Price Controls in the Cuban Sphere
How Cuba's price controls are pushing entrepreneurs to the brink.
Some time ago, I wrote an article detailing how price controls not only lead to shortages but also force many Cubans to engage in black markets to get their bundle of basic needs.
At the time of writing this piece, Cuba did not have any private enterprises operating on the island. Moreover, self-employed individuals were also subject to price controls.
In the past two months, recent developments in Cuban economic policy have led to many changes. Effectively, the Cuban regime is backtracking on its “market reforms” and re-establishing the state’s dominance over market forces. Nora Gamez Torres effectively communicated that:
The Cuban government has announced new measures, including limiting wholesale trade by the private sector, that officials say would “correct economic distortions” but will likely exacerbate shortages and worsen inflation in the midst of a severe economic crisis.
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The regulations come after the government imposed price controls last month on some food products sold by the private sector, which is already causing shortages.
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Cuban economist Pedro Monreal, who lives in Spain, said on X that the restrictions on wholesale trade could favor big private sector players with connections to the government.
Put differently, the intention behind these regulations was to restrict what we might call the “seller on the streets” — that entrepreneur who does not have a small or midsize enterprise and is trying to survive under the new regulations.
Recall that these regulations have been in place for almost a month, and yet, some economists have already (correctly) assessed their effects on the Cuban economy. Professor Carson asserts that:
When capped prices are below market prevailing prices, shortages follow. Consumers are encouraged to buy more goods at lower prices; as a result, there might be fewer goods available. If they can’t charge market prices, producers are discouraged from bringing their goods to market, or they provide lower quality goods; as a result, there might be fewer goods available. None of these behaviors put (good) food in bellies for very long.
And even before the Cuban government made its announcements at the Plenary of the Communist Party, I asserted a week before that:
We should expect in the Plenary of the Communist Party of Cuba to see more accusations and political trials against small entrepreneurs, while cronyism ramps up, impeding national production in favor of remittances and imported goods from which the government benefits.
The effects of these measures haven’t waited to manifest, as the official newspaper of the Cuban regime, Cubadebate, reports:
As part of the control actions carried out by the Ministry of Finance and Prices (MFP), 58 seizures and 773 forced sales were conducted during the week of August 17 to 23 due to detected violations.
According to the organization, other administrative actions resulted in 171 establishment closures and 197 withdrawals of work projects, in general.
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Regarding fiscal control actions, to date, 157,331 control actions have been carried out, resulting in debts amounting to 2,999,390,000 pesos. Additionally, 49 fiscal audits were completed, totaling 58,605,000 pesos.
Furthermore, 2,772 oversight actions were conducted, amounting to 886,314,000 pesos, and the compliance of 154,510 taxpayers was reviewed. Underreporting was detected in 99,871 cases, resulting in a determined debt of 2,054,471,000 pesos.
These policies, as in previous instances, have been made with the political intention of protecting the state conglomerate of companies under GAESA and the Cuban Communist Party. As usual, Cuban economic policy lacks any kind of rationale behind it. The dynamics of state interventionism are becoming increasingly clear, with the state doubling down on its efforts to control prices. It is likely that throughout the rest of the year, the Cuban Communist Party will have to intervene in additional markets because of its current efforts.