Cuban Economy Essay, Research Paper

Although the Cuban economy may be thought of as to some as a complete

failure, the command system structure can still be an effective way of creating a

successful economy, if the correct steps are taken in it’s planning. From the 1960’s

revolution to the 1990’s collapse of russia, the soviet union managed to maintain the

Cuban economy by trading them sugar in return for oil

(http://lanic.utexas.edu/la/cb/cuba/asce/cuba1/panel.html). The USSR paid “higher than

market prices” for Cuban cane, and Cuba paid “lower than market prices” for Russian

petroleum products. This arrangement which Cuba benefited from, allowed Castro to

provide benefits to the citizens such as higher education, free total medical care, and

subsidized food and housing. Now, ever since the deal with the Soviet Union has

collapsed, the Cuban economy has fallen by 35% from 1989 to 1993

(www.odci.gov/cia/publications/factbook/index.html). Instead of the island being

maintained or enhansed, it is barely be sustained. Although the lack of aid from the

Soviet Union has had a great influence in the Cuban economy, it still has some hope

because of increased tourism, agricultural trade and additional US dollars.

The Cuban economy is strongly based on a command system, where the

government has nearly complete control of the economy. Just as any other economic

system is required to do, the command system must answer the 3 basic economic

questions. what to produce, how to produce it, and who gets what (Lyons, Brian 1987).

The government controls things such as the quantity of each good that is to be imported

and exported, prices of goods and services, wages, housing. etc. Through the goverments

control, they can decide who recieves what share of the economic pie. Unfortunatly, this

means that they can use this power to there own advantage and limit the amount of

income that each citizen receives. In Cuba, each working age citizen is “given” a job

which pays them from 250 – 500 pesos a month. In US dollars it only equates to $10 -

$20 (John Skorburg, 1999). The government also holds a primary role in the Cuban

economy and controls practically all foreign trade. The government has undertaken

several reforms in the past few years which have been designed to stem excess liquidity,

raise labour incentives for workers, and increase the amount of food, consumer goods

and services to pull them up from depressed levels. In 1994, the liberalized agricultural

markets were introduced. The State and private farms were authorized to sell any of their

above quota production at unrestricted prices, have broadened legal consumption

alternatives and reduced black market prices. The governments efforts to reduce

subsidies to loss-making enterprises and shrink the money supply caused the black

market rate to decrease rapidly.

In the Cuban marketplace, the number of self-employed workers has slowly

increased from 160,000 in the early 1990’s to able 250,000 today

(http://www.odci.gov/cia/publications/factbook/index.html). The Government still

continues to discuss the concern of the growing number of the self-employed, and the

increasing disparity in wealth. The need for economic growth has somewhat replaced the

age old ideologies. When soviet forces were defeated in 1989 and an end to Soviet

subsidies was realized, the Cuban economy suffered the equivalent of an economic

shutdown.(John Skorburg, 1999). The economy dropped even further from the result of

inherent inefficiencies of the Cuban industrial base. In 1995, the slide was halted by

government programs that resulted in a 2.5% increase. In 1995, export earnings rose by

20% to $1.6 billion. (http://www.indembassyhavana.cu/cubaecopart3.htm). This was

largely caused by higher world prices for common commodities and increased production

of nickel through the cooperation with a canadian firm. Higher exports and new credits

from European firms and Mexico enabled Havana to increase it’s imports.

In 1996, an act to seek international sanctions against the Castro government in

Cuba was put into place, to plan for support of a transition of government leading to a

democratically elected government in Cuba, and for other purposes as well . The

international debate surrounding the adoption and implementation of the Helms-Burton

law had revealed different approaches to the idea of promoting democracy in Cuba. The

United States’ NAFTA partners, the European Union and the rest of Latin America had

came up with three different views on how to persuade Cuba’s democratization. The

dynamics of the debate and its solution to the problem had major indications for Cuba to

become part of the international economy. The US policy inevitably shapes and will

continue to shape Cuba’s international reinsertion, even if it does not occur in the way

that are intended. As codified into law by the Helms-burton act, the official position of

the United States is the promotion of democracy in Cuba by isolating the island

economically. This would have been meant to limit the amount of fresh investment

entering Cuba and minimize most forms of normal contact. The underlying plan was that

the form of pressure used would lead to the

demise of the political power of Fidel and Raul Castro and a rapid transition to

democracy (http://www.globalexchange.org/campaigns/cuba/US-

Cuba/HelmsBurton.html).

Although the Cuban economy may be thought of as a failure, the command

system structure can still be an effective way of creating a successful economy, if the

correct steps are taken in it’s planning. The Cuban economy is an example of an economy

that could have been successful if the correct steps and desicions were made. Instead, the

Castro government took advantage of their power and abused it, ruining the economy.

Steps are now being taken to turning the ecomony around by taking power out of Castro’s

reach.