Cuba's fatal conceit on economic reforms

Posted on Sunday, 12.16.12



ECONOMIC REFORMS



Cuba's fatal conceit on economic reforms

BY JOSE AZEL

jazel@miami.edu



In late 2010, the Cuban government first detailed its plan to revitalize

the moribund Cuban economy. Two key components of this plan were the

massive firing of over one million state employees (in a workforce of

five million) and to allow some private sector self-employment to absorb

the newly unemployed.



The enlightened nomenclature decreed that the firings were to take place

in short order and the newly permitted activities would be limited to a

bizarre amalgamation of precisely 178 occupations from baby sitting to

washing clothes to shoe shinning, to repairing umbrellas.



Not surprisingly, two years later, the process is mired in a web of

internal debates and emerging rules and regulations. The failure in

implementing economic reforms is rooted in the pathology of thought of

the Country's ruling elite. It is this pathology of thought that

economist and political philosopher Friedrich A. Hayek described in his

influential work The Fatal Conceit: The Errors of Socialism. As Hayek

explained, central plans fail with unforeseen and unintended

consequences because all variables are not known or even knowable to the

central planners.



The dismissal of the state employees has been essentially halted and is

now supposed to take place over a period of five years. Kafkaesque

efficiency committees will determine the "ideal" number of employees for

each function and then other committees will decide who is to be dismissed.



The process regarding activities "outside the government sector" — The

Cuban government cannot bring itself to say "private sector" — is just

as revealing. With significant fanfare, Granma recently announced that

the number of permitted "outside the government sector" activities would

be increased from 178 to 181. The three new tolerable activities are

"granitero" (as in doing tile work); party planners for weddings and

quinces (sweet sixteen-like parties), and insurance agents.



Cuba's Vice Minister of Finance and Prices, (yes, there is a ministry in

charge of prices) also announced that the activity of granitero would

have to be approved by the work directives and by the office of the City

Historian. The bureaucrats further decreed that the three new allowed

activities will be taxed at markedly different fixed monthly fees as

follows: Graniteros 150 CUPs (Cuban pesos), Party Planners 300 CUPs, and

Insurance Agents 20 CUPs. The unexplained central planning logic of

these taxation decrees is left for the reader to decipher.



Notwithstanding this stifling regulatory environment, Cubans are seeking

work independent from the State. A recent survey conducted by Freedom

House finds that although "some Cubans are discouraged by the

uncertainties associated with self-employment . . . more Cubans say that

it is better to be self-employed than to work for the government."



In allowing some entrepreneurship, the Cuban government sought to create

new employment for the fired government employees. Things, however, are

not going as planned by the mandarins. For example, 73 percent of the

69,000 women now self-employed were not previously in the government's

payroll. Additionally, many of the cuentapropistas are engaged in

subsistence self-employment which does not generate significant

additional employment.



Another unfortunate consequence of Cuba's central planning arrogance is

an exacerbation of racial tensions. Reflecting the racial composition of

the Cuban Diaspora, the vast majority of Cubans receiving remittances

from abroad and able to become self-employed are white. Access to

dollars is essential for self-employment. Paradoxically, the new

entrepreneurs must sell their goods and services in the national

currency, but must purchase supplies from government stores in Cubas's

convertible currency. Afro-Cubans, without access to remittances from

family members abroad, are left behind as income inequality increases.



It is quite a conceit to believe, as central planners do, that one

individual, or one ministry, or one central committee can gather and

understand all available information to design an efficient economic system.



The tragedy of communism is both its mistaken view of how an economy

works and its glorified view of its own rational capabilities. The Cuban

government's hubris on riding the intellectually dead horse of central

planning showcases its Fatal Conceit.



José Azel is a senior scholar at the Institute for Cuban and

Cuban-American Studies, University of Miami and the author of the book,

Mañana in Cuba."



http://www.miamiherald.com/2012/12/16/3142645/cubas-fatal-conceit-on-economic.html