From Economic Development of Latin America, 1970
Translated by Suzette Macedo
Singularity of the traditional Cuban economy
Cuba displays a number of peculiarities worth analysing separately in an overall study of the Latin American framework. Along with Puerto Rico, the island remained under Spanish rule until the beginning of this century, the colonial period having lasted almost a century longer in this area than in the rest of Latin America. When the Cuban people’s struggle to win their independence created impediments to US trade, the United States government used the conflict as a pretext for taking over the remnants of Spain’s former Empire in the Americas and Asia. Consequently, the Cuban National State started its independent life under the occupation of United States forces. This occupation has not yet entirely come to an end—the United States government still has a base on Cuban territory—and up to 1934 it could have been extended to the whole island at any time, ‘in the interests of the Cuban people’ as adjudged by the President of the United States, in accordance with the provisions of the famous ‘Platt Amendment’. The delay of almost a century in starting the process of building a nation-state, and the particular circumstances attending its emergence under the tutelage of a powerful neighbour, make the Cuban process unique in the Latin American context. However, Cuba’s singularity lies even deeper and its roots are to be found in the economic evolution of the island within the framework of the Antillean region.
The Spaniards first used the Caribbean islands as defence bases for their lines of communication with the mainland colonies. The indigenous populations, living at a rudimentary cultural level, were practically wiped out and extensive stock farming was established on the larger islands to supply the metropolitan fleets. From the seventeenth century, the smaller islands were occupied by the French and the English, who wanted to secure a foothold for an assault on the mainland. With a view to eventual penetration of the Spanish Empire, they encouraged white colonization of the islands they had occupied, founding settlements of small planters who combined the growing of subsistence crops with the production of tobacco and indigo for the European market. These settlements, which had been of political value to the metropolitan countries because they could provide colonial militias1 to be mobilized against the rich Spanish Empire, underwent profound changes during the latter part of the seventeenth century when the cultivation of sugar-cane was introduced into the islands by the Dutch settlers who had been driven out of the Brazilian Northeast. In fact, Dutch interests were responsible for developing sugar production in the Antilles. They financed sugar mills and the importation of slaves, provided technical assistance and guaranteed markets.
Sugar ushered in a period of great prosperity for the island settlements, which had formerly lived in conditions of extreme poverty. But prosperity had its price: the social pattern of the islands was profoundly changed. White settlers emigrated, or became small planters marginalized on the poorest lands, while large sugar plantations were established, worked by Negro slaves imported from Africa and owned by a small number of wealthy proprietors or corporations of shareholders who lived in the metropolis. The island of Barbados offers a striking example of this process: between 1643 and 1667 the number of landowners in the island fell from 11,200 to 745 and the slave population increased from 5,680 to 82,023.2 While the French and English West Indies were becoming vast sugar plantations with a dense population of African origin, Cuba remained a scantily occupied territory of large cattle estates and small tobacco plantations. This situation is explained by the fact that Spain was herself a sugar producer and that the international sugar trade was almost entirely controlled by the Dutch. Consequently, although sugar was the most important commodity in international trade for more than two centuries, in the Spanish colonies it was produced for local consumption only. In the first half of the nineteenth century important changes occurred in the Antillean economy. The Haitian War of Liberation (1791-1804) brought about the collapse of the export economy of a colony that was at that time the world’s leading coffee producer and one of the world’s major sugar producers. The abolition of slavery in the English colonies in 1832, and in the French possessions in 1848, did not radically alter the living conditions of the Negro population but it did produce changes in the agrarian structure. Wherever land was available, even if of poor quality, former slaves tried to establish themselves as small independent producers, becoming subsistence farmers on minifundios in much the same way as in Haiti. However, since land was generally in short supply or held by the big plantation owners, the pattern that tended to prevail was a system whereby former slaves were obliged to combine subsistence farming on their own undersized plots of land with some form of wage labour on the plantation whenever this happened to suit the owners. It should be added that with the rise of beet sugar production, which had started during the Napoleonic Wars, the Antillean product began to lose its leading position on the world sugar market, largely as the result of the protection enjoyed by beet sugar on the European markets. To these factors for change in the pattern of the Antillean economy must be added the remarkable expansion of the United States market, whose geographical proximity made it the principal outlet for the region’s exportable surpluses.
The expansion of Cuban sugar production in the nineteenth century took place with an eye to the US market, which was not bound by commercial treaty to other parts of the West Indies.3 In this way, close commercial and financial bonds were established between the United States and Cuba during the colonial period.4 The fight against Spanish rule, intensified after 1868, created a climate of insecurity for the big plantation owners with metropolitan connexions and facilitated the penetration of US interests. After 1901, with the elimination of Spanish power, and the American military occupation which lasted, with a number of interruptions, up to 1908, penetration of US business groups was consolidated and extended and, at the same time, the island’s economy was completely transformed. Thus, in the short space of two decades—between 1901 and 1920—the output of sugar rose from 1.5 million to 5 million tons, while radical changes were introduced into Cuban economic structures. Cane plantations spread rapidly and the amount of land controlled by the sugar corporations, largely foreign-owned, increased even more dramatically. Small planters were relegated to the tobacco-growing areas or to poorer lands on the lower slopes of mountains. The bulk of the rural population became agricultural labourers on the plantations, while the shortage of labour in the harvest season gave rise to a current of immigration mostly from the neighbouring islands. 5
A comparison of the different forms of sugar economy in the Antilles will help us to identify certain distinctive features of the pre-revolutionary Cuban economy. To simplify, it can be said that three types of sugar economy existed in the region. In the first, which lingered on in Cuba until the end of the nineteenth century, we find slave labour, in the second a combination of rural wage earners and subsistence minifundio farmers, and in the third the prevalence of wage workers. The slave system, characterised by a marked rigidity in production costs—all costs were fixed since there was no difference between investments in equipment and in the labour force—was part of an economy completely geared to foreign trade. The system introduced into the English and French Antilles after the abolition of slavery brought an important element of flexibility, since the labour force could pay for itself, in part by growing subsistence crops. This greater flexibility of costs enabled sugar-cane growing to survive on several islands despite the impoverishment of soils and the difficulties created by the advent of beet sugar and the consequent increase in price instability.
The third type of sugar economy established itself in Cuba in the last century, spreading throughout the island once the last vestiges of slavery had disappeared.6 Given the abundance of land suitable for semi-extensive use, it was possible to pay wages that were sufficiently high to offset the disadvantages of seasonal employment for the large majority of the labour force. This situation reflected the high rate of profits in the industry on the one hand and the relatively low-cost of labour on the other, made possible by historical circumstances and by the inflow of immigrants from colonial and semi-colonial areas. It was likewise the result of the very special position of the industry since the high profitability of the sugar corporations was also based on a particular type of integration with the US economy whose negative aspects were to become evident only at a later stage, when the sugar economy was no longer in a position to absorb the increase in the labour force. It then became obvious that the Cuban sugar industry had to rely for its competitive edge on the availability of cheap labour, in other words on the almost complete lack of alternative sources of employment. The development of the sugar industry in Puerto Rico, where integration with the US economy took a different form, underlines the importance of this point. Since workers had the possibility of emigrating to the United States and since industrialisation created new employment opportunities in the island itself, there were serious obstacles to the development of the Puerto Rican sugar industry, whose output fell short of the basic quota it had been allocated by the US government. Consequently, despite a substantial rise in the productivity of labour—the number of workers on the cane plantations fell from 124,000 to 49,000 between 1934 a 1959—Puerto Rican sugar production has declined since the Second World War.7
In the case of the Cuban economy, the cycle of expansion based on the export of sugar came to an end in the first half of the 1920s. This expansion was accompanied by a rise in the export coefficient and growing integration with the United States economy. At one point the sugar industry contributed as much as 30 per cent to the domestic product and accounted for 80 per cent of the export total. The situation of the Cuban economy during this period was in some respects similar to that of the Venezuelan economy in the 1950s, with the difference that, whereas prices on the international oil market were remarkably stable, sugar prices were—and indeed still are—extremely unstable. In the period immediately following the First World War, the price of sugar rose steeply, reaching a record level of 22 cents a pound, only to fall in the early 1920s to 4 cents a pound. The ensuing crisis revealed the vulnerability of the economic system that had been created in the country. Economic activity became increasingly dependent on US financial groups. The country’s banking network was taken over largely by foreign banks and the very existence of an independent monetary system was seriously challenged. Cuba sheltered behind a preferential tariff system, exporting her sugar to the United States under conditions similar to those obtaining in the Lesser Antilles, whose exports were given preferential treatment by the respective metropolitan countries. The Reciprocal Trade Agreement of 1903, which had reduced US tariffs on Cuban sugar imports, also gave products from the United States preferential entry into the Cuban market. The system worked along the lines of a free trade area, enabling each country to specialise in those products it was best able to supply. In practice, however, Cuba was able to supply one product only, while the United States could produce a range of hundreds, if not thousands, of products. Moreover, the prices of such products were set in the US market, which meant that on average they would not fluctuate too far above or below the level of wholesale prices in the country, whereas sugar prices were determined in the international market (the situation obtaining before the quota was fixed) in terms of the available surpluses in a large number of countries producing mainly for their own home markets. To accommodate fluctuations in external demand, sugar producers kept large tracts of land in reserve, which meant that land tended to be permanently under-utilised and its yield neglected.
The problems created by tariff disarmament vis-a-vis the United States could have been less serious had Cuba possessed an independent monetary system, a basic condition for the implementation of a policy designed to defend the domestic level of income. Cuban banks, predominantly foreign-owned, operated with a high liquidity ratio and held a large part of their assets in foreign currency. Consequently, a fall in the value of exports could create unemployment without causing serious balance of payments problems. This situation contrasted sharply with that in other countries of the region where a contraction in the value of exports had drastic effects on the balance of payments, forcing devaluation of the exchange rate and indirectly creating a protection mechanism akin to a rise in tariffs. The Cuban economy operated as if its circulating medium consisted entirely of foreign exchange, while the banking system enjoyed a liquidity ratio of 50 per cent. In sum, the country lacked the minimum decision-making autonomy necessary to initiate the processes that form a national economic system.
Reaction against the situation outlined above came in the latter half of the 1920s, leading in 1927 to a change in tariff legislation that became the starting-point for the first attempt to diversify the Cuban economy. The period saw the beginning of an industrialisation process resembling the process started in other Latin American countries in the late nineteenth century under the impulse of expanding exports. In Cuba, however, the process had barely begun before the 1929 crisis, which assumed catastrophic proportions for that country because of the complete lack of defence mechanisms. Following the announcement of protectionist measures by the US, the bottom fell out of the sugar market. With prices plummeting to incredible levels—the lowest level for 1932 corresponded to 2.5 per cent of the highest level reached in the preceding decade — the country’s economic life was almost paralysed and the resultant unemployment rate can seldom have been paralleled in any other country.
Industrialisation being virtually non-existent, Cuba was in no position to handle this crisis like the other countries in the region with similar levels of per capita income and domestic markets of comparable size. In other words, the minimum conditions for starting an import substitution process had not been created. It cannot be asserted categorically that if Cuban industrialisation had begun a decade earlier the country’s evolution in the depression period would have proceeded along the same lines as that of the region’s more developed countries. None of these countries was so closely bound to a dominant economy as to lack an autonomous monetary system, which was the case in Cuba. Import substituting industrialisation in this period was promoted through inflation and exchange controls, a situation hard to envisage in the case of a country whose banking system was controlled from abroad. None the less, the crisis proved to be an acid test and the considerable influence exercised by foreign interests in the country is evident in the fact that away out was sought in the direction of closer integration with the US economy.
In 1934 the US government abrogated the Platt Amendment as part of President Franklin D. Roosevelt’s Good Neighbour Policy. The United States kept the Guantanamo military base but there was no longer any legal justification for the US government to exercise the right to intervene that it had claimed since the defeat of Spanish power. In that same year, the first steps were taken to link the Cuban economy more intimately to that of the United States, on a basis which experience had already shown to be non-viable. To counter the wave of protectionism that had swept the United States during the crisis, leading to a reduction of imports of Cuban sugar in favour of domestic production, including that of Puerto Rico and Hawaii, Cuban interests demanded a quota on the US market. As a result of this pressure, Cuba was assigned a basic quota of 28 per cent of the US market under the Costingan-Jones Law of 1932. The quota signified a guaranteed market share but this was substantially smaller than the proportion accounted for by Cuban sugar in the past. On the other hand, it created a new form of dependence: quota exports of Cuban sugar were sold at American market prices, which were well above prices obtaining in the world market and also more stable. In other words, Cuba was protected by an US government policy that had been designed to organise the domestic commodity market and to defend the real income levels of the country’s farmers. In the same year that American legislation extended to Cuba some of the benefits arising from the New Deal Policy, the Cuban government signed a complementary trade agreement with the United States in which tariff disarmament was taken a stage further: the margin of preference in favour of US exporters was increased and new items were added to the list of products to be given preferential treatment.
Thus, just when the Cuban State was taking a decisive step towards consolidating its position following the repeal of the Platt Amendment, the Cuban economy became more dependent and less viable. Industrialisation was sacrificed—in this period several recently built factories were demolished and the equipment was sold to other countries in the region that were fostering the development of local industry—in favour of strengthening the sugar economy within a framework that implied its stagnation. The only rational basis for the guidelines implicit in this economic policy would have been a growing integration with the United States along the lines of the pattern that was to prevail in Puerto Rico after the 1940s. As it was, the stagnation of the sugar sector meant that land, labour and capital resources were considerably under-utilised. Since no Cuban product could hope to compete with US imports, these resources could not be utilised. The Puerto Rican solution was to subsidise investment in the island with funds provided by the US government, while at the same time encouraging the absorption of surplus manpower by the United States. In fact, within the space of a quarter of a century, the Puerto Rican population living in the metropolis equalled that remaining on the island.
In Cuba, where political developments had been moving towards the consolidation of a sovereign nation-state, the guidelines adopted in the early 1930s led to an inevitable impasse in the economic sphere. The export sector, on which all other economic activities were dependent, made no progress between the 1920s and the 1950s, while the country’s population doubled. The economy tended to adapt itself to conditions of permanent underemployment of the country’s labour force, a situation which led to the reinforcement of trade unions committed to defending stability in employment. Capital resources formed in the country tended to find their way abroad and the economy’s investment rate was extremely low. Part of the resources available were invested in land, which was used to establish extremely unproductive cattle latifundia. Thus, the Cuban economy in this period was characterised by the persistence of a high unemployment coefficient, the export of capital, and the under-utilisation of agricultural lands.
In the years following the Second World War, systematic studies of the Cuban economy undertaken by the country’s economists and by international agencies drew attention to its intrinsic irrationality. As a result of these studies an attempt was made to provide the Cuban State with wider means of action, particularly at the monetary level. The Cuban National Bank was founded in this period and a number of other institutions were established with a view to promoting the country’s development. After 1952 the government began to intervene directly in the marketing of sugar, through the National Bank. Unsold stocks were withdrawn from the market along the lines of the coffee policy adopted in Brazil at the beginning of the present century. The aim of this policy was to prevent crop fluctuations attributable to climatic factors from having an adverse effect on world market prices, while at the same time cushioning the impact of income fluctuations in the export sector on the economy as a whole. In addition to the attempts made to regulate the export sector, the Cuban government sponsored investment in the agricultural, livestock and manufacturing sectors with a view to promoting import substitution. It has been estimated that between 1954 and 1958 fixed capital investment in the manufacturing industry, financed largely by the State, amounted to 250 million dollars. Of this total, 68 million dollars were invested in oil refineries and 17 million dollars in the chemical industry. The pulp and paper industry, using cane bagasse as its raw material, began to develop in this period.8 However, despite the new bearings in government policy, the annual growth rate of gross domestic product per capita between 1948 and 1958 was only 1 per cent, as compared with a rate of nearly 2 per cent for the region as a whole. It should be added that the counterpart to the State’s efforts to finance the private sector’s investments in the 1950s was a marked increase in the external debt and a no less considerable decline in the country’s gold and foreign exchange reserves. Cuba was on the verge of a crisis which would have forced the government either to back down on its investment programme in order to build up its reserves of foreign exchange—at the cost of aggravating unemployment—or to take a decisive step forward in the direction of doing away with the preferential system and the reciprocity agreements that were subjecting the Cuban economy to semi-integration with the economy of the United States, in conditions tending to widen the gap between the living standards of the Cuban and American people.
- Leon Vignols, ‘Les Antilles Françaises sous l’Ancien Régime‘, Revue d’Histoire Economique et Sociale, 1928.
- V. T. Harlow, A History of Barbados, Oxford, 1926, p. 310.
- For data on Cuban sugar exports during the nineteenth century see Ramiro Guerra y Sanchez, Azúcar y población en las Antillas, Havana, 1944.
- Cf. Julio Le Reverend, Historia Economica de Cuba, Barcelona, 1972, pp. 205-6
- 5 Cf. Ramiro Guerra y Sanchez, op. cit.
- Temporary bond labour was introduced in Cuba at the end of the nineteenth century, when Asian workers were brought in; it was of little significance, however, either in terms of labour relations, or as a source of manpower.
- Rafael Pico, Puerto Rico: Planificacion y Action, San Juan de Puerto Rico, 1962.
- For a retrospective analysis of Cuba’s industrial development see ‘El Desarrollo Industrial de Cuba’, a document presented by the Cuban government to the Latin American Symposium on Industrialization organised by ECLA in March 1966, and included in the ECLA publication of that name.