A Living Wage?

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Ever since Fidel Castro’s retirement from all official positions of power in Cuba in 2008, and his brother Raul’s accession to the presidency, the island and its concerned neighbors, trading partners, assorted NGOs, and inquiring observers have been atwitter with the possibility of “hope and change” erupting.

Throughout this period, dominated by much informed speculation about the course of future events but overshadowed by the ever-present ball-and-chain of the still-living Fidel — the "conscience" of the Revolution — I have tried to separate the wheat from the chaff for Liberty’s readers. The winnowing has included accounts of the official transfer of power, the character of Raúl (according to his sister’s memoir), quotidian life on the island, the role of corruption, evolving US policy, and even Fidel’s admission, in a Gramma editorial, that yes, mistakes had been made.

But the big news has always been the projected microeconomic reforms and the ministerial-level reforms where grandiose plans for investments through joint venture agreements between foreign corporations and the regime are being concocted.

Well, Gallus economicus is slowly slouching homeward, with an eye to roosting.

Self-employment in over 180 professions is now legal — though with some restrictions and paperwork. Last month, the buying and selling of homes and cars also became legal (as per above). The biggest splash is being made by the 3,000 executives from over 60 countries, prospective joint commercial enterprisers, at Havana’s annual trade fair last month. But that splash has overflown the verge of the little pool and is soaking an awful lot of people.

According to The Economist, several foreign managers have been arrested and three joint ventures have been closed. One British and two Canadian executives have been held for questioning without charge, the former for over one month and the other two for several months. “Perhaps,” the article speculates, “because some of these steps are controversial, he [Raúl] is also cracking down on corruption, which the cash-strapped state can no longer afford to fund.” Since the government never set up tender guidelines for its corporate partners, kickbacks for contracts are rife. But rumors of the allegations extend way beyond bribery and push the definition of "corruption" into territory it is only now exploring.

In an era when foreign corporate investment in third world countries is subject to the scrutiny of such fuzzy concepts as “a living wage” and “social justice,” used to criticize pay scales based on local customs (pay scales that often provide income for people who might not otherwise be employed, that are perfectly legal and welcome, and that produce a product affordable to a wider audience), Cuba is adding a new and thought-provoking twist to the debate.

Some of Cuba’s new foreign venture partners, in an effort to attract dedicated employees and avoid meddling outside criticism, are sweetening employee contracts with bonuses and perks, such as extra-tasty lunches. Unfortunately, the Cuban government requires firms to hire workers through a state employment agency that pays meager salaries. Any remuneration above state mandated levels is considered corrupt. Some of the foreign managers’ arrests and joint venture closures, according to the rumored allegations, are attributed to the "overcompensation" of employees.

If you truly want to help the poorest coffee growers, stick with the “exploitation coffee.”

But the door swings both ways. Cuba’s comptroller general has had dozens of employees in the sugar, mining, telecom, and tobacco industries jailed for graft. For Castro, developed world market wages are a step too far. One European businessman, who pays bonuses to his entire local staff under the table, says, “My people help run a business which brings in millions of dollars to Cuba. I need to pay them a salary which is rather more than the price of a taxi ride home.”

Aside from the health consequences of exercise vs. smoking, which is the greater evil: Nike's legal and welcome $1.25-a-day Indonesian wage to sub-adult employees for the manufacture of athletic shoes, or another international corporation’s illegal and prosecuted near-first-world compensation to Cuban tobacco workers?

One irony is that the debate about "sweatshop" economics has mostly been settled. Even Nobel prize-winning economist Paul Krugman states in a 1997 article for Slate that “as manufacturing grows in poor countries, it creates a ripple effect that benefits ordinary people. ‘The pressure on the land becomes less intense, so rural wages rise; the pool of unemployed urban dwellers always anxious for work shrinks, so factories start to compete with each other for workers, and urban wages also begin to rise.' In time average wages creep up to a level comparable to minimum-wage jobs in the United States.” Similarly, economist Jeffrey Sachs said, "My concern is not that there are too many sweatshops, but that there are too few."

More controversially, Tyler Cowen, in Discover Your Inner Economist, tackles “fair trade” goods:

“Fair trade (coffee) sells a premium product at a premium price, under the premise that the workers are treated better and paid more. It sounds so nice. But will those purchases benefit the poor?

“It depends. How about a product called “exploitation coffee”? You pay less, and they promise to treat the workers especially poorly. That wording is a less effective marketing ploy, but that is what the concept of fair trade boils down to. Whether we upgrade one option or downgrade the other is just semantics. We can either have two classes of coffee (and workers), or one class of coffee and workers. Splitting up the market into classes is good for the workers at the higher end, but it does not always help workers at the lower end. In fact it may hurt them. The jury remains out on this idea.”

My idea is, if you truly want to help the poorest coffee growers, stick with the “exploitation coffee” (without promising to treat them "especially poorly"). The more you buy, the more they earn. The greater the demand, the higher the price will rise and the better off they’ll become.

But the biggest irony in the Cuban government’s wage depression and generosity prosecution is its complete obliviousness to basic and current economic theory. It is truly pushing the dismal science’s frontiers into terrain that no one has ever explored before.




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