Volume 3

Economic Development and Revolutionary Transformation in Nicaragua

Richard L. Harris

CITATION INFORMATION
Harris, Richard L., Latin American Issues [On-line], 3.
Available: http://sites.allegheny.edu/latinamericanstudies/latin-american-issues/volume-3/

ABOUT THE AUTHOR

Richard L. Harris is a specialist in the areas of political and economic development, public administration and educational reform. He has over fifteen years of university teaching, research and consulting experience in both Latin American and African affairs. He is one of the Coordinating Editors of the quarterly journal, Latin American Perspectives, and he is also a fellow of the Council on Hemispheric Affairs in Washington, D.C. His publications include a recently published collection of essays entitled Nicaragua: A Revolution Under Siege (London: Zed, 1985).

PREFACE

This publication is based primarily upon field research undertaken by the author while resident in Nicaragua from August, 1983 to May, 1984. It provides an analysis of revolutionary Nicaragua’s new mixed economy and its industrial development. It also addresses the question of whether or not the country is undergoing a socialist transformation.

An earlier version of this work has been published in a book of essays co­edited by the author and Carlos Vilas. The present version is more extensive and has been updated to July, 1985. It also departs from the earlier essay in that it explicitly applies a conceptual framework that is based upon the theoretical formulations of Clive Thomas, a Guyanese Marxist scholar who is noted for his work on the problems of economic development and socialist transformation in underdeveloped societies.

The author sincerely hopes that this publication will help to clarify the nature of the revolutionary process at work in Nicaragua and contribute to a greater understanding of the profound transformations that underdeveloped societies must undergo in order to achieve the integrated development of their economies and meet the basic needs of their people.
– Richard L. Harris

I

INTRODUCTION

This essay seeks to contribute to a general understanding of the problems associated with developing the forces of production in revolutionary Nicaragua. It will focus specifically on the conditions, obstacles, and prospects for Nicaragua’s industrial development, since it is assumed that this focus offers the best vantage point for examining the development of the country’s productive forces and assessing the possibilities for the socialist transformation of Nicaraguan society.

Despite the voluminous literature on the development and underdevelopment of the Third World countries, there has been surprisingly very little attention given to the analysis of the industrial development of small, underdeveloped capitalist societies such as Nicaragua. This would appear to be the result of the biases and assumptions underlying current thinking on the economic development of such societies. Clive Thomas’ excellent critique of the conventional wisdom on this subject has revealed that contemporary thought and practice tends to be based on the assumption that small, underdeveloped Third World countries cannot fully industrialize their productive forces. Thomas refutes that assumption and proposes an alternative paradigm for the socialist transformation of small, underdeveloped capitalist societies. (see Thomas, 1974).

Thomas’ paradigm provides a useful theoretical framework for examining Nicaragua’s industrial development and assessing the prospects for the socialist transformation of its forces of production. The author has chosen this theoretical framework for analyzing revolutionary Nicaragua, not because he assumes that Nicaragua is undergoing a socialist transformation, but because this is widely considered to be the case and because it is an important question which must be addressed in any honest intellectual effort to analyze the reality of, and prospects for Nicaragua’s development.

A complete exposition of Thomas’ ideas on the development of small underdeveloped societies is not possible within the confines of this essay. Nevertheless, a brief review of the basic outlines of his conceptual framework is presented here before entering into an analysis of Nicaragua’s industrial development. It should be noted that in addition to being a well-known Marxist scholar with broad experience in the Caribbean and Africa, Thomas is a political activist in his native Guyana, one of the smallest of the many small underdeveloped countries in the Third World.

Basic to Thomas’ critique of the conventional wisdom of the development of small underdeveloped countries is his refutation of the notion that their small size precludes the integrated industrialization and the complete structural transformation of their economies. He demonstrates that this conventional wisdom is based upon unfounded assumptions about the requirements of economies of scale, demand and market size, optimum output considerations, etc. Not only does Thomas argue that these assumptions are unfounded, he also claims that they reflect what are for the most part capitalist criteria. Thomas attributes the fact that these assumptions are uncritically accepted by many socialist as well as non-socialist economists and planners to the persistence of imperialist perspectives (e.g. neoclassical economics) and the “devastating psychological influence of underdevelopment.” (Ibid: 181)

He argues that the industrial transformation of the productive forces in these societies requires both the planned convergence of their domestic resource use with their domestic needs and the development of an indigenous technology that provides the organic link between these two factors. He further argues that this can only be accomplished through the socialization of both their forces and their relations of production.

According to Thomas, small underdeveloped societies of the Third World can achieve the integrated industrialization of their economies provided they follow a strategy based on disengagement from the international capitalist system, the vertical integration of their demand structure with their domestic resource endowment, the intensive use of domestic resources to satisfy the basic needs of the population, emphasis on the domestic production of the primary inputs required for their manufacturing industries, the development of an indigenous technology centered on a local machine building industry, the establishment of adequate facilities for the technical training of the labor force, the sequential development of small capital goods industries, (democratic planning, the progressive generalization of collective over individual consumption, and the establishment of complementary trading relationships with other Third World and socialist countries in place of existing trading relations with the major capitalist centers.

What is particularly interesting in terms of our focus on the industrial development of Nicaragua is Thomas’ rejection of what he calls the spurious dichotomization of the productive process into industry and agriculture. For Thomas, industrialization implies the progressive spread of industrial techniques into all branches of material production, including agriculture. Therefore, the industrial transformation of small, underdeveloped societies involves the industrialization of agricultural production. Moreover, in place of prevailing development strategies that reinforce over-specialization in agro-exports, Thomas argues that agricultural production should be reoriented toward fulfilling the basic food needs of the population and providing the primary inputs for domestically produced manufactured goods. He criticizes the notion that small underdeveloped countries must follow the Cuban model of agricultural specialization, and refutes the argument that the demand for industrial products is not sufficient in such countries to justify the establishment of a wide variety of modern, technologically efficient industries. According to Thomas, this argument betrays an uncritical acceptance of the capitalist conception of demand as a constraint on output, and gives no importance to the needs of the population. It also reflects unsupported prejudices about the real variety of modern industries that can be established in these societies and the impact of size on the social costs of establishing them.

Thomas makes it clear that the failure to be self-sufficient in the output of mass consumption foods is not only a severe constraint on the growth capacity and industrial development of small underdeveloped societies, but also a major factor contributing to their structural dependence on international capitalism.1 Moreover, he demonstrates that agro-export production in the present historical era does not contain enough dynamic demand potential to transform agriculture or to generate enough surplus to industrialize the other sectors of the economy. On the other hand, the dynamic demand potential inherent in the need of the population to feed, house, and clothe itself is far superior to that of agro-exports. Therefore, he argues that agricultural production should be reoriented to satisfy these needs through the production of food and the basic inputs needed for the local production of textiles, leather goods, cooking oils, soaps, wood products, etc.

With these basic outlines of Thomas’ conceptual framework in mind, we can now turn to a brief examination of Nicaragua’s pre-revolutionary economic development. This will than be followed by an analysis of the transformations in the relations and forces of production which have taken place since the revolutionary triumph in 1979. Particular attention will be given to the country’s industrial development in these two periods and to the prospects for the progressive industrialization of the country in the near future. Our analysis will conclude with a discussion of the structural obstacles which presently limit Nicaragua’s industrial transformation and the socialization of its forces of production.

II

NICARAGUA’S INDUSTRIAL DEVELOPMENT PRIOR TO THE REVOLUTION

Like most small underdeveloped countries, Nicaragua’s economic development has been based on agro-exports. As a result, the country’s economy has been extremely vulnerable to the price fluctuations of its export products on the world market. This has resulted in trade deficits and balance of payments problems as the prices of Nicaragua’s agro-exports have deteriorated and the prices of the manufactured goods it imports have increased. The country’s overspecialization in agro-exports has also tended to retard and deform the industrialization of its economy. Instead of experiencing a process of increasing industrial transformation of its basic products, the country has experienced a type of crypto-industrialization based on small light industries that use imported inputs, imported machinery and very few indigenous resources. This type of limited industrialization has served to make Nicaragua vulnerable to the vagaries of the international market, contributed to its trade deficits, and left the country with a small and fragile manufacturing sector incapable of promoting the industrial transformation of the rest of the economy.

At the beginning of the 1950’s, Nicaragua’s economy was based fundamentally on the export of coffee and gold. The development of the country’s economic infrastructure of roads, energy, ports, etc. was minimal. The greatest part of the population, more than 75%, lived in the rural areas, and more than 25% of the national income was in the hands of less than 1% of the population. (see IBRD, 1953).

During the fifties, the country experienced a relatively high rate of economic growth centered on the boom in world demand for cotton. Nicaragua became a major producer and exporter of cotton during this period, and by the mid-sixties, Nicaragua’s cotton yield reached the highest in the world – averaging an increase of 33% per annum. (Biderman:14) During this period the country also began to-export sugar, seafood, and beef. The diversification and boom of its agro-exports, however, took place at the expense of the reduced production of basic food crops and the displacement of the peasants that produce them. Declining production of the major food crops, corn, rice, and beans, led Nicaragua to begin importing food in 1955. (Ibid: 16-17)

Starting in the sixties, largely as a result of the formation of the Central American Common Market, Nicaragua experienced a limited amount of industrial development. But the problem with this industrial growth was that it was based on a model of development which only served to reinforce the unbalanced and externally dependent character of the economy.

The nature of this model is revealed in the report of the mission which the World Bank sent to Nicaragua in 1952 to investigate the country’s possibilities for economic development. First of all, the mission took as an unquestioned premise that Nicaragua would “…continue to be predominantly agricultural country for the foreseeable future,” and that its “…industrial development must necessarily be subordinate to, and dependent on, its agricultural development since the products of the farms are the raw materials of industry.”(IBRD,1953:109) On the basis of this premise, it recommended the growth of small industries centered around the processing of domestic agricultural materials. Among the factors which the mission felt favored the industrial development of the country, it gave importance to the following:

The concentration of income in the hands of a relatively small part of the population should be a favorable basis for increased industrial production through private capital formation.(IBRD:116).

In addition, the mission recommended that the government assist the development of industry by enacting laws that would provide for:

– Free imports of original production machinery and equipment for new industries for a period of five years.

– Free imports by all industries of raw materials which do not exist in Nicaragua.

– Tax free privileges for new industries for a period of up to five years after original construction has been completed.

– Equal rights for foreign and domestic capital, and a guarantee that profits may be freely transferred into foreign exchange.(Ibid:
125)

These passages and others throughout the mission’s report give clear evidence of the World Bank’s, and of the international capitalist community’s, conception of how industrial development should and can take place in an underdeveloped economy such as Nicaragua. The country’s small capitalist class in association with foreign capital was expected to invest in the limited industrial development of the country, and the government was expected to provide the proper incentives to encourage this.

This model of industrial development was in fact subsequently incorporated into the plans and programs of the Central American Common Market, which gave impetus to the type of deformed industrialization experienced by Nicaragua and the rest of the Central American countries during the sixties and seventies.

In Nicaragua’s case, the expected larger markets that resulted from this effort at regional economic integration induced a limited amount of investment in the establishment of light industries involved in the production of consumer and intermediate products for both the domestic market and for export to other Central American countries. Most of these industries were set up with secondhand machinery imported from the United States, Europe, or Japan. In addition to processed foods, leather goods, textiles, and furniture, which were already being manufactured largely on an artisan basis in Nicaragua, the main areas of new investment were in chemicals, construction materials, and metal products. In the case of the latter, most of these industries were set up to assemble or process imported inputs (i.e., raw materials, semi-finished goods, chemicals, etc.). (Biderman:25)

Although ostensibly designed to substitute locally manufactured products for imported products, this process of limited industrialization failed to result in an authentic process of import substitution. Nor did it result in any significant development of basic industries such as metallurgy, paper, machine building, etc. which would have contributed to the integrated industrial development of the economy. It also increased Nicaragua’s dependence upon imported goods, raw materials and machinery. For example, one study indicates that as of 1974, 96% of the inputs used in the manufacture of rubber products, 95% of the inputs in electrical appliances. 88% of all inputs in printing and publishing, 85% of the inputs in metal products, and 65% of the inputs in chemical products were imported.(Weeks:19)

The negative effects of this kind of industrialization on Nicaragua and the other Central American countries are recognized in a recent report by the LT.N.’s Economic Commission for Latin America, which states that:

“…due to the lack of a more vertically integrated industrial development, the changes in the composition of imports involved in actuality create a more vulnerable balance of payments due to the concentration on foreign sources of supply in raw materials, parts and components, and in equipment and machines.”(CEPAL, 1982:21)

Since the Commission was one of the most important forces behind the formation of the Central American Common Market and the strategy of limited industrialization which was encouraged within the Common Market countries during the sixties and seventies, it is all the more significant that the Commission now recognizes that the industrialization which Nicaragua and the other Centrally American countries experienced during this period not only failed to contribute to the balanced development of their economies, but also served to aggravate their trade imbalance and external indebtedness.

Moreover, Nicaragua’s economic growth during the decades preceding the revolution was not accompanied by a comparable degree of social development. Life expectancy during the mid-seventies was one of the lowest in Latin America, nearly two-thirds of the rural population over 10 years of age were illiterate, and a 1973 survey found that three-fifths of the rural population had a deficient food intake.(IBRD,1981:32) And even though the total workforce in manufacturing, construction, and services increased significantly between 1960 and 1979, nearly half of the Economically Active Population (EAP) was still engaged in agriculture by the end of the seventies. Thus, in 1979, the EAP was estimated at approximately 800,000, with some 354,000 persons engaged in agriculture, 83,000 in manufacturing, 34,000 in construction, 95,000 in commerce, and 159,000 in services. (Ibid:67)

By the late seventies, inflationary pressures from the international market, fluctuations in the prices of Nicaragua’s basic agro-exports, and the country’s growing foreign debt, brought to a near standstill its fragile industrial development. Moreover, during the revolutionary insurrection, investments were halted, there was a massive flight of capital from the country, many factories were damaged or destroyed, the flow of imported inputs was disrupted, and most of the factories owned by Somoza’s supporters were left abandoned and without funds. In the countryside, many fields were left unplanted, herds of cattle were slaughtered, and the general disorganization of the agricultural sector left the country with an immediate food shortage. The disruption of agriculture also meant that the country experienced a serious foreign exchange problem since the level of export earnings was substantially less than in previous year. (Black:201)

According to United Nation’s estimates, direct damage to the economy was in the order of $480 million dollars and at least $1.5 billion dollars in capital fled the country. (CEPAL, 1981:35) The financial system was bankrupt and the country faced an enormous foreign debt. The Somoza regime and its supporters had amassed an external debt of $1.65 billion dollars, mostly with U.S. commercial banks in the form of short-term credits. This amount was equivalent to about $4,000 dollars per family and larger than the entire national income. (Fitzgerald, 1932b:202) Thus, the new revolutionary government had to confront an economy in crisis and an industrial sector that was decapitalized and disorganized.

III

THE ROLE OF INDUSTRY IN REVOLUTIONARY NICARAGUA’S MIXED ECONOMY

In this section, we will examine the specific character of revolutionary Nicaragua’s “mixed economy,” and the role which industry plays within this mixed economy. The focus will be on the larger context which presently conditions and limits the prospects for Nicaragua’s industrial development. Special attention will be given to such factors as the structure of property, the class composition of the Economically Active Population, the general structure of supply and demand, the opposition of large private enterprise to the revolutionary regive, the reactivation of production in the different sectors of the economy, the balance of trade, the shortage of foreign exchange, and the reformulation of the country’s economic strategy in the face of increasing difficulties. Each of these factors will be related to Nicaragua’s industrial development.

We can begin by noting that the new revolutionary government that took power on July 19, 1979, had to face immediately the tasks of reactivating the war-damaged economy and reconstructing the country. One of the new government’s first acts was the confiscation of the properties and enterprises that had formerly belonged to Anastasio Somoza and his closest followers. Most of these had been abandoned, their records destroyed, and their funds carried off by their former owners. The new government also took over control of the bankrupt financial system, the insurance companies, foreign trade, and the country’s run-down mining sector. These confiscated properties and holdings formed the bulk of the new state sector of the economy, call the Area de Propiedad del Pueblo (Area of People’s Property or APP). Within this new state sector, the agricultural holdings were placed under the supervision of the new Instituto Nicaraguense de Reforma Agraria (Nicaraguan Institute of Agrarian Reform or INRA), while most of the confiscated enterprises involving some form of manufacturing were by 1980 placed under the new Corporacion Industrial del Pueblo (People’s Industrial Corporation or COIP). (Black:207-210)

The new revolutionary government made no attempt to socialize the entire productive process or eliminate private capital. To the contrary, the government offered guarantees to the private sector that private property would be respected and that private enterprises would be encouraged of the economy. Since the outset of the revolutionary regime, the political leadership has repeatedly made it clear that the elimination of private enterprise and an extensive socialization of the means of production are not objectives of the Sandinista Revolution. This is reflected in the following statement by Commandante Jaime Wheelock, one of the architects of the country’s economic strategy:

It is important to understand that the socialist model is a solution for contradictions that only exist in developed capitalist countries. Now, for a series of reasons, many of them political, and others having to do with hunger and desperation, certain peoples have made a revolution in the worst conditions of social development.
…This is our case. Even though we have socialist principles, we cannot effect the transformation of our society by socializing all the means of production. This would not lead to socialism, rather, on the contrary, it could lead to the destruction and disarticulation of our society. (Wheelock:lOl).

In other words, the Sandinista model of social transformation and economic development is based on the premise that it is not possible to socialize all the means of production in an underdeveloped country such as Nicaragua. Therefore, it is necessary to enlist the cooperation of private enterprise in the development of a “mixed economy” in which various forms of property coexist – state, cooperative, small private, medium private, and large private.

Chart No. 1 reveals the extent to which the structure of property has changed in Nicaragua since the revolution. This chart permits a comparison of the proportion of the Gross Domestic Product (GNP) generated by the following three main categories of property: state property or the APP, large private enterprise (which includes medium as well as large producers), and small private enterprise (which includes cooperatives as well as small individual producers). By comparing the figures for 1977 (the best year economically prior to the revolution) with 1982 (the most recent year for which reliable data are available), it is possible to see how much the different forms of property have changed in terms of their share of the GDP. For example, in 1977 the state sector generated only 11% of the GDP, while large private enterprise produced 67% of the GDP. However, by 1982, and as a consequence of the revolution, the state sector had increased its share of the GDP to 39% while large private enterprise’s share of the GDP had declined to 31%. During this same period, small producers, largely as a result of the benefits of the revolutionary government’s economic policies, increased their proportion of the GNP from 22% to 30%.

Chart 1

As Chart No.1 indicates, the state sector as of 1982 accounted for 21% of the GDP in agriculture, 31% in manufacturing, 90% in mining and construction, and 38% in services and commerce. Large private producers continue to predominate in agriculture and manufacturing, where they account for over half of the GDP in both of these sectors. Finally, small private producers generate half of the GDP in commerce and services as well as one quarter of the GDP in agriculture.

If large, medium and small producers are combined, the private sector today accounts for approximately 60% of the GDP. In agriculture and manufacturing, the two main productive sectors of the economy, private producers generate 79% and 69% respectively of the GDP. Thus, the importance of private producers in revolutionary Nicaragua’s mixed economy is much greater than is generally considered to be the case outside the country. Actually, the structure of property in Nicaragua is not very different from that in various countries of Latin America (for example, the Dominican Republic). In fact, revolutionary Nicaragua has a smaller state sector than Peru did under the reformist military regime of General Juan Velasco, Argentina under the populist regime or Juan Peron, or Chile under Salvador Allende. (Pensamiento Propio, No. 6-7;25)

It is important to note the differences that exist within Nicaragua’s private sector. The most important distinction, reflected in Chart No.2, is that between large, medium, and small producers. In Nicaragua, the large producer is the cotton-grower who cultivates more than 500 manzanas (1 manzana equals 1.72 acres) of land, the coffee-grower with more than 65 manzanas of coffee, the rancher with more than 1,000 manzanas dedicated to livestock, and the manufacturer who has more than 100 workers. Medium producers are agriculturists who possess from 50 to 500 manzanas of cotton or food crops, ranchers with 200 to 1,000 manzanas dedicated to livestock, finca (estate) owners with 15 to 65 manzanas of coffee, or manufacturers who employ between 30 to 100 workers. Finally, small producers are all those members of the Economically Active Population (EAP) who possess their own means of production but fall below the minimums given above for medium producers. (Pensainiento Propio, No.6-7:27)

As Chart No.2 indicates, large private producers today control 25% of the value of all material production, medium private producers 18%, and the small private producers 20%. However, the importance of these three categories of private producers varies considerably between the different sectors of production. For example, the large private producers generate 37.3% of the value of production in export agriculture, 63.9% of the value of production in export agriculture, 63.9% in agro-industry, and 32.5% in manufacturing. The medium private producers account for 21.7% of the value of production in export agriculture, 30.4% in livestock and 22% in manufacturing. Small private producers predominate in the production of basic food crops for the internal market (61.5%), and are important in livestock (33.9%) as well as fishing (28.1%).

Chart 2

Since agriculture is the key sector of Nicaragua’s economy, it is important to examine more closely the present structure of property in this sector. Prior to the revolutionary triumph, 41.2 percent of the arable land in Nicaragua was owned by large agrarian capitalists with estates and ranches consisting of more than 500 manzanas. (See Chart No.3) However, as a result of the confiscation of the extensive landholdings of the Somoza family and their closest followers, as well as the more recent expropriation of a limited number of underutilized and decapitalized large holdings, the proportion of land now in the hands of property owners with more than 500 manzanas has been reduced to only 12 percent.

A sizable proportion of the confiscated and expropriated land has been placed under the administration of the state, which now exercises control over 23 percent of the arable land (See Chart No.3). The rest has been distributed to individual small producers and cooperatives. As of July, 1985, a total of 88,000 peasant families had received land under the Sandinista Agrarian Reform Program. (Bairicada Internacional, July 18, 1985.6) The cooperativization of the small producers has been actively promoted by the revolutionary government, and more than 50 percent of the peasantry are reported to be organized into either service or producer cooperatives. The Sandinista Agricultural Cooperatives are production cooperatives in which the members collectively own and work the land. They represent a more socialized form of production than the Service and Credit Cooperatives, which are formed by individual producers who come together in order to obtain credit and technical services from the government but who work their land individually and do not share their earnings with the other members of the cooperative. The Sandinista Agrarian Reform Program has distributed land to peasants in both of these types of cooperatives as well as to peasants who are not prepared to join cooperatives. (Ibid.)

The agrarian reform program has also terminated the dictatorial control that the large agrarian capitalists previously exercised over the rural population through exploitative wages, rents and money-lending. The government has forced the large landowners to reduce drastically the price for which they rent their lands to small producers and landless peasants. Moreover, the state now provides credits and loans at very reasonable rates to the small producers. It also regulates the working conditions of the agricultural labor force and the marketing of agricultural products.(Barricada, December 19, 1983:3)

Chart 3

However, despite the important changes that have been brought about by the revolution, it is important to note that the APP or state sector of the economy produces only about one-fifth of the total value of production in agriculture. (See Chart No.2) Whereas, large and medium private producers generate more than half of the value of production in agro-exports and agro­industry–the two most critical subsectors of Nicaraguan agriculture.

Within this heterogeneous structure, what is most important in terms of the prospects for industrializing Nicaragua’s agricultural production is the fact that most agro-industry is controlled by large private capital. Even though the state sector has increased its influence to the point that it now generates over one-quarter of the value of agro-industrial production, large private producers still control nearly two-thirds of the value of production. In other words, they own most of Nicaragua’s coffee mills, cotton mills, and slaughter houses. (Barricada, November 28, 1983:3).

The structure of ownership in the manufacturing sector also reflects the importance of private enterprise in revolutionary Nicaragua’s mixed economy. As Chart No.2 reveals, the state industries in the APP generate approximately the same total value of production in manufacturing (31.3%) as the large private producers (32.5%). However, medium and small private producers account for another 34.2% of the value of production. In other words, over two-thirds of the value of production in manufacturing is generated by private producers. This means that the development of this sector of the economy, under present circumstances, cannot take place without the cooperation of the private producers.

Nicaragua’s large private producers can be divided into 3 sub-groupings (Envio:20-2l). The first group is composed of what are referred to as the “patriotic bourgeoisie“. They have invested and participated actively in the new mix economy, either because of personal convictions, or because they politically support the Sandinista regime. The second group, which is probably the most numerous, is composed of capitalists who are undecided about whether they should actively participate in the mixed economy. They tend to maintain a minimum level of production. Finally, the third group are opposed to the Sandinista regime and can be considered counter­-revolutionary. They are the most politicized and control the Consejo Superior de Ia Empresa Privada (Supreme Council of Private Enterprise or COSEP). This group has political connections with the Reagan administration and with conservative economic and political forces throughout Central America. (Ibid) As Chart No.3 reveals, the large or grand bourgeoisie in Nicaragua numbers slightly over 2,000 persons, and the medium bourgeoisie around 40,000 persons.

Chart No. 4 on the class composition of the labor force, despite its limitations and imprecision, is a useful indicator of the relative importance of the different classes and forms of property in revolutionary Nicaragua’s mixed economy. Although the data presented in this chart are based on 1980 estimates, they generally represent the current situation. This chart reveals that nearly half of Nicaragua’s Economically Active Population of 908,000 persons in 1980 were involved in agriculture and that almost one-quarter of the EAP possessed their own means of production. In terms of the distribution between state and private sectors, the data for 1980 indicate that somewhat less than one-quarter of the total labor force were employed by the state (206,300 persons). Thus, the private sector is clearly the main employer in Nicaragua. Moreover, within the private sector, small private enterprise accounts for the vast majority of the EAP in the private sector. In fact, half of the country’s EAP consists of either small private producers or persons employed by small private producers.

Turning to the non-propertied classes, Chart No.4 reveals the relative importance of these different classes and class strata in Nicaragua’s EAP. Here it is important to note the class composition of the labor force employed by the state sector. In 1980, the APP employed 65,200 petty bourgeois administrators and technicians, 73,100 skilled and unskilled workers, and 68,000 semi-proletarianized rural workers. In contrast, large and medium private enterprise employed 26,400 petty bourgeois administrators and technicians, 108,400 skilled and unskilled workers, and 79,000 semi­-proletarianized rural workers. Finally, small private producers employed 82,000 members of the semi-proletariat and served as the only source of employment for the country’s large sub-proletariat of seasonal rural workers, urban domestic employees, and unemployed rural and urban workers.

Based on this rough sketch of the class structure and its relationship to the productive process in Nicaragua, we can now turn to a more general analysis of the mixed economy. We start by comparing the structure of the Gross Domestic Product before and after the establishment of the revolutionary regime. Chart No.5 reveals that the GDP was larger in 1977 than in 1982 (the most recent year for which reliable figures are available). This is because Nicaragua is still suffering the consequences of the revolutionary insurrection – in particular the decapitalization of the economy as well as the recent effect of the Reagan administration’s undeclared war on the revolutionary regime. Recent figures indicate that the flight of private capital has been much greater than was originally calculated, perhaps as high as $3 billion U.S. dollars, or greater than the present GDP of the country. (Envio: 18)

Chart 4

In terms of the composition of the GDP, it appears that on the supply side of the picture the economy today is not much different than before the revolution. Today, as ten years ago, approximately one-quarter of the GDP is produced by agriculture, and about the same proportion by manufacturing. Basic services such as transportation and communications have remained about the same. Commerce and mining have declined somewhat. However, social services as well as general government have increased in importance.

On the other hand, some important changes have been achieved by the revolution in terms of consumption. As Chart No.5 indicates, private consumption in general has declined since the revolution, while public consumption (general government, social services, etc.) has increased from 8% of the GDP in 1977 of 25% in 1982). Private basic consumption (food, clothing, basic services, etc.) has also increased considerably, from 35% of the GDP in 1977 to 43% in 1982. Meanwhile, private consumption of non­essential goods (e.g., durable goods such as appliances, automobiles, etc.) has declined from 38% to 22% of the GDP. What this reflects is the revolutionary government’s relatively successful efforts to restrict the consumption of non-essential goods and increase popular consumption of basic goods and public services.

The revolutionary regime has pursued a strategy of restricting the importation of nonessential goods (largely consumed by the upper classes) while rationing and subsidizing basic goods in order to increase their consumption by the lower classes. The government has also tried to restrict wage and salary increases. The reasoning behind this strategy is explained by E.V.K. Fitzgerald, one of the economic advisers to the government:

The lesson of the Chilean experience, and to a certain extent in Cuba as well, was that nominal salary increases only served to increase the prices of food to the disadvantage of the popular classes. Therefore, in Nicaragua it was decided that the only way to produce changes in the economy which would improve the distribution of incomes was through increasing the supply of wage goods. (Fitzgerald, 1982a:14)

In other words, instead of redistributing income through increasing the salaries and wages of the popular classes, the revolutionary government has sought to redistribute income through policies that result in the increased consumption of basic goods by these classes.

Chart 5

Chart No.5 also reveals that public investment since the revolution has increased to 14%, while private investment has declined from I 1% of the GDP in 1977 to only 2% in 1982. What this indicates is the private sector’s reluctance to invest capital in the development of the new mixed economy. According to representatives of the private sector, their reluctance to invest in the economy is due to both the government’s failure to give them adequate guarantees (that their property and profits will not he taken away from them) as well as government restrictions on foreign exchange, credits and imports (see Carnara de Industrajas de Nicaragua, 1983). Government officials reply that the reluctance of the private sector to invest in the economy is due largely to political motives and the efforts of the counter-revolutionary elements within this sector to sabotage the economic policies of the revolutionary regime.

The political opposition of a sizable proportion of the private sector to the Sandinista regime and to its mixed economy model, has in fact seriously affected the economic recovery of the country. Nowhere has this been more obvious than in the industrial sector. In a confidential discussion paper written in 1982, a World Bank team sent to Nicaragua reported that:

The recovery of industrial production has been hampered by the reluctance of the private sector to expand production and to invest in the absence of sufficient guarantees. Given its predominant participation in the productive process, the private sector will largely determine the pace and extent of economic recovery through its investment decisions.(IBRD, 1982:16)

As observed by the World Bank team, the weak recovery of industrial production as well as the economy as a whole is largely due to the private sector’s failure to expand production and invest in the development of the country.

The report mentioned above blames this situation on the revolutionary government’s failure to set “clear and consistent rules of the game” for the private sector, and its failure to provide “…an effective system of guarantees and long term incentives…” (Ibid.) Due to the government’s failure to follow the Bank’s recommendations on setting acceptable rules of the game for the private sector, the report concludes that “…the private investment climate has deteriorated to a point that it will be very difficult to improve for some time to come.” (Ibid:12) The phrase “clear and consistent rules of the game” is the World Bank’s euphemism for stating that the private sector should be given a greater voice in the political process and more autonomy in making investment decisions and disposing of its profits. However, if the revolutionary government followed the World Bank’s recommendations in this regard, it would have to renounce its determination to reorient the country’s investment priorities and redistribute the national income in favor of the interests of the popular classes. In other words, it would mean renouncing its model of a mixed economy aimed at serving the basic needs of the population and returning to a model of dependent capitalist development based on the interests of foreign and local private capital.

The fact that the revolutionary regime continues to seek the cooperation of the private sector in the development of the economy is evidenced by the amount of credit which the government has made available to private producers. Chart No.6 reveals that 54% of all government credit between 1980 and 1982 was given to the private sector, as opposed to 46% for the state sector. Moreover, in agriculture and ranching, even larger percentages of credit were made available to the private sector. The one exception has been the industrial sector, where between 1980 and 1982 only 34% of all government credit was directed to private enterprise, as opposed to 66% for the state industries in the APP. This can be explained in large part by the reluctance of the large private producers to invest in the development of the industrial sector.

Due to the lack of investment on the part of the private sector as well as the crisis of the Central American Common Market, the international economic recession, and the structural deformations inherited from the past, the reactivation of Nicaragua’s economy since 1979 has not reached pre­revolutionary levels of production. Chart No.7 reveals the extent to which the levels of production in the different sectors of the economy in 1982 compare with the levels of production in 1977– the economic highpoint of the pre­revolutionary period. These figures indicate that certain sectors of the economy, such as agriculture and basic services (water and electricity), have almost reached the 1977 level of production, whereas others, such as mining and construction, continue to suffer a serious reduction in their pre­revolutionary level of activity. As indicated above, the manufacturing sector has yet to recover its pre-revolutionary level of production, and in 1982 produced only 79% as much as it produced in 1977.

This does not mean, however, that the country’s economic performance in all respects is inferior to its performance in the pre-Revolutionary period. Mention has already been made of the increased level of popular consumption of basic goods and services. In addition, it is also important to note that the production of certain basic products has increased considerably in relation to pre-Revolutionary levels of production. This is the case, for example, with regard to rice, beans, pasteurized milk, cooking oil, and soap. As Chart No. 8 reveals, the index of production in these products is considerably above that of 1977. This reflects the revolutionary government’s efforts to increase the supply of basic products for popular consumption.

Chart 6

Chart 7

Chart 8

The performance of Nicaragua’s mixed economy can also be compared with the pre-revolutionary economy in terms of the level and composition of its foreign trade. In small, underdeveloped economies this is always a critical dimension of economic health, and revolutionary Nicaragua is no different in this respect than any other small Third World country. Most of the country’s industry depends upon the importation of essential inputs, its agriculture is centered on the production of agro-exports, and the domestic consumption of certain basic goods is dependent upon the importation of a significant proportion of these goods. As chart No.9 indicates, the value of Nicaragua’s exports have declined since 1977, while the value of its imports have exceeded that of its exports – leaving the country with a negative trade balance. The situation was particularly acute in 1982, due to the fact that the country suffered damaging floods, followed by a severe drought, as well as the economic and military effects of the Reagan administration’s undeclared war. Thus, the production and export of agricultural products declined, as did almost all other indicators of economic performance, such as growth in the GDP, in consumption, and in fixed investment.

In the last two years (1984-85), the damages caused by the war have adversely affected Nicaragua’s agro-export and domestic food production. In 1984, the escalating attacks against production units in the northern sections of the country caused a sharp decline in the production of basic grains and such critical export crops as coffee and cotton. (Barricada Internacional, May 28, 1984:3).

Moreover, as a result of the negative trade balance in recent years ($450 million in 1985), Nicaragua has been forced to cover the net loss in payments through incurring short-terms loans and credits. (Barricada Internacional, June 27, 1985:5) In other words, its negative trade balance has increased its external debt, which increased from $1.57 billion dollars in 1980 to $4.5 billion in 1985. (Ibid.) Approximately $1.5 billion of the current debt is held by private banks and financial institutions and most of this portion of the debt is a legacy of the Somoza regime. Since Nicaragua’s annual export earnings are insufficient to cover its essential import requirements, the government has found it increasingly difficult to make its debt payments. Thus, it has been forced to seek deferral of these payments. In mid-June of 1985, the government reached an agreement with 130 private banks to defer $295 million in overdue loan and interest payments. (Ibid.) Under the terms of the agreement, Nicaragua must pay $24 million of this figure by 1986. Negotiations on further extensions have been scheduled for April, 1986.

Nicaragua suffers from a chronic shortage of foreign currency as a result of its annual trade deficits. The trade embargo imposed by the United States government in May, 1985, has further aggravated the country’s trade deficit. The embargo represents the most recent of a series of economic pressures which the U.S. government has used against revolutionary Nicaragua since the Reagan administration came into office in 1981.(see Conroy)

Chart 9

Under the Reagan administration, the U.S. Government has sponsored military and economic measures aimed at overthrowing the Sandinista regime. This has included measures which have blocked or drastically reduced the flow of financial assistance to Nicaragua from international credit organizations such as the International Monetary Fund, the World Bank, and the Inter-American Development Bank. (Ibid.) Moreover, the war being waged by the U.S. backed counter-revolutionary forces (the ‘Contras’) based in Honduras and Costa Rica has forced the revolutionary government to divert an increasing proportion of the country’s financial, material and human resources away from development efforts to national defense.

This situation has coincided with a growing realization on the part of the revolutionary leaders that their original plans for the economic and social development of the country, formulated during the first two years after the revolutionary triumph, were too ambitious and not in keeping with the country’s scarce financial and material resources. As President Daniel Ortega has stated: “If we must indicate any economic errors, the principal one has been that we have wanted to do too much at the same time. Actually, we have done more than we were able to do with our limited resources.” (Barricada International, July 11,1985:4)

In 1984, the revolutionary regime was forced to adjust its development plans to the economic necessities imposed by the country’s limited financial resources, the war and the deteriorating trade balance. Total losses caused by the war during 1984, were reported to be equivalent to more than 30 percent of the country’s export earnings. (Barricada International, May 28, 1984:3) At least 50 percent of the government’s budget is now devoted to defense. (Ibid.) This has forced reductions in social services and the postponement of many development plans.

In a public report released by the national directorate of the Sandinista National Liberation Front (FSLN) in May, 1984, the FSLN emphasized the necessity of reorienting the economy towards defense. (Ibid.)The same report also warns the public that “food shortages, supply problems, and the lack of certain essential goods, must be understood as part of the difficulties and sacrifices” that will have to be endured as a result of the war and the reorientation of the economy toward defense.

The country’s shortage of foreign exchange has caused a grave crisis in the manufacturing sector, which as previously mentioned has a very high import coefficient. Most of this sector is absolutely dependent upon foreign exchange to purchase its basic inputs. Due to the shortage of foreign exchange, the government has been forced to restrict greatly the amount available for the import of industrial inputs. This has caused a decline in total industrial output and severely affected certain industries.

The crisis faced by Nicaragua’s manufacturing sector has led the government to the conclusion that this sector of the economy must be reoriented toward the production of basic goods for internal popular consumption. This is justified by the obvious fact that there is considerably more demand for these goods than can be supplied either through the present level of local production or through costly imports. The government has also decided that the manufacturing sector should be integrated with the agricultural sector to a much greater extent than has been the case in the past.(Envio: 19)

In other words, the logic of breaking out of the vicious circle of an economy conditioned by the foreign exchange earnings of its agro-exports has led Nicaragua’s revolutionary leadership to initiate an economic strategy aimed at compacting and integrating the country’s agricultural and industrial sectors within a transformed economic system that is oriented toward producing: 1) basic consumer goods for the domestic market, 2) the inputs needed by the country’s agro-industries and 3) export products which are processed or manufactured from local inputs. The following statement by Commandante Jaime Wheelock reveals the essence of this strategy:

The revolution is beginning to develop a new economic model and this is based on the search for a different role in the international division of labor We can continue to be producers of the means of consumption, but it is not the same to produce crude means of consumption as to produce means of consumption that have gone through a certain process of transformation. We want to be an industrial country that sells manufactures: processing our agricultural products, selling our foods packaged, making furniture with our wood.. This only can be done in a sovereign nation where no one imposes from outside an economic model contrary to our national interests.(Wheelock:l 10)

In its general aims this model or strategy is like the strategy advocated by Clive Thomas for the transformation of small under developed economies, but it differs somewhat in terms of the means to achieve these aims, particularly with regard to the continued reliance upon agro-exports.

Nicaragua’s internal economic difficulties, the international recession, the regional political and economic crisis and the effects of Washington’s undeclared war on the country have all contributed to a reformulation of the original model of development elaborated during the first years of the revolutionary regime. The original project sought to achieve the reconstruction of the country in the context of: 1) the redistribution of wealth and income to the popular classes, 2) the diversification of the country’s dependence upon foreign markets and financing, 3) the mobilization of the population in the productive process, and 4) the development of a new mixed economy based upon an expanded state sector, a reformed private sector, and a new cooperative sector. (Envio:22-23)

The reformulated strategy incorporates most of the features of the original project, but is based upon a more reduced multi-class political alliance, and seeks to transform the country’s economic structures through strategic state investments in local energy, agro-industry, cattle raising, irrigated agricultural, and the cultivation of basic grains. The benefits of this strategy are not expected to take effect until three to five years have passed. As in the original formulation, “the development of agriculture plays a key role in the new economic model,” since land is considered to be “…the first and most plentiful natural resource that Nicaragua has to promote its industrialization and its new articulation in the international economy.”(MIDINRA, 1983:1) This emphasis on agricultural development is reflected in the 31 major investment projects which the government is implementing throughout Nicaragua’s agricultural sector.(Ibid)

The concentration of the country’s scarce financial, technical, and human resources in the above mentioned areas of strategic investment will,of course, mean that other sectors of the economy will have less of these resources and their role in the productive process will as a result be reduced. Moreover, this strategy of economic development is dependent upon the expansion of the country’s agro-exports in order to obtain the foreign exchange needed to finance the agro-industrialization of the economy. Thus, the strategy of increasing the production of basic grains, developing local energy, and expanding agro-industry is founded upon the premise that the country’s agro-exports will finance developments in these areas in the short and medium run. This premise contains a major element of risk not only in terms of placing the country’s development at the mercy of its agro-export production but also in terms of its continued dependency upon the international capitalist system (see Fitzgerald, 1982b:15).

IV

A PROFILE OF REVOLUTIONARY NICARAGUA’S INDUSTRY

The industrial sector of revolutionary Nicaragua’s mixed economy, which produces one quarter of the country’s total value of production (see Chart 2), is characterized by a small number of medium and large private industries, a variety of state industries which produce about one third of the total value of industrial production, and a sizable number of small private industries which are struggling to survive under the difficult conditions faced by the economy. Chart 10, which is based on a survey of the industrial sector by the Nicaraguan Ministry of Industry, reveals the relative distribution of units of production, labor, and the value of production between the different areas and branches of industrial activity in Nicaragua. The 188 industrial enterprises represented in this chart include all the large and medium industries in the country (i.e., all those with over 30 employees).

As Chart 10 indicates, most of Nicaragua’s larger manufacturing industries are engaged in the production of food products, beverages, textiles, clothing, leather goods, wood products, and chemical products (which includes pharmaceuticals). Over seventy percent of the total value of industrial production and employment is generated by these industries. The absence of a genuine basic metals industry as well as a machinery and machine tools branch reflects the underdeveloped and externally dependent nature of Nicaragua’s industrial sector. The country’s small metal products branch of industrial production produces a very limited range of simple products such as different types of wire, nails, clamps, water tanks, irrigation tubing, wheelbarrows, iron furniture, industrial lamps, aluminum cooking utensils, tin cans, rods, sheet metal, and farm implements.

This absence of any significant industrial capacity in the basic metals and machinery and machine tools branches means that Nicaragua’s entire industrial sector and the rest of the economy are dependent upon the importation of costly machines, the spare parts for these machines, and all basic metals. In view of the country’s scarcity of foreign exchange, this is a major limitation upon its ability to maintain and develop its productive base. As Thomas points out: “failure to develop local machinery and machine tools must mean dependence on overseas machines, the stultification of indigenous technological capacities, and a pattern of production where the machines in domestic use are a by-product of forces elsewhere.. .”(Thomas:215). He argues that the development of these basic industries is a structural imperative for the industrialization and economic transformation of all underdeveloped countries, since the historical evidence clearly indicates that such industries have played a crucial role in the industrial and technological transformation of all existing developed societies. (Ibid:212-214)

Chart 10

In terms of state versus private enterprise, Chart 10 reveals that the APP accounts for 45% of the value of production generated by Nicaragua’s largest 188 industries, while the private sector generates 55%. However, in terms of employment, Chart 10 reveals that the APP industries employ nearly two-thirds of the total workforce. This chart also makes it possible to identify the branches of industry where the state has the most influence and those where private enterprise predominate. The state sector is clearly predominant in the following branches: textiles, apparel, food products, non-metallic minerals, and metal products; whereas the private sector is most important in the following branches: wood products, tobacco products, shoes, paper products, printing, rubber products, chemical products, transport equipment, as well in the machinery, electrical, and non-electrical equipment branch, and of the remaining diverse products more are produced by the state than by private enterprise.

In addition to its lack of industrial capacity to produce basic metals such as iron, steel, tin, copper, etc., Nicaragua also lacks the capacity to produce its own paper, petroleum, rubber, glass and synthetic fibers – all of which must now be imported at great cost. Standard Oil does operate a refinery in Nicaragua, but all the petroleum it refines must be imported, since Nicaragua has no oil of its own. These basic materials are the essential inputs needed for the manufacture of products currently being produced in the economy. Since they are not produced in Nicaragua, the industrial sector is characterized by an almost total dependence upon the importation, at great cost, of its basic materials.

Very few of Nicaragua’s industries produce inputs for other domestic industries. Under the conditions of its previous pattern of dependent
capitalist development, neither local nor foreign capital had much interest in developing inter-branch linkages. This has been particularly evident in the lack of integration between the country’s agro-industries and its food and textile industries. For example, even though Nicaragua is a major producer of cotton, its textile industries have been forced to rely upon imported cotton thread and fabrics. This is because the private entrepreneurs in the cotton sector were oriented toward foreign markets for the sale of their semi-processed agricultural product – cotton, and the textile producers were oriented toward foreign sources of supply for the purchase of their essential inputs such as cotton thread and fabrics. As a result, little was done in the past to link Nicaragua’s cotton mills with its small textile industry.

Although several government projects now in the development stage will change the current situation, at present only 5% of the cotton produced in Nicaragua is transformed for use in the domestic textile industries. (1) The country does not have sufficient spinning and weaving facilities to produce the cotton thread and fabrics needed by the textile and clothing factories. A similar situation exists with regard to the food and leather goods industries. Even though there is an adequate potential supply of cotton seed oil and livestock locally, the food industry now imports cooking oils and the leather goods industry imports hides in order to meet its production needs. Moreover, fruit and vegetable juices (including tomato sauce) are imported despite the fact the country has sufficient raw materials for the production of these products. And even though Nicaragua has extensive forestry resources and a wood products industry, it does not have the industrial capacity to make paper. Thus, it must import what is in fact a very costly basic material needed by nearly all sectors of the economy. In this case and in many others, key links in the chain of production are missing.

Because of the disarticulated nature of Nicaragua’s industrial sector, most of its industries are dependent upon imported inputs and the average import coefficient in production is over 40% (Envio, June, 1983:19) Between 1978 and 1982, industrial inputs (i.e., imported raw materials, intermediate products, and capital goods) accounted for over 50% of the total value of all imports. (INEC:84) However, due to the country’s foreign exchange crisis, the government has been forced to reduce drastically the amount of foreign currency allocated to the industrial sector for the purpose of importing inputs. As Chart 11 indicates, in 1983, only $177 million dollars were allocated to the industrial sector for imported inputs. This contrasts with $443 million in 1982. (Camara de Industrias de Nicaragua, 1984:3) Naturally, the effects of this drastic reduction in foreign exchange for industrial imports have been severe, particularly in those industries such as chemicals, food, and metal products that depend on a large volume of imports. As Chart 11 reveals, this has several affected private industry since the private sector’s share in industrial imports represents close to 60% of the total.

However, Chart 12 demonstrates clearly that the revolutionary government has not excluded the private sector from access to the scarce foreign exchange funds at its disposal, both for the purposes of purchasing essential imports and for other necessary purposes. The majority of the foreign exchange made available to the industrial sector in 1983 went to private enterprise (see Chart 11), and the government also provided the bulk of its short-term financing funds to the private sector rather than the APP (see Chart 12).

Chart 11

Chart 12

The government continues to give assurances to the private sector regarding the allocation of foreign exchange for the importation of production materials. In February, 1985, President Daniel Ortega and members of the cabinet met with more than 400 large, medium and small producers to discuss government measures aimed at dealing with the country’s economic crisis. These measures included permitting higher prices for the basic goods produced by private industry and the timely provision of credits to guarantee the importation of materials needed by private manufacturers. (Barricada International, February 28,1985:3)

Nicaragua’s Small Industry Sub-Sector:

The underdeveloped character of Nicaragua’s industrial sector is not only reflected in its dependency upon imported inputs and its lack of integration, it is also reflected in the semi-artisan nature of the many small enterprises which characterize this part of the economy. As Chart No. 13 indicates, Nicaragua has a very large number of small or micro industries. According to the survey upon which Chart No.13 is based, there were over 9,305 small industries in Nicaragua in 1982, employing some 31,513 workers as compared with 7,993 enterprises employing 27,084 workers in 1980. In other words, under the revolutionary regime there appears to have been a significant increase in the number of small industries producing products for the domestic market. Most of these small units of production are in reality workshops (called tallers in Spanish). They are similar in certain respects to the cottage industries and blacksmith shops of the past. They produce food products, and plastic items. The level of technology tends to be artisan or semi-artisan, with the workers mostly using hand tools, sometimes combined with simple machines (e.g., sewing machines).

In many ways, these small industries illustrate the basic characteristics and problems of Nicaragua’s industrial sector. For example, one of the most important products produced by small industries is bread. This activity requires, like most industrial activity in the country, the importation of basic inputs – wheat flour, and baking powder. The absolute dependence of the baker industry upon these imports means that this area of industrial activity has been seriously affected by the country’s shortage of foreign exchange. In order to guarantee the supply of basic inputs to these industries, the revolutionary government has been forced to take over the distribution of wheat flour and ration its allocation among the numerous small bakeries throughout the country.

Chart 13

Another important area of production where small industries play a major role is in the manufacture of textile products and shoes. Approximately 75% of all items of clothing manufactured in Nicaragua are produced by small industries. (Barricada, October 17, 1983:3) Chart No.13 indicates that there are over 2,000 small clothing manufacturers in the country. Like the bakeries, these micro-industries also depend upon the importation of basic inputs. They depend not only upon the importation of most of the fabrics which they use, but also upon the importation of such basic and critical items as thread, zippers and buttons.

Shoes and leather goods are also largely produced by small industries and self-employed persons. More than 7,000 workers employed in over 2,000 small enterprises produce 40% of the nation’s shoes, and over 70% of the shoes made from leather . (Ibid.) This category of small industry has been seriously affected by the declining supply of hides produced by the domestic livestock industry. As in the case of wheat flour, the state has been forced to take over control of the distribution of hides in order to ration the allocation of this basic input to the numerous small producers of leather goods. This area of production also depends upon the importation of various types of accessories or supplementary inputs, and as a result access to foreign exchange is a critical factor affecting their performance and survival.

A somewhat different set of conditions affect the over 1,200 small industries which produce wood products and furniture. They generate 67% of the value of wood and furniture production and employ 80% of the workforce in this branch of industrial activity. (Ibid.) The basic input used in this area of production comes from natural resources controlled by the state through the Corporacion Forestal del Pueblo (People’s Forestry Corporation or CORFOP). However, the state does not itself distribute the raw materials used by the private wood products industries. In other words, the state controls lumbering but not the marketing of lumber. As a result, the producers must purchase their wood inputs on the open market. This industrial sub-sector is also characterized by a greater degree of mechanization and the quality of its products gives it the possibility of competing in the international market for wood products.

The entire small industries sub-sector of the economy is beset by a number of critical problems. For example, the shortage of foreign exchange means that the owners of many of these industries must seek authorization from the government to purchase essential inputs. The government carefully evaluates every request in order to determine if it is justified. This takes time and forces the small producers to submit to a slow and bothersome procedure, while in the meantime their inventories may run out and their production process is paralyzed. There are also problems of supply stemming from speculation in the hoarding of scarce inputs. These practices are carried out by both professional wholesalers as well as by certain producers who involve themselves in the trafficking of these scarce inputs. These problems increase the costs of production and the final price paid by the consumer. There also exists a thriving black market in the essential materials needed for production. Moreover, the private market in certain raw materials such as wood and private control over the distribution of supplementary inputs — such as dyes, yeast, zippers, etc. — prevents the rational distribution of these inputs and obstructs the production of quality products at reasonable prices.

In an effort to address the problems of the small industries and rationalize their participation in the economy, the government has attempted to promote cooperatives. As of May, 1983, some 4,600 small producers had been organized into 77 service cooperatives which pool credit and the purchases of basic inputs. (Ibid.) However, the establishment of producer cooperatives has progressed very slowly. The formation of these cooperatives involves combining several small enterprises into a single new industry in which the means of production and income are socialized. Only 50 such cooperatives now exist in the country. (Ibid.) The state has been most successful in promoting the formation of service cooperatives in those branches of industrial activity where it controls the distribution of basic inputs. For this reason, there tends to be a higher number of cooperatives in the bakery, leather goods, and clothing industries where the state controls the distribution of basic inputs.

The small industries sub-sector of the economy is an important source of employment within the industrial sector, which the revolutionary government is anxious to preserve for the foreseeable future. It also plays a critical role in the production of goods that satisfy the basic necessities of the population. Thus, this sub-sector of the economy fits into the government’s strategy of industrial development as a source of support for the reproduction of the labor force. This strategy seeks to encourage their consolidation, orient their production toward satisfying the basic necessities of the population, and increase their productive output. The government’s control over foreign exchange has given it an important means to induce the small producers into cooperating with this strategy.

Nicaragua’s Industrial Workforce:

We have mentioned that the small industries sub-sector is an important source of employment within the industrial sector. Chart No. 14 on the participation in the industrial sector by the economically active population reveals that in 1984 the total industrial labor force (including persons employed in agro-industries) represented less than one-tenth of the EAP and only 11.3% of the total employed population. If we compare the figures in Chart No. 13 with those in Chart No.14, we note that in 1982, the total estimated workforce in the small industries sub-sector represented over one-third of the total industrial labor force. Thus, this sub-sector is important within the larger industrial sector. However, industry as a whole is clearly not a major source of employment and disposes of a very small proportion of the total labor force. Even in Managua, the most developed city in Nicaragua and the site of most of its industries, the total industrial labor force represents only 12.5% of the employed population of the city. (Barricada, January 2, 1984:3)

Chart 14

The occupational structure of Managua reveals that productive wage-earners represent a declining proportion of the city’s total labor force. In 1963, wage-earners involved in productive economic activity-manufacturing, construction, utilities, etc., accounted for one third of the total employed population, whereas by 1982 this sector of the workforce had declined to less than one-quarter. (Ibid.) In other words, the growth of the urban population in Nicaragua’s most important cities, now at a rate of 6% per annum, has not contributed to the creation of a modern industrial working class permanently installed in large industrial establishments. The contingents of rural migrants to the cities that daily expand the ranks of those already searching for work, generally find employment only in the so-called informal sector. In Managua, this sector of self-employed peddlers, handymen, and artisans without formal wage-earning employment represents approximately 45% of the economically active population (Ibid.).

In 1982, the estimated total workforce in large and medium industrial enterprises (i.e., those with more than 30 employees) was over 37,000 employees or about 43% of the total industrial workforce. (INEC:141) It should be noted, however, that not even the largest industrial enterprise in the country has more than 2,000 employees. In the large or medium industrial enterprises, management personnel represent less than 2% of the total workforce, professional and technical employees about 4%, administrative and clerical personnel about 15%, production workers about 60%, and general service workers (e.g., drivers, janitor, etc.) account for the remaining 20% of the total. (Ibid:42) The production workers tend to be unskilled or semi-skilled with a low level of education and technical knowledge. In fact, this low level of technical knowledge is a key feature of the workforce, and stems from the country’s past underdevelopment. Moreover, the number of technical training facilities in the country, although they have been increased since the revolutionary triumph, are insufficient to meet the existing demand for technically trained workers.

Although it is extremely difficult to obtain reliable data on labor productivity in the industrial sector, all indications are that it is quite low. For example, if one divides the total value of industrial production by the total number of persons employed in the industrial workforce, the total value produced per person employed is less than U.S. $10,000 per annum. Among the causes for this low level of labor productivity are: the scarcity of raw materials and replacement parts which often cause production delays, high absenteeism, labor-management conflicts, the employment of excess personnel, the departure from the country of many technically trained people, the lack of administrative experience and technical personnel in the state industries, bureaucratic delays in obtaining foreign exchange and financing, inadequate maintenance of machinery and equipment, and the already mentioned low level of education and lack of technical training which characterize the general workforce.

Management and Planning in the Industrial Sector:

The increasing involvement of the workers in the management of the productive process is an important development which the revolution has stimulated, and as worker participation in planning and administration develops it should contribute to a substantial improvement in labor productivity. Worker participation in the management of the industries within the APP appears to be limited and consultative rather than designed to give the workers control over the production process. Due to the general lack of organizational skills as well as education on the part of the majority of the production workers, there is a definite limit on the degree to which worker participation in planning and decision-making can be achieved under prevailing conditions in Nicaragua. Moreover, the managers and technicos in many of the state enterprises appear to be unprepared to deal with the problems raised by involving the unions and the workers in the management of these enterprises. It appears that many of the managers and technical personnel do not know how to function in a participatory organizational environment. As more time goes by and more experience is accumulated, this situation should improve.

The organization and direction of the state industrial sector has involved the establishment of a planning and administrative super-structure designed to direct and coordinate the diverse industrial enterprises under state control. The central structural mechanism set up to perform these functions is the Corporacion Industrial del Pueblo (COIP), which is under the Ministry of Industry. The COIP functions much like a large holding corporation with its own property and financial control over the 81 enterprises under its direction. Apart from a central directive staff it contains a series of operating directorates responsible for what are referred to as industrial complexes. These are groupings of the various state industries by their branch or type of industrial activity. The administrators of each state enterprise are responsible to the particular COIP directorate that presides over their area of industrial activity. Since 1980, COIP has sought to consolidate a new form of ‘Sandinista Administration’ in the state enterprises and reorient their production toward the satisfaction of the basic needs of the population.

More recently, the Ministry of Industry and COIP have begun to institutionalize a system of planning at the enterprise branch, and sectorial levels; and long-range planning up to the year 2000 is currently underway. The Ministry also seeks to incorporate private industry into the planning process. So far this does not appear to have progressed much beyond consultations and negotiations centered more on matters such as the allocations of foreign exchange and short-term financing than on genuine long-range planning. The opposition to the revolutionary regime by certain large capitalists in the industrial sector represents a major obstacle to the institutionalization of planning in this sector of the economy. Moreover, the general conditions prevailing in Nicaragua and its hostile external environment make it difficult, if not impossible to design and implement an effective set of plans. This situation has been clearly stated by Comandante Jaime Wheelock:

Every time that we attempt to implement a plan, we have to make an emergency plan, because, apart from the situation of aggression that we suffer, in a certain sense our variables, because we are such a dependent country, are a function of the international market… It is difficult to plan in a dependent country that has open international relations. And it is even more difficult if in addition to economic reasons, such as the international economic crisis, are added political problems and the military aggression which our country suffers. (Wheelock:l 17-118)

In other words, the very external dependency of the economy as well as the hostile international environment tend to undermine all efforts to make and carry out plans.

The major outlines of the Ministry of Industry’s strategy for the long-­range development of the industrial sector are as follows:

I) the industrial sector will be increasingly oriented toward the task of reproducing the country’s labor force through the production of basic consumer goods;

2) since the central axis of accumulation for some time yet will continue to be the agricultural sector, the industrial sector will be increasingly oriented toward both providing the basic inputs for agriculture and processing its basic outputs (i.e., agro-products for the domestic market as well as agro-exports);

3) the industrial sector will also be oriented toward providing the basic inputs for construction, transportation, and national defense; and

4) the integration of the industrial sector will be promoted through the increased production of the intermediary goods needed by local industries.3

This strategy is to be implemented through the increased planning and programming of industrial production and with the state industries performing the leading role in the restructuring of the sector. It is important to note that this long-range strategy for industrial development requires significant transformations in the structure and orientation of the industrial sector which go beyond the rationalization and reactivation of industrial production.

The realization of this strategy over the next ten to fifteen years could significantly move Nicaragua in the direction of a planned industrialized economy. However, for this to be a socialist planned economy, the present structure of property relations in the industrial sector (as well as in agriculture) will have to be transformed. There is no indication at the present time that the revolutionary regime intends to effect transformations of this sort. The present ratio of approximately 40% to 60% – state versus private property – is considered to be the appropriate mix for the future industrial development of the country. Moreover, government officials believe that they now have sufficient instruments, such as their control over the allocation of foreign exchange for the importation of industrial inputs, to control the private sector and preside over the industrial development of the country. It is assumed that the APP will be the main motor of development, and that the APP industries will play the major role in the transformation of the industrial sector. Here it is important to note that cooperation between the government and the few foreign-owned industries in Nicaragua has generally been food. Most of these foreign industries are owned by Europeans and are to be found primarily in the metal and chemical products branches. The government seeks to promote the expansion of production in these industries so long as they continue to cooperate and conform to the government’s plans for the industrial development of the country.

As previously mentioned, the integration of the agricultural and manufacturing sectors and the development of agro-industry are key objectives in Nicaragua’s global strategy for developing the economy. In this regard, it is important to consider the basic characteristics of Nicaragua’s agro-industrial complex. The Ministerio de Desarollo Agropecuario y Reforma Agraria (Ministry of Agricultural Development and Agrarian Reform or MIDINRA) defines agro-industry as any unit of production which transforms agricultural products and receives a significant amount of its raw materials directly from rural producers. (MIDINRA, 1982:1) This definition excuses industries which utilize as their raw materials already processed or transformed agricultural products. In other words, agro-industries are conceived as those units of production which are engaged in the first transformation or processing of agricultural products. In the case of Nicaragua these primarily take the form of cotton mills, coffee mills, sugar mills, saw mills, and slaughterhouses.

However, it is possible to speak of a considerably larger category which combines these agro-industries with a number of industries that are or should he closely linked with Nicaragua’s agricultural production. This grouping of industries or agro-industrial complex (as labeled by MIDINRA) consists of: 1) the agro-industries per se, 2) those industries which produce inputs for agriculture (e.g., fertilizer, farm implements, and pesticide producers), as well as 3) those industries which use as their raw materials processed agricultural products (e.g., the textile industries, the food industries, the soap manufacturers, the wood products producers, etc.). This complex of industries represents as much as 70% of the value-added and over 60% of the total value of production in the industrial sector. (Ibid.) Moreover, more than three-quarters of the country’s exports pass through this complex and more than 20% of all the raw materials used by the industrial sector are produced in it. Thus, it is critically important in terms of both the generation of foreign exchange as well as in terms of reducing the expenditure of foreign exchange on expensive imported inputs for the industrial sector.

The food products industry is the central activity in Nicaragua’s agro-­industrial complex. This activity accounts for approximately 60% of the total workforce and 67% of the total value of production in the complex. Second in importance are the textile and clothing industries which account for about 17% of the workforce and 10% of the value of production. The main site of both of these components of the agro-industrial complex is Managua, where most of their plants are located and 60% of the total value of production is generated. This reflects the urban and concentrated nature of much of the complex. As previously mentioned, although the state sector plays an increasingly more important role in agro-industry, the majority of both the production units and the total value of production are private. (Ibid.) This raises questions about the feasibility of planning the integrated development of this important sector of the economy and the state’s capacity to effect the necessary transformations without further socialization of the means of production.

A more detailed examination of the products in the agro-industrial complex reveals the following hierarchy in terms of their relative importance:
(Ibid)

1) meats

2) sugar

3) milk products

4) organic oils and soap

5) textiles

6) coffee

7) animal feeds

This hierarchy is based on their relative importance in terms of their total value of production, generation of foreign exchange, and consumption of local raw materials. What is most significant about this hierarchy of products is that most of them are essential to the reproduction of the country’s labor force since they tend to be the main consumer goods that satisfy the basic necessities of the population . Obviously, the expanded production of most of these products would represent a significant improvement in Nicaragua’s capability to feed and cloth its population through the use of its own natural resources.

Symptomatic of the deficiencies in Nicaragua’s industrial sector is the lack of linkages between the various industries in the agro-industrial complex and the fact that most are not operating at full capacity due to inadequate supplies of raw materials. The best example of this is the lack of integration between Nicaragua’s cotton producers, cotton mills, and textile industries. The integrated development of this component of the agro-industrial complex is essential since it will not only reduce the dependence of the textile industry on costly foreign imports and thus save valuable foreign exchange, but will also permit Nicaragua to arrive at the point where it is able to export a finished product rather than a semi-processed raw material and in so doing increase its export earnings. Finally, the same positive results can be achieved in the case of linking the cotton sector with the cooking oil and animal feed industries, which can substitute the derivatives from cotton processing for the imported raw materials upon which they presently depend. In view of the country’s critical shortage of foreign exchange and debilitating dependence upon the importation of costly raw materials for its industries, the integrated development of its agro-industrial complex is obviously of primary importance. Moreover, the important multiplier effects of increased employment, full utilization of existing facilities, and achieving self-sufficiency in the production of basic consumer goods are further reasons for giving priority to this type of industrial development.

Currently, in Nicaragua’s agro-industrial complex, insufficient supplies of agricultural raw materials are responsible for the under-utilization of the installed capacity of industries, and for the country’s costly dependence upon imported raw materials as well as imported food and textile products that could and should be produced locally. In fact, this is an excellent example of what Thomas has identified as a key target area of development necessary for the industrial transformation of underdeveloped societies. It reveals the absolute necessity of linking the domestic production of basic consumer goods to the utilization of domestic raw materials. In this regard, Thomas states:

…we have advocated centering the planning of agriculture around: a) the internal need for its produce to be consumed directly, either as processed or unprocessed foods (mainly meat, dairy products, vegetables, grain, etc.); b) the domestic need for that part of its output which is used as an input into other agricultural activity (e.g., feed for the cattle industry); c) the domestic need for raw materials as inputs in domestic manufacturing activity; and d) the overseas demand for those industrial outputs using substantially domestic agricultural inputs (e.g., clothing). (Ibid:152)

Thomas emphasizes that the main generative influence on domestic agricultural production cannot continue to be the simple export of primary products if structural transformation of the economy is to be achieved. He also emphasizes that the reorientation of agriculture and its articulation with the manufacture of basic consumer goods has to occur on a planned basis. In this regard, he argues that “…planning should foresee that the relative balance over the long run will shift decisively in favor of industry and against agriculture, and therefore immediate steps should be taken to accord this factor an independent weight in the planning process.” (Ibid:155) In other words, the planned integration of agriculture and industry will lead to the spread of industrial techniques in agriculture, the universal tendency to consolidate land, and the displacement of labor to industry and urban services. Thomas notes the overwhelming historical evidence in this regard, and cautions the planners to take this into account in their plans for developing the economy. (Ibid: 154-155)

V

THE PROSPECTS FOR NICARAGUA’S INDUSTRIAL DEVELOPMENT

Industrial development is clearly a critical requirement for the structural transformation of Nicaraguan society. It is necessary in order to overcome the backwardness, unequal development, external dependency, and inefficient nature of Nicaragua’s productive base and it is necessary to develop the productive forces capable of producing an adequate standard of living for its population. Industrial development is also an indispensable requirement for a future transition to socialism, if the Nicaraguan people choose to take this course of development. Thomas forcefully argues this in reference to all small, underdeveloped societies:

Structural transformation, disengagement from capitalism, socialist development – all these imply industrialization in the basic sense of the progressive spread of industrial techniques of organization and resource use into all branches of economic activity, as part of the struggle to make the material environment serve the community’s needs. This relationship between industrialization and the degree of development of the productive forces is readily perceived when one looks at the global distribution of industry and the marked concentration of industrial production among those countries which have solved the problem of mass poverty and have achieved self-sustaining increases in the level of material production.(Thomas:177)

Since we are in agreement with Thomas, the basic premise of this essay is that Nicaragua can achieve the integrated industrialization of its economy. However, in order to achieve this structural transformation, the country must follow a strategy of development based on the vertical integration of its demand structure with its domestic resource endowment. It must utilize intensively its domestic resources to satisfy the basic needs of the population. It must also produce the primary inputs required by the manufacturing and agro-industrial sectors. In addition, it must develop an indigenous technology centered on its own basic metals and machine-building industries, adequate facilities for the technical training of its labor force, develop a small capital goods industry, introduce democratic planning, promote collective over individual consumption, and establish complementary trading relationships with other Third World and socialist countries in place of its present unequal trading relations with the major capitalist centers. With the foregoing in mind, we now turn to an assessment of Nicaragua’s prospects for industrial development.

First, it is clear that in the short space of six years, the new revolutionary government of Nicaragua has launched the country on a course of development which seeks to achieve most, if not all, of the required conditions mentioned above. Significantly, the industrial development of the country is viewed as not only desirable but attainable. Thus, what Thomas (45-50) refers to as a particular “combination of prejudice and pragmatism” that presumes the “eternal backwardness” of small underdeveloped countries is not reflected in the policy statements or plans of the revolutionary government. The government’s long-term development efforts are directed at restructuring domestic demand in relation to the country’s resources, and increasing the utilization of domestic resources to the point of achieving self-sufficiency in the industrial production of most of the basic goods needed by the population.

In terms of its present domestic resource base, Nicaragua has the resource capacity to provide the basic raw materials for the following industries:

1. food products (including animal feeds)

2. textiles

3. shoes and leather goods

4. wood and paper products

5. soap

6. organic oils (cottonseed, coconut, African palm, etc.)

7. rubber products

8. certain chemical products (e.g. salts, fertilizers, etc.)

9. construction materials (e.g., cement, clay bricks, etc.)

10. gold and silver mining

11. fishing

12. hydro-electric and geothermal power

As this list indicates, Nicaragua has a diversified resource base capable of providing the raw materials for the industrial production of a wide range of products, including most of the basic goods (i.e., food, clothing, housing, etc.) required to satisfy the basic needs of the population. However, it does not presently have the resource base for the following important industries: petroleum products, basic metals (iron and steel), metal products, machinery, electronics, motorized transportation equipment, etc., even though it does have industries producing some of these products with imported raw materials.

The government’s plans and projects for the development of both agro-­industry and the manufacturing sector are geared to using domestic resources to produce basic goods needed by the population and to increase the value added to its agricultural exports by processing them before export. An examination of the present array of development projects, either in the execution stage or in the preliminary stages prior to execution, reveals the extent to which the revolutionary government is attempting to restructure and expand the industrial base of the economy. Chart No.15 reveals the main areas of investment represented by these projects. In essence, they reflect a model of agro-industrial development based on the twin objectives of generating foreign exchange and producing basic foods for the population. The amount of investment in projects which are fundamentally aimed at increasing agro-export production is roughly equivalent to the amount of investment aimed at increasing the production of basic foods (about 3.8 billion Cordobas or about 135 million U.S. Dollars at the rate of 28 Cordobas to I Dollar). (Barricada, December 5, 1983:3)

The main emphasis in terms of sub-sectors is on sugar production, cattle ­raising, integrated rural development (these are projects aimed at establishing cooperatives, basic infrastructure and services in the underdeveloped regions of the north), tobacco, oils, and basic grains. What is significant about these subsectors is the fact that they contain a relatively high component of agro-industry–sugar mills, slaughterhouses, tobacco processing plants, etc. Moreover, many of the projects, such as those involving the production of vegetables, are aimed not only at providing the population with an adequate supply of fresh vegetables, but also with canned, frozen, and dehydrated products made from these vegetables.

Chart 15

Compared with the strategy of structural transformation advocated by Thomas, Nicaragua’s emphasis on agro-exports, particularly sugar, raises questions about the advisability of this aspect of the country’s development strategy in view of the instability of the international market for such products. As Thomas notes:

…the sale of primary products overseas, which often dominates domestic resource use, has been characterized by low prices and income elasticities of demand…as well as a considerable instability in the value of export earnings. This in turn has not only had expected harmful consequences on rural incomes, employment and investments, but has also reinforced the dynamic tendencies toward divergence between agricultural resource use and domestic consumption of agricultural products. (Thomas: 144)

Thomas further argues that the most important objective of a successful strategy of development for small agro-export economies is: “to find a dynamic basis for planning agricultural output in such a way as to orient the economy away from its present export specialization in tropical staples.” (Ibid:144) He further suggests that the most obvious alternative is to reorient production toward the agricultural commodities that have historically displayed the highest income elasticities of demand: milk, eggs, cheese, butter, meats, vegetables, and fruits.(Ibid:145-146)

In all fairness to Nicaragua’s strategy of agricultural development, it should be noted that an important emphasis is being made on increasing the production of basic foodstuffs. Moreover, many of the new investment projects in sugar and tobacco will create new jobs and promote the modernization of agriculture. For example, Nicaragua’s biggest new agro­industrial project , the large sugar complex at Tipitapa/Malacatoy, will produce badly needed energy from sugar bagazo or waste pulp and employ 3,000 persons in what will be Central America’s largest and most mechanized sugar production and processing operation. Finally, it is important to take into consideration the fact that Nicaragua has at present very few alternatives in terms of generating the foreign exchange it needs for the purchase of essential imports. Sugar and meat are the agro-exports which produce the highest net return in foreign exchange, and they also happen to be important foods in the diet of Nicaraguans. (MIDINRA, 1982:29) Nevertheless, as Thomas points out, the experience of many small underdeveloped societies in recent decades clearly indicates that “…whatever may be the need for foreign exchange, and whatever are the short-run pressures on employment and income, primary export production in this historical era does not contain enough dynamic potential to transform agriculture.” It is interesting here to note that Thomas makes this statement following a critical assessment of agricultural development policy in Tanzania, a country that is explicitly attempting to make the transition to socialism. (Thomas:167)

Turning to the manufacturing sector, here we find evidence that Nicaragua is attempting to make a radical departure from its previous pattern of development. The current long-term strategy of industrial development emphasizes investment projects which Will be intensive in the use of local raw materials and which will produce basic goods for local consumption. Significantly, these projects will provide some of the missing links in Nicaragua’s industrial production process.

The 1984 industrial investment program totaled 1.45 billion Cordobas (about $58 million dollars at 28 Cordobas to 1).3 The vast majority (1.35 billion Cordobas) of this amount was invested in projects in the state sector. The array of projects involved almost every branch of industry in Nicaragua. While most were based on the intensive use of domestic resources, and the production of basic consumer goods, a few key projects were aimed at giving Nicaragua the basis for a basic metals and a local machine building industry which will enable the country to produce badly needed replacement parts for its existing stock of machinery. This type of industry is an important component in the strategy which Thomas argues is necessary for the industrial transformation of small underdeveloped societies like Nicaragua. (Ibid:212) From the viewpoint of countries such as Nicaragua, certain features of the machine building industry make it quite feasible to establish in countries like Nicaragua, once the initiative for development no longer depends upon the profit-making interests of the local capitalist class and/or transnational capital. For example, this kind of industry is not significantly capital intensive and it mostly satisfies a demand for make-to-order products rather than standardized mass produced products. Thus, the scale of production is quite small. This kind of industry can make creative responses to specific orders and can function as a dynamic component of technological change.(Ibid:213-215).

Nicaragua’s industrial planners are quite aware of the importance of establishing a machine-building industry in Nicaragua. They have initiated a major first step in this direction by locating in Leon what they call Taller Central de Mantenimiento or central machine repair shop. This facility will have the capability of making replacement parts for all types of machinery. Financing for this project and the initial machine tools are being provided by Bulgaria. Related to this project is one that involves the establishment of a small steel foundry in Leon. This project, which is funded by Cuba, will give Nicaragua the capability of casting steel parts from scrap metal. These parts can then be used in the central workshop. Further down the line, the Ministry of Industry also has plans to establish a mini-steel mill, which will make steel from scrap iron and imported iron pellets. It is estimated that this project will cost over 20 million dollars, and the financing for this important project has not been obtained. Another important project in this same sector is already producing an array of metal farm implements as basic inputs for the agricultural sector. The combination of these projects will give the country a minimum basic metals and machinery building sector, upon which further industrial development can be based. In the case of the central machine shop, for example, one can expect that the skilled workers in this shop will first develop the capacity to duplicate machine parts. Later they will begin modifying the machines that are sent to them for repair, and at some later point they will begin building new machines better suited to local needs.

The importance of developing a local basic metals complex cannot be overemphasized. The material content of most products depends upon a relatively reduced number of basic materials. Three of these, iron, steel, and textiles, have been the mainstay of industrial production. Nicaragua has textiles, but it does not have a local capacity to produce iron and steel. The development of an indigenous industry capable of producing these materials is essential to the integrated industrialization of the country. Thomas makes it clear that small underdeveloped countries can develop a basic metals industry, even if they do not have local deposits of iron and coal. Charcoal can replace cooking coal in iron metallurgy and pre-reduced iron ore can be imported at reasonable cost. These factors make it possible for iron and steel to be manufactured in small countries where coal and iron ore are not available locally. (Ibid:202-204) It should be noted here that there is a possibility substantial iron ore deposits exist in the Monte Carmelo region of Nicaragua. (de Ahlers and Nolff:49) If further study proves this to be the case, then the possibility exists for Nicaragua to develop in integrated metallurgy industry. This would give an important new dimension to its basic metal products industries.

Several other significant projects illustrate the importance being given by Nicaragua’s industrial planners to the development of vertical integration, the increased use of domestic raw materials, and the substitution of domestically produced basic goods for costly imports. A glass factory is being established in the north at Ocotal. Several plastic products factories are being established in Managua which will use locally produced PVC. With financing and machinery from the Soviet Union, a 20 million dollar spinning mill is being built which will give the country the capability of producing enough yarn from local cotton to satisfy the needs of the textile industry up to the year 2000. A related project which is still in the preliminary stage will establish an integrated textile complex in Esteli. This project will produce from domestic cotton enough fabrics to supply the domestic demand for cotton pants and towels in 1990. Another project, with funding from Cuba, is in progress, and will produce industrial salts. This project is located in Leon, and will primarily use local raw materials. It should be noted that industrial salts are one of the basic materials used in a variety of industries, including the paper industry. The production from this plant will not only satisfy domestic demand but also provide a source of industrial export earnings. Finally, over 20 million dollars in credits and loans have been negotiated for the construction in stages of a large complex of forestry and woods products industries, including a wood pulp and paper factory. However, the implementation of this important project and others is obstructed by the fact that it is located inside the northern war zone.

Thomas argues that the industrial transformation of small underdeveloped countries such as Nicaragua requires the domestic production of those materials, iron, steel, textiles, paper, rubber, wood, leather, glass, plastics, aluminum, petroleum and industrial chemicals, which are required as the primary inputs for the manufacture of the basic goods needed by the population. (Ibid:195-201 ) The production of these basic materials constitutes the necessary condition for the development of an indigenous technology based on the use of domestic resources and serving domestic needs. Nicaragua has the potential to produce most of these basic materials and can substitute those it cannot produce with others produced locally. However, the planned industrialization of the country requires two further conditions: an up-to-date inventory of its natural resources, and the establishment of effective technical facilities. Thomas regards these as additional necessary conditions for planned industrial development:

If, as we have argued, a strategy of comprehensive planning for structural transformation requires the domestic production of those basic materials which are required as primary inputs for the manufacture of the basic goods of the community…It also follows logically from this that a comprehensive and rational planning of industrialization must be preceded by two necessary conditions:
an up-to-date and reliable inventory of the country’s natural resources and the establishment of facilities for rapid and effective technological training. (Ibid:20 1-202)

In this regard, it should be noted that the Instituto Nicaraguense de Recursos Naturales y del Ambiente (Nicaraguan Institute of Natural Resources and the Environment or IRENA) is involved in producing an inventory of the nation’s natural resources, since little is known about the resource potential of vast areas of the country. As for the establishment of technical training facilities, a combination of short-term training programs, technical institutes, and engineering schools are presently operating in Nicaragua. However, it would appear that much more needs to be done in order to coordinate and plan the technical training of the workforce. This is especially important in view of the low level of technical knowledge and skills which characterize the majority of the industrial labor force.

The additional energy needed to develop new industries will have to be produced locally since the cost of importing the added amounts of petroleum would exceed the country’s capacity to pay. Therefore the government has undertaken a series of key energy development projects, including the construction of two new geothermal plants. The first of these plants, located at the foot of the volcano Momotombo is already in operation and has the capacity to generate 35 Megawatts of electricity. It is expected that this plant alone will generate 21% of the country’s electricity needs and save between 15 and 16 million dollars annually in petroleum imports. (Nuevo Diario, March 8, 1984:5) In terms of the development of the country’s hydro-electric potential, it is estimated that only 1.8% of its total potential is presently being utilized. (Ibid) Several important hydroelectric projects are presently underway in various parts of the country which will significantly increase the electrical power generated by local resources. It must be emphasized that the development of these local sources of energy is absolutely essential to the industrial development of the country.

During 1985, the government’s investments were restricted to projects related to defense, the maintenance of the existing capacity of production and the conclusion of projects already underway that were directed at improving the production of exports or the substitution of costly imports. (Barricada Internacional, July 11, 1985:4) Investments in the expansion of social services were drastically reduced with the exception of programs aimed at assisting families displaced by the war. More than 80 percent of the government’s investments in 1985 were allocated to expanding production and economic infrastructure. The principal projects in the 1985 investment portfolio were:
irrigation of corn cultivated on fallow cotton fields, the processing of cooking oil from the African Palm, the industrial processing of fruits and vegetables, a large dairy project outside of Managua, the large sugar complex at Tipitapa, the modernization of the textile and pharmaceutical industries, and the rehabilitation of the fishing industry on the Atlantic Coast. The most important infrastructure projects involved the construction of roads in the war zones, the expansion of the country’s hydroelectric and geo-thermal energy projects, and the construction of a satellite relay station that will connect Nicaragua to the socialist countries. The total investment plan for 1985 amounted to $310 million, of which 55 percent was to be financed with foreign credits and the rest with internal resources.(Ibid)

The development of new sources of local energy, machine building and basic metals industries, adequate technical training facilities for raising the technical level of the workforce, and new intermediate and consumer goods industries based on the intensive use of domestic resources are necessary steps for the industrial transformation of Nicaraguan society. Along with the emphasis on the development of agro-industry they constitute an important basis for the expanded industrial development of the country and the convergence of domestic resources with domestic needs. However, without a structure of planning capable of effectively directing and coordinating the industrial development of the country, the integrated industrialization of Nicaraguan society will not be possible. Although the potential for such a structure exists in Nicaragua, at present it is not fully developed or operational.

All the state enterprises under COIP (and within the APP) are required to prepare annual operational and investment plans, with special emphasis placed on output targets, employment, imports, exports, and financing. Planning targets are set by the complex coordinators in consultation with their subordinate plant managers. These are presented to the Ministry of Industry, and are then submitted to a joint inter-ministerial coordinating commission. The adjusted targets are then channeled back to COIP and then to the enterprise level. Alongside the process that establishes global and enterprise targets is a process for coordinating future investment projects. The staff of COIP assist the individual enterprises in preparing investment project proposals which are reviewed in the Ministry of Industry and prioritized. They are then sent to an inter-ministerial coordinating body where sectoral priorities, financing, and development objectives are considered by the representatives of the various ministries and government agencies involved in the national investment process. This process appears to have a number of organizational problems which debilitate the approval, financing and execution of investment projects. Moreover, a clearly defined long-range national investment strategy does not exist. However, it appears that a conscious effort is being made to solve these problems and develop an effective system for investment planning and implementation.

Democratization of the planning process appears to be an open question. Worker participation in enterprise planning is in its infancy. A bottom-up, decentralized development planning process does not exist nor does it appear feasible under present conditions in Nicaragua. A discussion of the prospects for state planned industrial development in Nicaragua must confront the question of whether or not it is possible to include the private sector in the planning process. In theory this should be possible, but in fact the experience of many countries indicates that private enterprise is not interested in any form of planning that does not give it control over the income which it generates. State planning in the interests of the popular classes does not serve the interests of private enterprise, since it entails control over the social surplus and use of this surplus for the benefit of social and not exclusively private interests.

Moreover, as long as an important fraction of private capitalists in Nicaragua believe that the United States will succeed in overthrowing the Sandinista regime in the near future, they will not be willing to cooperate with the regime in any kind of planned development of the country. Thus, the continued control of a sizable proportion of the means of production by large and medium private capital presents a major obstacle to the planned industrial development of the country and is a major contradiction in Nicaragua’s mixed economy. Planning is only possible in the state sector and this means leaving a sizable proportion of the means of production outside of the planning framework. Thus, planning does not extend to the entire economy and cannot prevent anomalies from occurring between the state and private sectors. At this time, it is not clear how this contradiction will be resolved. However, if Nicaraguan society is to make the transition to socialism in the near future, it is obvious that further socialization of the means of production in both the manufacturing and agricultural sectors will have to take place. It should be noted here that socialization does not have to take the form of statization. It can also involve other forms such as cooperatives, workers self-management, collectivization, etc.( see, example, Bettelheim, 1978:31-110).

Economic Assistance From The Socialist Countries:

This brings us to another important factor bearing upon the prospects for Nicaragua’s industrial development, namely, its association with the socialist countries. As previously mentioned, a number of very important investment projects are currently underway in Nicaragua as a result of financial and technical assistance from one or more of the socialist countries.

Nicaragua does not have the foreign exchange it needs to purchase the new equipment, machinery, raw materials and technical skills it must initially import in order to develop its productive base. Therefore, it must obtain grants or loans from foreign sources to import these necessary items. Generally, financial and technical assistance can be obtain from the socialist countries on far more favorable terms than any other source. Nicaragua has sought to take advantage of this form of assistance. Thomas recommends this course of action to small underdeveloped countries, but cautions against the development of dependent relationships that can result naturally from the association with larger and more technologically advanced societies:

…it is clear that the already industrialized socialist countries can be of great strategic importance to supporting disengagement from capitalism, economic transformation, and the sequencing of investments. However, such a strategic advantage should not permit the development of dependent relationships growing out of sheer disparities in size, technological efficiencies, and resource abilities. (Thomas:247)

Nicaragua seems to have been successful so far in maintaining the kind of balanced relationship that Thomas advocates. Chart No.16 reveals that loans and grants from the socialist countries are an important source of financial assistance, but that it is balanced by a diversity of other sources, including a substantial amount of assistance from other Latin American countries – Mexico being the most important. Moreover, the socialist countries which have provided the most assistance to Nicaragua are Cuba and Bulgaria, two of the smallest and most appropriate in terms of their technological development and past experience.

The continued financial and technical assistance of the socialist countries, as well as recently industrialized countries such as Mexico, Brazil, Argentina, and Venezuela, is of critical importance to Nicaragua’s industrial development. Nicaragua cannot transform its economic structures without substantial assistance from other countries whose interests coincide with its own interests. Increased trade and other forms of association with the socialist as well as other Third World countries is in fact an important means of breaking its past ties of dependency and reinserting the country into the international political economy as an independent nation-state.

The acute dependence of Nicaragua’s economy upon foreign trade and foreign sources of financing is in a sense the Achilles heel of the revolutionary regime. This has been noted in various studies of the revolutionary process. For example, in Michael Conroy’s analysis of Nicaragua’s external dependency, he states:

Nicaragua’s external dependence has provided opponents of the revolution with their greatest element of economic leverage. Actions by the U.S. government to undermine export production in Nicaragua and to close off export markets for Nicaraguan products, as well as to deter private and public lending to Nicaragua, have been based upon a recognition (explicit in World Bank documents) that significant foreign assistance and an improvement in export performance may be essential to the goals of the revolution and to its very existence. (Conroy:39-40).

The vulnerability of Nicaragua’s economy to external pressure has forced the revolutionary government to seek foreign economic assistance from the socialist countries, social democratic governments in Western Europe and certain Third World states.

Chart 16

The revolutionary government has obtained a limited amount of economic and military assistance from the Soviet Union, Cuba and a few other socialist countries. This assistance has been significant but in no way comparable to the military and economic assistance that revolutionary Cuba or Vietnam received in their confrontation with the United States or the assistance received by Angola in its continuing struggle to secure its national independence. Moreover, the Sandinistas do not want, nor do they expect, 10 receive this extent of military and economic assistance. They are determined to follow a non-aligned foreign policy and 10 rely upon the broad base of international support that they have succeeded in developing among social democratic governments in Western Europe (i.e., Sweden, France, Spain, Portugal, Greece, etc.), various governments in Latin America (i.e., Mexico, Brazil, Colombia, Venezuela, etc.), other Third World countries (i.e., India, Libya, Algeria, Angola, Iran, etc.), and of course the socialist countries (i.e., this includes a wide diversity of countries, such as the Soviet Union, Yugoslavia, Cuba, North Korea, Vietnam, China, Bulgaria, etc.)

VI

CONCLUSION

Since the overthrow of the Somoza dictatorship in 1979, important steps have been taken to transform Nicaraguan society in accordance with the goals of the Sandinista revolution. In every major sphere of social life, the economy, the state, civil society, culture, etc., significant changes have taken place. The confiscation of the enterprises and land owned by Somoza and his closest supporters has permitted the creation of a sizable state sector called the Area of People’s Property (APP); the agrarian reform has restructured the relations of production in the rural areas and turned land over to tens of thousands of poor peasants; hundreds of cooperatives have been organized in both agriculture and manufacturing; the unionization of both the rural and urban sectors of the working class has advanced at a rapid rate and their working conditions have been substantially improved; the development of new trading relations and a nonaligned foreign policy have been established; and for the first time the vast majority of the population are enjoying the benefits of public education, medical care, and a variety of social services.

From what has been said in the preceding sections of this essay, it should be clear that the revolutionary regime has made significant progress in transforming Nicaragua’s economy during the last six years. Before the revolutionary triumph in 1979, the country had little prospect of undergoing any significant degree of industrial development. It was one of the most economically backward countries in Latin America with a fragile and import-dependent sector of light industry. The economic transformations that have been set in motion by the revolution entail a reorientation of the economy to serve the basic needs of the population and this in turn requires the rapid development of both its agricultural and manufacturing sectors. Significant steps have already been taken to develop the industrial sector, in spite of the shortage of foreign exchange, the reluctance of large private enterprise to cooperate with the revolutionary regime, and the fact that the country is at war. If we use Thomas’s paradigm for the structural transformation of small underdeveloped societies, we can state that the revolutionary government is definitely moving Nicaragua toward the planned convergence of the country’s domestic resources with its domestic needs.

However, in order to achieve the industrial transformation of the economy and progressively raise the standard of living of the majority of the population, the revolution still has to overcome the following structural obstacles:

— The disarticulation of the various branches of industry from one another and from the other sectors of the economy, e.g. agriculture.

— The dependency of the industrial sector upon costly imported inputs.

— The dependency of all sectors of the economy upon foreign technology – equipment, machines, techniques of production, and know-how.

— The underdevelopment of the country’s human resources, in particular the low level of education and technical skills of the industrial workforce.

— The low level of organization and planning in both the state and productive structures.

— Private ownership over a majority of the major units of production and the continued existence of the exploitative relations of production in these productive units.

— The continued over-specialization of the economy in the production of a narrow range of agro-exports with unstable market conditions; and the existence of an agrarian bourgeoisie and petty bourgeoisie that depend upon these agro-exports for their income.

These structural obstacles are reinforced by the present international context in which the U.S. government is attempting to destabilize the country both economically and politically in order to overthrow the revolutionary regime.

In sum, the economic transformation and industrial development of Nicaragua continue to be blocked by what are in essence the structures of capitalist underdevelopment and dependence. The ongoing political and social revolution in Nicaragua confronts these structural obstacles at every turn. If the revolution is to go forward, it must overcome these obstacles and establish new structures that will facilitate the rapid development of the society’s productive forces. Only in this way can the revolution bring about a major improvement in the material conditions of the majority of the population.

The low level of development of the forces of production and the general political context, both national and international, make an immediate and sweeping socialization of the means of production infeasible. Thus, a transition to socialism in the immediate future does not appear probable. However, the logic and impetus for moving in this direction will most likely be generated by the necessity of resorting to socialist means to overcome the structural obstacles that block the rapid transformation of the economy. Over the long run, it appears that the only way these structural obstacles can be completely overcome is through the state’s increased intervention in the economy and the progressive socialization (through state ownership, cooperative ownership, mixed state/private ownership, etc.) of the major means of production. This will require a further development of the state’s capacity to plan and manage production. At present, the state’s capacity in this regard is extended to its fullest. However, as more experience is gained in the administration of the APP and as the state’s human resources develop, the state’s capacity for planning and managing production will increase as well. At the same time, political consciousness about the necessity of accelerating the socialization process will probably also increase. Thus, the prospects for the increasing socialization of the forces and relations of production appear to be positive over the long run. In the meantime, the development of the country will depend upon the government’s ability to make limited investments in the state sector, the effects of the war on the economy, and the performance of the private sector.

VII

FOOTNOTES

1. The concept of ‘dependency’ is widely recognized as central to an understanding of the economic structures of the Third World societies. There is, however, considerable disagreement over what factors are most responsible for the external dependency of these societies. Nevertheless, there does appear to & agreement that external dependency takes the form, on the one hand, of a lack of internal linkages between the different sectors of the economy of these societies; and, on the other hand, of strong external linkages to the international capitalist system. For a discussion of this question, see: Morten Ougaard, “Some Remarks Concerning Peripheral Capitalism and the Peripheral State,” Science and Society, Vol. XLVI, No.4 (Winter, 1982-83), pp.385-404.return to text

2. Most of the information 0 the textile industry in Nicaragua included in this essay was obtained from Cro. James Zablah, Director General of the Textile Branch of the Ministry of Industry, Government of Nicaragua.

3. Most of the information presented in this section of the essay was carefully compiled specifically for inclusion in this essay by the staff of the Nicaraguan Ministry of Industry. In particular, Cro. Reynaldo Bermudez, the Ministry’s Director of Planning, was an invaluable source of assistance, information and support.return to text

VIII

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