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The Challenge in Cuba’s Free Market Reforms

Havana, Cuba – A major shakeup is coming to this communist-run island over the next six months, as the Cuban government plans to slash state payrolls by 500,000 workers and offset the cuts with new opportunities for self-employment and limited private enterprise.

Havana, Cuba – A major shakeup is coming to this communist-run island over the next six months, as the Cuban government plans to slash state payrolls by 500,000 workers and offset the cuts with new opportunities for self-employment and limited private enterprise.

The challenge will be ideological as well as practical, since the Cuban government doesn’t need to create a new economic system so much as accept the one that already exists, but which now operates largely in the shadows.

The communist party newspaper Granma published an index Friday of the 178 occupations that some 250,000 additional Cubans will be licensed to perform under the new self-employment guidelines. But it was a list of jobs that many Cubans already do illegally, as black marketeers, risking fines and possibly worse, while paying no taxes and leaving no paper trail.

Will the island’s unlicensed nannies, gardeners and dog trainers be willing to pay taxes and truthfully report their income? Will the government allow them to prosper and not try to regulate them to death?

The questions suggest Cuba’s changes will require a mental readjustment for would-be entrepreneurs and government officials alike.

For decades the Castro government has treated market economics as a morally corrosive force, erecting billboards that declare “Socialism or Death,” while deploying legions of police to make sure Cubans don’t illegally repair televisions or sell unauthorized pastries. When the government eased restrictions on self-employment in the early 1990s, it clamped down again when the economy improved and drove thousands out of business or back to black market labor.

This time around, the government is signaling that the measures are here to stay.

“The decision to allow for more self-employment is one that the country has made in order to redesign its economic policy with the goal of increasing productivity and efficiency,” read Friday’s Granma article about self-employment, titled “Much more than an Alternative.”

It continued: “It’s also a way to offer workers another way to feel their own efforts are useful, and leave behind the beliefs that pushed self-employment to the verge of extinction and stigmatized those licensed to practice it in the 1990s.”

To overcome the distrust of Cubans who have learned to practice industriousness in secret, it may take more than such assurances. Many here have survived for decades by subtle modes of deception, pilfering from their workplaces, selling their labor illegally or cheating their bosses in one form or another.

Now the government will ask them to comply with a new tax system and honestly report their earnings and expenses.

But no one knows how the tax system can succeed if the country doesn’t have a standardized income-reporting system, let alone the paper to print one on.

It’s also not clear how the government will cope with the enforcement burden of regulating the new private sector. The list published Friday even specifies the characters Cubans can depict as street performers.

But the logistics might not be as important as the ideology.

For more than a year, the Raul Castro government has been laying the groundwork for these changes, encouraging Cubans to engage in more candid discussions of the country’s economic problems in both neighborhood meetings and state-run media such as Granma.

The result is a re-casting of Cuban socialism as a system that increasingly accepts a role for the private sector and links productivity to worker income. Cubans will also now be able to hire workers who aren’t family members, something already widely practiced on the black market, but ideologically taboo until now.

More importantly, perhaps, the changes will require Cuban government officials to accept that it is a waste of time and resources to try to stop people from making and doing things to earn a living — especially when they become prosperous. Existing inequalities will inevitably widen with the measures, so the Cuban government will have to begin directing assistance at the neediest, another departure from the island’s experiment with egalitarianism.

“Those who contribute more will receive more — that is the principle of our new tax system, which will help raise revenue for the state, and achieve an adequate redistribution of resources for society,” read Friday’s Granma article.

Cuba’s National Bank is studying proposals to provide micro-credits to aspiring entrepreneurs, but analysts expect much of the capital for small businesses will come from Cubans living abroad. The island receives an estimated $1.2 billion a year in cash send home from Cuban expatriates.

Decrepit small and medium-sized state-run businesses could be converted all over the island. At a rundown snack stand in one of Havana’s western neighborhoods, 52-year-old Raul Duran makes one kind of sandwich — ham on white bread — in his state job. He said he hadn’t studied the measures but welcomed the change to start a business or convert the operation into a worker-run cooperative.

“Anything new would be a good thing,” he said.

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