By Carl Grant, Senior Vice President of Business Development at Cooley LLP
To spark its economy, the Cuban government announced this week that it’s cutting its spending by eliminating half a million state workers over the next six months. According to CNN.com, President Raul Castro’s announcement came as no surprise since last month he announced plans to eliminate one million state jobs over the next five years. Since the economy desperately needs a life line, President Castro is putting his plan on the fast track.
While these layoffs have begun, by March one-tenth of Cuba’s public workforce will have received a pink slip and will be in search of another job.
As a communist country, Cuban’s government has controlled 90% of the economy since Fidel Castro took over in 1959. The Cuban’s government has run everything from plumbers to gas stations and ice cream parlors to scientific labs, according the article.
However, in an interesting turn of events for Cuba, President Castro will allow more jobs to be created outside of the public sector to keep Cubans working, but off the state payroll. While Cuba says they are not looking to replicate the Chinese system of a communist government with a capitalist economy, foreign investors are paying close attention to what is happening on the small island.
President Castro has warned Cubans that they need to start expecting less from the government. Moving forward, the Cuban government will only employ workers in jobs that are indispensable, such as agriculture, construction, teachers, police, etc.
This is most significant reform by President Castro since he took over from his brother Fidel a few years ago. Cuba’s plan is to help its laid off state workers find employment in the private sector, such as collecting garbage and raising rabbits. This also opens the door to a major expansion of a self-employed workforce, in such fields as hair stylists and auto mechanics.
But, this will not be an easy process for Cuba. According to an article on Time.com, currently about 600,000 Cubans are privately employed. President Castro hopes to double in the next couple of years. But, there is not enough demand for taxi drivers and other small service sector jobs to employ the 500,000 who will soon be searching for a paycheck.
The Time article posed an important question, will Cuba change its law and allow the self-employed to hire outside of their families as well as acquire private investment and credit in order to promote small manufacturing. This could really change the economic prospects in Cuba. Time alluded to the possibilities of European governments and the Roman Catholic Church establishing microloan projects in Cuba to help fund small businesses. If this happens, Cuba will get a much needed major boost to its economy.
This brings up an interesting juxtaposition as the United States has been expanding public sector employment to spark its economy. Are we headed in the wrong direction?
Also, how will the Obama Administration react? Will the United States change its embargo regulations to let Americans invest in private Cuban businesses? If so, what impact would this have on our economy and the global economy? Drop us a comment and let us know your thoughts.
Disclaimer: The postings on this site are my own and do not represent Cooley LLP’s positions, strategies or opinions.