For several decades prior to the Revolution, U.S. corporations virtually owned the island. Most of the cattle ranches, more than 50 percent of the railways, 40 percent of sugar production, 90 percent of mining and oil production, and almost 100 percent of telephone and utility services were owned by U.S. companies. Every year, beginning in 1934, the U.S. Congress established a preferential quota for Cuban sugar. In exchange for a guaranteed price, Cuba had to guarantee tariff concessions on U.S. goods sold to Cuba. The agreement kept Cuba tied to the U.S. as a one-commodity economy and to U.S. goods.
Nonetheless, despite immense poverty throughout the country, Cuba’s national income in 1957 of US$2.3 billion was topped only by that of the much larger countries of Argentina, Mexico, and Venezuela.
Castro and Che Guevara, who became the Minister of Industry, might have been great revolutionaries, but they didn’t have the skills to run an efficient economy, which they swiftly nationalized. There were few coherent economic plans in the 1960s—just grandiose schemes that almost always ended in near ruin. They replaced monetary work incentives with “moral” incentives, set artificially low prices, and got diminishing supplies in return. Socialism had nationalized wealth but, says Guillermo Cabrera Infante, it “socialized poverty too,” leaving Cuba with a ruined economy.
For almost three decades, the Soviet Union acted as Cuba’s benefactor, providing aid estimated at around US$11 million per day—the greatest per capita aid program in world history. Says P. J. O’Rourke, “The Cubans got the luxury of running their economy along the lines of a Berkeley commune, and like California hippies wheedling their parents for cash, someone else paid the tab.” The Soviet Union also sustained the Cuban economy by buying 85 percent of its foreign exports. In 1989, 84 percent of Cuba’s trade was with the Soviet bloc.
After the collapse of the Soviet bloc, Cuba’s economy was cut adrift. Between 1990 and 1994, the economy shrank as much as 70 percent. The work force was left idle. To compound the problem, the world market price of sugar, which in the 1980s accounted for 80 percent of Cuba’s export earnings, also plummeted, along with Cuba’s sugar harvest.
n October 1991 the Cuban Communist Party Congress adopted a resolution establishing profit-maximizing state-owned Cuban corporations that operate independently of the central state apparatus. In 1995 Cuba passed a law (since rescinded) allowing foreigners to have wholly owned businesses (by 2003, about 800 foreign companies were doing business with Cuba). Cuba began sending its best and brightest abroad for crash courses in capitalist business techniques (you’d hardly know it, however, by the absurd decisions and ineptitude still being made by Cuba’s state managers). Havana has even handed over large chunks of the economy to the military, which began sweeping experiments. Today generals in civilian clothes run corporations such as Gaviota, whose resort hotels are built by the army’s construction company, Unión de Empresas Constructoras.
In 1993, to soak up foreign currency floating freely in the black market as cash remittances (remesas from families in the U.S. topped US$1.4 billion in 2009) or as tips from foreign tourists, the Cuban government legalized possession of the U.S. dollar and opened up “foreign exchange recovery stores” (shops) selling imported items, from toothpaste to Japanese TVs. The government also legalized self-employment: By mid-1995, 210,000 Cubans (about 5 percent of Cuba’s labor force) had registered as cuentapropistas, subject to taxation up to 50 percent.
By 2005, with the economy stabilized (and bolstered by growing economic ties to China and Venezuela), the government began rolling back reforms. By the end of that year, only a handful of foreign investors (the rest were sent packing without their assets) remained. Joint-venture enterprises have lost much of their autonomy. And Cuba’s self-employed, who typically earn far more than the average monthly salary of 420 pesos (equivalent to US$18), have also found Cuban-style capitalism bruising in the face of regulations meant to force them back out of business.
In 2004, Castro banned the dollar, forcing Cubans to exchange hoarded greenbacks—or fula, as Cubans call it in a reference to the green-gray gunpowder used in santería to invoke the spirits—for convertible pesos, resulting in an instant injection of US$1.5 billion into the Cuban economy. Castro also revalued the convertible peso 8 percent against other currencies (Cubans now receive only 83 convertible pesos for every US$100 sent from Florida after the Cuban government skims off commissions).