Cuba – New Economic Model

September 19, 2010

By Padmini Arhant

The island nation is in the process of shifting towards an economic model to rescue the state from the employment burden across the public sector.

State’s overwhelming expansion in all areas of the economy is forcing the government to change course in an effort to salvage the sagging public enterprises into private industry.

The combined woes of political sanctions, global economic crisis and natural disasters have produced massive revenue losses for the socialist system struggling to maintain the infrastructure.

As a result, Cuba has reportedly decided to lay off 500,000 state employees by March 2011 and promoting the private entrepreneurial opportunities by issuing business licenses to its population in a limited measure.

Such economic strategy is a wise move for Cuba and could potentially ease the pressure off the government funded organizations that are becoming unaffordable.

The underground economy that managed the private businesses in the state controlled environment is apparently being considered for legal recognition.

Again the consideration is a positive step that would guarantee state revenue through taxes and necessary fees besides facilitating free flow of goods and services not only within the island but across Latin America.

In terms of public education, health care, subsidized food and housing – Cuba could adhere to universal public education and health care alongside private developments in these areas forging a competitive market with enhanced services focused on research and innovation attracting the higher income groups upon the private sector growth.

With respect to subsidized food and housing – the state could perhaps reduce the percentage to the optimum based on means test for families with little or no income to address poverty and let the remaining population assist the market economy.

That way there is tremendous access for small businesses in the food supply enabling the wholesale and the medium to large size corporations to emerge in the long term.

Activating the manufacturing side is equally important for it would absorb the massive workforce expected to be without jobs following the state retrenchment.

The private markets cannot surface overnight without the adequately funded and regulated financial sector which in turn might require IMF and World Bank monetary assistance to expedite the transition.

Initially the federal authorities could divert the savings from the half a million workforce wages to the community banks for private sector lending and earn interest on the borrowings, thereby converting the state liability to income.

Cuba with a much better supply demand prognosis has a greater ability to implement the changes and prepare the Federal Reserve along with the Treasury to monitor the hybrid economic activities.

The questions are raised on Cuba’s capacity to import the essential resources and technology for the proposed transformation by March 2011 and relevantly the state’s action plan on the immediate income surge from the private economy boosting middle and higher earnings categories in the society.

Importing necessary items could be made possible by approaching current trade partners and the industrialized nations like the United States, Germany… have unique advantage in being the supplier especially with the higher end equipment and machinery contributing to the overall benefits in creating and retaining manufacturing jobs in their respective domain.

Obviously ending the economic trade sanctions would serve the international purpose.

Adjusting to the inevitable income hierarchy post economic model could be effectively addressed through a progressive tax structure that protects the lower income and the middle class while the wealthier groups offered tax incentives for domestic investments preventing tax evasions.

Cuba would prosper through reconciliation with reality in accepting the private enterprises
role and build the national economy with a harmonious balance between the state and free market owned assets.

Except for the regular public services, health care and education under state management – the vast areas of the economy are best run by the private industry delivering the people with quality products and services at a market price.

Any concerns about the capitalism risk experienced in the developed economies is legitimate and could be avoided with appropriate regulations comprising checks and balances for smooth operation.

In other matter, Cuba released seven dissidents in July 2010 and vowed to free the 52 political prisoners recently. These actions are praiseworthy and promising in improving human rights record which is significant to win the trust and confidence among the majority in the international community disappointed with the state human rights violation.

President Barack Obama pledge to lift travel ban allowing Cuban Americans and others to travel to Cuba is an optimistic beginning in the U.S – Cuban relationship for the policy would revive the flat travel industry with many dependent livelihoods.

Cuba is gradually heading towards the direction desirable by not only its people but also the global citizens. Similar initiatives in the political dimension would be highly beneficial now for Cuba considering the economic urgency and the trade sanctions posing obstacles for imports to mobilize privatization.

Nevertheless, it’s a refreshing start and there is hope for the Caribbean nation to make progress in every aspect.

As long as there is political determination to evolve and embrace the new possibilities then sky is the limit.

Best Wishes to the wonderful Cuban population for a bright future.

Thank you.

Padmini Arhant

Written by Padmini Arhant · Filed Under Featured, International Politics 

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