Towards a mixed economy

Towards a mixed economy

EVER since Raúl Castro took the reins of power in Cuba in 2006, he has seemed to hint that he wants to reform the island’s moribund centrally planned economy. But the changes he has introduced have been either limited or almost inconsequential, such as giving more freedom to farmers, allowing self-employment for barbers and letting Cubans have (unaffordable) mobile phones. Until now. On September 13th the government announced, through the mouth of the official trade-union confederation, that more than 1m people—a fifth of the workforce—will be made redundant from state jobs, half of them by April 1st, 2011.

Some of the unemployed will be offered new government jobs, including in the police and tourism. But hundreds of thousands will be expected to fend for themselves. To help them, self-employment is to be legalized in dozens of areas, from transport to construction. The reforms will also allow many small state-owned businesses to become co-operatives, run by their employees. They will have to pay taxes, though how much has not yet been spelled out.

This amounts to the biggest shake-up of the economy since Fidel Castro expropriated small businesses in 1968, impressing his Soviet benefactors by bringing almost all workers, from shoeshiners to barmen, under state control. In the mid-1990s, when the Soviet Union and its subsidies to Cuba disappeared, Fidel reluctantly allowed Cubans to use the American dollar as legal currency and to engage in petty trade (such as renting rooms and setting up small restaurants). But many of those businesses folded because of high taxes and the complexity of obtaining licenses to operate. When Venezuela’s Hugo Chávez became Cuba’s new benefactor, offering cheap oil, Mr. Castro re-centralized the economy.

Raúl Castro has frequently expressed his exasperation at Cuba’s chronic inefficiencies. “We have to erase forever the notion”, he told the National Assembly last month, “that Cuba is the only country in the world where it is not necessary to work”. The country can no longer afford this: the price of nickel, the main export, has fallen. The world recession has cut tourist numbers. The island suffered hurricane damage in 2008. With half of its agricultural land unproductive, Cuba imports 80% of its food. It has struggled to make hard-currency payments.

Earlier this month Fidel Castro himself let slip to a visiting American journalist that the Cuban economic model “doesn’t even work for us anymore”. Though he later disingenuously claimed to have been misinterpreted, this is clearly his brother’s view. The economists close to Raúl who have long argued for a mixed economy, in the mold of China or Vietnam, finally appear to have got their way.

The announcement of the reform follows an officially promoted round of debates about the economy in grass-roots bodies. It may pave the way for a much-postponed congress of the ruling Communist Party (the last one was in 1997). Raúl has said that the Congress would be the last to be presided over by “the historic leadership of the revolution”.

Workers who are laid off will continue to benefit from free healthcare and education, heavily subsidized housing and transport and modest rations of free food. Many Cubans have long supplemented their paltry state wages of around $20 a month with the illegal private enterprise in the large black economy. But the reforms will widen the already evident income disparities in Cuba. And they will weaken the state’s grip over the lives of Cubans. “One day, we might well look back on this as the perestroika moment”, says a Western diplomat in Havana.