Analyses of the economic policy changes in Cuba

By Brian George

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Photo: consumerfriendly

A great deal of media publicity has been given to the news that Cuba is to reduce state sector employment by half a million and transfer these workers to the non-state, including private, sectors. The eventual aim is to transfer about one million of Cuba’s state workers to the non-state sector.

Given that Cuba’s estimated workforce is 5.2 million, of whom 4.0 million, or 78%, work in the state sector, this would mean that after a transfer of half a million state workers the distribution of Cuba’s labour force would be 68% state sector and 32% non-state sector. If all one million transfers are eventually made this would give a structure of the labour force of 59% state sector, 41% non-state sector.

The Cuban government earlier handed out more than 2.5m acres of land to individuals and co-operatives for food production and lessened controls preventing Cubans from selling fruit and vegetables. In April hairdressers and barbers were released from the state sector.

The new economic policy announcement was greeted by sections of the media as the beginning of the end of socialism in Cuba. Thus the Financial Times, in its analysis “Man in the News: Raúl Castro”, concluded: “the 79-year-old is… likely to go down in history as the man who tried to save Cuban communism from itself – by turning to capitalism.”

The Guardian headlined its coverage “Capitalist storm clouds loom over Havana after state cuts 1m jobs”, and its correspondent Rory Carroll analysed: “After half a century of official certitude about being [sic] its socialist course, Cuba is entering new waters.”

The headline over José de Córdoba and Nicholas Casey’s analysis in the Wall Street Journal was “Cuba to Cut State Jobs in Tilt Toward Free Market”. The article itself, however, interpreted the changes as a move towards China-type economic policies:

Many hoped that the younger Mr. Castro would push through Chinese-style measures to open the economy when he took power in 2006…

“To help workers who are laid off… Cuba will issue thousands more licenses allowing citizens to find work on their own.’

“’Job options will be increased and broadened with new forms of non-state employment, among them leasing land, cooperatives and self-employment, absorbing hundreds of thousands of workers in the coming years,’ the [Cuban] union statement said.

The Financial Times also believed inspiration for the policy had come from Raul Castro’s long-term admiration for aspects of China’s economic policies: “the germ of the idea came just after the fall of the Berlin Wall, on a trip to China. There Raúl concluded that growth, growth and more growth would be his central strategy.”

Latin American specialists broadly sympathetic to Cuba had a more sophisticated analysis.

Well known Latin American specialist Richard Gott, writing in the Guardian’s Comment is Free, noted: “Hundreds of thousands of people [in Cuba] now work on their own account, soon to be joined by half a million others – or possibly more.”

“The plan has been worked on and endorsed by the country’s powerful state trade union federation, and there is no doubt that the new policies will be well received by most people.

“The Cubans are by no means thirsting to embrace the capitalist system, as some commentators have suggested, but they are certainly ready to take more responsibility for their own lives. Unlike many other people in Latin America (or indeed in the US), they are well educated, well looked after, and healthy. The state will not just throw the workers in at the deep end. There will be programmes of training to ease the move from state employment into the world of private enterprise.

“This is the first step in the reorganisation of the Cuban economy, and the Cubans are fortunate in having the powerful backing of oil-rich Venezuela. Hugo Chávez will be helpful during this transition period, not least because the Cubans will be moving closer to the mixed economy that he has always favoured. The current arrangements, with Cuban doctors working in Venezuela and being paid for with subsidised oil, work well for both parties.

“But what of the larger question of the wider economic framework? The Cubans, government and population, have been well informed about the collapse of the communist system in Russia and eastern Europe, and its replacement by unbridled capitalism of the most vicious and corrupt kind. There is little enthusiasm to start down that road. Nor does anyone want to see the rich Cuban millionaires in Florida returning to reclaim their homeland. (Nor, to be fair, do most of the millionaires.)

“So, with private enterprise back on the agenda, the Cubans will soon have to formulate a strategy for relinking their economy with the wider world. Much has already been done. Cuba trades with Latin America with few problems, as it does with Canada, Europe and Asia, and of course with Russia and China. Even US agricultural produce now arrives by regular boat.

“Foreign investment is another matter. Cuba wants a decent relationship with the US, and an end to the economic embargo, but it will be a long time before it welcomes foreign investment without strings attached. The Cuban revolution was always more nationalist than socialist, and while elements of socialism can be surrendered relatively easily, the nationalist achievements of the past half-century will not be lightly abandoned. The Cuban model, however modified, has life in it yet.”

“Stephen Wilkinson, of the Centre for Caribbean and Latin American Research and Consultancy, London Metropolitan University, in the Guardian noted: ‘The government has recently handed out more than 2.5m acres of land to individuals and co-operatives… [and] loosened controls that prohibit Cubans from selling fruit and vegetables. In an effort to build a modern tourism infrastructure it has eased property laws to give lease periods of up to 99 years for foreign investors.

“However, at the same time the government has announced that workers will be encouraged to take over the ownership of the companies in which they work. In a move that the government has actually called a deepening of socialism, the Cubans are about to launch what could potentially become the biggest co-operative project the world has ever seen.

“The government is saying that the old centrally planned Soviet-style of socialism has finally hit the buffers – a new form of socialism is required, in which the state ceases to be the administrator of economic activity but the regulator. That’s a different model of socialism – it may not work either – but it is not capitalism.”

Writing on the BBC website Wilkinson also noted: “This is not the end of communism or socialism in Cuba.

“The announcement yesterday by the Cuban Workers Confederation is highly significant and it does spell the final death knell of the old Soviet model of centrally planned socialism in Cuba, but it would be very wrong to interpret it, as some have, as the harbinger of free market capitalism and liberal democracy.

“Far from it. The changes are couched in the rhetoric of revolution and the discourse is very much one of deepening the socialist character of the system rather than one of shifting towards capitalism.

“Unlike the prospect of suddenly being left without work that faces many in the UK, as the present government’s budget cuts loom, these cuts in Cuba are being undertaken after a long period of consultation with the trade unions and other organisations.

“Workers know what is going to happen to them. The programme is to be undertaken in stages, the effect on people’s livelihoods is to be mitigated and it is important to understand that the announcement does not mean that all the 500,000 workers mentioned are to become unemployed.

“A large number of them will be offered alternative employment opportunities and a good many will continue in their jobs but will cease to be employed by the state anymore.

“This is a far cry from the egalitarian days when workers were expected to labour for no recompense other than their own moral good and of the country and fellow Cubans.

“In many cases it means that they will become self-employed or become part of a workers’ cooperative.

“Taxi drivers for example, or shop workers and workers in small manufacturing enterprises, all of whom are currently state employees, will essentially take over the administration of their own workplaces and earn their salaries directly from their takings or revenues rather than being a salaried state employee.

“They will essentially be doing what they have always done but they will no longer be on the state’s payroll.

“In cases where workers are made redundant they will be encouraged to set up new business or transfer to other sectors.

“This does of course imply a huge change towards a system in which the market dictates the distribution of goods and services and this in turn also implies other significant changes.

“As one Cuban economist put it to me recently, the role of the state is to be transformed from being the administrator of economic activity to the regulator…

“The state is therefore withdrawing a good deal of its paternalistic character. Workers will not be guaranteed employment or the indefinite payment of their salary while out of work any more they will be expected to look for and find work for themselves.

“Workers will have to provide their own lunches instead of having a subsidised canteen and they will have to find their own way to work instead of being picked up by the company bus.

“However, at the same time, the incentive to work will be enlarged through bonuses and pay based upon productivity. There is no longer an upper limit on what one may earn.

“Workers will be encouraged therefore to move into unpopular jobs such as construction and agriculture by the possibility of earning more in those sectors.

“Other sectors that the government says it is going to expand in the coming months are in oil, tourism, biotech and pharmaceuticals where it says there will be new job opportunities…

“The statement on Monday therefore also implies a significant shift in the ideological underpinning of the system.

“There is by implication a shift towards greater individualism and self reliance and the acceptance that there will be differential incomes and therefore different living standards among the population.

“Welfare is to be directed by means testing to where it is needed rather being applied universally regardless of individual income…

“This leads some to suggest that the Cubans are following a Chinese or Vietnamese model. True, there are similarities between the two Asian tigers and what was announced yesterday.

“The Cubans have certainly studied both models closely. But my sources tell me that at a very high level, while the economic progress of the pair impressed, neither met with approval in their entirety.

“Cuba, they say, wishes to avoid the negative social consequences of the Chinese experience.

“A more laudable direction of travel is towards Latin America where Cuba recently announced that it was seeking to eventually form an economic union with Venezuela.

“Hugo Chávez is leading Venezuela away from the free-market capitalist model towards what he calls ‘21st Century Socialism’. Interestingly this includes encouraging workers’ co-operative enterprises. Might this be Cuba’s first step towards meeting Chávez half way?

“As with all things Cuban, we can only wait and see, but this is certainly a carefully planned change that has been four years in the making since Raul Castro took over in 2006 and will certainly not be as traumatic as commentators in the media have suggested.”

An analysis of the actual meaning of these changes in Cuba’s economic policy will be made in a separate article.