Cuba will lay off more than half a million state workers and try to create hundreds of thousands of private-sector jobs, a dramatic attempt by the hemisphere’s only Communist country to shift its nearly bankrupt economy toward a more market-oriented system.
The mass layoffs will take place between now and the end of March, according to a statement issued Monday by the Cuban Workers Federation, the island nation’s only official labor union. Workers will be encouraged to find jobs in Cuba’s tiny private sector instead.
"Our state can’t keep maintaining…bloated payrolls," the union’s statement said. More than 85% of Cuba’s 5.5 million workers are employed by the state.
Cuba’s effort to reorient its labor force represents the country’s biggest step toward a freer economy since the early 1990s, when Havana embarked on a brief attempt to make changes in a bid to survive without subsidies after the collapse of the Soviet Union, its main benefactor.
The revamp is also the most drastic effort to revive the country’s flagging economy since President Raul Castro, the brother of retired dictator Fidel Castro, took the helm of the Communist country more than four years ago after his brother fell gravely ill.
Many hoped that the younger Mr. Castro would push through Chinese-style measures to open the economy when he took power in 2006. But, with the president’s ailing, revolutionary brother lingering in the background, changes never came.
But pressures have mounted in the wake of the global financial crisis, as the island’s economic conditions have deteriorated, analysts say. Earlier this year, the Catholic Church warned that the island was on the verge of economic and social disaster if the government didn’t quickly make the changes required.
Raul Castro has moved cautiously on reforms, but has consistently said the Cuban economy needs an overhaul. He has leased state lands and loosened restrictions on farmers buying supplies and selling produce. Last month, he foreshadowed Monday’s announcement, complaining that the state payroll was burdened with 1 million excess workers.
"This is survival economics," says Jaime Suchlicki, director of the Institute for Cuban Studies at the University of Miami. "They don’t have liquidity, and have a lousy economy."
Laying off government workers, however, is unlikely to do much to solve the country’s problems, Mr. Suchlicki and others warned, since let-go workers have no where else to turn to earn a living. "They won’t be absorbed by the private sector because there is no private sector to absorb them," he said.
The changes were announced shortly after the elder Mr. Castro, who heads Cuba’s Communist Party, and wields enormous influence on the island, gave a controversial interview to The Atlantic magazine, in which he said the Cuban model no longer worked for any country, much less Cuba. Mr. Castro later said he had been misunderstood, and it was capitalism that didn’t work.
The move raised speculation about whether the elder Mr. Castro, long seen as an obstacle to his younger brother’s attempts to reform the economy, had given his consent.
On Monday, Julia Sweig, a Cuba policy specialist at the Council on Foreign Relations who was present at the Atlantic interview, said the two Castro brothers may remain on different sides of the issue. But, she added, "When global capitalism takes over the world, Fidel’s going to be the last man standing, but he’s also not going to get in his brother’s way."
To help workers who are laid off, the union said Cuba will issue thousands more licenses allowing citizens to find work on their own.
Cuba said it hoped to move some state workers into sectors that had not attracted much interest in the past, such as policing, teaching and industrial work, the statement said. The statement also said Cuba is investing heavily in areas such as oil, tourism and biotechnology where it hoped that future job growth would take place.
"Job options will be increased and broadened with new forms of nonstate employment, among them leasing land, cooperatives and self-employment, absorbing hundreds of thousands of workers in the coming years," the union statement said.
The move to slim down the public sector will create unemployment in the short term, which could create some political turbulence for the government. But the result will likely be higher wages for those in the private sector, said Philip Peters, a Cuba expert with the Lexington Institute, a think-tank in Arlington, Va.
Citing surveys he has conducted in recent years, Mr. Peters said private-sector employees make salaries three times as high as those in comparable public-sector jobs. "If they carry this thing out fully, it will vastly improve the welfare of thousands of families," he said.
It remains to be seen, however, just how many private-sector jobs Cuba can create. Cuba now has only 591,000 people working in the private sector, most of them family farmers, as well as another 143,000 workers classified as self-employed, according to government figures.
Since Cuba first allowed self-employment in the early 1990s, thousands of Cubans have gone into business, often catering to tourists. Privately owned restaurants, known as paladares, emerged to serve visitors, usually in the crumbling but grand old homes of Havana. But restrictions on the paladares were so strict in recent years that many have since closed their doors.
Cubans who decide to go into business for themselves will find a series of obstacles, including very high taxes, lack of access to credit and foreign exchange, bans on advertising, limits on the number of people they can hire, and a litany of small-print government regulations, experts say.
Cuba’s government has a list of 124 "authorized" activities for people who want to employ themselves. Among them: Toy repairman, music teacher, piñata salesman and carpenter. Carpenters are allowed only to "repair existing furniture or make new furniture upon the direct request of a customer." They cannot make "furniture to sell to the general public."
Carmelo Mesa-Lago, an expert on the Cuban economy who is emeritus professor of economics at the University of Pittsburgh says: "The question is how many obstacles [the government] will place in front of these people?"
A government attempt this year to get Cuban farmers to produce more by allowing them to lease land, has been hampered by an acute lack of fertilizer, farm machinery and herbicides. That has made it difficult to cultivate land overrun by a thick, thorny scrub brush called Marabu. And earlier this year, Cuba announced big drops in agricultural production despite the land reforms.
Economic growth could pick up if Cuba continues to open itself to privatization in coming years, but the process will be a slow one, said Arch Ritter, an economist who studies Cuba at Carleton University in Canada. Growth would "require a major change in the way the private sector is treated," he says. Critical steps would be lowering taxes and loosening regulations for small businesses.
Cuba is one of the last true Communist economic systems in the world, a place where the state dominates nearly all spheres of life. Foreign investment is restricted to joint ventures with the government and limited to some sectors like tourism and oil.
After running up a huge current-account deficit in 2009, Cuba has had to cut back sharply on its imports, including critical inputs for agriculture and manufacturing. That has driven down agricultural and industrial production. To save money, Cuba stopped foreign joint ventures from repatriating profits.
In recent years, Cuba has largely depended on nickel exports, tourism and an estimated $5 billion a year in subsidies from Venezuela’s ideologically sympathetic government to get by. But tourism has been flat, nickel prices fell sharply last year, and many question how long Mr. Castro’s ally, President Hugo Chavez of Venezuela, can afford to ship close to 100,000 barrels a day of oil products to the island. The oil is partly a payment for the services of Cuban doctors and other professions working in Venezuela.
Cuba’s previous attempt at reform, in the 1990s, didn’t last long. On the verge of collapse following the end of Soviet subsidies, Cuba allowed the U.S. dollar to circulate, opened itself to foreign investment and issued licenses allowing Cubans to find work outside the state sector. But as Cuba regained its economic footing, foreign investment was limited, and self-employment was rolled back as the state heavily taxed would be entrepreneurs, making many of them give up their licenses because they were too expensive to maintain.