The drunkenness began symptomatically with the national beer sold in private establishments. A bad start.
If it is a question of the Cuban economy, most of the price caps adopted by the government, especially those that don’t correspond to basic need products or services, lack rationality. It is a short-term measure, with no positive long-term impact on the solution of any problem, of production or distribution. Even if in the short term it controls price increases with a repressed inflation dynamic, it will probably aggravate the path required to resolve the supply deficit.
What is the logic behind citizen welfare for which the government spends political capital, human resources or simply regulates to procure access to beer for this or another consumer? If we talk about a new economic model in which the market increases its role, and the government is the main and only wholesale producer of beer today, which amounts to an almost monopoly, why cap the price of a product that isn’t essential to the food basket? The end of the beer shortage depends on the government companies themselves producing more or that there is a change in structure that gives access to other producers. That is not so complex.
But ceiling prices have not been imposed only on domestic beer in private restaurants but also on a large group of products, some of which are of basic need and essential services such as transportation.
The measure is given in a context of expectations of inflation based on the decreed salary increases at the beginning of the summer. If it were to give time to some complementary measures of longer-term productive revival, one wonders if postponing the latter or just its announcement is a wise decision or it was better to announce them in parallel and suddenly. When announcing the ceiling prices, without the corresponding complementary measures and indiscriminately (covering not only basic need products and services) all the opposite signals are sent.
I hope this diagnosis was wrong but it seems that the nominal salary increase hasn’t been accompanied by other interdependent measures that could make it viable at a real level beyond its cyclical effect. Given the available information, it is not possible to anticipate that the government is already willing to promote the small and medium private enterprise approved in the new Constitution, creating regulatory frameworks but determined to let entrepreneurs seek their greatest interest within it, as is usual in a mixed economy.
Despite all the discussions and more discussions between policymakers, economists and the people in general, the last few years have been characterized by a sinuous and arbitrary change of policies with steps forward and setbacks. This lack of consistency is damaging the relationship with the private sector and has a very negative influence on expectations regarding the government’s commitment to the course of the proclaimed economic reform.
It is time for the government to learn how to handle communication, understanding how important the signals and information are for market dynamics and that it becomes convinced once and for all that a command economy with controlled market segments and private property are not a viable alternative and that the more or less progressive options are in a comprehensive mixed economy, integrating the state and non-state sectors into a market logic. In that universe there is room for consistent regulatory policies. A market economy does not imply a market society, but that depends on a realistic and intelligent regulation.
The “no hurry but no pause” approach should include consistency in the adoption of a new institutional and cultural model of mixed economy. No employer in the state or in the private or in the cooperative sector can get information or plan their business management if licenses are frozen and thawed with as little transparency and frequency according to the partisan spokesperson in turn. Even in the highest degrees of improvisation and small scale, everyone who invests does so based on an implicit calculation of profitability. It is difficult to do this with so many forward and backward steps, setbacks, rumors, and political campaigns that drive away the spirit of entrepreneurship and initiative.
Regulate what’s important. Don’t try to take on too much
It is positive that the authority to regulate these prices has been transferred to the provincial authorities. Decentralization is key to getting Cuba out of the meager growth rates that have characterized the last five years. It is in those provincial and municipal levels where the available information and the scale make it possible to collect the necessary data to regulate correctly. Well-thought-out decentralization provides useful options, based on underdevelopment, for the problem of the productive factors’ heterogeneity, a topic that has been studied since ECLAC was created.
However, it is a bad symptom that what is typical in decentralized decisions has not been a modest approach focused on regulating prices for basic need products and essential transportation services. On the contrary, in several provinces a rampant offensive has been set up to try to regulate and control as much as possible. There has been a lack of humility on the limited capacities of a State, with little experience in market conditions, to regulate and regulate well. State intervention in the markets is necessary but this is a science, not a will. Just as there are possibilities to improve market efficiency, problems can also be aggravated.
This is not a call to inaction but to seek a more scientific, democratic and informed approach to government management. What is the argument to regulate both little and much? After admitting in the Guidelines themselves since the 6th Congress of the PCC in 2011 and the discussions of the economic model in the 7th Congress, the need to integrate the market and other forms of property―including private ownership―, it was expected that even if these ceiling price mechanisms were to be adopted, they not be put in place indiscriminately, almost expressing distaste and repulsion toward the new business class.
Some of the government’s critical economists have insisted on teaching officials a patently obvious truth: if prices are frozen below the balance between supply and demand, economic actors end up adjusting the supply to downward amounts (creating shortages) and transferring activities and sales to informal-illegal markets. It is difficult to assume that those who made the decision to freeze prices don’t know that it is a mechanism with no fixative.
Instead of being based on the fact that the officials don’t know what they are doing, perhaps it would be more typical of the political economy to inquire about the reasons for this behavior by the officials, who seem reluctant to use their new powers to promote a mixed economy. I don’t have the answers, but instead of underestimating the education or intelligence of policy makers in Cuba, I consider it more useful to ask: What interests can the groups that dominate the decisions in Cuba’s economy have to adopt that policy? Why don’t these officials focus on producing a more viable economy at the level of their territories and instead adopt such a controlling approach? What are the guidelines by which their work is measured? What is rational given the emergency conditions in the country and irrational in these guidelines if the objective is to make the blockade/embargo irrelevant? What Guidelines do they respond to? What interests, values or reasoning drives them in this direction? What is the organizational, regulatory and cultural framework that generates these bureaucratic behaviors? What are their economic or institutional incentives to act as a brake against further development of the private sector or its integration with the public sector?
There is little talk about these vital issues of the public sector’s economy in Cuba and about Cuba.
Many Cuban economists on the island and abroad, who deserve a lot of respect, criticize the bureaucracy for being irrational, without trying to understand its incentives. The issue of the economic war against the country is rarely mentioned as important. Rarely is there an elucidation on mediations, conditions and causes that at least aggravate the circumstances of the population and reduce, even providing opportunities for corruption, decision-making processes.
It is difficult to argue that the economic reform is a non-zero sum process without losers or winners. Starting with the design of public policies, it is necessary to discuss how to attract potential losers with power or veto against the reform agenda, to compensate bureaucratic groups for the loss of a monopoly on privileges, give them a temporary cushion to break the partial balances where they benefit, and so on. The officials are not abstract beings following the guidelines approved in congresses. They are also economic actors that respond to incentives with expectations and limitations associated with the conditions before and after the changes occur.
There are also political elements that are not attributable to worldly interests and privileges. A good functioning of the market needs a good regulation. The collusion of entrepreneurs is a corrupt practice about which even Adam Smith spoke of. A good regulation that avoids monopoly collusion facilitating the entry and exit of producers and encourages competition serves entrepreneurs as it establishes a predictability framework, and legitimizes their economic freedom by offering a leveled game for consumers.
But a good mixed economy is not learned in books. It is a process in which you learn by doing. In recent Cuba itself, in the case of El Trigal wholesale market in Havana, the creation of a wholesale market essential to complete and complement necessary reforms was tested. The experiment ended with real mafias exploiting buyers, including acts of violence against sellers who did not obey illegal brotherhoods. No wonder many decent people, workers, consumers and honest sellers expressed disappointment at the path things were taking there.
Of course, the failure to achieve this mechanism should motivate us to think of other forms, and other scales of wholesale markets, emphasizing institutions that help in the proper functioning of the markets, while imposing order against any criminal association.
The problem is not the wholesale market, which is necessary, but in trying to create it while those dynamics of disruption that appear in institutionally weak markets are ignored. Most studies of economies in transition emphasize the relevance of an order and sequence where the control of corruption and avoiding the creation of illegal market control associations is essential. In the end, sooner or later, wholesale markets must be created as they facilitate the division of labor between producers and traders, reducing transaction costs in the distribution, sale and storage of products. Wouldn’t it have been rational to launch new wholesale markets in parallel, before or in rapid sequence with wage increases?
According to some estimates, Cuban visitors, entrepreneurs, spend more than 240 million dollars annually in the Colón Free Trade Zone in Panama. If reducing the escape of dollars is about influencing the exchange market on the island, couldn’t some of this have been done in parallel with the wage increase, thus balancing to some extent the expected effect of higher demand for CUC and dollars based on the expected injection of more pesos?
Could part of these wholesale trade problems not be resolved by giving private business owners and cooperatives access to freer free trade zones, such as Mariel’s?
Ideological remedies: thank you, but no
Unfortunately, many of the criticisms of the ceiling prices seem as misplaced as the Cuban government’s measures. Without distinguishing between the type of products or services, a group of economists and non-economists, on the island and in the diaspora, have started praising the sanctimoniousness and wonders of the market, as a force of nature, which it is essential to accept.
The market has nothing natural. It is a historically created institution. When it has served the economic development and welfare of societies, it has done so in conjunction with state regulations to generate synergistic environments of competition, invention and initiative. None of the countries that have developed, especially those that have done so as late industrialization, have done so based on the magic of individual interest that ends up serving the public, without regulations.
Individual interest, accumulation of wealth and private property; without regulations or redistribution, produce well-being for some and much poverty for the majority. The so-called free market also produces political illegitimacies because the notions of equity and justice are impulses of all modern societies, even when there are high tolerance thresholds for their absence.
Neither the creation of the welfare state in Germany, nor the corporatist agreements between capital, trade unions and the government in the Nordic countries, which included a group of ceiling prices and wages to manage inflation, were the result of any natural force. The social democratic governments mediated agreements between the unions and the employers, seeking to mitigate with some control the effects of the 1930s and later crises.
The role of state interventions, not hostile but friendly to competition, in markets and the price-reporting role in East Asia explain to a significant extent the success of Taiwan and South Korea, according to World Bank reports. Neither China nor Malaysia, nor Vietnam that are among the fastest growing countries, claim to be examples of blind confidence in the market or bet on deregulated capitalism. Yes, there is multiple evidence of the perennial failure of the communist economy, the disasters of neoliberalism and the success of these growth models are also hard data. Here it is important to emphasize that in the public sector economy the quality of contracts as a variable is often much more important than the definition of right of ownership and that the improvement of the quality of the public sector is as or more relevant than the transfer of spaces to the private sector.
Looking at this documented evidence, with statistical series and correlations between the policies applied and the results would be more reasonable than invoking magic, forces that are not natural, and invisible hands that are not seen because they don’t exist. It is also better than intervening in the markets, capping prices without discretion, opening and closing licenses for activities in a slapdash way.
Authors
Arturo López-Levy,
arturo
