Economic Incentives In Cuba

Economic Incentives In Cuba

Although there is only one Cuban citizen for each 100 Chinese—8 million to 800 million—there are several similarities in their efforts to generate economic systems suited to their particular circumstances. "Outstanding characteristics of this line are a highly centralized economy and planning system; a trend toward nationalization of all means of production; nonma­terial or 'moral' incentives (such as revolutionary enthusiasm, socialist emulation, granting of medals, banners, pennants, and diplomas); political education to eliminate selfish inclinations, and develop 'a new man'; and financing of enterprises through a state budget (that is, most enterprise profits are taxed away by the state, which follows its own criteria for invest­ment, disregarding profitability.)"36 We will focus on how these features affect the incentive system that has evolved since Castro came to power in 1959.

The ideological basis of the Cuban brand of socialism is not the thought of Mao Tse-tung; rather, it seems traceable to Che Guevara, Castro's fellow revolutionary and Minister of Industry, who was later to die in the jungles of Bolivia. He advocated that "Cuba always stresses the ideological aspect, the education of the minds of the people, and the call to duty. . . . Then comes the necessary material stimulation to mobilize the people." As in China, the relative predominance accorded nonmaterial incentives has fluctuated from time to time in Cuba, but the ideal form of economic motivation continues to be one that strives to deemphasize indi­vidual enrichment in favor of collective goals.

Discussion of Cuban socialism cannot proceed without some historical perspective on the economic and political situation prior to the Revolution. The economic history of Cuba is dominated by a single product: sugar. As early as 1883 the national hero Jose Marti warned that "A people that puts its trust in a single product in order to subsist is committing sui­cide." Yet Cuba was and still is the most fertile sugar-growing region in the world, and the opportunity cost of diversification away from sugar monoculture became apparent in the abortive attempts to shift resources away from that product. Actually, sugar production is a two-stage process; freshly cut cane must be taken immediately to sugar mills, or centrals, to be crushed and refined in a technologically sophisticated process. "It is not like cutting bananas off a tree," was one Cuban's derisive reply to an unin­formed professor who lumped sugar with other products of tropical agri­culture.

With reliance on sugar came reliance on Uncle Sam as customer, sup­plier, and investor. American investors owned many of the giant sugar plantations before 1929. Specialization was so great that Cuba imported not only manufactured products but foodstuffs and raw materials as well. The Great Depression of the 1930s was thus transmitted from the U.S. to Cuba with increased virulence; half the Cuban working population was unemployed when foreign income fell and American policy favored domes­tic sugar growers over Cubans.

Sugar monoculture also had profound implications for the Cuban labor force. Agricultural workers were primarily a landless proletariat em­ployed on the plantations; others owned only enough land to eke out a bare living. Sugar production is concentrated during the first half of the year, so many workers were effectively unemployed from July to December. In addition, wages were sufficiently low for sugar workers to limit their effec­tive demand and thus discourage the potential market for consumer goods.

The tourist industry, based on sunshine and gambling, grew in impor­tance after World War II. Over one-third of the labor force was employed in the service sector in the 1950s, although they were concentrated in the casinos, nightclubs, and brothels of Havana. Tourism, too, was extremely sensitive to fluctuations in the American economy.

Thus beneath the surface prosperity and cultural sophistication of prerevolutionary Cuba there were severely unbalanced conditions: a percapita income level of $400 divided disproportionately between the masses of rural underemployed or underpaid and those made rich by sugar and tourism, a foreign-trade sector completely reliant on American economic conditions, and a growing contrast between the glitter of Havana and the abject poverty of the countryside.

The Cuban political system was similarly subservient to the United States. The Piatt Amendment, in force until 1933 as part of the settlement following the Spanish-American War, allowed the United States to inter­vene militarily when "in their judgment, lives, property, or individual free­doms were endangered." A succession of political leaders, operating with American support, made Cuba a country of increasing corruption. This trend culminated in the 1952 military coup of F. Batista, who adopted repressive measures against political opponents.
Fidel Castro appeared on the scene in opposition to the Batista re­gime. Imprisoned in 1953 for leading an extremely unsuccessful attack on an army garrison, he regrouped his guerrilla forces in Mexico after he was freed in 1955. From there he and 80 supporters launched another ill-fated invasion attempt. The 12 survivors escaped to the mountains of Oriente Province in eastern Cuba, where they mounted guerrilla attacks with in­creasing public support. As Castro's volunteer army grew amid the repres­sive atmosphere of the government in power, Batista was forced to flee, and after a brief interim Castro became prime minister.

The political relations between Cuba, the United States, and the Soviet Union were tangled in the years immediately following the 1959 Revolution, so a brief attempt at straightening them out is required before proceeding to the economic problems confronting the new regime. The United States protested the execution of Batista supporters and the ex­propriation of large estates; Castro visited the United States in April 1959, but the U.S. government refused to seek better relations; early in 1960 a Soviet-Cuban trade agreement was signed; Castro seized American-owned oil refineries that refused to handle Russian crude oil in the summer of 1960; the United States then canceled Cuban sugar imports; Castro re­taliated by expropriating most of the remaining U.S. property in Cuba; the United States, in turn, declared an economic boycott on all trade with Cuba.

The belligerence of the Eisenhower Administration in 1960 may be partially explained by the training of a Cuban exile army to recapture the island. After Castro openly affiliated with Cuban communists in the fall of 1960, the preparations for the Bay of Pigs invasion speeded up. The mis­taken assessment of Castro's popularity that the CIA provided newly in­augurated President Kennedy resulted in a profound blunder in American foreign policy and a source of increased Cuban support for Castro's anti-American stance. The end of the Cuban Missile Crisis of October 1962 finally brought about a somewhat calmer political situation Carmelo Mesa-Lugo identifies four distinct phases of Cuban economic pol­icy before 1970: the liquidation of the prerevolutionary economy, 1959-1961; the introduction of socialist institutions, 1961-1963; experimenta­tion with alternative models, 1963-1966; and the radicalization of the economy during the next four years. As might be expected, political and economic circumstances played a role in bringing about the transition from one phase to another; ideological considerations, however, must also be credited with the tendency toward greater emphasis on moral incentives. "The guiding principles of economic policy in the first years of the Revolu­tion were agricultural diversification, industrialization, and the cultivation of new trading partners."41 The Cuban leaders actually welcomed the break in economic relations with the United States; they had deceived themselves with rhetoric claiming that previous trade had been to the sole advantage of the United States.

The principle economic acts of the first two years of the new regime were agrarian reform; nationalization of banks, public utilities, and Amer­ican-owned firms; and the construction of housing and social-overhead capital in rural areas. The Agrarian Reform Law of 1959 expropriated i large estates and all rented lands. The large farms were reorganized as cooperatives under the National Institute of Agrarian Reform (INRA), which was also in charge of building roads and public buildings.

Nationalization of firms was largely in reaction to worsening inter­national relations with the United States. The technicians and managers of these firms overwhelmingly fled Cuba as part of the exodus of 500,000 (one-eighth of the population) who opposed Castro. The 1960 trade agree­ment with the Soviet Union was designed to provide technical advice for both new industry and existing enterprises.

In contrast to the initial Russian and Chinese phases of socialism, which squeezed resources out of agriculture to finance industrialization, the Cuban Revolution is unique in the attention devoted to the social con­dition of the agricultural peasantry, whose living conditions were extremely primitive. Most construction activity was directed toward rural areas, where housing was built for agricultural workers. In addition, salaries of farm workers were increased, and goods were distributed through state-supported stores. One of the most successful programs was the effort of volunteer teachers to teach reading and writing to illiterate adults. "On De­cember 22, 1961, the alphabetization program was officially ended—and illiteracy had plummeted from 23.6 percent when it had opened to only 3.9 percent when it closed." It is not surpising that poor peasants were among the most fervent supporters of the Revolution.

The Cuban economy made rapid progress in the years after 1959 through a combination of the good fortune of near-record sugar harvests, the enthusiasm generated by opposition to the Bay of Pigs invasion, and the reserves of manpower and industrial capacity that existed under the old system. By 1962, however, it became apparent that these achievements had not been based on a viable set of economic policies, and the facade of economic success showed flaws in several places simultaneously. "The former guerrilla fighters were thinking in social terms, wanting to give everyone wealth and work, without having the economic bases that would have opened up better paths for reaching this goal."

Some factors made eventual difficulties inevitable: the departure of most of the island's managers, doctors, technicians, and white-collar work­ers; the embargo on spare parts for American-made machines and vehicles; inflationary pressures generated by increasing salaries more rapidly than commodities became available. More important, however, were the bad planning and distortions of the incentive system that prevailed in both agri­culture and industry. The ideological insistence on extreme centralization of authority in Havana and elimination of profitability criteria meant that individual farms and factories were not accountable for their own economic performance.

Castro regarded collective farms as an inferior form of socialism; in 1961 he therefore created giant granjas del pueblo (people's farms) on which all work was to be done for wages and all profits (an optimistic fantasy) were to go to the state. "These shortcomings of the granjas were easy to predict because of their scanty knowledge, their lack of autonomy, and the fact they had to turn all their receipts over to the Treasury. No one had any direct material interest in whether they were profitable; as a matter of fact, none of them has been."is Agricultural wages were guaran­teed at a level that made loafing and absenteeism the norm.

The situation was equally bleak in the industrial sector, where some 50 "consolidated enterprises" were created in the Ministry of Industry under Che Guevara. Again, accountability was not imposed on the separate enterprises; Guevara believed that the compactness and good communica­tions network of Cuba made central management feasible without the "capitalistic taint" of profit criteria. Factories were often idle for lack of raw materials or spare parts. In the haste to diversify the economy, little thought was given to problems of organizing industrial production. Not surprisingly, the Soviet Union began to have second thoughts about how their aid was being used and pressed for more attention to costs and productivity.

Economic chaos soon created a balance-of-payments crisis. Sugar production fell from 6.9 million metric tons in 1961 to 4.8 million in 1962 and 3.8 million the following year. While exports were falling, the need for imported raw materials and manufactured products was rising. "By this time (1962) it was already clear that import substitution through in­dustrialization, from which so much had initially been expected, would provide no solution to the balance-of-payments problem and in fact might even contribute to making it worse for a long time to come."

In spite of the poor record of agricultural cooperatives and people's farms, Castro decided in 1963 to nationalize medium-sized farms—that is, those between 5 and 30 caballerias (165 and 1000 acres) in area. This deci­sion was in keeping with his ideological opposition to private enterprise; it might also have helped cut down on the black market in farm produce that had grown up since rationing was imposed. Dumont, the agricultural expert Castro had invited, strongly protested this move because of the lack of civil servants to run the farms and because of the disincentive effects on owners of smaller farms, who feared further nationalization. He accused Cuban leaders of "a certain lack of humility in the face of the facts, in the name of very questionable interpretations of a doctrine that was never intended to be rigid.,"47 Except for some retail trade (which was expropriated in 1968) and the remaining small private farms, virtually the entire econ­omy was nationalized before 1964. The extent and pace of public control of the economy thus exceeded that of Russia or China.

In 1963 Guevara admitted "two fundamental errors" in economic planning—the war against sugar cane and the desire for factories without adequate provision for raw materials.48 Soon after a new strategy for devel­opment was adopted, one that emphasized sugar and beef as agricultural products and geared industry toward meeting the demand for agricultural inputs (like fertilizer) and domestic consumer goods. This implies an inter­esting international division of labor among the socialist nations of the world; the 1964 Cuban-Russian trade agreement makes Cuba permanently dependent on Russian oil and machinery, and allows Russia to expand its sugar consumption with low-cost imported sugar.

At about the same time, a debate occurred concerning the twin ques­tions of the financial autonomy of individual enterprises and the relative importance of material versus moral incentives. Che Guevara's position emphasized budgetary control of enterprises by central authority and reli­ance on moral incentives; it eventually prevailed and became official policy. In seeking to solve its economic problems, Cuba therefore opted for an approach that is much closer to Maoist China's than the market orientation of the Liberman reforms in the Soviet Union. The Central Planning Com­mission (JUCEPLAN) appears to negotiate directly with each enterprise concerning receipts and disbursements anticipated to occur in the next planning period. Although Professor Leontief found awareness of input-output methods during his visit to Cuba in 1969, there is little evidence of effective coordination between sectors by means of a central plan. The present weak state of administrative sophistication, the lack of economic data, and Castro's penchant for ad hoc projects make true central planning unlikely in the present Cuban political context.

To dramatize the new trends in the economy, Premier Castro an­nounced a target for the 1970 sugar harvest, or zafra, of 10 million tons— a record that had not been approached either before or since 1959. He made this goal a symbol of the success of the Revolution and pledged that extraordinary efforts would be made by everybody to achieve it. The only comparison an American can attempt is with President Kennedy's promise to land a man on the moon in the 1960s; the same fervor, neglect of cost considerations, and sense of national prestige was present in Cuba, with far greater force. Since this goal was to be achieved through reliance on nonmaterial incentives, it is worthwhile to keep the reader in suspense con­cerning the outcome of the 10 million ton harvest while we discuss the evolution of the Cuban incentive system.

The Cuban Incentive System

On July 26, 1968, Castro gave his blueprint for the future. Material incentives will be phased out and replaced by moral ones; the connection between work for and wages from an enterprise will be broken, and citizens will develop a relationship between their effort on behalf of the society and the free goods and services directly granted by the state. (The government already supplies free education, medical care, social security, burials, telephone calls, nurseries—and, for some, recreation and housing.) In the future, all housing, meals, clothing, transportation, communication, public utilities, and entertainment will be free. Income differences will be gradually abolished and distribution made accord­ing to needs. Hence, there will be no social classes. In the future Cuban society, an engineer will earn as much as a cane cutter.

How did this extreme reliance on nonmaterial incentives come about? In one sense the economy has always operated on a form of moral incentive —the popular support of Fidel Castro (among those who stayed in Cuba) and the opposition to American military and economic threats to Cuba. The primary source of motivation in the years after 1959, however, was material rewards. In agriculture, renters of small plots received de facto ownership in the initial Agrarian Reform, and workers on sugar-cane co­operatives and people's farms received guaranteed wages. As peasant in­comes rose, the incentive for greater productive effort declined. "All his traditional, one might almost say inborn, reasons for working hard disap­peared. Unless new reasons could be substituted, the most natural and human thing in the world was for him to stop working any harder than required to enjoy his new and much higher standard of life."51 The 1970 harvest campaign thus became an attempt to supply a new set of reasons for working hard.

"Apart from land, the most commanding rewards for farmers in all of Latin America are schools, hospitals, roads, teachers, doctors, and trans­port."53 After 1962 more and more emphasis was placed on these collec­tive material incentives. Doctors and teachers were strongly encouraged to serve periodically in rural areas; thousands of rural children were sent to boarding schools, where they received a combination of political indoctri­nation and basic education. One is impressed, in recent accounts of every­day life, by the pride that ordinary Cubans take in the educational achieve­ments of their children under the present system.

Wage policy outside the agricultural sector went through several stages:
We saw that wages inherited from the capitalist period were frozen. Then in 1962-63 the new system of "wage scales and work norms" was painstakingly adopted from Soviet manuals and soon implemented, as it was in China. In fact, there was confusion in the implementation of the new wage policy, although Cuban officials claim actual completion of the process of introducing the new wage policy by late 1964 or early 1965. In late 1966 and early 1967, there was a gradual reversal of policy in favor of straight time payments and a severe narrowing of the moderately wide salary differentials of the new wage scales.

Workers have generally renounced any remaining vestiges of over­time wages (which have become something of a symbol of an unpatriotic attitude). Managers are paid on the scale of civil servants and often receive no more than veteran workers. Except for a few scarce technical skills, wage differentials are not widely used today as a labor-allocating device.

The shortage of consumer goods and the rationing of meat, rice, coffee, and many other items meant that there was little to buy when mate­rial incentives were increased in the mid-1960s. Rationing quotas became the effective determinant of real income. All available evidence points to even greater equalization of wages in the future. As the system of free sup­ply gains further headway, it is possible that moral incentives will almost completely replace wages as a stimulus to labor.

The core of the system of moral incentives, however, is the system of voluntary labor, which sends thousands of students and office workers to work in the cane fields every year. No one has ever claimed that cutting sugar cane under the tropical sun is much fun for a bureaucrat or an intel­lectual; the cane is sharp, flies abound, and backs and arms soon give out. By rational measures the cost of transporting and feeding volunteer work­ers largely outweighs the work they produce. Cuban leaders place such a high premium on the moral value of volunteer labor that they disregard such considerations.

How many "volunteer," and for what reasons? "The following facts were widely publicized in 1968 and were typical: 240,000 renounced pay­ment for overtime work; 25,350 men turned their jobs over to women in order to join agricultural brigades; 3448 switched from city to country for two years and thousands upon thousands aspired for Heroes of Moncada Banners, and so on. 5 Also important in this respect is the increasing use of elite army units or semimilitary youth groups as agricultural task forces. The contrasts in attitudes of volunteers are shown in the following reports:

I asked a friend of mine whether he cut cane. He said shortly, "Enough." Why does he go? Because there is moral pressure on him to go. But it is moral pressure. If he has no morality he needn't go. He can stay in the office and still draw his salary. There is a legal necessity to go to the fields only one day a week. .. . The militant twenty per cent set the work pace in Cuba and most of the country follows... . The hostile twenty per cent neither attend meetings nor do the extra work. They get cold-shouldered, called gusano [worm], a lift attendant might force them to walk up the stairs. Food gets roughly shovelled on to their plate in the cafeteria.

One daughter bubbled in, the mechancial engineer. She was muddy. She chatted, waiting to get into a shower which they shared with about twelve neighbors. She'd been doing voluntary work in the fields. "How many hours?" "Oh, a few." "Don't you watch the clock?" She laughed. All the people she'd been responsible for had turned out, she said. The work wasn't all that efficient, the daughter said, but at least it wouldn't have to be done all over again.

Che Guevara believed that moral incentives would eventually prevail if only a few enthusiastic workers in each group would serve as examples for others. There are strong incentives for at least "going through the motions" of participating in voluntary work projects—the local Committee for the Defense of the Revolution is on the alert for slackers. It seems that more government officials and other administrators in Cuba, as compared to China, do so with a sense of reluctance and duty, in the spirit of an American boss putting in an appearance at the annual company picnic. "The second stage [of volunteer labor], now under way, is to deepen peo­ple's understanding of shared labor as the key to a classless, educated society and to raise individual productivity, express revolutionary idealism in work, break economic bottlenecks that choke men with hunger and frus­trate their ideals everywhere."58 Much depends on the generation of post-revolutionary young people now entering the labor force.

The 1970 Harvest and Its Aftermath

Many observers, both inside and outside Cuba, were doubtful about the feasibility of achieving a 10 million ton harvest in 1970. To push produc­tion beyond the natural "capacity" level of about 8.5 million tons, they claimed, would pull resources and administrative talent out of vital uses and create a subsequent letdown in economic activity. They were largely correct. But moral crusades do not spring from rational calculation. In 1968, facing a harvest of only half the 1970 goal, Castro reaffirmed that "we understand how the 10-million-ton goal has become a yardstick by which to judge the Revolution; and, if a yardstick is put up to the Revolu­tion, there is no doubt about the Revolution's meeting the mark."

The Revolution in fact fell about 1.5 million tons short of the mark. Although the harvest was a record and entailed monumental efforts (such as postponing Christmas until after the can was cut), it nevertheless repre­sented a failure of the claim that anything was possible if only an all-out effort were made. On July 26, 1970 Castro made an extraordinary speech, taking personal responsibility for errors of economic policy and revealing the damage to the economy that had occurred. Summarizing a Castro speech is like trying to summarize a Beethoven symphony; it is hoped that these excerpts capture the essence of his recent views on economic matters:

I repeat that we were incapable of waging what we called the simultaneous battle. And actually, the heroic effort to increase production, to raise our purchasing power, resulted in imbalances in the economy, in diminished production in other sectors, and in short, in an increase in our difficulties....

Difficulties have been encountered in highways as well as railroad transportation. These difficulties have been determined partly by the priorities given to the transportation of sugar cane and by-products, and by a lack of spare parts. The result has been a decrease in the number of available vehicles, which has led to operational problems and seriously interfered with economic activities during that period. ...

I believe that we, the leaders of this Revolution, have cost the people too much in our process of learning. . ..
Why should a manager have to be absolutely in charge? Why shouldn't we begin to introduce representatives of the factory's workers into its management? Why not have confidence? Why not put our trust in the tremendous proletarian spirit of men who, at times in torn shoes and clothes, nevertheless keep up production? . . .

We must also add that nobody here is going to solve a problem if he doesn't obtain the cooperation of others. Seeing only one's own section is inadmissible and absurd! More than a crime it is a stupidity! In a society where the means of production are collective, lack of coordination is stupid. Thus the need for coordinating different sectors and linking them to a coordinating team at the highest level. . . .

We must use our heads to solve problems. If the ten-million-ton sugar harvest was a problem of brawn, what we now have before us is a problem of brains.. . .

The attention to administrative skills, coordination between sectors, and economizing behavior marks a departure from the view that revolu­tionary spirit could make up for deficiencies in these facets of economic planning. New, also, is the possibility of giving workers a significant voice in management at the corporate level. The basic features of the Cuban economic system remain virtually unchanged, however. Moral incentives and volunteer labor will continue, the free-supply system will Equalize liv­ing standards further, and the budgetary system^hat centralizes planning will rule out reliance on market incentives or profitability criteria as suc­cess indicators. There seems to be no obvious way in which rational cal­culations can be carried out unless firms are held more strictly accountable for their own efficiency.
Thus the Cuban economy faces serious problems in the years ahead. The risks of sugar monoculture have not been eradicated under the Castro regime. Soviet loans are coming due, and an increasing share of sugar rev­enues will be earmarked for debt repayment. The Cuban national character seems much less suited for wholehearted adherence to moral incentives at this time than appears to be the case in China. There is some question as to whether Castro's charismatic leadership can weather a continued series of economic disasters.

Nevertheless, the very survival of the Cuban economic system in the face of lost American markets and continued U.S. political harassment (which seems increasingly outmoded in the light of present world condi­tions) constitutes some measure of success for the Revolution. The material conditions of many people have been improved. More important, their spirits and expectations have been raised. "Castro's (and Cuba's) predica­ment is that his own style—one can even say his life style—is at odds with the only hope for Cuban socialism, the growth of effective popular institu­tions for decision making and administration. . . . Since the Revolution without Fidel is unthinkable if not impossible, there seems nothing left for him to do but to adapt himself to the realities he revealed to the public on July 26 [1970]. It will be interesting to see what he does."