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Cuba

Permanent Link: http://ncf.sobek.ufl.edu/NCFE004512/00001

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Title: Cuba Dependency and Development
Physical Description: Book
Language: English
Creator: Iglesias Garcia, Carlos A.
Publisher: New College of Florida
Place of Publication: Sarasota, Fla.
Creation Date: 2011
Publication Date: 2011

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Subjects / Keywords: Cuba
Dependency
Development
Genre: bibliography   ( marcgt )
theses   ( marcgt )
government publication (state, provincial, terriorial, dependent)   ( marcgt )
born-digital   ( sobekcm )
Electronic Thesis or Dissertation

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Abstract: This thesis portrays the economic pattern of Cuba and exposes how the socialist model failed to improve the economic outcome of the island. The question is whether or not the socialist model works on how to bring the economy of a country like Cuba to a higher level of development, or at least to take the country away from underdevelopment. Dependency theory addresses some of the issues that these underdeveloped Latin American nations face. The dependency on capital and technology reinforce the patterns of underdevelopment regardless of the economic model. History and statistical data from before and after the revolution in 1959 have led to the conclusion how the model once used fight underdevelopment actually reinforced it. Marxist economists, and more specifically, Andre Gunder Frank, suggested that the only possible solution for underdevelopment was by destroying the capitalistic economic model and implanting socialism. The socialist model in Cuba disproved Frank�s suggestion. The island was constantly dependent on Spain first, then the US after, and finally a communist power, the USSR. To become economically independent and achieve a certain level of development, Cuba must apply policies that best fit its own interests and the willingness to understand the internal market dynamics of the island.
Statement of Responsibility: by Carlos A. Iglesias Garcia
Thesis: Thesis (B.A.) -- New College of Florida, 2011
Electronic Access: RESTRICTED TO NCF STUDENTS, STAFF, FACULTY, AND ON-CAMPUS USE
Bibliography: Includes bibliographical references.
Source of Description: This bibliographic record is available under the Creative Commons CC0 public domain dedication. The New College of Florida, as creator of this bibliographic record, has waived all rights to it worldwide under copyright law, including all related and neighboring rights, to the extent allowed by law.
Local: Faculty Sponsor: Khemraj, Tarron

Record Information

Source Institution: New College of Florida
Holding Location: New College of Florida
Rights Management: Applicable rights reserved.
Classification: local - S.T. 2011 I24
System ID: NCFE004512:00001

Permanent Link: http://ncf.sobek.ufl.edu/NCFE004512/00001

Material Information

Title: Cuba Dependency and Development
Physical Description: Book
Language: English
Creator: Iglesias Garcia, Carlos A.
Publisher: New College of Florida
Place of Publication: Sarasota, Fla.
Creation Date: 2011
Publication Date: 2011

Subjects

Subjects / Keywords: Cuba
Dependency
Development
Genre: bibliography   ( marcgt )
theses   ( marcgt )
government publication (state, provincial, terriorial, dependent)   ( marcgt )
born-digital   ( sobekcm )
Electronic Thesis or Dissertation

Notes

Abstract: This thesis portrays the economic pattern of Cuba and exposes how the socialist model failed to improve the economic outcome of the island. The question is whether or not the socialist model works on how to bring the economy of a country like Cuba to a higher level of development, or at least to take the country away from underdevelopment. Dependency theory addresses some of the issues that these underdeveloped Latin American nations face. The dependency on capital and technology reinforce the patterns of underdevelopment regardless of the economic model. History and statistical data from before and after the revolution in 1959 have led to the conclusion how the model once used fight underdevelopment actually reinforced it. Marxist economists, and more specifically, Andre Gunder Frank, suggested that the only possible solution for underdevelopment was by destroying the capitalistic economic model and implanting socialism. The socialist model in Cuba disproved Frank�s suggestion. The island was constantly dependent on Spain first, then the US after, and finally a communist power, the USSR. To become economically independent and achieve a certain level of development, Cuba must apply policies that best fit its own interests and the willingness to understand the internal market dynamics of the island.
Statement of Responsibility: by Carlos A. Iglesias Garcia
Thesis: Thesis (B.A.) -- New College of Florida, 2011
Electronic Access: RESTRICTED TO NCF STUDENTS, STAFF, FACULTY, AND ON-CAMPUS USE
Bibliography: Includes bibliographical references.
Source of Description: This bibliographic record is available under the Creative Commons CC0 public domain dedication. The New College of Florida, as creator of this bibliographic record, has waived all rights to it worldwide under copyright law, including all related and neighboring rights, to the extent allowed by law.
Local: Faculty Sponsor: Khemraj, Tarron

Record Information

Source Institution: New College of Florida
Holding Location: New College of Florida
Rights Management: Applicable rights reserved.
Classification: local - S.T. 2011 I24
System ID: NCFE004512:00001


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CUBA: DEPENDENCY AND DEVELOPMENT BY CARLOS A. IGLESIAS GARCIA A Thesis Submitted to the Division of Social Sciences New College of Florida in partial fulfillment of the requirements for the degree Bachelor of Arts Under the sponsorship of Dr. Tarron Khemraj Sarasota, Florida December, 2010

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ii Dedication To my mom, my dad and my sister. Thank you for the love I never asked and I always received from you.. Para mi mama, mi papa y mi hermana. Gracias por el carino y amor que nunca pedi y siempre me otorgaron.

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iii Acknowledgments I want to start this acknowledgment by thanking my advisor Dr. Catherine Elliott, her moral support and advise made me go through the journey of New College. Also, my sponsor and professor as well Dr. Tarron Khemraj, his knowledge and patience will always be remembered. Jan Wheeler, you showed me how to write with my mind, thank you so much. To dd and James, you put the idea of New College in my mind, and here I am because of you. Charles, you always told me to never give up, and I did not, your support went beyond the imaginable and I will always thank you. William, let u s talk about this mom ent until we die.

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iv Table of Contents Dedication ---------------------------------------------------------------------------------i i Acknowle d gments ----------------------------------------------------------------------------ii i Table of Contents -----------------------------------------------------------------------------iv List of Tables and Graphs -----------------------------------------------------------------v i Abstract -----------------------------------------------------------------------------------------vii Introduction ------------------------------------------------------------------------------------1 Chapter 1: Dependency and Development ----------------------------------------------3 Dependency Theory ----------------------------------------------------------------5 Theotonio Dos Santos: The Stru cture of Dependence Colonial Dependency ------------------------------------------------6 Financial Industrial Dependency ------------------------------------7 Technology Industrial Dependency ---------------------------------7 Andre Gunder Frank: Development of Underdevelopment --------------------9 Raoul Prebisch and Dependency Theory -----------------------------------------11 Fernando Henrique Cardoso and Enzo Faletto: Dependency and Development in Latin America ------------------------------12 Enclave and Nationally Controlled Economies ---------------------13 Development ------------------------------------------------------------------------15 Geography ---------------------------------------------------------------16 Institutions ---------------------------------------------------------------16 Industrialization ---------------------------------------------------------17 Go vernment -------------------------------------------------------------19 Conclusion ---------------------------------------------------------------------------21 Chapter 2: History of Cuba: 1492 1990 -----------------------------------------------------22 Colonization of Cuba: 1492 1898 Early Colonization ------------------------------------------------------24 Economic Control of the Island ---------------------------------------25 Cuba and Sugar ---------------------------------------------------------26 The Republic of Cuba and the United States: 1898 1959 Cuba US Occupation, The Platt Amendment, and the 1903 Reciprocity Treaty -------------------------------------------------------28 Financi al Capital Intervention in Cuba -------------------------------30

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v Social and Political Deterioration -------------------------------------31 Cuba and its Socialist Revolution: 1959 1990 -----------------------33 Socialist Declaration ----------------------------------------------------33 The Continuous Development of Underdevelopment --------------34 Economic Indicators of Communist Cuba 1975 1990 -------------37 Conclusion -----------------------------------------------------------------------43 Chapter 3: Cuba: Dependency and Underdevelopment ----------------------------------45 Cuba and Dependency -----------------------------------------------------------46 Cuba and Colonial Dep endency ---------------------------------------46 Enclave Economy and Financial Industrial Dependency ----------47 Frank and the Capitalist Model ---------------------------------------50 Cuba and Development ---------------------------------------------------------52 Industrialization ---------------------------------------------------------53 Government and Institutions -------------------------------------------54 Diversification of Exports ---------------------------------------------55 GDP and Structural Changes ----------------------------------------------------56 Structural Changes -------------------------------------------------------57 Investment Patterns -----------------------------------------------------58 Employment and Economic Growth ----------------------------------59 Conclusion ------------------------------------------------------------------59 Overall Conclusions --------------------------------------------------------------------------------61 References ------------------------------------------------------------------------------------------64

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vi List of Tables and Figures year war (1868 1878) ----28 Figure 2.2 Trade balance of Cuba 1963 1985 ------------------------------------------------3 7 Figure 2.3 Exports of goods by groups between 1976 and 1980 --------------------------3 8 Figure 2.4 Exports by products and selected countries 1975 1 980 ------------------------3 9 Table 2.5 Imports by products and selected countries 1974 1 978 ------------------------40 Table 2.6 Imports by products and selected countries (contd.) ---------------------------4 1 Table 2.7 Imports by products and selected countries (contd.) --------------------------4 2 Figure 3.1 Global Social Product (GSP) Cuba: 1975 1990 ---------------------------------50 Table 3.1 Percentage of exports by groups of products 1959 1990 -----------------------5 6 Table 3.2 Mining and agricultural related services 1975 1980 -----------------------------5 7 Table 3.3 State investment to GSP 1975 1990 ----------------------------------------------5 8 Table 3.4 Employment categories per economic activities 1991 1999 -------------------60

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vii Abstract This thesis portrays the economic pattern of Cuba and exposes how the socialist model failed to improve the economic outcome of the island. The question is whether or not the socialist model works on how to bring the economy of a country like Cuba to a higher level of development, or at least to take the country away from underdevelopment. Depen dency theory addresses some of the issues that these underdeveloped Latin American nations face. The dependency on capital and technology reinforce the patterns of underdevelopment reg ardless of the economic model. History and statistical data from befo re and after the revolution in 1959 have led to the conclusion how the model once used fight underdevelopment actually reinforced it. Marxist economists, and more specifically, Andre Gunder Frank, suggested that the only possible solution for underdeve lopment was by destroying the capitalistic economic model and constantly dependent on Spain first, then the US after, and finally a communist power, the USSR. To become economically independent and achieve a certain level of development, Cuba must apply policies that best fit its own interests and the willingness to understand the internal market dynamics of the island. ___________________ Dr. Tarron Khemraj Division of Social Sciences

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1 Introduction The topic of Cuba always raises interest among US citizens from every background. How are Cubans living, do they have this, or do they have that ? People outside the island always ask questions about what it is like to live in a communist country. Life in general can be difficult at times; political freedom can be, and actually is, repressed; freedom of expression and freedom of assembly are prohibited. This thesis i s about the economic dependency that Cuba suffered for years, even under the communist model, which has led the island to a constant underdevelopment. The history of the island has always been full of exploitation, submission, and unfavorable trea tment from its colonizers and trading partners. Spain first, the US second and finally the USSR were the main f actors in economic development of Cuba. This thesis, based in economic theory, also has a historical foundation. History and economic theory have been applied to arrive at the conclusion that capitalism is not the single reason for underdevelopment with Cuba using its current socialist model as a n example of the insufficiency of a capitalist only explanation. This thesis is divided in to three chapters. Chapter one provides an overview of dependency theory and its different perspectives. Several economists analyzed this type of relationship between colonies and colonizers, poor and rich countries. In addition, the initial coloniza tio n of some specific countries created the conditions for what today we know as development and underdevelopment. Specific goods and materials produced can lead a country to either the accumulation of capital and technology which translates into developme nt or into constant indebtedness caused by the lack of technology and capital reinforcing dependency and underdevelopment. Chapter two focuses on the economic history of Cuba since colonization. The island

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2 was discovered in 1492; sinc e then a constant domination and submission to the metropolis has occurred. There have been three major eras or times of relationships in the island: first, the colonial times under Spain, second the US intervention and capital After 1959, r adical changes were initiated in the hope that those changes could improve the economic scenario of the island. However, the changes did not improve the future of the island. Econ omic stagnation and political repression led the island to a constant underdevelopment In chapter three, the dependency and development theories are applied to the case of Cuba. Its traditional structure of production resembles those patterns presented by the dependency argument. Also, an argument is made based on the fact that economic dependency was a repeating pattern of the island economy since 1492 -until the instal lation of the socialist model. An emphasis on how capitalism has been criticized as the responsible source f or underdevelopment is refuted with the case of Cuba where the structure of production and the dynamics between the island and the communist bloc existed. Government intervention, structure of internal production, and exports categorization are among the factors leading to the conclusion that the socialist model was not too different from the capitalist mod el. The imposition of a model on a spec ific country can lack the knowledge of internal market conditions, political environment, and traditional business relations. In the case of Cuba, these conditions will need to be taken into consideration if economic and political development is to be a chieved

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3 Chapter 1: Dependency and Development During Colonial times, the usurpation of precious metals such as gold and silver, as well as other commodities, benefited only the influential European elite. After centuries of colonization, the underdevelopment of the colonies was established. The u nderdevelopment of South America was a fact that everyone knew, but few understood. In the 1960s, a logical and critical theory was developed based on the idea of dependency in a s pecific type of relationship that reinforces the underdevelopment of the colonies, which some dependency theorists defined as the periphery nations. Dependency theorists described the types of relationship established by analyzing the different aspects o f the dynamics that were established between the colonizing nations, the metropolis, and the colonies, the periphery nations; also, it seems that such dependency worked as a mechanism that developed the underdevelopment of the colonies. In addition, dep endency theory underlines the criticism of capitalism as the reason for the underdevelopment of colonies. Therefore, dependency and development are closely related. First, Theotonio Dos Santos(1970)defined three types of dependency: colonial dependency, financial and industrial dependency, and industrial and technology dependency. Secondly, Andre Gunder Frank (1972) took a different approach where his view was based more on a Marxist doctrine, arguing that socialism is the only solution for the problem of underdevelopment. In the 1950s, on the other hand, Raoul Prebisch held a broader definition. His analysis was based on the unique pattern between rich and poor countries that involved the terms of trade and the type of products in w hich each individual country specialized. Fernando Henrique Cardoso and Enzo Faletto (1970) analyzed dependency from a different

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4 perspective Their argument was based on two types of economies, rather than types of dependencies, as a clear distinction: the enclave economy and the nationally controlled economy. In general, they all agreed that there was a clear definition between center and periphery, also known as metropolis and satellite, where the center or metropolis consisted of the rulers or dominant nations, and the periphery or satellite nations were the poor undeveloped countries. This chapter explains the general ideas of dependency by citing most of the main economic theorists of the 1960s and 1970s who developed and analyzed the origins of this Gund er Frank in Dependence and Underdevelopment (1972) depicts his idea of the development of underdevelopment using the Marxist doctrine to criticize capitalism. Third, Raul Prebisch developed the idea which involves the elasticity of income demand of the goods that are produced and exported in each country. In Dependency and Development in Latin America (1979), Fernando Henrique Cardoso and Enzo Faletto explained developed an explanation of dependency based on two specific types of economies. One of the proposals to solve underdevelopment is by the implementation of solid institutions. Some economists argued that, to have proper development, institutions need to be established correctly to achieve solid growth. However, with colonization, such i nstitutions only served the interest of the elitist majority. Another development theory relates to geography and how it affects development. Again, during colonial times, living conditions were determined by the geography and weather conditions of spec ific colonies which in turn determined the level of development. This

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5 part of the chapter explains some of the basic theories of development. Jeffrey Sachs (2003) defended the relevance of geography as a determinant for development. On the other hand, Dani Rodrik (2008) addressed the argument that development guidelines should be analyzed case by case instead of having a universally applicable recipe. And finally, Daron Acemoglou, Simon Johnson, and James A. Robinson(2000) address ed the relevance of institutions for the growth of development. Dependency Theory 1492 marked the beginning of a change in the way commerce was conducted. Europe was ready for expansion into new horizons for commerce and exploration. England, the Netherlands, and Florence had success in the trading business as well as in the financial sector; however, such success had some limitations because of the lack of new markets. At this point, the discovery of the Americas by Christopher Columbus opened a new chapter in the patterns of trade and colonization. Initially, the search in the new world was focused on gold and silver. Spain was in desperate need of new sources of income, and gold from America seemed to be the answer. England, Portugal, and F steps. economically and politically. After four centuries of domination, Latin America still suffers the consequences of European control. H owever, it was not until the 1950s when a more solid definition was developed to answer, or at least to understand, the reasons for the backwardness of the colonized nations. Such definitions were based on the type of relations the European countries, m ostly colonizers, had with the dominated Latin America n area.

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6 A group of economists, theorists, and philosophers observed a common and repetitive pattern which defined two types of economies: the center and the periphery. On one side were the countries that dominated the less developed countries; on the other side were the developed countries (LCDs) looked for a fast and quick solution to their eco nomic problems by submitting their political and economic sovereignty to rich nations. In addition, the small poor economies managed to have established an elite. With the center and periphery concepts defined, the dependency theory became the cornersto ne of many other analyses that influenced the way we think about how these dependent countries evolved into what they are today. Theotonio Dos San tos: The Structure of Dependence Colonial Dependency Theotonio Dos Santos (1970) defined three types of dependency that seemed to be evolved chronologically: Colonial dependency, financial industrial dependency, and technological industrial dependency. Colonial dependency developed during the time when Europe took control of America. The main idea was not to bring the colonies up to the standard of living Europe enjoyed at the time, but to extract the most at a very low cost. The ir main focus was based on the extraction of minerals and primary gods for exports t o the old world as the main focus of the center economies. Such control created a monopoly where the colonialists had the concentration of power to extract those commodities needed in the European market, at a very low cost. Low costs were mainly from t he expropriation of large natural resources and low labor cost. Le Riverend (1965) explained how native Indians were exploited almost to extinction, and African slaves later were the main work force in colonial times.

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7 As the colonies were producing raw materials, the European trade was based on manufactured goods which were sold at a higher price compared to the price they paid for the main commodities. Therefore, colonies reinforced their dependency by producing essentially primary goods and raw materials which would sell at a low price and colonies would enrich their economies by producing and selling manufactured goods at a high price. This type of dynamic persists today, reinforcing the dependency of colonies, among other fact ors. The price differentiation between the manufactured goods and the primary goods led Prebisch Singer to the analysis of dependency based on the elasticity of income demand for each type of product. Colonization ,as industrialization started to take over, dissipated and a new type of dependency was evolving. Financial Industrial Dependency. By the end of the nineteenth century, financial industrial dependency consolidated. Capital concentration occurred in the center nations. Also, political turmoil worked against the national interest of the colonies. Because of the constant political unrest economic stability weakened the economic scenario of the colonies. Financial uncertainty urged the colony governments to rely on foreign capital to finance their recovery which was concentrated on the production of primary goods to export. Howe ver, these foreign finances were acquired at a very high price. Although the required capital was available, the long term consequences for such indebtedness led to the persistence of dependency. Technology industrial dependency The last type of d ependency Dos Santos defined was established after World War II,

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8 and it was structured by multinational corporations investing in the industries producing for exports and also for the internal market of the underdeveloped nations (Dos Santos 1970). He acknowledged the importance of the internal market in the development process. According to the structure of dependency, the first two dependency types were based on production toward exports of raw materials which were sent mainly to the center economies. Therefore, the center economies were mandating the economic structure of the specialization, and monoculture in entire regions (The Caribbean, the Brazilia n Northeast, Dos Santos did not emphasize the domestic market creation as a way to expand industrialization as an escape from dependency. However, he exposed four factors that restricted the internal markets of the periphery, and such restrictions underpinned the The first factor was the fact that the national income of the periphery countries was derived from the export sector. Such dependency of income from the export sector created a vicious cycle. Such cycle can be explained as it follows. The need for foreign exchange was satisfied by increasing the production of primary goods that ended being exported to the center nations. However, if the prices of the primary commodities exported go down, then the terms of trade for these exporting countries would decline, which in return would reduce the amount of foreign exchange necessary to acqui re materials, machinery, and other imports for the creation ad development of any industry. The second factor was the extreme abuse of the workforce in terms of wages which led to the decline of consumption. In this aspect, I believe that employers and investors were

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9 extremely greedy by reducing the compensation of labor forces which was reflected in the poor level of consumption. The third factor was the fact that almost non existent p.280). The subsistence economy is not a solid foundation for the development of any economy, because it is not based on industrial development. The four th factor has close Andre Gunder Frank : D evelopment of Underdevelopment. satellite type of relationship, where the metr opolis functions as the center and the satellite as the periphery country. Frank developed the idea that underdeveloped dependent nations reached their real development when the dependency relationship was at its weakest point He mentioned that this po int was reached during the two world wars (Crockcroft, Frank and Johnson, 1972). The idea follows a simple logic. Duri ng war times, the big metropolises were directing their resources and efforts toward the military industry. Consequently, the need for other goods created a demand for imports which were not satisfied by the importation of such goods from the metropolis, which gave Latin American nations an opportunity to develop and promote their industry through the Import Substitution Industry (ISI). Unfortunately, such development had a temporary character. d contemporary structure of world capitali sm, to which Latin America is subordinated, and the economic, political, social, and cultural policies generated by the resulting class

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10 and Johnso n, 1972, p.19). In this statement, several valid points are worth expanding. The dominant bourgeoisie played and still plays an important role in the development of any country. Because of the control of power in a few hands, the lack of other social gro participation in the decision making process of a country can lead not only to political conflict but also to a decline in the development of economic political scenario. perspective was more toward the idea that the dependency relationship that has been established between the center and the periphery, which leads to underdevelopment, could only be resolved by destroying the capitalist system and installing the socialist model (Cockcroft et al., 1972). Secondly, Frank discusses the relevance of historic factors, such as colonization, and slavery, involved in the dependency theory and how it played out in the structure of the periphery. These two points expose the correlation between development and dependency. Historically, class structure and the role of the elite have had a central responsibility in the underdevelopment of Latin America. the need of the rest of the country (Ferraro, 1996). A key question is whether capitalism exported from the center is the real reason for underdevelopment, or whether this model is created at the core of every nation. underdevelopment of the periphery. However, if this is the case, then why is a colony like the United States not in the same category that the Latin American countries are today? A t first, the US was a British colony, yet the history has proved Fran k to be wrong; the former became the most powerful and wealt hy

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11 takes a more radical position by clearly stating that the only way the underdeveloped countries can get out of this stage is by eliminatin g the capitalis t system and implementing the socialist model (Cockcrof t F rank and Johnson, 1972). No other solution can be viable for the economic progress of these countries. Another central question is why Cuba, as an example of socialism, does not work. Raul Prebisch and dependency theory Even if Prebisch did not clearly state the definition of dependency theory, his work led the way for the analysis of dependency theory. There have always been concerns about the backwardness of the Latin American nations. Their economies seem to be trapped in a commodities had a disadvantage compared to countries with a manufactured export sector. According to Prebisch, primary commodities and raw materials have low elasticity of income demand; as world income rises, these commodity prices decline, which leads to a deteriorating of the terms of trade. As the terms of trade decline, a gap or deficit of foreign exchange occurs. Such deficit in hard currency will weaken the economy, and some sort of dependency appears. Manufactured exports, on the other hand, had a different outcome. It seems that manufactured goods have a high elasticity demand of income. As world income increases, the demand for such goods would increase as well. This creates positive terms of trade for these types of economies which increases their capital accumulation. The need of financial resources for underdeveloped nations urged them to rely on unfavorable terms of finance as they filled the financial gap with foreign capital (Hadass and Williamson, 2003).

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12 Fernando Henrique Cardoso and Enzo Faletto: Dependency and Developm ent in Latin America. So far, we have seen different concepts and approaches of dependency that define some of the reasons for the backwardness of the South American economies. Although the majority of dependency theorists agree about the center an d periphery concept, Cardoso and Faletto defined two types of dependency situations: the nationally controlled economies and the enclave economies. However, we need to look deeply into the historic context of the political and social development of Lati n America in order to understand the dependency situation of these nations. Their ideas came not from the fact of capital 1979, p.x). The historic influence of col onization over these nations has been the main force for the shape of the economic and political structure Latin America has today. Simultaneously, a small well connected group emerged as a dominant elite within these countries. This concentration lack of access to some of the economic and political scenario were the basis for internal conflict which led to instability. of political movements, of the affirmation of ideologies, and of the establishment of forms of instability not only ruptured the creation and solidification of an internal market, but also the creation of confidence in foreign investors. Moreover, for the last sixty years, such instability has been used by multinational corporations (MNCs) to their own advantage. Lower labor cost has been the main factor for the MNCs to invest abroad. In addition, tax benefits and preferential treatments have increased the profitability of usin g such

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13 underdeveloped countries. In Dependency and Underdevelopment in Latin America (1979), Cardoso and Faletto reinforce the close relation between dependency and development. Development basics will be explained in details further in this chapter. However, class structures, within the nation, can reinforce the dependency status of the country which also undermines its development. Therefore, underdevelopment and dependency are closely related. If development is not achieved wise ly and in a proper manner, the outcome would be the persistence of dependency; this is where Latin American countries have failed greatly. of the nineteenth century, lack of capital was a problem in Central America, Mexico, (Cardoso and Faletto, 1979, p.39). The deterioration of their export sector production had few alternatives for finances wh ich turned out to be the option of borrowing capital analysis. Enclave and nationally controlled economies Cardoso and Faletto developed the concept of enclav e and nationally controlled economies as a situation that explains dependency. Enclave economies exist when large national assets are owned by foreign investors. This lack of ownership of majority of resources limits the expansion of the domestic market as well as the level of competitiveness of the enclave economies (Cardoso and Faleto, 1979). Nationally controlled economies, on the other hand, were more capable of competing in the production of goods that required more technology and capital. Their economies had a more organized internal structure and more control over

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14 their resources. However, as these economies started losing ground on the competing capability of production, more features of enclave economy started to appear. The gradual decline of autonomy of the nationally controlled economies can be associated with the fact that the economic boom they once enjoyed is the result of an increase of price of primary goods and raw materials in the international market. The de cline of the primary goods in the market negatively affects the terms of trade. Also, Cardoso and Faletto(1979) observed that the evolution of enclave economies was positively correlated to the accelerated rate growth of the center economies. An economi c growth in the center translates into higher income per capita; therefore, more financial resources are available to be invested in those markets where the rate of return is high enough to attract investors. Finally, Cardoso and Faletto stated the enclaves came to express the vitality of the central economies and the nature of the nature of capitalism was mentioned, the criticism of capitalism as one of the main reasons for the backwardness of Latin America. Economic diversification was achieved at some level away from the center nations, which probably was helped by the introd uction of MNCs. However, even if some progress was reached, the social structure and creation of more control of their own production was constrained by some economic adversities. Among them was the lack of diversification in the production sector, whic h limits the creation of a solid domestic market. Also, the production for the domestic market was controlled when no diversification was taking place (Cardoso and Faletto, 1979).

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15 Cardoso and Faletto sectors affected internal diversification of the economy through the social division of labor. It affected not only the domestic market structure but also the creation p.80). Because of the highly concentrated power of a minority group, full development will not be achieved. The creation and expansion of new social groups is essential for a more equitable and progressive development of the whole country. Developmen t The focus on analyzing development has been on the rise since World War II. The idea of a formula or a doctrine that would improve the economic growth of countries has been fiercely debated by economists and politicians around the world, and more sp ecifically by institutions such as the International Monetary Fu n d(IMF) and the World Bank(WB).Also, this idea of how to improve the economic scenario of less developed countries has itself created another level of dependency. Among the failed ways to i mprove the economic growth of underdeveloped countries is the Washington consensus; its guidelines were a complex recipe with policies to follow in order to achieve a level of development similar to developed countries. Such dependency manifested itself in the way of how poor countries looked up to rich nations to get answers on how to perform in order to achieve decent economic growth by importing economic policies and borrowing financial resources. Three factors seem to have an effect on the develop ment of a nation: geography, institutions, and industrial policies or industrialization.

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16 Geography The assessment of geography as an obstacle for development has been defended by Jeffrey Sachs. His main idea is based on the theory that development and economic growth are conditioned on the basis of climate, disease ecology, and distance from the coast (Sachs, 2003). His work also has been focused on the evidence he presented that eco Ro Sachs, 2001, p. 1), which refutes the concept that institutions play a more relevant role development process reflects a complex interaction of institutions, policy, and Institutions Imagine signing a contract for the development of a large factory to produce autos. Financial resources are spent to acquire permits, construction and other details. Suddenly, after two months of money spent, and effort achieved, the government decides to take over the propert y and confiscate the whol e project At this point, frustration invades the investors because the contracts signed did not have the proper protection. This is an example of the lack of property rights as an institution a nd that is why the establishment of proper institutions is critical.

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17 In 1990, Douglas C. North first stated the importance of institutions in the development process. Later on Daron Acemoglou, Simon Johnson, and James A. Robinson (2001) explained i the result of the living conditions colonizers found in their colonies. The British colonizers settled and created solid institutions in locations such as the United States, Aus tralia, and New Zealand, while other colonies like Congo did not have the same experience. mortality rates led settlers to exclusively extract the primary goods of these nations, and institutions were relegated as not important to be developed if not neglected. On the other hand, in places w h ere mortality rates were low, well organized and solid Acemoglou et al., 2001) are present today. Industrialization Industrialization is a factor that has a high relevance in the development process. The majority of developed nations today owe their level of development to industrialization. T his ra ises the question of whether industrialization can or can not get underdeveloped M. Murphy, Andrei Shleifer, and Robert W. Vishny (1989) analyzed Rosestein and Rod an 1989, p. 1003). And such analysis is based on the complementarities of differ ent Mortality rate refers to adult mortality of foreign settlers living in the colonies. At the time, malaria was a disease that had no cure, and in places where malaria was high then settlements were small and development of strong institutions were not appropriate.

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18 industries. Rosestein Rodan expressed several points referring to industrialization, especially in international depressed areas like Eastern and South Eastern Europe. th written in 1943, its accuracy is valid today. First, the distribution of income in these depressed areas, and any depressed area, should be achieved by increasing the strialization should be the provision of training and skilling labor. Rosenstein Roda n stated that laissez faire inaccuracy of the Neoliberal approach as the proper i ndustrialization policy to be applied in underdeveloped economies. Murphy et al. (1989) concluded that the domestic demand and growth in exports are another factor tha t needs to be taken into consideration is the coordination of complementarities that industrialized sectors must have. Africa: Growth of Gross Domestic Product ( GDP) is positively related to the growth of manufacturing output. Secondly growth of labor productivity in manufacturing is positively related to manufacturing growth because of static and dynamic increasing returns t o scale(also referred as the Verdoor correlation between labor productivity growth and the rate of growth of employment in the non manufacturing sector because most activities outside the non manufacturing sectors are subject to diminishing returns (p 91). Their conclusion agreed strongly with

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19 Government G overnment intervention may be necessary if the international competi t ion is high and the internal industries are not competitive yet in the international markets (Murphy et al. 1989). An infant industry, for example, may require some tax incentives competitiveness. The idea is that multiple industries with some government support could produce enough at a lower cost, which illustrates the evolution of simultaneous industrialization through a big push into economic growth at a solid pace. Lall(2003) argued effectively about the role that government can play in the creation of proper poli inventing industrial policy in analyzed. However, such government intervention was not widely accepted by the neoliber al faction, who advocated liberalization and government reduced participation. Their idea of government was mainly to provide macro stability and public services and infrastructure. In Neoliberal views, government could only reduce welfare. On the o ther hand, structuralists had less faith in the free market. Their argument lies in the fact that some government intervention is required to improve market outcomes (p. 2). Also, the idea of infant industry should be accepted as part of the industr ial policy implemented. In this aspect, Lall stated of how harmful the infant industry is by itself

PAGE 27

20 since protection can remove the incentive of firms to compete in the capability building process. Lall suggested that such hindrance can be overcome through three steps: Strengthening of domestic competition, setting performance targets, and forcing firms into export markets when they have to compete with the best prices.(p.17) vernments intervene or not, are not perfect, the institutions needed to make them work efficiently are weak or equired to improve the market outcome (Lall, 2003, p. 3). Finally One Economic, Many Recipes (2009), a different way of approaching development is explained. For example, the failed Washington Consensus program established guidelines for underdeveloped economies to achieve a higher that had the objectives of implementing economic policies similar to the ones in place in d progress, knowledge of the local economy must be a priority. The suggestion or imposition of policies that once worked in a specific country may not necessarily work in another one. The logic of this analysis is based on the fact that administrative and political constraints may exist, and they must be first diagnosed and then treated accordingly. Also, it is important to mention that constraints differ from coun try to country; thus, trying to use a generalized guideline such as the Washington consensus is pointless because the chances for failure are high. Rodrik ends with a reminder to rich countries hey will have to provide room

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21 for poor nations to develop their own strategies and economic catch p.242). Conclusion Development and dependency are closely related. Dependency is the theory that explai ns the reasons for the backwardness of periphery nations; development, however, deals more with the necessary tools to implement sustained development in a pro per manner. Andre Gunder Frank emphasized the reality of the development of underdevelopment: productive apparatus or create a social organization capable of generating self sustained development, which led to the creation by the bourgeoisie of development of underdevelopment as a self reinforcing part of the historical process of world dependency status persists, there is a high chance for underdevelopment to develop

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22 Chapter 2: History of Cuba: 1492 1990 Located ninety miles south of Florida, Cuba was discovered by European colonizers in 1494, an event that resulted in a persistent domination of the island for the next four hundred yea rs. Jorge Gilbert (1981), in Cuba: From Primitive Accumulation of Capital to Socialism, explains the function of the colonies during the time of colonization: Cuba, and Latin American countries did not follow the Classical European model of capitalist development. On the contrary, these colonies were created and incorporated into the productive process to fulfill the requirements and development of capitalism in Europe, and the process of accumulation on a world scale. (p.8) Spain controlled every aspect of the island in Cuba within the first decades after 1510. Political independence and economic freedom did not exist. Most of the Cuban elite resided abroad, in Spain or the United States. In 1868, Cubans declared war on Spain; it lasted for 10 years and ended with a pact, the El Pacto Del Zanjon, where some political freedoms were granted to the island. By 1895,Cuba again declared war against Spain. This time, the war ended with the freedom of Cuba from the con trol of Spain. However, such freedom had a cost. In 1898, the United States occupied the island to restore order in the chaotic nation, the occupation lasted until 1902. Economic deterioration had left the country in a dismal condition. By 1902, t he United States stopped the intervention of Cuba and acknowledged Cuba as an independent country under certain conditions. This departure was sealed by the Platt Amendment, which entitled the US government to he Republic was created in May 1902. For

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23 the next 50 years, Cuba lived under a new type of domination: the financial/capital shifted away from it s relationsh ip with the United S tates this time moving toward a radical communist change. At this point, Cuba began the journey that led the island to be controlled in a different way. The purpose of this chapter is to depict some of the main historic develop ments of Cuba as a country and also to expose some of the repeating patterns that the island has developed and experienced for the last five hundred years. We first discuss the nearly four hundred years. The second part of this chapter discusses the domination of a new form of capitalism under the United States. The negative aspects of the relationship led the country to a change in social system that began in 195 9 with Fidel Castro taking control on January first of that year. The last part of this chapter deals with the close relation that Havana had with Moscow until 1991, a relationship that, in large part, was based on economic benefits for the island. It is important to important industry of the island was sugar production. This is relevant for the future discussion of this thesis since sugar was a monoculture industry in the island, resulting in the lack of diversification not only of the economy, but also in the export sector.

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24 Colonization of Cuba 1492 1898 Earl y colonization October of 1 492 was the beginning of what could be defined as the foundation of Latin America and, more specifically, Cuba. At first, the island was inhabited by native Indians, who were dedicated to fishing, planting, and collecting activities. They were peaceful inhabitants who were later exploited and almost exterminated. Their passiveness allowed Spanish colonizers to take over extensive land areas and the opportunity to enslave the native Indians. When Spanish colonizers arrived on the island, their intentio n was not to develop the native primitive society that existed there. They were more concerned about how to profit from such a non aggressive population. As settlers arrived, they were expropriated more and more land, which was often given by royal mand ate; consequently, the control of land was achieved either by expropriation or by royal mercy. During this time, the island experienced a development of its agricultural diversity. The Spanish discovered and commercialized tobacco, a native product. Later on, sugar became the main and most important product. All of this undeveloped land needed to produce. At first, Indians were the main labor force for Spanish settlers. According to Le Riverend in La Historia Economic a de Cuba (1965), Indians were recklessly abused almost to the point of extermination. In 1510, there was an estimate of one hundred thousand Indians; by 1555, that population dropped to approximately five thousand; a new labor force was needed. The fi rst record of slaves entering the island went back to 1513 (Gilbert, 1981).

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25 Economic control of the island Cuba acted as a colony of Spain. It was not a country. It did not have a constitution, and the island was ruled by appointed governors from the metropolis. Since 1492, Cuba was the center of exploitation for the crown. Restrictions were the norm in Cuba, not only of economics, but also politically. In terms of economics, midpoint between Europe and South and Central America. Ships docked in Havana, usually for supplies or for maintenance and repairs. The island was the focus of attackers and invaders because of its strategic location. In 1762, Havana was attacked and controlled by the British. This control lasted almost a year, and during this time, the island experienced a more open economic scenario. Restrictions on trading were lifted, and the concept of agric ultural diversification was introduced, although this free trade policy was not completely open. At the time, Britain held monopolistic control as Spain did, with the difference that Cubans could trade with all British ports and its colonies(Gilbert, 19 81). Eleven months later, the Versailles treaty was signed, and Spain re took control of Cuba, and in return, Britain took possession of Florida. The Spanish rule over Cuba returned the island to the earlier circumstances, restricted trade with only two ports: Cadiz and Sevilla. In addition, Spain created a treaty where colonies would be able to produce only those goods needed by the metropolis. Such a treaty impeded the colonies, in this case Cuba, from producing goods t hat were not needed by Spain. Therefore, the island would have no excess of goods that could be traded with control at any time. The lack of a domestic market, with h igh restrictions under which

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26 the island lived, imposed a permanent dependency. Cuba also suffered from the lack of institutions designed to protect the majority of Cubans. Spanish authorities did not have any intentions of developing a sol id foundation for institutions to protect the majority of the society. Cubans were politically isolated from any decisions that metropolis by royal authority. Cuba and Su gar 1789 slave rebellion that occurred in the French colonies at St Domingue (p.37). Sugar production in the island increased rapidly, displacing traditional industries in the island such as tobacco and coffee. Also, prior to this boom, some sugar was produced in the island but not to the level of a large world supplier. The inclusion of the island in the world market as a sugar supplier came at the time when market prices were high. Cuban planters did not know how to deal with such fluctuations or with the volatility of the sugar prices. By 1817, the prices declined because of an over supply in the market. Cuban planters suffered greatly because of their inexperience in the sugar business(Le Riverend, 1965). By 1840, according to Le Riverend the sugar industry in Cuba benefited from the introduction of more modern technology. Again, the volatility of the sugar prices in the international market and the lack of diversification in the economy worked

PAGE 34

27 against a solid growth of t the Cuban industry attracted more interest in sugar production and led to an increase in the illegal importation of slaves. According to Le Riverend (1965), the sugar industry was intensified, in terms of efficiency, by the increase of more slaves rather than the use of a better technology which had been the case up to 1860(p.140). The plantation owners had experienced a level of comfort by intensifying the number of slaves employed in the sugar production. They were satisfied up to the point when they realized that efficiency needed to be reached without adding more labor force. Sugar producers in Cuba saw an efficient, growing industry that was based on a technology capable of capturing higher levels of production, which translated into a lower cost per pound produced. However, according to Le Riverend(1965), some historians attributed the slow down of the Cuban economy, and sugar production, to the lack of labor force, which at the s ame time contradicted the concerns of the Cuban elite about the large presence of slaves in Cuba. This concern was founded in the past exp erience of the St Domingue which destroyed the French colony in 1789. By the late 1800s, Cu ba had experienced two wars against Spain, weakening the sugar industry in the island. Perez(1985) refers to the weak position of the sugar industry after the ten year war: Of 41 mills in operation around Sancti Spiritus in las Villas province in 1861, only 3 remained after the war; in Trinidad, only 16 of 49; in Santa Clara, 39 of 86; in Cienfuegos, 77 of 107. In Guines, almost two thirds of the 87 mills operating before the war had disappeared by 1877.(p.1093) During the T en Y roduction declined( See figure 2.1).

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28 78). 1093). The economic deterioration that the island experienced after the first war(1868 1878) and the second war(1895 1898) left the island susceptible to foreign capital intervention, and in this case, to US financial supremacy because of the gradual deteri oration of the infrastructure as well as the financial weakening of the national investors. Such deterioration did not give any other option but to depend on foreign pr incipal source of credit for the heavy and long term investments necessary to The Republic of Cuba and the United States: 1898 1959 Cuba US 1898 1902 occupation, the Platt Amendment, and the 1903 Reciproci ty Treaty In the Economic History of Cuba 0 100000 200000 300000 400000 500000 600000 700000 800000 1868 1871 1878 1879 1880 1881 Sugar

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29 by the way Cuba became dependent on US capital for expans ion. By the end of the deteriorated; accessibility to capital was nonexistent. Social unrest and political instability were among the reasons for the US to occupy the island fo r the next four years. During these four years, Cuba was still a non recognized country; it lacked its own constitution. By 1902, the country proclaimed its constitution, and the creation of the Cuban Republic was a fact. At this point, the United States recognized the status of Cuba and decided to end the occupation of the island. However, this decision was followed by the Platt Amendment which allowed the United States to intervene in Cuban affairs whenever order was threatened (Perez Stable, 1993,p.4). According to an introduction by Louis A. Perez Jr. in Studies in Cuba History: Prologue to Revolution The Platt Amendment forced Cuba to acquiesce to limitations and was obliged to cede naval base, Guantanamo Bay or GTMO, was located in the eastern province of Guantanamo. In the same year, a commercial treaty was signed which reinforced the production of sugar in the island as well as dependency on the US as the main market for its agricultural products. the country to become extremely dependent on foreign capital. This for ced path to produce sugar was also emphasized by external factors, which went back to the time so high that it made it virtually impossible for sugar refined in Cuba t o enter the US

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30 Then by 1903, a reciprocity treaty was signed between Cuba and the United States. This agreement reduced tariffs of Cuban sugar entering the US by twenty percent. In return, the US goods wo uld receive a tariff reduction between twenty and Stable, 1993, p.15), the interest did not translate into a development of the Cuban economy. By 1925, US investors own ed 41 mills and controlled sixty percent of the harvest (Perez Stable, 1993, p. 15). In the first quarter of the twentieth century, sugar prices were relatively high. The sugar industry was booming due, among other four and a half times, and imports quadrupled(Perez Stable, 1993). Unfortunately, the sugar price was not as stable as expected. By the late 1920s, the sugar value in the international market plummeted, and interest in this industry declined. In the 1920s, Cuban capital owned less than one third of all mills and produced less than one fifth of the harvest, which translated in low capital accumulation nationally; by t he 1940s, nationals owned seventy one percent of the mills, and fifty six percent of the production (Perez Stable, 1993). This shift represented a decline in interest in the sugar industry by US investors, who foresaw business opportunities in areas oth er than sugar. Financial/capital intervention in Cuba Financially, US capital began to expand rapidly. By 1925, the majority of banks in Cuba were controlled by US investors although large financial borrowing in the early 1900s from the US was dedicated to the sugar harvest. In part, the need for capital in the island seemed to exist because of the attachment of Cuba to the sugar industry

PAGE 38

31 which during the 1920s experienced a boom, but then because of the fas t decline by persistence of sugar as the main export led the country to a weak development which structural dependence of the Cuban government was reinforced by credits granted dependency but also the US political control over the island. This political control wa s exemplified in high ranking government officials, together with the predominant elite responding exclusively to foreign interest. This alignment of interests between government, ruling elite, and foreign interests led to a social disparity that reflected in a general discontent among the masses. As a result, the industrial production of goods that were mainly for domestic production were owned mostly by US corporations: Manufacture of tires, and inner tubes was controlled by Firestone, Goodyear, and US Rubbers. The Flour Mill of Regla, owned by Burroughs Flour Mill, supplied 65% of national consumption, 35% was provided by US producers. Procter and Gamble a nd Colgate Palmolive controlled 80% of production, 67% of laundry soap, 41% of toothpaste, and 31% of bath soap. Portland Cement Company, a branch of Lone Star Cement company, accounted for almost all cement production until 1957.( Ibarra, 1998, p.118) S ocial and political deterioration Lack of diversification of its economy, reinforcement of the sugar industry, altogether with political corruption, led the country to a de teriorated social situation.

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32 Development on the island occurred only in the capital: Havana. The rest of the country was condemned to persistent poverty. Unemployment was critical in the area outside of Havana, although unemployment existe d as well in the capital but to a lesser extent. The sugar industry was one of the main factors for high unemployment. This industry is classified as seasonal. It can last from 90 to 180 days. During the dead season, referring to the time when sugar pro duction is not occurring, unemployment can reach higher percentages than during season. Unemployment during the dead season was as high as 20.7 percent, and underemployment, on average, 13.8 percent (Perez Stable, 1993, p. 29). These conditions, to gether with the lack of ownership of land and the exploitation of the campesinos (peasants) by the latifundistas (landowners), led to a low standard of living in the island. Also, the level of illiteracy was extremely high in both urban and rural areas. I n terms of social indicators, the average life expectancy of Cubans was 58.8 years, and the infant mortality 37.6 per 1000 births (Perez Stable, 1993). In Stable, 1993, p. 29). The following statistics reflect the poor social development of the island under these dependent conditions: tside toilet, Stable, 1993, p.29). Social welfare was not a priority for the government. The elite of the country was immersed in maintaining the dependent capitalist relatio nship with the United States. This dependency would guarantee their financial security and supremacy over

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33 the corruption of government officials and age ncies were increasing over time. During the first half of the twentieth century, the island experienced sporadic social unrest: the 1933 revolution, the attack on the Moncada in 1953 by Fidel Castro, and finally the revolution of 1959. Ibarra(1998) list ed five factors that served as a common link for the new generation which led to the organization of the revolutionary vanguard: Threat of unemployment Social insecurity Betrayal of national interest by tr aditional political parties absence of liberties and rights. (p.181) Cuba and its socialist revolution 1959 1990 Socialist declaration Politically, Batista was considered a cruel dictator. There was discontent among Cuban society because of his actions to the extent that at several points, different By January 1 st of 1959, Batista fled the island with his closest friends and a large sum of money. This was the beginning of a new era in Cuba. Castro took possession and changes started to happen on the island. Fears of communism in the island were among political sectors in the US. Prior to 1961, according to Smith in Cuba and the Soviet Union, Cuba an d Russia(1993) only denied that he was a communist but scathingly denounced the Soviet Union as a imperialist resentment effectively made him turn the direction of his ideas toward a Marxist doctrine. On April 16, 1960, Castro declared the socialist character of the revolution,

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34 and that same day, the Bay of Pigs occurred. Cuba was attacked by merce naries trained in Central America and funded by the US government with a victorious end for the Revolution and its leaders. The continuous development of underdevelopment The attack on the Moncada fort in 1953 failed, and Castro and those attackers who survived were imprisoned. During the trial, Castro, a lawyer by education, defended mentioned the main problems affecting Cuba: the land, industrialization, housing, unemployment, education, and health (Eckstein, 1994, p. 31). Seven years later, Castro had the opportunity to improve these issues affecting the country. However, history showed a different outcome. By 1963, the idea of industrialization was dropped, an d sugar became the main focus economically. Also, originally the Import Substitution Industry (ISI) was a priority at the time; however, according to Eckstein(1994), the ISI required input imports that required hard currency to be purchased, and the cou ntry did not have it. Therefore, the idea of developing a substituting industry did not become a priority. It is important to mention that the US quota that was purchased from Cuba was eliminated by 1962, and Cuba had no market secured for the suga r production. Luckily for the island, the USSR came to the rescue and purchased the sugar that the US did not. Consequently, the industrialization and ISI policies were dropped. Sugar then took the center of attention and most of the resources as well. In 1963, the output of sugar was at 4 million metric ton, in 1970, the production of

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35 sugar was 8.5 million metric tons. The export contribution of sugar to national product was 16 percent in 1963; by 1970, it went up to 25 percent (Eckstein, 1994, pp. 36 &39). The practice of the USSR purchasing the main export of the island led the country into another unhealthy developmental pattern. Also, the USSR commitment to purchase the sugar produced by Cuba reinforced the monoculture in dustry in the island. Other industries did not have the resources and energy invested in sugar; therefore, diversification did not develop fully. Sugar and other primary goods and raw materials such as citrus products, tobacco, and nickel were among the main goods to export. In 1970, Cuba embarked on a titanic endeavor: the production of 10 million metric tons of sugar. Such a task required the direction of all resources toward this goal. It was unrealistic; and the cost was tremendous. The result was a production of roughly 8 million metric tons. Because of such an effort, the production in the rest of the farm sector and industry suffered as priority was given to sugar (Eckestein, 1994, p.39). Sugar prices remaine d high, and Cuba experienced an impressive growth during these years. However, the price of sugar declined, and the economic growth that was prosperous in the early 1970s then came down 4 percent by 1976. After the failure of the campaign of the 10 mil lion tons of sugar, the government adopted the idea of industrialization as a needed policy. However, such industrialization happened mostly and largely in the sugar related industry. In addition, the so called industrialization was nothing but the mode rnization of the whole infrastructure of cut, lift, and transportation of the sugar to add that the modernization of the sugar industry was financed by the Soviet bloc.

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36 production was supposed to be purchased by the USSR. According to Ritter(2004) in The Cuban Economy, the 1975 1985 period was therefore due in part to Soviet subsidization and was council for mutual economic assistance (COMECON) which reinforced the dependency of Cuba for preferential commercial agreements with the communist (Eckstein, 1994, p. 59). The development of Cuba was far removed from real development. Cuba not only depended on the communist bloc as a secure market for its products, but also as a safe resource to receive preferentia l loans and payment methods. As we can observe imports were larger than the exports, which created a trade deficit which was subsidized largely by the USSR and the communist bloc. The bilateral debt to the USSR amounted to approximately $23.5 billion by 1990 (Ritter, 2004, p.5).

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37 Figure 2.2. Trade Balance of Cuba 1963 198 5 (million s of pesos) Source: Oficina Nacional de Estadisticas ONE(National Office of Statistics) Havana Cuba. Page 376 Anuario Estadistico 1985 Economic indicators of communist Cuba 1975 1990 Although basic social indicators improved during the first thirty years compared to before 1959 for example, life expectancy increased exponentially and education and health care were set to be free for all Cubans such advances did not balance th e incapacity of the system to obtain long term economic development. It is an erroneous belief that the revolution would bring a more positive economic scenario to the island, as Gilbert in Cuba: From Primitive Accumulation of capital to socialism expre downfall of the new revolutionary government since their economic activity was 2500 2000 1500 1000 500 0 500 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 Trade balance

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38 accurate right since history proved that Cuba gravitated toward a dependent status from the communist bloc. Cuba continued to be a dependent country first by not diversifying its economy; secondly, the USSR alone constituted the largest market for Cuban products, and vice versa. Figure 2.3 shows the high percentage of sugar production that is destined for exports. Also, the exports table (Figure 2.4) illustrates the dominance of the USSR as the main market for main products such as sugar. In addi tion, Figure 2.5 indicates that the majority of the goods needed in the island were exported from the USSR. percent. Imports dropped 75 percent, the deficit reached 33 pe rcent of GDP, and 85 Figure 2.3: Exports of goods by groups between 1976 and 1980.(Millions of pesos) Source: Oficina Nacional de Estadisticas ONE(National Office of Statistics) Havana Cuba. Annual Statistic Report 1980 0.00 500.00 1,000.00 1,500.00 2,000.00 2,500.00 3,000.00 3,500.00 1976 1977 1978 1979 1980 Sugar Mining Tobacco Fisheries Other

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Table 2.4 Exports by products and selected countries 1975 1980 (thousands of pesos) Source: Anuario Estadistico de Cuba 1985. National Statisics Office. Havana, Cuba 39 Table 2.4. Exports by products and selected countries 1975 1980 (thousands of pesos ) 1975 1976 1977 1978 1979 1980 Product /Country Unit Qty Value Qty Value Qty Value Qty Value Qty Value Qty Value Sugar 96% gross value Total t 5743711 2630515 5763652 2320946 6238162 2411382 7196839 2955769 7198692 2963477 6170110 3280181 USSR* 3186724 1537564 3035566 1515910 3790424 1856525 3936133 2358586 3842211 2262953 2726339 2025950 % of total 0.55 0.58 0.52 0.65 0.61 0.77 0.51 0.8 0.53 0.76 0.44 0.62 Citrus Total t 59668 11920 61177 12877 83645 17167 143498 29649 161011 34163 192747 41335 Dem Germany 22429 4597 21621 4667 29971 6154 49970 10418 57151 12513 43332 9671 USSR 19207 3814 24051 5077 29837 6227 51871 10903 59661 12625 75490 16309 Hungary 3328 692 1036 264 2304 524 7121 1516 7581 1558 7192 1414 Chezkslovaquia 11986 2502 11460 2406 16234 3467 19699 4435 19718 4318 30027 6321 Minerals Sulfur Ni+Co(metallic content) Total t 17998 89988 18678 93391 19015 95071 17532 86759 13737 68690 18139 90656 USSR 17998 89988 18678 93391 19015 95071 17532 86759 13737 68690 18139 90656 Alcoholic beverages( wine not included) Total hl 92289 15617 90104 15426 80586 13646 83250 13830 114000 19343 USSR 71793 13455 70230 13039 60894 10897 58057 10404 81223 14293

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Table 2.5 Imports to Cuba 1974 1978(thousands of pesos) Source: Anuario Estadistico de Cuba 1985. National Statisics Office. Havana, Cuba 40 Table 2.5 Imports to Cuba 1974 1978 (thousands of pesos) 1974 1975 1976 1977 1978 Product /Country Unit Qty Value Qty Value Qty Value Qty Value Qty Value Canned meat t 43,532 33,330 32,998 29,868 29,183 29,819 24,918 28,135 28,854 33,810 USSR 18,135 17,223 15,506 18,049 18,742 20,628 19,582 22,007 20,273 22,865 Condensed milk t 14,488 8,217 14,178 6,644 21,063 10,539 20,301 11,198 20,378 11,266 USSR 14,488 8,217 14,178 6,644 21,063 10,539 20,301 11,198 20,378 11,266 Powdered Milk t 48,866 39,526 50,694 34,536 56,245 21,574 37,743 15,212 31,261 15,114 USSR 5,376 4,013 5,019 4,016 5,505 4,633 5,835 4,996 6,273 5,334 Butter t 16,256 16,711 18,336 19,458 19,362 22,346 18,363 20,948 16,788 19,365 USSR 16,256 16,711 15,450 16,854 16,329 19,602 16,297 19,084 15,788 19,365 Dem Germany 2,886 2,604 3,033 2,744 2,066 1,864 1,000 902 Cheese t 4,716 32,423 4,201 3,071 4,962 4,616 5,466 6,101 4,151 4,479 USSR 2,300 1,509 2,462 1,689 2,897 2,417 3,150 3,135 3,162 3,208 Bulgary 2,416 1,914 1,739 1,382 2,065 2,199 2,316 2,966 989 1,271 Fish t 51,587 22,285 62,568 31,183 44,864 25,651 37,632 23,127 42,203 25,923 USSR 44,963 18,074 49,523 22,024 37,661 19,380 37,165 22,802 41,976 25,727

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Table 2.6 Imports to Cuba 1974 1978 (thousands of pesos) contd. Source: Anuario Estadistico de Cuba 1985. National Statistics Office. Havana, Cuba 41 Table 2.6 Imports to Cuba 1974 1978 (thousands of pesos) contd. 1974 1975 1976 1977 1978 Product /Country Unit Qty Value Qty Value Qty Value Qty Value Qty Value Wheat t 496,629 69,206 505,905 79,735 496,197 72,730 716,261 100,456 635,212 77,898 USSR 410,930 52,866 354,167 55,686 407,496 59,547 596,597 85,388 555,004 66,181 Oil/subproducts t(1000) 7,786 196,207 7,767 307,277 8,240 342,805 9,245 475,111 9,936 638,429 USSR 7,776 101,565 7,748 302,041 8,231 340,703 9,236 473,482 9,623 635,314 Fertilizers t 798,035 52,538 1,560,935 88,582 926,879 62,741 1,037,247 75,766 1,194,861 90,451 USSR 532,813 23,658 514,140 31,035 7,320,028 46,416 871,177 63,358 965,813 73,353 Rubber t 11,183 5,606 13,044 6,199 13,535 6,555 11,694 5,581 8,352 4,336 USSR 7,247 2,693 9,153 3,589 9,985 3,943 9,090 3,824 5,129 2,219 Tires U 634,661 27,786 1,085,724 45,271 881,388 31,403 945,955 28,261 792,761 29,758 USSR 248,897 10,008 261,105 12,197 307,322 13,024 336,462 16,792 361,290 17,422 Laminated steel t 461,102 97,686 502,279 120,931 404,334 86,068 484,980 102,250 463,441 96,296 USSR 178,460 23,992 187,434 38,391 261,611 50,635 306,509 63,016 335,794 70,508

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42 Table 2.7 Imports to Cuba 1974 1978 (thousands of pesos) contd. 1974 1975 1976 1977 1978 Product /Country Unit Qty Value Qty Value Qty Value Qty Value Qty Value Complete plants Million Pesos 86,394 191,064 261,805 494,192 380,837 USSR 38,956 64,959 76,126 90,860 225,791 Stationary diesel motors U 4,456 4,163 3,476 6,394 2,415 6,505 4,229 6,672 4,149 5,064 Democratic Germany 3,129 2,099 2,243 2,215 1,101 2,126 2,398 2,331 3,119 2,099 USSR 1,229 1,787 777 1,323 844 1,544 328 1,030 720 1,370 Other diesel motors U 2,542 8,295 1,320 7,245 1,298 8,463 1,168 4,182 718 3,113 USSR 692 1,811 768 2,228 438 2,679 572 2,756 455 2,045 Tractors U 3,483 13,099 3,342 13,006 11,353 43,929 6,102 24,809 7,933 36,428 USSR 3,194 11,688 2,943 11,487 10,352 39,943 6,097 24,723 7,933 36,428 Sugar cane equipment U 426 2,018 2,110 7,815 1,300 4,008 301 2,337 310 2,411 USSR 426 2,018 2,110 7,815 1,300 4,008 301 2,337 310 2,411 Bulldozers U 301 7,210 708 24,507 360 7,716 288 4,690 386 9,460 USSR 140 2,008 30 433 251 3,709 288 4,690 386 9,460 Table 2.7 Imports to Cuba 1974 1978 (thousands of pesos) contd. Source: Anuario Estadistico de Cuba 1985. National Statistics Office. Havana, Cuba.

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43 Conclusion This chapter has been focused on the interpretation of some of the main economic events of Cuba from colonization to 1990. The island served as a primary goods producer since 1510. First, Spain utilized the country as the supplier for primary goods and raw materials between the early 1500s until 1898. By then, the United States occupied the island and for the next fifty years, Cuba submitted to a hegemonic Cuba was used as a centre for capital accumulation, primarily by North American investors in terested in expanding and controlling economic sectors abroad. Between 1934 and 1959, the Cuban neo colony became a reserve centre for the production of (p.10). Aft er 1959, Cuba transformed the character of its revolution toward a socialist model. By making this change, the island benefited from the economic advantages received from the communist bloc, and at the same time, Cuba played the role of a satellite of S oviet control. During the years after the revolution, Cuba persisted in its policy of monoculture industry, sugar, mainly because of the guaranteed market the USSR provided. The socialist model did not improve the future outcome of the island. According to Ritter in The Cuban Economy (2004), four main factors were the cause export diversification, lack of access to credit at reasonable cost, central planning system like general demarketization, bureaucratization, and excessive centralization, and the hardening of the US embargo.

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44 The end result has been a constant underdevelopment of the economy of the island. If it is the socialist m odel that does not allow for proper economic policies to fix the problem, then why is China, for example, experiencing a tremendous economic growth? Cuba is a small island, and its market is not as large as other countries, but it does have the human c apital to develop its economy in a sustainable manner

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45 Chapter 3: Cuba: Dependency and Underdevelopment. Historically, the island of Cuba has been the object of manipulation, control, and evolution iden t ified with colonial dependency. Secondly, Cuba took a step toward the creation of its own constitution, but still lacked the internal coordination to develop an inward economy which resulted in a new, different type of dependency, financial industrial d and at the same time, the US became the main trading partner and financial provider to the island. Therefore, the evolution of dependency and underdevelopment continued. In 1959, Cuba entered into era of reforms which were directed to a complete change of economic and political model. The free market economy was abolished; a social egalitarian society was intended to overcome problems such as social injustice and econom ic development. However, the initial intentions of the new egalitarian model found contradictions in its internal economic system. communist model in terms of dependency an d development theories. First, dependency theory will be compared to the way Cuba related to the communist bloc economically. Also, dependency theory may be considered from various perspectives that can be related to Cuba. Secondly, the chapter will tu rn toward development alternatives since multiple evidences have shown the different examples of how development can be recipe fits ld benefit from this one recipe fits all idea.

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46 Cuba and Dependency Dependency has been analyzed from different perspectives. On one side we have Theotonio Dos Santos(1970) talking about three different types of dependency: colonial de pendency, financial and industrial dependency, and the industrial and technology dependency. Also, Fernando Henrique Cardoso and Enzo Faletto (1979) defined dependency from two specific situations: enclave economy and nationally controlled economy. Othe r economists, such as Andre Gunder Frank, analyzed dependency and related issues that induced periphery nations to depend heavily on center economies and their underdevelopment. Cuba, since colonial times, had as its economic structure a specific typ e of colonial dependency. In 1898, Cuba separated from Spain, and the US occupied the island for four years. After this occupation, the relation between Havana and Washington took the shape of periphery and center respectively. From 1902 through 1959, Cuba lived two types of dependencies that are closely related to the definitions of dependency explained above. Cuba and Colonial Dependency During Spanish colon ization, the island experienced an almost complete dependency in the metropolis. Dos Santos defined this dependent relationship based on trade exports, where commercial and financial means dominated the periphery nations, in production was rigid, and monoculture, with sugar as an example, was a feature that emphasized the dependency status of the island. The center was always determining the production of the goods that were needed by the center (1970).

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47 At first, Cuba served as a producer of precious metals: gold and silver. However, such supplies declined, and production of other goods, mainly agricultural, increased. By the 1800s, Cuba was a major sugar producer with capacity enough to become a world supplier; other industries, like coffee and tobacco, were replaced by sugar. Different economic patterns and conditions clearly represented the condition of dependency. During colonization, the center permitted Cuban ports to trade exclusively with two Spanish ports: Cadiz and Seville. Also, Cuban production of goods was limited exclusively to the needs of the metropolis. The island also did not develop its industry because of the lack of capital, which was little or almost non existent, the lack of protectionism from the state against foreign investment, and the lack of the labor force. 1898,the war with Spain was over, and the rupture of such dependency was achieved. The island had the freedom to choose its fate, economically and politically. Enclave economy and financial industrial dependency. By 1898, Cuba declared its independence from Spain. Economically, the island suffered greatly the effects of the war, the lack of social welfare, and the fact that Spain had no intention of developing the socio ited States intervention took over the island for the next four years, helping to ameliorate the lack of basic life support in the island. However, such support had a cost. By 1902, Cuba created its constitution, and the island was recognized by Washington, which meant that the occupation of the US was finished. At this point, the beginning of a new dependency was started. By 1902, the Platt Amendment was signed, which allowed the

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48 hegemony translated as a constant dependency and underdevelopment of the island. Cuba is an example that easily represents two types of dependencies that have been analyzed by different economists: the financial and industrial dependency discussed by Dos Santos, and the enclave economy situation defined by Cardoso and Fa letto. Financial and industrial dependency consolidated itself at the end of the nineteenth and its expansion through investment in the production of raw materials and industry is a clear example of this type of dependency. In 1903, the US and Cuba signed a reciprocity treat where Cuban sugar received a twenty percent tariff re duction exported to the US, and US goods received a tariff reduction between twenty and forty percent imported to Cuba. Because the boom of sugar production, US investors were attracted to the idea of investing in the island. By 1925, the amount investe d in the Cuban sugar industry mounted to $750 million, 41 mills were owned by US investors who controlled sixty percent of the harvest (Perez Stable, 1993, p. 15). Financially, by 1925, the majority of the banks in Cuba were owned by US investors. Also, the majority of the Cuban harvest in the first decade of the 1900s was financed by US owned banks (Ibarra, 1998). These facts are a clear example of how much foreign ownership was dependency on the US. An enclave economy was also present in the US Cuba relationship, clearly evident on the first quarter of the century. According to Ibarra, two re ciprocal treaties created the

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49 controlled by Firestone, Goodyear, a nd US Rubbers. The Portland Cement Company, a cement needs in the island (Ibarra, 1998). In the sugar industry, one quarter of Cuban sugar mill profits were transferred abro ad by the US refineries. According to Cardoso p. 70). Therefore, the influen ce of central economies was more determinant in the economic life of the island than in domestic business and politics. point. Some features resembled the nationally cont rolled economy that Cardoso and Faletto referred, especially in the sugar industry which was at the time the main industry of the island. It is important to add that the sugar industry declined after the mid 1920s. One of the reason sugar prices increas ed was World War I. After the war ended, the price of sugar tumbled, and investors shifted to other investments. By the 1950s, 71 percent of Cuban mills were owned by nationals, and 56 percent of the production was controlled nationally (Perez Stable, 1 993). During this time, a more autonomous interest on how to promote diversification took place. There was an increasing recognition of the need for diversification and the reality of extensive Stable, 1993, p. 23).

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50 Frank and the Capitalist model Andre Gunder Frank expressed the idea of dependency from a Marxist doctrine. His hyp othesis was based on the idea of the creation of a dynamic between the metropolis and the satellite, which was developed as metropolis development and satellite theory capitalist t his specific economic model implies that the satellite or dependent status only applied to the capitalist economic model, disregarding the fact that Cuba as a communist country experienced majority of the economic traits that dependency theory argued. In Figure 3.1, we can observe how well the economy of Cuba grew at an average of 4.29 percent per year. However, this economic growth was subsidized largely by the communist bloc and the Soviets. Figure 3.1: Global Social Product(GSP): Cuba 1975 1990 (Millions of pesos). Source: Oficina Nacional de Estadisticas ONE(National Office of Statistics) Havana Cuba. Page 376 Anuario Estadistico 1990 However, in figure 2 .2 (Chapter 2, p. 36) we observe negative terms of trade. 1985 was therefore due 0.00 5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 30,000.00 35,000.00 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 GSP

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51 in part to S outstanding bilateral debt to the USSR mounted approximately to 23.5 billion dollars(Ritter, 2004). mpetition, lands were taken and concentrated in latifundia observing the fact that Cuba after 1959 became a socialist country with a socialist model, and still the valid features of dependency existed to the po int of developing underdevelopment in the island. These arguments encompass the alternative theories of development which encounters close connections with the dependency theory.

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52 Cuba and Development When discussing the d ependency theory, there seems to be a negative correlation between dependency and development. The stronger the dependency was, the lower the level of economic growth. In the case of Cuba, it is clear that the dependent status with the USSR minimized choices for sustainable economic growth. Also, it is important development are a diversification of export products, a more rational and compreh ensive industrial policy, and a better structuring of institutions. All of these factors could lead the country to a better position economically. However, the island was condemned to perpetual dependency and underdevelopment because of the political in flexibility of the model itself. problems was right, Cuba should be a better developed country or at least a nation with a better economic position. But Cuba persist ed in its dependent status to the USSR after 1959 and the underdevelopment continued after the socialist declaration of the revolution. Developmental alternatives can be applied in Cuba with a positive effect in the long term economic growth of the isl and, assuming that the political factor allows the necessary implementation of whatever policies are necessary to achieve sustainable growth. There have been numerous developmental mistakes in the island. Among them we will discuss the most relevant one s: industrialization, government, and institutions.

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53 Industrialization concluded that the backwardness of the African countries occurred because the industrialization process did not happen as it should, a point which is applicable to the substitution industry(ISI) was adopted. However, the implementation of such a policy required imported inputs, and the country lacked the necessary resources to obtain them. By 1964, industrialization was dropped, and the focus of the island went toward the monoculture industry based on sugar and agriculture (Perez Stable, 1993). Diversification of exports did not take priority. Communist propaganda and its campaign to battle ideologically against capitalism took priority. The cost of the revolution to maintain such political repression was higher than making the proper industrial policies. In 1970, Cuba embarked on a new task: to produce 10 million tons of sugar. By the end of the year, production barely surpassed 8.5 million tons. The unattain ed goal led the leaders of the island to lean toward more industrialization and ISI. However, the industrialization and the ISI direction were more focused on the sugar industry. Other relevant industries did not receive the proper attention. Although the industry sector counted for an average of 45.4 percent of the GSP between 1975 and 1990, the main sectors of the industry consisted of agricultural, chemical (fertilizers), alcohol and tobacco, and sugar. The main efforts were directed directly or i ndirectly to the sugar production. One question is whether the government intervened to the detriment of the process or whether it helped. Could Cuba develop a more sophisticated industry if the government intervened? The problem with this question is t hat the government was the main and only actor in the economic scene of the island.

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54 Government and Institutions How much government intervention could positively affect the development of new industries and the revitalization of the old ones, or should the government stay out? This is a question that could make sense in a free market economy; however, Cuba is a different case. In reinventing the industrial strategy by Lall(2003), when it come s to the implementation of policies, two general thoughts are analyzed: neoliberal and structuralism. The former was a free market type of policy with little government (p.1). Such comparative advantage seems to be related to a static comparative ad vantage: natural resources mostly. In a way, the government in Cuba was leading toward a neoliberal status, not in relation to little government intervention, but in the terms of realizing the comparative advantage of the nation, in this case sugar. The problem with Cuba being attached to its comparative advantage is that Cuba, like the On the other hand, Cuba found it difficult to rely exclusively on the free market, wh ich relates closely to the socialist model applied in the island. Government case seems similar to structuralism, but it goes beyond the norm in terms of government inter ference to the point of becoming inefficient and a hindrance to economic progress. Because of the excessive control by the government, institutions have been manipulated to respond to the political interest of the revolution. Large resources are in

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55 legislations. Thus, institutional reforms are difficult to implement unless the political system makes changes to its structure. Lall(2003) discuss ed several stages that can act positively in the industrial policy implementation: the ability to provide policy makers with an objective analysis of what successful countries did to achieve industrial capabilities, the creation of greater policy space for industrial policy, the support of development of the capability to mount industrial policy, and the power to devise strategies appropriate to each country. Although these strategies may not apply in Cuba because of its economic and political system Diversification of exports There is no doubt about how important the development of manufacturing and technology is for the success of sustainable growth. According to Lall (2003), cheap labor and raw natural resources are no longer sufficient to maintain industrial growth. Exports based on a single good can be detrimental to the country. The case of Cuba demonstrates this fact. The country found a comparative advantage i n the production of sugar, and the persistence of this single export trend reinforced the problems explained above. The Neoclassical approach is based on a static comparative advantage, meaning that the country will develop the type of industry tha t has the resources or conditions necessary to enlarge and promote such industry, however; the flaw in this thinking is the fact that when the comparative advantage is dynamic then the country can develop an industry based on high technology or in an in dustry that is new to the area. This technology addition or industry can lead to the production of manufactured goods

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56 rather than primary goods. In the case of Cuba, the option of diversifying the exports was not fully developed. The sugar industry received the most interest, and this diversification was not large enough. Table 3.1 reflects how this diversification of exports which was needed, never took place. Table 3.1 Percentage of Exports by groups of products 1959 1990 (%) 1959 1975 1980 1985 1989 1990 Sugar Industry 80.60% 89.80% 83.70% 74.50% 73.20% 80.20% Mining 3.80% 4.70% 4.90% 5.10% 9.20% 7.40% Tobacco 6.70% 1.80% 0.90% 1.50% 1.60% 2.20% Fish/Seafood 0.80% 1.80% 0.90% 1.50% 1.60% 2.20% Agricultural products 1.90% 1.00% 2.00% 3.40% 3.10% 3.40% Other 6.10% 0.90% 6.30% 13.50% 10.50% 5.00% Source: Anuario Estadistico 1990 (Oficina Nacional de Estadisticas, ONE) Havana, Cuba. GDP and structural change Even if the island received advantageous treatment from the communist bloc, the main and most important case of its backwardness came from within. The island kept the continuous pattern of sugar industry as the major export good large enough to col lect revenue. Table 3.1 depicts the predominance of sugar as the main industry in the island as a way of revenue from 1959 until 1990. the United Nations uses terms like structural changes, investment patterns, and employment related to economic growth. These terms relate closely to the island and show how the goal of achieving economic growth has failed.

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57 Structural changes Economic growth is only p ossible when productivity increases. Such productivity can be achieved in a country, but it varies depending on its development status. For developed countries, such productivity is achieved by relying on technological innovations. However, in developin g countries, the structure of production requires more attention, where the production needs to be directed toward activities with a higher level of productivity (United Nations, 2006). In the case of Cuba, the direction of the production did not change. In Table 3.2, we observe that the sugar industry and the agriculture and related products were almost fifty percent of the entire industry production between 1975 and 1980. Table 3.2 Mining and Agriculture related services (sugar and food production) to total industry output. (%) 1975 1976 1977 1978 1979 1980 Industry sector 100 100 100 100 100 100 Mining (Ferrous Non Ferrous) 1.80% 1.80% 2% 2% 1.90% 2% Sugar Industry 9.30% 8.70% 9.80% 10.40% 10.40% 9.40% Food production 19.20% 18.70% 19.40% 18.80% 18.40% 19.20% Tobacco and Alcohol industry 20% 22% 21% 20% 20% 19.70% Source: Anuario Estadistico 1990. Oficina Nacional de Estadisticas Havana, Cuba. Capital accumulation and entering into the world market were not goals for the Nations, p. 54). In the early years of the revolution, industrialization policies we re dropped and sugar took the lead in the economic output. Cuba, when compared with

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58 were more market driven. Between 1970 and 2003, China went from 28 percent to 60 between 1975 and 1980 stayed extremely low and stagnant (United Nations, 2006). Investment Patterns Capital accumulation is not the only factor for economic growth; investment plays an important role in the development of an economy in the expansion and creation of domestic markets and linkages between industries in a specific area. Table 3.3 portrays the low ratio of government investment to Global Social Product in Cuba. This percentage is similar to the low ratios in Central America and the Caribbean from the 1960s until 2003 (United Nations 2006, p.63). Table 3.3 State I nvestment to GSP 1975 1990 Year GSP* Investment** % of Investment to GSP 1975 $14,603 $2,304.20 15.80% 1980 $17,605.60 $2,739.10 16.00% 1985 $26,519.60 $4,306.80 16.00% 1990 $26,280.70 $4,309.50 16.40% Source:Anuario Estadistico 1990. Oficina Nacional de Estadisticas. Havana, Cuba. Thousands of pesos ** Investments in the country are entirely made by the state Table 3.3 shows that investments by the government did not improve over time. The import substitution industry (ISI) policy was not sufficient to support a sustained growth, and even if such a policy were effective, the state still did not pursue it or a

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59 diversification of its exports. In Latin America, the ISI failed. Such failure pushed these countries to move toward a more diversified export sector. This is another example of how governmental errors can lead a country to a constant ec onomic u nderdevelopment. Therefore, the planned socialist model applied in Cuba, rather than helping, created a hindrance to economic progress. Employment and economic growth Employment and productivity can determine the level of economic gro wth. According shifted from low productivity sectors, like agriculture, to high ones, like industrial employment. In table 3.4, we observe that agriculture and related sectors count for a quarter of the labor force in the island. From 1991 to 1999, the manufacturing industry counted on average for 17.4% of the total labor force with no significant incr ease over agricultural related sectors and services. Employment and its location in the different economic sectors of the country have relevance when it comes t o economic growth. Agriculture related employment did not decline and manufacturing employment actually declined rather than increasing. The be easily applicable to the case of Cuba, in a period of nine years, the island did not improve the percentage of employment in manufacturing sector (See table 3.4). Statistic analyses can be prepared in a future paper.

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60 Table 3.4 Employment categories per economic activities 1991 1999 (%) 1991 1992 1993 1994 1995 1996 1997 1998 1999 Total 100 100 100 100 100 100 100 100 100 1 Agriculture, Fishing, forestry 25.0 25.0 26.0 25.0 23.0 23.0 25.2 25.0 26.0 2 Mining and extraction 1.1 1.2 1.1 0.1 0.1 0.1 1.5 1.4 1.2 3 Manufacturing industry 18.5 18.4 18.5 17.8 17.7 17.7 16.0 15.0 16.7 4 Electric,water and gas services 1.1 1.3 1.2 1.3 1.2 1.2 1.4 1.5 1.7 5 Construction 8.5 8.1 6.6 5.6 6.2 6.1 6.4 6.0 5.4 6 Commerce, restaurant and hotel services 11.7 11.7 11.8 10.4 10.8 10.8 11.7 11.9 12.6 7 Transport, communication and reserves services 6.4 6.6 5.7 5.2 5.7 5.7 5.0 5.3 4.7 8 Financial establishments, Insurance, real estate, and service to enterprises. 1.0 1.6 1.6 1.5 1.3 1.3 1.8 1.6 1.8 9 Waste management, social and personal services. 26.0 26.0 28.0 32.0 33.0 33.0 31.0 32.0 32.0 Source: Anuario Estadistico 1996 Oficina Nacional de Estadisticas. Havana, Cuba Havana, Cuba Conclusion It is difficult to predict the future, and even more difficult when it comes to the future of Cuba. A common question is always asked: what would happen if the system in Cuba changes? I wish I had a definite answer. The main patterns of economic behavior of the island for the last five hundred years do not give too much hope. It seems that Cuba is determined to maintain its underdevelopment. The leaders of the island tend to search for a solution by relying on a large trading partner to supply, at preferential terms, what

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61 the island requires for its internal functioning. T he lack of planning to develop an internal industry with advanced technology makes it difficult, if not impossible, to reach a sustainable level of independency and development Overall Conclusion s Dependency and development theories relate to the case of a communist country like Cuba. During Spanish control, Cuba experienced the initial effects of domination: lack of self control, deep dependency, and continuous exploitation of its natural resources, and its people as well. In add ition, the island suffered the consequences of cruelty toward its inhabitants. During the first years of colonization, native Indians were so overworked that they were almost extinguished. Also, they completely lacked the right to their own land ; proper ty rights were expropriated. These conditions created a specific type of institutions and governmental body. It is important to remember that during this colonial era, the island lacked a constitution, and it was mainly governed by a general captain or governor who was appointed by the Spanish King. The island entered a new era after 1898 when a more evolved dependency took place. It was the time of capital domination and technological development. Cuba developed a similar path of dependency with the United States. The hegemonic power and industrial capacity. In addition, the internal elite helped greatly to develop th is dependency with US capital, which led to a deterioration of the economic development of the island. Poverty increased, and social welfare was almost non existent. These conditions led the island to revolt against the oppressive regime which worsened by the

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62 late 1950s. In 1959, some changes were expected, which could lead, hopefully, to a more democratic government. It was impossible to predict the future of Cuba as another episode of dependency and underdevelopment. Dependency t heorists such as Dos Santos and Frank port rayed, and in the case of Frank made fully responsible the capitalistic model as the cause of the underdevelopment of certain countries. But Cuba has undergone constant dependency and underdevelopment. After 195 9,Fidel Castro declared the Cuban revolution as socialist. The USSR and the European communist bloc backed the island economically to the point of making it almost impossible for the island to develop an internal industry capable of producing manufactu red goods. The fact that the USSR became largest trading partner forced Cuba to improve its sugar industry as the main export. This reinforcement of the sugar industry as a solution for the island to solve its economic problems was not the right solution. Cuba produced and exported primary goods and raw materials to the Communist bloc and in return, Cuba would import manufactured goods from them. This pattern resembles the basics of dependency theory. Also, because of such dependency on prima ry goods and raw materials, the island experienced a constant deficit trade balance from 1963 through 1985 with communist subsidies covering the gap in the terms of trade. Therefore, the elimination of the capitalist model and the installation of the so cialist model did not work as expected, at least in the island. A central question is how Cuba can be fixed, how the economy of this island can improve. There must a combination of institutional reforms, government restructure, and economic openness. Also, the knowledge of the local markets in the island will be extremely important when it comes to implementing policies. Basic institutions need

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63 to be established such as property rights and a judiciary system capa ble of protecting the rights of individuals. The financial system should be restructured to support the internal demand for capital, which leads to a more dynamic creation of business and industries to produce manufactured goods and services. Until the se steps are taken, the island will continue on the same underdeveloped path.

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