“Those who work the land shall own it,” Land Reform Law, 1959.
On the verge of revolution: Cuban dependency to US
As the largest island in the Caribbean basin with a central location and geographic proximity to the US, Cuba, has historically fascinated the business world. Following the Spanish American War, significant US investments were made in Cuba. “From Cuba’s founding as a Republic in 1903 until Dec. 31, 1958, when the Batista regime abruptly collapsed, the country was for every practical purpose a U.S. colony, captive both economically and politically . . . The greater part of its resources—sugar, mineral rights, public-utility concessions, cattle lands—were controlled by U.S. capital”(Taber 1960). During this time, trade of consumer products such as coffee, sugar, cigars, and rum flourished, while the international-city-status of Havana attracted American tourists who boosted the economy by spending on restaurants, hotels, and casinos. Many American products were imported into the Cuban market, and even paper money was printed by the American Bank Note Company. Many people perceived the dependency to the US as exploitation, and Fidel Castro saw the opportunity to influence with authority.
Prior to Revolution: Cuban Standard of living
Fidel Castro led the Cuban Revolution, by amassing a revolutionary army, and promising the Cuban people that land and property that was for so long exploited by US corporations would be re-possessed. Prior to the revolution, 8% of all farmers controlled an estimated 70% of the Cuban arable land, while about 8% of the remaining land was farmed by 70% of the farmers. This significant gap continued to increase given that with such an unequal distribution of land, production was not at efficient levels, if not diminishing given that the number of small farmers declined. The reasons for this were lack of access to credit markets, lack of assistance in technological and legal issues, and market instability. The majority of farmers in rural areas lacked education, healthcare, running water, and electricity. “A survey by the Cuban Catholic Association in 1957, based on 2,500 rural families, found that 60% lived in huts with thatched palm roofs and bare dirt floors without running water or sanitary facilities of any sort. Kerosene lighting was used by 70%, with the remaining 30% having no illumination at all. Basic foods consisted of rice, beans and vegetables, with only 11% drinking milk, 4% eating meat, and 2% having eggs. The result was a caloric deficiency of 1,000 units daily. These figures are substantiated by the Cuban government’s own 1953 census…in rural dwellings, 96.5% had no refrigeration, 90.5% had neither tub nor shower and 85% had no inside or outside water piping” (International Socialist Review, Spring 1960). Given that Cuba was relying heavily on imports for food, self-sustainability was intended to be achieved through reform.
Revolution for Reform
Sierra Maestra (1958), and the First Agrarian Reform Law (1959)
The Cuban government envisioned economic and social equality through the redistribution of Cuban wealth. The first taste of land reform came in November 1958, when Law No.3 of the Rebel Army was circulated (wikipedia: Law No.3 Sierra Maestra) The agrarian revolution originated in the Sierra Maestra during the tension of guerilla warfare. Land was to be given to those who cultivated it. This set the foundation for the first agrarian reform which came with the revolution in May 1959. The result was the limitation of each person’s property rights to 1000 acres, (405 hectares).
“The Agrarian Law damages an insignificant section of the people but even these persons are not entirely sacrificed, as they will keep a considerable amount of land; their standard of living will not be seriously affected, and at the same time thousands of poor families will be benefited. We can very conservatively estimate that two hundred thousand families will receive these benefits”(Castro, speech 1959). In retrospect, thousands of families were given the opportunity to exit poverty. The largest property losses were towards “great land-owners”, to whom compensation was unfair, while land possessed by many for agricultural purposes today is owned by the state and is not used to the fullest of potential.
“When the Agrarian Law be entirely - applied, two million Cubans will have their income increased and they will become buyers in the domestic market, which will be the basis of our industrial development(Castro, speech 1959). According to Castro, the intent of the reform was to create purchasing power for a large population that did not have funds to enjoy certain conveniences taken for standard in developed countries. Besides capital equipment subsidies and Cuban labor, the key to implementing this reform was military authority. Therefore, even if many poor found the means to make agri-products themselves, many wealthy had no choice but accept the reform due to potential persecution by the junta. In retrospect, the means were not allocated as efficiently as possible, given lack of controls and a government fueled by private interests. (wikipedia: Cuba).
With the first reform law of 1959, 12000 farmers were expropriated, and compensated with bonds payable in 20 years earning interest at 4.5% annually (Castro, speech 1959). Many of the wealthy individuals whose property was nationalized so that it can be redistributed to the poor, were disappointed with this decision since their wealth evaporated from one day to the next. The government ended up obtaining 44% of arable and grazing land, by 1960. The effect of this was the tripling of small farmers from 45,000 to 160,000, while state farms substituted the large plantations. The state’s vision to develop the agricultural sector, was complemented by hiring fulltime, what otherwise were seasonal agricultural laborers. For these laborers the uncertainty from seasonal unemployment was eliminated, in addition to the benefits of social security, sick leave, free schools, medical care, and day care.
The decision-making institution responsible for implementing the agrarian reform, was The National Institute for Agrarian Reform (INRA).
Second Reform Law-1963
In 1963, a second agrarian reform reduced the private land ownership to 67 hectares per person. By 1965, a significant transformation had resulted, and 160,000 of all farmers owned and managed 20% of the arable land. By then, state farms worked 63% of the arable land.
The goal of the reform was proclaimed to be the promotion of agrarian cooperatives. According to a show broadcasting on NBC in Jan 23, 1960, “Everywhere a co-op is established a school springs up. It may be in a new building, or an old one, but it is formed . . . This is a cooperative tobacco farm in Pinar del Rio Province. Tobacco is Cuba’s second largest crop. This land now belongs to the workers . . . And these are new homes that have been built for the co-op workers. There are people in Cuba today moving into homes with plumbing who must be taught how to flush a toilet” (NBC-TV, Jan. 1960). The above mentioned suggests the modern infrastructure that the Cuban people benefited from by creating co-ops. Housing with toilet, and running water were some of the benefits that would allow this majority of the population to develop. But how did the Cuban government succeed in gaining access to the capital equipment necessary to make the agrarian reform a reality? The Soviet Union, in many ways assisted Cuba, and perhaps the greatest effect of the dependency was observed after the collapse in 1991. Before that, the Soviet Union backed up Cuba with up to $6 billion in aid annually, in the year before the collapse. In February 1960, the Cuba agreed to sell 5M tons of sugar over a five year period to the Soviet Union, while the latter would offer $100M credit for purchasing Soviet agricultural machinery.
Nowadays, Cuba has to work hard and innovatively to be self-sustainable. The effects within the modern business environment will discussed further on.
Up to today, there are four formations in which agricultural production can be categorized in. The more controlled enterprises include State Farms which claim social ownership and pay salaries to earners. These enterprises have priority towards inputs and expertise in technical, and financial issues. Workers get housing and many social benefits.
The Cooperatives of Agricultural Production (CPA), are glorified as the most efficient form of production with collectivization of ownership rights. Castro claims that these are established upon farmers’ decisions, and offer economies of scale amongst other benefits. The products belong to the cooperative, and salary is advanced payment. Most sales of produce are towards the state’s procurement agency, and surplus can be traded in the certain markets at market prices.
The Cooperatives of Credit and Services (CCS), are also collective in nature, but the assets belong the state as opposed to the people. This organization assists in the common use of infrastructure such as irrigation and warehouses, and equipment and credit services. Like the CPA most sales are to the state.
Certain producers who have not entered collectivized farms, are still left independent. Individuals who fall in this category are responsible for their own investments and own production, but the inputs are controlled since these aren’t entrepreneurs and cannot hire labor. This information suggests that in most instances, such individuals subsist unless they turn towards underground economies. Since the revolution and the communistic regime, individuals received rations for certain consumer goods. Since everybody received the same items, many individuals kept wanted goods, and traded or sold underground unwanted items such as cigarettes for non-smokers. Within any cultural context, habituation to certain practices creates the norm, and it is reasonable to suggest that after the reform, many turned towards unaccounted practices to come closer to satisfying their unlimited wants with their extremely limited resources.
The information mentioned above suggests that by labeling a reform as beneficial towards the social justice, many uneducated individuals can fall in the trap of being marketed with propagandistic techniques which ultimately lead to the manipulation of the masses, and ultimately to their social loss. Perhaps an examination into Castro’s reasons for reform, will reveal the desire for power that fuels this leadership. It is clear to make a correlation of this reform to political theory. A family farmer who is told the cooperative will increase gains for everyone will support the idea given that by nature, humans strive for continuous improvement with innovation towards convenience or lower cost. By marketing to all these farmers that they are entrepreneurs and responsible for making themselves enjoy a higher standard of living, and given that this population is very large, Castro succeeded in getting on his side a large group of supporters necessary for his longer leadership. The peasants who had no ownership rights represented 400,000 workers in sugarcane only, and having all the farmers on his side can prove more powerful of a weapon than nuclear weapons.
A potential benefit for not allowing a free market economy, in the name of social justice is that even if per capital land area is reduced, the value of land will not rise since land has no value beyond as a means of production. This can eliminate potential conflicts with economic and social groups. Of course, this will work only in theory since, even today many landowners whose land was possessed have deleterious feelings towards the government, and supporters of the government. Hopefully, such a scenario will not create civil upheaval amongst Cubans or Cuban-Americans in the near future.
In comparison to the pre-revolution era, it can be concluded that indeed the agrarian reform improved productivity relative to what farmers could gain before. But can that prove a strategy for long term sustainability especially given the competitively industrial times? Times have changed, and to keep up, farmers must be offered tools such as education to be capable of taking advantage of potential opportunities. Additionally, given that Cuba criticizes unproductive individuals, it can e inferred that middlemen are eliminated. But given that many times middlemen bring information or goods from places where they are needed less to places where they are wanted more, efficiency in this can be very important for potential reform to be successful, but that goes against communist principles. The solution should be that if credit and other services are not supervised with controls, middlemen will naturally spring to meet farmers needs.
.
Currently, the issue of the land reform and property rights still concerns the landowners whose property has been possessed. Besides agriculture, the country has looked towards new industries so that it can boost its GDP significantly. Given the embargo by the US, both the large market of the US and of US’s allies is eliminated, so Cubans have focused in services to attract direct investment for creating businesses. Given the high level of educated individuals, Cuba is known for its supply of doctors, who are even sent to Venezuela which requires assistance in health improvement, (in return for Venezuela’s oil). Medical tourism presents a great opportunity for the Cuban economy since it is estimated that by 2015, the 220 million baby boomers, (United States, Canada, Europe, Australia, and New Zealand), will require healthcare. The United States with 43 million people lacking health insurance, and with 120 million more lacking dental coverage reveals an ideal market (University of Delaware July 2005). It is recommended that along the lines of reform medical sector businesses can be stimulated through Free-Trade Zones and Industrial Parks. Such incentives can contribute significantly to international trade in and can attract important investors. Trade Zones can also be used to attract foreign investment, as long as companies can be guaranteed they will low risk towards nationalized assets. At the same time, the country’s resources will be used to generate cash flow, while new national industries are expected by-products. In addition, for companies wishing to export to Cuba and import Cuban goods, the free zones provide an opportunity. Such Free-Zones operate under the rules of 25% - 75% meaning that for every 100 dollars imported 300 dollars worth of goods must be exported from the operator and Cuba(cubafirst.com).
All in all, business must be promoted, but also ethics should be promoted. The Cubans mentality on productivity and underground economic activity create an ethical clash, but if Cubans are educated about non-communistic theories they will be more prepared to adapt to a total free market. If Cuba wants to attract direct investment it should focus on environmental issues besides medical sectors, since waste management and air pollution are very hot topics for developing countries. In fact, they should promote businesses that focus on conserving energy, (waste management and recycling), and should create incentives for the creation of alternative energy businesses. The creation of such businesses will absorb labor and that will take many from underground economic activities which can prove harmful for the long-term economic health of the nation.
WORKS CITED
land reform." Encyclopædia Britannica. 2006. Encyclopædia Britannica Online. 29 Nov. 2006 .
May 17, 1959. “On the promulgation of the Agrarian Law.” 27 November 2006.
http://www.marxists.org/history/cuba/archive/castro/1959/05/17.htm
Gitano, Henry. International Socialist Review, Vol. 21, No. 2, , Spring 1960, pp. 38-42.
Taber, Robert. “Castro’s Cuba.” The Nation. 23 Jan. 1960
World Wide 60. “Castro’s Year of Power,” NBC-TV. 23 Jan. 1960
Puerta, Ricardo A. “Organization and Performance of Cuban Agriculture at Different Levels of State Intervention.” Advanced Trading Corporation. Alvarez, Jose,University of Florida. < http://lanic.utexas.edu/la/cb/cuba/asce/cuba3/puerta1.html>
Wikipedia.org – “The economy of Cuba”
http://en.wikipedia.org/wiki/Economy_of_Cuba#Recovery
Unknown Author, Free Zones and Industrial Parks. 2002