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Socialism and the Knowledge Economy: Cuban Biotechnology

Dr. Agustín Lage Dávila is director of the Center for Molecular Immunology in Havana, Cuba.
This essay was adapted from Dr. Agustín Lage Dávila, “La economía del conocimiento y el socialismo,” Cuba Socialista (November 2004) with the help of Ian MacDonald. It was translated from the Spanish by Leonard Morin.

As authoritatively stated in an editorial in Nature, vol. 436, issue 7049 (July 2005), “Cuba has developed a considerable [scientific] research capability—perhaps more so than any other developing country outside of Southeast Asia.” Cuba has been especially successful in establishing a biotechnology industry that has effectively introduced drugs and vaccines of its own, along with a nascent pharmaceutical industry that has achieved considerable success in exports. Its agriculture and health sectors have been strong beneficiaries of its scientific research. As Nature observed: “It is worth asking how Cuba did it, and what lessons other countries might draw from it.” Indeed, the Cuban case is all the more surprising since it is not only a poor country, but one that has been confronted for decades by a ruthless embargo imposed by the United States, which has been extended to scientific knowledge. Moreover, much of Cuba’s scientific progress has occurred in the decade and a half since the fall of the Soviet Union, which previously had aided it economically and technologically.

Nature, Cuba’s remarkable success can be partly explained by heavy investments in education at all levels, including the promotion of literacy and numeracy in its population as a whole. But more distinctive even than this is the fact that Cuba’s science is “ruthlessly applied,” aimed at addressing social problems. “Cuba’s state-sponsored science is structured like a corporate research laboratory, except that its output consists of social outcomes, rather than commercial products.” Free from the commercial constraints that capitalism places on scientific development, Cuba has promoted a different organization of science for different ends, and therein has constituted its advantage. The following article by Dr. Agustín Lage Dávila, the director of the Center for Molecular Immunology in Havana, explains the way in which socialism in the knowledge economy has revolutionized Cuban science, accounting for some of its most important achievements

—Ed

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Beginning in the 1980s, the advanced capitalist countries entered a distinct phase of their economic development, a “Third Industrial Revolution” by some accounts, in which knowledge became the chief determinant of value and international competitiveness. Some have identified this “knowledge economy” by the emergence and mass use of computer technology, others more broadly with microelectronics and telecommunications. Another perspective identifies the process as the expansion of the service sector and information management, including the entertainment industry and the “production of affect.”

It is not easy, given how little time has passed, to distinguish the external symptoms of this transition from the essential underlying process. But what is immediately evident is that in the industries most closely associated with the knowledge economy—microelectronics, pharmaceuticals, and new materials—specialized knowledge is assuming a greater role in the production and circulation of value. Following from this, the product lifecycle has been greatly reduced through rapid technological obsolescence, intangible assets such as technologies and patents are themselves being produced as commodities, and the exclusive, private ownership of knowledge has become a new basis for the extraction of monopoly profit.

Along with this tendency toward what we might describe as the internalization of knowledge within the circuit of value, the transition to a knowledge economy makes it vitally important that the workforce have progressively greater qualifications, motivation, and creativity and that society is capable of providing the underlying cultural and educational basis for this kind of labor. The knowledge economy, therefore, requires more than the application of new knowledge and techniques in the high-tech sectors. More fundamentally, it also demands that knowledge, education, motivation, culture, and creativity penetrate all of productive society in a conscious and self-reinforcing way.

In reflecting on Cuba’s experience with developing a biotechnology industry, this article raises critical questions that have not been sufficiently considered in the extensive literature on the knowledge economy. Neither has Cuban biotechnology been studied in any depth by those who understand it as protagonists. This is a pity, since reflection on the Cuban experience reveals contradictions between the knowledge economy and capitalist social relations, and how these contradictions can be overcome under socialism.

The Rise of Biotechnology in Cuba

Biotechnology is essentially the use of bacteria, yeasts, and animal and vegetable cells whose metabolism and biosynthetic capacity are oriented towards the fabrication of specific substances. Biotechnology is first and foremost a production process.

The technological preconditions for the expansion of this type of productive process were already in place in the 1970s, following the rise of the technologies of cloning, genetic engineering, and the technical capacity for cell cultivation on a large scale.

The transformation of these technological preconditions into an industry began in a few locations in the United States at the end of the 1970s and the early 1980s with the appearance of many small biotechnology enterprises. The latter took advantage of a favorable economic climate in that country to mobilize risk capital from private investors and on the stock exchange. In Europe, a similar process did not commence until the end of the 1980s, and access to risk capital did not occur there until the mid-1990s. Today, it is estimated that a little over 4,500 biotechnology companies exist in the world, roughly 40 percent of which are located in the United States and 40 percent in Europe, chiefly in England and Germany. In the rest of the world, the industry is still in its infancy.

In Cuba, under the very close guidance and leadership of Fidel, the Biological Front was created in 1981 and a process began of founding the research-production centers that matured in the 1980s and the first half of the 1990s. Foremost among these new centers was the “Scientific Zone” west of Havana—a complex of more than forty institutions employing 12,000 workers and more than 7,000 scientists and engineers. On a lesser scale, biotechnology has been expanded to other provinces, chiefly Camaguey, Sancti Spiritus, Villa Clara, and Santiago de Cuba.

With the hindsight of twenty years we can see how precocious Cuba was in developing an industry that was only beginning to emerge in a few very industrialized countries. The Cuban experience has been successful by any indicator one chooses to measure it by: the generation of products (biopharmaceuticals and vaccines), the impact on public health, patents, exports, cash flow, profit margins, or return on investment. For several years the Cuban biotechnology sector has operated with positive cash-flow. It has now recuperated the original investment and is producing surpluses for reinvestment.

In and of itself, this result already constitutes a peculiarity of the Cuban experience, since more than half of the biotechnology companies that emerged in the United States at the beginning of the 1980s have not succeeded in achieving profitability and have ended up being acquired chiefly by large pharmaceutical firms. It is estimated that currently only 20 percent of North American and European biotechnology firms are self-financing, the rest rely on further injections of risk capital at the expense of future earnings.

Viewed in comparison with other countries’ experiences in biotechnology, the Cuban case exhibits a complex of traits that make it unique. It occurs in a country of scarce resources, which is industrially underdeveloped and subjected to the longest and most intense economic embargo known in history. It happens simultaneously with the disappearance of the European socialist bloc, which submerged the country into the economic crisis that we call the Special Period. In marked contrast to other countries, our biotechnology industry developed without foreign investment and is thus radically unlike the technology parks that have been created in various underdeveloped countries, where production is often based on sweatshop labor and no transfer of new knowledge or indigenous technical development occurs.

We can identify three traits which we consider to be essential to Cuba’s success.

1. The entire process is integrated within research-production-marketing centers

The principal Cuban biotechnology centers were built as research-production-marketing centers where the complete cycle (encompassing research, the production process, domestic distribution, and international marketing) is housed in the same administrative unit. In this manner, the often artificial barriers between the scientific institution and the factory have disappeared.

The result is a rich flow of information where commercial and production considerations are brought into the research process and the intangible component of new knowledge contributes pricing criteria for fair negotiations of sales. This approach likewise creates a shared sense of responsibility for the success of the complete process, in contrast to the compartmentalized responsibility found in organizations fragmented by specialization or private ownership.

Bringing these processes together under one roof fostered cooperation and cross-fertilization among the distinct cultures and diverse ways of thinking of the laboratory researcher, the production engineer, the regulations specialist, and the marketing specialist—a collaboration that generates no small number of daily contradictions. Yet we have found that such contradictions are essentially creative.

With regard to tangible investment, the scientific centers were built equipped with productive capacity. At the chief centers of the Scientific Zone of the City of Havana, for example, production currently occupies more than 60 percent of staff and operating expenses. This is an important distinction from the great majority of biotechnology companies in North America and Europe today, which outsource production to manufacturing firms. This can cause formidable bottlenecks due to limited productive capacity for the majority of biotechnological products that are undergoing clinical trials.

2. Export orientation coexists with domestic distribution and international cooperation

In small countries (even in industrialized small countries), the domestic market is not large enough to cover the high fixed costs of research and development (R&D) and quality control systems. We therefore recognized from the beginning that export orientation would be an essential precondition of the industry’s viability in Cuba.

The industry’s relations with the world market are managed in various ways. One model involves outsourcing commercial representation for finished products. Another, more complex form involves entering into contracts with foreign companies for joint development of a new product. In these contracts, the foreign partner contributes risk capital for continuity of the project and carries out pre-sales payments in an amount that values the past knowledge created by the Cuban party. In return, it receives commercial rights in certain territories, which come into effect if the project generates a marketable product. Obviously, the Cuban party concedes a larger fraction of value added in this second model, but this can sometimes be compensated for in increased profitability if the foreign entity can deliver rapid and effective distribution. The socialist character of property ownership is non-negotiable, including both the tangible facilities and the employment of the qualified workforce.

There is an inherent complexity to maintaining these external market relationships alongside internal socialist distribution relationships. On the one hand, our initial experience alerts us to the possibility of unequal exchange in knowledge between rich and poor countries, where the determination of value criteria remains in the hands of the former. On the other hand, the foreign currency gained through exports finances the goods and services which the biotechnology centers provide the Cuban health care system.* This makes it possible to avoid giving the relationships between the biotechnology industry and our health care system a market character and reflects a very important ideological concept: the Cuban people are not “a client.” On the contrary, they are the socialist owners of these institutions, and they are served as owners.

One day this managed system of cross subsidization between production for the market and communist forms of distribution will be expanded to relationships with other countries of the third world. Even if we are still far from establishing “socialist” relationships of trade on a global scale, we are already anticipating this future in our health care cooperation with the Bolivarian Republic of Venezuela.

3. Scientific research is treated as an investment

To the extent that scientific research has become more directly linked to the productive process, it has lost its character as a “budget expense” and has acquired the character of an investment with which it is possible to associate financial criteria.

This is not a question of attempting to impose a deterministic focus on the process of research and development and much less to impose rigid planning—which would be impossible anyway. R&D projects treated as investments are distinguished from other investment plans precisely by their high risk component. One has to calculate the uncertainty. And yet the economic analysis of the projects, including the study of the sensitivity of the goals to the chief economic variables, generates knowledge of the limits to its viability. Researchers have come to understand that limits exist to their intuition for appreciating the economic feasibility of a project, limits which are based on the quantity of variables at play.

Given the inherent uncertainty as to whether the search for a novel product will be successful (since research is by definition the sphere of the unknown result), making decisions cannot be mechanically linked to an analysis of probable cash flow and rate of return. Instead, the execution of this analysis constitutes an intellectual discipline that creates the habit of permanently examining the “complete cycle” of research-product-process-market and the strategy of differentiation with regard to competitiveness. It ends up contributing to the final objective of tightening the links between science and economics. Implementation of this analytic discipline has required, among other things, training scientific leaders in the techniques of integrated project management.

Capitalism and the Knowledge Economy

The concentrated wealth of the rich countries obviously allows them to make greater investments in research institutions and R&D, which in turn translates into higher indicators of scientific activity and economic growth. There is an assumed virtuous cycle here linking expanded knowledge and expanded accumulation. Countries of the South—Cuba included—cannot hope to match this level of investment. But the constraints we face in developing an advanced biotechnology industry with very limited resources forces us to think very carefully about the relationships between science and the economy, since it cannot simply be assumed that expenditures on research will promote our economic goals. Of necessity, therefore, we are forced to think very carefully about the social practice of scientific research itself.

A common conception of scientific research understands it to be a type of structured, transferable, specialized, and generalizable knowledge. There is also, however, another category of economically relevant knowledge, which is:

  1. Collective: incorporated neither in any person nor in any specific document, but absorbed into the system of work relationships and procedures of the productive organization. It is in the culture of the enterprise.
  2. Interdisciplinary: produced from pieces of information that stem from very dissimilar specialties and fields of knowledge.
  3. Concrete: difficult to generalize and linked to very specific production and service applications.
  4. Tacit: difficult to formalize in rules and sometimes difficult to explain.
  5. Local: generated and utilized within particular productive organizations.

Both structured and tacit forms of knowledge represent extreme cases. Economic knowledge relevant to real-life applications is a combination of both types: structured and generalizable knowledge (“scientific” in the conventional sense) and tacit, concrete knowledge. The point to stress is that the efficient management of knowledge, intended to strengthen its role in the economy, has to take into account both extreme forms and their combinations.

“Managing” knowledge for the productive organization of the new economy means identifying it when it is generated, capturing it or securing it in patents or in standards of the products and processes, evaluating it, putting it into circulation, and transferring it in an organized manner through training activities. All of these are concrete tasks.

To insist that this social and intangible process of producing new knowledge occur through market relationships creates a number of problems. The question of who owns knowledge is itself absurd. If anything is a purely social product, then surely it is knowledge, which is so dependent on culture and prior common property. However, the tendency under capitalism, and especially now with the shift to a knowledge economy under neoliberalism, is precisely to impose the commodity form on knowledge itself.

The most obvious expression of this attempt is the creation of so-called intellectual property (an intrinsically contradictory term), which in the fields of science and technology is chiefly expressed in the form of patents. Today, intellectual property is claimed over scientific results that only a few years ago would have been published and freely accessible. To an increasing extent, researchers in practically any project will find that many items of knowledge required for furthering a project are already the property of someone who has the right to exclude others from its use. The transaction costs can be enormous and discouraging, and the whole system becomes an obstacle to scientific research.

As the knowledge economy penetrates every sector of the conventional economy, the fundamental contradiction of capitalism between the social character of production and the private character of appropriation will become more acute and unsustainable. The “market economy” itself, today so lauded by those who can afford to give it their praise, will turn into an impediment to the development of the productive forces, as Marx anticipated.

The scope of what bourgeois economists call “market failure” will expand beyond the social sphere and occupy more and more of the area of material production and commerce. Capitalism, with its vocation for the short-term, may exhibit advantages for immediate profit in the traditional economy, advantages that it can achieve by sacrificing human development, social justice, and the environment. But as the productive forces progress toward a new type of economy, those advantages will be eroded.

Evidence of this process is beginning to appear: The recent fall in the prices of high-tech stocks in industrialized countries; the unprofitability of the majority of biotechnology firms; and the dependence of the U.S. high-tech sector on military spending, which meanwhile leads to the monstrosity and absurdity of the use of war as an economic stimulus. This phenomenon of financing scientific research and technological development for military purposes, which can be seen in many developed countries, is not only a symptom of the dangers that the prevailing ideology in the power circles of world capitalism creates for humanity. It is also a symptom of the growing incapacity of the market economy to insert scientific research in a rational, efficient, and peaceful manner into the tapestry of society’s economic relationships.

The Socialist Alternative

The neoliberal ideologue is mistaken (intentionally or not) in assuming that market forces will promote economic productivity and that this will ultimately generate social development. It is out of solidarity, altruism, and a sense of justice that we invest in education, culture, and development of our human capital. It would be naïve on our part, however, to assume that this investment will spontaneously result in a fruitful interaction between science and the economy and development of material production based on knowledge and high technology. The process is not spontaneous—it must be directed.

The incipient Cuban experience demonstrates that success is possible, even in the context of industrial underdevelopment and the paranoid hostility of imperialism. The Cuban strategy has understood and addressed the need to form massive, highly-qualified human capital with motivation and commitment. This process of education is not a distal consequence, but a prerequisite of economic growth.

It will be necessary to evaluate in detail both positive outcomes as well as any tactical errors in each of the experiences that have been undertaken. We must draw the conclusions that enable us to continue building and reinforcing the links between scientific research, the management of knowledge, and the economic performance of our socialist enterprises. This evaluation must include every sector of the economy, and these links must be extended, as has already begun, to the structure of our foreign trade.

Ours is a new and creative path. There is no one to imitate. There is much to be done, but we can do it, and the people of Cuba, socialist owners of our economy, demand that we do it right.


Notes

*These services include the work of the Immunoassay Center in maintaining and developing a national network of laboratories for prenatal diagnostics,epidemiological monitoring, and blood safety and the work of the Neurosciences Center in social programs that serve the disabled. In many other cases,the Cuban centers are protagonists in national health care programs,as is the case with vaccination programs and remedial programs for AIDS, cancer, hepatitis, and other health problems.

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