Cuba: Economic reform and foreign trade policy

Cuba is undertaking gradual yet significant economic reform. Its new policy shifts away from a purely state-run economy, which has been in place for the past 53 years, towards a more open market economy. A long-term strategy to promote economic growth and stability should also incorporate a revised foreign trade policy to allow for more open trade and increased investment. At the same time, such a policy should not lose sight of economic development, i.e.,  ensuring access to education and health care.

The D.C.-based think tank, The Heritage Foundation,  ranked Cuba as a country with the least amount of economic freedom both within the Latin American and Caribbean regions and globally. About 80 percent of all jobs are in the public sector. Out of 179 countries, Cuba ranks 178 in terms of business freedom and 151 for trade freedom (see Figures 2 and 3). These low rankings by The Heritage Foundation reflect the fact that many businesses have been under government control since 1968, and the United States, the world’s largest market, continues its five decade long trade embargo against the Caribbean island.

By the end of 2011, Cuban President Raúl Castro continued to slowly implement economic reform measures that lessen state control over the economy. The goal is to address a failing economy that has only worsened with the global financial crisis.  Measures  that have taken effect include the layoff of a large number of government workers so that they can seek private sector employment, removing restrictions on the purchase and sale of real estate and legalizing the sale and purchase of vehicles regardless of the model and year.

These reforms are limited though. For example, President Castro has had to pull back on the original plan to lay off about 10 percent of Cuba’s total workforce or 500,000 state employees between October 2010 and March 2011 and 20 percent of its total workforce by the end of 2014 or 1.8 million public sector workers. The former state employees who were laid off found themselves  unemployed, because the anticipated growth of private sector jobs failed to materialize. Heavy regulation of the private sector makes it difficult for entrepreneurship to flourish to its fullest potential.

Furthermore, the ability to buy and sale vehicles still has a number of other restrictions. Buyers must provide proof that the money used to purchase the vehicle was earned in a field approved by the Cuban government and not with money sent from abroad. These purchases must be made at state-owned car dealerships. Some have criticized these restrictions as still making it difficult for the average Cuban citizen to purchase new automobiles.

These changes do not signal a shift towards a capitalist society, at least according to public statements by President Castro. In April 2011, President Castro stated publicly, “I assume my post to defend, preserve and continue perfecting socialism, and never permit the return of capitalism.”

As with any economic policy reform, a number of approaches are necessary in order to ensure sustainable long-term economic growth and development. Improved infrastructure and legal and regulatory changes are a few areas that lead to economic growth.

Increased productivity and exports also play a significant role in economic growth. Currently, Cuba depends heavily on the import of food, machinery and petroleum. The country’s trade deficit stood at about US$7 billion in 2010 (see Figure 1: Cuban Balance of Trade). An emphasis on greater market access, increased competitiveness, and the development of an industrial policy is necessary to address the challenges that the economy faces.

While the internal reforms may be gradual and limited, at least there is some hope and actual change designed to improve an ailing economy. It remains to be seen what these changes in Cuban economic policy alongside the eased restrictions in U.S. export and travel to Cuba will mean for future US-Cuban trade relations.

Dr.  Sarita D. Jackson will travel to Cuba in the summer 2012 to study first-hand the effects of these recent changes. 

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About Dr. Sarita D. Jackson

is the President and CEO of the Global Research Institute of International Trade, a think-tank/consulting firm that examines trade policies and their impact on domestic businesses. Prior to heading GRIIT, Dr. Jackson was a tenured associate professor of political science in North Carolina and worked as a trade policy consultant for an Arlington-based consulting firm. She has participated in trade policy projects and conducted research on free trade negotiations in Botswana, Antigua and Barbuda, Dominica, Dominican Republic, Mexico and Panama. Dr. Jackson has also traveled to Chile and Argentina to study their political systems and economic integration policies.
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6 Responses to Cuba: Economic reform and foreign trade policy

  1. dhjay says:

    The Cuban economy is facing some formidable challenges now and in the future. We must recognize some of Cuba’s challenges. With most of the economy being run by the government and most employment being in the public sector, there is little room for the economy to improve. Cuba needs to seize upon the opportunity to create more jobs in the private sector. Capital investment is restricted and requires government approval. One solution to Cuba’s challenges would be for the United States to lift the economic embargo. However, Cuba has managed to educate many doctors and maintain good health care and education with the embargo in place.

    Dr. Jackson it is refreshing to learn that you will be traveling to Cuba in the summer 2012 to do research. Please report your findings via ITE.

    • Dr. Sarita D. Jackson says:

      Thank you for sharing your thoughts. Only time will tell what will come of the U.S. economic embargo against Cuba. This issue continues to surface in debates pertaining to Cuba’s economic stability. The most recent example is Pope Benedict XVI’s visit to Cuba last week, during which he called for the lifting of the embargo due to its negative effect on the people rather than the government. You are right in pointing out that despite the embargo, Cuba has managed to provide specific social services to its people.

  2. Kim Smith says:

    Sarita: I really like your powerful, personal reflections on international trade. Please keep it up.
    Congrats on your future trip to Cuba!

    • Dr. Sarita D. Jackson says:

      Kim: Thank you for your positive feedback and congratulatory remark. It brings me great pleasure to know that you enjoy the information that I share on international trade. Feel free to share this article with others via Facebook, etc.

  3. Thanks for all the information about economic reforms that are being undertaken in Cuba.
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