11 feb 2020
Sixty years of meager human progress in Cuba.
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Monnery: Human Progress in Cuba and Hong Kong, Pt. 2
By Neil Monnery
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As Fidel Castro progressed slowly toward Havana in the first days of 1959, he was met by huge crowds of enthusiastic supporters. The ex-president, Fulgencio Batista, had fled in the early hours of New Year’s Day to the Dominican Republic, accompanied by various supporters and an estimated $700 million in cash, art and bullion. With a high degree of corruption, the brazen presence of the U.S. mafia, and the use of violence to ensure control, Cuba’s crony capitalism had little support, even from its previous backers in the United States. Batista had fallen and, for the cheering crowds, the revolution was a chance to replace a system that enriched a small corrupt clique with one that promised to deliver human progress to the Cuban people as a whole.

 

Castro had expressed little by way of an economic agenda other than his commitment to land reform, greater democracy and better education. It was a program that made it easy for him to ally with others. When he took control, he even appointed a liberal president and prime minister. Six months after the revolution (July 1959), Castro could assert, “I am not a communist and neither is the revolutionary movement.”

 

But Castro’s land reform was getting bogged down and Cuban government was splintering as varied interests within it diverged on policy questions. Escalating conflict with the United States highlighted the need for powerful friends. As a consummate politician, Castro knew he could not leave a policy vacuum. To create his new economic plan, he turned to an unlikely source - his deputy in the revolutionary army, Che Guevara. Better known as a revolutionary fighter, Guevara would run the land reform program, be the President of the National Bank of Cuba, Minister of Industry, a member of the National Directorate for the Economy, member of the Council of Ministers, and chief negotiator with the communist bloc.

 

Guevara had no doubt as to the cause of Cuba’s lack of human progress. It was not a lack of natural resources, for the country had fertile land with leading sugar, cigar and rum industries. It was blessed with the world’s second largest nickel reserves, the fifth largest production of cobalt, and reserves of oil, iron ore, copper, mahogany and cedar. Having studied Marx, Guevara was sure that the problem rested with what he perceived as Cuba’s “laissez-faire capitalism.” It was capitalism, he reasoned, that had impoverished Cuba despite its rich natural resources, thus showing “how deeply a people can enslave itself by economic means without realizing it.”

 

Guevara adopted several goals to direct human progress in Cuba. On prosperity he proposed doubling “the yearly income of each Cuban in ten years… [from] 400 pesos… to more than 900 pesos.” Unemployment was to be eliminated by 1962. Meaningful work, he reasoned, would spur human development rather than “alienating” workers from the product of their labor. Guevara launched initiatives to eliminate illiteracy, and to massively expand free education and health care. A “New Man” would emerge - informed, educated, healthy, gladly working to provide society’s material needs, and committed to socialism for all. It was, for many, an attractive vision.  

 

For Guevara, the means to deliver these goals included an extensive program of state planning and control. He argued that “planning is one of the laws of socialism. Without it there can be no adequate guarantee that all the sectors of a country’s economy will combine harmoniously.” And that “the sine qua non for an economic plan is that the state controls the bulk of the means of production, and better yet, all the means of production.”

 

Virtually all of agriculture, industry and commerce were nationalized; output objectives and pricing were set centrally, as were wages and employment levels; food and consumer goods were rationed, down to the level of how many eggs each person could buy each month; most savings were seized; investment followed a central industrial policy; foreign exchange and trade was controlled. It was one of the most comprehensive attempts ever implemented to use socialist central planning to deliver human progress. That approach largely continues - six decades later.

 

As an economic approach, it has failed. It also failed to bring progress to the people of Cuba. GDP per capita has risen at only around 1 percent per year, and that includes (now ending) subsidies from Venezuela and transfers from Cubans living in the United States. Two million people have emigrated to the United States and elsewhere. Despite its fertile land, Cuba imports two-thirds of its food. When the USSR subsidy ended in the early 1990s, GDP fell by a third and there was widespread famine. The inefficiencies of planning meant that Cuban productivity languished as other countries overtook even the previously competitive sugar industry. And planning also failed to direct investment to genuine economic opportunities. Instead investment has produced low returns and failed to deliver growth.

 

There has been some progress in healthcare and education, but not in housing. For example, Cuban life expectancy is reported to have risen from 64 in 1960 to 79 today. But similar improvements have occurred in other parts of the Caribbean. Unfortunately, Cuban “achievements” have come at huge opportunity cost, with education and healthcare each consuming around a tenth of GDP. In many other countries, the two are provided at less cost. Intriguingly, Cuban investment in human capital has not itself produced a better growth rate, indicating how important other factors – such as economic freedom - are in turning human capital into human progress.

 

Those who crowded the streets of Havana in 1959, hoping that the fall of Batista’s crony capitalism would usher in a period of human progress, have been sadly disappointed. Anyone interested in what prevents economic and human progress can learn many lessons from Cuba’s stagnation. Cuba joined the long list of countries where central planning and state ownership have turned out to be a detour on the route to progress and prosperity.

 

 

More from this series: 

Part 1: Hong Kong

Part 3: Comparison and Summary

Neil Monnery has recently published "A Tale of Two Economies: Hong Kong, Cuba and the Two Men who Shaped them (2019)." He previously wrote "Architect of Prosperity: Sir John Cowperthwaite and the Making of Hong Kong (2017)." He studied at Exeter College, Oxford, and at the Harvard Business School. Between 1983 and 2004, he worked at The Boston Consulting Group as a Director and Senior Vice President. He was Group Strategy Director of WH Smith between 2004 and 2014 and Chairman of Smiths News. He is a Director at Ashridge Strategic Management Centre.
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