This is a new work that I recently sended to the Ideas for Cuba contest. The main topic is how to fight Cuban poverty.
In conclusion, it is useful to connect the determinant effects of each of the proposals presented. But before that could be broken with the answer to very complex questions. What is the most important factor that gives rise to economic growth? Where is the origin of underdevelopment? Is it possible to break the vicious circle of poverty?
When starting a business through any of the four forms outlined in the first proposal should always start from a financial capital base and / or material for the start up. It is important to extrapolate this particular case to the whole economy and this is how investment is presented as the core of economic growth.
It was under this principle that privatizations were considered as a tool of improvement of the economy. The reason is that private companies have more capabilities and incentives to invest than public companies. In this way they are perfected internally, making the national economy grow as a whole. However, there is a limitation.
What actually develops countries are increases in productivity, and these depend to a large extent on capital goods and other accumulation of capital, which is achieved through prior savings intended for investment. Cuba has a weak saving.
The cause of Cuba’s weakened savings lies in the way low nominal incomes are combined with high prices of goods and services. Both factors combine and destroy the purchasing power of the population. In this way after carrying out the elementary consumption, the remaining savings are scarce. Finally, the resources that the population destines to the investment of the country disappear. That is why in the small savings of the Cuban economy is the origin of national underdevelopment.
As nominal incomes remain stagnant and prices for goods and services continue to rise, the phenomenon becomes more acute and it becomes more difficult to escape the trap, strengthening a vicious circle of poverty. Raising nominal wages would only increase the supply of money in the market and this would be reversed in the growth of prices, further deteriorating the purchasing power of the population. If prices were to be reduced, only declines in production would be stimulated by the deterioration of profits. As a result, the shortages would increase and the size of the queues would multiply. Arbitrarily combining both ineffective measures would be like taking a piece of cheese and throwing it in a basement full of hungry rats. Not only is the vicious circle of poverty deepened, but it becomes more difficult to break it. But there is the solution.
The first proposal concludes triumphally with foreign investment as a key element that should be stimulated and propitiated without restrictions and without complications. In this way, foreign savings are captured so that investments are made inwardly, breaking the vicious circle of poverty.
What is striking in human history is the fact that in a given historical moment a number of countries were able to break the vicious circle of poverty and start the path to the growing prosperity of almost all its citizens . Today are the famous developed countries. What can Cuba do? If a country like ours is caught in the vicious circle of poverty because it lacks national savings, it must seek external sources to finance its economic development.
Therefore, the solution to the problem of the vicious circle of poverty often involves bringing abroad financing to break it, thus improving welfare levels, increasing employment and purchasing power. But in order to attract foreign companies, a number of conditions are needed as a legal framework in which the host country guarantees the right of ownership and allows enforcing contracts. When governments are clean and democratic, public administration is efficient, favoritism and excessive bureaucratic procedures are suppressed and competition is encouraged, so companies are better off to fight poverty.
But there is one factor that could limit the effective reach of foreign investment and is the fact that foreign companies are not only encouraged to invest in countries with sound legal conditions. They also look for modern highways that guarantee the flow of physical and human capital, wide ports that favor foreign trade, vast airports that allow the arrival of many visitors that stimulate tourism, public transport that connects effectively to the population with the work centers, Hydraulic capacity for irrigation systems and the chemical industry, electrical potential that condition the automation of the industry and wireless networks that guarantee the connection between workers and businesses in any place and time of a fast and stable form. Cuba does not have any of that.
The solution is to use the funds provided by the privatizations of the state-owned enterprises as initial capital to realize investments in infrastructures. The second proposal was clear on this point. Infrastructure impacts growth by improving the productivity of the economy, reducing production costs, helping to diversify the productive structure, and generating quality jobs with a consequent impact on poverty reduction.
In particular, the authorities and governments of developing countries have always maintained the idea that public investment in infrastructure is an indispensable engine of economic growth and poverty reduction. Cuba must activate this engine.
It is also important to do so with a particular emphasis on bringing road networks to the most economically isolated rural areas to boost growth in the interior of the country with a correspondingly positive impact on reducing inequality. The scope of telecommunication infrastructure would also contribute in this aspect by bringing broader economic development in the equitable access of society to information, reducing inequality and in turn strengthening poverty reduction.
The creation of jobs of a higher level in view of the flow of investments in its multiple forms would demand a greater level of knowledge on the part of the labor force and would pose to the Cuban society the challenge of bringing this productive capacity to the benefit of all . University education is the way.
It is precisely through education that development would reach society uniformly and that is why, given the increase in government tax revenues as a result of the economic growth of the previous proposals, public spending should prioritize the scope of education: reducing inequality and poverty in unison.
Each of the proposals presented in this paper are fully feasible and show that not only is it necessary to know how to look forward, but also to be able to progressively move in that direction.
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