Sunday, December 16, 2012

Cuba's fatal conceit on economic reforms

Posted on Sunday, 12.16.12


Cuba's fatal conceit on economic reforms

In late 2010, the Cuban government first detailed its plan to revitalize
the moribund Cuban economy. Two key components of this plan were the
massive firing of over one million state employees (in a workforce of
five million) and to allow some private sector self-employment to absorb
the newly unemployed.

The enlightened nomenclature decreed that the firings were to take place
in short order and the newly permitted activities would be limited to a
bizarre amalgamation of precisely 178 occupations from baby sitting to
washing clothes to shoe shinning, to repairing umbrellas.

Not surprisingly, two years later, the process is mired in a web of
internal debates and emerging rules and regulations. The failure in
implementing economic reforms is rooted in the pathology of thought of
the Country's ruling elite. It is this pathology of thought that
economist and political philosopher Friedrich A. Hayek described in his
influential work The Fatal Conceit: The Errors of Socialism. As Hayek
explained, central plans fail with unforeseen and unintended
consequences because all variables are not known or even knowable to the
central planners.

The dismissal of the state employees has been essentially halted and is
now supposed to take place over a period of five years. Kafkaesque
efficiency committees will determine the "ideal" number of employees for
each function and then other committees will decide who is to be dismissed.

The process regarding activities "outside the government sector" — The
Cuban government cannot bring itself to say "private sector" — is just
as revealing. With significant fanfare, Granma recently announced that
the number of permitted "outside the government sector" activities would
be increased from 178 to 181. The three new tolerable activities are
"granitero" (as in doing tile work); party planners for weddings and
quinces (sweet sixteen-like parties), and insurance agents.

Cuba's Vice Minister of Finance and Prices, (yes, there is a ministry in
charge of prices) also announced that the activity of granitero would
have to be approved by the work directives and by the office of the City
Historian. The bureaucrats further decreed that the three new allowed
activities will be taxed at markedly different fixed monthly fees as
follows: Graniteros 150 CUPs (Cuban pesos), Party Planners 300 CUPs, and
Insurance Agents 20 CUPs. The unexplained central planning logic of
these taxation decrees is left for the reader to decipher.

Notwithstanding this stifling regulatory environment, Cubans are seeking
work independent from the State. A recent survey conducted by Freedom
House finds that although "some Cubans are discouraged by the
uncertainties associated with self-employment . . . more Cubans say that
it is better to be self-employed than to work for the government."

In allowing some entrepreneurship, the Cuban government sought to create
new employment for the fired government employees. Things, however, are
not going as planned by the mandarins. For example, 73 percent of the
69,000 women now self-employed were not previously in the government's
payroll. Additionally, many of the cuentapropistas are engaged in
subsistence self-employment which does not generate significant
additional employment.

Another unfortunate consequence of Cuba's central planning arrogance is
an exacerbation of racial tensions. Reflecting the racial composition of
the Cuban Diaspora, the vast majority of Cubans receiving remittances
from abroad and able to become self-employed are white. Access to
dollars is essential for self-employment. Paradoxically, the new
entrepreneurs must sell their goods and services in the national
currency, but must purchase supplies from government stores in Cubas's
convertible currency. Afro-Cubans, without access to remittances from
family members abroad, are left behind as income inequality increases.

It is quite a conceit to believe, as central planners do, that one
individual, or one ministry, or one central committee can gather and
understand all available information to design an efficient economic system.

The tragedy of communism is both its mistaken view of how an economy
works and its glorified view of its own rational capabilities. The Cuban
government's hubris on riding the intellectually dead horse of central
planning showcases its Fatal Conceit.

José Azel is a senior scholar at the Institute for Cuban and
Cuban-American Studies, University of Miami and the author of the book,
Mañana in Cuba."

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