Thursday, July 17, 2008

Raul grapples with demographic troubles

I got around to reading the Raul Castro speech from last Friday’s National Assembly session.

The speech mainly deals with two problems in the Cuban economy – the shrinking workforce and the need to boost farm production.

When it comes to economic policy, here’s what stood out to me.

  • Cuba will increase its retirement age in order to improve the ratio between the working and retired populations.

  • Teachers are being encouraged to return to the classroom, and Raul announced that if they do so, their pensions will not be affected. He acknowledged that in this sector, there is “a problem with wages.”

  • The government is studying the idea of allowing Cubans to hold more than one job and collect more than one salary.

  • New regulations will soon be issued to “begin granting idle land in usufruct to those who are in a position to make them productive immediately,” and “other measures” affecting agriculture will follow.

  • Raul is thinking about an income tax system that applies more broadly than the current one, which applies only to licensed entrepreneurs, artists who earn income abroad, and few others.

  • He also sent another signal that could mean the end of the libreta, the food ration book that for 45 years has delivered subsidized food to every household. He called for “the elimination of unwarranted handouts and excessive subsidies,” and repeated the line, seemingly for emphasis.

There’s no mystery about the emphasis on agriculture. Raul explained that the cost of imported rice rose 158 percent in the past year, the cost of wheat 38 percent, and the cost of powdered milk has jumped 148 percent in four years. As a result, he said, “We have to definitively reverse the trend of declining cultivated land. Between 1998 and 2007, in just nine years, it declined by 33 per cent, one third of cultivated land.” An expansion of Cuban agriculture has the potential to increase employment and incomes, increase food supply and lower prices, and save foreign exchange.

But the most striking part of the speech was the description of Cuba’s changing demographics and shrinking workforce. After citing data on life expectancy, declining birth rates, and declining overall population, Raul concluded:

“The combination of all these factors is already appearing in unfavorable trends among the working-age population – in 1980, almost 30 years ago, more than 238,000 youths reached this age, and last year it was 166,000. That is 72,000 less and estimates indicate that it will drop to about 129,000 by 2020. Those same estimates indicate, as the Labor Ministry said this morning, that by 2025 there will be 770,000 fewer citizens than now in that age bracket.”


“In 2007, people over 60 years of age…accounted for 16.6 per cent of the country’s population; the year before, they constituted 15.9 per cent…These figures will continue to increase together in a more prominent way in coming years.”

Declining workforce, declining population, declining birth rates, an aging population – these things may or may not add up to a demographic crisis, but they are certainly an economic policy nightmare.

What Raul did not mention was emigration – a factor that probably contributes to Cuba’s political stability, but adds to the economic problem, especially when the emigrants are skilled and educated. Their talents and energies are lost, and the worker/retiree ratio worsens.

The speech was not billed as a comprehensive economic policy message. But it nonetheless begs the question whether measures now under consideration are proportional to Cuba’s challenge.

It makes sense to revive agriculture, raise retirement ages, and ensure that workers are rewarded for high productivity. But absent some action to create lots of new jobs, not only on farms, it’s hard to see how Cuba’s current economic policies will measure up to the challenges Raul outlined in such harsh detail.

So I’ll stay tuned – and wonder whether ideas like this may someday be applied beyond the farm:

“I recognize and admire the great socialist state enterprise…I know of many enterprises that produce efficiently. However, this in no way contradicts the role of the cooperative in its various forms and the small farmer, notable examples of which I could also cite. These are all forms of property and production that can coexist harmoniously because none are antagonistic to socialism.”

Finally, other quotes of note:

“Recently, each time our country has adopted a measure, some US official – whether an ambassador or the president – has called it insufficient and cosmetic, though nobody here asked for their opinion.”

“…we must be aware that every wage increase we approve, or every price we establish, must be consistent with our economic possibilities. Otherwise, the amount of money circulating increases, prices automatically increase, and there is no real purchasing power increase.”

“For the worker to feel like the owner of the means of production we cannot rely solely on theoretical explanations – we have been doing that for about 48 years – nor on the fact that his opinion is taken into consideration in the labor meetings. It is very important that his income correspond to his personal contribution…”

“In socialism it is vital that the allocation of resources in the economic plans strictly reflect the available funds. We cannot expect two plus two to total five. Two plus two is four. Actually, sometimes in socialism two plus two equals three.”

“Since the fall of the Soviet Union we have not acquired more weaponry because it is so costly…we have modernized them, and it has been a great accomplishment because they adjust perfectly to the type of war we would wage if we were invaded by the most powerful country on the planet, the United States. We have acquired spare parts, in addition to those we produce ourselves, and thousands of scopes, or tens of thousands of scopes for snipers, if we are going to discuss armaments, and some smaller things, but we today are stronger than ever.”

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