Former Cuban President Fidel Castro attends the presentation of his new book "La Contraofensiva Estrategica" (The Strategic Counteroffensive) at Havana's University on September 10, 2010.OMARA GARCIA/AFP / Getty Images
The Cuban government's surprise announcement this week that it is laying off 500,000 state employees - about 10 per cent of the state sector - shows the desperate state of the economy. Free-market reforms are long overdue in the Caribbean island, one of the last bastions of Soviet-style Communism. But to expect state employees, especially the least enterprising, to succeed in the private sector is politically risky.
By 2011, the government will lay off workers from every government sector, selecting those who are least productive. These workers will then be expected to form private co-operatives, find jobs at foreign-run companies or set up their own small businesses. The government helpfully suggests a list of possibilities, including raising rabbits, making bricks, driving a taxi and organizing parties. Cubans who are not made redundant will face a new salary structure that rewards productivity.
This is the most significant economic shift since the 1990s, when the collapse of the Soviet Union forced Cuba to legalize use of the U.S. dollar, and allow people to operate restaurants in their homes, initiatives that were scaled back once the economy improved.
This development, however, appears to be longer-term. It will allow the government to rid itself of unproductive workers, and indicates that Cuba is ready to move in the direction of a more "marketized economy," says Arch Ritter, an expert on the Cuban economy at Carleton University. "Once people aren't reliant on the goodwill of the state, they are much less manageable. So there is a political risk," he adds.
Cubans will still be entitled to a few months of unemployment benefits, as well as subsidized housing expenses and free education and health care.
While the government of President Raul Castro made the announcements, his older brother Fidel appeared to agree, recently telling an American journalist that the "Cuban economy doesn't work." Mr. Castro later said he had been misinterpreted, but the comment could also be read as tacit support for Raul's reforms.
An internal government document acknowledges the difficulty of this strategic transition, noting many businesses won't last because Cubans lack experience, drive and initiative to succeed in the private sector.
While the Cuban government doesn't appear to have a strategy to help them make the transition, some Cubans may adapt more quickly than predicted. For years, Cubans have been forced to supplement their meagre state earnings and insufficient food rations by reselling stolen products on the black market - everything from cigars and cement to second-hand clothing. They already make exceptionally good capitalists.
Cuba is still far from fully embracing the free market to the extent that China and Vietnam have. But these reforms are a welcome first step.