Abstract: Creative Destruction and Entrepreneurial Obstruction: Cuban Sugar, 1898-1939

Alan Dye

Abstract

In response to the Great Depression, Cuba adopted a crop restriction policy that protected the sugar industry from experiencing a shakeout of inefficient sugar milling capacity. This paper applies a vintage-capital model of creative destruction to test whether the implementation of crop restriction caused an obstruction of the Schumpeterian liquidation process. The test employs discrete-time survival analysis to examine differences in entry, survival, and exit patterns in the favorable institutional environment of the pre-crop-controls period against the unfavorable institutional environment of the crop-controls period. Entry, exit, and survival patterns and production cost estimates give evidence of a thriving technological upgrading in the former period but apparent cessation of upgrading in the latter, with negative long-run consequences on production costs and Cuba's international competitiveness in the global sugar market.