “The state should no longer plan the economy but regulate it”, “manufacturing and agriculture should be opened to foreign investment”, etc. No doubt the intentions of those proposing these measures are of the best. But the way to Hell is paved with good intentions, and the restoration of capitalism would be Hell for the people of Cuba, even if some do not yet recognise the fact.

Long ago, Fidel Castro rejected the “Chinese model” because it was just another name for the restoration of capitalism. But even if we were to consider this option, it would immediately become clear that it cannot apply to Cuba. The concrete conditions are completely different. Cuba is a small island with a small population and few resources. China is a vast territory with over a billion inhabitants, many resources and a powerful industrial base.

The huge Chinese peasantry has provided China’s capitalist enterprises with a vast reserve of cheap labour, which has constantly supplied the factories of Guandong with workers who work under virtual slave conditions for very low wages. The only thing that a Cuban variant would share is the last: low wages.

A capitalist Cuba would resemble neither China nor Vietnam, but rather El Salvador or Nicaragua after the victory of the counter-revolution. It would soon revert to a similar situation that existed before 1959 – one of misery, degradation and semi-colonial dependence. And irrespective of the intentions of those responsible, the measures which have already started to be implemented, will unleash a powerful movement towards the restoration of capitalism, which would destroy all the conquests of the revolution. It is the entry to a very slippery slope, and once it starts it will be difficult to stop.

Corruption and bureaucracy

But, some will say, we cannot continue as before! No, we cannot. But before we prescribe the medicine it is first necessary to have an accurate diagnosis of the disease. If we think that the problem is one that is inherent in the nationalisation of the means of production, then we must be in favour of privatisation and market economics. But we do not accept that this is the case.

The superiority of a nationalised planned economy was demonstrated by the colossal successes of the USSR in the past. These successes were undermined by the bureaucratic distortions that flowed from Stalinism and the corruption, swindling and mismanagement that are the inevitable consequence of a bureaucratic regime. Over a long period these things cancelled out the gains of the planned economy and undermined it. That is what led to the collapse of the USSR, not any inherent defect of central planning.

All those in Cuba who consider themselves communists and are worried as they see the gains of the revolution being endangered should study the lessons of the degeneration of the Russian revolution. It was the parasitic existence of the bureaucracy, itself a consequence of the isolation of the revolution in a backward country, which finally led to the restoration of capitalism with the catastrophic social collapse which accompanied it. The bureaucratic planning of the economy led to wastage, mismanagement and corruption. Finally the bureaucracy decided to become themselves the owners of the means of production.

The problem of corruption and bureaucracy in Cuba has already been denounced by Fidel Castro himself, in an important speech to university students in 2005. More recently the matter was taken up in a sharp way by Esteban Morales, honorary director of the Centre for US Studies at the University of Havana. In an article published on the website of the National Union of Writers and Artists (UNEAC), he clearly identified the main counter-revolutionary threat in Cuba today:

“We can have no doubt that the counter-revolution, little by little, is taking positions at certain levels of the State and Government. Without a doubt, it is becoming evident that there are people in positions of government and state who are girding themselves financially for when the Revolution falls, and others may have everything almost ready to transfer state-owned assets to private hands, as happened in the old USSR.”

He explained how the problem with the black market and corruption is not so much that there are people outside the main shopping centres offering products which are not found in the shelves of the shops, but rather those who are supplying them. In a further article, Morales explains how:

“The real corrupt people are not so much those who sell powdered milk, not even those who sell durable goods outside the very doors of the shopping centres, but those who from their positions in the government and the state, control and open the doors of the warehouses.”

Morales explains how corruption at all levels of the bureaucracy is in fact more dangerous than the so-called dissidents, which have no roots or support amongst the population, since:

“the same people, which dissidents have no impact upon right now, if they are affected by a mood of corruption, mistrust in the leadership of the country, if they witness immorality in the handling of their resources (because the resources belong to the people, and that should not be just a discourse), amidst a situation of economic crisis, which has not been overcome, will become demoralised and will weaken their resistance in the political struggle.”

Shortly after publishing his original article, entitled “Corruption: The true counter-revolution?” Morales was expelled from the Communist Party, despite protests from the members of his local branch, and his article was removed from the UNEAC website.

As he himself explains, Esteban Morales is a convinced communist with more than 50 years of struggle behind him. He then wrote a further article in which he denounced these methods since they have a demoralising effect on revolutionaries and communists. He insisted on linking the problem of corruption to the question of bureaucracy and made an appeal to the rank and file members of the party to wage a campaign against both.

He argued that the rank and file organisations of the party should not limit their actions and discussions to their local area, but take on the problems as a whole. The current situation, he said:

“prevents the rank and file organisations of the party from projecting their criticisms to the tops, which would be very important in terms of control of the activity of the higher bodies by the rank and file”. He continued by pointing out that “the most important part of the Party is its membership, not its leading bodies at any level. Such deformation was paid for dearly in the USSR”.

Clearly, Morales, is addressing one of the central aspects of the problems facing the Cuban revolution. When Raul Castro took over, he opened up a widespread national debate about the future of the revolution. Hundreds of thousands, millions of people, participated in the debate and contributed their ideas on how to improve the revolution. This was a debate that generated genuine enthusiasm. However, there was no real mechanism through which the people who participated could decide the outcome of this debate. Thousands of proposals were made, sent up, but nobody heard about them anymore. In reality it was not so much a genuine process of decision making, but rather a consultation which is very different.

The lack of genuine workers’ democracy, in which ordinary working people participate directly in managing the state and the economy, is one of the main threats to the revolution. It breeds demoralisation, scepticism, cynicism and generally undermines the revolutionary morale of the people. If it is combined with a situation in which the basic needs are not met, the purchasing power of wages decreases and everybody is aware of corruption and theft going on at the top of the state, then it becomes a real counter-revolutionary danger of the first order.

Another example of this is the delay of the VI Congress of the Communist Party which was supposed to have taken place last year, after an already long delay of 12 years since the V Congress in 1997. There are many amongst the members of the party who share the concerns of Esteban Morales. They fear that sections of the bureaucracy will lead the restoration of capitalism as happened in the USSR. There are many indications of this ferment to the left within Cuba.

What way forward?

It is clear that the status quo cannot be maintained indefinitely, but are the measures being introduced a way forward, or a step back? One can say that, under unfavourable conditions, the Revolution must sometimes be prepared to take a step back. And it is customary to refer to Lenin and the NEP in this context. As a general proposition, it is undoubtedly correct that sometimes it is necessary to retreat. But a general who retreats must be careful not to turn a retreat into a rout. And what is completely unacceptable is to confuse a tactical retreat with outright surrender.

The Bolsheviks were never under any delusion that it was possible to build socialism in backward Russia. Lenin pointed out many times that in order to consolidate the gains of the Revolution and advance to socialism, the victory of the socialist revolution in one or more advanced European country was necessary. That would have been possible if it were not for the cowardice and betrayal of the leaders of the European Social Democracy. But once the Russian Revolution was isolated in conditions of frightful backwardness, a retreat was inevitable.

The measures defended by Lenin were clearly explained as a temporary setback, because of the delay of the world revolution, not a way forward. The Bolsheviks, led by Lenin and Trotsky, continued to stress the need for international revolution to come to the aid of Soviet Russia and fought against the creeping bureaucratisation of the state institutions and to preserve workers’ democracy. All their hopes were based on the perspectives of the international socialist revolution.

Photo by alittlefishy.Photo by alittlefishy. It is not an accident that Lenin and Trotsky paid such a lot of attention to the building of the Third (Communist) International. A narrow nationalist attitude was entirely foreign to their outlook. In the same way, Che Guevara embodied the internationalist spirit of the Cuban Revolution. Che understood that, in the last analysis, the only way to save the Cuban Revolution was to spread the revolution to Latin America, a cause for which he was prepared to sacrifice his life.

The objective conditions for the victory of the socialist revolution in Latin America are a thousand times more advanced today than in 1967. The Venezuelan Revolution, together with Cuba, has provided a rallying point for the revolution in Bolivia, Ecuador and other countries. The initiative taken by President Chavez to launch the Fifth International, dedicated to the overthrow of imperialism and capitalism, should receive the most enthusiastic support of the Cuban revolutionaries. This is the hope for the future!

In our opinion, the only real way forward for the Cuban revolution is revolutionary internationalism and workers’ democracy. The fate of the Cuban revolution is intimately linked to the fate of the Venezuelan revolution and the Latin American revolution in the first instance, and to the world revolution more generally.

It is not a question of “exporting our model”, but of giving active support to the revolutionary forces which are fighting against imperialism and capitalism in Latin America and beyond. Instead of making concessions to capitalist tendencies, the Cuban revolution should be arguing clearly for the expropriation of the oligarchy, the capitalists and imperialism, as the only way forward in Venezuela, in Bolivia, etc. This is precisely the lesson that can be drawn from the living experience of the Cuban revolution itself. Only the expropriation of imperialism and the Cuban capitalists allowed the revolution to advance after 1959.

But an internationalist policy will not solve the needs of the Cuban people here and now! Of course, not! We are not utopians. Neither do we confuse strategy with tactics. It is necessary to combine a revolutionary internationalist policy with concrete measures to solve the economic problems in Cuba. The question is: how is this to be achieved? In our opinion, the measures proposed will not provide a lasting solution. They may temporarily succeed in eliminating or alleviating certain shortages and blockages, but only at the cost of causing new and insoluble contradictions in the medium and long term.

It may be that a section of Cuban society may welcome the proposed reforms, on the assumption that “something is being done”. But when the full effects are felt, that mood will change. The only real way to improve labour productivity is to make the workers feel that they are the ones in charge, that is, by introducing the widest measures of workers’ democracy into industry, society and the state.

Fidel Castro in 1959. Photo from Library of Congress.Fidel Castro in 1959. Photo from Library of Congress. The Cuban people have shown repeatedly that they are prepared to make sacrifices to defend the Revolution. But it is essential that the sacrifices should be the same for everybody. Down with privilege! We must return to the simple rules of Soviet democracy that Lenin put forward in State and Revolution, not for communism or socialism but for the day after the Revolution: that all officials be elected and subject to the right of recall, that no official should have a wage higher than that of a skilled worker, over a period of time the rotation of all positions (if everyone is a bureaucrat, no one is a bureaucrat), no standing army but the arming of the people.

Che Guevara insisted on the importance of the moral element in socialist production. That is obviously true but it can only be guaranteed in a regime of workers’ control, when every worker feels that he or she is responsible for taking the decisions that affect production and every aspect of life. However, given the serious problems that exist, some element of material incentives will be necessary.

The basic principle, at this stage, will remain: from each according to his ability, to each according to the work performed. This implies the existence of wage differentials, as was also in the case in Russia immediately after the Revolution. But there should be a ceiling on differentials, which should tend to reduce in the future, to the degree that production increases and with it, the wealth and wellbeing of society.

But the biggest incentive is clearly when the workers feel that the country, the economy and the state belongs to them, and that can only be achieved if it is the workers themselves who take all decisions and all elected officials are accountable to them. Only on this basis can the socialist base of the Cuban Revolution be defended and the capitalist counterrevolution defeated.

What is the alternative?

When the leaders of the Communist Party in China originally began their programme of reforms, they had no idea that they were preparing the way for capitalist restoration. But the introduction of some market measures (in the name of efficiency) has, over a long period of time, led to the restoration of capitalism, with a massive increase in inequality, the destruction of the social welfare system, etc.

Lenin in 1919Lenin in 1919 Those who have benefited from this process were not the workers and peasants but the bureaucrats. It is no surprise therefore that sections of the bureaucracy in Cuba are looking to China as a model. Some people might be impressed by the growth in GDP in China, overlooking the massive social contradictions which have accumulated. In any case, the application of the “Chinese way” in Cuba, would not even lead to economic growth, but rather to the rapid and catastrophic collapse of the planned economy. Foreign multinationals, from Spain, Canada, Brazil, Mexico and others, which are already operating in Cuba, are looking at this process and already positioning themselves. What are they after? Raw materials, cheap labour and the favourable climate of the island, that is, the re-colonisation of Cuba.

Important sections of the US ruling class are already questioning whether the blockade is the most intelligent policy in order to undermine the Cuban revolution, or whether they are missing opportunities for investment to other countries’ multinationals. The restoration of capitalism in Cuba would throw the island back to the 1930s, dominated by foreign capital, and a playground for tourists from advanced capitalist countries. But this is not a foregone conclusion.

Within Cuba there are many who are rightly concerned about the current situation but who do not want a solution along market lines. If a clear alternative based on revolutionary internationalism and workers’ democracy is presented, this could rally thousands of honest communists, veterans, intellectuals, youth and workers, who are not prepared to let the revolution be destroyed either by imperialism or by inside forces. In order to go forward, first we need to go back to the programme of Lenin!

Jorge Martin

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