Comments please.

Should Cuba introduce more ‘market’? Of course. But in the right way.

A) it should avoid the Russian ‘Jeffrey Sachs’ Big Bang mistake. There should not be a wholesale privatization of existing state companies. Privatization should be limited anyway: selling well-connected monopolies at a low price to wealthy people is not the way ahead. A private economy should grow next to the state economy. After a time, this will cause problems. That’s the time to deal with them. Markets are complicated constructs with lots of forward and backward linkages to other markets and embedded in a legal system and a market culture – it will take time to establish this.

B) it should avoid abandoning its free health care and education at all costs. After the privatization-schok in Russia, the health, level of education and stamina of the Russian population dwindled, it’s only quite recently that live expectancy is back to its (pretty low) former level. I’m not kidding. From a 1998 article by Francis Notzon e.a.: ‘The striking rise in Russian mortality is beyond the peacetime experience of industrialized countries, with a 5-year decline in life expectancy in 4 years’ time. Many factors appear to be operating simultaneously, including economic and social instability, high rates of tobacco and alcohol consumption, poor nutrition, depression, and deterioration of the health care system. Problems in data quality and reporting appear unable to account for these findings. These results clearly demonstrate that major declines in health and life expectancy can take place rapidly‘.

C) it should avoid the East-German mistakes. It should not try to restore the pre-revolution property relations. And its exchange rate should not be totally, grossly overvalued, as in the case of East-Germany after ‘Die Wende’.

D) But do follow the German example from the fifties: install capital controls. Don’t enable direct foreign currency loans to either Cuban citizens or companies, not even via shadow companies and shadow banks.

E) Cuba has of course a great advantage. Many South-American countries have been crippled by enormous social, economic, racial, property and political inequality, Cuba seems to have solved this at least to an extent, which will enable relative stable as well as fast economic development.

F) Let the market be the market. Let the people do what they want to do, outside the state economy (but inside the boundaries of the law). Which of course requires loads of regulations: property laws, bankruptcy law, zoning and environmental laws and labour laws (minimum wage, safety), tax laws. Bankruptcy laws should give a high level of priority to ‘receivables’, the government might want to consider a joint liability rule which would enable ‘receivables’to function as a kind of money.

G) No doubt, F) will enable some people to get rich. Fine. A land tax and high inheritance taxes should tax away unearned incomes while there is nothing to with progressive income taxes, too.

H) What if Cuban surgeons choose to operate wealthy citizens of the USA, instead of poor Cubans? Guarantee B) (which in this case wll require higher incomes, see however G)) and train more surgeons.

Did I mention that the country should keep its own currency?