From: "Joseph Green" <comvox-AT-flash.net>
Date: Thu, 25 Sep 1997 23:18:55 +0000
Subject: M-I: Castro embraces the state-capitalist model (part 2 of 3)


        Cuba's economic system of the 1970s and early 80s:
    CUBAN "SOCIALISM" ADOPTS THE SOVIET STATE-CAPITALIST MODEL
                       (2nd part of three)

                         by Mark, Detroit

        CREATING GREATER WAGE DISPARITIES AND UNEMPLOYMENT

   "Self-financing" also included various measures that encouraged 
greater wage and benefit disparities among the workers. This is 
not the aim of socialism, whose goal is to step-wise eliminate 
such differences. For one thing, piecework was extended. This 
meant that the worker needed to meet certain production quotas to 
make the full basic wage. At the same time, various types of 
bonuses were instituted whose size depended on the amount of 
profits the particular enterprise made. (In the preceding period, 
workers who performed the same job were to get equal wages 
regardless of the profitability of their enterprise.) Some bonuses 
were given to the workers as a group, e.g., the enterprise bonus 
fund might finance a day care center. Others were individual. This 
might include cash bonuses or awarding scarce consumer goods like 
refrigerators or TVs to the most productive workers. Such bonuses 
could potentially amount to as much as 25% of take home pay.(3)

   Thus, disparities were created between employees of different 
enterprises and between employees within each enterprise. Indeed, 
militant workers in the ordinary capitalist countries have long 
opposed such forms of compensation as piecework and basing wages 
on bonuses. They have fought for a standard wage for a given 
amount of time worked so that the needs of all their class 
brothers and sisters would be better assured. By the same token 
the substituting of productivity bonuses for regular wages is all 
the rage among the employers in the market economies.

   It should be noted that while the workers were encouraged to 
work harder and longer with the lure of bonuses, the rewards were 
limited by the lack of consumer goods available for enterprises to 
distribute as bonuses. As well, in the late 80s, work quotas were 
raised, forcing wages down. All this was done under rhetoric about 
ending disparities. But this hardly meant the demise of the bonus 
system. Bonuses were still used as a lure and new forms were 
introduced.(4)

   In line with the profit-making needs of the state enterprises, 
managers were given wide latitude in hiring and firing workers. 
This, along with measures to increase productivity such as 
piecework, contributed to growing unemployment. Under a socialist 
economic system, an increasing productivity of labor will also 
occur: technology will reduce the number of hours needed to 
produce things. But this need not result in unemployment. It can 
result in a reduction in the working day or in other production 
necessary to meet the ever-growing needs of society. The rise of 
unemployment is a sign of the anarchy of production in Cuba, a 
characteristic of capitalism, not socialism.

           TREATING STATE PROPERTY AS PRIVATE PROPERTY

   The "self-financing" system made it incumbent upon each state 
enterprise to treat their plants, equipment and production as 
their own private property, despite the fact that it was supposed 
to be social property. Certain practices reflecting this private 
nature of "social" property were officially sanctioned. For 
example, the right of the enterprise to engage in market-style 
transactions where they could sell and buy with other enterprises 
at their own discretion was progressively expanded.

   Under the SDPE, enterprises were openly encouraged to produce 
"above the plan" for the explicit purpose of freely marketing this 
surplus to other enterprises. In and of itself, an enterprise 
producing with more efficiency than the state plan envisioned 
would be a good thing. But under this scheme, it reinforced the 
profit motive and extended the private market. Another measure 
allowed enterprises to contract between each other for products 
not centrally distributed by the government. Over the years, more 
goods were removed from control of the central allocation 
apparatus.(5) Beginning in 1979, the government permitted 
"resource fairs" where enterprises could buy and sell surplus 
resources they had accumulated free from government regulation. 
Four years later, the government had identified half a billion 
pesos worth of products available for trade in these markets. 
State companies also had the right to use up to 30% of their 
profits to make purchases from the private sector. Thus, a wide 
field for legal commodity exchange by the state sector was 
established.

   Under ordinary capitalist conditions, prices fluctuate 
according to what the market will bear. We see something similar 
in the trade conducted by the Cuban state enterprises. Evidence of 
this is that the Cuban government itself has been forced to admit 
that exorbitant prices are often charged by state enterprises in 
violation of official price structures.(6) High Cuban officials 
revealed that certain "problems" with the SDPE system needed to be 
"rectified". For instance, the General Secretary of the Cuban 
trade union center cited the problem of "state companies showing 
profits because they charged bloated prices to other state 
companies."(7)However, the outcries of this official, and the 
bureaucracy as a whole, against such things are hollow because 
they have continued to carry out market reforms that are bound to 
give rise to such maladies as price-gouging. 

    PRIVATE INTERESTS IN THE STATE ECONOMY UNDERMINE PLANNING

   As can be seen, the private interests of the enterprises 
resulted in violation of official planning policies. Indeed, a 
whole system of enterprise practices helped undermine the 
centralized plans. The SDPE was supposed to reduce the practice of 
hoarding of scarce resources by enterprises. Allegedly, the profit 
motive would drive state companies to no longer incur the expense 
of accumulating unused resources. But, as self-financing entities, 
state enterprises still had to compete among each other for 
resources and the practice continued. Presumably, the decision, a 
few years after the SDPE system was introduced, to allow the free 
trade of surplus resources between state enterprises, was at least 
a recognition of the failure to stop stockpiling, if not an added 
inducement.

   Planned production targets were also undermined by state 
enterprises shifting their efforts to the most profitable 
undertakings. For instance, construction projects might not get 
finished because "the value of the final stages of building were 
lower than the initial stages."(8) Reportedly, unfinished 
construction projects had reached a crisis stage by the mid-80s. 
According to a former manager of a chemical enterprise, production 
was shifted from planned production goals because "sometimes we 
had production indicators expressed in value terms. . . . Sulfuric 
acid was priced high. When the global value plan was going to be 
underfulfilled, we intensified the production of sulfuric acid in 
order to increase the value plan. Workers were reallocated to 
production of those items with high values."(9) According to a 
Deputy Agriculture Minister, a similar development occurred in the 
agricultural sector in Cuba where production shifted to certain 
highly profitable export crops.(10)

   Cuban officials have been forced to acknowledge that the 
enterprises often falsify production figures. As well, various 
semi-legal or illegal deals are worked out between managers of 
enterprises who engage in barter of materials between themselves. 
A system of enterprise managers bribing their higher ups to get 
production goals lowered or to get better allocations of materials 
is also reported.(11)

   Given the way the economy actually operated, planning was 
continually undermined in Cuba. While the Cuban leadership all 
proclaimed the necessity for a national economic plan, such a 
thing did not exist in the late 60s. Instead there were some 
sectoral plans and emergency measures. The introduction of the 70s 
reforms started to establish at least a semblance of national 
planning. But this was undermined by the market reforms that 
accompanied it. By the mid-80s, the Cuban leaders were 
hypocritically cursing what they admitted were capitalist-type 
ills that were consuming the country and undermining state 
planning. An ardent American leftist supporter of the Castro 
regime was forced to admit that "the plan, [was] until now the 
conglomerate result of turf wars."(12)As a "solution" to this, 
Castro and a group of top bureaucrats usurped the role of the 
central planning bodies and began to operate the country on the 
basis of short-term emergency measures. The government also 
reduced its central plans to mere "guidelines". Thus, in essence 
the Cuban rulers were conceding that the enterprises were 
unwilling and/or unable to meet the goals of the state plan.

   The undermining of planning by private interests in Cuba is a 
sign that socialism has not existed there. A socialist economy can 
operate according to a plan only because it replaces private 
ownership of the means of production with social ownership. During 
the period of transition from capitalism to communism, social 
ownership is ownership by a workers' state. This type of ownership 
creates the possibility for the economy to operate as if it were a 
single enterprise, with each unit being subordinate to the whole. 
This is how anarchic relations between enterprises can be replaced 
by full society-wide planning. The SDPE system ran contrary to 
this. According to the "logic" of the Cuban revisionist leaders, 
the interests of society as a whole were compatible with a system 
where each enterprise had to fend for itself. Practice destroyed 
this theory and showed that under such a system true societal 
planning was out of the question. This was not just a matter of 
having a national budget or not. Price controls were declared, 
price controls were violated. The state allocated resources, the 
enterprises redistributed them. The government declared production 
goals, the enterprise produced what was most profitable. Of 
course, this is not surprising if we realize that we are talking 
about a state of bureaucrats fostering a type of capitalist order, 
not a workers' state.

   In modern market capitalist countries, a good deal of planning 
exists. There are state-controlled sectors of the economy; there 
is an extensive planning carried out over whole branches of the 
economy by giant monopolies; and sometimes there are government 
national economic plans. But so long as there is private 
ownership, anarchy continues to manifest itself amidst all the 
planning. Under the Cuban system, the state enterprise had to 
operate on essentially the same principles as in the market 
economies. Here also, all the planning and controls of the 
government could not curb the underlying anarchy inherent in 
enterprises run for private interest.

                   EXPANDING THE PRIVATE SECTOR

   As the state sector adopted more market principles in the 70s 
and 80s, so private entrepreneurs were given freer reign. One of 
the best know features of this era was the establishment of "free 
peasant markets" in the cities. Formerly, peasants were permitted 
to privately market products not sold to the government, but only 
near their own farms. The new city markets lasted from 1980 to 
1986. They were later to reappear in 1994. In these markets, 
individual farmers and cooperatives could sell goods not covered 
by sales quotas to the government and goods where there was a 
surplus after the quota was fulfilled. Also, agricultural workers 
on state farms could market the output of plots they had 
originally been given for self-consumption. In the free markets, 
the seller could charge what the market would bear. Prices were 
many times higher than state-subsidized goods, but the scarcity of 
state-supplied goods left much of the population no alternative 
but to pay the exorbitant prices of the free market. At their 
peak, the markets supplied a hefty amount of all the *perishable* 
foodstuffs consumed.

   The free markets not only netted small fortunes for a number of 
private farmers. It also brought into the open a strata of 
parasitic middlemen who would buy up the production of multiple 
farmers and then market it themselves. In one of these operations, 
an eight-day profit was made of 212,000 pesos by four people who 
passed themselves off as small farmers. (Even divided four ways, 
this is maybe what the wealthiest private farmer could earn *in a 
year*.)

   The creation of the free market not only extended the open 
capitalist sector, it contributed to the anarchy in the economy 
overall. Private and collective farmers diverted production away 
from fulfilling government quotas because market prices were more 
profitable. Production was shifted to crops that could fetch high 
market prices and the poorest quality production was reserved for 
the state quota. Employees on the state farms used the state 
resources to concentrate on their private plots whose output they 
could market. As well, certain crops that were supposed to be 
reserved for export, like coffee, were diverted to the domestic 
markets. Naturally such things wrecked havoc with planned 
production outputs from both the private, collective and state 
farms.

   Though the free markets caused the regime enough headaches that 
they were eventually closed down for several years, the decision 
to open them was part of an ongoing trend of reliance on market 
reforms to solve various crises faced by the Cuban rulers. With 
the scarcity of consumer goods provided by the state sector, a 
large black market had long flourished in Cuba. But the government 
had no intention of increasing the subsidized rationed goods which 
were affordable to the masses. It was busy cutting subsidies in 
order to solve the budget crisis it was facing. So its answer to 
the scarcity of consumer goods was essentially to try to legalize 
the black market in the form of the free peasant markets. The 
regime figured it would tax the goods thus legalized, thus further 
helping solve its budget woes. In essence, the government would 
solve its budget woes by letting the masses face extra-high prices 
while a handful of private profiteers went to town. Only it turned 
out that it proved very hard to collect any taxes from the 
legalized free market and the diversion of state resources to the 
private market proved something of a drain on the state budget. 
Meanwhile, the black market not only continued, but there was new 
room for its "excesses." 

     GOVERNMENT "PARALLEL MARKETS" MIMIC THE PRIVATE MARKETS

   There was a temporary retreat from the free markets, but not 
from market principles. As far back as 1973, the government 
established "parallel markets", known among the Cuban masses as 
"rich people's stores". The "parallel markets" made available 
extra quantities of rationed goods as well as items considered 
luxuries and not available through the ration system. Subsidized 
ration goods generally provided only a bare minimum of the masses 
needs, official allocation levels were often not available, and 
watching for when scarce goods arrived at stores and waiting in 
line for these goods turned into a separate occupation. But the 
"parallel markets" did not solve the masses' problems because the 
goods they offered were not subsidized and could cost several 
times more than rationed goods.(13) Thus, in effect, the "parallel 
markets" created an official two-tier system -- scarce necessities 
for the masses, more necessities plus luxuries for those with 
money. The "parallel markets" grew tremendously during the 70s and 
early 80s as the role of the subsidized ration system declined 
relatively. When the Cuban rulers grew disenchanted with the free 
peasant markets of the early 80s, the "parallel market" was 
extended to fill the void. The government raised the prices it 
paid to private commercial farmers for extra production for these 
markets. The government then got its cut by charging "more in line 
with the farmers' markets' prices."(14) Thus, some commercial 
farmers and the government made out well at the expense of the 
workers.(15) The free market died -- only to have its principles 
incorporated in the official "parallel market."

                         to be continued

NOTES:

[3] Eckstein, p.43. Mesa-Lago's The economy of socialist Cuba, 
p.151, cites an example where the bonuses went much higher than 
25% of take home pay. At  the Ariguanabo Textile Factory in Havana 
in 1979, 16% of the workers received no bonuses while some 
individuals got as much as 2,000 peso bonuses. That amount is huge 
if we compare it to the monthly wage scales given on page 147 of 
the same volume. By these scales, a bonus of 2,000 pesos would be 
bigger than the yearly basic wages of most workers.

[4] For more information on the bonus system in brigades see the 
article "Did Castro steer Cuba towards socialism in the late 
1980s?" in Communist Voice, vol.2, #6, December 15, 1996. 
<LL09080-83>

[5] Zimbalist, Andrew; "Reforming Cuba's economic system from 
within," pp.223 and 230 in the collection Cuba at the crossroads: 
politics and economics after the Fourth Party Congress;edited by 
Jorge F. Perez-Lopez; University Press of Florida; 1994. Here the 
author notes that the Fourth Plenum on the SDPE decided that the 
State Committee on Technical-Material Supplies "was still 
allocating too many products and the number should be 
significantly reduced". Zimbalist also points out that "the number 
of material balances drawn up" by the State Committee was to be 
ended for 382 products (31%) from its 1988 levels, while "direct 
contracting was established between enterprises for 518 different 
products during 1988." These later statistics are from a 1988 
special commission to study the SDPE which also recommended that 
"(1) the number of commodities and commodity groups subject to 
central planning was to be reduced from 2,300 to 800 . . ." All 
the aforementioned figures don't indicate the total weight of all 
the products removed from centralized control in terms of value. 
But they do show a definite trend away from even the pretense of 
overall state planning of the economy.

[6] Eckstein, p.78 cites Cuba's Granma Weekly Review reporting 
that of 451 enterprises surveyed in a 1986 study, 40% were 
violating price guidelines.

[7] Frank, Marc; Cuba looks to the year 2000, p.43; International 
Publishers; 1993.

[8] Eckstein, p.75.
[9] See pp.298-299 of the article "Managing state enterprises in 
Cuba" by Sergio G. Roca contained in the collection Cuban 
communism: 1959-1995, 8th edition, edited by Irving Louis 
Horowitz; Transaction Publishers; 1995.

[10] Frank, p.101.

[11] Perez-Lopez, Jorge F.; Cuba's second economy: from behind the 
scenes to center stage, p.96; Transaction Publishers; 1995.

[12] Frank, p.33.

[13] For instance, in 1977-8, rationed beans sold for 0.20 pesos 
per pound in the rations system, but over six times that in the 
parallel market. See Perez-Lopez' Cuba's second economy, p.48.

[14] Eckstein, p.55.

[15] Another bit of evidence that the "parallel market" was, in 
essence, a mirror of the free market, is that a president of a 
local private farmers association stated that he wasn't that upset 
by the closing of the free markets because "there wasn't a big 
difference really: without the market we make up to 20,000 pesos a 
year." (Quoted in Marc Frank's book Cuba looks to the year 
2000,p.112.)


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For other articles on the Cuban economy, see the
Communist Voice web page: http://www.flash.net/~comvoice


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