Category Archives: Cuba

Cuba Economic Changes and Discontent in 2021

Money, Home, Coin, Investment, Business

A New Hampshire resident, Jorge I. Dominguez graduated from Harvard University and holds a Ph.D. in political science. Jorge Dominguez served in the past as a professor and chair of international and area studies at Harvard. Jorge I. Dominguez is also an author and published The Cuban Economy in a New Era.

Cuba is undergoing huge economic changes in 2021 due to the pandemic and coronavirus. The state seems to have hit a new low with people being discontent about the rising of prices and the decrease of wages once adjusted for high inflation increases. After shrinking the economy by 11 percent in 2020, the crisis has extended to 2021. Cuba has a command economy, which means the government mainly decides and determines the prices of goods, as well as the production and availability of goods.

Cuba lacks private ownership of large-scale industries, properties, and resources due to the command economy. Command economy is a feature of communism, which has been present in Cuba since 1959. Recent command economy policies and the economy in general have frustrated citizens, as the fact that the production of goods is controlled by the government can lead to shortages of goods and high prices.

Cubans Use Bitcoin for Overseas Transactions as U.S. Embargo Persists

Bitcoin

Jorge Dominguez, PhD, is a former chair of Harvard Academy for International and Area Studies. In his studies of Latin America and Cuba, Jorge I. Dominguez has watched the Cuban economy and how it responds to sanctions from the U.S.

Embargo laws set by the U.S. became more restrictive under former U.S. president Donald J. Trump, with further restrictions piling up as his term came to an end. His successor, President Joe Biden, has also declined to lift embargo-related restrictions on the island, only saying that he stands with the Cuban people and their desire for freedom. With no support from the U.S. the Cuban government is finding it difficult to complete financial transactions and receive aid from overseas, such as in the case of a U.S.-blocked donation from the Jack Ma foundation in China that was supposed to provide coronavirus relief.

One way that the Cuban government is starting to find ways around U.S. restrictions is in the regulation of cryptocurrency. The digital currency is not regulated by a central bank and isn’t tied to a nation, but instead its security is maintained by computers using a blockchain system that tracks transactions. This type of currency has been criticized for its negative environmental impact, with Bitcoin transactions alone generating almost as much electronic (energy) waste as Luxembourg uses annually, and widely noted for its fluctuating value. But for Cubans, it provides an alternative way of transferring money abroad, as dollars become harder to use due to embargo restrictions.

Factors Hindering the Growth of the Cuban Economy

Jorge I. Dominguez served as the chair of Harvard Academy for International and Area Studies. He was also Harvard’s first provost for international affairs. In 2015, Jorge Dominguez wrote an article for the Harvard Business Review about the Cuban economy.

The output of the Cuban economy contracted 10.8 percent in 2020, and figures show that it fell again by about 2 percent in the first half of 2021. Also, imports have fallen by 40 percent since the beginning of 2020. One of the factors restricting the growth of the Cuban economy is the system of taxation. The country does not have a VAT, personal income tax, or corporate tax. Instead, it taxes small private businesses based on how many employees they have. This is an outmoded taxation system that does not accurately represent how much money flows through a business.

Also, Cuba is a bureaucratic and highly regulated country. This makes it very difficult for businesses to thrive. This problem is also a result of the rigid communism practiced in the state. Reuters reported a case of a state-owned farm in Cuba where pigs were dying because government permission is needed to buy feed. If the Cuban economy is to improve, it’s likely that many of the restrictions keeping private businesses from thriving will have to be removed.

A Brief Introduction to How Cuba’s Economy is Structured

Formerly the Antonio Madero Professor for the Study of Mexico at Harvard University, Dr. Jorge I. Dominguez recently retired from academia. Throughout his career, he taught undergraduate and graduate students about international relations and politics in both Mexico and Cuba. Dr. Jorge Dominguez also authored several books relating to Cuba and Latin America, such as “Economic Issues and Political Conflict: U.S.-Latin America Relations.”

The economy in Cuba is a planned-socialist economy. This type of economy is like what was seen in the Soviet Union and was used by roughly one-third of the world following World War II. Along with North Korea, Cuba is one of the only examples of a planned-socialist economy that seeks to greatly constrain the role of markets left in the world.

In Cuba, the economy is mostly state-run. There is a government-sponsored education program that provides free education to citizens at all levels, along with a national healthcare program. Cuba also has subsidized utilities, entertainment, food, and housing programs in place that compensate for the low salaries of workers in the country. All of these programs have suffered from insufficient economic growth during the past decade.

Planned socialism focuses on state ownership of all resources and the central allocation of labor, unlike capitalism that focuses on private ownership of resources.

A planned-socialist economy has a great deal of control over labor. In fact, nearly 80 percent of Cuba’s workers are employed by a government-owned enterprise. The country also does not have a stock exchange. During the COVID-19 pandemic, Cuba started reducing its restrictions on economic activities. Most notably it announced that it would allow for small- and medium-sized private businesses in most sectors instead of relying solely on state-owned operations.