Thursday, October 29, 2009

Cuban market reforms

Thanks to a student for pointing out this story on Cuban "agros," the capitalist farmers markets. When you allow people profit, they produce more. Since the produce is unavailable elsewhere, prices rise. When prices go up, the government comes in to announce price controls. Then when there are price controls, then sellers get angry and stop bothering (or just resort to the black market). That can make shoppers unhappy as well.

So when the Communist Party served notice that it plans to impose price controls at those agros — ending one of Cuba's few capitalist experiments — angry shoppers fearing yet more shortages turned on state inspectors in an unprecedented public rage.

Police were called to one farmers market this month when customers shouted and chanted at state workers conducting a routine inspection. Two Associated Press reporters were escorted out of the same market Tuesday after their questions about the changes caused another shouting match.


leftside 4:34 PM  

I wrote this over at the Cuban Triangle blog:

What is the biggest problem with private sector "Agro" markets? Ask almost anyone and they will tell you the prices are too high (link is a relevant JR article from last year). They are out of alignment with most incomes.

The Government has said its aim on agriculture/food policy is to align prices with incomes. I am sure any good market liberal will tell you the only solution to high prices is increasing supply. Well, supplies will be expected to be dramatically increased soon, with the imminent decline of the large amount of State cafeterias (which provided free lunch to most of the population). But in the case of Cuba, the price distortions are so big that supply would have to go through the roof - a huge effort resulting in massive waste. Focusing on supply does nothing to address the waste and layers of middlemen profit that increases prices as well.

Cuba has been looking at what to do with the Agros for a while. Even with overflowing supply, the Agros have proven impossible to serve all, or even half, of Cubans. It serves those with access to hard currency, mostly (there are other markets for cheaper food, plus the very cheap rationed items). That kind of basic inequality is not what Cuban socialism was built on, nor what it stands for. Even if some production must suffer, Cuba is making up for that in other ways (78,000 more farmers in the last year), more space for farmers, more help, decentralization, more land, etc.).

It is also worth nothing the "facts" in this AP report are based on speculation based on the word of some disgruntled folks standing to have their profits decline. How exactly is the profit going to be squeezed? Is the State going to take over more roles? Are the legal middlemen (allowed to make 27% profit) going to get put out of business? Are the producers or sellers going to take the bigger hit, etc., etc?

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