Economic reform in Cuba could lead to less government control over small businesses, like taxi services. Photo: raunov (flickr)

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."