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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