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