Tuesday, December 26, 2017

Eckstein: "Dollarization and Its Discontents: Remittances and the Remaking of Cuba in the Post-Soviet Era."

Eckstein, Susan. 2004. "Dollarization and Its Discontents: Remittances and the Remaking of Cuba in the Post-Soviet Era." Comparative Politics 36(3):313-30.

Eckstein begins by pointing to remittances as a source of foreign exchange for receiving nations. She distinguishes between the effect of remittances on individuals and their effect on receiving states. It's possible for remittances to benefit individuals but not states, or to help further the goals of the individuals but not the states. Second, remittances are not a substitute for other kinds of income to individuals who receive them. Third, remittances may have unintended consequences for receiving individuals. "Effects hinge on the social con- text in which remittances become embedded" (p. 314). It's interesting that she refers to "individuals" whereas Taylor refers to households.

Unlike Taylor, Eckstein focuses on the role of the state (and the impacts of remittances on the state). For example, she notes that refugees send back less in remittances than economic migrants perhaps because refugees oppose the government they fled. She then introduces the specific case she is considering: Cuba. "Cuba should, in principle, represent a most likely case of a state able to regulate remittance inflows and the uses to which they are put" (p. 314).

Eckstein says, "After the cold war Cuba, along with other remaining Communist regimes, had no option but to reintegrate into the global market economy for trade and financing, irrespective of any efforts to regulate market features domestically" (p. 314-315).

Eckstein seems to be most concerned with how states accomplish their goals. She points out that even a strong state may not be able to control black market activity. So she's looking at how a state like Cuba might be able to control what its citizens do in order to accomplish the state's own goals. She adds that the state might not even have clear goals, or even if the top of the government does have clear goals, different agencies and institutions may have competing goals and they might undermine each other.

She writes: "Regimes often face trade-offs in setting priorities between consumption and investment, the long and short terms, and political administrative and technical economic concerns. or such reasons, official remittance-linked policies may be grounded in institutional political and not merely economic rationality, with these two types of rationality possibly colliding. Policies designed to bring remittance dollars to the government, to address fiscal and other economic exigencies, for example, may have the unintended effect of eroding state capacity to maintain law and order, if they induce the populace to seek dollars illicitly or for purposes not legally permitted" (p. 315).

Following the paper's introduction, Eckstein provides background information about the Special Period in a more detailed way than before. She brings up the impact of the U.S. embargo and adds that world sugar prices declined and that hurt Cuba as well since sugar is an important export for the island. Sugar production also declined. Cuba received little in foreign aid, investment, or bank loans. However, tourism grew (this was a specific strategy of the government's to gain income and presumably foreign exchange too). But given everything else, remittances were an extremely important part of the economy. Eckstein writes, "The state and ordinary Cubans each had reasons for courting remittances. Analytically separable, their efforts became concretely inter- meshed, sometimes mutually reinforcing, at other times not" (p. 316).

Then she gets into the meat of her analysis. During the Special Period, Cubans could obtain some of what they needed with their ration books, but it was not enough. The black market flourished, but black market prices were unaffordable compared to income (she provides examples of chicken or cheese costing a third or a fourth of someone's monthly salary). Cubans had free education and health care and inexpensive shelter, and the food one got in rations was inexpensive, so low salaries in pesos were manageable until one needed to turn to the black market for food and other necessities.

Officially, pesos and dollars were worth equal value. On the streets, dollars were worth 130 times more than pesos. Even a small amount of dollars could go a long way in purchasing black market goods. Remittances were the way to go. Cubans received remittances from family members in the U.S. in ways that defied both U.S. and Cuban law. U.S. laws were cumbersome and limited the amount one could send, so many avoided these limitations by sending money through informal channels. For example, some relied on mulas, middlemen who carried goods and money to Cuba. (Incidentally, when I arrived in Cuba, an entire set of tires were on the baggage carousel. They were somebody's checked baggage.)

"Desperate for hard currency, the Cuban government introduced measures to induce remittance-sending in ways designed to channel money to its treasury" (p. 319-320). However, the state worried that dollars would lead to individualism and materialism. Realizing that the remittances were happening anyway, the state responded to, essentially, make the best of it. The first change the state made, in 1993, was legalizing possession of dollars. Then they allowed Cubans to shop at dollar stores that were previously reserved for foreigners. Dollar stores sold goods at inflated prices, bringing more needed hard currency to the state. Third, they set up official exchange booths that exchanged dollars at the street exchange rate to "soak up dollars not spent at dollar stores" (p. 320).

With these measures in place, the unofficial exchange rate dropped down to 21 pesos to the dollar (down from 130). This was nowhere near the official rate of 1:1. This gave a better exchange rate to those with dollars than the state would have liked, but the alternative would have been people continuing to rely on the black market and the state getting no dollars at all.

Eckstein continues, listing several more measures the state took with regard to remittances to attempt to achieve its own goals. They had previously portrayed emigres negatively and had limited how much Cubans could bond with their overseas relatives. Now they had to change their tune, because they needed the emigres to visit Cuba and bring dollars with them. This was a political risk, as the emigres would bring with them negative opinions about the Castro regime that they would share with their relatives on the island. Cuba even allowed more emigration to increase the remittance-sending base living overseas.

Compared to other nations, Cuban emigres were different. Those who left decades before for political reasons sent less money than Dominicans or Salvadorians (the two nations Eckstein uses for comparison) even though they were wealthier. Cubans also had fewer relatives abroad who could send remittances. Those who emigrated after 1990 were more similar to remittance-sending relatives from other nations.

She also mentions racial disparities. Whites were more likely to oppose the Castro regime and leave, compared to Blacks. Therefore, whites in Cuba are more likely to have relatives abroad who can send them money (assuming their relatives can get over their hatred of the Castro regime and actually send it... which many did not). Remittance receiving families were also disproportionately urban. This increased inequality in Cuba, which runs counter to the government's goal of equality. Eckstein notes that in other nations, remittances counter inequality; in Cuba, it widens it.

Remittances also reduce adherence to revolutionary values. In addition to promoting materialism, it also led to corruption, rent-seeking, and theft.

On the other hand, remittances provided much needed hard currency, and it alleviated political pressure by taking the edge off of the deprivation Cubans faced in the early 1990s. But the benefits to the state are limited. Cuba imported less in 1999 than it did before the start of the Special Period, even with all of the dollars from remittances it received. And its debt increased during that time as well. The influx of dollars also eroded state control over the economy, for example, by fueling the black market. And it eroded the value of work, since jobs paid in pesos the equivalent $10-$20/mo in dollars. It encouraged people to skip out on their peso-earning job to engage in sideline activities that brought in dollars. (I bought a handmade dress in Cuba in 2010 for $15, and I was told the price was equivalent to about half a month's income.)

The influx of dollars brought a domestic brain drain as highly skilled professionals who earned only pesos turned to low skilled work (such as working in tourism and even prostitution) that gave them access to dollars.

Eckstein's greater point, that remittances may bring benefits to the families who receive them while simultaneously working against the goals of the state, is a good one. However, Cuba is such a strange and unique case compared to other nations that I find it doubtful than the specific findings from Cuba are broadly applicable to most other nations that receive remittances.

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