Published Jan 2012
When looking at the history of Cuba, it makes no doubt that the independence is its most important cornerstone. After centuries of colonization by different masters (Spanish, then American), the war for independence came as one of the events that forged the Cuban identity.
After the Cuban Revolution succeeded in early 1959 and the new socialist government was formed in 1961, the Communist Party of Cuba was created in 1965 from the unification of different revolutionary groups. In the thirty years that followed the country worked on its core values of social equality, justice and national & cultural independence.
Building a socialist country
The main axes of development for Cuba stress the importance of access to education and health care as well as the improvement of gender equality (important for a socialist country), and the elimination of poverty. The end result is somewhat more mixed.
Indeed, Cuba has a particularly high HDI (Human Development Index) for a developing country, even more so in comparison to its GDP per capita. When taking net income as a measure, it makes no doubt that Cuba still has high levels of poverty. So in a way there is equality in poverty - in the population’s low income on average - but no traditional sign of poverty such as education or health care (medicine in Cuba is one of the best systems in the world).
Role of the US in the history of Cuba
Right after the victorious revolution against Spain in the 1890s, the US came in with its army and instituted years of military rule whenever it was necessary to maintain stability in what became in effect a new colony. It was obvious that for these sixty years the Cubans did not have a tremendous amount of love for Americans, which eventually led to the 1959 Cuban Revolution.
The role of the USSR
When Cuba joined the Soviet trading bloc in 1962, it was a means to bypass the total economic embargo imposed by the US, and engage in the export of foodstuffs, sugar, fruits and some manufactured goods. For thirty years Cuba enjoyed fixed trading prices that were very profitable as well as international support from the USSR that made up a good share of its GDP.
In 1991, when the Soviet bloc collapsed, Cuba’s GDP plunged by over 30% in two years along with plummeting exports. Yet the full embargo from the US was maintained (they represented such a threat… with their nuclear fruits and sugar) and Cuba was able to recover by trading and developing tourism from Europe, Canada and its neighbors in Latin America.
Cuba on its own
With this first wave of reforms, the state remains the main pillar in the economy but new local players are allowed, including foreign companies. If this first draft of capitalism has created the first noticeable wealth gap in the country, the government has been trying to redistribute the riches by taxing companies and increasing social spending. In the last fifteen years, many things have changed and even more so with the outbreak of the 2008 global recession and its financial crisis.
International trade and macro-economy
In some respects, when looking at the history of Cuba, the opening up of the economy looks like what happened in China (“normal, they’re both commies” you’d say) but it also resembles South Korea and a little bit of Japan during its early development. The place of the government in the economy has been central and is there to restrict and temper the influence of the market. This way it can (try to) steer the development of the country in a certain direction. This is regardless of whether you consider the direction to be good or bad.
Cuba has opened its economy by looking to attract FDIs (foreign direct investment), liberalizing international trade (to a certain extent) by slowly reducing tariffs on imports. It has also set up free trade areas and reformed part of its legal institution and management system to make all this trade possible and fit the new economy. Along with this came measures to re-balance the country’s budget deficit and keep inflation under control as it tends to go out of control when major economic reforms like this happen. This is especially so when a communist country tries to convert to capitalism. To fit the new model, labor laws had to be changed in terms of lifelong employment, labor protection etc. Yet don’t be fooled, Cuba remains a socialist country in many ways and attempts to remain truthful to its founding principles. However it remains in a delicate financial situation.
Outcomes and setbacks
The direct result of these measures was that the Cuban economy started to recover and GDP was growing again. Exports were up, but in very specialized industries so there were not enough jobs created for everyone. The fiscal deficit was brought back to a decent level at the cost of a reduction in government expenditures and social transfers to the population. If the socialist aspect of the country has to be reduced, the least what the government should do would be to promote entrepreneurship.
But when it’s barely legal to set up a private business and when
there is no regulatory institution or market and furthermore authorities
are suspicious of commerce, then the locals are left with no other
choice but to live in poverty in Cuba.
Despite rising wages, Cuban workers were still earning less in the
1990s than before 1991 when they lost support of the USSR. But as the
economy was opening and growing, so were inequalities with people
earning very different amounts of money. Where Cuba remains an exception is that it did not apply a
textbook-case reform as usually recommended (or pressured) by the IMF
and/or the World Bank.
How so? For many years the government remained somewhat loyal to its founding principles and cared about conserving its social security system and other social institutions. This is the reason why even today Cuba still ranks among the countries with a very high Human Development Index.
Note: if you're hungry for more, you can find here a timeline of the history of Cuba.