Towards a mixed economy
Economic reform begins in earnest
Sep 16th 2010 | Havana
EVER since Raúl Castro took the reins of power in Cuba in 2006, he has
seemed to hint that he wants to reform the island's moribund centrally
planned economy. But the changes he has introduced have been either
limited or almost inconsequential, such as giving more freedom to
farmers, allowing self-employment for barbers and letting Cubans have
(unaffordable) mobile phones. Until now. On September 13th the
government announced, through the mouth of the official trade-union
confederation, that more than 1m people—a fifth of the workforce—will be
made redundant from state jobs, half of them by April 1st 2011.
Some of the unemployed will be offered new government jobs, including in
the police and tourism. But hundreds of thousands will be expected to
fend for themselves. To help them, self-employment is to be legalised in
dozens of areas, from transport to construction. The reforms will also
allow many small state-owned businesses to become co-operatives, run by
their employees. They will have to pay taxes, though how much has not
yet been spelled out.
This amounts to the biggest shake-up of the economy since Fidel Castro
expropriated small businesses in 1968, impressing his Soviet benefactors
by bringing almost all workers, from shoeshiners to barmen, under state
control. In the mid-1990s, when the Soviet Union and its subsidies to
Cuba disappeared, Fidel reluctantly allowed Cubans to use the American
dollar as legal currency and to engage in petty trade (such as renting
rooms and setting up small restaurants). But many of those businesses
folded because of high taxes and the complexity of obtaining licences to
operate. When Venezuela's Hugo Chávez became Cuba's new benefactor,
offering cheap oil, Mr Castro re-centralised the economy.
Raúl Castro has frequently expressed his exasperation at Cuba's chronic
inefficiencies. "We have to erase forever the notion", he told the
National Assembly last month, "that Cuba is the only country in the
world where it is not necessary to work". The country can no longer
afford this: the price of nickel, the main export, has fallen. The world
recession has cut tourist numbers. The island suffered hurricane damage
in 2008. With half of its agricultural land unproductive, Cuba imports
80% of its food. It has struggled to make hard-currency payments.
Earlier this month Fidel Castro himself let slip to a visiting American
journalist that the Cuban economic model "doesn't even work for us any
more". Though he later disingenuously claimed to have been
misinterpreted, this is clearly his brother's view. The economists close
to Raúl who have long argued for a mixed economy, in the mould of China
or Vietnam, finally appear to have got their way.
The announcement of the reform follows an officially promoted round of
debates about the economy in grass-roots bodies. It may pave the way for
a much-postponed congress of the ruling Communist Party (the last one
was in 1997). Raúl has said that the congress would be the last to be
presided over by "the historic leadership of the revolution".
Workers who are laid off will continue to benefit from free health care
and education, heavily subsidised housing and transport and modest
rations of free food. Many Cubans have long supplemented their paltry
state wages of around $20 a month with illegal private enterprise in the
large black economy. But the reforms will widen the already evident
income disparities in Cuba. And they will weaken the state's grip over
the lives of Cubans. "One day, we might well look back on this as the
perestroika moment", says a Western diplomat in Havana.
http://www.economist.com/node/17043051?story_id=17043051&fsrc=rss
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