CUBA: The Dual Nature of the Economy – an Obstacle to Recovery

By Dalia Acosta Reprint | | Print |

Dalia Acosta

HAVANA, Oct 5 1995 (IPS) - Cuba will have to resolve the dual character of its economy if it intends to take maximum advantage of foreign investment, local analysts warn.

The Caribbean island nation has opened its doors to foreign investment as part of a wave of economic reforms designed to overcome the worst crisis to hit the country since the 1959 revolution.

But such measures are leading the country towards two unconnected and often conflicting economic models. This hurts its chances of economic recovery, economists Julio Carranza, Luis Gutierrez and Pedro Monreal argue in their book ‘Cuba: the Restructuring of the Economy – a Proposal for Debate’.

The book, which has been published in a limited edition, is the first of its kind to come out in Cuba since the crisis broke out in 1990.

The authors, researchers at the Centre of American Studies and members of a young, 30-something generation of experts, recommend a socialist model of development, but without the “complacent stance” they say has accompanied that model in the past.

The authors warn that while the reform process could favour economic restructuring, it can also stand in its way.

One of the main obstacles they mention is the coexistence of two sectors with totally different sets of actors, modes of organisation and logics of financing.

On one side is a “new” or “emerging” sector, in which joint ventures and companies partly financed by foreign capital predominate; and on the other, the traditional sector that consists of purely state-owned enterprises.

The so-called emerging sector looks abroad or towards branches of the local market with access to foreign currency. It operates in dollars, is regulated by free market laws and is not always subordinated to national priorities.

The traditional sector focuses on the domestic market and some exports, operates in pesos, is guided by central planning mechanisms and always puts national needs first.

While the former is highly efficient, pays better wages and has superior equipment and infrastructure in material terms, the latter is inefficient, has rundown equipment and infrastructure, and provides its employees with few incentives.

The authors say such marked differences are due to the lack of a flow of foreign capital into purely public enterprises, and their subjection to the imbalances and distortions of the general economy.

According to local economists, the origins of the current crisis lie in the disappearance of the east European socialist bloc, the U.S. embargo and errors in the management of the economy.

In spite of government efforts to attract foreign investment in almost all branches of the economy, the emerging sector encompassed a mere 13 percent of the local business scene early this year.

In Cuba’s case, the situation is not one of coexistence of two sectors, one modern and one backward, but of two weakly connected realms with differing legislation and financial, accounting and planning systems, the authors point out.

As long as ties are not established between the state-run enterprises and mixed companies or joint ventures, the advantages of foreign investment will be wasted, they add.

The authors propose that “the economy be restructured into a single, integrated system that recovers a dynamic of growth and development, with the necessary balance.”

In a February conference, economists had stressed the need for a new “design of an autonomous public company with a commercial character.”

Carranza, Gutierrez and Monreal argue that the reforms implemented up to now have been a result of the “depth of the crisis,” rather than emerging from “an overall project, whose conditions, reach, limits and gradual implementation had previously been studied in an integral manner.”

Which could mean a new obstacle in the way of economic recovery, they warn.