domestic firms to hire labor and sell their goods and services to the state are major steps forward. However, the list of allowed activ- ities is still short, and there is a need to provide credit to these firms and evelop markets for the inputs they require. The government also has to reduce the high tax burden that was imposed upon them and avoid the temptation to unduly regulate their prices. Increasing the productivity of the state firms will be even more chal- lenging. Reducing redundant labor will help. So will the autonomy given to managers and the incentives pro- vided to productive workers. The limination of government transfers to state firms also operates as a strong demand to improve. But we have to see whether individual managers will
perform and whether other things
will function properly, particularly,
again, the supply of credit and inputs.
The potential social costs of the
transition are large. Employment
poses the toughest challenge. The
Minister of Finance mentioned last
December a figure of 1. 8 million workers to be dismissed by 2014, basically
an estimate of the redundant labor
force in the public sector. But this
represents 37 percent of the Cuban
labor force!
Even the much lower target set for
March, of half a million workers, is
challenging, as it would be impossible to generate this number of jobs
in the private sector in such a short
time. This creates the risk of an immediate increase of unemployment
from 1. 6 percent to over 10 percent.
Equally important, there is likely to
be a significant mismatch between
the low skill levels demanded by the
new jobs and the relatively high educational qualifications of the Cuban
labor force unless new opportunities
for highly skilled labor are created.
The social tensions will come from
other areas. One common external observation about Cuba is that the aver-
José Antonio Ocampo
(CON TINUED FROM PAGE 25)
can generate. The dual price system
is already generating inequalities
associated with differing access to
dollars from remittances and the
tourism sector.
This means that the challenge of
eliminating subsidies for consumers and gradually dismantling the
dual price and exchange rate system
is colossal. The government may
therefore want to proceed at a slower
pace. Slower transition in this area
will help ensure adequate support
from the population for the rest of
the program.
age monthly wage is $18, an estimate
that comes from dividing the nominal wage in Cuban pesos by the exchange rate. This estimate is wrong,
because a Cuban worker today spends
most of his or her income at highly
subsidized prices, which include the
ration card, housing and utilities
(all provided possibly in insufficient
quantities and qualities), as well as
other essentials, such as medicines.
This mismatch is the reflection of
an extreme dual price and exchange-rate system, with differences in the
latter being 24 to 1. However, no matter how inefficient the system is, the
announced elimination of the ration
card will make estimates of the dollar
wage mentioned above more accurate.
The reduction in real wages (and
real pensions) will have an adverse
effect on income distribution on top
of the inequality that freer markets
Success of the reforms will be
measured by their capacity to generate
growth in the domestic private sector
and to restructure inefficient state firms.
José Antonio Ocampo, former
under-secretary general of the United
Nations for economic and social
affairs and minister of finance of
Colombia, is professor of professional
practice in international and public
affairs at Columbia University.
