Bitcoin Sanctuaries

In early June, President Nayib Bukele of El Salvador announced to the Anglophone world his plan to make bitcoin legal tender. Days later, El Salvador’s Legislative Assembly – now stacked with Bukele loyalists – passed the proposal, and on 7 September the currency was officially adopted. Bukele promised that the country would soon be awash with bitcoin ATMs, facilitating conversions, transfers, and purchases of tokens. Fielding questions from an adoring audience at the Bitcoin 2021 conference in Miami, Bukele explained how cryptocurrency would alleviate his nation’s economic problems and help Salvadorans escape poverty. He said nothing of its darker uses, from untraceable money laundering to anonymous transacting on the black market to priming the country for illicit profiteering.

Bukele was quick to identify his antagonist for the Miami crowd: the predatory wire transfer services and traditional banks that extract commissions from remittance dollars sent by Salvadoran emigres. Bitcoin, he said, would reduce the reliance on expensive dollars and keep more money in the pockets of Salvadorans. At the same time, the President hoped that the move would prompt a new round of tech investment in the country, expanding the prototype crypto-community set up in the small surf town of El Zonte, now known as ‘Bitcoin Beach’. He touted the availability of cheap oceanside real estate, entrepreneurial opportunities, development projects such as geothermal volcano mining, and the inevitable growth of other tourist-friendly industries. Together, these would turn El Salvador into a tropical crypto sanctuary, reinventing the Panama model of a deregulated offshore financial service center for the 2020s. Citing blockchain’s growing adoption in Europe, the US and Canada, Bukele presented it as a beacon of hope for ordinary Salvadorans struggling to get by in the informal economy.

Beyond El Salvador, other Latin American states are beginning to view cryptocurrency as a worthwhile enterprise. They regard it variously as a path towards financial sovereignty, the basis of a successful platform economy, a means to jumpstart the post-pandemic recovery or renovate the region’s decayed financial sector. These dreams of empowerment, deregulation and financial inclusivity hark back to the year 2000, when Ecuador and El Salvador abandoned their national currencies, the sucre and colón, for the US dollar. Prompted by hyperinflation and devaluation, and intended to stimulate global investment, the process of dollarization in fact resulted in extreme income disparity plus stagnating or declining wages across sectors, followed by waves of outmigration. In practice, the US dollar now circulates across almost the entirety of Latin America as a second, unofficial currency – an arrangement that Bitcoin may upend.

In Paraguay, bitcoin and other cryptocoins are swiftly becoming part of mainstream political discourse, with laws mooted to encourage their use and applicability. In Mexico and Panama, new legislation will soon be introduced to increase Bitcoin’s mobility. Bitcoin ATMs and exchanges are scattered across Panama City’s shopping centers and strip malls, granting easy access for crypto traders, who have operated in a legal gray area for many years. Uruguay, now considered the ‘Silicon Valley of the Americas’, continues to make inroads into global fintech, recently launching its own cryptocurrency called the ñeripeso. In Puerto Rico, bitcoin entrepreneurs have taken advantage of liberal taxation laws to create an investment hub known as ‘Puertopia’.

It is no coincidence that Latin America is home to so many crypto havens. ‘Banking the unbanked’ has played a key role in the economic strategies of many Latin American countries striving to synchronize their informal economies with the rhythms of global accumulation circuits. In the 1980s, microfinance emerged as part of IMF-backed neoliberalization programmes to confront this challenge across the developing world. Accelerating in the 1990s, microcredit institutions began to crop up across Latin America – Argentina, Brazil, Costa Rica, Haiti and Venezuela – offering small-risk loans to the poor. As the region became a site for economic experimentation, its population was used to stress-test incipient financial instruments including early forms of ‘fintech’. The countries’ raw materials – bananas, palm, rubber, ore – and, by extension, their entire economies, became objects of market speculation. Meanwhile, trade liberalization policies precipitated recurrent debt crises which kept their governments trapped in fiscal bondage.

The turn towards Bitcoin is the latest of these experiments, which is likely to produce a kind of fiduciary colonialism. For bitcoiners, El Salvador’s reforms will provide valuable data on the social utility of cryptocurrency, demonstrating its function as a viable fiat currency. Yet the primary focus is on developing crypto infrastructure which can be exploited by Silicon Valley risk entrepreneurs. For the street vendor who worries about daily earnings, or the families reeling from the hardship of the pandemic, the influx of these techno-capitalists will inject yet more volatility into economic life. By creating unconventional markets of digital coins, blockchain essentially brings regular people into the speculative crypto bubble, where many will end up trading their subsistence wages for overvalued satoshis (the component cents of a Bitcoin).

Crypto use will likely continue to spread across the region as traditional banking introduces new Bitcoin credit products – from cards to rewards programmes – into the market. Yet El Salvador’s policy innovation, which could become a regional paradigm, is to use crypto for all state dealings, giving it official parity with the dollar for domestic transactions. The Bitcoin Law mandates that every business equip itself to accept crypto: a measure that threatens to create new forms of technological apartheid, given the unequal access to internet and smartphone technology across the country. Bitcoin will also increase the risk of cybercrime and petty theft (since people hold the currency in insecure ‘hot wallets’), as well as devastating local ecology by using volcanic energy to mine coins. Since its adoption, the cryptocurrency’s take-up has been patchy and contested, prompting Bukele’s government to launch propaganda campaigns to enroll citizens in the glitchy government cryptowallet, Chivo app. Almost 70% of Salvadorians oppose Bukele’s reform, and a movement to repeal it has been seen in the #NoAlBitcoin protests in the capital city. But the government, which grows more repressive by the day, has shown no signs of backing down.

If the Dollar Diplomacy of the early twentieth century led to imperialism by investment, forcing Latin American nations to put US interests above their own, then today’s turn to cryptocurrency will perpetuate this dynamic. Instead of offering community-responsive development, crypto diplomacy will pry open economies for super-rich investors searching for fiscal wildernesses to tame. Some risk-entrepreneurs are already receiving transaction commissions, earning on wallet and service adoption. Governments, too, will be able to acquire key information on the financial habits of crypto users by simply reviewing the public ledger – streamlining the mechanisms of state surveillance. For El Salvador, this is pure capitalism delivered through cryptography, where the daydream of laissez-faire decentralization masks an unsettling authoritarian creep.

Read on: Tony Wood, ‘Latin America Tamed?’, NLR 58.


Forces of Change

The extent of the break with neoliberalism initiated by the Biden administration will depend upon both the unfolding of Washingtonian politics and the impact of mobilizations from below. Yet in the background, impersonal forces will continue to affect the metamorphosis of capitalism through its successive stages. It is from these structural constraints and opportunities that the fabric of the current conjuncture is woven. What can contemporary political economy tell us about them? Beyond the sphere of mainstream liberal thought, an array of recent theoretical contributions have tried to diagnose the current moment by situating it in the long-term rhythms of capitalist development. They offer a fresh light, if not a magic key, for understanding the systemic shift represented by Bidenomics.

Such forces of change are routinely ignored by liberal economists. Market exchange is viewed as a sphere of activity that depends solely on itself; conscious collective intervention must not interfere with the invisible hand or spontaneous order. However, it is increasingly clear that this faith in self-equilibrating market adjustment cannot provide a general theory of rapid socioeconomic change, nor a specific explanation of our present political turbulence. Recognizing this limitation, The Economist recently rejected neoclassical equilibrium modelling and Friedmanite instrumentalism in favour of evolutionary economics, which ‘seeks to explain real-world phenomena as the outcome of a process of continuous change’. ‘The past informs the present’, it declared. ‘Economic choices are made within and informed by historical, cultural and institutional contexts’.

This intervention signals the weakened grip of neoclassical economics on the profession as a whole. Yet the evolutionary schema nonetheless retains a deep loyalty to bourgeois ideology, premised on the belief that Natura non facit saltum, ‘nature does not make jumps’. For this school of thought, evolution is always incremental. There may be pragmatic exceptions to this rule, such as when neoliberals embrace shock therapy to dismantle the remnants of the ‘unnatural’ socialist order in Eastern Europe, or launch a revolution against the French social model in the style of Emmanuel Macron. But this opportunistic voluntarism is rooted in the presupposition of the transhistorical virtues of the market; it neither relies on a theory of periods in capitalist history, nor on an explanation of its turning points beyond ad-hoc arguments.  

Four decades ago, John Elliott wrote in the Quarterly Journal of Economics that despite their opposed ideological commitments, Marx and Schumpeter agreed on the three salient characteristics of capitalism’s evolutionary dynamic: ‘It comes from within the economic system and is not merely an adaptation to exogenous changes. It occurs discontinuously rather than smoothly. It brings qualitative changes or “revolutions”, which fundamentally displace old equilibria and create radically new conditions.’ Pierre Dockès delineated this ‘mutationist’ perspective in his monumental work, Le Capitalisme et ses rythmes (2017): ‘mutation affects not an aspect or a character of the productive order, but the system itself: a change of state. From a certain threshold, there is percolation: the quantitative change of the elements crystallizes into a qualitative change of the state of the system’.

Still, the question remains: What is driving this percolation, and how exactly does it crystallize?  More to the point, which long-term trends are pushing the current mutation beyond neoliberalism?


To illuminate these issues, we can first turn to the rich intellectual tradition derived from Schumpeter and Nikolaï Kondratiev, which links technological change to multi-decade waves of capital accumulation. For this tradition, clusters of innovation are deployed during the expansionary phase up to the point where most profitable avenues have been exhausted. Then a depressionary phase fosters an intensive search for new business opportunities, sowing the seeds of a new potential expansionary phase. These shifts are long waves rather than cycles. While depressions are an ineluctable outcome of capitalist development, it is by no means inevitable that a fresh phase of expansion will be unleashed.

According to Ernest Mandel’s Long Waves of Capitalist Development (1980), ‘it is not technological innovation per se which triggers a new long-term expansion. Only when this expansion has already begun can technological innovations occur on a massive scale’.  This requires ‘both a sharp increase in the rate of profit and a huge widening of the market’. Because ‘the capitalist way of securing the first condition conflicts with the capitalist way of assuring the second’, Mandel argues that ‘changes in the social environment in which capitalism operates’ must intervene. In sum, while downturns are endogenous, upturns require exogenous ‘system shocks’ – wars, counter-revolutions, working-class defeats, the discovery of new resources – to allow capital accumulation to take off again.

Before his death in 1995, Mandel identified the ‘total integration of the former USSR and the People’s Republic of China into the capitalist world market’, along with a ‘major defeat of the working class’, as preconditions for an upswing. This analysis was partially borne out: the expansion of global value chains and the increasing rate of exploitation resulting from neoliberal policies, plus the availability of a huge reserve workforce, were decisive changes that propelled the upturn of the global economy from the mid-90s up to the 2008 crash. But due to mounting overcapacity and anemic demand, a full expansionary phase led by the digital economy failed to materialize.  

Mandel’s theory is seldom mentioned nowadays, but one can nonetheless find some of his ideas in the influential work of Carlotta Perez and Mariana Mazzucato. In a 2014 joint paper entitled ‘Innovation as Growth Policy: the challenge for Europe’, they too sought to describe the conditions for an economic upswing. ‘Markets alone cannot return us to prosperity’, they wrote. ‘Investment is driven by innovation; specifically, by the perception of where new technological opportunities lie. Private investment only kicks in when those opportunities are clear; public investment must be directed towards creating those opportunities across all policy spaces and affecting the entire economy’. Perez and Mazzucato attempted to move beyond Mandel’s reliance on ‘system shocks’ by giving the state responsibility for the extra-economic factors necessary to launch an expansion. Desirable innovation should be made profitable through industrial policy – financial regulation, demand management, education, etc. – while adequate tax, fiscal and monetary policies should equip this active state with the necessary resources. 

Thus, the forces of change can lie outside the economic sphere. For Perez and Mazzucato, the ‘current problems are structural’ (read: endogenous) and date back to decades before the 2008 crisis. But, crucially, they believe that conditions to overcome them lie in the autonomy of policymaking. Policy can change structural conditions. This is an inescapable lesson from Communist Party-led Chinese catch-up, and the basic rationale for state capitalism’s return to grace.

If one accepts this argument, it is tempting to push it a step further by exploring the factors that might foster institutional change and reframe the conditions for capital accumulation. What immediately comes to mind is Karl Polanyi’s ‘double movement’. In The Great Transformation (1944), he writes that ‘while laissez-faire economy was the product of deliberate state action, subsequent restrictions on laissez-faire started in a spontaneous way’. If liberalization is a political project, the destructive impact of market forces is automatically ‘stopped by the realistic self-protection of society’. While Polanyi’s focus is on institutional change rather than accumulation waves, his analysis draws an unmissable connection between the two.

A recent contribution from the post-Keynesian school picks up where Polanyi left off, proposing an elegant endogenization of institutionally-driven class conflict in long-run economic fluctuation. In Michalis Nikiforos’s model, ‘The increase in the profit share is related to the domination of the self-regulating market and inevitably leads to a crisis. Society will mobilize to protect itself and there will be a counter-movement, which…shows up as an increase in the wage share’. For Nikiforos, ‘this counter-movement can also later lead to a crisis that will make the emergence of the self-regulating market more appealing and will lead to a change in the direction of distribution and an increase in the profit share’. He argues that the instability of income distribution is due to class struggle dynamics: the more power a class has, the greater its potential to appropriate a larger share of societal income. But the power of each class in turn rests on ‘its potential effects on the macroeconomic performance of the economy’. When excess profit begins to damage the economy in general, the political pressure mounts for an arrangement more favorable to wages. And vice versa.

This framework allows for a straightforward interpretation of the current conjuncture: ‘The recent crisis and the current stagnation are the result of the neoliberal institutional arrangements, which emerged as a response to the profit-squeeze and the crisis of the 1970s…The sudden rise of egalitarian political forces that were until very recently on the fringe of the political system, or the popularity of Piketty’s book, are all manifestations of society’s reaction against the institutional arrangements responsible for the crisis and the stagnation’. The unidimensional focus on the distribution of income is of course a limitation of Nikiforos’s model, but the advantage is that it provides an explanatory mechanism at both ends of the fluctuation.

Economists influenced by the so-called Regulation School have also tried to explain the recurrence of ‘structural crises’ which necessitate a major institutional restructuring and produce a new balance of class forces. In The Rise and Fall of Neoliberal Capitalism, published in 2015, David Kotz anticipated a movement toward a more regulated form of capitalism, defined by a stronger state influencing and constraining the market. He notes that ‘the current crisis is not the first but the third crisis of a liberal form of capitalism in the United States. Each of the previous two crises was followed by a regulated form of capitalism. Big business played an important role in the shift to regulated capitalism both in 1900 and in the late 1940s, with large social movements creating a context that led big business leaders to support or acquiesce in an expanded state role.’

One of the strengths of the Regulation School, inherited from its Althusserian ascendency, is that its theorization of the succession of accumulation regimes is not limited to the regulated/liberal dichotomy. Each mode of regulation is organized under the constraint of a specific institutional form that weighs on the other components of the system. This allows for a serious engagement with capitalism’s qualitative evolution through its successive stages. Under this framework, competition, the capital-labor nexus and finance have each played prominent roles in different historical periods. Looking ahead, Robert Boyer sees the current conjuncture as open to producing three potential forms of regulated capitalism: a bio-capitalism centered around anthropogenetic activities; a platform capitalism associated with the rise of large digital companies; and a neo-dirigist state capitalism linked either to the Chinese model or to what he calls ‘democratic populism’.

The downside of the Regulation approach, however, is that the precise mechanisms of change tend to be overlooked. While mounting dysfunctionalities in the accumulation regime lead to a structural crisis, the process by which a new regime emerges is unpredictable – depending on trouvailles (incidental discoveries) rationalized ex-post by policymakers, theoreticians and social actors. The fascination with capitalism’s capacity to resuscitate itself after crises comes at the cost of an impoverished political imagination.

The most promising extension of the Regulation School – which comes closer to formulating a coherent theory of institutional change – can be found in Bruno Amable and Stefano Palombarini’s The Last Neoliberal (2021), an incisive analysis of Macron’s France. For Amable and Palombarini, macroeconomic dynamics, institutions and political mediations exist as a totality. Society’s institutional architecture stems from the historical sedimentation of macro-social compromises which are the result of irreducibly conflicting political processes. Those political processes are themselves determined by economic dynamics through the evolving expectations of various social groups. Following Gramsci, the neorealist approach places a clear emphasis on the autonomy of politics. Social expectations are not fixed in a crude expression of interests but proceed from moving ideological representations that respond to a specific political elaboration.

Macron is swimming against the international tide, toward an intensification of neoliberal restructuring. Amable and Palombarini’s theory provides a powerful interpretation of this phenomenon. The progressive disarticulation of the strongly coordinated national model, which took place over four decades of incremental neoliberal reform, disappointed the expectations of popular classes. This led to a disaggregation of the traditional right-wing and left-wing blocs, paving the way for a full-bloodedly neoliberal-bourgeois movement, embodied by Macron. However, the lack of popular support for this movement hinders is ability to pursue radical neoliberalization. This was forcefully demonstrated by the gilet jaunes, even before the Covid-19 crisis rendered the neoliberal playbook obsolete.


There is much to learn from these various iterations – Polanyian, post-Keynesian, Regulation, Gramscian – of the historical stages approach: the non-linearity of change, the contingency of technological-economic expansion on adequate institutional settings, the socio-political reactions to the destructive forces of markets, and the qualitative changes to the system brought about by its mutations. These insights help us to decipher the current conjuncture and forecast its possible directions. However, we must also keep sight of the cumulative effects of  successive developmental stages. Contradictions do not just exist within each phase; they also build up from stage to stage, as the dynamics of one accumulation regime conflict with its forerunners. Capitalism, as a system, is ageing.

With the globalization of manufacturing, overcapacity continues to mount and spatial fixes continue to exhaust themselves, making the internal contradiction of the process of accumulation manifest at a truly global level. It remains doubtful that services industrialization and its international fragmentation could create opportunities large enough to absorb this mass of overaccumulated capital. In the meantime, what James O’Connor described as the second contradiction of capitalism is gaining steam. For O’Connor, a key obstacle to capitalist development arises not within the accumulation process per se but ‘between capitalist production relations (and productive forces) and the conditions of capitalist production’, due to ‘capitalism’s economically self-destructive appropriation and use of labor power, urban infrastructure and space, and external nature or environment’. The ecological crisis, the rising price of healthcare and education, the deterioration of physical infrastructure – all this indicates increasing costs on the supply-side that could further hamper the accumulation process. Dealing with these issues is by no means out of reach of human agency. But it would be foolish not to ask whether the additional systemic constraint of profit-making may have set the bar too high.

Read on: Ernest Mandel, ‘The Industrial Cycle in Late Capitalism’, NLR 1/90.


Erdoğan’s Zigzags

Turkey’s economy is yet again in turmoil. The Turkish lira lost more than 10 per cent of its value against the US dollar in March, after President Recep Tayyip Erdoğan fired the central bank governor, Naci Ağbal, who had only been in post since the previous November. The lira’s plunge further increased inflation, which had already risen to 16 per cent after last year’s sluggish 1.8 per cent growth rate. Yet this was merely the latest episode in the ongoing breakdown of Turkey’s capital accumulation regime. The currency crisis of March 2021 followed the rapid depreciation of the lira in 2020 after the onset of the Covid-19 pandemic, which was itself a sequel to the currency crisis of August 2018 (precipitated by the country’s changeover from a parliamentary to a presidential system and the diplomatic crisis between Turkey and the US). While different events have triggered these recent upheavals, each one has followed a similar pattern: the government takes steps to lower interest rates and stimulate economic growth, thereby creating higher inflation and currency devaluations, which Erdoğan tries to resolve through a turn to austerity. This cycle has created a degree of political instability whose effects can only be contained through a crackdown on dissent. Yet to fully understand the reason for Erdoğan’s economic zigzags, we need to anatomize Turkey’s model of dependent financialization, along with the conditions that produced it.

Turkey’s ruling Justice and Development Party (AKP), led by Erdoğan, flourished between 2002 and 2013 due to relatively high economic growth stimulated by abundant capital inflows. The two main characteristics of Erdoğan’s neoliberal populist power strategy during these years were financial inclusion through providing cheap loans to lower income groups, and co-option of the poor through a new welfare regime. Back then, international media outlets presented Turkey as a ‘model country’ in which the Islamist government – which defined itself as ‘conservative democrat’ – was modernizing its economy and pursuing democratization as part of its application for European Union membership. The AKP, in turn, used the EU membership process as leverage against Turkey’s Kemalist establishment, concentrated in the Turkish military and the higher courts. This period was characterized by market reforms under the auspices of the International Monetary Fund: privatizations, labour market deregulation and the establishment of a depoliticized governance structure, including central bank independence. The combination of these policies was a key component of the country’s so-called dependent financialization regime, in which domestic demand was stimulated through credit expansion cycles fuelled by foreign investment.

During the first half of the 2000s, the AKP managed to eliminate the most militant part of Turkey’s organized working class via top-down privatizations. By this route, Erdoğan was able to escape from the impasse that the Turkish political establishment had faced during the ‘structural adjustment dilemma’ of the 1990s. While implementing the IMF-brand structural adjustment programmes provided fresh capital inflows which enabled the centre-right parties to stay in power, it also elicited a powerful backlash from working class organizations, which were able to stop some of the significant privatisations drives. Upon his election in 2002, Erdoğan therefore made the elimination of organized labour a top priority, with dramatic results: trade union density in Turkey decreased from 29 per cent in 2001 to 6.3 per cent in 2015, allowing the AKP’s market reforms to proceed unchecked. Simultaneously, household indebtedness – which rose tenfold between 2002 and 2013 – gave rise to a new disciplinary mechanism, making resistance more costly both in the workplace and on the streets, while reconstituting many lower income groups as supporters of Erdoğan’s low interest policies. Such were the pillars of AKP hegemony in the new millennium. Yet the drawbacks of dependent financialization came to be acutely felt during the early 2010s: Turkey’s reliance on capital inflows increased, its industrial structure eroded, and the foreign exchange-denominated debt of nonfinancial corporations increased to historic levels.

In this context, 2013 marked a turning point. International capital inflows slowed down following the US Fed’s announcement that it would taper its quantitative easing programmes – causing volatile growth rates for Turkey and others in the Global South. This period was characterized by financial turbulence, higher unemployment rates and rising inflation. Domestically, the AKP responded by using increasingly authoritarian measures to maintain its supremacy. Its rule was challenged from different angles, by grassroot opposition movements such as the Gezi Park uprising, and by intensified struggles within the power bloc, with the bourgeois factions represented by the AKP confronted by the ‘Güllenists’ (members of the political Islamist group led by former cleric Fethullah Gülen) embedded in the state bureaucracy. This combination of state crisis and capital accumulation crisis – which culminated in the failed coup attempt of 2016 – roiled the Turkish regime for most of the following decade. It has also underpinned the instability of recent months.

The events of March 2021 show how Erdoğan’s government has been paralysed by this conjuncture. Its economic agenda is now dominated by several conflicting accumulation strategies. On the one hand, Turkey’s large bourgeoisie, which has significant access to global financial networks, demands an orthodox monetary policy, the implementation of austerity measures and a pro-Western, pro-EU stance on foreign affairs. Their interests are complemented by the dependent financialization model, which requires higher interest rates to attract investment and drive domestic growth. But on the other hand, much of Erdoğan’s electoral base – small and medium-sized enterprises (SMEs), the construction sector, so-called Islamic capital groups that depend on government contracts and the domestic credit markets – will be hurt by higher interest rates. These groups are therefore demanding the continuation of cheap loans and a strong lira. Hence, central banking policy has become a crucial site of political contestation. Erdoğan continues to mediate between these rival interests, excoriating high interest rates as ‘the mother of all evil’ and postponing austerity measures for as long as possible to prevent another slide in the polls, while quietly submitting to the demands of the bankers whenever push comes to shove.

The Covid-19 pandemic has thrown these tensions into relief. In June 2020, Turkish policymakers once again tried to lower interest rates to stimulate the economy – but this predictably caused capital outflows and rapid lira devaluation. By autumn of that year, the country was facing a fully-fledged balance of payments crisis which prompted Erdoğan to reverse course and abandon the SMEs, implementing an austerity programme of wage restraint and public spending cuts, supported by interest rate hikes. Initially this strategy succeeded, with 15 billion US dollars of fresh capital inflows to Turkey since November 2020. Yet the turn towards fiscal rectitude alienated the AKP constituency at a time when its support was already waning, causing consternation among the president’s inner circle.

Then on 19 March 2021, Ağbal opted to raise interest rates to 19 percent – a move that threatened to further increase unemployment levels, which had grown to almost a third of the working population. In addition, the rate hikes forced SMEs that do not have access to international loan markets to take loans denominated in lira at unsustainably high rates. The combination of these two factors rendered the political cost of the central bank’s new interest policy untenable. Erdoğan dramatically sacked the governor, as if the rate increases were the latter’s personal initiative. Yet Ağbal’s replacement – supposedly one of the representatives of the ‘low interest rate coalition’ – has now promised to keep interest rates high for as long as it takes to control inflation. Irrespective of their political orientation, it seems, each governor will put the markets first; and Erdoğan won’t stand in their way.   

Turkey’s story is not unique. It is rather an instance of the long stagnation – and consequent rise in political authoritarianism – which has afflicted the global economy since 2008. Nonetheless, there are important national particularities. Turkey faces elections in 2023, so the opposition is currently trying to formulate a popular democratization programme which will loosen Erdoğan’s grip on power by reinstituting a parliamentary system. Despite this, the main opposition parties have presented no solution to the perils of dependent financialization. In essence, their pledge is to revive Turkey’s 2001 IMF programme while securing civil liberties, democratic processes and the rule of law. They thus pit neoliberal centrism against AKP authoritarianism without recognizing that the former is precisely what gave rise to the latter. Beyond these two failed projects lies the struggle against both repression and marketization, but, as yet, this platform has not been articulated by an electoral force capable of challenging AKP hegemony.  

Read on: Cihan Tuğal, ‘Turkey at the Crossroads’, NLR 127.


Day Zero in Cuba

The first of January 2021 was known as ‘Day Zero’ in Cuba. After almost three decades of operating with a dual currency, Cuba’s national peso (CUP) and its convertible peso (CUC) were unified as part of a broader process of ‘monetary ordering’ that also involves major price adjustments, the elimination of ‘excessive [state] subsidies and undue gratuities’ and significant changes in salaries, pensions, and social assistance benefits. The endeavour is without precedent, both because the US blockade restricts Cuba’s access to external finances and revenues, and because the process is underscored by the state’s commitment to cushion the population from the trauma of restructuring. It is also being carried out amid the global economic recession initiated by Covid-19.

In January 2021, Donald Trump became the 12th president of the United States to leave office without accomplishing regime change in Cuba, though it was not for want of trying. The Trump administration unleashed over 240 new measures to tighten the world’s longest and most punitive blockade, devised to cause misery and suffering among the Cuban people. Even in the context of the pandemic the pressure on Cuba intensified; Washington imposed suffocating sanctions while the Miami-based opposition promoted political instability and civil strife. In a final act of spite, on 12 January 2021, the Trump administration restored Cuba to the US list of state sponsors of terrorism, a move designed to obstruct any efforts by the new Biden administration to improve relations with the island.  

Incrementally since 2019, Cuba’s access to food and fuel has once again been severely impeded, export earnings slashed and foreign investors scared off. Measures to tackle the Covid-19 pandemic have demanded additional resources, while the economy was shut down and tourism revenues plummeted as borders were closed. Even while thousands of Cuban medical specialists have treated Covid-19 patients in over 40 countries, goods shortages on the island have made long, exhausting queues part of life’s daily grind, with Cubans rising at 4am to get in line. Poor agricultural production and the pandemic have exacerbated scarcity.

Cuba’s GDP fell by 11 per cent in 2020 – nearly one-third of the total fall the island experienced during the ‘Special Period’ between 1990 and 1993, following the collapse of the Soviet bloc. Hard currency receipts were just 55 per cent of planned receipts in 2020, while imports fell 30 per cent compared to 2019. Cuba needs hard currency to purchase on the international market; over half the food, fuel, medicines and other vital resources consumed on the island are imported, hence the unfilled shelves and long queues. This scenario both complicated and lent urgency to the process of monetary ordering.

Cuba’s dual currency dates back to 1993, the worst year of the Special Period, when the US dollar was reluctantly legalized to operate alongside the CUP. Possession of the dollar had been prohibited since 1979. Announcing the legislation in a speech on 26 July 1993, President Fidel Castro had made his distaste clear, warning of emerging inequalities as those in receipt of remittances would enjoy ‘privileges that the rest do not have’, something ‘we are not used to’. However, ‘black-market’ use of US dollars had become so widespread that prohibition was unworkable. Legalization transferred the benefits of using dollars from individuals to the state, so that everyone could benefit. It was also a necessary component of opening up the tourism industry, which operated in dollars. Furthermore, with so many Cubans having relatives in the United States, the inflow from remittances could bolster the ailing economy. However, remittances also exacerbated historically rooted racial and class inequalities, as most recipients were white and better off; their relatives who had left in earlier, politically motivated waves of emigration and were well established in the US or Europe, with adequate resources to send money back to Cuba.

US dollar transactions were permitted in the domestic economy and for personal use. Most basic necessities continued to be purchased in CUP, but luxury goods and supplementary basic goods available outside the ration-card allotment were sold at ‘hard-currency collection shops’, known as ‘dollar shops’, at prices that included steep taxes. For Cubans consumers, the value of the dollar quickly fell against the CUP (initially, from $1 = 150 CUP in 1994 to $1 = 18 in 1996) stabilising at $1 = 24 CUP. In state enterprises, however, accounting and exchange operations functioned with an official exchange rate of $1 = 1 CUP. This was problematic because it obscured losses and surpluses from their accounts, and removed incentives to increase exports. The enterprises’ economic results appeared the same whether their produce was sold internally for CUP, or exported for hard currency, even though the monetary value to the Cuban government was significantly different.

In 1994, the Cuban government introduced a new ‘convertible’ Cuban peso (CUC) to substitute the US dollar for use in Cuba at an exchange rate of one to one. The CUC was printed and controlled by the Cuban Central Bank. Gradually, use of CUCs outstripped US dollars; then in 2004 the US dollar was removed from legal tender. ‘De-dollarisation’ was a response to the Cuban Assets Targeting Group, set up by Bush to stop US dollar flows into and out of Cuba. The dual currency and dual exchange rates remained, however, with the CUC still pegged to the dollar, exchanged at 1 CUC to 24 CUP for Cuban consumers and 1 CUC to 1 CUP for state enterprises.

The dual currency divided the economy into two parts. Which branch any Cuban operated within depended on whether their income was exclusively from a state salary paid in CUP, or if they had access to dollars or CUC. Many Cubans had a foot in each sector. However, it also entrenched inequality and broke the link between work and remuneration. Incomes no longer reflected skill levels, nor the quantity or quality of formal work. Those with access to dollars could buy subsidized peso goods for a fraction of their market price and consume additional goods from dollar shops. Those dependent on peso incomes could not afford non-subsidized markets. State workers, including the most highly skilled, earned the lowest incomes. Many highly qualified Cubans left their professions for jobs with access to CUCs that provided them with a higher level of consumption, such as tourism, taxi driving or joint ventures.

Eliminating the dual currency was a priority for Cubans, according to the national consultations held during Raul Castro’s mandate as president. It was a key objective in the Guidelines for Updating the Economic and Social Model approved in 2011 and updated in 2016; and confirmed in the Sixth and Seventh Congresses of the Cuban Communist Party (2011 and 2016). In October 2013, the government announced that the process of reunifying the currencies was underway. The announcement was well received. Most Cubans had come to identify income inequality with the dual monetary system, and thus assumed that monetary unification would automatically see inequalities disappear.

The government’s statement, however, was clear: ‘monetary and currency exchange unification is not a measure which will, in itself, resolve all of the economy’s current problems, but its implementation is indispensable to re-establishing the value of the Cuban peso and its function as money; that is to say, as a unit of accounting, payment and savings.’ This was necessary, the official note said, for ‘developing the conditions which will lead to increased efficiency, more accurate measurement of economic activity and incentives for those sectors which produce goods and services for export and to replace imports.’ That statement was echoed in 2020 as ‘Day Zero’ approached.

Despite agreement about its urgency, unification was delayed while Cuba dealt with other pressing problems, but initial steps were taken. The one-to-one exchange rate in some Cuban enterprises was shifted to 1 CUC to 1 CUP, and later one to ten, massively devaluing the CUP, raising domestic production costs and requiring greater state subsidies to avoid passing on the higher costs to the Cuban population. The solution ultimately lay in increasing production and raising productivity. Essentially, ‘Day Zero’ is the culmination of years of preparation, the participation of hundreds of experts and, in the final months, the training of thousands of ‘cadre’, officials and specialists. It was also preceded by an intense public-information campaign with government ministers appearing on television daily to explain the measures and address Cubans concerns. This has continued into January 2021.

The minimum monthly wage for state employees (two-thirds of total employees) has increased by 525 per cent from 400 CUP ($17) to 2,100 CUP ($88); the new maximum, based on hours worked and excluding additional payments available, is 9,510 CUP ($396). Higher salaries will be linked to educational qualifications and other specialist criteria. The minimum age-related or disability pension was raised by 450 per cent to $1,528. These rises cushion Cubans from inevitable prices hikes, which were anticipated at an average 160 per cent for state-controlled prices and 300 per cent for private businesses. It follows that the greater proportion of income a Cuban spends in the non-state sector, the more they will be impacted by the soaring prices. However, the benefits of the salary rise to individuals will be eroded if goods scarcity leads to an inflationary spiral.

Higher salaries are structured to incentivise Cubans to improve their qualifications and skill sets. The adjustments will also push into work a large layer in society who get by without formal employment, benefiting from state provision and subsidized consumption. Already by December 2020, thousands of Cubans had applied for positions in the state sector. Yet scarcity remains high, and an inflationary spiral looms.

The ‘ration book’ will continue as a means for distributing highly subsidized food products, but subsidies for other goods in the family basket will be gradually removed as the emphasis shifts to ‘subsidizing people’, not products, so that state support is targeted to those in need.  

Nothing dramatic happened on ‘Day Zero’ itself. Cubans have six months to spend or exchange their CUCs at the existing rate of one to 24 CUP. The CUP will not be the only legal tender in Cuba, however. In 2019 the government ‘temporarily’ opened stores in freely convertible currency (MLC), including the dollar. These stores were extended in July 2020. Though widely unpopular, they are a means to provide the state with urgently needed hard currencies. These MLC stores accept bank cards only, which depends on Cubans having cash deposits in Cuban banks. The success of these stores largely depends on remittances, but these have been obstructed by targeted US sanctions plus the global downturn.

All Cuban state enterprises now operate with an exchange rate of $1 = 24 CUP, a devaluation of 2,300 per cent from the one-to-one rate. This is supposed to force them to increase efficiency and productivity in order to adjust. The state has committed to protect enterprises by providing subsidies and credit for one year. However, the drive to raise productivity is bound to reduce job security and increase unemployment – difficult for a workforce accustomed to extensive protections irrespective of performance.

State enterprises have been granted greater control over management decisions: setting prices, raising salaries, distributing profits and securing foreign exchange. State or non-state entities that export can keep 80 per cent of revenues. Those supplying the MLC stores can keep 100 per cent. ‘Monetary ordering’ should benefit exporters, while importers will struggle. This should serve as an incentive to substitute imports for domestic products, fostering national production linkages, saving scarce hard currency and increasing foreign-exchange receipts. The measures are also intended to equalize conditions for state-owned companies and non-state forms of management (self-employed workers, cooperatives, and private businesses).

For foreign investors, the monetary and exchange unification will simplify the process of negotiating, evaluating and managing businesses in Cuba. The positive impact is blunted, however, as the US Treasury threatens to fine foreigners engaging with Cuba. Cuba is struggling to combat US measures to scare off foreign investors. In December 2020, it announced that restrictions on foreign business ownership would be lifted (except in extractive industries and public services), removing the obligation for foreign investors to enter joint ventures with the Cuban state in tourism, biotechnology and the wholesale trades. Cuba’s annual foreign investment portfolio included 503 projects for which the government seeks $12 billion as part of its national development strategy.

Speculation about monetary unification, along with goods scarcities, saw prices rise in late 2020. The government responded by raising state salaries (3 million beneficiaries), pensions (1.7 million beneficiaries) and social assistance (184,083 beneficiaries) in December 2020, earlier than planned. To counter inflation, prices on dozens of key products and services remain centrally set, but these limits have to be enforced. New, higher tariffs on electricity consumption intend to reduce state spending and promote energy saving. Some 95 per cent of the electricity Cubans consume is produced from fossil fuels; 48 per cent of that is imported at high prices, which include a premium charged by suppliers to compensate for the risk of being sanctioned under the US blockade. However, in response to complaints from the population about the hike in tariffs, the government reduced planned increases.

Although the ‘monetary ordering’ exposes Cubans to greater market mechanisms, it is not a break with Cuba’s present system. In the context of US aggression, trade dependence, economic crises and scarcity, the government aims to adopt greater material incentives in the long-standing battle to raise production and productivity within the socialist framework. Back in November 2005, Fidel Castro talked about ‘the dream of everyone being able to live on their salary or on their adequate pension’ without need of the ration book, which allows a ‘parasitic’ layer in Cuban society to refuse to work while benefiting from state subsidies. From 2007, Raul Castro constantly referred to the ‘socialist principle’ of ‘each according to their ability, to each according to their work’ as an aspiration in Cuba. He has repeated it in relation to the monetary ordering underway.

Cuba delayed ‘Day Zero’, hoping to create propitious conditions for its implementation. But with the pandemic raging and a global economic recession just beginning, nothing was to be gained from further delay. The process may alarm Cubans, but as the adjustment filters through the economy, and with the state’s promise that no-one will be left behind, it could prove to be a vital step for Cuban development. Even if the Biden administration lifts some sanctions, this year promises to be another tough one for Cuba.

Helen Yaffe’s We are Cuba! is out now with Yale.

Read on: Emily Morris on Cuba’s surprising trajectory since 1991.