What influences have determined economic policy and performance in Cuba since the 1959 revolution?
Cuba had been under the very brutal and oppressive dictatorship of Fulgencio Batista since he assumed power as Cuba’s leader after a military coup in 1933. He remained a dictator until 1940 when he officially became an elected president. The election was not a fair one, but Batista honoured the notion of democracy when he was defeated in the 1944 election, and peacefully handed power over to his opponents. In 1951 he entered the race to become President again, but when an opinion poll showed him in last place he staged a second coup and seized power again. In 1952 Fidel Castro tried to start a petition to overthrow the socialist leader Fulgencio Batista, who he accused of corruption and tyranny against the Cuban people. When Castro was rejected by the Cuban courts and deciding legal means would be unsuccessful to overthrow Batista he gathered a small force of rebels and began the infamous Cuban Revolution, which on New Year’s Day 1959 saw Batista flee the country and Castro obtain leadership.
The relationship between Cuba and the United States has been pivotal to the island’s history throughout the 20th century. Almost immediately after the revolution previously successful dealings between the two countries deteriorated. The US continued to accuse and charge Cuba over communist influences in the government and their view of Castro only declined as he continued his campaign of slandering the Americans. After a ship loaded with munitions exploded whilst unloading in the Havana harbour Castro was convinced of sabotage, whilst the Americans denied this they privately began training soldiers for an invasion of Cuban soil. In Cuba Castro was busy nationalising US properties and businesses and by the 31st of October had completed the formal nationalisation of all American properties and holdings, including oil refineries, “In late June the Cuban government requested the foreign-owned petroleum refineries to process crude oil it had purchased from the Soviet Union. When the companies refused they were expropriated.” (Dominguez) By the time 1961 came around trade embargos on Cuba had been dramatically increased by the US from just a cancellation of 700,000 tons of planned sugar imports and a refusal to export oil to the island, to a full trade embargo extending to almost all imports. The United States responded by freezing all Cuban assets on American soil, severing diplomatic ties, and tightening its embargo on Cuba. Ramifications kept mounting up until finally in early 1961 all diplomatic relations between Cuba and the United States were ceased. “By 1960 Cuba’s revolutionary leaders had concluded that the path to economic independence and development was socialism, and before the year was out $1 billion of US direct investment had been nationalised. Thus ended, in one convulsive rupture, a century and a half of US dominance over the Cuban economy.” (Leogrande, Thomas, 2002) In response to the acts of the Eisenhower administration, Cuba turned to the Soviet Union for support. This was a fundamental point in Cuba’s history, and governed the direction of its future.
A consequence of the revolution was a massive wave of emigration from Cuba to the US. “From 1960 to 1962 net migration from Cuba amounted to about 200,000 people, or an unprecedented average of well over 60,000 per year. Most emigrants came from the economic and social elite, the adult males typically being professionals, managers and executives, although they also included many white collar workers. On the other hand, skilled, semi-skilled and unskilled workers were under-represented relative to their share of the work force, and rural Cuba was virtually absent from this emigration.” (Dominguez) When President John F. Kennedy took over from Eisenhower in the White House he agreed to the plans to help these Cuban exiles invade and attempt to overthrow the incumbent Castro. However, the US trained Cuban invasion force was defeated at the Bay of Pigs in 48 hours. Castro immediately began recriminating Kennedy and in the meantime, Cuban affairs with the Soviet Union were only improving, causing even further tension between the two and the United States. By authorizing the Bay of Pigs invasion, followed by Operation Mongoose, Kennedy had given the Soviets every reason to believe that he was determined to get rid of Castro once and for all. At a time when Americans were nearly hysterical about the spread of communism, they simply could not abide Castro. He had to go. This helps explain why, after the invasion’s failure, the Kennedy administration wasted no time continuing its drive to oust Fidel Castro. It is hardly a surprise that, in response, Castro would want a form of deterrent and the Soviets would want to protect their client state. And so Soviet leader Nikita Khrushchev made the wildly reckless decision to send nuclear weapons to Cuba, precipitating the famous “thirteen days” of the crisis in October 1962.
“The USSR eventually installed forty-two medium-range ballistic missiles in Cuba, and as U.S. intelligence sources gathered information on this President Kennedy was persuaded that the Soviet Union and Cuba sought a major change in the politico-military balance with the United States.” (Dominguez) The the Cuban missile crisis turned out as a major victory for the U.S. government, it publicly humiliated the Soviet government over the central question of the day, and yet it also seemingly irretrievably sealed the end of U.S. influence in Cuba, a consequence that would influence Cuba’s economy for the next 40 or so years. Both Fidel Castro and his exile opponents lost the total support of their superpower allies, but the former would eventually recognize the he had gained much more because his rule was saved by the wisdom of Soviet actions.
Having ended Cuba’s dependency on the United States and trade with the Soviet Union making up almost 50 percent of all Cuba’s imports and exports, the revolutionary leadership next took aim at sugar. Their first development strategy, pursued until 1963, planned for balanced growth based on agricultural diversification and rapid development of both light and heavy industry.
Clearly, rapid industrial growth was beyond the capital-generating capacity of the Cuban economy, and the Soviet Union was unwilling to finance consistently huge deficits. In mid-1963, returning from a trip to the Soviet Union, Fidel Castro announced a return to specialisation in sugar.
The new strategy focused on exploiting Cuba’s comparative advantage in sugar to generate hard currency that would then be used to finance the development of the rest of the economy
This strategy marked a forthright abandonment of one of the revolutionary government’s primary economic goals – escaping dependence on sugar. It also marked the beginning of a more intimate economic relationship with the Soviet Union, the terms of which became a rationale for the retreat from diversification. The Soviets provided a life line to the Cuban economy by taking up the slack left from an absent American market. “In a five-year trade agreement signed in 1964, the Soviets agreed to increase sugar imports at a fixed price higher than the world market, thereby providing Cuba with some insulation from the boom-bust cycles caused by fluctuations in international sugar prices. Most importantly, Moscow continued to finance Cuba’s perennial bilateral trade deficit. From 1961 to 1970 Soviet trade credits totalled the equivalent of $2.5 billion and preferential sugar prices amounted to another $0.9 billion” (Leogrande, Thomas, 2002)
In order to retain the economic aid and favourable pricing the Cubans were receiving from the Russians they had to remodel their economy based on the Soviet system at the time. This included “return to material rather than moral incentives, the limited use of market mechanisms in agriculture, and autonomous firm financing.” (Leogrande, Thomas, 2002) This was a good deal for Cuba, it gave them a previously non-existent and reliable market for their sugar and substantial support to their trade accounts, along with several other perks such as petrol imported from the USSR at a below market price. Towards the late 70’s, after a relatively strong performance in the first half of the decade, the Cuban economy was failing, having racked up large debts in an attempt to expand imports they had to suspend all debt payments forcing the country into an even closer tie with the Russians.
Weak economic performance at the end of the seventies and the beginning of the 1980s, brought on by low sugar prices in the last half of the decade, put more pressure on the country's foreign-debt service payments. Although Cuba had not been a major borrower in the international capital markets, its hard- currency foreign debt in 1982 was about $3 billion. The ensuing negotiations with European, Arab and Japanese bankers forced the Cubans to implement policies that decreased consumption levels in the early 1980s in order to meet Cuban debt obligations. Having had their terms of trade diminished by falling sugar prices and a petroleum price below the one they were paying the Soviets Castro, disagreeing with Soviet policy, redirected the Cuban economy away from the Soviet socialist model and targeted corruption, a central economic planning authority and to try and balance trade by reducing imports. However, this redirection only made matters worse, having moved away from market based material incentives productivity shrunk leaving export levels declining sharply and a still steadily growing trade deficit. By the end of the mid eighties it became clear that Castro’s decision to focus on sugar exports and rely heavily on the USSR for subsidies and trade had left Cuba vulnerable to changes in the world sugar market. In fact, this assistance from the Soviets only disguised Cuba’s vulnerability. “Cuba’s failure to escape dependency during the first three decades of socialism was rooted partly in the subordinate position that all late developing small economies have in the international economic order, and partly in problems inherent to Cuba’s socialist path of development.” (Leogrande, Thomas, 2002)
Castro's rule was severely tested in the aftermath of the Soviet collapse, with effects such as food shortages as a result of a drastic loss of aid. Assistance from the Soviet Union since the revolution came to roughly $65 billion dollars, and the loss of that assistance was felt harshly. Cuba’s ability to import disappeared and production skydived. This forced the government to implement further austerity measures, the standard of living in Cuba fell as did employment rates. With an economic crisis preoccupying Russia Cuba had no where to obtain its oil from, leaving the country with energy shortages and creating further obstacles for production. This influenced Castro to further constrain the country, reductions in consumption and expenditure. Rather than change the central planned economy he had built, Castro felt that this was the short term solution whilst the nation bore the force felt by the collapse of the USSR and searched for new partners. The effect on Cuba’s economy and the future decisions of the government that the breakup of the Soviet Union had was extremely severe, causing a fall in GDP of 35% from 1989 to 1993. With the insulation that Cuba had been afforded by its relationship with the USSR gone the country entered into a period of extreme austerity, recession and famine, from which it is still recovering today.
After this period the government felt compelled to introduce many reforms to many different sectors of the economy. The isolation Cuba had experienced led the government to look towards attracting foreign direct investment (which had been essentially zero since the nationalisation of all foreign holdings) and a new emphasis on tourism was established. As the decade progressed regulations were further liberalised, reforms made it more attractive to invest in Cuba and the old laws born of a more severe ideology were amended. In Cuba today tourism is one of its most important industries and, although it was shunned post revolution due to the negative influences on society it was perceived to have caused beforehand, it is expanding more and more every year. It is fast becoming a key sector in Cuba’s economy and “no other sector has shown the potential to replace sugar as the main producer of hard currency or to grow rapidly at such a sustained rate.” (Leogrande, Thomas, 2002)
The government did not accept American donations of food, medicines, and cash until 1993. “By legalising dollars the government hoped to undercut the burgeoning black market, encourage an expansion in the flow of remittances, and capture some of this much-needed hard currency. These goals were accomplished – remittances rose, however, the social cost of this policy was the creation of a two-tier system of stratification. Cubans with access to dollars and those without.” (Leogrande, Thomas, 2002) Cuba found a new source of aid and support in the People's Republic of China, and new allies in Hugo Chávez, President of Venezuela and Evo Morales, President of Bolivia, both major oil and gas exporters. On July 31, 2006, Fidel Castro temporarily delegated his major duties to his brother, First Vice President, Raúl Castro, while Fidel recovered from surgery. In February 2008, Fidel Castro announced his resignation as President of Cuba, and on 24 February Raúl was elected as the new President. In his acceptance speech, Raúl promised that some of the restrictions that limit Cubans' daily lives would be removed. In March 2009, Raúl Castro removed some of Fidel Castro's officials.
As it stands today, once totally reliant on the United States and consequently on its great alliance with the Soviet Union, Cuba is now without a sponsor and is in the world market alone. It is still an economy founded on production of goods and services and in which its trade is vital to its survival. Without the subsidies and assistance of the USSR it has no option but to buy and sell at world prices. To survive it needs to become competitive in its industries and obey the severities of a world market. “This subordination of the Cuban economy to the rigors of the international market is Cuba’s new dependency, the dependency of the twenty-first century – subject not to the political whims of other nation states but only to the implacable rhythms of global capitalism.” (Leogrande, Thomas, 2002) From a state in political and economic turmoil at the start of its new chapter in 1959 Cuba has been affected by a host of changes and forces which have shaped its development. Both domestic and overseas influences have governed the way in which the island has been operated for the past half a century, incredibly the revolutionary rule has survived unlike many other similar regimes around the world. It has necessitated world attention and is still undergoing swift change from a previously authoritarian state to a much more liberal place. Without being enslaved to the wishes of a higher power, Cuba is able to now grow and prosper.
References
Dominguez, Jorge. "Cuba Since 1959". The Cambridge History of Latin America 457-508.
Leogrande, William M., and Julie M. Thomas. "Cuba's Quest For Economic Independence". Journal of Latin American Studies 34.02 (2002)
Pollitt, Brian H. "The Rise And Fall Of The Cuban Sugar Economy". Journal of Latin American Studies 36.2 (2004)
Bethell, Leslie. The Cambridge History Of Latin America. Cambridge [England]: Cambridge University Press, 1990.