Cuba's soon-to-expand private sector

A few more thoughts on today’s announcement that Cuba will lay off 500,000 workers in the government and state enterprises by April 1, and expand a number of varieties of private employment to take up the slack:

• In the past I have characterized Raul Castro’s economic reforms as gradual. I stand by that. But today’s announcement opens a new chapter, one that has a deadline, that will be felt and seen in every town, and that promises to create a much more substantial private sector inside the socialist economy.

• When self-employment was last expanded in the early 1990’s, the government seemed to view it as a necessary evil or, at best, a small-potatoes option for providing a few services in which the state had no interest. This is different. The expansion of self-employment and cooperatives today is subsidiary to a larger goal, which is to shed unproductive people and activities from government payrolls. “We have to erase forever the notion that Cuba is the only country in the world where one can live without working,” Raul Castro said last month.

• The 500,000 figure is alarming – it conjures up an image of 500,000 Cuban workers going home with a pink slip, not knowing where they will go the next morning, and of the economy suddenly needing to create 500,000 new jobs. In fact, many workers will go to the same workplace as ever, but the business arrangements will be different. We have seen this with barbers – one day they stopped being salaried employees, and they now rent their locale, pay tax, buy supplies, set their prices, and keep their profits. A similar thing will happen in service and retail enterprises (cafeterias, repair shops, etc.) that will be converted into cooperatives. If these conversions are carried out at a serious pace, a substantial number of those 500,000 workers will move from state payrolls to non-state payrolls without dislocation. Then, they will have to be profitable.

• Self-employment, or trabajo por cuenta propia, is another source of new employment. Many will surely welcome the ability to get a license so they can stop working in the shadows. There are many thousands of Cubans in this category – I know of moving companies, car repair shops, small construction crews, and others that work without licenses. If the government gets these entrepreneurs onto the license and tax rolls, that will take care of another big chunk of the 500,000.

• But there will be layoffs from government jobs, and self-employment will be an important option for those ex-government workers, as it was in the early 1990’s. A new option, if Raul Castro carries out what he said last month, will be for currently licensed entrepreneurs to hire workers.

• In the letters to the editor of Granma and elsewhere, Cubans have been calling for the government to turn small state enterprises into cooperatives in the cities; cooperatives, after all, are a form of property that Cuba has allowed in the countryside for years. This will be interesting to watch. Conversion is easy, but profitability will depend on the workers and the rules under which they work. For example, if a small furniture manufacturing operation is turned into a cooperative, will it be free to sell to any customer it can find – individual, state, state enterprise, tourist hotel, foreign business, joint venture?

• Last time I surveyed Cuba’s cuentapropistas, I found that those whose businesses operated in pesos were earning more than three times the average state salary. The income and the attractiveness of working independently are strong incentives for more Cubans to turn to licensed self-employment. Here again, the rules will matter; for example, wholesale supply stores would be appreciated by these entrepreneurs and would obviate the need for black-market supplies. More background on this sector is here (pdf).

• I’ve said it before, I’ll say it again: All Republicans should now go to Cuba to see what cutting the size and scope of government is really about.