A Preliminary Network Analysis of Economic Liberalization in Cuba

Abstract Cuba has found it necessary to put into effect market-oriented policies in addressing the severe economic crisis triggered by loss of Soviet support after 1989. The challenge for development theory is to delineate paths of complex causation among the institutional sources and effects of such market liberalization policies. New institutional economics and network economics suggest that politico-economic development may be traced to the formation of market coordination mechanisms, taken in this study to include entrepreneurial, managerial, and interorganizational networks. Cuba's market liberalization policies are tactical in nature, consistent with earlier, tentative experiments (which were largely led by the armed forces). Economic policy is conditioned by an overriding need for political security and control. The inconsistent exercise of central control constricts the possibility of autonomous formation of market coordination mechanisms such as networks and makes for the disarticulation of economic sectors, actors, and institutions. This study proposes a research agenda on economic networks as articulatory factors in economic development. Introduction The onset of a period of grave economic decline and austerity in Cuba in 1990 brought stricter rationing of food, consumer goods, and oil to curtail demand, the diversification and expansion of exports, revitalized tourism, and strategic efforts to bolster international diplomatic and commercial relations. Notwithstanding these efforts, during the first three years of the so-called "special period" there was a 40 percent drop in the gross domestic product, 70 percent drop in industrial and agricultural capacity, and 60 percent decline in domestic consumption. In 1993, the Cuban government introduced other measures, legalizing certain kinds of foreign investment, joint venture, and private microenterprise as well as legalizing the dollar. It thus sought to balance diverse aims on a fulcrum of political control: to create demand abroad for Cuban products, and generally to obtain hard currency, while attending to growing domestic demand that far outstrips rationing. Cuba's distribution system for foodstuffs and essential consumer goods consists of a rationing system, farmers' markets and government-run "parallel" markets, a fast-growing "informal" sector which accounts for an increasing share of domestic production and consumption (Betancourt, 1992), and diplotienda stores, which offer consumer products at a premium for those with U.S. dollars. In addition to the state-run "first economy" (itself undergoing "rationalization") and a market-oriented "second" economy (joint ventures, foreign investment, tourism, and parastatals), there is a partially legalized informal economy. Taken together, these account for the unsettled structure of markets in Cuba (Pastor, et al., 1995). For simplicity, this study will occasionally use the blanket term "parallel economy" for all of the marketized and hard-currency-driven avenues of economic participation taken together. Market Mechanisms in the First, Second, and Third Economies As Perez-Lopez (1995b) notes, participation in informal and second economy activities has come to the fore during the post-Soviet period. Own-account activities range from the most common type, services--cook, taxi driver, mechanic, electrician, produce seller, small restaurateur (running small restaurants out of private homes)--to production, of beef, agricultural products, and small-scale manufactures. Restrictions include requirements for vendor registration and an often-flouted prohibition against hiring salaried employees who are not close relatives. Other strictures affect professionals who were at first excluded from selling services but have been allowed to do so if the service lies outside their area of specialized training. Still prohibited from self-employment are public officials, members of the armed forces, judges, prosecutors, and other public officials. …