Tuesday, November 29, 2016

A brief note on the demographic prospects of Cuba

Over at my blog this evening, I posted an article reflecting on the evidence for substantial economic decline in Cuba under Castro, not only decline relative to its peers (southern and central Europe, high-income Latin America) but even, at times, of absolute decline. A country that had severe problems of inequality went on to acquire worse problems. Of all the economies in the world to be transformed into autarkic socialist states, Cuba’s highly-export dependent economy may have been among the least suited. Blogger and economist Noel Maurer has pointed to one study suggesting that Cuba's potential GDP per capita may well have been halved.

On my RSS feed this weekend, I came across Tyler Cowen's pessimistic forecast for post-Castro Cuba's economic future.

One way to approach Cuba’s economic fate is to consider the Caribbean region as a whole. For the most part, it has seen mediocre results since the financial crisis of 2008. Economic problems have plagued Puerto Rico, Trinidad, Jamaica, Haiti and Barbados, with only Jamaica seeing a real turnaround.

The core problems of the region include high debt, weak commodity prices, lack of economies of scale and an inability to upgrade tourist facilities to compete with the U.S., Mexico and further-flung locales. Cuba cannot service its foreign debt, and losing most of its support from Venezuela has been a massive fiscal problem.

Perhaps the country most like Cuba in the Caribbean, in terms of history, heritage and ethnic composition, is the Dominican Republic. Currently, it has a nominal gross domestic product of somewhat over $6,000 per capita, depending which source you prefer. That’s far from the bottom tier of developing economies, but it’s hardly a shining star. And Cuba will take a long time to attract a comparable level of multinational investment, or to develop its tourist facilities to a comparable level of sophistication. Well-functioning electricity and air conditioning cannot be taken for granted in Cuba, especially after the major decline in energy supplies from Venezuela.

[. . .]

If you are wondering, the World Bank measures Cuban GDP at over $6,000 per capita, but that is based on a planned economy and an unrealistic exchange rate. In reality, Cuba probably is richer than Nicaragua, where GDP per capital is approximately $2,000, but we don’t know by how much. Cuba does have relatively high levels of health care and education, but we’ve learned from post-Soviet reform experiences that it is easy for a nation to lose those advantages. There are already shortages of many basic health care items, including medical technology and antibiotics.

Cuba's demographic issues, including sustained sub-replacement fertility and substantial emigration, will not aid in the economic transformation of the country. If anything, they may make things more difficult, as Cubans who can leave for destinations where they think they can prosper. Might the Donald Trump presidency inadvertently aid Cuba, I wonder, by making Cuban immigration to the United States more difficult? Or would even that be enough to make things less difficult for Cuba? In a time where skilled labour is increasingly at a premium, Cubans may have their pick of destinations? For more, see this blog's past posts about Cuba's particular issues. I have to say that our pessimistic arguments seem to have good ones.

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