Cuba determined to perfect statist economy

Marc Frank in Havana
Financial Times
June 23 2008

At the recent metal workers’ union congress in Havana little seemed to have changed since Fidel Castro, former Cuban president, became ill almost two years ago, temporarily handing power to his brother Raúl before resigning and leaving the country’s leadership to him last February.

There was no jockeying among cadres for a piece of privatised industry pie. There was no talk of competition, markets, strikes or other action against management, or turning state-owned businesses into co-operatives. Speeches calling on members to work harder for Cuba, Fidel, Raúl and revolution resounded through the hall as they have for decades.

“The key is in perfeccionamiento empresarial” – perfecting the state company system – read the banner headline in Workers, the trade union federation’s weekly newspaper.

The union meeting was the latest evidence that a debate fostered by Raúl Castro has for now been settled in favour of those who want to improve one of the world’s most statist economies – not dismantle it – using a business model developed when the president was defence minister to improve the performance of armed forces suppliers.

Perfeccionamiento empresarial is based on adopting modern management and accounting practices, often gleaned from the study of private corporations, for state-run companies. It grants management more authority over day-to-day decisions and imposes more discipline on workers while also increasing their participation in decisions and incentives for labour.

“Perfeccionamiento empresarial has no exact analogy in capitalist economies and is not borrowed from other socialist countries’ models of reform,” Phil Peters, an expert on Cuba at the Lexington Institute in Virginia, wrote in a study of the military’s economic model.

Raúl Castro signed a 200-page law last August ordering all 3,000 state-run companies to adopt the model. He also promoted General Julio Casas Regueiro, who was in charge of the military’s businesses, to defence minister and top spots in the Communist party and government when he officially became president on February 24.

The policy does not contradict Raúl Castro’s recent moves to lift restrictions on the use of mobile phones, computers and other goods and services, nor partnerships with foreign companies and more private initiatives. The bulk of the economy and its core industries and finances will remain in state hands.

Raúl Castro is not waiting for all companies to adopt his model – a lengthy process of sorting out bad books, Soviet-style management and paternalism.

Cuba’s economy is on a better footing than in the 1990s. Foreign exchange earnings are relatively strong due to the export of medical and other professional services – mainly to Venezuela – as well as tourism, high nickel prices and soft Chinese loans.

But the state has had problems investing these revenues through its many companies, many of which suffer from poor accounting and management.

“Perfeccionamiento does not aim to turn Cuba into a China or Taiwan in terms of level of development and integration into globalisation. In the end, the objective is political,” said Frank Mora, Cuba expert at the War College in Washington.

“Raúl Castro needs to defuse the social, economic and political pressure of rising expectations and increasing food costs by implementing and broadening a set of very focused economic reforms.”