Economic Reform Comes to Cuba?
The Cuban government recently announced that it plans to lay off about 500,000 employees over the next seven months. This may signal the start of economic reforms that would privatize small parts of the centrally planned Cuban economy, writes the Economist.
In a speech announcing the government's decision, Cuba's only official labor union, the Cuban Workers Federation, said that the layoffs are motivated by a desire to curb inefficiency caused by cushy government jobs. As quoted in a story by NPR, the union says:
"Our state cannot and should not continue supporting businesses, production entities and services with inflated payrolls, and losses that hurt our economy are ultimately counterproductive, creating bad habits and distorting worker conduct."
But in a country where Time Magazine estimates that the government employs about 90 percent of the labor force, where will 500,000 suddenly jobless people find work?
According to Reuters, the government plans to legalize self-employment in 178 different fields, ranging from restaurant ownership to transportation to construction. Small businesses will also be able to hire their own workers for the first time since 1968, when small businesses were nationalized. An article in the Economist says that the reforms will also let employees take control of some small state-owned businesses.
These reforms are meant to reinvigorate Cuba's stagnating socialist economy by mixing in tiny bits of capitalism. This tactic has been successful in both China and Vietnam, where communist leaders control mostly privatized economies. However, the New York Times suggests that the Cuban government might not want to overhaul the system the way China and Vietnam have:
The plan announced so far is much more modest than what the Asian countries have done. Instead, it seems designed simply to boost Cuba’s economic productivity in small-scale enterprises and thus loosen up a state-run economy and work force that have been sputtering for more than a decade.
U.S. experts on Cuba disagree on how effective the reforms will be. The University of Miami's Jaime Suchlicki told the Wall Street Journal that "there is no private sector" to absorb laid-off workers. But in the same article, Philip Peters of free-market think tank Lexington Institute said it depends on how committed the Cuban government is to true reform. "If they carry this thing out fully," said Peters, "it will vastly improve the welfare of thousands of families."
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Cuba's tricky transition.
In terms of pace, Cuba is doing the right thing by not committing to a complete overhaul of the system as is mentioned happened in Vietnam and China. Although Cuba is working on a much smaller economy than either of the aforementioned countries, taking is slow is the best option for several reasons. Education and funding are the big issues here. First and foremost, the Cuban people will have to be educated and transitioned into a free market economy. They will need support in terms of investment and education to start their own businesses- this support will undoubtedly have to come from foreign sources. And if indeed 500,000 government employees are to be laid off there needs to be a better plan of action than just having them fend for themselves. As is mentioned there is no private sector to account for these people, and they won't instantly figure out upon being fired how else to earn money, how to startup their own business, how to takeover state run businesses. And even if people manage to successfully startup their own private business whether on their own or with the assistance of foreign aide/NGO's, the majority of the population will not have money to invest in these small businesses. Perhaps they would depend on the tourist season, or would have to wait in what will be a stagnate economy for awhile- but how can they afford to wait? An interesting transformation it will be, but a rough and cautious one as well. Think about post communist societies that we have seen come apart: the former USSR and East Germany. Granted the situation with Easy Germany was more complex because of the division of Germany, but what about Russia? Many people are still dealing with the after effects of the collapse of the Soviet Union and many argue that they were better provided for under the Communist regime. (see http://www.linktv.org/programs/future-express-russia). No matter what Cuban society is going to be facing massive social, economical and cultural change in the coming years.
No access to the worlds largest market
Wonderful post! This will be very interesting as the stories play out. I really look forward to finding out what will truly happen in terms of economic reform and the relationship between the US and Cuba.
This whole topic of economic reforms in Cuba raises plenty of questions personally and i'm sure for many others as well. First, do these reforms have any mention of foreign interests having access to these new found economic freedoms? I ask because of the enormous market potential that the small caribbean island has to offer. In 2000 Otto Reich the president of The U.S.-Cuba Business Council estimated that after 5 years with access to free markets the Cuban market economy would be worth $15.5 billion. Not that I think Cuba would completely open the flood gates to a free market love affair, but I would think that Cuba would somehow try to replicate what has been so successful for China. Inevitably the next question would have to be, if there was any access to the Cuban Market, would this in fact lead to any kind of access to the US market by Cuba?
If the answer is no to both of these questions, I believe that Cuba will unfortunately be headed into a time far more grave than even some of the worst of times during the early 90's or as the Cubans called it "the special period". Like The University of Miami's Jaime Suchlicki mentioned to the WSJ there will be no private sector for the 500,000 newly unemployed Cuban citizens to fall back on after loosing their state jobs. Without access to certain markets if will become almost impossible for these new entrepreneurs to compete in the Cuban market alone and even more challenging in the global market place. This will be a very important time for Cuba as a nation and for its most vulnerable citizens of whom are usually affected most.
If the answer is yes on the other hand, Cuba might be the global economic lift that the world could use right now. The global economy could use an extra $20 billion pumped into it right now. Of course this would need to be done with a great sense of finesse. There would need to be fair, rather than only free trade agreements put in place, in order to convince business interests to invest in the new market. At the same time the global leaders which would almost all be involved in some kind of economic reforms would need to craft trade agreements in a fashion that would not put Cuba in a situation of becoming dependent on aid but rather on trade, similar to what is taking place today in Pakistan. With Cuba investing in organic agriculture for almost 20 years, ever since it was forced to because it stopped receiving crude oil from the Soviets with the collapse, this could be an opportunity to -feed- a quickly growing demand for organic produce in the worlds largest market just north.
In terms of US aid that has been intended to reach the most vulnerable Cuban citizens for a number of years, it might actually happen. There will no longer be the need to use intended aid as a means of changing Cuban policy in Washington, but rather a direct route for aid that might even have the possibility of being sent in a system of unconditional cash transfers to those in need.
Hopefully, after the economic reforms are put in place and a new relationship between The United States and Cuba is formed, aid organizations will be provided with a more transparent work environment. A work environment without the back and forth political obstructions between the two neighboring countries that have proven to disrupt humanitarian aid to the region for years.
Cuba's transition
Cuba should not hurry to just stop every governmental office that has been working so far and jump into theoretical private sector. It is very difficult to transit from socialist system into capitalism. There could be no capitalism if there is no capital. The collapse of the Soviet Union is a vivid example to be considered by Cuba. Most of the republics of the former Soviet Union and still nostalgic about Soviet era, even the Baltic republics, that hated the Russian presence the most, are. The transition should be as smooth as possible "...to reinvigorate Cuba's stagnating socialist economy by mixing in tiny bits of capitalism" sounds just right. Many people are still dealing with the after effects of the collapse and many argue that they were better provided for under the Communist regime. Agriculture and tourism will probably be the best bet for Cuba.
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