Against the Current, No. 23, November/December 1989
John Weeks THE NICARAGUAN REVOLIJIION provides fertile ground for misunderstanding
based on predilection and prejudice, particularly if knowledge of the
Sandinistas is largely second-hand. Since the Sandinistas use terms such
as socialism, many are those eager to measure accomplishments and
failures by that abstract yardstick.
This is the case with Keith Griffin’s observations. The Nicaraguan
economy has suffered a severe decline, but neither for the reasons he
suggests nor during the period he focuses upon. His mistakes of analysis
derive from three fallacies.
The first fallacy is that as a consequence of the triumph over Somoza
and U.S. imperialism, the Sandinistas were left in control of the
economy. “Central planning was introduced,” Keith Griffith writes.
The second fallacy is that subsequent to the triumph there existed a
mixed economy strategy which, if it had been faithfully pursued, would
have resulted in growth and relative prosperity; and, the accompanying
corollary, that the Sandinistas through their actions alienated the
private sector and torpedoed the mixed-economy strategy.
The third fallacy is that, as opposed to the mixed-economy strategy, the
Sandinistas had an alternative strategy in which the state would
dominate economic life and that they pursued this strategy with vigor in
face of clear and accumulating evidence that it was disastrous. This
third presumption is as false as the first two.
First, clarity requires consideration of two allegations made by
Griffin: 1) that Somoza was overthrown “with relatively little
difficulty as compared to the long and violent struggles that took
place, for example, in Algeria, Vietnam, Angola and Mozambique”; and 2)
that “the misguided economic policies followed by the post-revolution
government in Nicaragua helped to make effective and sustained
opposition by the contras possible.”
We have the cost of overthrowing Somoza from unimpeachable sources:
according to the World Bank and United Nations organizations, the new
government took over a country in ruins. Approximately 10,000 people
died in the conflict (one percent of the adult population), and another
10,000 were left permanently injured. Relatively speaking, these losses
exceeded those of most of the combatant countries in World War II.
The economy was devastated. Gross domestic product fell in real terms by
30% in one year (1978-79), and at the end of 1979 income per head was
30% below that of 1916. The World Bank estimated that the loss of
production from the conflict over 1978-1980 equaled $800 per capita, or
total national income for the peak year of 1977.
Further, the war against Somoza resulted in widespread destruction of
productive assets. The manufacturing sector lost over 20% of plant and
equipment, along with inventories and goods-in process. Before he left,
Somoza looted the national treasury. Measured short-run capital
movements were a negative $315 million in 1979 alone, and total capital
flight that year has been conservatively estimated at 40% of GDP.
Appropriately, the World Bank mission entitled its 1981 report, “The
Challenge of Reconstruction,” for the Sandinistas had a country to rebuild.
Second, for all the mistakes and misjudgments made by the Sandinista
leadership, the U.S. surrogates (“contra”) achieved limited popular
support. Far from being a “civil war” or even an insurrection, the
contra effort was from its outset an invasion by a foreign power. While
at times the contras moved small units into the heartland of Nicaragua,
in no populated area did the sun ever set and rise on contra land. If
economic mismanagement was a contributing factor to the 1982-88 conflict
in Nicaragua it was minor indeed.
A Strong State?
Turning to the first fallacy, the proposition that the Sandinistas
controlled the economy reflects a lack of understanding of the
revolution. Those who argue the Sandinistas held control over the
economy, point to formal ownership relations. After 1979, the banking
system and commercialization of foreign trade passed into the
government’s hands.
However, in no commodity-producing sector of the economy did the state
own more than 30% of assets (except in the tiny mining industry); not in
export crops (18%), not in livestock (10%), not in manufacturing (28%),
nor in construction (3%), all sectors overwhelmingly dominated by large
capitalists, not peasants. What degree of control does ownership of the
banking system and external commercialization give a government when the
productive sectors are in the hands of private capital? Precious little.
In manufacturing, state control was particularly weak and fragmented.
The obvious long-term strategy would have been for the state to divest
itself of some enterprises and nationalize or confiscate others to
rationalize the structure of ownership. As a practical matter, there was
no one to divest enterprises onto, for the private sector was busily
engaged in decapitalization and ill-disguised sabotage. Divestiture
would have meant closing enterprises down, throwing state workers into
unemployment while those in the private sector stayed at work.
For exports the impotence of the state was greater still: for every
dollar of foreign exchange earned, eighty cents came from the private
sector. Export policy involved an annual struggle to prod the private
landowners to plant, harvest and market. Soon after the triumph the
Sandinistas discovered to their chagrin that the main export that the
private sector had in mind was capital. A liberal credit policy to
private agricultural producers during the first two years of the
revolution resulted in fueling the black market and swelling bank
accounts in Miami.
In brief, the Sandinistas lacked effective control over the economy
because they were minority holders in the productive sectors. Credit
policy is a limp tool if there are no borrowers, or if the borrowers
have currency speculation in mind. A state monopoly on external trade
values counts for little if the major exports are in private hands and
the landlords view each sale of coffee and cotton as invigorating their
enemy.
Capital Versus The Revolution
Passing to the second fallacy, the powerful large-scale private sector
was an adversary of the revolution from the outset This was the
consequence of four factors: the historical tendency of the Nicaraguan
elite to seek succor from Washington; the inherent tension of a mixed
economy when capital is out of power; the conscious policy of the Reagan
administration to sabotage cooperation between the private sector and
the Sandinistas; and divisions within the FSLN over an alliance of
convenience with private capital. There is space to consider only the
last two of these.
By late 1981, Washington offered the old Nicaraguan elite an alternative
to cooperation with the Sandinistas: armed overthrow of the government
by the mercenary army. On the domestic front, the economic power of
private capital was an integral part of the contra strategy. Far more
debilitating than the terrorist attacks of isolated ex-guardia was the
daily decapitalization and withholding of production by the large-scale
private sector.
The extent to which the capitalists had crossed over to the contra side
is shown by the attempt of the government to distribute a loan from the
World Bank earmarked for the private sector in manufacturing.
In 1981 the government received $30 million for replacement of capital
lost during the 1978-79 conflict. From the point of view of the private
sector the money was a gift—firms could receive dollars, which they
would pay back in local currency at an interest rate far below the rate
of inflation. It quickly became obvious that the private sector had no
interest in these loans, and the money went undisbursed for lack of takers.
The reason was clear the rehabilitation of plan and inventories would
revive the economy. As the economy revived, the staying power of the
Sandinistas would increase. The viability of the mixed economy could not
be based on the cooperation of the capitalists, which had been lost
irretrievably when they fell from power. The problem of the mixed
economy was that the capitalists, abetted by the Reagan administration,
were sabotaging economic recovery.
Equally important is the third fallacy that the Sandinistas had a
coherent economic strategy. Within the FSLN there was considerable
ambivalence, arising from ideological and practical considerations,
about the viability of a mixed-economy strategy. Some members of the
National Directorate were from the outset opposed on ideological grounds
to striking an alliance with private capital.
More important than this was the obvious reluctance of the private
sector to cooperate and its intimate relations with the Reagan
administration and the contra. As counter-revolution grew in strength,
policies that fostered the capitalists appeared to some Sandinista
leaders as near madness, for they strengthened the weaker enemy within
(domestic capital) that was allied with a stronger enemy outside (U.S.
aggression). It is quite amazing the extent to which the Sandinistas
accommodated large-scale private interests, in face of gathering
evidence of decapitalization and sabotage.
It is hardly surprising that economic policy lacked apparent coherence
Each measure to provide incentives to the private economy invariably
benefited the capitalists and landlords more than the peasants and
artisans, since large- scale operators possessed greater economic power
in the competition over credit and other resources and controlled what
the Sandinistas wanted produced (exports, for example). Each pro-private
sector policy had to be followed by damage control, as the government
repeatedly discovered the ingenuity of capitalists and landlords in
finding avenues of decapitalization and capital flight.
Never in control of the economy, the Sandinistas were in continuous
struggle to prevent the capitalists and landlords from reconsolidating
their control. It is quite appealing to argue, as Keith Griffin does,
that the Sandinistas could have constructed a mixed economy based at the
small peasant and urban artisans. Indeed, the Sandinistas have done
this, but these groups hold little economic power and their role in the
export sector was slight Such a mixed economy has provided a peasant
base for the revolution, but done little to solve its over whelming need
for foreign exchange.
Contradictions Without Resolutions
The essential feature of the conflict over development models within the
leadership was that it could not be resolved. As long as the private
sector was intent on sabotage and the Reagan administration hostile, the
mixed- economy strategy was doomed to failure. Without substantial aid
from the Soviet Union and its allies, a “Cuban” model remained a
non-starter.
Resolution of the debate would have required the ascendancy of a part of
the Sandinista leadership over the rest, implying an open split in the
revolution. Once external aggression gathered force, the leadership
forged unity around the principle upon which all could agree resistance
to counterrevolution and U.S. domination. This unity required that the
differences over economic policy remain unresolved.
When a house is burning there is little opportunity to debate the
optimal manner in which to extinguish the blaze The Reagan
administration pursued a policy of pyromania in Nicaragua, and this
successfully undermined the ability of the Sandinista leadership to
focus upon any issue other than national defense.
The most surprising aspect of Nicaragua’s economic performance during
the 1980s is that it has not been worse. During the 1980s, the country
has been continuously at war with the world’s greatest power via the
surrogate contra force, suffered from a trade embargo by the United
States, and lost access to borrowing abroad. On the other hand,
assistance from the Soviet Union and Eastern Europe, except for military
aid, was noteworthy by its sparseness.
Despite this collection of maladies, per capita income in Nicaragua fell
less over the period 1980-87 than in El Salvador or Guatemala, and about
the same as in Honduras. These are precisely the years of the extensive
market interventions that Griffin criticizes. The massive contradictions
of the Nicaraguan economy occurred in 1988 and 1989, after the
government had abandoned most of the interventionist policies that he
finds so foolish.
Critics of the Sandinista government have tended to make much of the
country’s allegedly chaotic economic conditions during the last two
years. The ‘chaos’ as such is largely limited to inflation and the
balance of payments.
Inflation in wartime is probably an unavoidable phenomenon without price
controls or the type of extensive balance of-payments support received
by El Salvador from the United States (which allows imports to absorb
excess monetary demand). The continuation of the high inflation into
1989 was the result of deregulation and liberalization of markets, which
iii retrospect may be judged of questionable utility.
With regard to the balance of payments, Nicaragua has suffered from
three difficulties in comparison to which domestic policies are largely
trivial. First, there is the U.S. trade embargo, a measure which the
World Court de-dared in violation of international law. Second,
Nicaragua has lost virtually its entire export market in Central America
Nicaragua’s share of regional exports has declined much more than for
any other member of the Central American Common Market, and this has
been due to regional politics not domestic economic policy. Finally,
much of the fighting within Nicaragua occurred in areas important for
export production, and the contra made economic disruption a key element
of strategy.
The three fallacies about the Nicaraguan revolution relate to a fourth.
Contrary to Griffin’s fundamental assumption, the Sandinista leadership
never embarked on a concerted plan to eliminate capitalism and “launch a
socialist strategy of development.”
To recognize this is not a criticism. Indeed, to measure the efforts of
the Sandinistas against the yardstick of socialism, either by critics or
friends, is both unfair and a historical The Frente Sandinista para la
Liberacion Nacional initiated the great historical task of liberating
its country from neo-colonial domination. That task did not end with the
fall of Somoza, and through ten years of rule the leaders of the FSLN
have remained true to the creation of an independent Nicaragua.
The period Griffin reviews should be seen as a phase in national
liberation, not a period of socialist construction or great policy
coherence. He would seem to have missed the message in his quotation
from Lenin and “ignored the limits and conditions in which revolutionary
methods are appropriate.”
The Sandinistas took power to free their country from U.S. domination.
They have done so. To attribute the economic ills of the Nicaraguan
economy to ‘foolish’ policies is to brush aside the class conflicts
inherent in national liberation. It is also rather like condemning a
victim of a mugging for not adopting a healthier diet. If the United
States government stopped mugging Nicaragua, Sandinista economic
mismanagement would become an issue worthy of serious debate. Until
then, it involves blaming the victim.
© 2020 Against the Current November-December 1989, ATC 23