Taxi Prices: Raul's Reform Is Not Working
When a society manages to liberalize prices – that is, they are determined by the relationship between supply and demand – they constitute an indicator of economic health.
This is so because a freely-set price is a function of consumers' tastes, the state of competition, the necessary levels of production, as well as a proper allocation of resources towards certain sectors of the economy.
In this regard the perspectives of renowned economists like Ludwig von Mises and Friedrich von Hayes, prominent members of the Austrian School, are salient, as they insisted on the non-viability of socialism due to this social system's absence of market prices. Because of this, they argued, there was no accurate information about what was really happening in the economy.
In state-controlled economies that introduce market reform, the liberalization of prices generally marks one of the climactic moments of that process. Cases in point: the European nations that belonged to the former Soviet bloc, and also the economic reform measures implemented in China and Vietnam.
Of course, at times the conditions do not yet exist to carry out the liberalization of prices. If a country begins with depressed production levels, a premature liberalization of prices could be interpreted as a kind of shock treatment that could affect the society's poorest citizens. However, the trend in cases of successful reforms is to move towards the establishment of market prices shaped by fluctuations in supply and demand.
The opposite is what is currently occurring with the economic reform measures implemented by the President Raúl Castro. Almost one decade after the initiation of the "updating of the economic model," the tendency observed is inverted: several market prices have been adopted by the governmental bureaucracy and established as official.
First we see this in the commercialization of agricultural products, with the closing of several supply and demand markets and the proliferation of state markets that employ price caps.
And now it is happening with the government's intervention to set the prices applied by private transport providers. Last Thursday the newspaper Granma published an announcement by the Council of the Provincial Administration of Havana setting the rates that must be offered by taxi drivers working as independent professionals. In almost every case the prices are lower than those existing prior to state interference.
For example, there are some routes henceforth to be charged at 5 pesos, half of what self-employed drivers used to. Other longer routes that used to cost 20 pesos have now been set at 15. It is also stressed that “violations, whether complaints received from the population, or the result of oversight actions, entail the cancellation of one’s Transport Operation License; or, depending on the nature of the complaint and its corresponding processing, the potential seizure of the vehicle.”
It goes without saying that, in the case of agricultural products, and private taxi drivers, the price ceilings set by the Government result in the demoralization of producers, marketers and service providers. Therefore, the purported protection of the population cited by the regime as a pretext for its policies, is soon belied by the damage they do to everyday citizens. The shortages suffered by state markets are now coupled with a drop in the number of almendrones (as private taxis are called) on Havana's streets.
In any case, the situation that has spurred the authorities to meddle in the reformulation of prices and fees, which used to be freely determined, is viewed by many as just the tip of the iceberg, revealing the serious problems underlying the Cuban economy.