The Algorithms of Ideology in Economic Planning: A Critical Look at Cuba’s National Economic and Social Development Plan 2030,

With a Focus on the Pharma Sector (Conference Draft)

Larry Catá Backer; W. Richard and Mary Eshelman Faculty Scholar, Professor of Law and International Affairs at the Pennsylvania State University

27th Annual ConferenceAssociation for the Study of the Cuban EconomyMiami, Florida27 July 2017

Context• The development plans of Marxist Leninist states are usually given short shrift as

expressions of ideology (at best) and propaganda (at its most pathetic). • Yet there is value in considering critically these development plans, if only to get a sense

of the mindset of high level functionaries with control over macro-economic policy, and to get a sense of the administrative cultures within which governmental middle managers will actually exercise discretionary authority.

• Especially useful in that context is the Cuban Communist Party 7th Congress’s Conceptualizacion del modelo economico y social Cubano de desarrollo socialista: Plan nacional de desarrollo economico y social hasta 2030: Propuesta de vision de la nacion, ejes y sectores estrategicos• PCC posited that development can be better managed by rejecting the central role of markets, and

substituting state planning in its place, taking an all around view of economic planning as inextricably bound up in social, political and cultural progress of a nation.

• The resulting structural proposal elaborated in the Cuban National Economic and Social Development Plan 2030 (PNDES) suggests behavior and choice algorithms with interesting implications even if only partially realized.

• It is particularly important as a vision for transition developed in the wake of anticipated changes in higher leadership and the effects of normalization with the United States.

Thesis and Roadmap

• This essay critically considers PNDES in the current national and regional context. • Starts with a brief analysis of PNDES

• Focus on what it can reveal about entrenched ideological perspectives that shape decision making and analysis within Cuban Party and administrative elites.

• Then considers consequences for economic policy:• Focus on the way these appear to manifest themselves as a set of self-referencing decision systems that

substitute or supplant market or regulatory determinations.

• End by testing premises against Cuban approaches to the pharma sector, • A strategic sector and an important targets of centrally planned development for raising income.

• Why is this important (thesis)?• PNDES points to a new methodology of regulatory governance that is appearing

worldwide• Social Credit—China• Accountability, ranking, conformity, and certification systems—in the West

• It suggests the way in which regulation has been appropriating the managerial aspects of algorithms, and one way of looking at its relation to markets and markets ideology

PNDES

• Represents the operationalization of the conceptual framework for political, economic, social and cultural organization • First presented in the Lineamientos de la

Política Económica y Social del Partido y la Revolución (2011) (Tabloide (Commentary))

• Conceptualización, PNDES and the Lineamientos should be read together

• They represent the official thinking of institutional elites; however badly they deviate from its consequences in ordinary course

• They provide vocabulary and a baseline for the way in which factors are valued and “facts” and “situations” are “viewed” and “interpreted”

PNDES Summary

• Introduction

• History and legitimating ideology

• Ideology• Core (Normative)Themes and Guiding Principles

• 9 Core (Normative) Themes • framework conception to implementation

• 23 Principles (substantive constraints)

• Vision 2030• Nation that is sovereign, independent, socialist ,

democratic, prosperous and sustainable

• Implementation• Strategic Vision

• 6 Core Strategic Themes (each including general and specific objectives)

• Strategic Economic Sectors (11 Sectors)• Method for added or eliminating sectors

The Core Theme “Wheel” From PNDES ¶ 39

PNDES 6 Strategic (Normative) Themes

• 1) efficient and socialist government and social integration (¶¶49-77),

• (2) transformation and internationalization of production(¶¶ 78-101),

• (3) infrastructure development (¶¶ 102-129),

• (4) developing human potential through science, technology and innovation (¶¶ 130-157),

• (5) development of natural resources and environmental concerns (¶¶ 158-184), and

• (6) human development, equality and justice (¶¶ 185-220). • These are meant to serve as the qualitative categories through

which development will be structured (¶ 46). • Around these six strategic themes, PNDES establishes 22 general

objectives and 106 specific objectives (¶ 47) that constitute the bulk of the rest of the Plan.

• All of these are tied to the Lineamientos (¶ 46) and the efforts at modernization and preservation that has marked the policies of the Cuban state since the elevation of Raul Castro as First Secretary of the PCC.

Image © Larry Catá Backer 2017

PNDES Strategic Economic Sectors• 237. Construction, introducing new technologies, construction systems of

high productivity and developing the construction materials industry.

• 238. Electro-energetic, focused on the use of renewable energy sources, raising efficiency and exploration, production and refining of oil and gas.

• 239. Telecommunications, information technology and connectivity.

• 240. Integrated logistics for transport, storage and commerce.

• 241. Integrated logistics of water networks and installations for productive and population consumption, including new technologies for the use of sea water in industrial and human consumption.

• 242. Tourism and its diversification, such as marine and nautical tourism, golf and real estate, nature, agriculture, cruise ships, historical, cultural and heritage, conventions, congresses and fairs, and especially the modalities of Health and quality of life; And with emphasis on its contribution to strengthening the internal integration of the economy.

• 243. Professional services, in particular doctors.

• 244. Non-sugar agro-industry and food industry, with emphasis on integrating industry with the primary agricultural sector and raising the value added of food products.

• 245. Pharmaceutical, biotechnological and biomedical products.

• 246. Sugar and sugar industry, with emphasis on energy conversion.

• 247. Light industry, principally aimed at satisfying the demands of the population in the domestic market. Image © Larry Catá Backer 2017

Managing Inbound Investment

• “Portfolio of Opportunities for Foreign Investment for 2016-2017• includes 395 business opportunities,

up from 326 projects floated in 2015 and 246 projects in 2014

• Emphasis on activity in Special Economic Zones (Mariel)

• Does this serve as a description of the outcomes of a planning algorithm?

• Or as the produce of a reverse engineering of the algorithms in PNDES?

PNDES as Algorithm (Core Vision)• Core Vision. PNDES starts with an initial set of framing factors. This Vision Core focuses on the most generalized

objectives (components) of central planning and serve as both guide and as normative valuation. In the latter sense, these must be understood as describing the set of highest value objectives of the State and the PCC, to which everything else ought to be bent. • These include: (1) Establish Core themes for work groups; (2) Diagnosis and determination of qualitative gaps; (3) Establish

Guiding Principles to elaborate development strategies; (4) establish core themes; (5) Identify strategic sectors; (6) Political action to implement core strategies; (7) Establish indicators to evaluate objectives; (8) Set goals for objectives; (9) Determine quantitative development gaps; (10) Create planning systems; (11) Develop budgets for these plans; and (12) Create mechanisms for evaluation and feedback.

• This manifests the overall objective of PNDES—the core algorithm of planning as a substitute for markets. • At the level of the state and macro planning, then, the core objective of PNDES is to achieve conformity to the PNDES aggregate

core vision. That can be understood in the following way:

• Vision Success [CP Model of PNDES] = sum of the twelve objectives = Vision 2030 • But that does not prove to be very helpful.

• It is not clear how meeting the objectives is measured or how partial success (however measured) will impact assessment. • the relationship between the twelve objectives is not clear. Some are part of PNDES, others are not.• it is not clear that the factors are quantifiable; WIGGLE -ROOM--success will be determined by fiat of the highest level of the PCC

in due course. • The only measure of accountability are the objectives themselves—whether they have been operationalized or not. Beyond that,

the internal measures are opaque to outsiders. • Where Vision 2030 = Nation that is sovereign, independent, socialist , democratic, prosperous and sustainable

PNDES as Algorithm (2nd Order Calculus)• The success of the Core Vision, in turn, is based on the successful application to

aggregate economic decision making:• Include Normative Themes, Guiding Principles, Core Strategies and Strategic Economic Sectors.

• No positive exercise of discretion may be made unless the • sum of Values +Specific Contribution > 0

• Where • 1. Values = ([a] [Normative Themes] + [b] [Guiding Principles])• 2. Specific Contributions = ([c] [Core Strategies] + [d] [Strategic Economic Sectors]) • 3. The coefficients a, b, c, and d equal the multiplier factor (that is the weight this factor will be given) in

relation to the other variables. That is a determination is itself a subject of discretion but bounded by the qualitative premises of the Conceptualizacion and gross objectives of the objectives comprising Vision success.

• 4. The variables have the following meaning: NT= Normative Themes; GP = Guiding Principles; CS = Core Strategies; and SES = Strategic Economic Sector

• For discretion to be exercised each of NT, GP, CS and SES must be greater than 0. • That is, if any of the basic objective categories has a zero or negative value then positive discretion

will not be exercised. • Where fewer than all projects considered may be selected, discretion will be exercised in favor of

those projects whose overall score is highest. • Central to the determination of discretion, then, is a calculation of Values and specific contribution.

These in turn require calculation of the variables NT, GP, CS and SES.

PNDES as Algorithm (Values—Normative Themes): Simple

• The contributory value of NT (PNDES ¶ 37 Strategic Themes) can be calculated as a positive value.

• NT = Environment + Social impacts + Territorial integrity + Demographic impacts + Infrastructure + External sector + Monetary

policy and finance + Productive potential + Defense and internal security.

• At its simplest one can assign a value of 1 to each factor that is positively embedded in the decision, 0 where the value is absent, and -1 where the value is negative (e.g., the proposal would have a negative effect on territorial integrity). In that case NT can be any positive number between 9 and -9.

PNDES as Algorithm (Values—Normative Themes)Weighted• Though PNDES does not elaborate on approaches to valuing these factors (in

absolute and relational terms), it is possible to factor that into the calculus:

• NT = a(Environment) + b(Social impacts) + c(Territorial Integrity) + d(Demographic impacts) + e(Infrastructure) + f(External sector) + g(Monetary

policy and finance) + h(Productive potential) + i(Defense and internal security).

• Where: • 1. the coefficients a, b, c, ... i equals the multiplier factor (that is the weight this factor will be

given) in relation to the other variables. That is a determination is itself a subject of discretion but formally bounded by the qualitative premises of the Conceptualizacion and the gross objectives of the objectives comprising Vision success.

• 2. Each of the terms are qualitative measures that are not defined with any degree of precision. There will be a large space for administrative discretion respecting the interpretation of the terms and their applicability to specific context.

• Yet this does not get to the value of the strength or weakness of the contribution of each of the variables to NT.

PNDES as Algorithm (Values—Normative Themes)Weighted + Added Value of Coefficients• it may be necessary to reflect that the social value of a choice is weak (unrealized to some extent reflected in the

coefficient)) but the environmental value of a choice is strong (either positive or negative). To capture that variation, it might be necessary to further refine the equation as follows:

• NT = a(x1 Environment) + b(x2 Social impacts) + c(x3 Territorial Integrity) + d(x4 Demographic impacts) + e(x1 Infrastructure) + f(x6 External sector) + g(x7 Monetary policy and finance) +

h(x8 Productive potential) + i(x9 Defense and internal security).• Where:

• 1. the coefficients a, b, c, ... i equal the multiplier factor (that is the weight this factor will be given) in relation to the other variables. That is a determination is itself a subject of discretion but bounded by the qualitative premises of the Conceptualizacion and the gross objectives comprising Vision success.

• 2. The coefficients x1 . . . . x9 represent some percentage contribution strength of that variable.

• Caveat • adding the x1 . . . x9 coefficients may be redundant. • These coefficients may be better captured by the application of the Guiding Principles to the value of the decision or policy.

• The contribution of a project to these core normative themes adds to the value of the project and militates in favor of positive exercise of discretion.

• Likewise, presenting a project for foreign investment or international cooperation in these terms facilitates discussion in ways that Cuban officials can directly relate to their discretionary choice frameworks.

PNDES as Algorithm (Guiding Principles)GP = the sum of the twenty-three (23) Guiding Principles

(PNDES ¶¶ 14-36):

• 1. Increase the gross domestic product2. Protect public ownership of the fundamental means of production and consolidate the socialist economic and social development model conducive to the efficacious functioning of the state and its SOEs embedded in popular participation in decisionmaking.3. Sustainable increases in effectiveness, efficiency, and competitiveness4. Contribute to the national defense5. contribute to a climate of security and internal order especially with respect to issues of corruption, external subversion, and other anti-social activities.6. Augment and stimulate science, technology and innovation.7.Contribute to move toward renewable energy sources8. Positive impact on infrastructure (recovery, preservation, modernization, augmentation).9. Assure demographic sustainability by attenuating the negative effects of demographic realities10. Exploit comparative advantages in economic activities especially with respect to international trade. 11.Preference for identified strategic sectors.12. Strive toward agricultural self sufficiency13. Strive toward coherence in monetary policies in the service of other state policies.14. Increase national savings15. Augment and diversify sources of foreign investment and financing but which actively contribute to national development and to ensure the sustainability of foreign debt.16. Understand foreign investment as an integral part of strategies for and especially among identified strategic sectors.17. Augment and diversify external commerce and international cooperation with the object of increasing its contribution to national and local internal development.18.Expand the development of the internal market to better align demand and supply of consumer good of acceptable quality.19. consolidate the Revolution’s accomplishments vis a vis health, social welfare, education, culture, sport, recreation, and the security and protection of citizens. 20. Assure sources of employment that favor jobs in the productive sphere and sustained growth of labor productivity.21. Ensure that work constitutes in itself not just a necessity but also the means of personal fulfillment for every citizen.

• 22. Strive to achieve the adequate territorial distribution of productive forces to ensure the development of prosperous, ordered and sustainable modern cities, rural and mountainous areas.23. Assure the conservation and rational use of natural resources, so that the protection of the environment serves as a factor that contributes to sustainable economic and social development.

• Where

• 1. Each of the Guiding principles is assigned a value of 1, 0, -1 (referencing their contribution to value). At its simplest one can assign a value of 1 to each factor that is positively embedded in the decision, 0 where the value is absent, and -1 where the value is negative.

• 2. Each is multiplied by a coefficient that equal the multiplier factor (that is the weight this factor will be given) in relation to the other variables. That is a determination is itself a subject of discretion but bounded by the qualitative premises of the Conceptualizacion and the gross objectives comprising Vision success and NT.

• 3. Each of the terms are qualitative measures that are not defined with any degree of precision. There will be a large space for administrative discretion respecting the interpretation of the terms and their applicability to specific context.

PNDES as Algorithm (Core Strategies)• Core strategies consist of six “intimately interwoven and systematically designed” core strategic themes around

which economic planning will be undertaken (¶ 44): (1) efficient and socialist government and social integration (¶¶49-77), (2) transformation and internationalization of production (¶¶ 78-101), (3) infrastructure development (¶¶ 102-129), (4) developing human potential through science, technology and innovation (¶¶ 130-157), (5) development of natural resources and environmental concerns (¶¶ 158-184), and (6) human development, equality and justice (¶¶ 185-220).

• CS = a(ESCGI) + b(TIP) + c( ID) + d(DHP) + e(DNR) + f(HDEJ) • Where

• (1) CS = 0 or negative value; and • (2) the coefficients (a . . . . f) that equal the multiplier factor (that is the weight this factor will be given) in relation to the other

variables. That is a determination is itself a subject of discretion but bounded by the qualitative premises of the Conceptualizacion and the gross objectives comprising Vision success and NT.

• This produces the most complex calculus because the six core strategies are each the sum of a small number of general objectives and a sometimes substantially greater number of specific goals.

• Thus for each category, the value depends on the aggregation of the values of the general and specific objectives, e.g.,:

• ESGSI=a1...n [generalobjective1...n]+b1...n [specificobjective1...n] • Where

• ESGSI = efficient and socialist government and social integration (¶¶49-77).

• The same calculus is necessary for each of the six strategies, and the sum of these sub calculations then produce an aggregate value for CS

PNDES as Algorithm (Strategic Economic Sectors)

• PNDES is meant to be targeted to a set of eleven (11) Strategic Economic Sectors (¶¶ 221-251). Activities that are embedded in any one or more SES add positive value, other investments are either neutral or negative value investments. But it is not clear that all SES are valued equally. It is possible that ion context an SES project will have a greater or lesser value than other SES projects.

• SES = 0 where the activity or policy makes no contribution to any of the listed SES. SES > 0 where the activity or policy contributes to one of more SES.

• Where • 1. The value of each of the 11 SES is modified by a coefficient equals the multiplier factor (that is the weight

this factor will be given) in relation to the other variables. That is a determination is itself a subject of discretion but formally bounded by the qualitative premises of the Conceptualizacion and the gross objectives of the objectives comprising Vision success.

• 2. Each of the 11 SES represents the sum of the positive, neutral, or negative effect of the activity on each of the general and specific objectives of the SES.

• 3. Each of the terms are qualitative measures that are not defined with any degree of precision. There will be a large space for administrative discretion respecting the interpretation of the terms and their applicability to specific context. This is particularly relevant in this calculus. Each of the specific and general objectives are ambiguous enough to perhaps flexibility in interpretation of application.

• Strategic Economic Sectors, are not fixed in stone. They represent a flexible aggregation f industries that appear to maximize value per unit invested. Specific sectors are added or removed by reference to a ten (10) factor formula (¶¶ 223-232)

Caveats

• First, none of these calculations will actually be done overtly and formally.

• Second, the assessments are all laced with discretionary choices.

• Third, the complexity of the formulas inherent in PNDES will prove challenging for any sort of rational application other than at and for the benefit of highest level decision making, and only at the macro level.

• Fourth, the variables identified (and there are a lot of them which is no surprise since the purpose is to organize national markets in a complex society with international connections) in PNDES are inherently relational.

Image © Larry Catá Backer 2017

The Algorithm in Operation: Pharma

• Objective self sufficiency

• Difference in research tracks• US: From research to market to health system• Cuba: From research to distribution through health care system

to market.

• Cuba wanted to take advantage of the value added of this different approach

• Specialization in delivery• Prevention and early detection• Specialized diagnosis and therapies• Then a biotech industry top meet demand

• Organized into a series of units under a variety of forms• 31 enterprises and 78 factories with 21,000 workers• No direct reporting to the ministries• Charged with expanding product commercialization

• Rate of growth a function of the R&D pipeline• Avoid sales stage and go directly to national coverage• No efficient trials set up+

• Trials in Cuba and in 30 partner countries• Cuba not paying for the trials : Go to a country and

identify a powerful local company with a need beyond just making money;

• Relationship grounded in barter arrangements • Reverse engineering• Special arrangements with developing states

• Focus on particular areas of specialization: diabetes, oncology, infectious diseases

• Commercialization through state to state arrangements where possible

• Sector development and product investment closely managed by the state and intended to serve internal needs as well as the need to generate income from foreigners.

• Example: neonatal work tied to demographic policies• Value of social objectives also evidenced by focus on

immunization (both in Cuba and as a means of state to state barter arrangements in regional trade arrangements (ALBA grannacionales)

Why is this important?

Cuban Communist

PartyState Apparatus

SOEs, Operational

ministries, Non-state sector

entities

New model of management through interplay of regulation and discretionary management by the

state

Party ideology; Interpretation;

application

Constitution, statutes,

regulations, decrees,

Managerial algorithms (objectives,

inter-relations, process)

SUMMARY-Conclusion

• One can see in this Cuban perspective analysis the ways in which the factor analysis of the PNDES has fundamentally shaped the way in which Cuban official have chosen, shaped and planned for future development of the pharma sector.

• One can also see in the discussion the way that multi-objective analysis is laced with discretionary decision making that is diffused throughout the decision making structures.

• Clarity about the valuation and analytical methodologies for assessing options as quite distinct from those used in markets and shareholder welfare maximizing economic-political systems. • The same analytical approach can be seen in other sectors

as well—especially tourism

• One also notes that the methodologies of regulation have changed in significant ways• From laws and administrative regulation• To administrative discretion in the application of

algorithms.

THANKS!

• The Conference Draft may be accessed HERE or

• https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3005613

Image © Larry Catá Backer 2017