Poverty and inequality: the policy challenge

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Poverty and inequality the policy challenge

• Emily Morris
• International Institute for the Study of Cuba
• October 9th 2008

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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.

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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 US1 or US2 a
  day.
• Relative poverty less than half average income?
  
• Inequality Gini coefficient
• In Cuba
• Big problem how to measure real incomes?

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Measuring poverty and inequality in Cubareal
incomes
Economic crisis lower real average incomes
more poverty, but how much? And for whom?
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Measuring poverty and inequality in
Cubacalculating real wage growth data
Estimates
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Measuring poverty and inequality in Cuba
calculating real wage growth results
but which measure of consumer price inflation?
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Measuring poverty and inequality in Cuba real
wages with rations and fixed prices
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Measuring poverty and inequality in Cuba real
wages with rations and fixed prices
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Measuring poverty and inequality in Cubathe
decline in CUP purchasing power
The purchasing power of the extra peso remains
small
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Measuring poverty and inequality in Cubathe
rise in US purchasing power
and the value of the dollar is still large
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Measuring poverty and inequality in Cubathe
currency divide

• In 1993
• US2 could match an average months salary of 182
  pesos (real value around US150)
• to double it would take another US150, or over
  15,000 (150 x 100) pesos, or 82 months
• In 2007
• US20 would be needed to match a months salary
  of 400 pesos (real value around US300)
• to double it would take another US300, or 7,200
  pesos (300 x 24), or 18 months

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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
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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.

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Assessing the record in context real wages in
transition
Cubas decline in real average wages was not
exceptionally severe -- and other entitlements
reduced the impact on welfare
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Assessing the record in context infant
mortality
Positive proxy indicators low and falling
mortality rates
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Assessing the record in context infant
mortality in transition
comparing well with the transition economies
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Assessing the record in context inequality in
transition
Cuban income inequality increased but
comparisons are difficult
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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

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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 ?

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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

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Poverty and inequality the policy challenge

• Emily Morris
• International Institute for the Study of Cuba
• October 9th 2008