Cuba’s economic hybrid stretches the limits

I have been wanting for years to see Cuba before the end of its Castro-style communism, so wife Jackie and I went last week to internet-deprived Havana.  We were almost too late.  However closed and oppressive Cuba was in the first 40 years after its 1959 revolution, the period since has wrought big, though still controlled, changes.  A slow transition is already under way.

I’m someone who reads the Ten Commandments as a description of what my ancestors were up to at the time of their composition.  So I read the billboards on the way in from the airport as reflecting the Communist party’s anxieties:

The changes in Cuba are always towards more socialism

The Revolution is strong and going forward

We never forget our history and traditions

The Revolution is a beautiful and indestructible reality

The author of these billboards is clearly worried that someone might misunderstand what is going on as a rejection of the revolution, Cuba’s history and traditions and its socialist system.

Well they might.  Cuba’s socialism is like Havana’s decrepit and decaying buildings.  There is so little left, it’s a wonder how they remain standing.  The society still has its points of socialist pride:  free, universal education resulting in very low illiteracy and (sort of) free health care resulting in a life expectancy of more than 79 years (above Mexico’s and even, by a hair, Puerto Rico’s).  And its points of shame:  I met no one who likes the rationing of 10 or so staples, for sale at subsidized prices when they happen to be available, or the exorbitant taxation of (necessarily imported) motor vehicles.  Budget constraints and efficiency will require changes to both the health and education systems sooner rather than later.  And something needs to be done about the 2800 money-losing state-owned companies.

But these socialist virtues and defects are atavisms.  The past few years have seen the development of a second, market economy.  This is most apparent in the tourism sector, which is an important source of foreign exchange and employment, but we stumbled into it also in the agricultural sector, publishing, taxis, music and art.  It is even creeping into the health system, where doctors expect gifts from patients in addition to their government salaries.  In education, tutors are becoming commonplace in preparation for exams.  Sometimes it is associated with cooperatives (in agriculture and publishing, for example) and at other times with individual entrepreneurs (taxis, music and art).  At the government-owned Abdala recording studio in Havana, I was assured the very capable technicians producing the recordings do not have to depend on their government salaries to survive.  The musicians wouldn’t allow that.  Though I doubt it is literally true, we were repeatedly assured that every Cuban has,  in addition to official, government employment, a second, private-sector hustle.  Certainly on the streets of Havana there is ample evidence that the private sector is generating a significant portion of the locally produced income.

This second, market economy is associated with a second currency.  The convertible peso (CUC), originally created for use by foreigners, has replaced the peso in as many as 80% of the island’s financial transactions.  The vastly overvalued CUC (it is sold in official exchange houses at more than $1) has virtually driven the Cuban peso, adorned with the famous portrait of Che Guevara, out of circulation.  This Cuban variation on Gresham’s law has left government salaries, paid in pesos, at between 15 and 35 CUCs per month.  You might not starve on that if you can find rationed supplies, but an even half-decent lifestyle requires more like 300 CUCS per month.  A cab driver gets 25 CUCs for a single drive in from José Martí airport, a guide 5 CUCs per day in tips for each client, so 125 CUCs per day for a quire of tourists.

There is no lack of awareness in Cuba of this grotesque incongruence.  Raoul Castro has referred to it explicitly in one of his few public appearances and promised to unify the currencies this year.  The whole country is holding its breath to see how this will be done, as there will necessarily be winners and losers.  Cubans keep some money in banks, but a lot is kept in their homes (stuffed in their mattresses, figuratively or literally).  Increasingly, people are investing in property.  Seventy per cent of the country’s real estate is said to be in private hands already.  But there are limits:  you are supposed to own no more than one home and one car.  There is a lot to be gained or lost from a hybrid economic model that has clearly stretched to its limits and will change, in one direction or another, in the next year or so.

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