Wednesday, September 2, 2009

Closing the cafeterias (updated)

If Cuban bureaucracies operate cafeterias to provide lunch for their employees but there’s a chronic problem of theft of supplies and nobody is thrilled with the food, why bother?

That question has been asked and answered, Reuters reports, as ministries in Havana have been ordered to close their cafeterias and pay employees a lunch stipend.

This is good news for private food vendors who, the article reports, are preparing for the increased demand. In recent years, the state has used regulatory enforcement and tighter licensing policies to squeeze the licensed entrepreneurs who sell homemade pizza, roast pork sandwiches, and other items from street stands.

The interesting part of this story is to come. If workplace cafeterias close all across Havana, will the increased demand be handled by more state food establishments, by beefing up existing ones, by turning state food establishments into cooperatives, by licensing more individual entrepreneurs, or all of the above?

(Update: More reporting in Financial Times.)

27 comments:

leftside said...

This reporter Mark Frank is a busy man - and pretty "clued up" on things being discussed behind closed doors, it appears. Here is another important article by him regarding the apparently forthcoming opening up of the retail sector to cooperatives.

leftside said...

The (proposed) daily lunch stipend represents a doubling of Cuba's average base pay of just over 400 pesos per month and will greatly increase demand on the street for state and family-based food service providers," he said, asking his name not be used.

Anonymous said...

The increase in demand for meals is likely not to be met by an increase in supply under current Cuban economic conditions. This measure may result in an increase in early retirements or voluntary terminations as the increase in compensation may not correspond to the loss of the economic value of the meals. This may also have a socio-political effect as government employeees feel less dependent on the government for their livelihood.

Vecino de NF

leftside said...

Vecino, the article says they are considering increasing private or cooperative food vendors.

Are you saying that a 50% increase in the average income is not enough to cover an extra lunch a day? 200 pesos is 10 pesos per lunch. When I was in Havana, there were sandwiches and pizzes for 5-7 pesos. Having more of these options located near the workplaces will be the real challenge.

Anonymous said...

Leftside,

How is the supply going to be increased? It remains to be seen whether the private sector can instantaneously grow to feed hundreds of thousands government employees. Doubling or tripling of prices in the private sector and shortages in the public sector are the likely results of this dramatic measure. This is not the first time that the government walks away from commitments to promised benefits (housing and old age pensions come to mind) The likely result is most people would add a few notches to their belts and tighten them.

Vecino de NF

ac said...

So, it started. My guess is that the next step is subsidize individuals instead of products (libreta) a long overdue proposal. If that happens in the next months it means that they finally started moving.

Vecino, an increase of $15 per day almost double the average income, so if this won't escalates in an uncontrolled inflationary spiral it should make more accessible the farm market prices and reduce the gap between the two currencies.

In any case, with this movement the government reduces its expenses and at the same time gives more options to the cubans.

The last time I went there, a pizza was between $5-$10, and a soft drink around $1, juice between $2 and $3 and sandwich between $5-$10, while packed meals started in $15, so this increment should cover the cost of the meal and benefit both government and specially private sector, so I frankly don't understand your objections.

Anonymous said...

AC,

I do not object to the measure per se. I just pointed out that if one closes down the food establishments for most of the working population without an existing infrastructure to provide them with a meal whether market prize or government subsidized there is going to be a supply problem. For example, let's say an enterprise with 200 employees shuts down its cafeteria, and gives its employees $10 per capita. This in theory would buy them a pizza or a sandwich, and a drink at the prices you mentioned. But the reality is that within walking distance of this entity, there may be one or two street vendors or cafeterias selling this food, and they normally serve 100 people during lunch time. These alternatives have no way to adjust for a threefold increase in customers overnight. So either they sell out all their food quickly (shortage) , or they raise their prices to meet the added demand (inflation).

A better approach would have been to remove the subsidies on the meals, allow for the private sector to grow, and to provide a salary increase to compensate for the lost subsidy. But to paraphrase Raul Castro's last speech at the National Assembly he is no economic expert just a soldier. Unfortunately one can not feed a population with supressing fire.

Vecino de NF

leftside said...

A better approach would have been to remove the subsidies on the meals, allow for the private sector to grow, and to provide a salary increase to compensate for the lost subsidy.

Umm... isn't this precisely what is being contemplated in the report?

Anonymous said...

Leftside,

What I get from the story is that the workplace cafeterias are being closed at once, and that an additional payment is going to be made to the workers in lieu of their lunch subsidies. What I think is a better approach is to keep the workplace cafeterias open without subsidized prices while allowing for the growth of the private sector.

Phil Peters points out that "In recent years, the state has used regulatory enforcement and tighter licensing policies to squeeze the licensed entrepreneurs who sell homemade pizza, roast pork sandwiches, and other items from street stands." That's not the way to encourage a growth of alternatives to the workplace cafeterias.

Vecino de NF

ac said...

Not exactly. At least in havana there is no shortage of private food business (except perhaps in some "luxury" neighborhoods), and if they raise too much the prices the people will just bring the food from home.

Besides the increase in the food market demand will trigger an increase of farm market products and this will be an incentive to increase agricultural production as well.

As for your suggestion... if they do that they would have a lot of pissed people needlessly starving at worktime. So the private sector will need to grow as the demand did, and my guess is that there will be and increment of the audits to reduce the use of illegally acquired supplies as well as an increment of the licenses issued. So all in all is not a bad idea, IMHO.

Regarding your remark regarding Raul, as I told you before the good thing about him is that he don't think of himself as all-knowing fellow, he effectively delegates responsibilities and demands results, specially in the minefield that is Cuban economy.

He is not the type who will force something without asking the opinion of people who knows about it and usually don't make silly decisions based on feelings, policy or whatever.

So far the changes introduced by him were both politically and economically correct (removing some idiotic restrictions, the changes in the agriculture, etc). This one further strengthen the private sector and there is a good chance that the same kind of reasoning will be applied in other services opening the economy more to the private sector.

But so far this only scratches the surface of the problem, the main issue is to remove the dual currency system without exposing the country to a greater divide between the people who has and the majority that hasn't.

I'm not an economic expert, but if indeed that is the plan and not only idle talk, they should be thinking something like this:

-Subsidizing people and not products (big change from previous paradigm but small player for the goal. Important only as a plicy statement they are being hinting for a while)
-Strengthen the value of the cuban peso vs the american dollar (by providing more products and services - this one fits here like a glove)
-Increasing the inflation rate of the cuban peso until the ratio salary:exchange will be comparable with that of other countries with similar infrastructure (this one also fits here)
-Keep the CUC-CUP exchange rate as flat as possible or even redicung it if possible (this tied with the inflation will reduce the divide between the two currencies)
-Reduce as much as possible all illegal economic activities, perhaps legalizing some that now are illegal (this one also fits here)

The last step would be to create a new currency or just drop one of them but only when the economy is stabilized.

This is the only way I see within the system to move forward, tell me your own thoughts in this matter.

Anonymous said...

AC,

Maybe I did not make myself clear so explain to me how would keeping the workplace cafeterias going without subsidized prices, giving everyone a salary increase in lieu of the subsidy, and allowing the private sector to compete with the workplace cafeterias (and maybe even taking them over in the future) would result in "a lot of pissed people needlessly starving at worktime"? Shuting down the workplace cafeterias before the private sector grows would result in that outcome which I agree with you is not desirable.

"-Subsidizing people and not products (big change from previous paradigm but small player for the goal. Important only as a plicy statement they are being hinting for a while)"

Must remember that up to 80% of the Cuban people are living at a poverty level so subsidizing people and not products may result in no savings at all. Also the current product subsidies have resulted in widespread shortages of basic foodstuffs. (The libreta monthly rations cover less than a month of consumption). In other words current subsidies are not sufficient to subsidize the people either.

"-Strengthen the value of the cuban peso vs the american dollar (by providing more products and services - this one fits here like a glove)
-Increasing the inflation rate of the cuban peso until the ratio salary:exchange will be comparable with that of other countries with similar infrastructure (this one also fits here)
-Keep the CUC-CUP exchange rate as flat as possible or even redicung it if possible (this tied with the inflation will reduce the divide between the two currencies)"

The hard peso was something copied from PRC (China). The best thing is to make the regular peso directly tradable with foreign currencies, and eliminate the hard peso. Anything else is just a bureaucratic contrivance. But ultimately that would only work if the government stops its budget deficits (Cuba does not have the luxury of printing a reserve currency like the US), and reflects world prices in the internal market. Lots of pain involved in doing so but sometimes one has to take the pain to get better.

"-Reduce as much as possible all illegal economic activities, perhaps legalizing some that now are illegal (this one also fits here)"

Deregulation of economic activities works as an engine for growth but partial deregulation just pushes economic distortions elsewhere. The funny thing is that market forces work even in centrally planned economies but they result in perverse economic results (people buying shoddy products to get access to packaging for example, etc).

"The last step would be to create a new currency or just drop one of them but only when the economy is stabilized."

Got news for you: the Cuban economy is in a stable decay mode! This is largely due to bad economic policy but it is also being fed now by demographic stagnation and forecast collapse. So there is no sense in waiting for the economy to hit bottom. One of the most amazing economic growth stories of the last century was the so-called "German Miracle". Every West German was issued DM100 and told to get on with it. It is not clear if Cubans would react like the Germans did but heck let's distribute las Reservas del Comandante equally and tell the Cubans to get on with it. Something interesting may happen!

Of course we are all trying to ignore where the real investment funds to kickstart the Cuban economy are. They are in Miami. So being nice to the Cubans there may help too!

Vecino de NF

PS For those that may jump on my "perverse" wording, I'll grant you that market forces can result in perverse social results in free market economies.

ac said...

"The best thing is to make the regular peso directly tradable with foreign currencies, and eliminate the hard peso. Anything else is just a bureaucratic contrivance. "

Doing so is equivalent to officially recognize the bankruptcy of the country and the extreme poverty\exploitation levels compared with the rest of the world. Thats not only stupid, its also inaccurate because no matter how bad is Cuba right now is nothing compared with, lets say, Haiti (the only country comparable in terms of GNP per capita).

The Cuban economy is so hard to fix BECAUSE is distorted in every imaginable way. Even the most basic economic indicators are useless, you can't know for sure if certain activity is profitable or not due to the market segmentation (or more accurately, because of its overlapping).

As for a stable decay model... thats pure non sense. All economies are in balance, even Cuba's. The hard impact this last year is mostly due to stupid economic policies (specially the batalla de ideas fiasco), adverse international situation (read, global crisis) and the impact of the hurricanes in the last season, and as far as I can see (and relatively speaking) things are not all the bad I expected they would at the beginning of the year.

As for your other comment... thats plain silly, Miami cannot support nor will support a collapsed Cuba. They might invest their money whenever it gives returns, but in the mean time all sectors of the population depending on government support to survive will fall in chaos.

I've read every plan regarding change in Cuba and so far I have not found anything that can be realistically implemented without making the society crumbling as a whole (and by that I mean famine, anarchy and even civil war).

So far the best bet are changes within the system... thats it, if genuinely exists the will to do so.

Until now, the Raul government has given a few modest steps to correct the situation, time will tell the scope of the changes.

Anonymous said...

What good will it do to close the workplace comedores if it is still a crime for vendors to sell food at free market prices?

In all of Raul's speeches about giving land to new growers, has he ever said he will allow the new farmers to enjoy the fruit of their labor by selling their produce at free market prices?

Trying to expand food production while continuing the 50-year long failed system of price controls will only guarantee continued food shortages.

So, to repeat, can anyone clarify whether Raul has a clue that successful food production will require an end to price controls?

leftside said...

So, to repeat, can anyone clarify whether Raul has a clue that successful food production will require an end to price controls?

I don't think you can fairly characterize the basic problem as being the price the Cuban Government pays for food it buys. It is easy and legal for almost any farmer in Cuba to sell food they produce over their quota on the side at market prices. Cuba is one of the few places where small farmers do not live live on the lowest rungs. The high number of people who volunteered to become farmers speaks to this (80,000). The Cuban State can and does choose to pay more and/or lower quotas from time to time as the situation dictates. Above average production, is therefore encouraged by the system.

The question now is how the reform of Acopio will playing out. I don't think we know yet. But if reports are true - that it is basically backing out of a good portion of its traditional duties, then the market price will become more prevalent. We know the State is doubling the number of markets for direct purchase. We now know one of the main sources of Acopia product - the workplace cafeterias - is no longer in business.

My guess is that they are going to try to manage the change slowly. This might lead to a gradual convergence of food prices on the peso and CUC market. If so, they'll have scored a great coup. Unfortunately a side effect could be increased food prices for most Cuban. As long as the Revolution is around, however, not one will starve.

Anonymous said...

Leftside wrote: "I don't think you can fairly characterize the basic problem as being the price the Cuban Government pays for food it buys."

Huh? Is this the same Leftside who praised the productivity of Soviet agriculture? Enough said (at least for those of us who are not, like Lefty, orbiting the planet Mars.)

Anonymous said...

Leftside says, "As long as the Revolution is around, however, not one will starve."

They have been starving for decades.

See Panfilo Video. See Maleconazo.

NLNR

Anonymous said...

AC,

Your comments seem to correlate to your initials. They alternate between two poles ;-) I tend to agree with your diagnosis but not with your treatments.

Have you read A First Approximation Design of the Social Safety Net for a Democratic Cuba by Alonso,Donate-Armada, and Lago? It can be found at http://lanic.utexas.edu/la/cb/cuba/asce/cuba4/healsys1.html. It may be a little dated but proposes a mechanism to address the social safety net issues.

Vecino de NF

leftside said...

Is this the same Leftside who praised the productivity of Soviet agriculture?

I did not "praise Soviet agriculture." I noted that your characterization was crude and not supported by the most basic of facts. I quoted a leading expert, who presented a more balanced view.

They have been starving for decades.

And for evidence you give me the name of Panofilo - a drunk who chooses not to work and said he was hungry while intoxicated in front of a video camera. Well, perhaps he should not spend his money on rum. Or get a job. In Cuba you can say that without being an insensitive prick because there are jobs for those who want them - and help for those who need it. Cuba stives for (and has achieved) full employment. In the US, we strive for an unemployment rate that will not increase wages too fast. Meaning that unemployment (even the deceptive way we calculate it) will never drop below that magic moment. The ecnomy will "overheat" we are told if things get too good for the workers.

leftside said...

magic moment = magic number = the unemployment rate when the Fed starts to freak out and hike rates.

Anonymous said...

thats the basic argument from either side -- cuba reform within or destruction without. the anti-revolutionary industry continues to be scared to death of internal reform, as that means the end of their gravy train. course, it would save the american taxpayers millions.

Anonymous said...

Anonymous September 4, 2009 7:05 AM,

To be fair there is also fear from the individual Cuban government members about internal Cuban reform. It would loosen their control on Cuban society and their material privileges. The question that is always there is how to come out of this impasse with a win-win solution that eases the hardliners out of their entrenched positions, and benefits all involved.

Vecino de NF

Anonymous said...

and the only honest solution is reform within not destruction without, unless you agree with the iraq solution. reform always frightens those in power, in every country and under every system. but external threats only increases radicalism and control. and cuba has been dealing with that for 50 years, so is it any wonder things went so radical. the only way reform can commence is when the external threat is ended, thousands of historical examples prove the point.

ac said...

"Have you read A First Approximation Design of the Social Safety Net for a Democratic Cuba by Alonso,Donate-Armada, and Lago?"

I have. This oscillate between wishful thinking and self delusion. This doesn't address any of the concerns I pointed out and does not proposes any viable solution. As many of such proposals this ignores the adjustment period and does not states where the money for the safety net will come from.

Sorry but if such naive plan don't have a chance of being successfully implemented, and if attempted it will end in a few people very rich and the bulk of the population depth in shit.

As for my nick, it comes from something different. If anything I'm at the side of the people, I'll defend whoever has the reason and thats it.

Anonymous said...

AC,

Did you mean to say that the Cuban population are not currently deep in shit or under the Lage et alles plan they will end up deeper in shit? Also would the Lage et alles plan result in fewer people very rich or more few people very rich than now?

Vecino de NF

Anonymous said...

AC,

Donde dije digo digo Diego...

Did you mean to say that the Cuban population are not currently deep in shit or under the Lago et alles plan they will end up deeper in shit? Also would the Lago et alles plan result would there be fewer very rich people or more very rich people than now?

Vecino de NF

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