The Shocking Truth About How Cuba Became Insanely Poor

Cuba's Economic Boom in the 1920s

• Cuba's sugar industry became a major contributor to its economy in the 1920s, generating billions of dollars.

• The country's world-class beaches and close proximity to the United States during alcohol prohibition made it a popular tourist destination.

• The influx of tourist dollars led to significant development in Havana, with new Ford automobiles, opulent hotels, yacht clubs, and modern infrastructure.

• At this time, Cuba had a high GDP per capita, more doctors per person than the UK, and comparable life expectancy and infant mortality rates to developed European nations.

• Cuba was undertaking initiatives to become the most literate Latin American nation.

• Overall, Cuba seemed to be on its way to becoming a prosperous country.

"By the 1920's its monumental sugar industry was raking in billions of dollars. Its world-class beaches and proximity next to the world's superpower, which was starved for alcohol during prohibition, would become what Americans described as '700 miles of playground'."

United States' investment controlled by Cuban government

• United States' investments in Cuba were now controlled and owned by the Cuban government.

• This was a result of the Cuban government taking control of the assets previously owned by the United States.

• The control of these investments by the Cuban government outraged the United States.

"This meant that the United States' huge investments were now controlled and owned by the Cuban government."

Joint trade partnership with the Soviet Union

• Cuba signed a joint trade partnership with the Soviet Union.

• This enraged the United States, as the Soviet Union was their ideological nemesis.

"But what truly enraged the US, was the signing of a joint trade partnership with their ideological nemesis, the communist Soviet Union."

Agreement with the Soviet Union for acquiring sugar

• The Soviet Union agreed to acquire 20% of Cuba's sugar for the next five years.

• The payment by the Soviet Union included cash, machinery, assistance of Soviet technicians, and 6 million barrels of oil.

"The Soviets agreed to acquire 20% of Cuba's sugar for the next five years, paying in cash, machinery, the help of Soviet technicians, and crucially 6 million barrels of oil."

Refusal of American oil companies to refine Soviet oil

• American oil companies, namely Esso, Shell, and Texaco, refused to refine the Soviet oil.

• The refusal was a result of pressure from the United States government.

"Esso, Shell and Texaco, under pressure from Washington, refused to refine the Soviet oil."

Seizure and nationalization of American-owned refineries

• In response to the refusal of American oil companies, Fidel Castro seized and nationalized the three American-owned refineries in Cuba.

• This prompt the United States to take retaliatory actions.

"Castro immediately seized and nationalized the refineries, prompting the US to hit back hard."

US cutting sugar quota

• The United States retaliated against Cuba by cutting the sugar quota.

• The sugar quota was an agreement to buy a percentage of Cuban sugar at a previously agreed upon rate.

• The sugar quota had been a cornerstone of the Cuban economy for the entire 20th century.

"They cut the sugar quota, which was an agreement to buy a percentage of Cuban sugar at a previously agreed upon rate. That sugar quota had been the cornerstone of the Cuban economy for the entirety of the 20th century."

Seizure of US-owned assets by Castro

• Infuriated by the actions of the United States, Fidel Castro seized all US-owned assets on the island.

• This included petroleum operations, telephone and electric companies, banks, railroads, hotels, casinos, distilleries, and all remaining sugar ventures.

"Castro, furious, seized all US-owned assets on the island, from petroleum operations, telephone and electric companies, banks, railroads, hotels, casinos, distilleries, and all remaining sugar ventures."

Diplomatic relations cut off and counteractions by the US

• As a result of the actions taken by both countries, diplomatic relations between the United States and Cuba were cut off.

• The United States carried out counter Castro operations for decades, including the Bay of Pigs invasion, supporting insurgency groups, and failed assassination attempts.

"For the first time Diplomatic relations between the two nations had been cut off, and the United states would carry out counter Castro operations for decades, including, the bay of pigs invasion, supporting insurgency groups, and failed assassination attempts."

US embargo on Cuban goods

• John F. Kennedy implemented a complete embargo on Cuban goods.

• This severely restricted trade between Cuba and the western world, a restriction that continues to this day.

"But the action that hurt Cuba the most was John F. Kennedy's complete embargo on Cuban goods. This almost entirely shut off Cuba from trade with the western world which still stands to this very day."

The Impact of Major Reforms on the Cuban Economy

• Dollarization of the economy: US dollar legalized and often required for transactions

• Legalization and enticement of foreign investment, particularly in expanding tourism

"There were two major reforms that had the most substantial impact on the economy. The first was the dollarization of the economy in which the US dollar was not only legalized but often required for transactions. The second was the legalization and active enticement of foreign investment, specifically in regards to expanding tourism."

Rapid Growth in Tourism and Its Effect on the Cuban Economy

• Immediate increase in hotels, restoration of old ones, and the emergence of restaurants and nightclubs in Havana

• Dramatic rise in tourist numbers from 340,000 in 1990 to almost 2 million in 2000

• Tourism becoming the lifeline of the Cuban economy, generating close to $2 billion annually

"Almost immediately new hotels sprang up, old ones were restored and restaurants and nightclubs dotted Havana. This proved to be wildly successful. From just 340,000 tourists in 1990 the number exploded to almost 2 million by the year 2000. Tourism became the lifeline for the Cuban economy generating close to 2 billion dollars a year."

Growing Disparity in Income and Living Conditions

• Dollarized sectors, such as maids, hotel receptionists, taxi drivers, and restaurant workers, earning more than doctors and teachers paid in peso under the command economy

• Dentists working extra jobs to afford basic needs while taxi drivers shopped in dollar-only stores

• All Cubans becoming second-class citizens in their own country

"Maids, Hotel receptionists, taxi drivers and restaurant workers receiving tips in dollars were being paid much more than doctors and teachers who were still being paid in pesos under the command economy. Dentists had to do jobs on the side to afford to eat, while taxi drivers shopped in dollar-only stores which never had shortages of food. At the same time, all Cubans became second-class citizens in their own country."

Reversals and Inequities Under Castro's Regime

• Blackouts and food scarcity experienced by the Cuban population while lavish hotels were well-lit

• Cubans waiting for delayed buses while restored 1950s taxis quickly shuttled foreigners between beaches

"They endured blackouts while peering into lavish hotels with well-lit lobbies. They struggled to find food while tourists ate at fancy restaurants. They waited for hours for delayed buses while the restored 1950s taxis quickly shuttled foreigners between beaches."

Class Division and Limited Economic Reforms

• Reforms created a new class division between the haves and the have-nots

• Superficial reforms in specific industries without changing the underlying structure of the economy

• Fidel Castro's gradual relinquishing of power to his brother Raul Castro in 2006

"The reforms that enabled Castro's regime to survive created a new class of haves and have-nots. But while the economy substantially grew in specific industries, the reforms that made it possible stopped coming, and were often subject to reversals. Indeed less economic freedoms were enjoyed with each passing year until Fidel Castro became ill in 2006, in which he finally let go of the iron grip on power that he held for almost 50 years."

Unfulfilled Hopes for Economic Transformation Under Raul Castro

• Limited progress in opening and normalizing relations with the US under Barack Obama's presidency

• Efforts towards economic transformation reversed under Donald Trump's presidency in 2016

• Worsening economic situation in the late 2000s due to low sugar prices, closure of a major military installation, destructive hurricanes, and stagnant tourism growth

"Despite the apparent willingness to open and normalize relations with the US when Barack Obama was elected in 2008, these efforts never amounted to much and were largely reversed when Trump was elected in 2016. The Cuban economic situation by the late 2000s started to worsen significantly. Sugar prices remained subdued, Russia closed down a major military installation, the island was hit by a series of very destructive hurricanes, and the growth of tourism leveled off."

Cooking the Numbers and Reliance on Foreign Assistance

• Cuban government started manipulating national income statistics instead of implementing necessary reforms

• Venezuela, under Hugo Chaves' socialist rule, provided generously priced oil to Cuba

• Cuba relied on exporting doctors to generate revenue, with 46% of the nation's export earnings coming from this source

"The government created a new methodology for calculating national income and Cuba started cooking the numbers of its economy, choosing to outright lie about its economic turmoil instead of reforming further. For a time, this was okay as Venezuela, now under the control of fellow socialist Hugo Chaves, started supplying Cuba with generously priced oil... With its excess of Doctors, Cuba for a long time and increasingly so was relying on generating revenue by shipping tens of thousands of them abroad."

Ineffectual Reforms and Preservation of Power

• Limited reforms instituted under Raul Castro's leadership, similar to those in the 90s

• Lack of comprehensive structural changes to improve the economy and the lives of Cubans

• Unwillingness of those in power to undertake reforms that would jeopardize their personal power and privileges

"However, just like the reforms in the 90s, they did little to change the underlying structure of the economy, being used more as a bandaid to problems than real change that would bolster the economy and improve the lives of Cubans... In the meantime, it will be the Cuban people that face unnecessary hardship, food shortages, and a future that is devoid of much opportunity for their children unless they manage to escape."