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A step toward a Cuban market economy
Globe and Mail
The Cuban economy is about to undergo its most dramatic transformation in 50 years – this is a wise and bold step, one with irreversible consequences. By the end of March, 500,000 workers from the state sector will be laid off, a number that will grow to 1.2 million by 2015. That is one-fifth of the island’s entire labour force. Who will hire them? The private sector.
Fidel Castro’s “attempt to construct his own variety of socialism is being abandoned by his own brother,” says Arch Ritter, an economist at Carleton University who specializes in Cuba.
The government of Raul Castro has introduced important changes to the tax and regulatory regime to try to foster the growth of micro-enterprises. The reforms are a promising start, but they will need to go farther, and will need to be extended and made flexible in order to create more jobs and absorb the laid-off workers.
Cubans can now apply for a licence to practise any one of 178 trades, for example, fixing umbrellas, operating a private restaurant with 20 chairs, shining shoes, reading fortunes, repairing saddles, and performing tunes of such musicians as Benny Moré and Los Mambises – as well as dressing as an old Cuban dandy, to entertain tourists in Old Havana.
In Cuba, these are positive changes. So far, however, Cubans may not engage in any professional form of self-employment, such as computer repair or website design. The commanding heights of the economy remain in the hands of the state.
And despite several reforms, the overall tax levels are burdensome and may result in very high effective rates for several kinds of micro-businesses.
Further tax reform is clearly necessary. Small business owners should be permitted to deduct their real production costs from their total revenues, should not have to pay tax on their employees, and should be subject to fewer regulatory limitations – why not more than 20 restaurant chairs, for example?
Cuba must continue on this path. The government has embarked on a change that will benefit the Cuban people, but the reforms cannot be micro-managed; they must accommodate many small businesses. The leadership must show additional courage, vision and flexibility if the private sector is to flourish soon.