The Bildner Center at City University of New York Graduate Center organized a conference entitled “Cuba Futures: Past and Present” from March 31 to April 2. The very rich and interdisciplinary program can be found here: Cuba Futures Conference, Program.
I had the honor of making a presentation in the Opening Plenary Panel. The Power Point presentation is available at “Cuba’s Economic Reform Process under President Raul Castro.”
Oscar Chepe’s recent work on Cuba’s economic situation and the reform process has just been published and is available on the web site: Reconciliación Cubana, or here: Oscar Chepe, Cambios Cuba: Pocos, Limitados y Tardíos
Oscar continues to be a courageous and outspoken analyst of Cuba’s economic policies. In this past, this earned for him a period of forced labor in the 1960s and incarceration in March 2003 along with 75 others. Despite this, he continues to express his views openly and honestly. Although his voice is heard easily outside his own country, within Cuba, his views unfortunately are blocked rather effectively by state control of the publications media, the electronic media and by the continuous violation of the right to freedom of assembly.
Below is a Table of Contents followed by an Executive Summary by Rolando Castaneda.
Table of Contents:
Prologo por Carmelo Mesa Lago 1
Resume Ejecutivo por Rolando Castañeda 6
I. Introducción 11
II. Pequeñas y medianas empresas 14
III. Actualización del modelo económico cubano 16
IV. Problemas de orden externo e interno 19
V. La empresa estatal socialista 22
VI. Mercados mayoristas, precios 24
VII. Cooperativas 27
VIII. Política fiscal 29
IX. Políticas macroeconómicas 31
X. Política monetaria 34
XI. Política económica externa 37
XII. Inversión extranjera 40
XIII. Política inversionista 43
XIV. Ciencia, tecnología e innovación 45
XV. Política social 47
XVI. Salud 51
XVII. Deporte 54
XVIII. Cultura 56
XIX. Seguridad social 59
XX. Empleo y salarios 61
XXI. Política agroindustrial 64
XXII. Política industrial y energética 68
XXIII. Política energética 71
XXIV. Turismo 74
XXV. Política de transporte 77
XXVI. Construcciones, las viviendas y los recursos hidráulicos 79
XXVII. Comercio 82
XXVIII. Conclusiones 84
A 20 años de Primer Informe de Desarrollo Humano de ONU 87
Cuba Bordeando el Precipicio 90
La Economía Cubana en 2010 93
Cuba: Un Principio Espeluznante 100
Oscar Chepe and Miriam Leiva, February 2010. Photo by Arch Ritter
Planteamiento general
Los instrumentos aprobados por el gobierno para la implementación del trabajo por cuenta propia, el proceso de la reducción de las plantillas infladas, el recorte de los gastos sociales y el Proyecto de Lineamientos de la Política Económica y Social, revelan pocos, parciales e insuficientes cambios, que no solucionarán la crisis socioeconómica existente.
El gobierno sólo actualiza (“le pone parches”) a las fuentes principales de los problemas actuales: el sistema socioeconómico, que no ha funcionado, es irreparable y está mal gestionado, así como el régimen político totalitario carente de libertades civiles fundamentales. Ellos han llevado al desastre, la dependencia externa e impiden la sustentabilidad económica.
La baja eficiencia, la descapitalización de la base productiva y de la infraestructura, el envejecimiento y estancamiento en el crecimiento poblacional, entre otros muchos males, son consecuencias de ese modelo.
El gobierno elude medidas indispensables mientras propone unas pocas medidas insuficientes, llenas de limitaciones y prohibiciones. También reitera sin corregir apropiadamente medidas anteriores que han sido implementadas con muchas limitaciones y sin tener una concepción integral de la economía, tales como: la entrega de tierras en usufructo, el pago por resultado a los trabajadores y los recortes fiscales.
Los Lineamientos definen que primará la planificación y no el mercado, o sea continuará la burocratización de la sociedad, bajo rígidas normas centralizadoras, que imposibilitan la flexibilidad requerida por la actividad económica y la vida en general de la nación. No se reconoce la propiedad privada y se subraya la política de no permitir el crecimiento de la actividad individual.
La seria contradicción de una política con ribetes neoliberales de drásticos recortes, sin que se brinde a los ciudadanos posibilidades reales de ganarse el sustento decentemente, e incluso aportar de forma racional a los gastos del Estado, podría determinar convulsiones sociales, en un ambiente ya permeado por la desilusión y la falta de esperanza.
El despido de trabajadores y el trabajo por cuenta propia
El vital proceso de racionalización laboral, con el despido hasta abril de 2011 de 500.000 trabajadores considerados innecesarios, el 10% de la fuerza de trabajo ocupada, para continuar haciéndolo posteriormente con otros 800.000, que fue postergado por tantos años, ahora se pretende realizar de forma muy rápida. No se ha contado con la preparación apropiada ni la organización para que tenga éxito en un plazo tan breve y se pueda reubicar una cantidad tan grande de despedidos. Ni siquiera se han modificado los artículos de la Constitución Política (i.e. el 21 y el 45) que se contraponen a lo propuesto.
Al desestimulo por los bajos salarios, la carencia de información técnica, el vacío de reconocimiento social y las generalizadas malas condiciones laborables, a las nuevas generaciones de estudiantes se une ahora la incertidumbre de hallar empleo futuro por el despido masivo de trabajadores.
El trabajo por cuenta propia en sólo 178 actividades permitidas que deberá absorber el despedido masivo de trabajadores, enfrenta graves limitaciones, más severas que las existentes para las empresas estatales y las mixtas con capital extranjero. Incluyen los impuestos por seguridad social del 25% que el trabajador por cuenta propia deberá contribuir, así como los trabajadores que se contraten con base en un salario fijado por el gobierno, a un nivel 50% mayor que el salario medio prevaleciente. También están los elevados impuestos sobre los ingresos personales que pueden llegar hasta el 50% cuando excedan de $50,000 anuales, y las restricciones a los gastos de operación que se permiten deducir de los ingresos brutos para fines tributarios, en algunos oficios de sólo hasta el 10% de los ingresos anuales.
A ello hay que añadir algunas prohibiciones arbitrarias, tal como las sobre el número de sillas de los restaurantes (20) y las barberías (3), así como la ausencia de un mercado mayorista de abastecimiento de insumos. Hasta tanto ese mercado no aparezca, continuará desarrollándose la ilegalidad y, sobre todo, el robo de los recursos estatales, estimulado por el extendido descontrol existente y el miserable salario de los trabajadores. ‘
De esta forma el Estado reduce la actividad individual a iniciativas arbolitos bonsái e impide el crecimiento del trabajo por cuenta propia y el surgimiento de pequeñas y medianas empresa. Un mecanismo configurado para mantener el estrecho control del Estado-Partido sobre la sociedad, temeroso de que el fortalecimiento y desarrollo de la actividad privada pueda convertirse posteriormente en un peligro.
Aspectos generales y macroeconómicos
La mayoría de los Lineamientos sobre aspectos generales, macroeconómicos y sectoriales son enunciativos, generalidades que soslayan la grave situación con la continuada acumulación de graves problemas y sin proponer soluciones reales para los mismos. Desafortunadamente, los cambios requeridos no se avizoran. Este conjunto de 28 artículos se refiere a estos temas y por qué considera que su tratamiento es insuficiente para una sociedad estatizada, llena de distorsiones y carente de racionalidad económica
El problema de la descapitalización física es sumamente serio. Desde inicios de los años 1990 se mantienen tasas de formación bruta de capital fijo en relación con el PIB usualmente inferiores al 10%, menores a las tasas de amortización de los medios de producción y la infraestructura, aceleradas por la falta de reposición, actualización tecnológica y mantenimiento adecuado.
Desprovisto el país de la “ayuda” a inicios de 1990, empezó el deterioro paulatino de la salud pública, la educación, la seguridad social, el deporte y la cultura, con una incidencia muy negativa en los salarios, que como indicara el presidente Raúl Castro el 26 de julio de 2007 son insuficientes para vivir. La permanencia de los esquemas sociales con oportunidades de acceso para todos está en peligro debido a la falta de sustentación económica.
Resulta indispensable introducir tasas de cambio reales. Las tasas actuales, recargadas por gravámenes absurdos, que pueden conducir a análisis distorsionados y por consecuencia a decisiones equivocadas. En especial respecto a la política de inversiones, el comercio exterior y otros aspectos vitales para el desarrollo nacional. Una moneda sobredimensionada representa un serio obstáculo para el crecimiento de la llegada de turistas, al reducir arbitrariamente la competitividad del mercado cubano.
Cuba paga intereses bancarios muy altos a los prestamistas extranjeros; sin embargo, a los nacionales se les abonan intereses sumamente bajos, incluso por debajo de las tasas de inflación reales. Es necesario motivar a la población a depositar sus ahorros en los bancos, en especial aquellos en moneda convertible, dándosele las debidas garantías y el pago de intereses estimulantes y acordes con la situación financiera del país.
El gobierno no contempla la participación de la comunidad cubana en el exterior en la reconstrucción nacional. Un sector de nuestro pueblo que, con el otorgamiento de las garantías necesarias, podría ser fuente de importantes recursos financieros, tecnologías avanzadas, conocimiento y experiencia en la gestión de negocios y posibles nuevos mercados. Habría que adoptar una política pragmática e inteligente de acercamiento a nuestros hermanos en el extranjero, muy en especial hacia la comunidad afincada en EEUU, que además podría ser un puente para mejorar las relaciones con ese país, con enormes beneficios para nuestra economía.
Aspectos sectoriales
En los aspectos sectoriales de los Lineamientos se habla mucho acerca de ejecutar proyectos e inversiones, de potenciar capacidades de diseño y proyección, y fortalecer determinadas capacidades, pero no se define como hacerlo ni como financiarlo.
La esencia de los problemas nacionales, pueden hallarse en la destrucción de la agricultura que ha provocado una extraordinaria dependencia de alimentos importados, incluido azúcar, café y otros muchos que antes Cuba exportaba, mientras, los Lineamientos, reconocen que “ …las tierras todavía ociosas,.. constituyen el 50%…”. El sector está afectado por los precios fijados por el Estado unilateralmente por debajo del mercado, con frecuentes largas demoras en los pagos y las tradicionales deficiencias en la gestión de las empresas acopiadoras oficiales. Las tiendas abiertas para la venta de herramientas e insumos tampoco constituyen una solución, los precios son demasiado altos.
Las Cooperativas de Crédito y Servicios (CCS), donde los productores con muchas dificultades mantienen sus tierras individualmente, con sólo el 18% de la superficie agrícola total (cierre de 2007) han generado tradicionalmente más del 60% de la producción agrícola nacional, así como el más bajo por ciento de tierras ociosas, a pesar de la crónica falta de recursos, el permanente hostigamiento, las prohibiciones y la obligatoriedad de entregar las cosechas total o parcialmente al Estado en las condiciones y a los precios arbitrarios fijados por él.
En este escenario si se continúa con la mentalidad de ejercer estrictos controles sobre los posibles cooperativistas y negando la voluntariedad como concepto básico para la formación de las cooperativas, por muchos “buenos deseos” e indefinidos planteamientos que existan, el movimiento cooperativo no avanzará.
En la industria se refleja con mayor fuerza el proceso de descapitalización generalizado desde principios de la década de 1990. Por ello se requiere con urgencia su modernización y reequipamiento para poder detener la tendencia al actual atraso tecnológico, e incluso la paralización del sector. En 2009 se alcanzó una producción correspondiente al 45% de 1989, incluida la industria azucarera. Si se excluyera esta industria, el indicador sería del 51%. La producción nacional de materiales de construcción es muy baja, con un índice de volumen físico, al cierre de 2009, solo del 27% del nivel de 1989.
El gobierno cubano no publica los ingresos netos por concepto de turismo, por lo cual es difícil evaluar con precisión sus beneficios. Debido al pobre desarrollo de la economía cubana, se importa muchos productos consumidos por los visitantes. Esta actividad podría ser una de las locomotoras que impulse las demás ramas de la economía, pero para ello habría que realizar reformas estructurales, que reduzcan radicalmente la dependencia del exterior.
Conclusión
El aniquilamiento de los sueños de un futuro más justo y próspero para Cuba, podría detenerse si se propiciara un proceso de reconstrucción radical, con el abandono de los dogmas que tanto daño han hecho. Cuba posee significativas reservas productivas inexplotadas y un pueblo que debidamente estimulado, con libertad para crear, podría sacar a la nación de la crisis. Para ello resulta indispensable un nuevo modelo económico, político y social en el cual participarían en paridad de derechos y deberes las iniciativas públicas y privadas, estableciéndose un círculo virtuoso propiciador de desarrollo, que en la medida en que progresen ambas iniciativas se beneficie el país con mayores niveles de eficiencia, así como más y mejores productos, y el incremento del pago de impuestos que haga sostenible la financiación de la educación, salud pública, seguridad y asistencia social, y otros.
By Arch Ritter
The essay attached and summarized briefly here was presented at a conference at CIAPA, in San Jose, Costa Rica, February 3 and 4, 2009 organized by Paolo Spadonu of Tulane University.
The full essay is entitled An Overview Evaluation of Economic Policy in Cuba, circa 2010, June 30, 2010 and can be seen “HERE”. The Introduction and Conclusion are presented below.
Hopefully, this evaluation will change considerably for the better after the Sixth Congress of the Communist party of Cuba in April.
I. Introduction
The economic development of Cuba has been characterized by high levels of investment in people with successful results, but with weak performance in terms of the production of goods and services generally. Cuba’s achievements regarding human development are well known and are epitomized by the United Nations Development Program’s “Human Development Index” (HDI). On the one hand, this index ranks Cuba at #1 in the world for the Education component (somewhat surprisingly) and #31for the Life Expectancy component. On the other hand, Cuba’s world ranking is for GDP per capita in purchasing power parity terms is #94 with an overall world HDI ranking of #51(UNDP, HDR, 2009, 271.) These rankings underline the inconsistency between the Cuba’s high level of human development on the one hand and its economic underperformance on the other. The strong economic performance of the 2004 to 2008 period appeared to constitute a rapid recovery in terms of Cuban GDP statistics. However, this recovery, while perhaps not illusory, was fragile and unsustainable, based on factors such as support from Venezuela and high nickel export prices, and indeed it has been reversed in 2009-2010.
Given the quality of Cuba’s human resources, the economic performance for the last 15 years should have been excellent. The central argument of this essay is that Cuba’s weak economic performance has been the result of counter-productive public policy. The objective of this essay is to analyze and evaluate a number of central policy areas that shape Cuba’s economic performance, including monetary and exchange rate policy, policy towards micro-enterprise; agricultural policy, labor policy, foreign investment policy, policies towards infrastructure renewal, and the policy approach to self-correction and self-renewal.
In order to present a brief overview of the evaluations, an academic style of grading is employed, with an “A+” being excellent through to an “F” representing “failure”.
This evaluation schema is of course subjective, impressionistic and suggestive rather than rigorous. It is based on brief analyses of the various policy areas. However, the schema is similar to the scoring systems widely used in academia, and is used here with no more apology than is normally the case in the academic world.
Before proceeding with the policy analysis and evaluation, a brief overview of economic performance in the decade of the 2000s is presented to provide the context for the examinations of economic policy.
II. General Economic Performance
III. Evaluation of Some Central Policy Areas
IV. Summary and Conclusion:
A summary of the evaluations of the various assessment areas yields an overall evaluation of “D +”. This is not a strong assessment of Cuban economic policies.
The result of such weak policies in these areas is weak economic performance. Badly conceived economic policies nullify the potential efforts of the Cuban citizenry. The major investments in human capital, while fine in their own right, are not yielding strong economic performance. Indeed, misguided policies are undermining, sabotaging and wasting the economic energies and initiatives of Cuba’s citizens.
Major policy reforms amounting to a strategic reorientation of Cuban economic management are likely necessary to achieve a sustained economic recovery and future economic trajectory. So far, writing in June 2010, the Government of Raul Castro has made some modest moves, principally in agriculture, as mentioned earlier. Other policy areas such as those relating to micro-enterprise are reported to be under discussion at high levels in the government. On the other hand, the replacement of the reputed pragmatists Carlos Lage, (Secretary of the Council of Ministers) and Jose Luis Rodriguez, (Vice President of the Council of Ministers and Minister of Economy and Planning) and the replacement of Lage by Major General José Amado Ricardo Guerra of the Armed Forces seems to suggest that the Raul Castro Government may be moving towards a less reformist approach to economic management ( Granma International, 2009.)
The types of policy reforms that would be necessary to strengthen the policy areas discussed above would include the following:
In sum, effective economic management requires new ideas, transparency and criticism, and, indeed, a major policy reform process in order to reverse the current wastage of human energies, talents and resources. Policy reorientations in the directions noted above are unlikely to be forthcoming from the Government of Raul Castro, which appears to be deeply conservative as well as “gerontocratic”. Cuba will likely have to wait for a “New Team” or more likely a “generational change” in its overall economic management before such major reforms can be implemented.
The papers from the 2010 meetings of the Association for the Study of the Cuban Economy have just been posted on the ASCE Web Site and can be found at Papers and Proceedings of the Twentieth Annual Meeting of ASCE.
As usual, a wide range of excellent papers are presented at ASCE’s annual meetings Many essays include valuable, original and ground-breaking analyses on a wide range of economic as well as socio-economic and politico-economic issues..
A Table of Contents with hyperlinked titles of the papers is included below.
The Cuban Economy in 2010 as Seen by Economists Within the Island and Other Observers
Joaquín P. Pujol
La Economía Cubana: ¿Tiempos de Esperanza?
Oscar Espinosa Chepe
Crisis Management of Cuban International Liquidity
Luis R. Luis
If It Were Just the Marabú… Cuba’s Agriculture 2009-10
G.B. Hagelberg
The Numbers Diet: Food Imports as Economic Indicators
Lauren Gifford
Sergio Díaz-Briquets
Envios de Remesas a Cuba: Desarrollo, Evolución e Impacto
Emilio Morales Dopico
Dashed Expectations: Raúl Castro’s Management of The Cuban Economy, 2006–2010
Jorge F. Pérez-López
Cuba: ¿Hacia otro “Periodo Especial”?
Mario A. González-Corzo
Cuban Education and Human Capital Formation
Enrique S. Pumar
La Masonería Cubana y su Contribución a la Sociedad Civil
Jorge Luis Romeu
Ted Henken
El Insostenible Apoyo Económico de Venezuela a Cuba y sus Implicaciones
Rolando H. Castañeda
Cuba-Venezuela Health Diplomacy: The Politics of Humanitarianism
Maria C. Werlau
British Policy-Making and Our Leyland in Havana (1963–1964)
Maria Carla Chicuén
La Desigualdad en Cuba: El Color Cuenta
Natalie Kitroeff
Orlando R. Villaverde
A Survey of the Relationship between Cuba and China: A Chinese Perspective
Pin Zuo
Michael Aranda
Empowering the Cuban People Through Access to Technology
Cuba Study Group
Elaine Scheye
Larry Catá Backer
Racismo Estructural en Cuba y Disidencia Política: Breves Antecedentes
Ramón Humberto Colás
Arbitration and Mediation: Impartial Forums to Resolve International Commercial Disputes in Cuba
Rolando Anillo-Badia
Gazing at the Green Light: The Legal and Business Aspects of Real Property Investment in Cuba
Richard M. David
The Creation and Evolution of the Legal Black Hole at Guantánamo Bay
Michael J. Strauss
Las Relaciones Cuba-Israel: A la Espera de una Nueva Etapa
Arturo López-Levy
Revolutionary Cuba’s GDP: A Survey of Methods and Estimates
Jorge F. Pérez-López
Philip Liu and Rafael Romeu
Cuba’s Attempts at Democracy: The Colony
Roger R. Betancourt
Lessons Learned from 20 Years of Privatization: Albania, Estonia and Russia
Jorge A. Sanguinetty and Tania Mastrapa
The Cuban Tourism Sector: A Note On Performance in the first Decade of the 21st Century
María Dolores Espino
Antonio R. Zamora
Raul Castro and the Council of Ministers, Granma, March 1, 2011
By Arch Ritter I had been looking in vain for any concrete information on public sector redundancies and the granting of self-employment licenses since December 2010. After some searching in the Cuban press, the foreign press and various blogs, I came up empty handed. I was starting to think that the program had been aborted. Then yesterday, Raul announced in a publicized meeting of the Council of Ministers a major slow-down of the program, noting, in the words of the journalists, that “the up-dating of our model is not the work of a day or even a year but because of its complexity, it will require not less than a five year period to unfold its implementation” (Granma, 1 de Marzo de 2011) As far as I can determine, there have in fact been virtually no lay-offs yet in the public sector, although the original March 31 target for 500,000 fired workers is close at hand. Or at least, none have been clearly reported. The latest numbers for license-granting for the end of December 2010 indicated that some 75,000 new licenses had been issued with another 8,340 still in process – a slow start towards the March 1 target date. Granma, 7 de enero de 2011 The slow-down and delay in implementation is understandable. Although the original proposal was in the right direction, it was seriously flawed and excessively hurried. The most obvious weakness of the strategy was that it called for lay-offs first, followed by or concurrently with job creation in the micro-enterprise sector which was only slightly liberalized in October 2010. As various critics quickly observed, this was placing the “cart before the horse”. The original time frame for the lay-off process – from July 20, 2010 to March 31, 2011 – became even more condensed as months of inactivity followed months. If implemented, this approach would have amounted to a draconian type of shock therapy. The process of firing workers is not easy under any circumstances. Though the Government stressed repeatedly that those made redundant would be supported by the state, the prospects of being laid off and having to establish one’s own micro-enterprise in a policy environment that is still difficult if not hostile must be unnerving for many people. It was to be implemented during the Cuban recession – (though Cuba is now appears to be in a process of recovery, due to higher nickel prices, increased tourism including US tourism, higher remittances.) Moreover, workers have no independent Unions to defend their rights during such a process of redundancies. (It was the Central de Trabajadores de Cuba that announced the lay-off strategy.) There was a potential for irregularities and perversions in the firing process as well, with redundancy being determined by factors such as Party faithfulness, personality issues, or friendship with the relevant officials, rather than labor effectiveness, which is usually difficult to determine in any case. Moreover, the strategy, which was to be a defining component of economic reform and structural change, was adopted before the public discussions around the “Proyecto de Lineamientos de la Política Económica y Social del Partido y la Revolución,” There had been no public input or discussion in the media or public forums before this strategywas sprung on the Cuban people. Furthermore, it was clear from the start that the liberalization of self-employment was insufficient for the necessary level of job creation. (See Perez and Vidal, Ritter and Mesa-Lago for example.) There are some measures that are supportive of micro-enterprise expansion. These include a small increase in the permitted range of activities, minor relaxation of regulations and a small modification of the tax regime. More significant and positive are the liberalization of licensing and the “de-stigmatization” of the self-employed by the media and politicians. However, a variety of policies continues to constrain the activities of micro-enterprises and will prevent it from expanding as envisioned by the Government: – Exceedingly onerous taxation continues. – The tax on hiring workers will discourage job creation. – A narrow definition of legal activities will limit enterprise and job creation. – Exclusion of virtually all high-tech and professional activities blocks development of knowledge-intensive enterprises and wastes the training of the highly educated. – Bizarre restrictions remain (such as a 20 chair limit on restaurant chairs). – Restrictions and prohibitions on hiring workers remain. – Taxes and regulations result in the stunting of enterprises which prolong inefficiencies and promote the underground economy. – Unreasonable restrictions and heavy taxes breed contempt and non-compliance for the law. Under these circumstances, the necessary expansion of Small Enterprise will be slow and in fact probably would not occur. In this case, the Government will have two basic choices: either it can abort the structural change process or it can further liberalize the micro-enterprise sector in order to permit it to generate jobs for redundant state workers. In order to establish an “enabling environment” for micro-enterprise, here are some of the types of policy modification that would be necessary:
A complete English translation of the “Lineamientos” has just been published by Walter Lippmann, the Editor-in-Chief of CubaNews , the free Yahoo news group on Cuba.
The “Draft Guide for Economic and Social Policy” for the Fifth Congress of the Communist Party is available here: http://www.walterlippmann.com/pcc-draft-economic-and-social-policy-guidelines-2010.html
What follows here is the Blog entry for November 11, 2010 on the “Guidelines”.
I. “Structural Adjustment” on a Major Scale
On Tuesday, November 9, a major document appeared for sale in Cuba entitled “Proyecto de Lineamientos de La Political Economica y Social” or “Draft Guide for Economic and Social Policy.” The purpose of the “Guide’ presumably is to spark and to shape public discussion and education on the economic matters that will be the focus of the long-postponed Sixth Congress of the Cuban Communist Party to take place in April, 2011. It also provides the essentials of the new approach that will likely be adopted at the Sixth Congress.
It can be found in its entirety, courtesy of the Blog Caf Fuerte. (http://cafefuerte.com/, here: Projecto de Lineamientos de la Politica Economica y Social,
The “Guide” is a broad-reaching and comprehensive document that puts forward 291 propositions for the improvement of the functioning of the Cuban economy. It signals a break in the four years of near inaction that the Cuban economy endured since Raul Castro took over as acting and then actual President – and the ten years of paralysis from about 1995 to 2006 under President Fidel. It amounts to a major process of “structural adjustment” of the sort that was begun in 1992-1994, but was then stalled when the Cuban economy appeared to rebound after 1994. The document is also a contradiction and maybe a “slap-in-the-face” for Fidel Castro, as it indeed indicates that the Fidelista-style Cuban model – his life’s work – is not working. (See “Fidel’s No-Good Very Bad Day” and The “FIDEL” Models Never Worked; Soviet and Venezuelan Subsidization Did.)
II. General Character of the Proposals
The Table of Contents provides a quick idea of the scope of the document:
Introduction
Contours of Economic and Social Policy
I Economic Management Model
II Macroeconomic Policies
III External Economic Policies
IV Investment Policy
V Science, Technology and Innovation Policy
VI Social Policy
VII Agroindustrial Policy
VIII Industrial and Energy Policy ix
IX Tourism Policy
X Transport Policy
XI Construction, Housing, and Hydraulic Resource Policy
xii Commercial Policy.
The Introduction summarizes the basic objectives required to overcome the principal problems of the economy. These include putting into productive use the unused lands constituting almost 50% of total, raising agricultural yields, developing new mechanisms to reverse the process of industrial and infrastructural de-capitalization, eliminating excess and redundant employment, raising labor productivity, recovery of export capacity in traditional exports, undertake studies in order to eliminate monetary dualism, and provide improved capacities for more decentralized regional development.
The “Contour” section then states that “…only socialism is capable of overcoming the difficulties and preserving the conquests of the Revolution, and the implementation of the economic model prioritizes planification and not the market”. However, the next paragraph states “…socialism is equality of rights and equality of opportunity for all citizens, not egalitarianism.” The latter sounds less like “socialism” and more like “social democrat” if not the common approach of most Western countries. The latter quotation makes the former somewhat hard to interpret if not meaningless.
The document then goes on to list the 291 propositions under the 12 different headings. A few of the more interesting propositions are summarized below:
III. Preliminary Evaluation
This document will receive a great deal of attention inside and outside Cuba. It provides fodder – along with the recent legislation on self-employment – for analysts and observers of Cuba, who have had little of hard substance on which to base their analyses of Cuban policy under the “Raulista” Presidency for some time.
In some senses, this document is remarkable. It sets out an ambitious reform program for much of the Cuban economy. It may indeed constitute a “Wish List” of all the types of policy improvements and changes that would be nice to have. The question is “can and will they be implemented?”
This document also is a major risk for the Raul Castro Administration. It provides a check-list of tasks that will be difficult to achieve. If future implementation and economic performance is far below the expectations that are now being raised to high levels, there could well be a serious fall-out for the Government and the Party.
The document is also broad and ambitious but does not set any clear priorities and does not propose a sequence of actions. Everything can’t be done at once. How should the policy changes be phased or sequenced?
Some observers are skeptical and perhaps cynical regarding the “Guide” – for good historical reasons. In her Blog Entry entitled The Art of Speaking Without Speaking (http://www.desdecuba.com/generationy/?p=2088) Yoani Sanchez states:
When you grow up decoding each line that appears in the newspapers, you manage to find, among the rhetoric, the nugget of information that motivates, the hidden shreds of the news. We Cubans have become detectives of the unexpressed, experts in discarding the chatter and discovering — deep down — what is really driving things. The Draft Guidelines for the Communist Party’s VI Congress is a good exercise to sharpen our senses, a model example to evaluate the practice of speaking without speaking, which is what state discourse is here.
The Guide undoubtedly could be seen as an economic rescue program designed to rescue also the Communist party of Cuba, which faces steady de-legitimation as the economy deteriorates – even as the official GDP statistics appear to rise steadily.
What is missing from the “Guide”? Here is a first brief listing. Further analysis will be incorporated here later.
1. Nothing is said regarding labor rights. A vital part of the reform approach if labor is to be used effectively would be freedom of association, collective bargaining and the right to strike. In the absence of these, pressures and insights from the grass roots to improve economic policy and its effectiveness are suppressed.
2. Nothing is said regarding freedom of expression and the right to criticize the policies and institutions openly, honestly and continuously. The absence of this right leads to economic inefficiency and corruption as argued elsewhere. ( Freedom of Expression, Economic Self-Correction and Self-Renewal)
3. No further elaboration of how the self-employment or micro-enterprise sector is presented, suggesting that the recent reforms are the end of the journey not a first step.
4. The dedication to centralized determination of prices is problematic. If maintained strictly, it would make the decentralized decision-making allotted to enterprises for investment, the hiring of resource inputs, etc. meaningless, and the problems of trying to run the economy from a few office towers in Havana would continue.
Perhaps surprisingly, Espacio Laical, the journal of the CONSEJO ARQUIDIOCESANO DE LAICOS DE LA HABANA, has become a most interesting medium for economic and political and religious analyses and exchanges. Its circulation in digital format within Cuba via the “Intranet” is unclear. However, it has produced a variety of works by some of Cuba’s leading economic analysts including those in the main Research Institute focusing on the on the domestic Cuban economy, namely the Centro de Estudios sobre la Economia Cubana, (CEEC), ttp://www.ceec.uh.cu/. Many of the analysts in CEEC publish their work in Espacio Laical or other sources outside their own institution, which unfortunately has a rather minimalist web site at this time, .
Here is an Index of Economic Articles that have appeared in Espacio Laical, with most of them hyperlinked to the original source.
Barbería, Lorena – Remesas, pobreza y desigualdad en Cuba. (Año 4 / No.14)
Calvo, Cristina – X Semana Social Católica: Globalización y desarrollo integral inclusivo. (Año 6 / No.23)
Espacio Laical – Economía cubana (portada) (Año 4 / No.14)
– Economía cubana: retos y opciones. (Año 4 / No.14)
Everleny Pérez, Omar – Se extiende el cuentapropismo en Cuba. (Año 6 / No.24)
Laborem , boletín del Movimiento de Trabajadores Cristianos (MTC) – Sin quitarle una letra. (Año I / No.1)
La Quincena. – Textos para la reforma social. (Año I / No.4)
Mesa, Armando – Mercado y solidaridad: ¿un debate intergeneracional? (portada) (Año 4 / No.14)
– Mercado y solidaridad: ¿un debate intergeneracional? (Año 4 / No.14)
Mesa-Lago, Carmelo – Posible restablecimiento de relaciones económicas entre Cuba y Estados Unidos: Ventajas y desventajas. (Año 4 / No.14)
– La crisis financiera mundial y sus efectos en Cuba (Año 4 / No.16)
–¿Se recupera el mundo de la crisis económica global? (Año 5 / No.20)
– X Semana Social Católica: Implicaciones sociales y económicas para el sistema de seguridad social en
– El desempleo en Cuba: de oculto a visible. (Año 6 / No.24)
Monreal González, Pedro – El problema económico de Cuba. (Año 4 / No.14)
Pérez Villanueva, Omar Everleny – X Semana Social Católica: Notas recientes sobre la economía en Cuba. (Año 6 / No.23)
Robles, Reydel – X Semana Social Católica: Presentación al panel sobre economía y sociedad. (Año 6 / No.23)
Veiga González, Roberto – Propiedad privada en Cuba: una percepción de futuro. (Año I / No.4)
Vidal Alejandro Pavel – Redimensionando la dualidad monetaria (Año 3 / No.11)
– Los salarios, los precios y la dualidad monetaria. (Año 4 / No.14)
– El PIB cubano en 2009 y la crisis global. (Año 5 / No.18)
– Los cambios estructurales e institucionales. (Año 6 / No.21)
– X Semana Social Católica: La actual crisis bancaria cubana. (Año 6 / No.23)
– Se extiende el cuentapropismo en Cuba. (Año 6 / No.24)
Journal of Latin American Studies. 42, 689–717, Cambridge University Press, 2010
Carmelo Mesa-Lago and Pavel Vidal have teamed up to produce a fine analysis of the impacts of the world recession of 2009-201o on Cuba, its macro-economy and its social sectors. It is certainly encouraging to see such cooperation in the economics discipline! The article can be found here: Pavel Vidal and Carmelo Mesa-Lago, Cuba economic social impact crisis-JLAS-11 (2)
Abstract.The mechanisms by which the world economic crisis has been transmitted from developed to developing economies are conditioned by domestic factors that may attenuate or accentuate external economic shocks and their adverse social effects. Cuba is a special case : it is an open economy and hence vulnerable to trade growth transmission mechanisms, but at the same time, it is a socialist economy with universal social services. This article reviews the literature, summarises Cuba’s domestic socio-economic strengths and weaknesses prior to the crisis, evaluates the effects of the crisis on the macro-economic and social services indicators, assesses the government response and suggests alternative socio-economic policies.
Carmelo Mesa-Lago
Pavel Vidal
By Arch Ritter
In the last week of January 2011, the Heritage Foundation (HF), a conservative US “Think Tank”. published its 2011 Report on Economic Freedom. No surprise: Cuba ranks #175 of the 177 countries included in that report, ahead only of North Korea and Zimbabwe.
The concept or definition used for “Economic Freedom” is:
“Economic freedom is the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state. In economically free societies, governments allow labor, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.”
The components of economic freedom in the Heritage Foundation’s definition include business freedom, trade freedom; fiscal freedom, government spending, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption, and labor freedom.
What the HF definition misses is the capability to utilize one’s freedom, such as good health, a useful education, and a reasonable income. Presumably the HF types of freedom are more effective when people live longer, have good health so that they can work and appreciate life, and are not mired in poverty. Cuba would score better if life expectancy, health, education and income distributional measures were included in the concept and the index.
The HF’s Economic Freedom Index brought to mind some other measures of social, economic, environmental and political performance. A listing of these and Cuba’s place therein is presented in Table 1 and hyperlinks to some basic definitions and methodological sources are summarized in the next section.
Again, it is no surprise that Cuba fares badly on the political and economic freedom rankings, coming at the very bottom in Latin America on the “democracy” and “freedom of the press” rankings.
Cuba’s high ranking for the EIU Political Instability Index – second only to Costa Rica- is unexpected. Cuba would have scored well on “ethnic fragmentation”, labor unrest (no strikes, collective bargaining or independent unions), economic growth in 2009, income inequality (as officially measured), unemployment (at least the official rate) and “status of minorities”.
Cuba’s standing in the “corruption perceptions” listing does not seem unreasonable.
Cuba’s high standing in the Environmental Performance rankings – again second only to Costa Rica- will be a surprise to those who have spent time inhaling the exhaust of urban traffic in Havana or observing the fumes of the Havana’s thermal electric plant, pictured below. Indeed, a close study of the Yale-Columbia-World Economic Forum calculations for Cuba would be worthwhile. One suspects some statistical creativity such as has been employed in the area of basic economic measures such as GDP, unemployment and the Consumer price Index.
The full sources of the information are hyperlinked below. The methodologies can also be found at these web sites.
UNDP Measures
1, 2, 3, and 4: Human Development Index 2009, HDR 2009 Statistical Tables
Democracy Measures
5. The Economist Intelligence Unit’s Index of Democracy 2010, This index is based on electoral process and pluralism; civil liberties; the functioning of government; political participation; and political culture.
6. The Economist Intelligence Unit’s “Political Instability Index”. This measure is based on I. Underlying vulnerability: 1.Inequality Measured by Gini coefficient; 2.State history; 3.Corruption; 4.Ethnic fragmentation; 5.Trust in institutions; 6. Status of minorities; 7.History of political instability; 8.Proclivity to labor unrest; 9.Level of social provision; 10.A country’s neighborhood; 11.Regime type; 12.Regime type and factionalism and II. Economic distress: 1.Growth in incomes Growth in real GDP per head in 2009; 2.Unemployment; 3.Level of income per head
7. Freedom House, Freedom of the Press index an annual survey of media independence in 195 countries and territories. “The index asesses the degree of print, broadcast, and internet freedom in every country in the world, provides numerical rankings and rates each country’s media as “Free,” “Partly Free,” or “Not Free.”” Freedom House, Freedom of the Press, 2010
8. Press Freedom Index 2010, Reporters Without Borders
9. Freedom House, Freedom in the World, 2010, Tables and Graphs measures freedom according to political rights and civil liberties.
(See also Wikipedia’s list of freedom indices.)
10. The 2010 ENVIRONMENTAL PERFORMANCE INDEX, of the Yale Center for Environmental Law & Policy, Yale University and Center for International Earth Science Information Network, Columbia University and the World Economic Forum. This measure includes some 25 indicators in 10 categories including Environmental Health. Air Pollution (effects on humans), Water (effects on humans), Air Pollution (effects on ecosystems), Water (effects on ecosystems), Biodiversity and Habitat, Forestry, Fisheries, Agriculture and Climate Change
11. “Index of Economic Freedom” The Heritage Foundation. (See discussion above.)
12. Transparency International. Corruption Perceptions Index Report, 2010
Havana Thermal-Electric Plant, from Edificio Fochsa, Hotel Capri on the left, 1997, Photo by Arch Ritter
By Arch Ritter
As part of the policy reforms designed to absorb almost 1.2 million redundant state sector workers into the private sector, the Government of Cuba has modified the micro-enterprise tax regimen. Some of the modifications were positive in the sense that they will reduce the heavy tax burden on self-employment. However, the changes are modest, and the tax system will continue to limit job-creation and the expansion of micro-enterprise.
Bicitaxis, Central Havana
The new taxation system, presented in the Gaceta Oficial, número 11, and Gaceta Oficial, número 12 on October 1 and 8, 2010, has five components:
1. Sales Tax on Goods
2. Tax on Hiring of Workers
3. Income Tax
4. Surtax on Services
5. Social Security or Social insurance Payments
Taxes generally will now be payable in Moneda Nacional or “old” pesos. For purposes of tax payment, taxes owing in convertible pesos (CUCs) are to be exchanged into Moneda Nacional at the going quasi-official rate (around 22 to 26 “old” pesos per convertible peso, over the 2001-2010 period). There is a special regimen for bed-and-breakfast operations that is not considered here.
1. Sales Tax
This is a 10% tax levied on the value of sales of goods and payable by all micro-enterprises that do not qualify for the Simplified Tax Regime (See 3. below.) While this tax in principle is reasonable and is used in most countries, the administrative cost of monitoring the value of sales and collecting the tax for the many of the smaller self-employed activities will be high.
2. Tax on the “Utilization of Labor”
This tax on the hiring of employees is set at “25% of 150%” (that is, 37.5%) of the average national wage which was 429 pesos per month in 2009 (ONE, AEC Table 7.4). The tax would thus be about 161pesos per month per employee or 1,932 pesos per year.
A “Minimum” requirement for the hiring of employees for tax determination purposes is set at two employees for paladares and one for other food vendors and a few other activities. There appears to be no exception or adjustment of the tax for part-time employees.
(Note that some 74 self-employment activities are prohibited from hiring employees and another 7 can hire one employee only.)
3. The Income Tax
There are two tax income regimes, a simplified regime for lesser self-employment activities and a more complex regime for larger activities.
The Simplified Tax Regime applies to some 91 activities. In place of the income tax, sales tax, tax on public services, they instead pay a consolidated tax, constituted by the monthly licensing fee which ranges from 40 to 150 pesos per month, payable in the first ten days of each month. (It is unclear whether overpayments would be refunded – they were not under the previous system.)
Other enterprises fall under the general tax regime, and pay all of the individual taxes discussed here. These activities pay the up-front monthly tax/license ranging from 40 to 700 pesos per month.
For the determination of the tax payment, the “tax base” is defined as total revenue less a fixed amount for deductible expenses. The maximum amounts allowed for deductible expenses range from 10% for 10 activities, 20% for room rental operations, 25% for 40 activities, 30% for 10 activities and 40% for 6 food and transport activities. (Bed and breakfast operations have their own specific regimen.)
The income tax rates rise progressively from 0% for the first 5,000 pesos, through 25% for additional income between 5,000 and 10,000, 30% for income increments from 10,000 to 20,000, 30% for 20,000 to 30,000, 40% for 30,000 to 50,000 and 50% for additional income exceeding 50,000.00 pesos. This rate is high but not unreasonable in international comparison.
4. Sales Tax on Services
A 10% additional sales tax is levied on services provided by micro-enterprise. Those enterprises qualifying for the Simplified Tax Regime are exempt from this tax.
5. Social Security Payments
These payments are destined ultimately for old age support, maternity leave, disability and death in the family. They are determined according to a scale that the self-employed worker selects, and may range from 25% of 350 to 2000 pesos per month depending on the choice of the self-employed person. This is a social insurance scheme though the payments are similar to taxes.
This new tax regime represents a minor improvement over the previous regime. The main improvement is that it permits the deduction as costs of production of more than a maximum of 10% of total revenues as was the case previously. This is a reasonable adjustment to the tax base as most of the self-employed activities generate costs that are higher than the maximum allowable 10% of total revenues. This is especially beneficial for activities such as gastronomic, transport and handy-craft or artisan activities for which input costs are far beyond 10% of total revenues.
The progressive structuring of the income tax regime is reasonable though stiff.
However there are a number of flaws in the taxation regimen which will continue to stunt the development of small enterprise and will prevent the absorption of the redundant workers being displaced from the public sector.
1. The Blocking of Job-Creation
First, the tax on employment is problematic as it adds to the employer’s cost of hiring a worker. The obvious impact of this tax will be to limit hiring and job creation. Or employment will be “under the table”, unrecorded, and out of sight of officialdom.
2. Onerous Overall Tax Levels
The overall tax level is punitive. The sum of the income tax, employee hiring tax, and public service surtax is high- and as noted below can help create effective tax rates exceeding 100%, as is explained on Section III. This will continue to promote non-compliance. It will discourage underground enterprises from becoming legal. The establishment of new enterprises will be discouraged.
3. Erroneous and Unrealistic Base for the Income Tax
The most serious shortcoming of the income tax regime involves the tax base which is not “net revenues” after the deduction of input costs, but an arbitrary proportion of total revenues.
The tax regime limits the maximum for input costs deductible from total revenues to 10 to 40% depending on the type of enterprise involved. When the actual micro-enterprise input costs exceed the maximum allowable, the tax rate on true net income can become very high. In the example below, the effective tax rate (defined as the taxes payable as a percentage of true net income) can exceed 100%. Obviously this would kill the enterprise and promote cheating and non-compliance. It will discourage underground economic activities from becoming legal and block the establishment of new enterprises.
4. Continued Discrimination versus Cuban Enterprise in Favor of Foreign Enterprise
The minor reforms of the micro-enterprise tax regime do relatively little to reduce the fiscal discrimination favoring foreign enterprise. (See Table 1.) The main difference is the determination of the effective tax base which is total revenues minus costs of production for foreign firms but for micro-enterprise is gross revenue minus an arbitrary and limited allowable level of input costs. The result of this is that the effective tax rates for foreign enterprises are reasonable but can be unreasonable for Cuban microenterprises. For Cuban micro-enterprises, the effective tax rate could reach and exceed 100%.
Moreover, investment costs are deductible from future income streams for foreign firms this being the normal international convention. But on the other hand, for Cuban micro-enterprise, investment costs are deductible only within the 10 to 40% allowable cost deduction levels.
To illustrate the character of the tax regime, a case of a “Paladar” is examined below. It is assumed that the total revenues or gross earnings of the Paladar are 100,000 pesos per year (Row 1) or a modest 280 CUP or about $US 10.50 per day.
It is imagined then that there are three costs of production cases: Case A, B and C where costs of production are 40%, 60 and 80% of total revenues respectively. A situation where input costs for a Paladar are 80% of total revenues is reasonable, given the required purchases of food, labor, capital expenses, rent, public utilities etc. On the other hand, the 40% maximum is unreasonably low.
The differing true input cost situations (Rows 2 and 3) generate different true net income (Row 6). The tax base however is determined by the legal maximum allowable of 40,000 (Row 4 and 5) and is 60,000 pesos in all three cases (Row 7). The income tax payable is determined by the progressively cascading scale noted above and is 19,750 in all three cases (Row 8, based on calculations not shown here). The tax on hiring the legal minimum two employees is 25% of 150% (that is, 37.5%) of the average national wage which was 429 pesos per month or 161 pesos for 12 months for two employees = 3,864 pesos per year (Row 9). A guess for the surtax on use of public services is 1,200 pesos per year (Row 10). The total taxes then are the sum of Rows 8 t0 10 and are 26,614 per year (Row 11).
The effective tax rate is then calculated as Tax Payment as a percentage of Actual Net Income (Row 11 divided by Row 6). For the third case where true costs of production are 80% of total revenues, the effective tax rate turns out to be well over 100% (124.1%). This is due to fixing the maximum allowable for costs in determining taxable income at an unrealistic 40% while the true costs of production were 80% of total revenues.
The chief result of this example is that effective tax rates can be much higher than the nominal tax rates for all the activities where true input costs exceed the defined maximum. In some cases, taxes owed could easily exceed authentic net income – assuming full tax compliance. This situation likely occurs for all activities not covered by the simplified tax regime.
Such high effective rates of taxation of course could destroy the relevant microenterprise, and block the emergence of new enterprises. While under the previous policy environment for microenterprise, this was perhaps the objective of policy. However, the objective of the new policy environment is to foster and enable micro-enterprise and to create jobs.
Can the Micro-enterprise sector generate about 500,000 new jobs by April 2011 and 1.2 million in the next year? On the positive side, there have been some measures of a non-tax nature (e.g. the stigmatization has been relaxed, licensing has been liberalized; there has been a minor increase in legal activities; prohibitions and regulations have been eased somewhat; and improved access to inputs will likely be possible.) But on the negative side, a narrow definition of legal activities will limit enterprise and job creation; the prohibition of professional activities remains; restrictions and prohibitions on hiring workers remain; and restrictions and prohibitions remain.
The timid revisions of the tax regimen will not facilitate job creation in the microenterprise sector.
In order for the micro-enterprise sector is to expand so as to absorb the 1.2 million redundant public sector workers in the process of being fired, further reform of the tax system is necessary.
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