Mexico & Caribbean A r e a S e r i e s
V0l.V
No.7
(CUBA)
ASPECTS O F THE CUBAN ECONOMY
P a r t I: The Financing of C a s t r o ' s R e f o r m s
by Irving P. P f l a u m
Havana
August 1960
When Dr. F i d e l C a s t r o took over i n 1959
Cuba's postwar economic i l l n e s s w a s s o pronounced
and had been s o thoroughly r e s e a r c h e d that few d i s puted h i s diagnosis o r h i s proposed t r e a t m e n t .
When I visited a competent economist i n
Havana, s e v e r a l months a f t e r Dr. C a s t r o had r e placed Fulgencio B a t i s t a , I found h i m ebulliently
sanguine about the i s l a n d ' s p r o s p e c t s .
Someone finally was applying to Cuba the
economic m e a s u r e s he had f o r y e a r s been advocating, the economist told m e .
"If a l l the s u r v e y s m a d e during t h i s decade
i n Cuba w e r e l a i d end to end," he exclaimed, "they
would bridge the F l o r i d a S t r a i t s . The l e a r n e d r e c ommendations of A m e r i c a n M i s s i o n s , Cuban econo m i s t s , and official c o m m i s s i o n s would outnumber
even B a t i s t a ' s bonds and stocks. No one r e a d the
r e p o r t s , of c o u r s e ; the recomm-endations f o r econ o m i c r e f o r m s w e r e filed under 'MI for mafiana."
"Now," t h e economist s a i d , "Dr. C a s t r o h a s
r e a d t h e m , and h e is going to r i d Cuba of h e r burden
of the unemployed, the five hundred thousand m e n
chronically without jobs who have p r e s s e d down
upon t h i s land f o r a q u a r t e r of a c e n t u r y , preventing
mechanization of the s u g a r b u s i n e s s , stifling innovations, paralyzing everyone who h a s a job."
This enthusiasm for the p r o g r a m Castro had announced was notable in
coming, not f r o m a Cuban flushed with victory over Batista, but f r o m a man
i n the upper echelon of the United States Foreign Service. C a s t r o , he said,
would show Cuba how to feed i t s own people, an easy t a s k when properly approached. Castro was collecting taxes, had stopped corruption, would choke
off the flight of capital, would stop the flood of luxury imports that the islands
could ill afford. Before he was through, Castro would make the island the
economic paradise it should be.
He, like many others who knew Cuba well, had been dismayed to s e e
i t s economy faltering along year after year under i t s hopeless load of an unemployed o r underemployed labor force, a n oppressive overhead of machinery
and trained manpower used for only a few months each y e a r , and a deadening
habitual dishonesty i n both government and business.
Nearly a decade e a r l i e r , Mr. F r a n c i s Adams Truslow had brought to
Cuba an economic and technical mission sponsored by the International Bank
for Reconstruction and Development. He had found that:
". . . the relatively static character of the Cuban economy i s
evidently not due to a lack of physical and human r e s o u r c e s
o r - -in recent year s--of financial potential. It does not appear
to be entirely due to the dominance of sugar
.. . .
"Its causes must be sought among prevailing attitudes of the
Cuban people and the conduct of their institutions.
A
progressive outlook and effectively organized human effort
a r e needed and, without them, an advancing economy cannot
develop.
...
"It was apparent to the Mission that unconstructive attitudes,
which appear to be common in Cuba, a r e among the chief
obstacles to economic progress.''
In 1959 m y friend in the United States Embassy felt that Castro was
doing for Cuba what had long needed doing. He was supplying a new p r o g r e s s
ive outlook; he was effectively organizing a full-scale human effort; he was
supplying Cuba's fir s t completely honest administration in half a century, he
was revolutionizing the basic attitudes of the Cuban people and the conduct of
their institutions.
A year later I called on the s a m e economist-diplomat in Havana. I
found him, h a r a s s e d by the problems of deteriorating Cuban-United States
relations, no longer excited by the promise of the Revolution.
"And how goes the Revolution? " I asked.
Remembering our conversation a year e a r l i e r , he managed a smile.
-
"After making a b r i l l i a n t s t a r t , " h e s a i d , "the t r a c k b e c a m e a little
muddy, t h e Revolution took a wrong t u r n and, I ' m a f r a i d , h a s bogged down."
He looked a t s o m e r e p o r t s on h i s desk.
"And they switched jockeys i n the middle of the r a c e ," h e added.
After another s i x months had p a s s e d I had dinner i n Havana with him.
By then, Communist technicians f r o m E u r o p e w e r e active i n a r e a s of Cuban
life once dominated by North A m e r i c a n s . Soviet p e t r o l e u m was flowing through
A m e r i c a n r e f i n e r i e s . Government a d m i n i s t r a t o r s and the National Institute
f o r A g r a r i a n R e f o r m (INRA) w e r e operating Cuban and f o r m e r A m e r i c a n
e n t e r p r i s e s of a l l kinds. Land had been nationalized.
"Was this," I a s k e d , "what the economic d o c t o r s had o r d e r e d 'to
m a k e Cuba the p a r a d i s e i t ought to b e ? ' I '
"Well, i n a way, something like t h i s had to happen," the diplomateconomist d e c l a r e d . He talked a t length about C a s t r o ' s p r o g r a m , I a m indebted to h i m for much of the following a n a l y s i s of C u b a ' s economic revolution.
Without the b a s e of m a t e r i a l and human a s s e t s i n h e r i t e d f r o m the long
United States involvement i n Cuba, C a s t r o could not have s t a r t e d i n 1959 to
build a revolutionary economy. Without that b a s e he could not have undertaken h i s t a x - r e f o r m and r e n t - r e f o r m p r o g r a m s , the low-cost housing p r o j e c t s ,
the p r o g r a m s f o r new r o a d s , schools, h o s p i t a l s , and r e c r e a t i o n a l c e n t e r s with
1
which h e h a s won the g r a t i t u d e and loyalty of many Cubans.
C a s t r o s t a r t e d , i n s h o r t , with a going economic machine, a thick
cushion of s u p p l i e s , a l a r g e pool of t r a i n e d Cubans, and n u m e r o u s l i n e s of
c r e d i t i n the United States and Europe. All t h e s e w e r e r e a d y to be used by
the C a s t r o r e v o l u t i o n a r i e s , and u s e t h e m they did.
It took a long t i m e f o r m a n y United States and European s o u r c e s of
c r e d i t to r e a c h the s t a t e of h o p e l e s s n e s s i n which they r e a l i z e d that new c r e d i t
2
advances would not salvage those accounts a l r e a d y outstanding. Along with
the good, however, C a s t r o i n h e r i t e d the chronic w e a k n e s s e s that Cuban society
had developed under A m e r i c a n hegemony.
' A s u r v e y of the
"Attitudes of the Cuban People Toward the C a s t r o Regime"
in A p r i l and e a r l y May 1960 by a Cuban r e s e a r c h organization s u p e r v i s e d by
t h e Institute f o r International Social R e s e a r c h , P r i n c e t o n , N,J., indicated that
80 p e r cent of the Cuban people i n Havana and adjacent s e m i u r b a n a r e a s
w e r e satisfied with the situation in C a s t r o Cuba at t h a t time. The b e s t a s p e c t s
of the New Cuba, i n the view of those interviewed, w e r e t h e s e p r o g r a m s and
governmental honesty. Even s e l f - p r o c l a i m e d counterrevolutionaries p r a i s e d
s o m e of t h e s e achievements. The s u r v e y uncovered attitudes corresponding
to those found by t h i s w r i t e r i n n u m e r o u s interviews.
In the economic s p h e r e t h e s e included the sugar i n d u s t r y ' s exceptiona l l y heavy overhead of underutilized equipment and labor. The 161 mills
work only a few months of each year. Annually t h e r e i s a dead s e a s o n extending through the s u m m e r , when the m i l l s and r e l a t e d facilities serving
the s u g a r industry- -railways, highways, and p o r t s - - a r e either unused o r
g r o s s l y underused, and when the labor f o r c e of the i n d u s t r y is reduced to a
tiny f r a c t i o n , mainly r e t a i n e r s . During the long s l a c k p e r i o d sugar w o r k e r s
e i t h e r take p a r t - t i m e jobs o r s c r a t c h out a n existence on c r e d i t and s u b s i s t ence farming. Many just subsist and suffer.
The sugar industry also burdens Cuba's economy with the uncertaint i e s that spring f r o m r e l i a n c e on one m a i n export crop.. If the demand and
the p r i c e for s u g a r i n the world i s favorable, the Cuban economy looks pretty
good. If the demand and p r i c e for sugar in the world goes down, the Cuban
economy bogs down.
When the s u g a r industry is flourishing, i t nourishes the Cuban economy, since i t i s the l a r g e s t single s o u r c e of t a x revenue and i t s labor f o r c e
i s large. At the s a m e t i m e the numerous e n t e r p r i s e s serving the sugar ind u s t r y p r o s p e r to the f u r t h e r advantage of the e n t i r e economy.
Sugar and i t s by-products account for m o r e than 80 p e r cent of all
Cuba's exports. Exports in t u r n provide n e a r l y 40 p e r cent of Cuba's
national income. Thus a l m o s t all the activities of the island a r e m e s h e d into
i t s export economy.
Of a total national income just s h o r t of 2 billion pesos annually ( p r i o r
t o the C a s t r o take-over) m o r e than 650 million pesos c a m e f r o m the sugar
industry.
Although i n t i m e s of p r o s p e r i t y the sugar industry provided a better
living for Cubans, the "good t i m e s " that r e s u l t e d w e r e decidedly relative.
The 1951 r e p o r t of the International Bank for Reconstruction and Development said: "The l a s t important period of growth i n the nation's capacity to
--
2
The experience of one United States machinery manufacturer exporting
to Cuba i s typical. He was owed $6,000 for a shipment m a d e i n 1959; the
Cuban p u r c h a s e r had m a d e peso payment to h i s bank i n Havana a s soon a s
the m a c h i n e r y had been delivered. But the C a s t r o Government refused to
r e l e a s e the dollar exchange. When he received an o r d e r i n 1960 f r o m the
Cuban f i r m f o r a new shipment worth $6,000, the manufacturer told his
agent he would extend the usual 90-day c r e d i t i f h e w e r e paid for the 1959
sale. Even though the payment did not come through he m a d e the second
shipment, thus extending the credit to $12,000.
F r o m t i m e to t i m e the Cuban Government r e l e a s e d d o l l a r s , thereby maintaining s o m e confidence among s c o r e s of United States companies whose
c r e d i t a r r a n g e m e n t s with Cuban c u s t o m e r s had been excellent before 1959.
F o r a s u m m a r y of United States-Cuban t r a d e and i t s place i n the foreign
t r a d e of Cuba, s e e Table I and Appendix I.
-
produce- -and hence in the living s t a n d a r d s of i t s people- s e e m s to have
come to a n end s o m e 25 y e a r s ago. T h e r e is chronic unemployment even in
good t i m e s
and because Cuba's m a i n product i s e x t r e m e l y seasonal, a
l a r g e p a r t of h e r labor f o r c e and of h e r capital equipment i s unemployed for
The i n s e c u r i t i e s of the Cuban economy
encourmuch of each year
think p r i m a r i l y
age a ' m a s t e r ' vicious c i r c l e . Important economic groups
i n defensive t e r m s - - t o f r e e z e the existing situations r a t h e r than t o help to
c r e a t e a better one. They tend to p r e s e r v e o r c r e a t e unnecessary work; to
think f i r s t of the disturbing effects of a n improved method o r a new machine
The accent
r a t h e r than of the long-run gains f r o m g r e a t e r productivity
i s on p r e s e r v i n g the s t a t u s quo and on regulating the division of a fixed national product r a t h e r than on innovation to enlarge t h e total product."
. ..
....
...
...
....
A l a t e r study i s s u e d by the Banco Nacional de Cuba i n 1956 indicated that the conditions d e s c r i b e d by the International Bank persisted. The
study found that i n the y e a r s f r o m 1947 to 1954 the Cuban standard of living
had failed t o r i s e . Even during the 1951-52 boomlet occasioned by the conflict i n Korea Cuba's g r o s s national product i n c r e a s e d only enough to p e r m i t
a two percent r i s e i n the s t a n d a r d of living over the 1947 level.
With the sugar industry determing the s t a t e of the e n t i r e economy,
and i n t u r n being controlled by foreign b u y e r s and world m a r k e t conditions,
e v e r y Cuban Government h a s been a t the m e r c y of uncontrollable f o r c e s .
The w a r s of the 20th century, for instance, helped Cuba; the world d e p r e s sion of the 1930's brought n e a r - s t a r v a t i o n to millions of Cubans; a poor
s u g a r h a r v e s t somewhere e l s e i n the world benefits Cuba; a good one hurts.
An A m e r i c a n t a r i f f , a shift i n Cuba's s h a r e of the A m e r i c a n m a r k e t , a r e
reflected immediately i n Cuba.
The solution, a s everyone h a s observed f o r generations, i s much
g r e a t e r d i v e r s i t y of production and l e s s dependence on imported essentials.
That is, without reducing s u g a r production, the Cubans needed to i n c r e a s e
the production of other things both for export and domestic consumption. A
p r i m a r y need w a s for domestic production that would displace i m p o r t s that
w e r e costly in foreign exchange.
It w a s on t h i s p r o b l e m that C a s t r o focused a m a j o r p a r t of h i s p r o g r a m during the f i r s t year o r so of h i s r e g i m e , when Communist-bloc a s s i s t ance w a s negligible.
Where could the C a s t r o r e g i m e find the m a t e r i a l and human r e s o u r c e s
for h i s vast economic and s o c i a l p r o g r a m that included public works projects
ranging f r o m r o a d building to school construction.
The answer i s that, despite i t s deficiencies, the Cuban economy had
expanded enormously i n the y e a r s that i t had been dominated by United States
i n t e r e s t s . Hardly a m a j o r s o u r c e of m a t e r i a l wealth e x i s t s in Cuba that
cannot be t r a c e d to a United States s o u r c e f o r i t s initial capital and f o r the
s k i l l s r e q u i r e d i n i t s development.
Before 1900 a population of 1.5 million Cubans was sustained by inc o m e f r o m s u g a r , tobacco, cattle, coffee, a few m i n e s , and many s m a l l f a r m s .
The economy, a s i t developed in the 20th century, eventually supported a population of s o m e s i x millions. The r e s o u r c e s which the C a s t r o r e g i m e had
at hand in 1959 included:
The world's l a r g e s t industry for the production and export
of sugar cane, with 16 1 operating m i l l s , among t h e m the w o r l d ' s
l a r g e s t , staffed with experts and employing skilled labor of
ample supply.
A tobacco farming industry producing s u p e r i o r c i g a r s f o r
the world m a r k e t .
An extensive livestock industry r a i s i n g close to five million
cattle, many of high quality, on modern, well-kept ranches.
A valuable mining industry and m i n e r a l potential.
T h r e e substantial petroleum r e f i n e r i e s and distribution
systems.
One of the best communications s y s t e m s i n Latin A m e r i c a - highways, railways, and telephone, radio and television
installations.
A developed e l e c t r i c power s y s t e m .
Among the highest per -capita national incomes i n Latin
A m e r i c a with proportionately high ownership of automobiles,
t r u c k s , r a d i o s , television s e t s , etc.
A number of well-developed p o r t s for o v e r s e a s t r a d e .
Modern f a c t o r i e s for textiles, auto t i r e s , s h o e s , beverages
and other products.
An expanding s y s t e m of m o d e r n hotels and r e s t a u r a n t s for
foreign t o u r i s t s .
A highly developed banking s y s t e m , including chains of
United States and Canadian banks operated l a r g e l y by Cubans.
A t r a i n e d c o r p s of Cuban technicians, d i s t r i b u t o r s and
maintenance personnel handling m o d e r n machinery installed
i n Cuba.
Established lines of credit tied to the export t r a d e i n sugar.
The line of c r e d i t l i s t e d a s the l a s t i t e m above was used by the C a s t r o
Government to finance the i m p o r t s i t needed for i t s broad p r o g r a m of social
improvement.
Although new c r e d i t s f r o m the Soviet-Red Chinese bloc w e r e in the
offing, they had not been implemented a s r e c e n t l y a s August 1960,
The fact is United States citizens and corporations by mid-1960 had
extended c r e d i t s to Cuba totaling almost twice the amount the Soviet Union
had a g r e e d to m a k e available to Castro.
A Soviet c r e d i t of $100,000,000 was extended a t a t i m e when United
States i n t e r e s t s w e r e owed approximately $180,000,000 for goods shipped
and s e r v i c e s r e n d e r e d to Cuban c u s t o m e r s a f t e r C a s t r o took over. Dollar
payment was blocked by the C a s t r o Government, which in effect thus financed
it self through forced loans f r o m United States citizens and corporations.
The amount included about $60,000,000 due for petroleum imported into Cuba
by two A m e r i c a n and one British-Dutch r e f i n e r y f r o m their Venezuelan subs i d i a r y producing companies.
While it held t h e s e sizeable amounts of foreign exchange, the C a s t r o
Government went on to expropriate the e n t e r p r i s e s and land it needed to go
ahead with a p r o g r a m looking toward socialism. 3
C a s t r o ' s initial s u c c e s s t h e r e f o r e was based on the capitalistic economy he inherited f r o m i t s Cuban-American c r e a t o r s , with i t s backlog of
c r e d i t , inventory, s k i l l s , and t r a d e r e l a t i o n s , a l l established i n Cuba under
A m e r i c a n hegemony.
During the f i r s t year of the C a s t r o r e g i m e t h e r e was no m a j o r change
i n the well-established p a t t e r n of Cuban-American t r a d e except a managed
reduction by the Cuban government of i m p o r t s of specified A m e r i c a n goods
such a s c i g a r e t t e s , r a z o r blades, expensive motor c a r s , and c e r t a i n other
"luxuries" i n the electronic and gadget c a t e g o r i e s , At l e a s t partially balancing
t h i s reduction was a n i n c r e a s e of i m p o r t s i n a few categories. Meanwhile
Cuban exports to the United States continued. The United States bought and
paid for i n 1959 the usual amount of Cuban sugar a t the usual bonus p r i c e s .
Most other Cuban products which customarily find a m a r k e t on the mainland
moved t h e r e although i n reduced volume. (See Table I on page 10 for Cuban
foreign t r a d e figures .)
Cuban foodstuffs continued to move to the United States, although
m o s t w e r e m a r k e t e d by the National Institute for A g r a r i a n R e f o r m (INRA),
a Government agency, r a t h e r than by private i n t e r e s t s . The INRA exports
3
The t r e n d of the revolutionary p r o g r a m h a s made i t evident that sociali s m is the goal of the ruling clique i n Cuba and that i t was approaching this
goal i n mid-1960 a s rapidly a s c i r c u m s t a n c e s would permit. It i s uncertain
what proportion of the Cuban electorate approves the goal because C a s t r o
h a s not permitted the i s s u e to be put to a vote.
had been h a r v e s t e d f r o m intervened o r expropriated lands, s o m e of which
belonged to United States citizens. Some of the produce m a r k e t e d by INRA
had actually been grown by the owners of land that had been acquired by INRA.
F r o m the point of view of d i s p o s s e s s e d landowners, INRA was marketing
stolen goods. The United States Government, however, did not i n t e r f e r e with
such t r a d e o r with the t r a n s f e r to the Banco Nacional de Cuba of the dollar
proceeds. The value of s a l e s by INRA f r o m one s e i z e d finca alone i n the
1959-60 s e a s o n exceeded $400,000.
-
Meanwhile, Cuba's new t r a d e conquests w e r e insignificant; no new
c r e d i t s o u r c e s w e r e active; no international loans w e r e sought o r offered;
no capital investments of importance w e r e made i n Cuba,
C l e a r l y C a s t r o ' s accomplishments during the f i r s t y e a r of h i s r u l e
depended on Cuba's already existing r e s o u r c e s . His dollar income c a m e
f r o m a n established foreign t r a d e , preponderantly North A m e r i c a n , and
f r o m f o r c e d loans mainly f r o m North A m e r i c a n s who w e r e n ' t being paid
f o r c u r r e n t s a l e s and s e r v i c e s . He effected savings of d o l l a r s by curtailing
s o m e kinds of United States i m p o r t s (savings l a r g e l y offset by new kinds of
United States i m p o r t s and offset also by the l o s s e s i n income f r o m t o u r i s m which in t u r n , however, was somewhat balanced by a curtailed Cuban t o u r i s m
in the United States).
-
The so-called e a r l y triumphs of the revolution, t h e r e f o r e , could be
labeled "Made i n the U.S.A."
Conversely, i f t h e r e actually had been "economic a g r e s s i o n " by the
United States during the f i r s t year o r s o of the Revolution, C a s t r o ' s p r o g r a m
might have been l e s s successful. An effective ban on United States c r e d i t s
and a d r a s t i c reduction of the 1959 sugar quota would have been a blow to
C a s t r o ' s methods of financing his r e f o r m s . Nevertheless, a m a j o r p a r t of
C a s t r o ' s revolutionary p r o g r a m s t i l l could have been started. In effectively
reorganizing Cuba's m a t e r i a l and human r e s o u r c e s C a s t r o needed a s much
c r e d i t and a s many t r a d e d o l l a r s a s he could get f r o m the United States. But
a m o r e modest reorganization could have been accomplished with l e s s c r e d i t
and fewer dollars. And, deprived of A m e r i c a n s o u r c e s of income, h e might
have looked e a r l i e r to Soviet-bloc assistance.
C a s t r o ' s progr'am i n 1959. and well into 1960 w a s to convert and cons u m e the wealth h e had found in Cuba. He was redistributing and dividing
Cuba's national product r a t h e r than enlarging the total product. No i m p o r tant productive capacity was added.
The p r o g r a m brought g r a v e dislocations within the economy and
s o m e telling m i s t a k e s and l o s s e s . T h e r e w a s s o m e additional diver sification of c r o p s , with perhaps m o r e r i c e grown than before, m o r e hogs i m ported and l e s s l a r d ; but also t h e r e w e r e c r o p s spoiled and wasted, t h e r e
w e r e cattle unn e c e s s a r i l.y d i s p e r s e d and poorly fed, t h e r e w
where breeding stock was needlessly slaughtered. Some waste land was
c l e a r e d ; s o m e c l e a r e d land was allowed to d e t e r i o r a t e .
On balance, p e r h a p s , the l o s s e s outweighed the gains unless one w e r e
to i n s e r t i n the C a s t r o balance sheet the change in c u l t u r a l attitudes coming
with the Revolution and n u r t u r e d by i t during i t s fir s t stage. Among Cubans
on the lowest rung of the economic ladder hope replaced apathy, courage
took the place of f e a r . Cubans who had never expected to have a n honest
Government concerned with t h e i r humble lives w e r e brought to their feet
cheering, m a c h e t e s flashing i n the a i r .
But the fact i s that i t was a Cuban society l a r g e l y developed under
United States a u s p i c e s , and sustained during its revolutionary conversion
by A m e r i c a n c r e d i t s , that m a d e the f i r s t stage of the Cuban Revolution
economically possible.
APPENDIX I
TABLE I*
Cuban F o r e i g n T r a d e , 1902-50 (Averages) and 1951-1959
[ ~ millions
n
of p e s o s ]
--
T r a d e with
United St a t e s
(values)
Total
Year
Imports
Exports
Imports
Exports
T r a d e with
United States
(percentages)
Imports
Exports
Average for
period:
1902- 10
1911-20
1921-30
1931-40
1941-45
1946 - 50
Annual :
1951
1952
1953
1954
1955
1956
1957
1958l
1959~
tc Sources:
Data f o r 1902-50-Ministerio de Hacienda, ~ i r e c c i 6 nG e n e r a
de ~ s t a d i s t l c a ;1951-59-Banco Nacional de Cuba and Minister0 de Hacienda.
1958-Figures i s s u e d by C a s t r o officials but based on Batista r e c o r d s .
E s t i m a t e s based on Banco Nacional and United States E m b a s s y r e p o r t s .
doubt e x i s t s as to the a c c u r a c y of s t a t i s t i c s i s s u e d by C a s t r o officials.)
(Some