David R. Henderson  

Cuba's Wage Policy: Modified Nazi

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Robert Solow on Piketty... Talking to Mark Krikorian...

The writer of Schindler's List would understand.

The Economist writes:

But on March 29th Cuba's parliament approved a new foreign-investment law that for the first time allows Cubans living abroad to invest in some enterprises (provided, according to Rodrigo Malmierca, the foreign-trade minister, they are not part of the "Miami terrorist mafia"). The aim is to raise foreign investment in Cuba to about $2.5 billion a year; currently Cuban economists say the stock is $5 billion at most.

The law, which updates a faulty 1995 one, is still patchy, says Pavel Vidal, a Cuban economist living in Colombia. It offers generous tax breaks of eight years for new investments. However, it requires employers to hire workers via state employment agencies that charge (and keep) hard currency, vastly inflating the cost of labour.


This is from "Straight Talk," April 5, 2014.

Why do I give this post such a provocative title? Because, if you recall Schindler's List, you will recall that Oskar Schindler was not allowed to pay his Jewish workers anything. Instead, he paid their wages to the Reich. My impression is that the Reich, in turn, paid the Jews nothing. That's why I refer to the Cuban government's wage policy as "modified" Nazi. I'm sure the Cuban government pays the workers something.


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COMMENTS (23 to date)
Pajser writes:

Such policy has some sense to me. It seems unjust that worker in one company is paid for exactly same work more than worker in other company - just because some capitalist said so. If state can equalize that, use rest of the money for common good, I'd vote for it. If majority supported such policy, and others have right on exit, or even better, secession - I wouldn't see any problem.

Woodrow writes:

@Pajser The best way to make sure the pay is equal would be to make it so no employees are paid. Then everyone is completely equal. If two workers make the same amount and one saves and invests some of that income into a side business his income in the future could be higher. The only way to prevent this possible income inequality would be to prevent payment for all services provided by all employees.

ted writes:

@Pajser

If you'd set up a business and hire staff, you'd discover two things pretty quickly. First, that not all of them are "workers". Some are what I'd call "slackers". Second, you'll find vast differences between them, to the extend that some can be extremely valuable to the enterprise (if you're lucky), all to way to those that actually diminish or remove value from the enterprise.

The idea to pay all the same, based on the tasks assigned - even in the rare situation where these are identical - is absurd.

Pajser writes:

Ted, The idea to pay all the same, based on the tasks assigned - even in the rare situation where these are identical - is absurd. True. That's why I wrote "for exactly the same work", i.e. not only workplace. Perhaps my formulation was bad. For Marx, during "first phase of communist society" distribution is "to each according to his contribution."

Woodrow, The best way to make sure the pay is equal would be to make it so no employees are paid. Yes, I lived in such society for a while: it is an army.

Daniel Kuehn writes:

Can you provide a little more background on these employment agencies? It's hard to know what to make of your accusation without some more information. We could say Eisenhower's highway investments are "modified" Nazi policy too, but I'm not sure that gets us anywhere.

Do Cuba's employment agencies work like our One Stop centers? If so I could see reason to complain that foreign investors are required to seek out workers there, but it hardly merits comparison to Nazis. Or is it more of a tool for control rather than employment assistance?

Presumably there are no gas chambers waiting at the other end of things, which may be reason enough to be careful about the analogies. But even putting that obvious point aside I feel like it's worth knowing how these agencies work. I can't turn up much googling but I may not be looking in the right places.

ThomasH writes:

Taking a page from the book of another workers' paradise, N Korea.

john hare writes:

Pajser is right about equal pay for equal work. It's called commission work or piece work. One unit of pay per one unit of work. Very effective motivational tool that lets the slackers feel the effects of sloth, while the productive experience the benefits of performance.

With only the modifications that require hourly pay or salaries for work that is too difficult to unit price, we have our current capitalist wage system.

ted writes:

@Pajser

True. That's why I wrote "for exactly the same work", i.e. not only workplace. Perhaps my formulation was bad.

That's nonsense. It's virtually impossible to get people doing exactly the same work, even in the same company.

Not that it matters. If you could get person A working for company X doing the exact same work as person B working for company Y, this doesn't mean they're producing the same value. In fact, the difference might be colossal: company X might be making a hugely successful product wanted by millions of people, while company Y might be making something completely useless, or even destructive.

The amount of work has no relation to what the pay should be. We don't value things based on the amount of work (or investment, for that matter) put into them.

For Marx, during "first phase of communist society" distribution is "to each according to his contribution."

Quoting Marx doesn't impress me, having grown up in a country ravaged by Marxism.

Pajser writes:

Ted: It's virtually impossible to get people doing exactly the same work. Perfection is impossible - but approximation is possible and, I think, valid goal.

If you could get two persons working in different companies doing exact same work, this doesn't mean they're producing the same value. Even in the same company, generally, workers do not produce same value with same work. But maximization of the value is generally not their responsibility. If boss ordered to us to carry boxes, and we did it equally well, it is just only that we are paid equally. It is unjust that I'm not paid because boss ordered me to do something that later turns to be useless.

Market rewards or punishes workers for something that is not their responsibility. Market does exactly what I said that boss shouldn't do. I think it is unjust, i.e. there is nothing market has - and boss hasn't - that can justify different payment for the same work.

Am I right?

Edgar writes:

Pajser says "if state can equalize that" and then I think how someone can still argue that the state (in Cuba, Fidel) can equalize anything. As Don Boudraux likes to say, and then a miracle occurs (see http://cafehayek.com/2014/03/then-a-miracle-occurs.html ).

And please don't tell me Eisenhower did that in his highway investments or Colonel Sanders in his KFC or Joe Smith in his company. Foot voting is cheap in free societies but quite expensive in states that pretend to equalize wages.

Aaron Zierman writes:

Pasjer says "It seems unjust that worker in one company is paid for exactly same work more than worker in other company - just because some capitalist said so."

Do you really believe there's just some capitalist standing around arbitrarily deciding who gets paid what? No other factors than "just because I said so"?

john hare writes:

My comments here don't get as much feedback as the comments of some others. Is this an unfair response that Someone Should Do Something About? Or is it just that my comments do not have the value to other people that would merit their time to respond?

Occams' razor suggests the second, in which case I need to adjust either my expectations or my style and content. If we all got the same quantity and quality of response, how would I know that I needed to do something different?

Same with jobs. All pay equal equals deadbeats win.

Pajser writes:

Aaron Zierman You are right, many factors determine the wage. However, the capitalists can pay same wage for same work if they want. They do not because they do not care much.

Edgar: Leninist regimes, although largely unsucesseful, were relatively successeful in building more egalitarian societies.

John Hare: Don't worry about responses.

ted writes:

@Pajser

Am I right?

No, of course not. It's pretty simple: there's no rigid correlation between work and pay. There are vast differences between employees, and business. What some can do and what some can afford to pay is very circumstantial. And there's nothing unfair about that.

The idea of surrendering our freedom of contract - to politicians, of all people - to "fix" this, while fully knowing how such a "fix" has truly disastrous, long-lasting results (all we need to do is look at the 20th century) is, frankly, insane.

ted writes:

@Pajser

Edgar: Leninist regimes, although largely unsucesseful, were relatively successeful in building more egalitarian societies.

Actually, they weren't. Not in the way you imagine it.

At the moment, in the relatively free capitalist societies we live in, there's a pretty wide dispersion of income, wealth and a relatively low dispersion of rights. However, if you were to plot the incomes or wealth, you'd find that at pretty much any point, there's probably someone earning or having that much. It's not uniform, of course, more people earn 40k than 140k, but there's a lot of in-between, plus the opportunity (for the industrious, skilled or just plain lucky) to move up.

A very wealthy person can afford a marginally better car than mine, but they cannot kill me with impunity, for example.

In Marxist societies - or socialism - societies are very different. The wealthy are far more affluent than in capitalism. They amass all the power, including control of the justice system, police and armed forces. They have far more rights - for example, we regular people didn't have the right to travel abroad. we got shot if we tried to run away. You see, a socialist country is necessarily a prison: people like me would never consent to living there therefore they must be kept against their will.

We regular people couldn't just choose a place to live. To live in a different town, you needed a visa, which was hard to come by. The Party assigned the jobs, and you had to do as told. To give you an example, my father couldn't go to his sister's wedding: his state-employed boss forbade it.

The rich didn't even need to spend money to have great command of goods and services. Initially they got things by using force (for instance, murdering or imprisoning the former bourgeoisie) so they got their beautiful houses in the leafy neighborhoods. Later, when the system settles, a simple phone call will do, and they had the seaside palaces at their disposal, the chauffeured cars, the armed police escorts etc. Their kids went to special (closed) schools, they automatically landed position of influence in the Party and businesses etc. Marxism is very dynastically oriented. Everywhere.

Take an opposite example: a member of a very, very famous British band, who's a fabulously wealthy individual. His son is in jail after being caught with drugs. This was impossible in socialism. The justice system didn't apply to them.

When I say the "rich", please understand that in Marxism this is the same as the politicians, or the apparatchiks. This is what Marxism (and "progressivism") is all about: to destroy the current class of rich people and replace it with a new one, except that the new rich are purely politically (i.e. force-based), rather than economically (i.e. cooperation-based) driven to the top.

The differences between us and them were also a lot more basic than that. For example, the Party had special farms, to provide them with virtually (or entirely) free food, and special shops (with blacked out windows). I had a glimpse once: it was full of the decadent capitalist stuff they carefully guarded us against. While I had never seen coffee or meat in a shop until after the violent overthrow of socialism, they lived a completely different, sheltered life.

We had rationed cooking oil (half a liter per person per month), rationed sugar, flour, and the most annoying thing was that you couldn't just go and buy your ration, because there were always shortages. A neighbor would come running "there's oil at the shop" and you'd grab your little ration booklet, the empty bags, and run to queue, see if you're lucky.

Basic necessities, like toilet paper, were problematic. Never mind the quality - an American Marxist intellectual would probably have a heart attack if asked to wipe his behind with socialist toilet paper, which was closer to sandpaper than what anyone in a capitalist society can buy in any shop, for a pittance.

There were no tampons for women, they used cotton, which was hard to find. No single-use nappies (this was decadent Western stuff and only the rulers had access to that).

And queues, queues everywhere and for everything. Coming with your whole family to queue for bread, because often there was none so you had to stockpile it, and when they sold it they'd only give two per person.

Buying milk and yoghurt was only possible, in my town, at 5am. The queue was formed in the back of the shop - there was so little supply, and so much demand, that they didn't bother moving the items into the shop, they sold it off the back of the truck (literally). In 30min tops it was all gone.

Heat and electricity were cut regularly. I went through most of my childhood without hot water. Do you know what it's like, to live in a concrete block of flats, in a snowy winter, with no heating and no hot water? Our overlords didn't, for sure.

This was the great equality. It was utterly awful and I'm angry just thinking about it. And there was no place where Marxism produced better results. By comparison we had it good. The Chinese and Ukrainians starved by the million.

I'm not saying this to insult you, but today, a declaration in support of Marxism is impossible for me to see as anything else but an admission of insanity, maleficence, or crass stupidity (or any combination of the three).

Pajser writes:

ted: "there's no rigid correlation between work and pay. What some can do and what some can afford to pay is very circumstantial. And there's nothing unfair about that."

The circumstances did not fallen from the sky. These are the result of human decisions. Humans are responsible for the consequences of their decisions. If boss who pays two workers different wage for the same work is unjust, then market is unjust as well. There is nothing in the nature of market that can relieve people from responsibility for their decisions. They cannot just say "Oh, we are market, so now we don't care about consequences of our decisions, now it is circumstantial."

"They have far more rights - for example, we regular people didn't have the right to travel abroad. "

I didn't spoke about political rights. Clearly, Leninist countries were not egalitarian in that respect. But income was distributed on much more egalitarian way. Wage of company manager was something like five times greater than wage of worker. Elite had some privileges, dependently of country, but even if we count these privilegies, their value is much smaller than wealth of the modern capitalists. So, I think I have the point here.

I don't know enough about your country. You described it as very ugly. However, it is not enough to disqualify socialism generally or only Marxism. Existing experience is enough only for disqualification of Leninism or Marxism-Leninism.

Mark V Anderson writes:

Pajser wrote:

I didn't spoke about political rights. Clearly, Leninist countries were not egalitarian in that respect. But income was distributed on much more egalitarian way. Wage of company manager was something like five times greater than wage of worker.

I think Ted's point was that there is no essential difference between economic rights and political rights. Or maybe that unequal political rights are even worse. Regardless, the point is when you look at the comparative advantages of one society or another you need to look at both to see the full picture.

I presume Ted refers to the USSR.

Pajser writes:

There is little doubt that democratic capitalist regimes were overall better than Leninist regimes, better in almost all aspects. However, in some aspects, Leninist regimes were and still are successful. One is economic equality. It shouldn't be hard to admit that.

Political inequality seems to me as independent dimension. At least in the case of capitalism: there are democratic and non-democratic capitalist countries. On the other side, all attempts to build socialism were non-democratic. It is the fact, but I do not think it is logical necessity.

MikeDC writes:
There is little doubt that democratic capitalist regimes were overall better than Leninist regimes, better in almost all aspects. However, in some aspects, Leninist regimes were and still are successful. One is economic equality. It shouldn't be hard to admit that.

LOL.

ted writes:

@Mark V Anderson

No I did not refer to USSR, however it was pretty much the same everywhere they embraced Marxism. A clique picked up all the goodies, the rest were left in the dust, which is decidedly bizarre when hailed as a "fix" for today's "inequality".

@Pajser

I have literally no idea what you mean when you write stuff things such as "If boss who pays two workers different wage for the same work is unjust, then market is unjust as well.".

Unjust? Based on what? Since when it's justice for everyone to get the same thing?

Then considering the practicalities of each case, when in fact you discover that employees (*) are vastly different, and businesses are vastly different, it makes little sense to demand equal wages.

Of course, all this is wilfully ignoring what happens when you take away people's freedom of contract and entrust it to politicians and bureaucrats, as you argue. The result, as history showed time and time again, has nothing to do with justice and everything to do with injustice and widespread misery.

The market isn't unjust (or just), it just is. But as a massive conglomerate of micro-transactions between parties free to follow their self-interest, I trust its outcomes to serve everyone's cause far more than I trust the government.

(*) I notice that you keep writing "workers", as opposed to "bosses". I strongly recommend - to all Marxists - to start a small business and hire staff. See how the "exploiter" thing goes. I'll share a bit of my experience: I never had to steadily work weekends or after 8pm until I had my own little business, nor did my income ever vary so much (my employees always got their monthly paycheck, even if I had to pay it out of pocket). As an employee, I had the great luxury of going home once my work day was over and think about my free time. As an employer, there's little of such luxury.

I know other people in this situation, with similar findings. By the way, growing the company produces more financial stability, but also creates even more work and more stress, to the point where you might not want it any more!

In other words, when you say "worker", I think mostly about the "boss". He works the hardest. A lot of employees just don't care that much.

Pajser writes:

ted: "The market isn't unjust (or just), it just is. But as a massive conglomerate of micro-transactions between parties free to follow their self-interest, I trust its outcomes to serve everyone's cause far more than I trust the government."

That is basic difference between us. You believe that market is the result of just rules (private property, free trade ...) and outcome, whatever it is - has to be accepted.

For me, the outcome is the result of human actions and people who acted are responsible for outcome. Just like soldier in the army cannot say "I followed my orders and outcome of whole that war is not my responsibility", people on the market cannot say "I followed my self-interest and outcome of whole that market is not my responsibility."

The capitalism can survive extreme poverty, but not extreme inequality. If country is poor and 70% people are on the edge of starvation - maybe capitalism is still the best way out of that poverty. But, if in rich country only 40% of honest workers are on the edge of starvation, and other, similar workers are quite wealthy almost all people would recognize the system as "unjust." Inequalities in modern capitalism are smaller, but it means that injustice is smaller, not that there is no injustice at all.

I easily agree that the capitalists in early stage typically work hard and that capitalism produced more goods in 300 years than all other regimes in history combined.

ted writes:

@Pajser

That is basic difference between us. You believe that market is the result of just rules (private property, free trade ...) and outcome, whatever it is - has to be accepted.

That's not really how I think about it, or how I described it. The market is a very complex, non-deterministic universe of many actors. I simply trust more free people's ability to look after themselves, than a politician's intention or ability to do so.

I don't accept it because it's just. I accept it because the alternative will surely be worse, as history showed time and time again.

This is why I don't agree with "progressives". There are many things people do that I disagree with, but I don't think that taking their freedom away and entrusting it to politicians - of all people - will make things better.

For example, you want the state to equalise salaries. This basically takes away people's freedom of contract and gives it to politicians. I think this is a disastrous policy.

To begin with, the market is very, very good at equalising salaries. Globally. (This is actually one of the arguments against globalisation).

Looking back at my own experience, I can tell you that corporations are very sensitive to differences between salaries. I worked for a corporation for many years and I know that they commissioned a very comprehensive yearly study of salaries across the industry, in all the countries where they operated. This is because companies are very keen to hire and retain good staff. So there you go, without any politician or bureaucrat threatening them with the people with guns, the free market did it by itself.

Small companies typically cannot compete on salaries. Which is why they give other incentives: more flexible hours, potentially valuable shares, lighter "process", more individual freedom, more interesting work etc.

At least in my domain, equalising salaries would be a disaster for small companies and a boon for corporations, if you choose the higher number. If you choose the lower number, it would be a disaster for the "workers", as you call them.

In socialism, the state dictates salaries and they are equalised as you want them. The results are many-fold. Productivity plummets, because there's no incentive to work harder if all you get is the same pay as the slackers. Really the only way to make more money is to move up. And since the state already got so much power and took people's freedom of contract away, it's trivial to take on more power, such as establishing who's moving up. Once promotions in commercial enterprises are politically motivated and dictated by the state, it all becomes politics: the worst rise to the top, and the economy collapses. Case in point, this happened every time they did what you so enthusiastically embrace.

Pajser writes:

OK, I see. Thank you for focused discussion and sharing your experiences.

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