¿Quo vadis, Cuba? La incierta senda de las reformas ed. by José Antonio Alonso and Pavel Vidal (review)

This excellent compilation on Raúl Castro’s economic reforms is edited by José Antonio Alonso, professor of applied economics at Universidad Complutense, and Pavel Vidal Alejandro, a Cuban economist now at Universidad Pontificia Javeriana in Cali, Colombia, based on papers delivered and discussed in seminars in Havana and Madrid in 2012; topics were selected on the basis of “their relevance and impact for Cuba’s future economy and society” (20). All chapters are written by economists from Spain and Cuba, focusing on economics (save one on social issues), mostly covering the period 1995–2011, with a good blend of theory and praxis, ample documentation, objective and sophisticated analysis, and a remarkable consensus on their evaluation.

The introduction by Alonso and Vidal summarizes the key reforms and their progress, and identifies major conundrums: (1) the lack of a clear final goal not only for the people but also for the government; (2) a continued sequence of reforms instead of an advisable simultaneous process; (3) gradualism, which often is successful and with fewer social costs than shock therapy but, if excessive, involves risks; (4) a continuation of central planning, even a return to the type existing in the 1970s and 1980s, with few free spaces left for state enterprises; (5) the fight against bureaucracy not being accompanied by the improved transparency and accountability of state entities; (6) a high dependency on Venezuela (18 percent of Cuba’s gross domestic product), and hence vulnerability to potential politico-economic changes in that country; and (7) a short biological time for the octogenarian leadership, which is appointing some heirs.

Only four of the seven chapters can be summarized herein because of space limitations. Chapter 1 on growth, by Alonso and Juan Triana encompasses an analysis of theory and empirical issues; a brief history of Cuban literature; international experience (the neoliberal paradigm and its flaws, as well as alternative strategies); Cuban growth in the period 1990–2011 during the crisis and the volatile recovery (an overall average rate of 1.8 percent, among the worst in Latin America, and 3.2 percent since 1993, lower than the regional average, which is indicative of structural weakness); growth quality (a high and growing concentration on low-productive services—62 percent of GDP—which requires a move to more productive labor; moreover, the expansion of self-employment and agricultural jobs is insufficient); 10 percent of capital formation versus a needed 25 percent; and policy suggestions to improve growth.

According to chapter 4, by Carlos Garomartín, Omar Everleny Pérez Villanueva, and Saira Pons, the tax reform of 2012 has had the most important impact on self-employment. Surveys identify the reform as a main obstacle for the survival of small businesses. Several taxes are imposed:

• • 10 percent on sales (VAT), without deductions, which leads to higher consumer prices, curbs the sector expansion (because of insufficient demand), and is counterproductive in tax collection (high costs for collected peso)

• • 20 percent on the salary of hired workers, which penalizes the creation of private jobs, which is essential to get rid of 1.8 million unneeded state employees, and fosters evasion

• • Personal income tax (on profits) that allows deductions from 10 percent to 50 percent—the latter equivalent to US$2,000 annually—underestimates Cuba’s standard of living and makes this tax virtually not payable

• • 7 percent for social security, judged to be positive, as it makes workers eligible for pensions and has the potential to reduce the system deficit (the deficit actually increased in 2012)

• • Fixed monthly tax without deductions, which is a disadvantage for those with low income levels, who may pay a marginal tax rate of 100 percent or more

Chapter 5, on social issues, by Anicia García, Susanne Gratius, and Luisa Íñiguez, deals with the debate on universality versus targeting and its relevance to Cuba. Cuba was a pioneer in free universal social services in Latin America, such...