mabroda May 22nd, 2010
Day seven and we actually leave Havana. We are scheduled to visit a rural community that is approximately an hour and a half drive north of the city. Along the four-lane, well-maintained road is a lush and what appears to be fertile land. Filtering through an eastern and southern African perspective, I am struck by the number of tractors (albeit old but definitely working) and cement houses with electricity. Less developed certainly covers a wide variation of living standards and electricity for Ethiopian farmers is only for the privileged few. Certainly this country has progressed far beyond the reliance of subsistence agriculture.
We arrive at La Terrazas (or the Terraces) and are greeted by our guide for the day. Cuba Libres are our welcome drink and it is always nice to have a mixed drink before noon. We are introduced to what is being called a Biosphere. While there is always the english/spanish translation issue I think of a Biosphere more as a self-contained ecologically balanced environment. This is more of a small community that relies on tourists wishing to see something outside Havana. The area was a former coffee plantations settled by French fleeing the Haitian revolution of the late eighteenth century. The coffee farming proved unsuccessful, partially due to soil erosion off the hillsides, and by 1850 or so most of the French had left. While farmers lived in the area, the current government undertook a significant environmental and community planning project that began in the early 1970’s. The housing is multifamily cement centered around two smallish ponds. The buildings fan out and up the gentle hills and are all relatively well maintained. The population consists of approximately one thousand inhabitants with the majority of the adults involved in the tourist services provided here. There is an agricultural research station but we are not shown the facility and cannot see it from the road. We spend the day visiting a school, the former coffee plantation, having lunch and swimming in a small river. Alison impresses all of us with her reckless abandon as she dives off some rocks into the swimming hole. The early evening ends with a sleepy ride back to the capital.
Of interest to me during the day were some discussions centered upon daily life in Cuba and the renaming of the school that we visited. The school had been called “the fifth of May” but was now called “school of the Eastern Republic of Uruguay.” While the fifth of May is Karl Marx’s birthday the latter reflects sponsorship of the school brought about during what is referred to as Cuba’s “special period.” This period, which begins in approximately 1993, reflects the end of beneficial trade agreements with the Soviet Union and a resulting 35% decline of GDP. The country responded in many different ways ranging from issuing one million bicycles to Havana’s residents because of the fuel shortages (these currently sit unused as the country has reverted back to bus and car transportation) to sponsorship of local school by other country’s governments (hence the Uruguay name). This special period also raises the broader issue of the economic struggles Cuba has experienced and their relatively pragmatic responses. The U.S. trade embargo, the collapse of the Soviet Union and the current realization that tourism can bring much needed revenue are all challenges that the government has handled relatively well. While it is unclear about the true popular support for the government this does not appear to be a country seething in frustration for a change in leadership (ie, Moi’s Kenya or the current situation in Ethiopia). The current phase of embracing tourism, begun in the mid-nineties, seems like another interesting response to the realities of their international trade (people are quick to point out that sugar cane is no longer a primary export). In order to facilitate tourism, while being relatively consistent with some socialist ideals, Cuba has set up two economies. The country’s use of multiple currencies is both odd from a socialist perspective but also fairly effective from an economic one.
I have a pet theory that socialists don’t handle financial relationships well. Marx spoke at great length about production and proletariats but he was relatively less clear about financial issues. My take is that socialists set exchange rates and forget about them for decades. However, if you think about it the exchange rate is the ultimate price for everything in the country (at least from a foreigner perspective). Cuba has a problem with this because the pricing mechanism is heavily manipulated for social purposes. One of the more stunning examples is the inability of residents to sell their houses. If they want to move they literally have to find someone to trade with. Of course, the typical Cuban receives a monthly ration of general food supplies and a small monthly wage to augment these purchases. Allowing tourists to enter this heavily subsidized pricing world could create potential havoc with resources. In response to this dilemma, the government has created a two-tiered currency system that includes local pesos for Cubans and convertible pesos for tourists and wealthier locals.
Upon entering the country we are instructed to exchange our currency into Cuba convertible pesos. They are referred to as CUC (pronounced kook) and represent the currency for use by tourists and wealthier Cubans. The rate is approximately .8 CUC to the Canadian dollar and U.S. dollars are purchased at a 10% penalty. Local pesos can be purchased at 25 pesos per CUC. Essentially what has occurred is a parallel tourist economy based on CUCs. The heavy government regulations and lack of many desirable products prevents the two worlds from interacting much. Although, I did managed to pay in CUCs for some heart medication I forgot that was actually priced in pesos. In other words, I paid 25 times more than the actual price for my medication.
Overall, this seems to be a fairly effective for taxing richer tourists while, at the same time, maintaining the distribution structure for the typical Cuban. Overall, the country has three levels of economic allocation. Essentially basic foodstuffs are rationed to Cubans on a monthly basis (sugar, rice, oil etc.), there is a salary in pesos for other relatively basic items and there are the CUCs. For the majority of Cubans goods and services are provided without charge or heavily subsidized. All of this means that only the prices for luxury items (fancy dinners and other touristy knick knacks) resemble more international market prices. From a U.S. perspective, an interesting economic pedagogical issue becomes how one speaks to allocation when price is not the primary method of distribution.
We joke that supply and demand is the central component of all economics classes. However, I wonder how economics is actually taught here. Does it rail against the unfettered market and suggest the need for significant government intervention or is it mostly taught from a Marxian labor theory of value perspective? If it is the latter, how come I have so many CUCs in my pocket?