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Cuba Starts Move To A Private Economy

The Cuban government has announced an enormous restructuring of its economy. In 1959, the revolutionary government took over 58,000 businesses, and since then they have made most economic decisions, and effectively outlawed private businesses. Between now and March 2011, however, 10 percent of the labor force will be released from their government jobs -- it's not clear whether they will be entirely on their own, or given some sort of transition assistance, but it will be a wrenching change for a poor nation where the entrepreneurial flame has not burned for many years.

Cuba is about as pure a communist, centrally-planned economy as there is, aside perhaps from North Korea. Americans generally don't know much about Cuba: the general media haven't given the country much attention since Fidel Castro, along with the Khrushchev-era Soviet Union, threatened to bomb us with nuclear missiles about 50 years ago. We have a cartoon image of Castro as a dictator, but it's supposed to be a beautiful place with people that make do with very little.

There has been a trade embargo of varying potency since 1962 Cuban Missile Crisis, although the U.S. has liberalized trade and travel in the past two decades. Cuba has also suffered from pretty rough treatment by President Castro, who has jailed more than a few political prisoners, and in spite of all evidence to the contrary has insisted for decades that a self-sufficient centrally-planned economy was the right solution for a tiny country with few natural resources.

Nearly everyone in Cuba works for the government. An Associated Press report in The Washington Times tells us:

The government reported more than 85 per cent of the Cuban labor force, or about 5m people, worked for the state at the close of 2009. There were 591,000 workers in the private sector, with most of those being farmers and 143,000 self-employed.
In exchange for very low pay they get good health care, and the literacy rates are high, but the government-provided housing, water and electricity are said to be awful. (This I have heard from people who have visited there and stayed among the locals.) Monthly spending money averages $20 a month. Things may have changed, but a few years back it was a big treat to get an ice cream cone.

Private businesses have been allowed since the 1990s, in the form of small restaurants and the like, and last year the government cut loose all the barber shops and beauty parlors.

In the last few years Fidel Castro, who has been very ill, has softened a bit, and in a recent interview published in The Atlantic he even conceded a short while ago that daring to bomb the U.S. was not such a good idea. (After publication he said he had been misquoted.)

This year he has allowed some opening of the economy, and suggested that more change was coming, but the scope of this policy change apparently a big surprise. I wasn't able to get through to the government newspaper web site to read the press release from the central labor union first hand.

More from The Washington Times:

--Mr. Castro suggested during a nationally televised address on Easter Sunday that as many 1 million Cuban workers - about one in five - may be redundant. But the government had not previously laid out specific plans to reduce the work force.

From The NY Times:

"Cuba faces the urgency to advance economically," the statement said. "Our state cannot and should not continue supporting companies" and other state entities, "with inflated payrolls, losses that damage the economy, which are counterproductive, generate bad habits and deform the workers' conduct," the labor federation added.
The massive layoff of 10 per cent of the state labor force is scheduled to begin in October and stretch through March.
It's hard to imagine how so many people will all of a sudden be able to start businesses. The government is going to remove some of the old limitations, and allow people to get bank loans and hire workers outside their families. And if the government is not going to sell all the consumer goods, there should be a ready-made customer base, and the Cubans are a resourceful people, but things will be chaotic for a while.

Freedom has a price, of course, the Financial Times reminds us:

As well as taxes on income, the self-employed would pay a sales tax and 25 per cent social security tax for themselves and each employee, the sources said, while co-operatives would pay a tax on profits and social security.
This seems like the worst of all times to be forcing a change to a market economy -- prices are high on sugar, Cuba's main export, but the local crop is having a terrible year. Cuba also relies on tourism, but you would think that is down due to the recession.

There has been a program welcoming foreign investment, and I imagine that will be stepped up. The Cuban economy will need every dollar, euro, won, yuan and ruble it can get its hands on. La lucha continua!
A concluding comment from The NY Times:

...John Kavulich, a senior adviser for the U.S.-Cuba Trade and Economic Council, warned that it would be difficult for Cuba to follow through on the full scale of its announcement. On a practical level, he asked, would the government be able to import all the tools the new entrepreneurs or small manufacturing cooperatives will need?

There is also a larger question that goes to the heart of Cuba's ideology, Mr. Kavulich said. "The Cuban government is going to allow and by definition encourage people to go into private sector opportunities," he said. "What happens when some people get rich?"

"The government is going to have to determine whether it will allow and embrace success, not just opportunity," he said.