By Mary Murray, NBC News Producer
HAVANA – This summer, Cuban president Raul Castro stated a hard truth that few before him ever dared to acknowledge: “Cuba is the only country in the world where people can live without working.” He vowed this would end.
Overall, some 5 million people, over 85 percent of the Cuban workforce, take home government paychecks. Castro warned in April that as many as one million are unproductive and could lose their jobs.
Now he's making good on his promise. Cuba’s recession is about to cost 500,000 government workers their jobs by the end of the first fiscal quarter in 2011.
And all signs indicate that this is just the first wave of layoffs. But it’s far from clear how strong an appetite the government has for a strategy that will roil the foundation of the island nation.
AP Photo/Franklin Reyes
Gilberto Torrente cuts hair at his barbershop in Havana, Cuba, Tuesday, Sept. 14, 2010. After the announcement made Monday by Cuba's government that it will cast off at least half a million state employees by mid-2011, he may have to find new work soon.
Since taking over for his brother two years ago, Castro has been determined to overhaul and modernize Cuba’s stalled economy. His plan begins with streamlining big government, loosening the state’s control over some commercial activity and, with time, eventually shifting about a million jobs to the private sector.
According to the country’s leading economic think-tank CEEC, the Center for the Studies of the Cuban Economy, low productivity is one of the “great problems” gripping Cuba’s mainly service-oriented economy. The CEEC looked at food production and found that the government spends hundreds of millions of dollars on imports that could be grown at home.
For example, despite handing over 2.5 million acres of unused state land to private farmers, the government still spent $983 million last year on food supplied to Cubans as part of their monthly ration. And much of that money went to import rice and beans, two staples of the Cuban diet that can be grown locally.
Along with the massive layoffs, the government is promising to create space for Cubans to start their own small businesses and to form private cooperatives. The government statement announcing the layoffs predicted that “hundreds of thousands of workers” would find “new forms of non-state employment” in the coming years.
Since 1968 when Fidel Castro nationalized all industries, Cuba’s centralized government has dominated all commerce on the island, big and small – from the corner bakery, repair shops and shoemakers to the nickel mines, electric generation and steel works.
Opening up, for real?
Over the years, the government has reluctantly relinquished some jobs to the private sector. In the 1990s, when faced for the first time with mounting unemployment, the government licensed some 200,000 workers to launch their own businesses. Those numbers began dropping as the government deliberately started to shrink the number of work permits. Currently, just a little over 143,000 Cubans are registered as self-employed – out of an overall population of approximately 11 million.
But now, in another about-face, the Cuban government is again urging the unemployed to go into business for themselves.
But the confusion remains in the details. Just what jobs will be open to the private sector? Which state enterprises will be set loose to be transformed into workers’ cooperatives?
No one knows for sure, although a document – believed to be an internal Communist Party report – suggests that the state plans to give more autonomy to the private sector while also taxing profits. If all goes as planned, the report estimates that the government should be able to collect a few billion Cuban pesos in tax revenues the first year. Currently, taxing the private sector raises 247 million pesos a year (approximately $12 million).
A second report leaked to journalists, also ostensibly from the Communist Party, details that virtually no sector of the Cuban economy will go unscathed. The pink slips will first be handed out at the ministries of sugar, public health, tourism and agriculture, next up will be civil aviation, foreign relations and social services, and the first workers to go will be those with poor attitudes and job performances.
Cuban government outlined plans that will eliminate the jobs of some 500,000 Cubans state workers by early next year.
Government cushion, sort of…
The country’s social services should provide some cushioning to those workers who don’t automatically transition into cooperative members. They will be entitled to a few months of unemployment benefits while continuing to receive free health care and education, subsidized housing expenses and a subsidized food ration that covers about a week’s worth of basic groceries.
Despite that help, putting adequate food on the table will continue to be their biggest concern.
Everything bought on top of the week of basic groceries, from meat to milk, comes with at least a 200 percent markup.
One mother I met, a college chemistry teacher, spends her entire salary on animal crackers and chicken that goes to supplement the milk, yogurt, rice and beans her 2-year-old son gets through his public day care’s free lunch program. She is not alone. According to CEEC, the average Cuban family spends between 70 and 80 percent of their earnings on food, compared to 20 percent in the developed world.
How far will privatization efforts really go?
While Castro’s job plan doesn’t officially go into effect until Oct. 1, the government started a number of pilot projects a few months ago that have reportedly yielded success. For instance, a number of neighborhood beauty parlors and barbershops have already been converted into worker cooperatives and government-run taxis handed over to the drivers.
Next up? Other state-run services like auto repair and home construction.
Government critic and economist Oscar Espinosa agrees the economy needs a major overhaul and has spent time in prison for advocating those views. But he questions whether the government is serious about real reform and is ready to tame its voracious bureaucracy to truly allow private industry to flourish. This latest plan falls short if it does not fundamentally reform Cuba’s defunct economic system, he said.
“What the Cuban economy needs is a complete restructuring that ends all the dogmas and prejudice against private property, frees up the forces of production and lets people work with full freedom,” said Espinosa. “The only role government should have in the economy is to collect taxes.”
Espinosa is not the only one asking if the Cuban government can really step aside and cut all the red tape that could easily entangle these new endeavors. One particularly cumbersome regulation, strictly enforced up to now, obligates independent entrepreneurs to purchase all their raw materials and supplies from the state. In the case of a small collective of young artists, that rule has just about ruined their business.
Ten years ago, they constructed a silkscreen press and began hand printing their original designs on souvenir T-shirts. They went store-to-store selling their product on consignment. Between their novel designs and moderate pricing, consumers loved the clothing and the collective could barely keep pace with the orders pouring in.
The business operated within the law, by purchasing the dyes and other raw supplies from the state, selling exclusively to government-run stores and even paying taxes before it got paid for the sales. Sometimes it took months to be reimbursed but, on average, each artist earned about 10,000 pesos a month ($491). (That’s about 16 times what a general surgeon earns.)
Then, the 2008 hurricane season swept across Cuba, leaving $10 billion in damage to buildings, roads and power lines – eerily almost the same amount the island earned that year in foreign exchange income. The government told Cubans to tighten their belts and that meant all unnecessary imports, like T-shirts for tourists, dried up.
As a result, the artists haven’t worked in over a year because, under the rules now governing self-employed artists, they are forbidden from importing the supplies themselves. (Just for the record, they’ve asked permission for friends traveling abroad to bring them a box or two of T-shirts and were told that the shipment would be confiscated by customs officials as an import violation.)
Will they change their mind again?
Even without so many rules, it’s not easy anywhere starting a new business. The U.S. Small Business Administration says one-third of all new companies in the U.S. fail sometime during the first two years.
Along those lines, one of the leaked Communist Party reports warns that many of Cuba’s private businesses could “fail within a year” because of poor management and inexperience.
But, Nereida Perez, 55, defied those odds. For seven years she ran a successful food stand before Havana’s municipal authorities shut down her and hundreds of other small street vendors in 2005. No reason for the clampdown was ever given but, at the time, Perez believed the government resented the fact that the venders were earning so much more money than any state worker. In her case, Perez averaged about 6,000 pesos a month ($295) selling sandwiches to doctors and nurses, patients and visitors outside a busy hospital.
If the economy opens as promised, Perez is thinking about going back into business – although she admits being a bit gun-shy after her last brush with the Cuban bureaucracy.
“You have to be careful. After investing your start-up money, the government could turn around, like before, and change its mind. And that would mean that I’d lose everything I invested,” said Perez. “I’m going to wait and see before making a final decision.”
Perez’s cousin, who preferred not to provide her name, runs a government construction company that employs about 1,000 people. Her business was one of the state entities ordered last January to review the payroll in order to recommend what positions could be eliminated.
She dreads the task in front of her: She’s been ordered to lay off about 100 day workers even though she doesn’t agree that those jobs should be rendered obsolete.
“I understand that the layoffs are needed, but I hope someone is looking at the big picture. How are people going to react when they are laid off? How are the layoffs going to affect the morale of the workers left behind? Is everyone going to start thinking that ‘I may be next?’ I can only pray that someone is thinking about how this will affect society in general.”