Tuesday, September 21, 2010

A sea of pink slips on a red isle

A sea of pink slips on a red isle
Published: September 16 2010 22:02

Fidel Castro claims his ironic quip about how "the Cuban model doesn't
even work for us any more", was misunderstood. Coincidence or not, soon
afterwards Cuba's sole trade union announced a raft of economic reforms
that makes Margaret Thatcher look like a leftist radical. Over the next
six months, 500,000 workers will be cut from the state payroll – about
10 per cent of the labour force. Delicious irony: in Britain, trade
unions pledged the same day to fight UK budget cuts with strikes.
Whatever happened to solidarity?

The Cuban move is the biggest economic reform on the island since the
1990s when the US dollar was briefly allowed to circulate. Then as now,
it is prompted by necessity: earlier this year, the Catholic Church
warned Cuba faced economic disaster. That also explains why the reforms
are not part of a comprehensive "shock therapy". They are being
introduced within a socialist framework. As a result, they are also
riddled with inconsistencies.

Havana will issue 250,000 self-employment licences under the 124
activities currently allowed – such as palm tree trimmer and toy
repairman. Yet those Cubans opting to join the 143,000 already
self-employed will face a series of obstacles, including high taxes,
lack of credit, plus a range of petty government regulations. At the
same time, 200,000 non-state jobs will supposedly be created by
restructuring state companies into co-operatives. But restructurings, as
any chief executive knows, require fresh capital, and Cuba does not have
any. When Havana decided two years ago to turn state farms into
co-operatives, workers were stymied by a lack of fertiliser and farm
machinery. Food production actually fell.

That does not mean the reforms will fail. The country's large black
market is just one sign of Cuban's innate entrepreneurial capacity.
Daily charter flights from Miami already groan with goods and cash sent
by exiles to their relatives to operate small businesses. Indeed, Havana
must hope the reforms will leverage the $600m or so that exiles send
every year. Clearly, not all Cubans will find new work, and open
unemployment will rise. But that means this reform will likely beget
further change – as happened in the former Soviet bloc before the fall
of the Berlin Wall.

US policy towards the island should encourage this process. Fidel Castro
has partially recanted on the folly of nearly five decades of failed
policies. With respect to the embargo, Washington should do the same.


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