HAVANA, Cuba – Approximately 30 miles west of this city, one of the largest construction projects since the start of the Cuban revolution in 1959 is taking shape – a state of the art container port in Mariel Bay. Once complete it will be the largest deep-water port in the Caribbean.
The publicly owned Mariel Port, straddling a major maritime transport artery, and an associated special economic zone is envisioned as a vital economic engine. It aims to attract foreign investment capital and trade, capable of receiving 1 million containers a year including from larger ships crossing through the expanded Panama Canal.
The project is part of the far reaching restructuring and updating of Cuba’s socialist model well underway, literally a revolution in the revolution, that seeks to correct mistakes festering for decades which have contributed to a slowdown in economic growth, growing foreign debt, inefficiencies and black market corruption.
Objectives of restructuring
In the late 1990s as Cuba began emerging from the “special period” brought on by the collapse of socialism in the Soviet Union and Eastern Europe, slowing economic development (1.8 percent average yearly growth) made it painfully obvious changes needed to be made.
Cuban socialism had adopted the highly centralized socialist model of the Soviet Union. “We even copied that model badly,” said Raul Castro. “As Fidel said, among all the errors we may have committed, the greatest of them all was that we believed that someone really knew something about socialism, or that someone actually knew how to build socialism.”
Small changes were already beginning by 2007 including legalizing pay supplements from foreign companies, dropping some consumer prohibitions, creating a sliding salary scale for state workers and increasing prices for agricultural products. These heralded much bigger changes to come.
In 2010 in the wake of the U.S. economic blockade, the global economic crisis, skyrocketing costs of imports, crop damage inflicted from hurricanes and a declining birth rate, the Communist Party of Cuba (CPC) initiated a discussion that ultimately involved nearly eight million of the island’s 11 million population.
Discussions took place in workplaces organized by the Cuban Workers Central (CTC) Cuba’s main labor federation, in universities, academic centers and neighborhoods. What emerged were 313 Economic and Social Guidelines later adopted by the National Assembly. This became the blueprint guiding what is happening today.
“This is a historic moment and we have to adjust to it,” said Jorge Arias, CPC International Relations Department. “We are changing everything that must be changed. We are embarking on a deep change in economy and society.”
To date 140 measures have been implemented laying the foundation for bigger changes. Most are geared to eliminating prohibitions and making it easier to buy and sell homes and automobiles, travel abroad and allowing Cuban athletes to sign professional contracts abroad.
“This is what people were demanding so we responded,” noted Ricardo Ramirez, a CPC economist.
The guidelines fit the realities of Cuba today, at this level of economic and social development and rest on several basic principles: the continuity and irreversibility of socialism as the system of choice (the goal is to “build a prosperous and sustainable socialism”), economic planning and a dominant public sector, continued economic development that modernizes industry and infrastructure and an increase in the living standards.
The Cuban people are not giving up any gains of the revolution. The public sector will still dominate the economy and free education and healthcare will be maintained. “We proceed with the changes without leaving anyone unprotected,” said Ramirez. “This is a basic value of the Revolution.”
Among the mistakes being addressed is a leveling of wages that flowed from what can be described as utopian egalitarianism. This gave rise to a lack of incentive and discipline resulting in low productivity and efficiency.
“Many of us Cubans confuse socialism with freebies and subsidies and equality with egalitarianism,” Raul Castro has said. “We have to erase the notion forever that Cuba is the only nation in the world where one can live without working.”
The new guidelines are restoring the principal “to each according to their work,” with differing pay rates pegged to quality and quantity of work. Recently salaries for 440,000 healthcare workers were increased.
Another mistake resulted in a “paternalistic” role for government, which led to subsidizing things and not people, including things that some people didn’t need. For example, beginning early on everyone received a food ration card whether they needed it or not. Those who didn’t need it often sold it contributing to the growth of a black market.
Previously the state budget for education and health care were funded with taxes on state enterprises. A new tax law was adopted after a national discussion in 2012 bringing huge changes. For the first time every Cuban will be responsible for these and other costs including retirement benefits through a progressive tax on salaries. State enterprises, cooperatives and businesses will also pay taxes.
The state was seen as the employer for life and payrolls became bloated. Operations are now being streamlined through shedding some 1.5 million jobs from state enterprises. All displaced workers get assistance finding new jobs or are offered retraining.
A major part of streamlining is decentralizing management and decision-making. No longer will the state through its ministries directly operate, manage and control all aspects of production. It “will allow the State to focus on raising the efficiency of the basic means of production, which are the property of the entire people, while relieving itself from those management of activities that are not strategic for the country,” said Castro in remarks to the 6th CPC Congress in April 2011.
Publicly owned enterprises are increasing their independence and authority. It means work units, and trained economists, accountants, industrial managers and business executives are being vested with much greater decision making authority. Before enterprises waited for decisions made elsewhere, too often budgets were made and overrun and goals set and not fulfilled. All that is changing.
Deepening participatory democracy and decentralization
The decentralization of decision-making builds upon Cuba’s model of “participatory democracy.” This model includes the countrywide discussions on major questions like the economic guidelines and new laws. It gives greater power to grassroots entities like the monthly general assemblies at work locations. The CTC believes that 85 percent of union members are involved in discussions through these meetings.
The restructuring changes will decentralize authority from the federal level to the provincial and municipal level and separate government policy and decision making from public administration functions.
“We are streamlining administrative structures. We hope to make sure the economy has more independence. In streamlining structures the numbers of workers will naturally be reduced,” said Ramirez.
Many of the new policies are preceded by experiments. Two newly formed provinces once a part of Havana province: Artemisa and Mayabeque are places where new ideas are incubated. Once the kinks are worked out changes will be spread to the rest of the country.
The reforms will also ensure separation between public administration and the CPC, which over the years overstepped its responsibilities and encroached on management. The CPC will focus on initiating changes and innovations, ideological and education work and mobilizing the people behind the guidelines and restructuring.
Expanded property forms
While public ownership of the main means of production is predominant, the guidelines specify several other forms of property including foreign ownership, cooperatives, small private farms and self-employed workers.
Since 2010, nearly 500,000 more workers are employed in the private sector, 62 percent of which belong to unions. Most are working in food, transit and retail. After a nationwide discussion and many modifications, a new labor code was adopted in 2013 that protects the rights of all the nation’s 5.2 million workers including in the private sector.
It is expected private sector production will grow to 40-45 percent of GDP from five percent currently, adding 1.8 million workers. A domestic market is being created independent of the state sector. For example, agricultural cooperatives used to buy everything from publicly owned enterprises. Now they go for the best deal on the market, although they often get more favorable terms from public enterprises.
Cooperative forms of production had been widespread in the agricultural sector where farmers pool their land, livestock, equipment and resources and split up the profits. The new model promotes cooperatives in the service sector. Nearly 500 non-agricultural cooperatives have now been licensed employing 10,000 people. There are now 1500 pilot projects approved, with 3000 expected by the end of 2015.
No turning back
Change is not easy, but everyone agrees there is no turning back. The economy didn’t reach the 2.2 percent projected growth for 2014. Cuban economists say it was due to a number of factors including the global economic crisis, low level of foreign investment and production inefficiency.
“The results so far are growth, but not at the pace we have planned. There has been some slowdown in the economic growth but it picked up at the end of the 2014. We think that we think will be reversed this year. We project four percent growth for 2015,” said the CPC economist.
The Mariel Port and economic zone is part of a bigger project to radically improve the nation’s infrastructure by upgrading port facilities, rail and roadways, transport, refrigeration. By offering tax and legal incentives Cuba hopes to attract badly needed foreign capital. At the recent CubaExpo the government presented 240 projects, which total $8 billion in investments.
A new foreign investment law adopted in 2014 cuts taxes on profits in half to 15 percent, allows full foreign ownership of operations and allows investment in all sectors of the economy except education, healthcare and military. Special tax rates apply to joint foreign and Cuban state ownership and business through international economic associations. All hiring and payment of wages are handled through a Cuban employment agency. Labor conditions are governed by the national labor code.
Some may see this as a step backward, but according to the Cubans it’s necessary to gain the needed capital for development and create jobs.
A lot of foreign investment is expected in the tourism industry. With the normalization of relations with the U.S., Cuba expects three million tourists from North America. Presently one million Canadians visit, 400,000 Cuban Americans, and 90,000 Americans. The port of Havana is being modernized to accept cruise liners.
The aim is also to make Cuban products and services more competitive in the international market and to diversify them. Exports are expected from the pharmaceutical industry and medical personnel, thousands of whom are working abroad including in Brazil and Venezuela.
“We don’t have a lot of resources, only human labor power,” said Ramirez.
One big priority is to expand farming by leasing idle land for free on the condition it must be farmed and maintained. “We are an agricultural country,” said Ramirez. “There was a lot of land that was idle so we decided to hand it over to be farmed for free leasing terms to produce food.”
In the last four years, over 1.1 million hectares of farmland have been drawn into production employing some 180,000 farmers. If successful, the increased agricultural production will allow substitution of many high priced imports with domestically produced equivalents. This was costing the country dearly and adding to a balance of trade deficit.
Recently a delegation of U.S. agricultural representatives visited. “It’s a matter of time,” former Agriculture Secretary John Block, who is an Illinois hog farmer and Washington lawyer, said as he toured a cooperative farm outside Havana. “It’ll be lifted and we’ll have normal relations. We should have done it a long time ago.”
Cuban socialism has entered uncharted waters. The vast changes occurring raise many new and difficult challenges. Among them how to deal with new social inequalities, winning the young generation so far removed from the 1959 Revolution and ideological challenges from market forces.
But as the Cubans say, “we are making changes steadily, without stopping or pausing. We won’t do anything that disrupts the unity of the country. We are implementing big decisions, little by little, but doing it together.”
Photo: People on the streets of Havana, Cuba. | PW Flickr page