Poverty and inequality: the policy challenge

1. Poverty and inequality: the policy challenge Emily Morris International Institute for the Study of Cuba October 9th 2008

2. Poverty and inequality: the policy challenge • Policy objectives • Measuring poverty and inequality in Cuba • Assessing the record in context • Policy debates and challenges

3. Policy objectives The “basic principle of the Cuban revolutionary process” is development with “equity and social justice”, involving • the redistribution of incomes in favour of workers and marginalised groups • the elimination of unemployment • the raising of living standards.

4. Measuring poverty and inequality in Cuba • Measurements of poverty and inequality: • Absolute poverty – “minimum level of income necessary to meet basic needs” • Extreme – not enough food • Moderate – not much money • Standard measures: equivalent to US$1 or US$2 a day. • Relative poverty – less than half average income? • Inequality – Gini coefficient • In Cuba: • Big problem: how to measure real incomes?

5. Measuring poverty and inequality in Cuba:real incomes Economic crisis = lower real average incomes = more poverty, but how much? And for whom?

6. Measuring poverty and inequality in Cuba:calculating real wage growth: data Estimates

7. Measuring poverty and inequality in Cuba:calculating real wage growth: results …but which measure of consumer price inflation?

8. Measuring poverty and inequality in Cuba:real wages with rations and fixed prices

9. Measuring poverty and inequality in Cuba:real wages with rations and fixed prices

10. Measuring poverty and inequality in Cuba:the decline in CUP purchasing power The purchasing power of the extra peso remains small…

11. Measuring poverty and inequality in Cuba:the rise in US$ purchasing power …and the value of the dollar is still large

12. Measuring poverty and inequality in Cuba:the currency divide • In 1993 • US$2 could match an average month’s salary of 182 pesos (real value around US$150) • to double it would take another US$150, or over 15,000 (150 x 100) pesos, or 82 months • In 2007 • US$20 would be needed to match a month’s salary of 400 pesos (real value around US$300) • to double it would take another US$300, or 7,200 pesos (300 x 24), or 18 months

13. Measuring poverty and inequality: average real incomes disguise divergence Shortages, currency depreciation, agromarkets Higher wages, more bonuses, more goods on sale in pesos The gap between peso and hard currency (US$/CUC) incomes widened in 1990-1993; narrowed in 2005-2007

14. Measuring poverty and inequality: findings • Wages: average real disposable peso incomes barely recovered from 1990-1993 collapse • Poverty: basic needs have been met • Inequality between peso earners was reduced by the crisis and remains small • Most inequality still springs from duality between hard currency and peso, formal and informal, economies …which is different….

15. Assessing the record in context: real wages in transition Cuba’s decline in real average wages was not exceptionally severe -- and other entitlements reduced the impact on welfare

16. Assessing the record in context: infant mortality Positive proxy indicators: low and falling mortality rates …

17. Assessing the record in context: infant mortality in transition …comparing well with the “transition” economies

18. Assessing the record in context: inequality in transition Cuban income inequality increased – but comparisons are difficult

19. Assessing the record in context: findings • The increase in poverty and inequality in Cuba was induced by post-CMEA economic crisis • Its record in meeting basic needs and maintaining equality in the formal sector has been positive • But the gap between dollar and peso economies persists

20. Policy debates • Ideology: welfare priorities • Commitment to protect the vulnerable, maintain social cohesion and preserve human capital • Management and resources: targeting • Reforming institutional infrastructure • Raising spending • Improving accountability • Auditing • Decentralisation • Markets: getting the prices right • How to square the exchange rate circle ? • How to improve incentives but contain inequality, using entitlements, bonuses and taxes ?

21. Conclusions • Increase in poverty and inequality since 1990… • … has been mitigated by policy • A heterodox policy approach • bringing gradual improvement • but corrosive imbalances remain no simple solutions

22. Poverty and inequality: the policy challenge Emily Morris International Institute for the Study of Cuba October 9th 2008