The Next Failed Socialist Experiment – Cuba to Lay Off 1,000,000 Government Workers
September 13, 2010 · Posted in General Economics
Historically, I would say this will certainly be remembered as a memorable event.
BBC reports Cuba to cut one million public sector jobs:
Cuba has announced radical plans to lay off huge numbers of state employees, to help revive the communist country’s struggling economy.
The Cuban labour federation said more than a million workers would lose their jobs – half of them by March next year.
Those laid off will be encouraged to become self-employed or join new private enterprises, on which some of the current restrictions will be eased.
Analysts say it is biggest private sector shift since the 1959 revolution.
Cuba’s communist government currently controls almost all aspects of the country’s economy and employs about 85% of the official workforce, which is put at 5.1 million people.
As many as one-in-five of all workers could lose their jobs.
“Our state cannot and should not continue maintaining companies, productive entities, services and budgeted sectors with bloated payrolls and losses that hurt the economy,” the labour federation said in a statement.
“Job options will be increased and broadened with new forms of non-state employment, among them leasing land, co-operatives, and self-employment, absorbing hundreds of thousands of workers in the coming years,” the statement added.
To create jobs for the redundant workers, strict rules limiting private enterprise will be relaxed and many more licenses will be issued for people to become self-employed.
Private businesses will be allowed to employ staff for the first time.
The self-employed will have access to social security and will be able to open bank accounts and even borrow money to expand their businesses.
They will also have to pay tax on their profits and for each person they employ, something which could dramatically boost the government’s income.
And they will be able to negotiate contracts to provide services to government departments.
A minority of Cuban workers already work for themselves, for example as hairdressers and taxi-drivers, or running small family restaurants.
There is also a thriving black economy, with many people working independently without proper permission from the state.
The BBC’s Fernando Ravsberg in Havana says salaries in Cuba’s state sector are so low that many employees could be better off working for themselves.
But he says not everyone has the skills and initiative necessary to be self-employed.
He adds that the government plan does not foresee any kind of advice being offered to people seeking to set up their own businesses.
President Raul Castro outlined some of the changes in a speech in August, saying the state’s role in the economy had to be reduced.
“We have to end forever the notion that Cuba is the only country in the world where you can live without working,” he said.
Cuba’s state-run economy has been gripped by a severe crisis in the past two years that has forced it to cut imports.
It has suffered from a fall in the price for its main export, nickel, as well as a decline in tourism.
Growth has also been hampered by the 48-year US trade embargo.
Mr Castro became Cuba’s leader when his brother, Fidel Castro, stepped aside because of ill-health in 2006.
Almost 100 years ago, Ludwig von Mises already explained with precise and uncompromising rigor why Socialism is flawed and will never work. It is due to socialism’s inherent inability to allow for accurate prices to emerge in order to optimize the allocation of factors of production.
Is this a sudden enlightenment on the part of Cuban officials? An epiphany that government intervention is immoral, always and everywhere? Hardly so … But what is going on is that Cuban leaders are realizing that there will be a lot more to loot via taxation if you leave people a little bit more freedom.
History has shown always and everywhere that when the government shrinks, the economy thrives, more valuable goods are produced and services provided, people have more disposable income, and thus more money to get ripped off from them.
There is a reason why farmers prefer free range cattle farming to locking their animals up in a small box. There is a reason why slave masters made it a point to convince slaves that they are where they belong and should police themselves. The lower the cost of ownership, the easier it is to rule over people.
Cuba has a perfect example of such an interventionist experiment right next door in the US. And it has indeed bestowed upon its politically connected people enormous riches in a relatively shielded and domestically peaceful environment. That experiment is coming to an end and the country is headed for the inevitable and slowly creeping culmination of interventionism: A complete collectivization of the economy, viz. socialism … Ironically, the exact opposite of what’s now happening in Cuba.
To be sure, such a system of interventionism, too, will not last forever. It will fail. But for as long as it’s in place, it allows the ruling class a lot more riches, comfort, and pseudo moral justification than the overt all round management and controls of socialism.
Two little references that I always like to remind people of:
Ayn Rand wrote in Atlas Shrugged in 1957:
“Politicians invariably respond to crises — that in most cases they themselves created — by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.”
Ludwig von Mises wrote in his analysis Interventionism in 1940:
The various measures, by which interventionism tries to direct business, cannot achieve the aims its honest advocates are seeking by their application. Interventionist measures lead to conditions which, from the standpoint of those who recommend them, are actually less desirable than those they are designed to alleviate. They create unemployment, depression, monopoly, distress. They may make a few people richer, but they make all others poorer and less satisfied. If governments do not give them up and return to the unhampered market economy, if they stubbornly persist in the attempt to compensate by further interventions for the shortcomings of earlier interventions, they will find eventually that they have adopted socialism.
On a sidenote: Observe how many socialists will immediately tell you how Cuba was not a socialist experiment, and how they completely misinterpreted true communism/socialism/collectivism. And then ask to what extent they are, in their rigorous and relentless fight for logical consistency and evidence, giving the ideas of capitalism that same benefit of the “misinterpretation tale” :)