Cuba’s Economy: From Total State Control to Unregulated Markets?

By Fernando Ravsberg

HAVANA TIMES — A year and a half ago, we conducted a journalistic investigation on the prices of food products sold at produce and livestock markets. Among other things, we revealed that a sack of peppers put in Havana cost 100 pesos and that its value could go as high as 1,000 pesos thanks to the work of re-sellers.

Our report was briefly referred to during the parliamentary session of 2014, but they ultimately dismissed the information, returning to the hackneyed argument that food prices could only be lowered by increasing production.

A week ago, President Raul Castro himself asked his ministers to become involved in this issue. We’ll see whether they are more receptive now, because, the truth of the matter is that, even though agricultural and livestock production has grown, prices continue to rise.

A vendor at a produce and meat market explained it to me in 2014: “farmers bring us a crate of mangos for 100 pesos and we sell it at 440 pesos. Sometimes, we lose part of the goods, but its better not to lower the price because, if you do, you end up earning the same and working more.”

Apparently, the practice of throwing away “excess products” became more common in 2015. Dr. Isidoro Bali told me that, in Old Havana, where he works, “it’s shameful the number of rotten food products left on street corners every day.”

This is not a strictly Cuban phenomenon and it’s not something that should surprise an economist. It has happened in different parts of world, wherever there have been productive surpluses. Producers have even dumped milk into the ocean to keep prices up.

A Cuban economist once told me that if the State sold cooperatives trucks and these had their own distribution networks, we would get rid of intermediaries, farmers would earn more and food prices would go down.

The government is also a voracious intermediary. At its hard currency stores, it applies a 240 % tax on essential food products. Without this tax, oil would be cheaper than lard, forcing market prices to go down.

Some, however, appear to oppose State intervention in market affairs altogether. After half a century of State intervention in even the tiniest aspects of the nation’s and people’s economies, we appear to be witnessing a swing of the pendulum.

The Labor Market

Cuba’s liberalization process is taking place without a regulatory framework that places the market at the service of the people. A good example of this is private transportation services: in any organized country, the routes and fares are established by the State.

In Cuba, today anyone can get a permit to transport passengers and can decide their routes and what fares they charge. Passengers have no protection, prices skyrocket and many heavily populated areas are left without transportation.

Something similar is happening in terms of salaries and the protection of worker rights at new domestic or foreign businesses. There is no minimum wage or protection against unfair layoffs, nor unemployment insurance established for many of these new jobs.

A baker can work for 15 days at a pastry shop in Nuevo Vedado on a “trial basis.” What’s interesting is that their boss, one of Cuba’s new entrepreneurs, is entitled to try out new employees without paying them a salary, that is to say, these employees work half a month without earning any wages and, after this time, the owner may decide to fire them.

At foreign companies, Cuba’s government employment agency pockets US $750 a month and gives employees US $30. The employee receives extra money from the company, but informally – it is a gift that depends entirely on the owner’s will.

Those who are State employees are even worse off. Economists say that wages will not go up until productivity rises, but this theory doesn’t seem to apply to the situation of medical doctors: they produce some US $8 billion a year and earn less than US $100 a month.

Cuba’s liberalization process is so “open” it hasn’t even set up a consumer defense office to protect citizens. If someone wishes to complain, they must do so at the very company that scammed them. That’s like sending the hen to debate with the fox.

A couple months ago, the government finally decided to regulate private kindergartens, demanding well-trained personnel and adequate sanitary conditions. This is a good example of what should be done: they are not prohibiting the activity but rather establishing the parameters within which it must operate.

Five decades of State intervention – even in the sale of fried snacks and popsicles – can fill one’s cup. However, the United States’ anti-monopoly laws and the financial rescues of the EU demonstrate that even the staunchest defenders of the market acknowledge its limitations.

Manfred Max Neef, an economist from the University of Chile, reminds us that “the number one postulate ought to be that the economy is here to serve people, not that people are here to serve the economy.” Is this the standard that will guide Cuba’s reform process?