Outline : Introduction Origins of the New Development Strategy: Castro’s Vision

2. Cuba’s Strategic Economic Re-Orientationfor: “Governance and Social Justice in Cuba: The International Dimension””Symposium organized by FOCAL, Canada; CRI-FIU, United States; and FLACSO, Mexico.June 9, 2006Archibald Ritter,Carleton University, Ottawa Canada.

3. Outline: • Introduction • Origins of the New Development Strategy: • Castro’s Vision • The New Geopolitical Context • Economic Recuperation III. Cuba’s New Development Strategy • New Export Foundation • A Knowledge Economy and Society • Institutional Strategy • Rebuilding the Infrastructure: La Revolucion Energetica ! • Renewed “Sucrophilia” ? • Socialist Purification: Combating Economic Illegalities and Corruption IV. Central Problems • President Castro • US Policy towards Cuba • Openness; Transparency; Accountability; Democracy VI. Conclusion

4. I. Origins of the New Development Strategy 1. President Castro’s Vision

5. 1. President Castro’s Vision

6. 1. Castro’s Vision: Not clearly articulated, but expressed piecemeal on numerous occasions; especially Speech of November 17, in the Aula Magna, U de la Habana Probable fixation on his “Legacy” Main Elements: • Personal and National Leadership in Anti-US & Anti-Imperialist Crusade; • Irrevocable “Socialism” and Political Continuity; • Socio-Economic Purification; • Re-ordering of Cuba’s Place in the International System; • Return to Prosperity.

7. 2. The New Geopolitical Context • The US in Trouble: • Incapacitated in the Iraq quagmire; • Economic vulnerability with external deficits and debt; • Loss of reputation and moral authority in much of the world • Emergence of China and spin-off benefits for Cuba: • A Chinese depot for the Caribbean area? • Chinese resource investments (nickel & oil exploration) • Major new credits • Like-minded re Governance and Human Rights

8. A Latin American Opening for Cuba ? • Chavez as a new Sugar Daddy or Petroleum Papa • Evo Morales • Ollanta Humala in Peru? No. • Colombia: Uribe • Ecuador & Mexico (Lopez Obrador?) • Centre-Left friendly regimes: Argentina & Uruguay (entry into Mercosur?) • Social Democrat, friendly regimes: Brazil, Chile • Good Caribbean relations • MajorUS unpopularity in Latin America

9. 3. Economic Recuperation • Economic Recovery is real, but Slow. • Official GDP numbers suggest that GDP of 1989 has just been surpassed in 2006 by 14%. • The Economist’s GDP estimates (5.2% growth in 2005; 4.5% probable in 2006) suggest that the 1989 level of income per capita has just been reached. i.e. 16 lost years • Recuperation makes reversal of earlier reforms easier for Castro.

10. III. Cuba’s New Development Strategy • Past Strategies • 1961-1964: Instant Industrialization • 1964-1970: the “10 Million Tons” Obsession, plus the “New Man” & Extreme Centralization • 1970-1989: Soviet Model & patronage; • emphasis on sugar, nickel and minor (never-emerging) exports; • 1992-2005: emphasis on tourism, remittances, nickel, with a weakening sugar sector • 2005- Onwards: A New Approach . 

11. III. Cuba’s New Development Strategy, continued 2. New Export Foundation: • Continuous problem for Cuba since 1961: paying its way in the world • Merchandise Trade Deficits have persisted and will continue

12. III. Cuba’s New Development Strategy, continued 2. New Export Foundation, continued: • Nickel: Major expansion expected • Sherritt Expansion; ($450 million) • Chinese Investment Prospect: a doubling of production? (?? $500 million?) • Medical Services: already well-launched • Doctors for Rent; - “Medical Tourism” • Biotechnical Exports: Pharmaceuticals etc. , some potentialities • Petroleum Extraction and Processing: • Refining of Venezuelan Oil in Cienfuegos for the Caribbean ? • Increased extraction, self sufficiency and export ?? • Prospects for Major New Oil Discoveries ???

13. 4. Sugar Revival? 5. Continuing Tourism, Remittances, Cigars, etc.but de-emphasized

14. III. The New Central Development Strategy, continued: 3. A Knowledge Economy and Society: Major Expansion of Higher Education: • 500,000 plus university students, says Castro ( 60% of the population aged 18 to 23 ) • 122,000 ”professors;” student faculty ratio: 4.1/1 [ Does Castro understand the phenomenon of “diminishing returns”? ] • 958 University Campuses ( 1 for every 11,700 persons ) • Universidad de Ciencias de Computacion, • established September 2005; • Former Lourdes military base • 2,000 students • Focus on distance education and curriculum for literacy ….for Exportation of Educational Services

16. 4. Institutional Strategy: • Return to Centralization; • Intense containment of self-employment • The “Battle of Ideas” • A Personal Extra-Party, Extra-State Parallel System managed by Castro • War Against Corruption • Los “Trabajadores Sociales” • Anti-corruption monitors or police • Key operatives in “La Revolucion Energetica” • “Redeemed Youth” with special functions and status • Patriarchal Distribution of goods by the State • Plus the “Political Patronage Economy” In sum: more “voluntarism;” less “market” more Presidential central control

17. 5. RebuildingInfrastructure • Urgent needs in Housing: • A state of disastrous disrepair and collapse in many areas • Major campaign announced; • But do-it yourself in a normal way continues impaired Plus: water systems; sewage systems; streets & sidewalks; public buildings etc. All require urgent maintenance and reconstruction; Plus: Personal infrastructure such as homes generally have major maintenance backlogs

19. 5. Basic Infrastructure, continued: : La Revolucion Energetica • Frequent failures and blackouts impose major costs on citizens • Major elements: • Conservation measures: • replacement of light bulbs, fans, refrigerators, etc • pressure cookers, and electric rice makers provision’ courtesy of Fidel; • Shift of cooking from gas to electricity • Increased Investment in Repairs and Maintenance • New Generating Capacity: small & mini generators; gas-fired generation • Alternate energy sources, namely wind

20. The Small Generator Option (“Grupos electrogenos de emergencia”) • a.k.a.: The “Home Depot Solution” to electricity generation:: • Replacement of Thermo-electric Plants with small generators • Plus 4148 mini-generators for back-up purposes • At a cost of around $2 billion ??? • Dispersedaround the Island

21. The Small Generator Option (“Grupos electrogenos de emergencia”) • A quick fix for energy provision to ensure Fidel’s Legacy • Economically silly • Economies of large scale generation will be foregone; • Petroleum feed-stock will have to be transported by truck around the Island to the generators; • Large collateral investments needed for storage and protection of diesel fuel • Maintenance problems will be multiplied • Potential for theft is increased; • Synchronization of electrical supply to changing demand throughout the day will be more difficult Another of Fidel’s “good ideas”?

22. 5. Renewed “Sucrophilia” 1961-1963: Instant Industrialization plus Sucrophobia I : Ignore sugar 1964-1970: Extreme Sucrophilia I • “Honour & prestige of the Revolution” are based on producing the 10 million tons • All non-sugar sectors sacrificed 1970-1985: steady role for sugar economy; 1985-2003: “Milk the cash cow to death” • Extract foreign exchange for investment elsewhere; • Starve the sector of resources through exchange rate treatment: • $US 1.00 sugar exported earns Cu Peso 1.00 for the sector • Other countries capture Cuba’s market share

23. 2003 – 2006: Sucrophobia II : “Shut it down” • About 70 of 156 sugar mills were closed; • Only about 30 of the remainder were actually in operation • Results: • collapse of sugar harvest (1.1 m tons, in 2006) • Ghost towns and regional dislocation; • Probable unemployment, but not in Cuban statistics; • Collapse of the whole sugar “cluster” of activities • Irreversability? 2006 Onwards:Sucrophilia II: a return to sugar? • Provoked by high sugar prices • arising from Brazil’s sugar-ethanol link); • But not linked to ethanol production in the energy strategy; • Probably too late to revive the sector.

24. 6.Socialist Purification Combating Economic Illegalities and Corruption Character and Dimension Innumerable varieties. A few that I have observed directly: • Security guards at cigar factory sell cigars to passersby • Security guard at dollar store pilfers an item to sell to a client at 20% of the official price • An official at a state institution uses the public vehicle and its chauffeur as private property • A taxi driver provides a ride with the meter off and for a fee • A foreign organization pays a salary supplement in Convertible Pesos to its Cuban employees • A citizen buys a birthday cake from an unlicensed baker • A citizen sets up a satellite dish, receives foreign, and provides24 hour cable service to neighbours

25. How significant are these illegalities? • Pervasive • Cuban citizens assert that everyone is involved. • It is often stated that everything imaginable is available on the black market, via pilferage from the state sector. • Examples of magnitude: • Gasoline theft and replacement of all “pisteros” • Charcoal and wood provision provide most cooking fuel in some rural areas • Messengers and coleros: one on every block in some areas • Cigar making and vending

26. Causes: 1. Colonial roots:Contraband trade with the French, British and later the United States as well as with pirates; A large informal economy existed in the 1950s attracting the attention of the 1951 IBRD (Truslow) Mission to Cuba 2. Central Planning System The rationing system, forced many people to become became mini-capitalists, Planning system also promoted illegalities: Enterprise managers must resolve problems via the illegal exchange of goods. 3. Common Property Resource Phenomenon: state property belongs to no one and to everyone; if one person does not help himself to it, someone else will instead.

27. 4. Economic Arbitrage and Monetary/Exchange Rate Duality 5. Limitations and on Restrictions on legal Micro-enterprise promoteunderground activity and illegal actions: Restrictive licensing Excruciating regulations Heavy taxation 6. Economic Necessityand Illegalities • Illegal economic actions are necessary to survive. Why? • The central reason: people earn "Moneda Nacional" "old pesos" but their earnings are insufficient to purchase the basic foodstuffs. • People must find additional income in "old pesos" or convertible pesos.

28. The Campaign since October 2005: • October 17: some 15,000 “Social Workers” take over the gas stations to prevent pilfering of gasoline • October 17: Military intervention in the management of the Port of Havana • October: fulminations about the “new rich” from cuenta propismo and corrupt practices; • November 7-9: raids on “mercados agropecuarios” (aimed at sales by farmers prior to fulfilling their state quotas) • November 17-18: Castro’s 5-6 hour speech • aims at legal micro-enterprise • alludes to deficient Ministers and officials;

29. Late November: “Operacion Arana” against illegal satellite TV access; • November 29: Operation against un-licensed bicycle taxis in Havana • November 22: electricity, pensions and salary increases: • Pensions (minimum): from 150-164 pesos per month • Electricity rates: increasing plus escalation • Wage increases averaging 43 pesos per month • March 22: Ejercito Nacional de Vigilancia, within the CDRs

30. Consequences of Economic Illegalities::Complex and Mixed. • Truly criminal activities are socially and economically noxious. • Widespread low-level pilferage from the enterprises and institutions: • noxious though necessary: helping "make ends meet." • SELF-DEFENSE IN A DYSFUNCTIONAL SYSTEM ? • Other types of illegalities (payment of income supplements in cash or in kind) largely benign. • Unlicensed (and thence illegal) self-employment: mainly positive consequences

31. Basic economic reforms are required Preaching, policing punishment and proscription are unlikely to work effectively Necessary Reform measures • liberalizing the licensing, tax and regulatory regimes for all legitimate micro-enterprise; • reducing the scope for arbitrage by unifying the current dualism or the Cuban economy; • reducing the all-encompassing role of the state so as to reduce the inclination to pilfer. • Achieving real improvements in living standards so that people's survival imperatives no longer require illegal actions is also necessary. Unfortunately, these economic reforms and a return to prosperity are some distance away.

32. V. Central Problems 1 Comandante en Jefe Fidel Castro • Economic Savoir-Faire Unimproved: • “We have cost the people too much in our process of learning…..The learning process of revolutionaries in the field of economic construction is more difficult than we had imagined.” Speech, August 2, 1970 • “The price of oil nowadays is not in keeping with any supply and demand rule; it’s not a price that is in keeping with economic rules either…. The reason behind it is the shortage of this product together with the increasing and extraordinary demand for it.” Speech, Nov 17, 2005

33. VI. Conclusion • Is Cuba in Transition? To What? • Political Paralysis; • Institutional Regression • Geo-Political Reorientation • Strategic Economic Reorientation “In Transition to No-where.” • Prospects? • Some Economic Recovery; • Task of Economic Transition: More Difficult • Task of Political Transition? Even More Difficult • Hope for the Future? • In the Short Term?Modest

35. 3. Hope for the Future? In the Longer Term? Yes!

37. Thank you very much; Arch Ritter