The market trumps planning once again

Orlando Freire Santana | La Habana | 21 de Diciembre de 2016 - 14:35 CET. | 0

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A market in Havana.

Section 102 of the Conceptualization of Cuba's Economic and Social Model of Socialist Development indicates that the State will combine direct or administrative management instruments along with indirect or economic ones in order to impact society.
At the outset of the economic changes implemented by ruler Raúl Castro it seemed that the pendulum would swing towards indirect or economic methods, without any doubt less traumatic, and those more in accord with the spirit of a reform measure that, though on a secondary level, granted the market some leeway. At least this seemed to be the case with regards to the commercialization of agricultural and livestock products.

The Government, above all in the capital, expanded the network of state agricultural markets featuring price ceilings, in such a way that they could compete with markets rooted in supply and demand - operated by private operators - and induce the latter to lower their prices. At first the reformist elements in the regime managed to prevent ceilings from being placed on prices at supply and demand markets, and from administrative measures being taken against them.
The government's stance, however has changed recently. The main reason? Once again, they have lost to the competition. In a range of different ways one can detect an escalating campaign against supply and demand markets, and there have even been some indications that they will all be eliminated.
First the agricultural market at Cuatro Caminos, perhaps the most important in Havana, was affected. It has been closed for around two years, and what will be done with the premises occupying the block is currently a mystery.
More recently, the Plaza de Marianao was closed, another well-known supply and demand market that was a key fixture in that capital municipality. Apparently the place is being refurbished for a new market, this one run by the state, and with price ceilings.
And then, on 31 December, the closing of the market on the Calle Egido in Old Havana was announced. A visit to the area allows one to appreciate the uncertainty amongst most of the merchants offering their products there, who have not received other job offers, and could end up out of work. Also palpable is the disappointment among many customers, who counted on the market in Egido for high-quality products often absent from other establishments.
The authorities' rhetoric portrays these actions as a way to protect consumers from the high prices imposed by unscrupulous elements at the supply and demand markets.
Their reasoning suggests that capped prices represent the solution to the problem.
But history has demonstrated that it does not work that way. Because price limits, sooner or later, undermine motivation along the supply/marketing chain, which results in a decrease in supply. Hence, most state markets with capped prices, just months after opening, are racked by shortages, and  consumers have no choice but to turn to supply and demand establishments.
And yet, this does not seem to faze hardline elements in the regime, who, apparently, are now predominant. They care about nothing but preserving their privileges, so they fear potential political changes that a greater market presence could engender in society.
What is clear is that whenever the Government must resort to administrative instruments (closures, prohibitions, price caps) to the detriment of economic instruments, like on this occasion, in which the State has again been incapable of competing with the individuals, we are witness to yet another chapter in a much larger story: planning is, once again, trumped by the market.