Rejoinder: Why the FSLN’s Policies Failed

Keith Griffin

A DEBATE ON economic policy in Nicaragua is important. We need to know what went wrong not only for the sake of the long-suffering people of Nicaragua but also for the sake of social transformations to come in other parts of Latin America. The experiences of the ten years of Sandinista government have much to tell us and we must try to learn from them. I therefore welcome the contributions from John Weeks, (ATC 23), Katherine Gonzalez and Joseph Ricciardi (ATC 24).

I differ with much that John Weeks says, and our differences concern many of the central issues, so my response will focus on his remarks, and I will refer only in passing to the views of Gonzalez and Ricciardi. John Weeks begins by overstating the difficulties the Sandinistas confronted after deposing Somoza and he ends by understating the serious consequences of the policies they introduced. In between he thrashes about blaming everyone for what happened except the government that actually was in power.

Initial Conditions

John Weeks challenges my assertion (ATC 23) that the Sandinista revolution was accomplished with relatively little difficulty and counters by noting that in Nicaragua the cost in terms of lives was approximately 10,000 people or 1% of the adult population. Horrible though that is, it does not compare with the death, torture and mutilation that accompanied the revolutionary struggles in such places as Algeria, Vietnam or Mozambique.

In Algeria, for example, I million people are thought to have died during the war against the French, or 10% of the Muslim population.(1) Loss of life, torture, economic and property damage were far greater than in Nicaragua. Conditions in Vietnam and Mozambique were of course even more horrific.

It seems churlish to quarrel over the human and material costs of the Sandinista revolution, since loss of life—be it 1% or 10% of the population—is not something to be added or multiplied as if people were mere objects. One can overlook Weeks’ hyperbole in describing the hardships faced by the Sandinistas, but revolution is a serious business and one ought to try to get the facts straight The purpose of my comparison of Nicaragua with other revolutions was to suggest that the initial conditions in Nicaragua were not less favorable than in other countries where revolutionary regimes have come to power. Weeks does not refute this point.

The thrust of John Weeks’ paper, however, is that whatever problems existed in Nicaragua were caused by the United States and are not to be understood as a consequence of government policy or action. The Sandinistas are blameless for what happened; indeed to suggest otherwise, he says, is to blame the victim. The full responsibility for what happened should fall on the United States.

He attempts to sustain this thesis indirectly by uncovering “three fallacies” in my analysis and then at the end throwing in a fourth fallacy for good measure. He argues that the Sandinista government had no control over the economy (my first fallacy), there was no possibility of developing a mixed economy (second fallacy) and in any case the government could not agree on a coherent economic strategy (third fallacy).

Control of the Economy

I argue that after the revolution the Sandinistas were left in control of the economy. The state, including the state enterprises, accounted for about 40% of the country’s total output, including much land (20%), manufacturing capacity, (33%), the agro-processing facilities (50%) and the banking system (100%). John Weeks evidently believes that direct ownership and control by the state of 40% of total output is not enough. He says, “The Sandinistas lacked effective control over the economy because they were minority holders in the productive sectors.” (34)

Ownership of the banking system and foreign-trade enterprises, according to him, gives the government “precious little” control. Apparently what mattered in Nicaragua was the fact that in “productive sectors” such as export crops and livestock the government owned only 18% and 10% of the assets, respectively. He might have added that the government didn’t own the fish in the sea either, although it does own the entire fishing industry. Weeks appears to think that the cause of the economic problems of Nicaragua is insufficient state ownership of assets and output. It is not enough to possess the commanding heights of the economy, the government must own the foothills and plains as well.

If this doctrine is correct there is little hope for social transformation anywhere in Latin America for the foreseeable future. Fortunately, however, the Weeks’ doctrine is nonsense. Richard III may have lost his kingdom for a horse, but it is impossible to believe the Sandinista revolution was mined because the state didn’t own a majority of the cows and pigs.

Ricciardi puts his finger on the problem when he observes that the “vicious cycle of distortions,” that is, price controls, interest rate subsidies, hugely overvalued exchange rates, etc., created a situation where “the Sandinistas had effectively lost control over the economy” (41). Note Ricciardi says the government lost control over the economy, not that they never had control.

A Workable Mixed Economy

My second fallacy, according to John Weeks, is to believe that in principle there was a mixed-economy strategy that could have worked. The Sandinistas claimed their policy was to create a mixed economy. Joseph Ricciardi argues persuasively that there was in fact a mixed economy in Nicaragua, although it operated largely to the benefit of the private agro-export producers and not to the benefit of the workers and peasants. I argued that the government could instead have built a mixed economy around small peasant farmers and small urban traders and businessmen.

John Weeks, however, will have none of this. He asserts that my analysis is wrong because the power of what was left of the old Nicaraguan elite after the destruction of the Somoza regime was so great and the hostility of the elite so implacable that a mixed economy was not viable. Presumably he believes it was all or nothing, either the elimination of the private sector in its entirety or unreconstructed laissez-fake capitalism.

It is rather odd to argue that the Sandinista revolution was strong enough to destroy the Somoza elite but not strong enough to tame the remaining elites and that this explains the failure of economic policy. The alternative explanation that I put forward is that the policies themselves were conceived. They were anti-rural, anti-small-scale production and anti-private, they were — pro-large-scale production and pro-state.

Katherine Gonzalez brings some of these points out clearly in her contribution. She notes that government policy placed an emphasis on the “modem” sectors of the economy, that is, that it favored large-scale production. Indeed, “large private producers, who had opposed investing from the very beginning of the revolution, had early been offered concessions by the government.” (43) In rural areas, small and medium farmers, who supported the Sandinistas during the revolution, “received less in the way of incentives than did the reactionary large cotton growers.” (43)

The government’s attitude toward the peasantry is reflected in its land policies. Only 35% of the agricultural land was to be held as individual farms; 65% was to be held either as slate farms (25%) or cooperatives (40%). In practice, before 1985 when the policy was changed, only 10% of the land actually distributed was turned over to individual peasant farmers; 90% was allocated to cooperative farms. Gonzalez makes it clear that where the population received land under the agrarian reform, they supported the government, but “peasants without land would not support the revolution and had in fact joined the counter-revolution in small but significant numbers.” (44)

The Sandinistas alienated some of their natural allies and threw them into the arms of the contras. It is indeed true, as Weeks says, that “it is quite amazing the extent to which the Sandinistas accommodated large-scale private interest.” (35) It is equally amazing the extent to which the Sandinistas failed to respond to the interests of small-scale private producers, be they individual peasant farmers or small urban traders and business people. That is the moral of this particular part of the story.

The contra war was not just “an invasion by a foreign power,” as Weeks appears to believe. It was much more complicated than that. In fact I believe the war was partly endogenous, sustained by the rising discontent of large sections of the population over the sharp decline in their standard of living. Weeks dismisses this argument, saying the contribution of economic mismanagement was “minor indeed” and that the counter-revolutionaries only “achieved limited popular support.”

The overwhelming defeat of the Sandinista government in the February elections shows just how much wishful thinking there was in Weeks’ contention. It is now clear beyond a shadow of doubt that the majority of the people did not support the government and when given a choice were prepared to vote for a poorly organized, deeply divided opposition coalition.

Was There a Coherent Strategy?

Weeks accuses me of believing the Sandinistas had a coherent economic strategy. This is the third fallacy in my argument. At one level it is absurd to claim the Sandinistas had a coherent strategy. Obviously it was wildly incoherent. That is why the economy is in such a mess. Such coherence as there was only emerges ex post when one tries to make sense of what was going on. The Sandinista strategy that I identified was very simple: to win the war, to use the slate to generate high rates of investment and growth and to increase the supply of slate-provided services to the poor.

Implementation of these seemingly simple objectives however was poor, and the result was an economic crisis of the first order. Joseph Ricciardi appears to accept much of my argument and correctly attributes the hyperinflation of 1988 to excessive government spending. He goes on to say, however, that “much of this excess was simply beyond political control.” (39) Can this be true? Ricciardi’s assertion is highly deterministic and for that reason I find it to be unpersuasive. Surely things might have been done differently. Above all the Sandinistas might not have promised more than they could deliver or have attempted to do the impossible.

The neglect of savings was in my view a major mistake. Ricciardi misinterprets me when he writes that “for Griffin, the Sandinistas’ fatal error was to alienate the private sector.”'(39) What I actually said was that while the state assumed “responsibility for maintaining a high level of investment, it appeared to take no responsibility for generating the high level of savings necessary to finance that investment. This was a fatal error,” (32) In 1988 central government savings were minus 16.7% of gross domestic product (GDP).

The huge subsidies, negative real rates of interest and privileged foreign-exchange rates offered by the state were highly damaging policies. They favored large private capital and discriminated against small private capital; they created a fiscal crisis; they resulted in a misallocation of capital and other resources; they reduced both the volume and efficiency of investment and thereby lowered the rate of growth, they harmed employment and the interests of the poor in general. In short, the economic strategy was a disaster, but it was a disaster that could have been avoided.

It was not inevitable; it was not “beyond political control;” it was not, as Weeks claims, a conflict within the leadership that “could not be resolved.” This is rationalization after the event and an attempt at exculpation. The government was responsible for its policies and for their consequences and one should not try to pretend otherwise.

The attempt at exculpation is carried a step further by John Weeks when he denies that the Sandinistas transformed Nicaragua into a socialist country. Indeed he views my observation that the Sandinistas tried to launch a socialist strategy of development as a fourth fallacy in the analysis.

There are of course several definitions of socialism, but many people would perhaps agree that a country that relied on central planning to allocate resources, that pursued an objective of social and economic equality and that had under public ownership a high proportion of the means of production was indeed socialist. Whatever else Nicaragua was, it certainly wasn’t capitalist. And it’s no good, following Ricciardi, to describe Nicaragua as a dependent capitalist country. It was essentially a socialist economy, albeit the leadership contained a large populist and romantic component.

One cannot avoid the sad conclusion that an opportunity was missed and that socialism in Nicaragua failed. John Weeks is quite wrong to say that to judge the Sandinista government “against a yardstick of socialism … is both unfair and ahistorical.” Again I would say that socialism, like revolution, is a serious business and we should not try to sweep every failure under the carpet by claiming it wasn’t really socialism but “just a phase in national liberation.” (35)

Hyperinflation Among Friends

One must credit Weeks with having nerve even if not good sense. He claims to be surprised that Nicaragua’s economic performance “has not been worse” and asserts that “the ‘chaos’ … is largely limited to inflation and the balance of payments.” These views are so extraordinary that it is hard to know where to begin.

But let’s start with inflation. Between 1980 and 1987 the average rate of inflation in Nicaragua was 86.6% a year and accelerating rapidly. In 1988 hyperinflation set in and the rate of price increase soared to 11,500%. At the peak of hyperinflation the prices rose perhaps at an annual rate of 30,000% a year and the government had no alternative but to abandon its policies and introduce in January 1989 severe and painful measures to stabilize the economy. Indeed by then the economy had largely become demonetized.

The balance of payments was equally chaotic. An authoritative report coments that Nicaragua’s exchange rate policy resulted in “one of the most impressive cases of overvaluation in the economic history of Latin America or indeed the world.”(2) The trade deficit was nearly one-third of GDP and imports were nearly four times larger than exports.

Inflation and the balance of payments were certainly chaotic, but Weeks is wrong to claim that the chaos was “largely limited” to these two aspects of the economy. Per capita GDP in 1988 was less than half what it had been in 1976. Average consumption per head over the same period fell more than 70%. Real wages between 1981 and 1988 fell more than 90%. By then, relatively few people worked for wages. The workers abandoned wage employment and fled to the informal sector in an attempt to eke out a living as best they could. Poverty and inequality increased dramatically.

Contrary to Weeks, it is hard to imagine, short of a severe famine, that economic performance could have been worse. It is one thing to underline the destructive role played by the United States—the financing of the contras, the efforts to sabotage the economy, the trade embargo and the successful attempt to buy an election victory—but it is quite another thing to claim that Nicaragua’s economic problems are due entirely to external intervention.

The Sandinista government made many errors in managing the economy and these errors had dreadful consequences for the people of Nicaragua. Unless we face these errors squarely, and learn from them, there is a danger they will be repeated somewhere else in the world the next time a progressive movement comes to power.

Notes

1. See Alistair Horne, A Savage War of Peace: Algeria 1954-1962 (London: Macmillan, 1977). I worked in Algeria in the Planning Commission in 1963-64 and saw for myself the damage caused by the war as well as the consequences for the population of widespread torture.
   back to text
2. Lance Taylor et al., The Transition from Economic Chaos toward Sustainable Growth (Stockholm: SIDA, May 1989) 39.
   back to text

May-June 1990, ATC 26