Cuba's Big Layoffs: What to Do with the Unemployed?

As a layoff notice, it was more blunt than what even corporate America puts out these days. But it's hard to sugarcoat letting half a million workers go — which is what Cuba's communist government, via its official labor union, announced on Monday. "Our state cannot and should not continue maintaining enterprises with inflated payrolls, losses that pull down our economy and make us counterproductive, generate bad habits and distort worker behavior," said a statement by the Cuban Workers' Central (CTC), making it known that some 500,000 government jobs will be eliminated by next spring. It also suggested something fairly anathema to socialism's collectivist dogma: how the unemployed find their way after the mass dismissal "depends in large part on the private management and initiative of the individual."

Rumors had been swirling all summer that Cuban President Raúl Castro was planning to trim the state's workforce by as many as 1 million. Still, now that it's official that half that many jobs will be lost, "it has the potential of being an earthquake," says Marifeli Pérez-Stable, a sociologist and Cuba expert at Florida International University in Miami. The CTC insisted that the layoffs, which represent almost one-tenth of Cuba's total labor force, are meant simply to "make the Cuban production model more efficient." But to most Cuba watchers, it signaled an acknowledgment that "the contract Cubans had with the revolution doesn't work anymore," says Pérez-Stable.

If so, what Castro left unanswered is: What will replace it? He insists that socialism is "irrevocable" in Cuba and that the country is not moving toward capitalism. But even he groused over the summer that Cuba seemed to be "the only country in the world where you can live without working." And it's clear he's counting on private enterprise to help dig Cuba out of its economic sinkhole, the result of epic inefficiencies as well as this year's 35% drop in crucial tourism revenue and the effects of a 48-year-old U.S trade embargo. Former President Fidel Castro, 84, who handed power to his brother Raúl four years ago because of failing health, mused to the Atlantic Monthly recently that the Cuban economic model "doesn't work for us anymore." He then said last week that his quote was misinterpreted as an admission of that model's failure when in fact he meant "exactly the opposite," that the system simply needs repairs.

Either way, Monday's declaration opens the door to a significant expansion of the Cuban self-employed, from mechanics to hairstylists, which Havana has allowed to varying but always limited degrees since the collapse of the Soviet Union left the revolution without its main economic prop two decades ago. But given that almost 90% of Cuba's 6 million workers are employed by the state, it will take Horatio Alger on steroids to revive the island's economic growth anytime soon. About 600,000 Cubans are privately employed today — more than 100,000 of them as cooperative farmers tilling land leased from the government — and Havana hopes to double that number in the next couple of years.

But more important than augmenting Cuba's entrepreneurial ranks will be broadening the kind of enterprises they can run. Taxi drivers and barbers do not an economy make — and those minor service sectors cannot absorb all the pink-slipped state employees who are about to hit Cuba's streets. And so the big question is whether Raúl and his government will change Cuban law and allow the self-employed to not only hire workers outside their families but also acquire private investment and credit that can promote small manufacturing. Sources with knowledge of the negotiations tell TIME that European governments and the Roman Catholic Church are in discussions with Havana about establishing microloan projects in Cuba to help seed small enterprises like bodegas and furniture-making shops.

The U.S. can play a role in that effort as well. The Washington-based Cuba Study Group, a nonprofit headed by Cuban-American business leaders, has already proposed, along with Mexico's Banco Comportamos, a $10 million microloan program for Cuban entrepreneurs. Study Group executive director Tomás Bilbao says the Obama Administration should explore something similar, as well as a change in embargo regulations to let Americans invest in private Cuban businesses.

Anti-Castro hard-liners in the U.S. oppose the idea, saying it will only give the communist regime an economic crutch. Bilbao acknowledges that "the Cuban regime is certainly going to weigh any potential reforms from here on out based on what they believe to be the greatest economic benefits with the smallest political costs." But, he insists, "if we support economic reform in Cuba as a means of empowering the Cuban people, then we have to help create the conditions to realize that objective."

Up until now, Raúl — long considered more reform-minded than Fidel but criticized internationally for moving too slowly — has adopted only minor changes, like letting Cubans have cell phones. "Raúl is very methodical," says Pérez-Stable, "and unlike his brother he needs consensus to do something as dramatic" as the layoffs — or as stunning as this summer's release of 52 political prisoners jailed in 2003 during one of Fidel's harshest crackdowns on dissidents. If Raúl does indeed have the backing of Havana's communist hard-liners to move ahead, Pérez-Stable adds, he's likely to call a Cuban Communist Party Congress for next year, at which Cubans and the outside world might finally see real economic alterations.

One hurdle, says Mark Weisbrot, co-director of the left-leaning Center for Economic and Policy Research in Washington, remains Havana's fears that too liberal an opening could usher in a U.S. economic takeover of Cuba like the one that helped prompt the Castros' 1959 revolution in the first place. "You're still going to see a lot of debate and discussion about what to do next," says Weisbrot. "They don't feel like they can just turn around and adopt a China model," a hybrid of communist governance and capitalist economics, "because they're [situated] too close to the U.S."

Which is all the more reason for the U.S. to drop its utterly failed economic embargo against Cuba. It wouldn't lead to a Yanqui conquest of Cuba — but it could help energize, as Cuba's communist labor union put it this week, "the initiative of the individual."