It is true and has been true for a long time: in economics, we have almost always looked outwards before looking inside. It is not new, it is part and product of our history, of our status as an archipelago, of our relatively small size, of our geographical position. It is, in some way, a handicap inherited from colonialism, from neocolonialism and then from our very special relationship with the USSR, which allowed us to do great things and have an inexhaustible source of resources almost independently of our ability to pay for them.
But all of the above is only part of the explanation for the national economy’s high “propensity” to import.
Although it is subjective, because we are only 90 miles from the largest market in the world, because more and more Cubans live in that market, because the Internet, WhatsApp and all the other technologies put before our eyes products from “over there” that we want to have “over here” — many of them undoubtedly very good —, the truth is that there are objective reasons, associated with the structural characteristics of the Cuban economy, that somehow make the propensity to import almost incurable. We will return to this later.
Substituting imports was one of the “instruments, aims, objectives” of the structuralist conception of development led by ECLAC since the 1950s. Latin America did not fully achieve it, nor did we.
In the same way, having an “import substitution policy” has been a necessity recognized by many Cuban economists, even before 1959; partly inspired by ECLAC conceptions and partly because the reality of the country made it evident. The United States’ reduction of the sugar quota first and then its elimination, the reduction of trade with Cuba and the U.S. blockade later, undoubtedly reinforced the reasons that, based on theory, were argued about the strategic need to achieve an effective substitution of imports. Substituting imports was an essential part of the effort to reduce our country’s economic dependence.
This is why, since 1959, import substitution as a purpose/goal/objective has been present in Cuba’s development strategy in its different stages, and in the five-year plans since 1975. It is still present today, which, unfortunately, is an undeniable sign that we have not achieved, not even halfway, such a goal, and not because we have not tried.
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What do the data say?
In the decade from 1950 to 1959, Cuba exported 6.700.3 billion pesos and imported 6.200.1 billion pesos, obtaining a positive trade balance of 500 million Cuban pesos in that decade. Two years, 1957 and 1958, showed a negative trade balance.
In the decade from 1960 to 1969, exports reached 6.327.9 billion while imports rose to 8.978.8 billion, leaving a negative balance of 2.651 billion pesos. In this decade, except for 1960 — which had a positive balance of 28 million pesos —, all the others had a negative trade balance.
Between 1970 and 1979 the behavior was as follows: exports worth 21.592.5 billion and exports rose to 24.605 billion, which left a negative balance of 3.012.6 billion. In that decade, all years had a negative balance, except 1974 — it was positive with 11 million pesos.
From 1980 to 1989, exports were 51.795.3 billion and imports 67.684.3, for a negative balance of 15.889 billion. From this decade onwards and to date, a positive balance in the balance of goods has not been achieved in any year.
In the 1990s, exports amounted to 20.867.4 billion, imports, 37.467.8, for a negative balance of 17.600.4.
In the first decade of the 21st century, exports amounted to 24.036.9 billion and imports amounted to 74.492.2 and a negative balance of 50.455.3 billion.
From 2010 to 2019, exports were 38.640.3 billion and imports 119.670.8, for a negative balance of 81.030.5 billion.
Not even at the time when Cuba enjoyed beneficial agreements with the USSR that included fair prices for our exports to that country, could an import substitution policy be put into effect that would change this tendency/suffering/of the Cuban economy. Nor did the objective of import substitution materialize in those years of this century when we enjoyed a beneficial relationship with Venezuela. In both periods, the state monopoly on imports was practically absolute and highly centralized planning encompassed practically our entire economy.
Another interesting aspect is the fact that in those years when our integration into the CMEA shaped everything from industrialization to foreign trade in Cuba, the island experienced a powerful industrial development, creating capacities — which we do not have today — that, at least theoretically, allowed that objective of substituting imports and gaining economic independence — not self-sufficiency.
However, despite having cheap financing, fair prices and relatively privileged access to practically captive markets, that objective of substituting imports was not achieved.
Here are three very basic hypotheses as to why.
Hypothesis 1: The role assigned to Cuba within the international socialist division of labor did not favor the import substitution strategy.
There was undoubtedly a bias toward specialization in primary goods, however, if the agreements signed by our country are reviewed, it is possible to verify the significant opportunities that this relationship provided.
In 1976, Cuba and the USSR signed a new agreement on economic and scientific-technical collaboration, which covered the period from 1976 to 1980. This agreement established mutual cooperation in the branches of energy, non-ferrous metallurgy, oil refining, light industry, irrigation, drainage and soils, geological prospecting and other equally important areas. The start of work on a steel plant and an atom-energy plant was also established, and a minimum purchase price for sugar of 30.40 cents per pound was set, the price of which was established on sliding scales, that is, according to the prices of goods from the USSR, which we were to buy.
Hypothesis 2: Import substitution strategies did not achieve their objectives because there was a lack of consistency between the policies implemented and the instruments used.
A review of tariff policy and exchange rate policy could shed light on this matter. It is true that an overvalued exchange rate and “easy” access to manufactured products make it difficult to achieve effective import substitution.
Hypothesis 3: The U.S. blockade was a negative factor in the aim of achieving an efficient import substitution process.
Having limited access to certain markets and products that could have contributed to import substitution is a reality that is difficult to quantify. However, the same blockade imposed by the largest market in the world, just 90 miles away, served as a “protective barrier” for the nascent Cuban productive sector. That opportunity is also difficult to quantify.
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In short, at that time we had very favorable trade relations for some of our products, credits under excellent conditions and protection in terms of the most efficient and productive foreign companies, an acceptable productive capacity and cheap energy, and yet we did not achieve effective import substitution.
It is likely that one of the most difficult tasks that will have to be assumed again at some point will be to design an import substitution policy that allows us to advance towards a greater degree of economic independence. This time, we will not have favorable trade relations, nor soft credits with grace periods that give us a break, nor cheap energy and we will be within a very competitive world, dominated by large transnational capitalist companies. This time we do not have that capacity to respond that our productive system once achieved and we are still submerged in imbalances that make that architecture more complex. Just to give an example, the weakness of our productive system requires almost massive inputs, the devaluation of the national currency ― the same one that favors exports and benefits a group of national enterprises that export ― makes those inputs necessary to reactivate/relaunch/modernize our productive system more expensive. What to do?
But if we want to move forward, along with efficient export promotion and export substitution, we will need an import substitution policy that takes advantage of the strengths we still have, that brings together and incentivizes all agents/actors in the aim, that generates and respects commitments and produces the essential trust. That is why I venture to say that the import substitution policy only makes sense if it is an essential part of a productive development policy for the country.
Author
Dr.C Juan Triana Cordoví
