Cuba moves closer to China’s economic model

By Brian George

Ministry of Interior - Che_Cuba 036

Photo hoyasmeg/James Emery

There has been extensive coverage of the news that Cuba is to reduce state sector employment by half a million and transfer these workers to the non-state, including the private, sectors. Some of this comment, for example in the Financial Times and Wall Street Journal, interprets this as a move towards capitalism and free markets. More accurate and sophisticated analysis has been given by Latin American specialists. (Also see previous articles on this website here and here.)

For anyone who studies international socialist economic developments the present steps in Cuba are familiar. It is analogous to the Chinese policy, regarding state enterprises, known as “Zhuada Fangxiao” – maintaining large firms in the state sector and releasing small ones to the non-state/private sector. In proper class terms, Cuba is creating/strengthening a petit-bourgoisie.

Given that Cuba’s estimated workforce is 5.2 million, of which 4.0 million, or 78%, currently work in the state sector, this would mean that after a transfer of half a million state workers the distribution of Cuba’s labour force would be 68% state sector and 32% non-state sector. If the suggested one million transfers are eventually made this would give a structure of the labour force of 59% state sector, 41% non-state sector.

The issue therefore is what is the attitude to this?

Politics comes before economics

A first crucial question is evidently how the policy is carried out. One of the Cuban leadership’s greatest strengths has always been that it placed the well-being of the population, and therefore its support for socialism, in first place. As a contrast, for example, Stalin’s industrialisation of the USSR carried out after 1929, with the first Five Year Plan, was via total priority to heavy industry at the expense of popular consumption, and politically via intensified repression and purges regardless of its material effect on the country’s population, its morale, or its support for socialism. The Cuban leadership, on the contrary, has prioritised health and living standards – as a result, according to the UN, life expectancy in Cuba is now higher than in the far richer US. Any Cuban economic reform, and how it is implemented, must similarly be subordinate to the political imperative to maintain and improve the population’s living standard and support.

In a famous phrase of Lenin: “Politics must take precedence over economics. To argue otherwise is to forget the ABC of Marxism.” Lenin, indeed, explained this truth, and the subordinate role of economic policy compared to overall politics, precisely concerning the question of the relation between the two in a country developing after the overthrow of capitalism – in his case the USSR: “Am I wrong in my political appraisal? If you think so, say it and prove it. But you forget the ABC of Marxism when you say (or imply) that the political approach is equivalent to the ‘economic’, and that you can take ‘the one and the other’. What the political approach means… is that the wrong attitude to the trade unions will ruin the Soviet power and topple the dictatorship of the proletariat…. Trotsky and Bukharin make as though they are concerned for the growth of production… This picture is wrong, because the only formulation of the issue (which the Marxist standpoint allows) is: without a correct political approach to the matter the given class will be unable to stay on top, and, consequently, will be incapable of solving its production problem either.”

In short in the entire policy process political considerations, including maintaining the support and raising the morale of the population, must be put first.

Economic structure

However, while politics come first, developing the economy is the only way to increase the living standard of the population. And from the point of view of Marxist economic principles, Cuba’s step to allow, and facilitate, the recreation of small proprietors is correct.

Stalin’s move in 1929 in the USSR to eliminate the petit-bourgeoisie/small proprieters, primarily individual farmers but also small enterprises, and replace them with essentially a 100% state employed economy had nothing to do with economic rationality nor with socialist or Marxist economic policy. It was opposed by virtually all non-supporters of Stalin in Russia – Trotsky, Kondratiev, Rubin and Bukharin to take only the most notable economists.  (See here for related article in this web-site’s archive.)

Stalin of course “resolved” this economic discussion by executing or assassinating all those who disagreed with him. He also banned their works – which is one reason why the Soviet economy, from the Stalin of the Five Year plan of 1929 onwards, with its essentially total elimination of small private producers, was taken as a Marxist and socialist theoretical orthodoxy when in fact it was a radical break with it. The implications of this in regard to China and Cuba are discussed below.

The transition from capitalism to socialism

To understand the fundamental reasons why Stalin’s, and post-Stalin Soviet economic model, was wrong and a break with previous socialist theory, it is merely necessary to note that socialism, in Marxist theory, is based on socialised means of production. That is large scale production and large scale socialised division of labour – which in a developed economy is necessarily so large that it is also international in scope. However, small restaurants, small producers, individual farmers etc, by their very definition, are not based on socialised means of production. A socialist policy is based on taking over large-scale enterprises and production; it is not about nationalising local restaurants or small shops.

Indeed, policies of arbitrarily eliminating small-scale production are damaging – as anyone who visited an old style East European Communist restaurant knows. The worst thing such a restaurant could have was a lot of customers. First, because more customers meant the staff had more work – they were paid wages anyway so large numbers of customers were not required. Second customers ate food that could otherwise be taken home by the restaurant’s workers or sold on the black market. So the restaurant stayed open as little as possible, tried to discourage or made no attempt to gain customers, and many things, particularly the best food items, were mysteriously ‘off the menu’ for much of the time.

It has been noted in contrast that in the Cuban government’s new proposals: “Taxi drivers for example, or shop workers and workers in small manufacturing enterprises, all of whom are currently state employees, will essentially take over the administration of their own workplaces and earn their salaries directly from their takings or revenues rather than being a salaried state employee. They will essentially be doing what they have always done – but they will no longer be on the state’s payroll. “

Many of these are not jobs that are involved in socialised production and are in the private or co-operative sector in countries such as China and Vietnam.

Marx’s analysis

Let us now analyse these issues in fundamental Marxist terms. Marx noted that the transition from capitalism to communism would be a prolonged one. As he wrote in The Communist Manifesto: “The proletariat will use its political supremacy to wrest, by degree, all capital from the bourgeoisie, to centralise all instruments of production in the hands of the State, i.e., of the proletariat organised as the ruling class; and to increase the total productive forces as rapidly as possible.” Note the “by degree” – not “all at once” as Stalin carried out in 1929 (or Pol Pot did in Cambodia to take an extreme example of such a policy).

Marx wrote in the Critique of the Gotha Programme of such a transition, even within the socialised sectors of the economy:

“What we have to deal with here is a communist society, not as it has developed on its own foundations, but, on the contrary, just as it emerges from capitalist society; which is thus in every respect, economically, morally, and intellectually, still stamped with the birthmarks of the old society from whose womb it emerges.”

In such a first stage of transition from capitalism to a fully developed socialist society, payment in society, and distribution of products and services, necessarily has to be largely according to work, and cannot in the first stage be according to need no matter how much that is the final goal:

“Accordingly, the individual producer receives back from society – after the deductions have been made – exactly what he gives to it. What he has given to it is his individual quantum of labour. For example, the social working day consists of the sum of the individual hours of work; the individual labour time of the individual producer is the part of the social working day contributed by him, his share in it. He receives a certificate from society that he has furnished such-and-such an amount of labour (after deducting his labour for the common funds); and with this certificate, he draws from the social stock of means of consumption as much as the same amount of labour cost. The same amount of labour which he has given to society in one form, he receives back in another.

“Here, obviously, the same principle prevails as that which regulates the exchange of commodities, as far as this is exchange of equal values. Content and form are changed, because under the altered circumstances no one can give anything except his labour, and because, on the other hand, nothing can pass to the ownership of individuals, except individual means of consumption. But as far as the distribution of the latter among the individual producers is concerned, the same principle prevails as in the exchange of commodity equivalents: a given amount of labour in one form is exchanged for an equal amount of labour in another form.

“Hence, equal right here is still in principle – bourgeois right… The right of the producers is proportional to the labour they supply; the equality consists in the fact that measurement is made with an equal standard, labour.”

In such a transitional society inequality would therefore necessarily still exist:

“one… is superior to another physically, or mentally, and supplies more labour in the same time, or can labour for a longer time; and labour, to serve as a measure, must be defined by its duration or intensity, otherwise it ceases to be a standard of measurement. This equal right is an unequal right for unequal labour… Right, by its very nature, can consist only in the application of an equal standard; but unequal individuals (and they would not be different individuals if they were not unequal) are measurable only by an equal standard insofar as they are brought under an equal point of view, are taken from one definite side only – for instance, in the present case, are regarded only as workers and nothing more is seen in them, everything else being ignored. Further, one worker is married, another is not; one has more children than another, and so on and so forth. Thus, with an equal performance of labour, and hence an equal in the social consumption fund, one will in fact receive more than another, one will be richer than another, and so on. To avoid all these defects, right, instead of being equal, would have to be unequal.”

Only after a prolonged transition would a payment according to work be replaced with the ultimately desired goal, distribution of products according to members of society’s needs. Marx noted:

“Right can never be higher than the economic structure of society and its cultural development conditioned thereby. In a higher phase of communist society, after the enslaving subordination of the individual to the division of labour, and therewith also the antithesis between mental and physical labour, has vanished; after labour has become not only a means of life but life’s prime want; after the productive forces have also increased with the all-around development of the individual, and all the springs of co-operative wealth flow more abundantly – only then can the narrow horizon of bourgeois right be crossed in its entirety and society inscribe on its banners: From each according to his ability, to each according to his needs!”

The elimination of all small-scale commodity production and ownership by Stalin ‘at a stroke’ after 1929, and the continuation of this policy by his successors in the USSR, was therefore not in line with Marxist theory. That such a policy initially industrialised the Soviet Union, producing superior economic growth to that which existed in most of the world at that time, was due to the specific conditions that existed in 1929 not to its conformity to overall Marxist analysis. That year was not only that of the launching of Stalin’s first Five Year Plan, but of the onset of the Great Depression. The capitalist world economy fragmented into a series of protectionist empires amid a generalised collapse of production – in a process culminating in World War II. Under such conditions, of the greatest crisis of capitalism in its history, Stalin’s policy, despite its departure from overall Marxist theory, produced rapid economy growth. Stalin demonstrated that essentially total immediate statification of the entire economy, and “socialism in one country”, as he termed his policy, produced greater economic growth than “capitalism in one country” – or more correctly that socialism in one country was more successful than capitalism in fragmented and warring colonial empires.

However, World War II was the means by which the world capitalist economy was reunited – under the hegemony of the United States. Stalin and his successor’s “socialism in one country” now faced “capitalism on a world scale”. In that situation all the weaknesses of the Stalin/Soviet model came to the fore – culminating in economic stagnation, which in turn lead to the final collapse of the USSR in 1991.

China’s economic policy

These issues were central in the debate which surrounded the adoption of China’s economic reforms after 1978. China’s leadership and economists correctly analysed that Stalin, and Soviet economic policy after him, had confused the issue of the preliminary stage of the development of socialism, that immediately after the overthrow of capitalism, with a fully developed socialist society. In its first stage, as the new socialist society emerged from capitalism, as analysed by Marx, it would still inevitably be marked by the economic structures inherited from capitalism – that is commodities and distribution according to labour would exist. Only gradually, as socialist society developed far further, would it be possible to replace these. Anyone who wants an account of these debates can find them in Hsu’s informative book Economic Theories in China 1979-1988. Such analysis in China, as seen above, was in line with that of Marx himself.

It was such a policy which, therefore, guided China’s policy of “Zhuada Fangxiao” – maintaining the large enterprises within the state sector and releasing the small ones to the non-state sector. This process accompanied allowing a private, as well as a co-operative, sector to recreate itself.

This combination of large-scale enterprises dominated by the state, and small-scale enterprises dominated by the private and co-operative sector, is precisely that which corresponds to a transition process. The gigantic success of China’s economic policy which resulted is well known.

Problems in Cuba

Turning to Cuba, it may be seen clearly how the above economic processes work themselves out.

Despite all Cuba’s tremendous social and political successes the economic symptoms are evident. Raul Castro put it harshly but he described a phenomenon familiar from the Soviet model in Eastern Europe accurately. He said in the Cuban economy “two plus two often equals five in terms of spending and three when it comes to performance.” This is quite different to China whose economic performance, and efficiency of investment, is far higher than the US or Europe. And: “’We have to erase… the notion that Cuba is the only country in the world in which people can live without working.’”

Such symptoms necessarily exist if, voluntaristically, not only is large scale production taken into state hands but full statification is introduced into small and medium scale production. Creating a more rational, that is more Marxist, economic structure is necessary to correct these difficulties.

This will not, of course, by itself solve all problems. Other issues will have to be confronted – as they were in China. These include how to run the large scale state enterprises, which themselves will be operating in an economy still emerging from capitalism in which commodity production exists – which is why China describes its present economic structure as a ‘socialist market economy’. Such large scale enterprises, to achieve the necessary economies of scale, also have to operate internationally – which is why China has successfully created something the USSR never did, which is successful internationally operating state owned companies.

But, nevertheless, without creating a Marxist economic structure – that is state ownership of large scale companies with private and co-operative ownership of small scale enterprises – it is not possible to properly deal with other economic problems.

It is not necessary to mechanically copy China

Naturally, it is neither necessary nor desirable for Cuba to mechanically copy China or Vietnam. Cuba is a far better off country than China was at the beginning of its economic reforms, and far better off also compared to Vietnam. Even today, GDP per capita in Cuba is fifty percent higher than in China. Evidently Cuba has announced it is going to maintain free healthcare , education, social security, funerals, immunisation of children, free medicine while in hospital and heavy discounts for non-hospital pharmaceuticals – all things which were undermined or eliminated at one time in China. But it is not possible at Cuba’s stage of economic development to carry out free or highly subsidised distribution of an unlimited range of goods – that is to approximate to a society based on ‘each according to their needs’. Priorities are inevitable in the long transition from ‘each according to their labour’ to ‘each according to their needs’.

This, of course, leads to ‘pseudo-criticisms’ of Cuba. For example, the Guardian’s Rory Carroll, who specialises in anti-left wing propaganda from Latin America, writes: “Che Guevara’s dream of creating a ‘socialist man’ motivated by moral rather than material incentives has long been abandoned.”

Che Guevara, it is unnecessary to say, is justly one of the most revered and loved figures in the entire history of socialism. But on this issue he was wrong – utopian, in the strict sense of not in accord with Marxist theory. There is no basis, this side of a fully developed socialist society, to have work based purely on moral incentives – a “socialist human being” requires a fully developed socialist society. The overwhelming majority of the population today are not, and cannot be, on the moral level of Che Guevara. From each according to their ability, to each according to their work is the principle of the first stages of building a socialist society as Marx argued. And, to each according to their work means unequal distribution and therefore material incentives. Society will be better when this can be eliminated. But that requires a far higher development of the economy – as Marx put it “right can never be higher than the economic structure of society”.


Are there dangers in the economic course Cuba is moving closer to and which China has already carried out? The answer is yes.

The petit-bourgeoisie has a desire, and an economic drive, to become a big bourgeoisie. In China, while the state dominates the largest companies, there are not only petit-bourgeois but billionaires. Capitalists in a non-capitalist stage forge links with capitalists in imperialist states, seek to undermine socialism, and would like to restore capitalism. Those with wealth gain influence in the state. Private capital creates corruption. Market mechanisms create inequality. So there are many dangers – and the above is only a partial list, and good and skilful political leadership is required to deal with them.

Such dangers flow from the fact that what exists in Cuba or China is only a partially developed, and not fully developed, socialist society. But these dangers are less than the necessary slow development of production that flows from the attempt to artificially suppress all commodity production.

Again, this does not mean, nor is it likely, Cuba should attempt to mechanically copy China’s model. First, no country can ever mechanically copy another – every country is unique. Second, China, as already noted, was a much poorer country than Cuba when it launched its reform process and therefore had less room to maintain social gains of the type in Cuba – indeed China is now reintroducing some of these as it comes closer to Cuba’s level of economic development. China is, self-evidently, of course a much big country than Cuba and that creates many differences by itself.

Stephen Wilkinson, who is sympathetic to Cuba, writes regarding the announced changes: “This leads some to suggest that the Cubans are following a Chinese or Vietnamese model. True, there are similarities between the two Asian tigers and what was announced yesterday. The Cubans have certainly studied both models closely. But my sources tell me that at a very high level, while the economic progress of the pair impressed, neither met with approval in their entirety. Cuba, they say, wishes to avoid the negative social consequences of the Chinese experience.”

Certainly, even China itself analyses that inequality has been allowed to develop too far. A major part of the recent economic reform policies of President Hu Jintao and Prime Minister Wen Jiabao – reintroduction of free schooling, reduction in price of medicines, plan for development of free health care, increases in minimum wages, subsidies of consumer goods in rural areas, priority to the development of the poorer inland Chinese provinces – have been aimed at reversing or reducing the effects of the very great inequalities that developed from the 1990s. It is neither necessary nor desirable that Cuba should allow such inequalities. And the necessary balance required between economic growth and social equality is both difficult and one of the most important a political leadership must deal with. But the overall structural economic shifts are required.

Patriotism, strong national state and international economy

A further issue that will be confronted in such an economic process is the internationalisation of the economy. Here a key issue is confusion regarding the questions of political patriotism, with the building of a strong national state, and a self-contained national economy. The two are not the same. Indeed lack of internationalisation of the economy weakens the building of a strong patriotic national state.

This can be seen clearly by looking at China. No one could have been more of a Chinese patriot than Deng Xiaoping. The economic policies he embarked on have strengthened China to the point where it enjoys greater prestige and authority in the world than for 150 years – it is the second most powerful state in the world after the US. The living standard of the Chinese people has increased hugely. A patriotic, powerful and independent Chinese state has been created.

One of the main driving forces in Latin America has, rightly, been patriotic struggle against the US. Building up a strong national patriotic state has been at the core of all left wing politics in Latin America –rightly so.

But in the modern economy the largest of all large scale production is international in scope. It is precisely for this reason that China has adopted the policy of ‘Going Global’ – that is of building internationally operating state owned companies. State owned companies that can export and invest and operate overseas. These companies form the core of China’s growing economic strength and therefore the core of its political state power.

Attempting to create a self-contained national economy, because it cuts a country off from the largest scale production, will produce a weaker national state. It was part of the genius of Deng Xiaoping that he understood that building a great patriotic Chinese state required internationalisation of the economy.

For Cuba itself, given the scale of its economy, such internationalisation has primarily taken place in areas such as tourism. For larger economies, such as Venezuela, it will apply across wider economic sectors.

Latin American socialists and Asian Communists

Finally, there is the broader context of the impact of Cuba’s new economic policies in Latin America. The relative weakness of Latin American socialists, as opposed to Asian Communists in China and Vietnam, has been their lack of worked out and successful economic policy.

Cuba is obviously the leading socialist force in Latin America. The internationalism of Cuba has been one of its most inspiring features. This has been not only been applied in Latin America. The sending of 15,000 Cuban troops to Angola to defeat the South African army at Cuito Cuanavale, followed by the dispatch of a further 40,000 troops to drive the army of the white racist regime out of Angola, is one of the outstanding pieces of internationalism in history and a decisive moment not only in the Angolan Civil War but of the defeat of apartheid.

But Cuba has a small population, and its economy is only one third the size of Venezuela’s for example. Cuba’s economic policy followed a Soviet model of a fully statised economy. While Cuba has been able to be an inspiring social model for Latin America, therefore, it has not been able to be an economic model in the way that China was for Vietnam. This meant that while Cuba was able to give massive political, medical and other help to Venezuela or Bolivia it was not able to provide an economic model of a way forward.

The new economic policies in Cuba, if they really do mean a shift towards a model of the China type – not in mechanical application but in underlying economic principles – could therefore be a crucial moment in Latin America. The fusion of Latin American socialist movements with the successful economic model of the Asian Communists in China and Vietnam would be one of the most positive developments imaginable. It would provide a viable economic model that could be applied by those attempting to create socialism in Latin America – and it does not necessarily have to be accompanied by the same political system as in China or Vietnam, or even by the same political system in different countries. At the same time, of course, such a policy is not without risks – but those who wish to avoid all risks should not be engaged in carrying out the socialist transformation of society.

The new economic developments in Cuba therefore merit the closest attention. If socialists across Latin America begin to learn from the economic policies of China and Vietnam this will be a step forward not only for that continent but for socialism throughout the world.