Set the farmers and shopkeepers free

Reform in Cuba



Set the farmers and shopkeepers free

And let Cubans benefit more from change

Jul 20th 2013



ACCORDING to some in Miami, Cuba remains Fidel Castro's island, its

economy throttled by the all-too-visible hand of collectivist central

planning. News that Cuba loaded Soviet-era missiles on a North Korean

ship, apparently for repair by Kim Jong Un's regime, may reinforce that

impression.



In fact, since Raúl Castro took over from his elder brother in 2006 he

has moved to dismantle Fidel's system. One way or another, perhaps 15%

to 20% of Cubans now work in the private sector. More are likely to join

them in all but name as their jobs move into co-operatives. Much of the

spadework for a mixed economy, such as laws on taxes and banking, has

been quietly carried out. Reform is about to gain pace, with state

enterprises winning more autonomy and steps towards the abolition of

Cuba's system of dual currencies (see article). But change is still

being held back—mostly by the regime's ideology, but also partly by the

outside world not helping enough.



Raúl (pictured above) is determined to avoid a Soviet-style collapse

into oligarchic capitalism. The leadership's mantra is that the economy

must be "socialist, prosperous and sustainable"—an impossible trinity.

Although officials now accept the need for "wealth creation", they still

disapprove of people getting rich. Small businesses are now officially

blessed, but not allowed to grow into medium-sized ones. Until they are,

the prosperity the leadership seeks will be unattainable.



The cautious nature of reform is generating new distortions. Farming,

for instance, is supposed to be in the vanguard. Most land is now worked

by individual farmers, rather than state-owned enterprises, and they can

sell some produce in the private market. But they are still hobbled by

state bodies that fail to supply fertiliser, seed and other inputs.

Meanwhile the web of restrictions around the private sector creates

scope for graft. Ironically, the move towards a single currency may

involve several exchange rates, and thus fresh distortions and room for

corruption.



Currency and enterprise reform are fiendishly complex and take time.

They will inevitably create losers: both unemployment and inflation will

rise. That makes it all the more important to sweep away the remaining

curbs on farmers, small businesses and the wholesale trade, so that

market forces can do the work of generating jobs and keeping prices in

check. The government should introduce a conditional cash-transfer

scheme, like Brazil's Bolsa Família, to help the losers.



It takes two to mobilise the diaspora

The outside world matters, too. The tempo of reform has increased since

Hugo Chávez's illness and death: Cuba depends on Venezuela for around

40% of its foreign exchange, provided essentially as a donation to keep

the red flag flying, and the future of that aid is now uncertain. Cuba

is developing new trading partners—China, Brazil and Angola, for

example—but on capitalist terms. The missing name is America. Though the

United States' economic embargo against Cuba has sprung leaks, it limits

Cuban-Americans to being providers of remittances. Diasporas played a

crucial role in the transition to capitalism in China and Vietnam. They

could help Cuba too.



Similarly, swift and clean monetary reform would be much easier if Cuba

could draw on support from the IMF and the World Bank to augment its

meagre foreign-exchange reserves. One obstacle to that is the United

States, where the Helms-Burton law requires America's delegates to vote

against Cuba's admission to international financial institutions. That

is a pointless piece of bullying. Its only effect is to conspire with

Cuba's own residual Stalinists to make the island's transition to

capitalism harder and slower than it should be.



Source: "Reform in Cuba: Set the farmers and shopkeepers free | The

Economist" -

http://www.economist.com/news/leaders/21582005-and-let-cubans-benefit-more-change-set-farmers-and-shopkeepers-free