The “Rectification Process” (RP) from 1986-90 sought to abolish almost all private sectors. Castro had complete control of the economy, but the recentralization of decision-making was made in conjunction with a decrease in central planning. The result was such policies as further vertical merging of state enterprises, “[with] profits subordinate to the ‘national interest’ but he [Castro] did not operationalize the latter into indicators” (Mesa-Largo 269). During the RP, material incentives to workers were completely removed and moral incentives expanded.
Figures for how nationalized the Cuban economy became are striking. Similar to the Soviet Union in 1959 and Bulgaria in 1956 (although to an even greater degree), industry, construction, transportation and finance were all 100% nationalized industries. But the numbers are most astonishing with respect to agriculture. The Soviet Union (1959) and Poland (1960) each had 14% and 8% agricultural nationalization respectfully while Bulgaria (1956) had only 6%. Cuba in 1988, on the other hand, had 92% of agriculture nationalized (Mesa-Largo 336).
The result of the RP was the worst crisis since the Revolution. Even though exogenous factors such as the communist collapse also had disastrous effects, the fall occurred even before the 1990’s, pointing only to the RP to blame for the initial decline. The National Bank published reports on GDP for the period from 1986-89, showing average GDP at –1.3% and per capita GDP at –2.3% (Mesa-Largo 281). All output targets during this time were unfulfilled, most by a very large margin. Mesa-Largo points out a major flaw with the RP was that it did not create an “integrated economic-organization model” to substitute for the SDPE, a fundamental problem for a socialist nation (265). ...
The next stage of Chile’s economic path was a period of recovery from 1984-85 followed by sustained growth from 1985-90. The new team built upon the Chicago Boys’ work in the 70’s, pushing for greater privatization, foreign investment and trade, and expansions of the financial market. Two laws were passed in 1985 that began a system of “popular capitalism.” The system had two main objectives: first, rapid privatization of financial institutions that were previously state-controlled (under Allende) and second, distributing pieces of conglomerates to various private sectors (Mesa-Largo 81). Carmelo Mesa-Largo highlights the prescient thinking of the second objective in that, “If future governments wanted to intervene in or nationalize those enterprises, they would have to face a large number of stockholders” (81). The firms were insured of being distributed fully via 50% of the sales going through the stock market (Mesa-Largo 82).
The economic performance of Chile in this stage is also remarkably different than Cuba’s, with an average annual growth rate of GDP at 6.4%. Not only was overall growth a success in this period, but domestic investment was also promoted to lower dependence on foreign financing, increasing from 2.9% to 17.2% of GDP. Sectors that also will contribute to future growth experienced success, such as the industrial sector and transportation and communications with annual growth at 6.2% and 9.2% respectfully (Mesa-Largo 93).
In the mid to late 1980’s, it is nearly indisputable that Cuba’s nationalized economy was declining considerably while Chile’s market was rising.
Comparison of Cuba and Chile