Tag Archives: Private Sector

VOCES DE CAMBIO EN EL SECTOR NO ESTATAL CUBANO. Cuentapropistas, usufructuarios, socios de cooperativas y compraventa de viviendas.

Mesa-Lago, Carmelo (coord.) Veiga González, Roberto; González Mederos, Lenier; Vera Rojas, Sofía; Pérez-Liñán, Aníbal

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Septiembre de 2016

See: VOCES DE CAMBIO

Más de un millón de personas, casi un tercio de la fuerza laboral cubana, está en el “sector no estatal” de la economía: trabajadores autónomos, usufructuarios de la tierra, miembros de nuevas cooperativas, compradores y vendedores de viviendas privadas y otros grupos. Aunque se trata de la reforma estructural más importante de Raúl Castro, que conlleva una reducción gradual del sector estatal, poco concreto se sabe sobre las características (edad, género, raza y educación), condiciones económico-sociales y aspiraciones del emergente sector no estatal.

Basado en 80 entrevistas intensivas hechas en Cuba entre 2014 y 2015, el libro recoge las voces del sector: hablan sobre su nivel de satisfacción con lo que hacen y ganan, sobre empleados contratados y formas de pago, ganancias y su distribución entre inversión y consumo, planes de expansión de los micronegocios, recibo de remesas externas y microcréditos, competencia y publicidad, y pago de impuestos.

La parte crucial es la que detalla las voces sobre los principales problemas que enfrentan los cuentapropistas y sus deseos de mejora o cambio.

Dice un trabajador autónomo: “Debe haber rienda suelta a toda esta fértil imaginación que estamos demostrando los cubanos, que se realice sin trabas, de manera libre, que el gobierno permita que esto fluya, no lo dificulte y controle sólo lo que debe controlar”.

COORDINADORES

Coordinado por Carmelo Mesa-Lago, Catedrático Distinguido de Economía y Estudios Latinoamericanos en la Universidad de Pittsburgh. Es autor o editor de 93 libros y 300 artículos/capítulos en libros sobre economía de la seguridad social en América Latina, la economía cubana y sistemas económicos comparados, traducidos a 7 idiomas y publicados en 34 países. Ha recibido los premios Arthur Whitaker (1982), Hoover Institution (1986) y Alexander Von Humbolt Stiftung (1991, 2002).

El libro cuenta con la colaboración de Roberto Veiga González y Lenier González Mederos, cubanos residentes en la Isla que realizaron las entrevistas; la de Sofía Vera Rojas y Aníbal Pérez-Liñán que llevaron a cabo las tabulaciones y su análisis.

Iberoamericana Editorial Vervuert, S.L.U.

c/ Amor de Dios, 1
E-28014 Madrid
E-Mail: info@iberoamericanalibros.com

R121015

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ALTERNATIVE INSTITUTIONAL FUTURES FOR CUBA’S MIXED ECONOMY

Archibald Ritter                                                                                          

February 1, 2016

Since 2010, Cuba has been implementing a redesigned institutional structure of its economy. At this time it is unclear what Cuba’s future mixed economy will look like. However, we can be sure that it will continue to evolve in the near, medium and longer term. A variety of institutional structures are possible in the future and there are a number of types of private sector that Cuba could adopt. Indeed it seems as though Cuba were moving towards a number of possibilities simultaneously.

The objective of this note is to examine a number of key institutional alternatives and weigh the relative advantages and disadvantages for each arrangement.  All alternatives include some mixture of domestic or indigenous private enterprises, cooperative and “not-for-profit” activities. foreign enterprise on a joint venture or stand-alone basis, some state enterprises (in natural monopolies for example) and a public sector.  However, the emphasis on each of these components will vary depending on the policy choices of future Cuban governments.

The possible institutional structures to be examined here include:

1. Institutional status-quo as of 2016;

2. A mixed economy with intensified “cooperativization”;

3. A mixed economy, with private foreign and domestic oligopolies replacing the state oligopolies;

4. A mixed economy with an emphasis on indigenous small and medium enterprise.

 Option 1. Institutional Status-Quo as of 2016

The institutional “status quo” is defined by the volumes of employment in the registered and unregistered segments of the small enterprise sector, the small farmer sector, the cooperative areas, the public sector, and the joint venture sector, plus independent arts and crafts and religious personnel.  The employment numbers are mainly from the Anuario Estadístico de Cuba together with a number of guesstimates, some inspired by Richard Feinberg (2013). The guesstimate for unregistered employment in the small enterprise sector may seem exaggerated. However, a large proportion of the “cuentapropistas” utilize unregistered workers and a proportion of the underground economy does not seem to have surfaced into formally registered activities.  These employment estimates by institutional area are presented in Table 1 and illustrated in Chart 1, which also serve as a “base case” for sketching the other institutional alternatives.

Table 1 z zz

The current institutional status quo has a number of advantages but also some disadvantages. On the plus side, adhering to the status quo would avoid all the uncertainties and risks of a transition.  It would maintain the possibility of “macro-flexibility,” that is the ability for the central government to reallocate resources by command in a rapid and large scale fashion. However, in view of the numerous “macro errors” made possible by a centralized command economy (the 10 million ton sugar harvest of 1970, the “New Man” endeavor, shutting down half the sugar mills), “macro-flexibility” may be a disadvantage.  There are major advantages for the Communist Party in maintaining the institutional status quo in the economy, namely enabling political control of the citizenry (a disadvantage from other perspectives) and continuing state control over most of the distribution of income (also a disadvantage from other perspectives).  The approach also helps foster good relations with North Korea (I am running out of advantages).

There are also major disadvantages. The centralized planned economy and public enterprise system generates continuing bureaucratization of production; continuing politicization of state-sector economic management and functioning; continuing lack of an effective price mechanism in the state sector and continuing perversity and dysfunctional of the incentive structure. The result of this is damage to efficiency, productivity and innovation.

 OPTION 2. Mixed Economy with Intensified “Cooperativization”

zzzA second alternative might be to promote the authentic “cooperativization” of the economy in a major way.  This would involve permitting cooperatives in all areas, including professional activities; opening up the current approval processes; encouraging grass-roots bottom-up ventures; providing import & export rights; and improving credit and wholesaling systems for coops.

 This approach has a number of advantages. First, it would strengthen the incentive structure and elicit serious work effort and creativity on the part of those in the coops.  This is because worker ownership and management provides powerful motivation to work hard and profit-sharing ensures an alignment of worker and owner interests. This approach would generate a more egalitarian distribution of income than privately-owned enterprises. Cooperatives may possess a greater degree of flexibility than state and even private firms because their income and profits payments to members can reflect market conditions. Perhaps most important, democracy in the work-place through effective and genuine coops is valuable in itself and constitutes an advantage over both state- and privately-owned enterprise.  [Workers’ ownership and control proposed in Cuba’s cooperative legislation is ironic and perhaps impossible since Cuba’s political system is characterized by a one-party monopoly.  On the other hand it may help propel political democratization.]

The “second degree cooperatives” or “cooperative coalition of cooperatives” called for in the cooperative legislation is particularly interesting as it may permit  reaping organizational economies of scale (a la Starbucks, McDonalds, etc. ) for small Cuban coops in these areas.

An emphasis on cooperatives would help to maintain ownership and diffused control and profit-sharing among local citizens, thereby promoting greater equity in income distribution.

But cooperatives also face difficulties and disadvantages.  First, are they really more efficient than state and private enterprises? Generally speaking, cooperatives have passed the “survival test” but have not made huge inroads against private enterprise in other countries over the years.  Perhaps this is because the “transactions costs” of participatory management may be significant.  Personal animosities, ideological or political differences, participatory failures and/or managerial mistakes may occur.  And for larger coops, complex governance structures may impair flexibility.

 Second, Cuba’s actual complex co-op approval process is problematic and creates the possibility of political controls and biases. Certification of professional cooperatives is unclear. Also, the hiring of contractual workers is problematic

  • The “Hire or Fire after 90 days” rule may curtail job creation;
  • The 10% limit on contractual labor also may curtail job creation;
  • Governance may be impaired if uncommitted workers have to join.

Finally, what will be the role of the Communist Party in the cooperatives?  Will it keep out of cooperative management?  Will Party control subvert workers’ democracy and deform incentives structures?

OPTION 3. Wide Open Foreign Investment Approach zzzzA third possibility would be to open up completely to foreign investment. This would involve a rapid sell-off of state oligopolistic enterprises to deep-pocket foreign buyers such as China, the United States (in due course), Europe, Brazil, or elsewhere.  The buyers might be the Walmart’s, Lowes, Subways, or Starbucks of this world, wanting to acquire major access to the Cuban market. This is a strong possibility if existing state oligopolies (e.g., CIMEX and Gaviota) were to be privatized in big chunks. The policy requirements for this approach to occur would be rapid privatization plus indiscriminate direct foreign investment and takeovers by large foreign firms.

 This approach does have some advantages.

  • It would generate large and immediate revenue receipts for the Cuban government;
  • It would lead to large and rapid transfers into Cuba of financial resources; entrepreneurship and managerial talent; physical capital (machinery and equipment and structures); most modern technology embedded in machinery and equipment; and personnel where and when necessary;
  • The results would be rapid productivity gains, higher-productivity work and rapid GDP gains.

However, there would also be disadvantages such as:

  • Profits would flow out ad infinitum;
  • Income concentration: profits to foreign owners (e.g. the Walton family of Arkansas who practically own Walmart) and profits to oligopolistic domestic owners;
  • Oligopolistic economic structures would be damaging in the long run;
  • There would be a strengthened probability of lucrative employment and ownership for the civilian and military “Nomenclatura”;
  • Blockages or inhibitions to the development of Cuban entrepreneurship;
  • “Walmartization” of Cuban culture; dilution of Cuban uniqueness;
  • Further reduction of the potential for diversified manufacturing in Cuba (e.g. due to the  Walmart/China  mass-purchaser/mass-supplier symbiosis);
  • Probably a blockage of export diversification.

 OPTION 4: Pro-Indigenous Private Sector in a Mixed Economy

zzzzzA fourth possibility would be for Cuba to promote its own small-, medium- and larger enterprises in an open mixed economy. This would require

  • An “enabling environment” for micro, small and medium enterprise with a reasonable and fair tax regimen; an end to the discrimination against domestic Cuban enterprise (See Henken and Ritter, 2015, Chapter 7);
  •  The establishment of unified and realistic monetary and exchange rate systems;
  •  Property law and company law.

A liberalization of micro-, small and medium enterprise would also be necessary to release the creativity, energy and intelligence of Cuban citizens.  This would involve open and automatic licensing for professional enterprises;  an opening up for all areas for enterprise – not only the “201”; permission for firms to expand  to 50 + employees in all areas; creation of wholesale markets for inputs; open access to foreign exchange and imported inputs;  full legalization of “intermediaries” ; and permission for advertising.

 This approach has some major advantages:

 Oligopoly power would be more curtailed compared to Option 3;

  • The economy would be more competitively structured with all the benefits this generates;
  • It would encourage a further flourishing and evolution of Cuban entrepreneurship;
  • It would permit the development of a diversified range of manufacturing and service activities and also a greater diversification of exports;
  • It would provide a reduced role for the “Nomenclatura” of military and political personnel and their families that would otherwise gain from the rapid privatization of state enterprises;
  • It would decentralize economic and thence political power and reduce the power for government to exert political influence through economic control;
  • It would generate a more equitable distribution of income among Cuban citizens and among owners than Option 3;
  •  Profits would remain in Cuba;
  •  There would be a stronger maintenance of Cuban culture.

There would be some disadvantages with this approach.

  • There would be no massive and immediate cash infusion to Government from asset sell-offs.   Or is this an advantage?  [more effective use of in-coming revenues]
  •  Perhaps there would be a slower macroeconomic recuperation;
  • There would be slower inflows of technology, finance, managerial know-how – but more domestically controlled.

Conclusion

Most likely, Cuban policy-makers in the government of Raúl Castro, the government of his immediate successor, and future governments of a politically pluralistic character will design policies that ultimately will lead to some hybrid mixture of the above four possibilities.  I of course will have little or no say in the process. However, my personal preference would be for an economy resembling the structure in the accompanying chart, with a large “indigenous” private sector, a significant cooperative sector, of course a large public sector for the provision of public goods, a small sector of government-owned enterprises, and a significant private foreign and joint venture sector. zzzzzzSo my bottom-line recommendations for current and future governments of Cuba would be:

  1. Utilize Cuba’s abundant resource — well-educated, innovative, strongly-motivated entrepreneurship — effectively, by further liberalizing the regulatory and fiscal regime for the indigenous micro-, small and medium enterprise sector, thereby also promoting Cuba’s indigenous economic culture;
  2. Use Cooperatives and “Coops of Coops” where possible;
  3.  Avoid “Walmartization” & homogenization of Cuban economy and culture by utilizing an activist policy towards direct foreign investment.

Bibliography

Feinberg, Richard E., Cuba’s Economic Change in Comparative Perspective, Brookings Institution, 2013

Oficina Nacional de Estadísticas, Anuario Estadístico de Cuba, 2014

Ritter, Archibald and Ted Henken, Entrepreneurial Cuba, The Changing Policy landscape, Boulder Colorado: Lynn Rienner, 2015

 

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NUMBER OF SELF-EMPLOYED IN CUBA EXCEEDS HALF A MILLION

14ymedio, Havana | Junio 13, 201513, 2015

Original article here: 14YMEDIO  504,613  

At the conclusion of the month of May, the number of self-employed persons in Cuba had risen to 504,613, as shown in a report from the Ministry of Labor and Social Security (MLSS) published Saturday. Of these, at least 17 percent combine their work in the private sector with a government job.

The document also notes that among people with a license to practice an occupation on their own, there are some 155,605 young people, a number that grew by 7,912 during the first quarter of the current year.

Moreover, some 154,756 women are self-employed, while 62,043 retired people have chosen to re-enter working life through this non-State form of employment.

The report also reveals that the provinces of Havana, Matanzas, Villa Clara, Camaguey, Holguin and Santiago de Cuba lead the rest of the country, accounting for 66 percent of workers engaged in these occupations.

The most common activities are still making and selling food, transport of cargo and passengers, renting of housing, rooms and spaces, telecommunications agent, and contract workers, the latter associated primarily with the first two listed activities.

The expansion of the process of self-employment began in October 2010 and the promising initial growth has been overtaken in the last year by a slower increase. Self-employed people complain about the high taxes, the lack of a wholesale market, excessive restrictions on what they are allowed to do, and the lack of permits to import raw materials.

SOME PRIVATE SECTOR ACTIVITIES

Cuba April 2015 032Flamenco Music and Dancers at a State Restaurant.

Cuba April 2015 043Private Transport and Tourist Guide

Cuba April 2015 114At the Arts and Crafts Sales Center

Cuba April 2015 112Arts and Crafts Market

Cuba April 2015 120Food Vendor

Cuba April 2015 168“Cafetera”

Cuba April 2015 179Mobil Phone Repair

[photos by A. Ritter, April 2015]

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CUBA’S NEW PRIVATE SECTOR EMPLOYEES REVEAL WHERE THE REFORM PROCESS IS HEADING

22 September 2014 – Havana Times

Rogelio Manuel Diaz Moreno

 http://www.havanatimes.org/?p=106289

The Cuban government’s reforms continue to make slow, somewhat erratic progress and to evince a series of unique characteristics and tendencies that are food for thought.

Let us recall, first, that Cuban politicians like to refer to this process as the “updating of Cuba’s economic system.” This past Friday, Cuba’s official newspaper, Granma, proudly informed readers about one of the sectors now at the forefront of the process, the food industry. Reading the article, one immediately senses that its author, journalist Lorena Sanchez, suffers from the deeply-rooted shyness that characterizes government propagandists, those who refuse to call the private sector by its name and use the euphemism “non-State” in its place. Perhaps she merely transcribed the message from the Vice-Minister for Domestic Trade Ada Chavez Oviedo: in short, that private or “non-State” forms of ownership will prevail in the sector once it has been fully “modernized.”

In her report, we find out that 68 % of the country’s better known food establishments are still under State management. Over a thousand have been passed on to the self-employed and cooperatives (mostly the former). Here, we run into a fact that is alarming for left-wing forces. If the process of de-nationalization was planned by an allegedly socialist government, why weren’t cooperatives prioritized? Will the same tendency characterize the de-nationalization of the establishments that have yet to be “updated”?

Agriculture and the food industry have experienced the most visible changes, perhaps because they were facing the most severe crises. Farms, cafes and restaurants have been the paradigms of bad and inefficient State management. In both cases, the main solution has been to place the means of production in private hands.   In effect, we are now witnessing substantial changes in the activities conducted in these sectors, prosperous fields and quality services where before there was nothing but marabou brush and flies. One cannot help but wonder, however, about the actual potential of these reforms, which are more liberal than anything else, and about who is reaping the actual profits of this.

Another article published by Granma a few days before reported that the largest number of self-employed workers aren’t exactly “self-employed”, but rather the employees of someone else – small or mid-scale private entrepreneurs. In fact, the number of such employees in the country isn’t larger because of how small most businesses are. This data can prove useful for a study of the changes our society is experiencing.

Champions of capitalism say that the market economy and privatizations are good because they increase the number of property owners, of prosperous individuals. Our government’s spokespeople praise the “updating” process, based on liberal and market reforms, because it will lead to prosperity, or so they claim.

I invite readers to go out for a stroll around Cuba’s cities and talk with the people who stand behind the counters of private restaurants and food stands owned by others, to ask these employees whether their working hours abide by the limits established in the recently-approved Labor Code, how many vacation days the owners grant them, and, if they are women of reproductive age, whether they believe that they can have a child and keep their jobs. If you do, don’t ask them whether they can ask for a raise – you wouldn’t want to get them fired on the spot. The owner, see, is sacrosanct, and Cuba’s blessed Labor Code gives them the authority to do just that. We are simply to accept that they’re being generous enough by paying more than the State. Afterwards, take a trip to the countryside and ask the farmhands employed on the ranches of the more fortunate farmers – those with both land and connections – the same questions.

The liberalization of the food industry and other sectors, given the “successes” the government boasts of, is probably representative of what is to come. Both the facts and history suggest that the Cuban State will continue to fail at most of its economic endeavors. Unable to solve these itself, it will have two alternatives: dismantle such production and service centers, or hand them over to the self-employed or cooperatives.

The more liberal option has been the most common implemented to date. With every step taken in this direction, with the expansion of the means of production involved, the exploitation of workers by private entrepreneurs, owners or managers of such means of production, will invariably increase. It is also true that, till now, State exploitation had been the norm.

Will we improve as a society following the privatizations that are presumably to come? It is not an easy question to answer, for we aren’t doing well at all right now. What’s certain is that the path ahead of us is a 180 degree turn from the road towards legitimate socialism, and that, in other parts of the world, this road has led to severe and irreparable damage to the so-called middle classes, to the concentration of property in a handful of individuals and to the extreme polarization of society between wealth and power and poverty and despair.

In short, the path traced by the “updating of Cuba’s economic model” is strewn with contradictions. One day, the authorities create more possibilities for private initiative. A short while later, they restrict these same spaces. They want for the private sector to absorb all who have been laid off or will be by the State sector, but they curtail the basic conditions needed for the development of the sector, such as the opening of wholesale markets and imports through different channels. They want to open the entire country to foreign investment, but they do not allow foreign investors to deal directly with the work force, setting up an onerous and profitable State mechanism that acts as intermediary.

The government also has its ways of dealing with the ideologically restless. One day, the papers expound on philosophical hesitations with pronouncements such as “no one knows for certain how socialism is built.” The next day, they reveal that the Council of Ministers has traced a development plan for the economy, society and politics for 2030 and beyond. The only problem is that they don’t tell you what those plans are. Some time later, they tell us they are going to save socialism through a battle in the field of ideas and culture, ignoring the vital space of society’s material reproduction.

What one discerns from below following a simple class-conscious analysis is a tendency towards the kind of capitalism that the opposition wants – but with the current governing class, the one that speaks of “updating socialism”, at the top, and without opposition. The government and opposition, thus, will continue to quarrel, and each will thwart the concrete progress of the reforms with the same objective that unites them and rifts them apart.

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Soft Landing in Cuba? Emerging Entrepreneurs and Middle Classes

By: Richard Feinberg

An excellent and fascinating examination of Cuba’s emerging private sector by Richard Feinberg was published in November by the Brookings Institution and is available at the Brookings Web Site here: Feinberg Study.

The complete  document is available here: Soft landing iin Cuba: Emerging Entrepreneurs.

Table of Contents:

New Picture (8)

From the Brookings Site:

A dynamic, independent private sector is rapidly emerging in Cuba, despite the dominance of the state-run socialist system. The private sector is quickly absorbing workers laid off from the state, enlarging its growing middle classes and defining a new Cuba. The old narrative — that Fidel and Raul Castro had to pass from the scene before real change could occur — has been discredited by these current trends.

More and more Cubans are opening bed and breakfasts, cafes and snack bars, small shops and markets, and offering services in areas such as construction and technology. But challenges in accessing capital, along with burdensome taxation, often prevent some of these operations from growing into larger firms.

It remains to be seen whether the powerful Cuba state is prepared to allow these businesses to expand and partner with state entities, creating a hybrid market socialist economy that can accelerate growth into a legitimate boom.

In Soft Landing for Cuba? Emerging Entrepreneurs and Middle Classes, Richard Feinberg provides:

• History of emerging private enterprise in Cuba

• Case studies of the challenges entrepreneurs face in launching and expanding their operations

• Recommendations on what the Cuban – and U.S. – governments can do to can cultivate a more inclusive economy, bringing prosperity to the wider population.

New Picture (7)Richard FeinbergRichard Feinberg

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