Thursday, 25 August 2011

Cuba adopts new economic guidelines to raise production

by Gloria La Riva, 15 August 2011.

Millions participated in meetings to debate policy changes

Cuba’s parliament—the National Assembly of People’s Power—concluded its session in Havana on Aug. 2. The economy was the centerpiece of deliberations. Delegates approved an extensive series of economic and accompanying political measures that have been discussed throughout Cuba since November 2010.

In November, the “Project of Guidelines on the Economic and Social Policy of the Party and Revolution” was published for national debate before its formal presentation at the Sixth Congress of Cuba’s Communist Party (PCC) in April 2011. The consultative process has continued since then.

The objectives of the sweeping proposals are to stimulate the economy and raise production. Some measures are already under way: distributing unused lands for cultivation; decentralizing some state services (beauty parlors, barbershops, tire repair, taxis, and more); reassigning thousands of state workers to jobs in construction, teaching and agriculture and reducing the state work force by tens of thousands more. Opportunities for self-employment and small-scale enterprise have been expanded. Payroll and income taxes will be paid by those engaged in this activity.

Debating the changes were 8,913,838 Cubans—out of a population of 11.5 million—who participated in work and neighborhood meetings to discuss the Guidelines. More than 3 million Cubans commented during the meetings.

Of the original 291 guidelines in the document, 181 were modified and 36 new ones accepted, making a total of 313 guidelines.

Cuban President Raúl Castro said at the National Assembly session, “[W]e can characterize with total certainty the Guidelines as an expression of the will of the people, contained in the policy of the Party, the Government and the State, to update the Social and Economic Model, with the objective of guaranteeing the irreversibility of socialism, as well as the economic development of the country, together with the necessary formation of ethical and political values of our citizens.”

Economic situation requires action
External and internal factors have placed Cuba in a precarious economic situation that requires the government and Communist Party to make major changes to grow the economy. The U.S. economic blockade, hurricanes and drought, the volatility of capitalist markets and prices, as well as domestic inefficiencies, have severely impacted Cuba’s economy.

From 1998 to 2008, according to the Guidelines report, 16 hurricanes caused $20.5 billion in damages. Cuba is still recovering from three major hurricanes in 2008 that caused more than $10 billion in damages.

Between 1997 and 2009, changes in export and import prices cost the country $10.9 billion. With nickel ore for example, Cuba’s second major source of export income, the international price dropped from $50,000 per ton to only $9,000 to $10,000 per ton in 2008.

Rising food prices worldwide have created a huge problem for Cuba, which buys up to 80 percent of its food from abroad. Cuba’s plan to spend $1.2 billion on imports for the year 2011 had to be revised up to $1.5 billion for the same quantity of food, due to price increases alone. This year’s economy is expected to grow 2.9 percent overall, and 6 percent in agriculture.

The Special Period
The new economic strategy is not a sudden change in the direction of the Cuban socialist revolution. It is a continuation of the process—although more far-reaching today—that Cuba undertook at the cusp of the “Special Period,” starting in the 1990s.

At the start of that decade, Cuba’s main trading partner, the Soviet Union, canceled overnight all trade with the island nation, just before the USSR’s demise. Almost 85 percent of Cuba’s trade had been with the USSR and socialist Eastern Europe.

Plunged into the realities of an imperialist-dominated world, Cuba urgently needed new sources of income. Severe shortages in fuel, raw materials and spare parts caused the country’s production to drop 34.5 percent between 1989 and 1994. Aggressive U.S. laws were passed against Cuba in 1992 and 1996, tightening the U.S. blockade.

The new shortages forced Cuba to adopt major economic reforms. Before the Special Period, most Cuban agriculture was organized in state farms, which require the large-scale use of machinery, fuel and other inputs to be efficient and productive. Most state farms were converted to cooperatives, where the land remained state-owned, but the product was owned cooperatively by the farm workers. The aim was to spur production through private incentive. This was a step back from a higher form of socialist property, which was the state farm where both the land, product and “profit” (which in a planned economy is transformed into social or collective surplus) from agriculture belonged to society through the medium of the workers' state.

Opening up to capitalist foreign investment was another step accepted by the Cuban leadership as necessary to bring more resources into the country. So, too, was a major expansion of tourism. Many new hotels took the form of joint ventures with foreign corporations. The legalization of self-employment was needed to absorb workers laid-off in state industries.

Cuban leaders forthrightly explained that these measures did not represent further steps forward in building socialism, but rather a tactical retreat aimed at preserving the fundamental achievements of the revolution.

On July 26, 1993, Fidel Castro explained Cuba’s situation in the midst of the Special Period: “Today we have to save the homeland, the Revolution and the gains of socialism, which is the same as defending the right to continue building it in the future. We will never resign ourselves to renouncing that. This is what we mean when we say 'Socialism or Death.'

"Today we have to make concessions. … We have had to divide the island on the map and accept international bids so that foreign companies can explore and drill. … We would have to share with them a part of the petroleum that is found. When the USSR existed, we conducted the exploration ourselves, we did the drilling, the petroleum was all ours.

"Today life, reality, the dramatic situation in which the world is living, this unipolar world forces us to do what we would never have done if we had capital and if we had the technology to do it.”

Some “left” enemies of the Cuban Revolution claimed that these steps signaled the “restoration of capitalism.” Washington harbored no such illusions, and has not let up for a moment in its drive for “regime change.”

By 1996, the economy began a slow but steady climb upward. And Cuba marked many milestones along the way: constantly improving indices of health, tens of thousands of doctors serving abroad, health care and education remaining universal and free, energy policies saving more than $1 billion , an impressive sustainable-agriculture model, the Latin American ALBA alliance.

The economic strategy of the Special Period was not imposed on the population by President Fidel Castro or the National Assembly. In 1993, much like today, 83,000 “workers’ parliaments” were held with 3,000,000 workers as well as debates in the mass organizations. The people had a real say on where to cut back and what to preserve. Cuba’s survival and economic recovery was only possible with socialist consciousness, a strong will to sacrifice, and the unity of the Cuban people.

The process is underway
A Permanent Commission for the Implementation and Development of the Guidelines has been formed in the National Assembly. It will be responsible for controlling, verifying and coordinating activities of all entities involved, as well as to evaluate and adjust where necessary.

For example, on Aug. 5, in response to farmers’ complaints that farm tools were too expensive to buy, it was announced that all 1,200 farm-supply stores would lower the prices of 93 items, including machetes, hoes, plows and milking cans, by 60 percent.

Much of Cuba’s arable land has been unused or underutilized, while up to 80 percent of Cuba’s food is still imported. Replacing imports with domestic production through wider use of the land is crucial.

In July 2008, the agricultural Law Decree 259 was approved for the free transfer of land to current and new farmers, with renewable 10-year terms for individuals and 25 years for cooperatives.

For first-time users, the land parcel will be up to 13.42 hectares (31.8 acres). For existing entities, 40.26 hectares will be granted (95.4 acres). The practice is “usufruct”: the land held by the state but production belonging to the producer.

So far, about 2.5 million acres of land has been granted to 143,000 people, out of 171,000 who applied.

One major challenge for growers is the pervasive and hated “marabú” weed. An estimated 50 percent of the land is covered with this deep-rooted and fast-growing thorny plant, which renders the land useless. This reporter can attest to the challenge of marabú, having spent exhausting hours chopping marabú with others.

Expansion of private employment
Before the new economic reforms, the granting of private employment licenses had been suspended, with only 174,000 people working as “cuenta-propistas.” Now licenses have been dramatically expanded to an estimated 325,000 people. A total of 178 types of small-scale self-employment have been legalized.

The license holders are required to pay payroll taxes if employing others, and taxes on their profits. Some feedback from the people indicates that many are struggling to break even. So a moratorium on payroll taxes has been declared through the rest of 2011. Other taxes have been lowered.

Before the new policy, the self-employed were legally limited to hiring family members only. This has now been expanded to include the hiring of other workers. This is seen as necessary because up to 1 million workers may be laid off from state employment and cannot be absorbed completely through other state employment.

When this reporter traveled to Cuba in May, she spoke with people engaged in private restaurants, room rentals and private taxis, including some who had not been working before. Now it takes as little as a week to receive a license.

Walking down central 23rd Street and other roads in Havana, one can see people with small stands of home-produced CDs and DVDs, movies and music, handicrafts, as well as a sprouting of more food operations in people’s homes. Many activities were already operating “underground” without a license. Now they can operate legally and contribute to the economy.

Many state enterprises became unsustainable for the state to run. Barbershops, beauty salons, tire repair, taxis and other services operated at a loss for too long.

With extremely limited resources, the government must prioritize its expenditures in order to guarantee the most vital needs for the population: health care, education, food, industrial production for consumer goods and hard currency income.

By converting services workplaces to “usufruct,” where the workers own the production and the property remains in state hands, what was a drain can now render an income to the state.

A Communist Party member explained to this reporter, “For a long time, although the price for a haircut in state-run barbershops was officially 20 centavos, the actual price that the workers charged was higher, sometimes 5 pesos [there are 100 centavos to a peso.]

"The state’s income was only 20 cents, yet as owner of production and property, the state provided electricity and other utilities, the barbershop and supplies.

Now,” the PCC member said, “those workers are responsible for the operation. They have to pay rent, utilities, and taxes. They are invested in the operation’s success and contribute to the government budget.

"Although the workers hold power and the wealth is owned in common, sometimes an individual worker doesn’t feel that responsibility.”

He added, “But accumulation of capital, the combining of shops into a larger operation, will not be allowed. This is true of all the self-employment enterprises.”

Sale of houses
Much has been made in the U.S. media about the announced change allowing for house sales. Up to now, selling one’s home was prohibited. The most that could be done was to swap a house or apartment for another dwelling, or “permuta” as they say in Cuba.

Most Cuban families are owners of their own home. This did not come about from a successful real estate market, but resulted from revolutionary decrees in 1961 and 1962, which converted all the housing stock into a right, a home for each family.

But in the five decades since the 1959 Revolution, some families ended up with more than one house through marriage, death or other circumstances. House swaps are sometimes difficult to resolve through a one-for-one trade; a payment will now be allowed to achieve more equitable exchanges, as well as sale of one’s house. But home ownership will still be limited to one dwelling.

With the new regulations, Cubans who live abroad for long periods of time can now rent their home out. This is expected to help solve the severe housing shortage.

The house sales are still restricted. There is little danger of the new home sale policy turning homes into “investments” or leading to a huge disaster of foreclosures as in the United States,

Social security and the ration book
The law on social security was modified in 2008 and took effect in 2009 to change requirements for retirement. Because of the aging of the working population, the legislature approved an increase in the retirement age—to be phased in over five years—to 65 from the previous age of 60 for men, and to 60 from the previous age of 55 for women. Without this change, the system’s finances would be heavily strained for future retirees.

Every Cuban has been entitled to the rationing system since the early days of the Revolution. It has guaranteed a food basket of basic items at a price that has remained unchanged throughout the years. But it has been heavily subsidized by the government and can no longer be sustained economically. Some items have been phased out, and at some point in the future the whole program will be ended.

The announced phasing out of the rationing system evoked the most responses in the debates, with pro and con opinions.

At the PCC Congress, President Raúl Castro stated: “The problem is not the concept, it is in how, when and how to phase it in. Ending the ration book is not an end in itself, it cannot be seen as an isolated decision, but as one of the main measures that will be essential to apply to eradicate the existing deep distortions in the functioning of the economy and society as a whole.

“It would not occur to anyone in the leadership of this country to suddenly decide the end of that system, without first creating the conditions for that. This means carrying out other transformations in the Economic Model with the aim of increasing efficiency and work productivity, in a way that can guarantee with stability the levels of production and supply of products and basic services at non-subsidized prices and at the same time accessible to all citizens. …In Cuba, under socialism there will never be room for ‘shock therapies...’”

While millions of people in the world are suffering from starvation, while the growth of billionaires multiplies, Cuba’s planned and rational economy is able to channel its resources for the benefit of all the people.

In the United States, genocidal wars continue unabated and millions lose their jobs and homes, and the billionaire bankers make the real decisions to assure their profits. In contrast, it is clear from the debates and process over the Cuban economy and society that the Cuban people are in power.