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

By Fernando Ravsberg

Photo: Raquel Perez Diaz

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.

Private transporters operate “Cuban style.” They decide what fares they charge, what routes they operate in and many vehicles pass the technical tests thanks to bribes (leading to no few accidents). Photo: Raquel Perez Diaz

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.

Higher wages are earned in the private labor market but workers are completely unprotected.  Photo: Raquel Perez Diaz

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.

The government sets a bad example as intermediary, applying a 240% tax on essential items sold at Cuba’s hard currency store chains. Photo: Raquel Perez Diaz

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?


8 thoughts on “Cuba’s Economy: From Total State Control to Unregulated Markets?

  • January 10, 2016 at 10:50 am
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    How to put the market at the service of the people, and what role the state should have in this process. That’s the question of the age, not just in Cuba.

    There are all kinds of alternatives to pure capitalism red in tooth and claw. Some of them have been mentioned in the pages of Havana Times, others not (yet).

    This is the debate the Cuban people need to have.

  • January 8, 2016 at 11:48 am
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    I wonder the same thing. The best I can figure is that Cubans have been beat down so long, there is no fight left in them.

  • January 8, 2016 at 9:16 am
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    We have no government, we have a dictatorship.

  • January 8, 2016 at 9:14 am
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    You my friend, are in total denial. Cuba is under capitalism of State, which is in many people’s opinion the worst kind of capitalism, yet you keep dreaming in Wonderland with all your theoretical of a system that does not work because it depends on massive XXI’s slavery.

  • January 8, 2016 at 9:05 am
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    “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 stupidest thing I heard. Or worse, it is big lie. Maybe that economist want to buy up all the distribution, trucks, etc. That was how the Russian oligarch got rich. But then again, government employed economists are not there to tell the truth in the first place.

  • January 8, 2016 at 8:55 am
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    “At foreign companies, Cuba’s government employment agency pockets US $750 a month and gives employees US $30. ..Those who are State employees are even worse off. Economists say that wages will not go up until productivity rises,..”

    1. Sounds so familiar, almost exactly as it happened when China opened up. I will tell you what followed (or will come) a few years: some lucky ones or some “bad” former state employees, quit or got fired from the state job, and got rich (relatively speaking). Rations lifted, prices shot up (surprise,surprise), Those who stayed within the state system got poorer, got angrier, They took to the street, demanding “reform”, “democracy”, “freedom” of this and that. The biggest one of those demonstrations was called the “Tiananmen massacre”. Got it? That’s why the reformers (the government) killed hundreds who demanded reform and continued their reform. Confused already?

    Strange people demand “freedom” “democracy”, but not better pay checks.Just like those soldiers who died for their country, not geopolitics.
    2. What does Cuba have, in terms of exportable resources? So, the productivity of the state enterprises will not go up, unless Cuba currency devalue significantly, and domestic inflation goes way up. Those who can work will work for peanuts (in US dollar terms, slave labor, sweatshop), those who cannot work will see their benefit eroded by the inflation. The state simply can no longer afford the welfare which made Cuba so well known. Inflation is one way to get out of it. To move forward, you will have to leave something behind.
    3. What China does relatively well, among tremendous sacrifices, is that there were relatively fewer losers in the reform process. Can Cuban government do Better? There are real lessons, and I wish them well.
    4. I have been wondering why market forces will lead to inequality? What can be done about it? Government intervention is quick but also dirty… corruption, corruption… Can Cuba find another way?

    5. Cuba is not China, just like China is not Russia.

    I love Cuba, wish Cubans and their government well.

  • January 8, 2016 at 12:23 am
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    Great article. As a cuban I still don’t understand why my people, those smart, clever cubans living in Cuba are not investigating, publishing articles about this? Why is a foreigner doing it instead of us?

  • January 7, 2016 at 10:16 pm
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    The last sentence conveys the thought that a socialist economy will serve the needs of the pea benevolent state capitalist economy .
    It is when free enterprise capitalism exerts its totalitarian force in a negative way in creating a few rich and a great many very poor that it becomes impossible for it to serve all of humanity.
    Unbridled capitalism creates revolutionary conditions of wealth inequality especially in developing economies.
    As Marx correctly said., the problems of (free enterprise) capitalism are systemic and not in human failings or quirks in the system.
    Another noted that you can have democracy or you can have capitalism but you cannot have both .
    That’s a few facts that those who call for Cuba to return to free enterprise capitalism do not like to think about.

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