Dr. Carmelo Mesa Lago, Emeritus Distinguished Professor of Economics and Latin American Studies at the University of Pittsburgh, United States, taught a course in the Open Studies Program of the Ibero-American Institute of the University of Salamanca. Although his classes were focused on the critical analysis of “the Trump era,” he was asked for private lectures on Cuba’s “situation,” “crisis,” “problems,” as researchers, students and curious people on this side of the world usually call it.
One of his interventions began with a sui generis presentation for a large part of the diverse audience listening to him, and almost familiar to the two Cuban women in the room. This kind of declaration of principles is more than an introduction to a topic, it is a mirror, it is a symptom of a country.
“I have been criticized from both shores: by the harsh Miami exile and also by the Cuban government and its supporters. It is very difficult to try to be as humanly objective as possible and not inconvenience one party or the other. My position has always been in favor of dialogue and peaceful solutions to conflicts and since 1965 I have been publicly protesting against the embargo or blockade.”
What do you consider to be the main triggers that set off the July 11 protests in Cuba?
The first thing is to recognize that Cuba is experiencing the greatest economic and social crisis since the 1990s, since the so-called Special Period. In 2020, the GDP dropped by 10.9%, the worst figure after the crash of -14.9% in 1993. In the first half of 2021 the fall was 2% and most likely in the second it will stagnate or decrease.
From the extremes, a single trigger is usually pointed out or emphasized. On the one hand, the blockade is recognized as the sole cause, and on the other, it is assumed that the communist system is only one responsible for Cuba’s problems. In my opinion there are multiple factors that explain both the economic crisis and the protests. The first one that I would point to is the inefficiency of the economic system, of central planning and the broad predominance of state ownership over the market and non-state ownership.
Then I would point to the severe economic-humanitarian crisis in Venezuela, because it is a country that since the beginning of the century has supported Cuba economically in many different ways. It is the first buyer of Cuban professional services, mainly in health, and that is the main source of foreign exchange on the island, in addition to its supply of oil on favorable terms, which is essential. This economic relationship has been considerably reduced, with strong impacts on the Cuban economy. Dependence on a country is a constant in the economic history of Cuba, which throughout all this time has been unable to finance imports with its own exports without receiving subsidies from a major partner.
The strong sanctions imposed by the Donald Trump administration, which reinforced the U.S. blockade, should also be highlighted as an influencing factor. Among the most influential measures were: the activation of Title III of the Helms-Burton Act, which has had an important effect on the freezing of foreign investment due to the risks it poses to investors; flight restrictions and the end of U.S. cruise trips to Cuba with their corresponding effects on tourism; it also imposed a ceiling on remittances and banned Western Union operations; it tightened sanctions on international banks that do business with the island and once again included Cuba on the list of countries that sponsor terrorism.
Another crucial issue is the implementation of the monetary and exchange rate unification. Cuban economists had recommended for more than 10 years that it be done. We considered that it was an essential measure to facilitate the economic structural reforms that Raúl Castro initiated. The problem is that the worst time was chosen. It was not done at the beginning of the century, in the context in which Cuba was receiving all that aid from Venezuela, during which it would have been ideal. Now, if applied well, this process will have many positive long-term effects because it is an incentive for exports and a disincentive for imports. However, its immediate impacts are very adverse, as for example: in 2021 Cuban academic economists — inside and outside — estimate inflation at between 500% and 900%, the highest after Venezuela; the need to close enterprises that are not productive or efficient; the impacts on the increase in the prices of basic need products and the severe shortage of food and medicine.
Added to this complex scenario is the pandemic. I think that at the beginning it was very well managed by the government, but afterwards there have been many problems and a significant increase in the number of infections and deaths. Cuba has produced two vaccines and mass vaccination has begun, even with minors, but we have to wait for them to demonstrate their effectiveness. The confluence of Trump’s measures and the pandemic has had very important effects on the economy and especially in the tourism sector.
I also believe that, in addition to those underlying problems, there are factors that favored the extent and magnitude of the July 11 demonstrations: the expansion of access to the Internet and social media. When you watch the videos, you notice that almost everyone has a smartphone in their hands and that was an essential tool; what I call the “escape valve” was closed, the preceding economic crises have coincided with major exoduses, this has not been the case now; I think the absence of a charismatic leader is also relevant. Remember that in the “maleconazo” Fidel Castro appears practically alone in the protests and controls them with his presence, we do not have that now; finally, I understand that the alienation of the young people, born after the triumph of the Revolution, has increased and that they do not necessarily share the ideas of the elderly.
The main ways of attracting foreign currency in Cuba (export of medical services, remittances, tourism) are in crisis and it does not seem that in the short term at least pre-pandemic levels can be recovered. What are the alternatives or strategies that would have to be promoted?
Lessons must be learned from this entire process. The first thing is to finish resolving internal issues, increase production. Once you start to increase production, you have the possibility of exporting. As I already told you, one of Cuba’s fundamental problems is that it has never been able to finance imports with its exports without subsidy, that is key.
In the case of Venezuela, for example, with the export of services Cuba was able to achieve a positive balance. That is true, but what happens is that there was a subsidy for Cuban doctors, what the Venezuelan government paid for a Cuban doctor was seven times the average salary of a Venezuelan doctor, so there was a hidden subsidy. Soviet subsidies, for example, were more open, because they were on the price of sugar, nickel, to the export of oil. The total value of Cuban exports between 1989 and 2020 fell by 67% while imports increased and thus also the deficit of merchandise.
On the other hand, specifically regarding exports of professional services, Cuban economists warned very early that this mechanism was subject to great risks, essentially political risks, that the subsidizing or buyer country would stop buying. It was demonstrated with Venezuela, but also with Brazil, Bolivia, Ecuador. The other problem that I have raised for the analysis of this issue is that, although it is very true that you receive a lot of money in this way, you also reduce domestic access to medical care, because half of the family doctors participate in this, that’s in the Cuban statistics, you just have to look at them, and then you limit access to primary health care and also to specialists. So it’s not a win-and-not-lose relationship. You do lose.
With regard to remittances, it seems to me that as a mechanism it is very good. There are countries like El Salvador and Mexico in which a fundamental source of foreign currency is remittances and that is very valid. However, it is necessary to ensure that remittances become investment and eliminate unnecessary obstacles, make changes so that Cubans feel more comfortable and secure and can invest in micro-businesses, so that remittances are not limited to family assistance. And it is not just about money, it is an issue that also has to do with technologies and international connections. In fact, there are many, many Cuban-American entrepreneurs with networks around the world, and with the right policies, that would be transferred to the country. It is also essential to make an education and awareness effort to try to smooth out the hostilities that exist between the two communities, between Cubans from within and the emigration. You have to do things so that all that can come together.
Of course, it is essential to continue betting on tourism, but the problem with Cuba is that it has invested too much in hotels and, for example, the occupancy rate in 2019 was 48%. Now due to the pandemic, the situation is worse, but the figures had been falling long before. This happens because the services are expensive and are not good. In other words, the tourism industry must be transformed and for that it is very important that there be restricted competition, as there is in the gastronomic sector. This in a certain way happened with the rental of houses and private rooms to tourists, but has to exist to a greater extent, with private tourism agencies, because that would represent a challenge to the State that in order to win would have to compete, not quash, but compete. The key to tourism is that tourists return, and they only return the prices and service are good. So yes, tourism, but with those changes.
In August, one of the most anticipated and demanded Decree Laws of the economic reform process in Cuba was published, on micro, small and medium-sized enterprises. What other transformations would have to be made to turn the private sector into a relevant economic actor for the development of the country?
First of all, it’s necessary to see how the law is executed, because one thing is the law and another is the practice. It is too early to answer that question because so little time has elapsed. I begin by saying that it has to be widely disseminated and explained in a pedagogical way so that people understand what it is about and how they can function under it.
I can’t answer you until I see the effects of the implementation of the measure and am clear about how they are going to implement it, because they can do so with a series of restrictions as happened in the reform initiated by Raúl or they can be much more open, as it happened in other countries like Vietnam. If the focus is the latter, it will be very positive.
Now, this law has to be accompanied by other reforms that are indispensable. As Cuba’s main problem is food, the agricultural problem must be solved and this cannot be achieved without a structural reform of production in the sector. So the law on enterprises is not going to solve the problems of the economy alone, there have to be other reforms. The same was said by economists from Cuba and from exile about the process of monetary unification and its impacts if it was not accompanied by a series of essential structural transformations.
The government finally made a list of prohibited activities and not of those that were allowed, which was something that had been suggested for years. That is very positive. However, restrictions continue for several of the liberal professions. The problem is that if you restrict the possibilities of that sector — which is highly qualified — of turning to production or services, you end up condemning the private sector to a low level of productivity and added value. The process of monetary reorganization will inevitably imply that inefficient enterprises that are not productive will close or disappear. So, in order to absorb all that employment that is going to come out of the state sector, you have to open up the non-state sector, particularly the private sector, and for this you have to liberalize the private practice of the liberal professions, so that engineers can turn to production, so that the architects can turn to construction of private housing. These questions are very important. The law does not solve problems on its own.
Among the many binary narratives that circulate in and about Cuba there is a very widespread one that assumes that only two paths are possible: the construction of socialism as it has been conceived so far or the restoration of capitalism, rather of a savage neoliberalism. What do you think of this?
For me that is a false dichotomy. What Cuban economists — at least the academic economists who live on the island with whom I maintain a dialogue — and part of those who work on Cuba in exile want, is a mixed economy. In the first group I think there is much more consensus on this idea, among those in exile it is more difficult to achieve it because there are very conservative people, who may not tell you that they want savage capitalism, but basically they bet on going back to 1958. However, many of us have suggested that it is necessary to move towards this mixed economy model with varying degrees, obviously, of State intervention and different ways of assuming the role of the private sector and the law of supply and demand, that is, of the market. In a way, the reforms initiated by Raúl Castro were headed in that direction. The problem is that they were very slow, piecemeal, with many zigzags. In fact, I believe that the reform came to a halt in 2016 and had many contradictions that hampered its effects. Not enough progress was made.
Right now I am doing a study in which I compare this economic model of the central power with small reforms that do not work and the model of market socialism of China and Vietnam, which are mixed economies, with a strong private component because in both countries the role of the private party surpasses that of the State and this is the reason for the economic success of the model. I think this would be a solution for Cuba, that combination of plan with market, because it has worked very well in other contexts. Of course, the two referents have a single party system, it is true, but I think that is attractive for the Cuban leadership. From a political and democratic point of view, I like the welfare model of the Scandinavian countries better, but I think it would be more difficult politically to apply it for Cuba.
In that study that I mentioned, I am analyzing around twenty variables with which I compare Cuba, China and Vietnam. Naturally, I expected that China and Vietnam would have a considerable advantage over Cuba in economic terms, but what surprised me is that in many social variables the two countries have already surpassed the island. I did not expect that because they began with very inferior levels of development and social indicators if compared with those of Cuba. Now what I am doing is studying everything related to social security, pensions, health, social assistance and continuing the comparison, but that is still in the making.
I also recognize that there is serious resistance to the application of the Sino-Vietnamese model because it implies delegating economic power. I think there is fear because when you delegate economic power, you also delegate political power. That distrust is in the mind of the old leadership, because we do not really know what is happening with the current one. At least I don’t know what President Miguel Díaz Canel really thinks.
Among the criticisms of the models of China and Vietnam, the issue of the expansion and deepening of inequalities frequently stands out. How can this challenge be assumed? Where should Cuba’s public policies point, taking into account the current scenario?
Yes, it is true that inequalities in China and Vietnam have increased considerably, but the same has happened in Cuba, first with the special period, then with the reform process and the reorganization. I think that a certain degree of inequality is inevitable in achieving economic development, and equality has been shown to damage incentives. The problem is to find an optimal point, without reaching extraordinary levels of disparity.
So it’s about finding a balance. You get to the point where you have to choose between equity with misery or some prosperity with inequality. I’m going for the second option, because I think people are going to be better. In addition, there are political, economic and fiscal policy means, with which you can reduce inequality. In the Scandinavian countries, for example, income tax is very high. I did an analysis on economic inequalities in Cuba that was published in the magazine Temas and it contains important questions to understand this matter. The first thing is that the Cuban tax system is regressive because the fundamental source of income continues to be the consumption tax. The gap has been narrowing, but still in 2020 the bulk of the income for the state budget is obtained through consumption taxes. With an income tax progressive scale, you can reduce inequality because you make higher income groups pay more and then transfer those resources to lower income groups through social assistance or other means. There is a time when the desire for progressive redistribution and incentives conflict. It is really very difficult to gauge, these countries have succeeded because they have a welfare state and high rates of economic growth. But I insist that inequality can be reduced with fiscal measures and social policies. It is not a Manichean problem, it cannot be analyzed in black and white, there are very important grays in the middle, of policies, that can help confront it. In the Cuban case, a progressive tax system would have an impact on reducing inequalities, which, moreover, have been worsening.
You participated in the first dialogues of the revolutionary government with Cuban emigration, at the end of the 1970s. In the current context, and in the face of a notable increase in polarization, do you think it is possible and advisable to promote new dialogue processes? What should be the pillars of this new dialogue?
Dialogue is essential. A violent solution would be terrible. The protests were very important, but it is a one-day process. To solve the problem, there must be dialogue and for there to be a dialogue, it is necessary to start by recognizing the other party as a valid interlocutor. I’ve been betting on that for many years. In 1969 I worked in that direction with my colleague María Cristina Herrera, we tried to promote dialogue first among the Cuban exiles themselves and several of us university professors focused on that, but also union leaders. Since then I have clear that for there to be dialogue it is essential to recognize the other person, even if that person does not have the same point of view as you, even if they do not agree. On the one hand, it is important to not accuse the others of traitors, of counterrevolutionaries and, on the other, the opposition sector has to recognize the Cuban government as part of the dialogue. Second, respect, respect for the opinion of others and listening to the arguments of the other party. We in Miami started like this. After we started talking to each other, we decided to do it with the government and we went to Cuba several times and we had tremendous discussions there and it was very traumatic, but we did it.
Third, there has to be a serious intention to reach an agreement, for which each party has to give in a little. You cannot repeat what was done during the Obama administration, in the process of normalization of relations, where I think the position was: everything you give is welcome, but I do not give anything in return, under the argument that since the United States government was the one who imposed the sanctions, it was up to them to eliminate them. Yes, that is very good politically, but it does not solve the problem of dialogue. It also seems to me that an opportunity was lost with the demonstration in front of the Ministry of Culture in which it seemed that the government was going to dialogue and in the end it did not. Each party has to give in a little to reach a compromise, otherwise it is impossible. For me those are the three key rules.
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