Friday, December 31, 2010

Translation: Economy of commands or earnings? (1)

Coinciding with the beginning of the three-month-long public debate on the Draft Economic and Social Policy Guidelines of the Party and Revolution, the following two-page interview with one of Cuba's veteran economists appeared in Juventud Rebelde. It's a fascinating and revealing interview.

Jose Alejandro Rodriguez, like Luis Sexto, is a popular and fearless critic in the Cuban press. As well as critical commentaries and interviews, he compiles the section of the paper dedicated to reader's complains about official incompetence and corruption.  

Due to its length I'll post this translation in two parts.  

Economy of commands or earnings?

By Jose Alejandro Rodriguez

Juventud Rebelde, December 12, 2010

Translated by Marce Cameron

Dr Joaquin Infante, a wise and realistic man, recipient of the National Economics Prize, reflects for Juventud Rebelde on one of the key urgencies of the country: that the economy shifts from a crippling administrativism to an analysis of financial management.

Pushing 85 years, he has the neurons of a prodigal young university student; as if half a century devoted to the Cuban economy, from the manager's desk as well as research and teaching in academia, were not enough: two worlds that hardly ever converge. Generous, because he has always believed in the potential efficacy of socialism despite the lurches and the ups and downs it may have given us. Loyal, with that authentic loyalty of those who speak up and defend their views.

Joaquin Infante, Doctor of Economic Sciences, answered the questions of this reporter, feeling himself to be judge and jury of the rugged paths of the Cuban economy to date, and of its challenges and destiny henceforth.

Cuba looks at itself in the mirror through the analysis of the Draft [Economic and Social Policy] Guidelines of the [6th Communist] Party Congress. What are the implications of a shift from administrative management to financial management of the economy?   

Administrative management of the economy has a long history, from when we inserted ourselves into the "actually existing socialism" of the USSR: the cult of plans for material output, not of monetary values, of financial balances. We became accustomed — the country as a whole, enterprises and citizens — to always covering deficits and deficiencies whether or not results were obtained.

Finances smacked of capitalism to us, and this led to an extreme centralisation of planning and economic decision-making. With this rigidity and inflexibility, finances cannot function. This is reflected in the fact that we still have a monetary exchange in which convertible Cuban pesos are exchanged one-to-one with regular Cuban pesos in the state sector of the economy. The decision to export or import doesn't take into account the true value of the currency, nor does it allow us to know the true costs of production, of what is exported and imported.

Given the urgency of increasing exports and substituting imports, there must be a true exchange, not this fallacy of one [regular Cuban] peso, one dollar. In this way, exports will be stimulated and imports will become more costly. In a decentralised fashion, the enterprise analyses and decides on the basis of its real costs, and the exchange rate has a bearing on the firm's analysis because this is the starting point for measuring its real costs.        

How does the cult of the material economy, to the detriment of financial accounting, result in inefficiency?     

Look, when I was the director of the state budget, in the 1980s, at least we only subsidised the products sold to the population at prices below their cost. But later on this deteriorated, and the budget began to subsidise thousands of products and productive activities. [The budget] was a rationed goods store. If you subsidise all production, nobody knows the cost of anything. So one of the key changes is that losses will no longer be subsidised. Thus, the enterprise will be obliged to become more efficient. Now you'll see how the director of the firm wants accounting that provides him with rigorous data to obsessively keep track of the costs.     

But this implies a decentralisation of power towards the enterprise system. If your hands are tied so that you can't reward work excellence and quality; if [some] funds from earnings cannot be kept in the enterprise, as has been the case up to now, and everything goes up [to the ministerial level]...

This is the path of updating the [economic] model. Because until now, with the extreme centralisation, everything up to hard currency was included [in centralised planning]. Gross income was centralised, not net income. This would not even guarantee you simple reproduction of the costs you incur. This is just comfortable inertia. Will we now be prepared for such changes, after so many years of being padded by a centralised economic set-up?

The change of mentality is complex, if you were accustomed to them demanding that you measure production in physical units. Why, then, does the peasant, without knowing anything about economics, not suffer losses, and is profitable? When you delegate powers and measure by earnings, by efficiency and efficacy, the producer responds.

One sphere in which we need to be more flexible is wholesale pricing. It's inevitable that if I cannot have losses, I have to adjust these prices, which must be agreed to between firms. If I must be profitable and so must you, then we'll have to come up with a price that benefits both of us. Why must so many prices be decided by the Ministry of Finances and Prices?

But this implies that retail prices must also be flexible...

This is another matter. The transformations will be by successive approximations. First we have to change the type of exchange in the state sector, because the material economy continues to be: I assign you so many tons of fuel, even though you may not be efficient. Now, the price of fuel must be felt by the enterprise.

There needs to be flexibility in the prices, I repeat; but first the costs must be known. And the prices will need to change, this is life. But it's clear that the process of change will not be overnight.

Everything seems to indicate that we are moving towards a more rational socialist economic model. But in the immediate period ahead, until this process bears fruit, won't the updating involve difficulties and sacrifices?

We communists must be prepared to explain the situation that is brewing to the population, with sincerity. My understanding is that there will be an impact in 2011 and part of 2012. But we have no alternative but to straighten out so many things. If we don't do it, then we'll lose the socialism that has cost us so much and that we have given so much for. But in 2013 we'll start to see the benefits, of this I have no doubt.

Logically, with an economy that doesn't prosper, how can the social programs be sustained?

This is what happened in the last few years: much attention was given to the non-productive sector while the productive sector was abandoned.

You are one of the economists and accountants called upon by the Party and the National Association of Economists and Accountants to assist with the debates on the Economic Guidelines. Tell me, concretely, something that concerns you with regard to the old perception that predominates among many people.   

Precisely this material conception of the economy. If they talk about productivity, they do so in physical units per worker. This is one of the most serious problems: we have not been taking into account financial values, which are those that reveal the health of an economy. It's not the same when sugar is six [US] cents [per pound] on the international market as when it's 30. It's not the same for a country to sell sugar of the highest quality, as to search for a buyer for second or third-grade sugar.

Part 2

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