Studies for a Post-Communist Cuba

1. Mr. Kennedy has rejected both the extremes of invading Cuba and of leaving the Cubans to Castro and Communism. This rejection, which in the present circumstances seems the responsible course, leaves open a wide middle range of policy alternatives. Specifically it raises a question as to our policy in the event of sudden and drastic (or even slow and drastic) political change in Cuba.

2. Such a change may take place. There are many signs of turbulence as well as terror in Cuba. While it would be foolish to predict a move from passive to active resistance with any certainty, it would be equally fatuous to ignore the possibility. Revolutions are highly uncertain matters and they have frequently caught us by surprise. With or without our help there is a significant chance of internal upheaval. Such a contingency -- both the upheaval and its aftermath -- should be seriously planned for.

3. Is it? Take the aftermath. What should be done with the expropriated, formerly U.S. owned public utilities? How deal with the extensive nationalization of land and industry? Now that the sugar market has been transformed by the entry and expansion of new producers with U.S. quotas, what can Cuba substitute for a radical decrease in prospects for its principal export? These are only a few of the hard questions that would need answers.

Much material is already available and some work undoubtedly has been done. But it is important to carry through systematic and intensive studies, in and out of the classified community, on political, economic, social programs for a post-Castro Cuba. Such studies should

1. Examine the alternative military-political paths events might take in Cuba; not, of course, all possible paths, but the grossly different ones, and those with a considerable chance of occurring.

2. Consider the main interests and political predispositions of principal groups likely to figure in a changeover and what follows.

3. Study schedules for restoring civil rights and elections which will offer some safeguards against extremist solutions.

4. Analyze the consequences of alternative economic and social policies. These should include measures that might be taken by the Cuban government and problems that will confront the U.S. and allied countries. How will such policies affect the stable growth of GNP and its distribution? How will the various alternatives affect the major groups involved, including the U.S. and other foreign interests.

4. For the extremes of invasion or even accommodation (which might fail) as well as for the middle range of policies, such studies of Cuba will come in handy.

5. The transformation of a Communist Cuba into a free society would have enormous importance not only for Latin America, but for the whole world. It would represent the first such transformation, and it would occur in a context in which war, because of our great local and over-all military superiority, is not a major risk. We would want it to work.

A. Objective

The aim of the study would be to analyze the key objectives, problems and alternative solutions for transforming the present Communist economy of Cuba. It should be paralleled and complemented by another study of political problems and goals for a transitional regime; and perhaps in practice it will turn out that the two studies should at all points be closely connected. The current proposal, however, concentrates on the economic and social program for a post-Castro Cuba.

Two jobs might be involved. (1) One is fairly technical and objective: to enumerate the main economic and social problems of post-Castro Cuba and to assess alternative ways of meeting them. In assessing the alternatives, the range of choices that seem sensible might at least be narrowed and some preferred alternatives suggested according to explicit criteria of choice. At the same time it should be recognized that these criteria are not quite the same in the work of the second job.

(2) The second task concerns U.S. policies for helping bring about and for operating in a post-Castro Cuba. In Washington slang, "orchestrating" the various instruments of U.S. policy: economic and social development programs, the possible use of force, assistance to and coordination with internal resistance, changing the expectations of potential defectors from Castro's regime by deals as well as appeals, etc. These last matters of course are not separable from political study.

Batista and pre-Batista Cuba were far from satisfactory to Cubans and their dissatisfaction provided the opportunity for political subversion which Castro seized. Castro has introduced drastic changes, some of which, to start with, bettered and many of which in the last two years have seriously worsened the economic conditions of Cubans. In particular, he has moved rapidly and radically to introduce state ownership and collectivization both in agriculture and industry. It is important that post-Castro Cuba not be simply a return to the status quo under Batista or Prio. While Cuba, in 1958, was third or fourth in average per capita income in Latin America, the wide disparities in income cannot be regarded as an adequate system of incentives for growth. It appears on some competent accounts that Cuba was stagnant in the decade before Castro.

In any case both politically and economically a return to the condition under Batista is no longer feasible. The competitive position of Cuban sugar, for example, which accounted for 1/4 of its GNP and most of its exports has radically changed with the introduction of new producers with American quotas. In raising productivity and the efficiency of the economy and in spreading the benefits of such increase more generally, markets have a major role to play. And Cuba, it would seem, can use the capital and entrepreneurial skills of Bacardi and Owens Glass, etc. However, significant changes from the pre-Castro pattern of Cuban and foreign investments are almost surely called for, and even larger changes from the chaotic stratification introduced by Castro. The United States has investments of its citizens which are at stake, but even broader considerations affecting the future of Communism in the world should determine U.S. policy.

B. Examples of Questions[1]

1. What objectives for economic and social development in Cuba?
   1. Growth, employment, stability, diversification.

   2. Possible conflict among these objectives. (For example, recent work on international savings comparisons suggests that savings are quite sensitive to distributive shares (i.e. whether income is received in the form of profits or wages.) To some extent, efforts to equalize income and wealth distribution might decrease savings and make growth more difficult.

   3. Relative importance at different stages in the functioning of a successor regime.

2. How grossly to mark the line between the public and the private, the planned and free market sectors?
   1. Appropriate criteria and their applications to different economic activities in Cuba.

   2. Interdependence of the two sectors.

   3. Main types of activity contemplated for public sector.

   More specifically

3. What to do with the State Farms?
   1. Give them back to their owners.

   2. Distribute them in family size farms (20 to 60 acres) among the workers.

   3. Distribute them in medium size farms (300 to 1,000 acres) among carefully selected workers or foremen or efficient minifundistas.

   4. Leave them as "fincas de beneficio proportional," Puerto Rico style; and

   5. A combination of the former formulaes, according to agreed upon principles.

4. How to compensate the owners of expropriated land (that presently in the hands of small tenants, who should in any case be confirmed in their property and that presently in State Farms, as far as it is not returned to their owners)?
   1. Bonds not guaranteed against currency depreciation and not convertible into cash for development projects.

   2. Bonds not guaranteed against currency depreciation but convertible into cash for development project.

   3. Bonds temporarily guaranteed against currency depreciation and convertible into cash for development projects.

   4. Bonds guaranteed in toto or in part by industrial shares forthcoming from a capital levy intended to distribute the burden of agrarian reform among all property owners.

5. What to do with U.S. owned public utilities?
   1. Keep them nationalized and arrange reasonable terms of payment with shareholders.

   2. Sell them to private Cuban corporations.

   3. Return them to their U.S. owners.

6. Tariff policy of public utilities.
   1. Austerity high tariffs to pay for reconstruction and development.

   2. Low welfare tariffs.

   3. Tariffs to cover costs of production.

7. Wage, exchange rate and monetary policy.
   1. Austerity wages, extremely high taxes and orthodoxly oriented (though not orthodox) monetary policy to keep inflation within bounds or open galloping inflation?

   2. Single or multiple rates? How to encourage a rapid increase in domestic food production without raising excessively the cost of living?

   3. Capital levy of 30% to 40% to guarantee reconstruction loans but mainly as a political counterpart to austerity wages and also as a step towards a more widespread holding of industrial shares (by gradually selling these shares in small lots)?

8. How to finance reconstruction and rehabilitation of private business?
   1. Need to study a system of automatic long term low interest rate loans for reconstruction of fixed capital and also automatic but short term and normal interest rate loans for working capital.

9. How to compensate for lost export markets (mainly sugar, but also possibly tobacco)?
   1. Need to establish the bases of a "bootstrapping" "up-steep-hill" development policy, which will probably have to be protectionist and unorthodox in a large degree.

10. What alternative policies toward new foreign investment?
    1. Tax inducement and foreign exchange policies.

    2. Employment and management constraints.

    3. Treatment of U.S. and of new investment by U.S. and non-U.S. nations.

11. Foreign aid from U.S. and OECD sources.
    1. Import deficit likely to be associated with different growth rates, and different Cuban investment and monetary policies.

    2. Terms and criteria for U.S. aid -- relation to Alliance for Progress.

    3. Possible aid from OECD countries.
       

C. Methods

The first urgent job is to get an up-to-date picture of the present status of Cuba's economy (which is something not available to the current Cuban leaders). To continue with the previous examples, we need a close look at ownership and tenancy in Cuban agriculture, the current division of land, kinds of equipment available, labor status, etc., as well as production, income and employment data in as much detail as possible. This would have to be put together from official statistics and the numerous fragments available in Cuban newspaper and magazine reports, speeches by Castro, Guevara, Rodriguez, etc. and from intelligence sources. The intensive U.S. air reconnaissance of the island during the crisis over the Russian missile bases might yield information to Photo interpreters on the status of agriculture and other segments of the economy. It is possible that comparative photographs may be available for April 1961 if we conducted photographic reconnaissance before the Bay of Pigs.[2]

Given the current status, alternative self-consistent sets of solutions could be elaborated using consultants, for example, agronomists familiar with Cuba, such as former agricultural attaches in the Embassy in Havana (Chester Davis, etc.)

The study need not make a final choice in all cases among the alternate sets of solutions. In some cases all that is possible might be a narrowing of choice, the elimination of some clearly bad choices and the elaboration of the remaining alternatives for future decisions.

[2] Felipe Pazos suggested this source and Amrom Katz may be able to locate some expertise. See M-9698, "Up-to-Date Poop on an Idea Involving Agriculture and Reconnaissance," 12-7-62, now being revised as a D.