Cuba’s Fatal Conceit

EspañolIn late 2010, the Cuban government first detailed its plan to revitalize the moribund Cuban economy. Two key components of this plan were the massive firing of over one million state employees (in a workforce of five million) and to allow some private sector self-employment to absorb the newly unemployed.

The enlightened nomenclature decreed that the firings were to take place in short order and the newly permitted activities would be limited to a bizarre amalgamation of precisely 178 occupations from baby sitting to washing clothes to shoe shinning, to repairing umbrellas.

Not surprisingly, years later, the process is mired in a web of internal debates and emerging rules and regulations. The failure in implementing economic reforms is rooted in the pathology of thought of the country’s ruling elite. It is this pathology of thought that economist and political philosopher Friedrich A. Hayek described in his influential work The Fatal Conceit: The Errors of Socialism. As Hayek explained, central plans fail with unforeseen and unintended consequences because all variables are not known or even knowable to the central planners.

The dismissal of the state employees has been essentially halted and is now supposed to take place over a period of five years. Kafkaesque efficiency committees will determine the “ideal” number of employees for each function and then other committees will decide who is to be dismissed.

The process regarding activities “outside the government sector” (the Cuban government cannot bring itself to say “private sector”) is just as revealing. With significant fanfare, Granma recently announced that the number of permitted “outside the government sector” activities would be increased from 178 to 181. The three new tolerable activities are “granitero” (as in doing tile work); party planners for weddings and “quinces” (sweet sixteen-like parties), and insurance agents.

Cuba’s vice minister of finance and prices, (yes, there is a ministry in charge of prices) also announced that the activity of granitero would have to be approved by the work directives and by the office of the city historian. The bureaucrats further decreed that the three new allowed activities will be taxed at markedly different fixed monthly fees as follows: graniteros 150 CUPs (Cuban pesos), party planners 300 CUPs, and insurance agents 20 CUPs. The unexplained central planning logic of these taxation decrees is left for the reader to decipher.

Notwithstanding this stifling regulatory environment, Cubans are seeking work independent from the State. A recent survey conducted by Freedom House finds that although “some Cubans are discouraged by the uncertainties associated with self-employment . . . more Cubans say that it is better to be self-employed than to work for the government.”

In allowing some entrepreneurship, the Cuban government sought to create new employment for the fired government employees. Things, however, are not going as planned by the mandarins. For example, 73 percent of the 69,000 women now self-employed were not previously in the government’s payroll. Additionally, many of the cuentapropistas are engaged in subsistence self-employment which does not generate significant additional employment.

Another unfortunate consequence of Cuba’s central planning arrogance is an exacerbation of racial tensions. Reflecting the racial composition of the Cuban Diaspora, the vast majority of Cubans receiving remittances from abroad and able to become self-employed are white. Access to dollars is essential for self-employment. Paradoxically, the new entrepreneurs must sell their goods and services in the national currency, but must purchase supplies from government stores in Cubas’s convertible currency. Afro-Cubans, without access to remittances from family members abroad are left behind as income inequality increases.

It is quite a conceit to believe, as central planners do, that one individual, or one ministry, or one central committee can gather and understand all available information to design an efficient economic system.

The tragedy of communism is both its mistaken view of how an economy works and its glorified view of its own rational capabilities. The Cuban government’s hubris on riding the intellectually dead horse of central planning showcases its Fatal Conceit.

This article first appeared in the Miami Herald.

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