Cuba’s layoff of state workers reflects urgent bid to save the economy

Reporting from Mexico City —  Cuba’s announcement that it will lay off half a million state employees, about 10% of the workforce, is a dramatic shift for the communist government as it urgently tries to salvage the flailing economy.

The plan, which is scheduled to launch in full force next month, calls for workers to move into a small but soon-to-expand private sector of mostly mom-and-pop businesses, such as barber shops, B&Bs and vegetable farms. The government has defined 124 jobs that citizens can take on as “self-employed” businesspeople, allowing them to pocket profits but also requiring them to pay taxes.

Can it work? Cuba has stifled entrepreneurship in the name of equality. The government will have to loosen access to cash and supplies. But a turnaround, with few resources, raw materials, capital and limited expertise, will be difficult.

And what does the policy shift say about who is running Cuba? Is it President Raul Castro, or his brother, the ill-but-recovering revolutionary legend Fidel?

It was Raul Castro who in effect delivered the pink slips in August, when he complained in a major speech that the state-run economy was bloated with unproductive workers.

“We have to erase forever the notion that Cuba is the only country in the world where one can live without working,” he said Aug. 1. (Lest anyone miss the point, the text of the speech published the next day in Granma, the official communist party newspaper, had that line in capital letters.)

This week, Cuba’s only legal labor union put a number and date on the layoffs.

“Our state cannot and should not continue maintaining companies … with inflated payrolls, losses that hurt the economy and that end up being counterproductive by generating bad habits and deforming workers’ conduct,” it said.

In comments to a visiting U.S. magazine writer published this month, Fidel Castro seemed to echo the view that the Cuban economic model no longer works. Though he later backtracked, his original remark did not contradict sentiments expressed previously by his brother and other Cuban leaders.

This suggests, several analysts said, that the two Castros are on the same page, or that Fidel is at least not standing in the way of his more pragmatic brother.

According to a government document circulating in Havana, the layoffs will begin in full force in October, be finished by spring and stretch across virtually every sector, including such sacred cows as health and education.

Workers who are not productive, or who earn more than their output suggests, will be the first to go, the plan says.

Numerous state enterprises will be converted into employee-run co-ops, and a more aggressive tax code will target sales, wages and social security benefits, according to the document.

The list of approved businesses includes upholstery; repair of dolls, toys and umbrellas; animal shodding; music teaching; sales of flowers, herbal medicines and brushes; and manicures and eyebrow waxing.

The document acknowledges, however, that many of these businesses may not survive because of Cubans’ lack of expertise and initiative.

Cubans will have to undergo a fundamental shift in mind-set, from a dependence on a paternalistic government to a self-reliant willingness to work, earn money and pay taxes, experts say.

“They are redefining the fundamental relationship between the individual and the state after 50 years,” said Julia E. Sweig, an expert on Cuba at the Council on Foreign Relations and author of the book “Cuba: What Everyone Needs to Know.”

The trick, she noted, will be to avoid sacrificing the basic services the state provides as part of its socialist pact with the citizenry.

Some analysts believe a fast-expanding private sector will be able to absorb thousands of workers because Cubans so keenly want to make money, and they also are eager to have access to services the government might not provide.

This expansion will, in effect, formalize much of the underground economic activity already rampant in Cuba, an island where you can get anything done or obtain any item under the table for a price. Bringing it above board allows the government to tax it.

The appeal for many Cubans is that they would in theory be earning so much more that it would be worth paying taxes.

The state employs about 85% of the workforce. But a state worker earns just $20 a month, on average.

Several studies have shown that private-sector workers earn considerably more. Transportation Minister Cesar Arocha was quoted recently in the Cuban press as saying that private taxi drivers — part of a pilot experiment foreshadowing the new plan — earn 33 times what taxi drivers employed by the state do.

Comments trickling out of Cuba reflect a mix of dismay among people who may suddenly find themselves unemployed, and eager anticipation among others ready to get to work.

President Castro, in the August speech, sought to reassure Cubans that “no one will be abandoned, left to their own devices.”

Cuba nationalized all businesses in the first decade after the 1959 revolution, but it began to relax some restrictions after the 1991 dissolution of its patron, the Soviet Union, gutted the island’s economy. Licenses were granted to small-scale professionals such as barbers and restaurateurs, and use of the U.S. dollar in limited transactions was legalized.

Economic reforms since then have been gradual and often reversed, especially when a new sponsor came along. Venezuelan President Hugo Chavez is providing subsidized oil to Cuba, but his patronage can’t last forever. As Cuba’s economic crisis has deepened in the last year, Raul Castro has announced a number of steps.

Just last month, the government began allowing foreign investors to lease government land for as long as 99 years, clearing the way for construction of golf courses and fancy condos. Farmers are now allowed to sell their produce more directly to markets and have greater access to supplies and tools.

Still, Cuba’s economy is reeling, and those dire straits may serve as the best incentive for the new policies to take hold. The island is suffering food shortages, and this year it registered its worst sugar harvest in a century. Devastating hurricanes have exacerbated the problems, and the government says it continues to lose millions of dollars because of the U.S.-imposed trade embargo.

By far, this week’s announcement signals the most far-reaching economic reform since the 1960s. But some analysts cautioned that the plan still falls far short of the kind of capitalism China and other communist regimes have embraced.

“This is motivated by Cuba’s serious economic problems and the lack of liquidity faced by Raul Castro’s government,” said Jaime Suchlicki, director of the Institute for Cuban and Cuban-American Studies at the University of Miami. “This is not motivated by a desire to create a free-market economy nor to change the basic way Cuban society works.”

wilkinson@latimes.com