Tag Archives: Underground Economy

The Causes & Consequences of Cuba’s Black Market

21 August 2014 –  Havana Times – Fernando Ravsberg*

http://www.havanatimes.org/?p=105653

HAVANA TIMES — The Cuban press is out to get re-sellers, as though their existence were news to anyone, as though they just now realized there is a black market that’s on every street corner in the country, selling just about everything one can sell.

In a news report aired on TV, they went as far as insinuating that some employees at State stores are accomplices of those who hoard and re-sell products. They are now “discovering” that the black market stocks up, in great measure, thanks to the complicity of store clerks. The reporting remains on the surface, addressing the effects but not daring to go to the root of a problem that has burdened the country for decades as a result of the chronic shortage of products – from screws to floor mops.

During the early years of the revolution, these shortages could be chalked up to the US embargo. Today, however, Cuba maintains trade relations with the entire world and can purchase the products people need in other markets. It doesn’t even seem to be a financial problem, because the products become available and disappear intermittently. Shaving foam can disappear for a couple of months and reappear at all stores overnight.

These ups and downs are what allow a group of clever folks to hoard up on and later re-sell these products at higher prices. A lack of foresight and planning when importing is what creates these temporary shortages that make the work of hoarders easier.

There is no doubt Cuba has a planned economy. The question is whether it is actually well planned. The truth is that, for decades, the country’s domestic trade system has functioned in a chaotic manner and no one has been able to organize it minimally.

A foreign journalist I know recently noted that, when toilet paper disappeared from all State shops, a supermarket in Havana had a full stock of pickled partridge that no one buys.  Who would decide to buy such a luxury canned product at a time when most store shelves are practically empty? The story brings to mind that anecdote involving a government official who imported a snow-sweeper to Cuba.

The Market and Consumption

Cuba’s domestic trade system doesn’t require “reforms”, it demands radical change, a new model. Such a change should begin with Cuba’s importers, bureaucratic companies that are ignorant of the interests and needs of consumers and buy products without rhyme or reason.

Many of their employees receive [under the table] commissions from suppliers and therefore prioritize, not the country’s interests, but their own pockets. They are the same people who received money from the corrupt foreign businessmen recently tried and convicted in Cuba.

To plan the country’s economy, the government should start by conducting market studies and getting to know the needs of consumers, in order to decide what to purchase on that basis. It Is a question of buying the products people need and in quantities proportional to the demand.

Planning means being able to organize import cycles such that there is regular supply of products, without any dark holes, like the ones that currently abound in all sectors of Cuba’s domestic trade, from dairy products to wood products.

Sometimes, this chaotic state of affairs has high costs for the country’s economy, such as when buses are put out of circulation because spare pieces were not bought on time, there isn’t enough wood to build the crates needed to store farm products or a sugar refinery is shut down because of lack of foresight.

Even the sale of school uniforms at State subsidized prices experiences these problems owing to a lack of different sizes. This is a problem seamstresses are always willing to fix, charging the parents a little extra money.

Cuba’s entire distribution system is rotten. Importers are paid commissions, shopkeepers sell products under the counter, butchers steal and resell poultry, ration-store keepers mix pebbles in with beans, agricultural and livestock markets tamper with weighing scales and bakers take home the flour and oil.

In the midst of this chaos we find the Cuban consumer, who does not even have an office he or she can turn to and demand their rights (when they are sold rotten minced meat, and old pair of shoes or a refrigerator that leaks water, for instance).

Speculation is no doubt a reprehensible activity, but it is not the cause of the black market. The country may launch a new campaign against hoarders, but it will be as unsuccessful as all previous one if an efficient commercial system isn’t created.

Posted in Blog | Tagged , , , | Leave a comment

Juan Triana: “From the submerged economy to micro-enterprise, are there any guarantees for the future?”

Dr.  Juan Triana Cordoví, Universidad de la Habana

November 15, 2012

Submerged economy, merolicos, informal workers, cuentapropistas, self employed, a “necessary evil”, are some of the qualifiers used to describe individuals who work in the independent sector in Cuba closely reflects the fluctuations and reversals to which the non-state run economy has been exposed, and which in a way have been a thermometer for the transformations of the Cuban economy.

Art Market, on the Malecon. Photo by A. Ritter

I. Some history: from the revolution to the rebirth of the independent work in 1993

As a result of the Cuban revolution in 1968, about 58,000 private businesses were nationalized, mostly small family businesses, focused on retail and restaurants. Some other small businesses worked in some kind of craft or industry, but these were generally low-tech. Some estimates put those businesses as employing between three and seven workers each. If we estimate an average of five workers per business, then the sector generated employment for about 300,000 people, out of a total population that exceeded six million.

Self-employment appeared when the different alternatives generated from the State failed to meet the demands of the population for different services and products (On July 3, 1978 Executive Order No. 14 was issued to regulate self-employment activities to be exercised by workers), but after a brief period of expansion, it languished in the absence of stimulus policies and its tacit rejection based on ideological and political considerations.

Self employment was revived in 19931 (Executive Decree 141) in response to the adjustments in the production and employment sectors generated by the crisis. It was accepted as a “necessary evil,” but not as an integral part of a development strategy destined to occupy a legitimate space to contribute to growth efforts 2.

Far from policies to stimulate and insert it in the operating dynamics of the economy, those policies helped to marginalize it, restrict it and prevent a qualitative transformation, which caused the decline of the sector (between 1996 and 2001 by 40%), its geographical concentration (especially in Havana) and concentration on the most profitable activities (food, transport and rentals)

That same policy that limited the access of new workers to the sector caused the generation and appropriation of undue rents, supported by the virtual monopoly in some market segments by those who “had come first,” into the sector and were later “protected” by the State. This was really ironic because the barriers to enter the sector that were created from the institutions that were supposed to “regulate” it, and the restrictive policies established, reduced competition in the “cuentapropista” sector, allowing the accumulation of income, not based on productivity and efficiency, as well as the expansion of informal channels of supply, some of them, hard to quantify, in many cases from state agencies, creating disincentives for improvement and innovation.

There were two big losers: the dynamics of the national economy, as an economic circuit was generated separately from the rest of the economy, and the population (clients) who debated between the government monopoly over some services, and the monopoly that almost unwittingly was exercised by portions of the self-employed over some (most lucrative) activities and services that were “unregulated”.

II. “Cuentapropismo” beyond “cuentapropismo

 Studies of this sector in Cuba, have often given priority to its importance for the economic liberalization and decentralization, as well as its significance from the point of view of the expansion of market relations. There is another perspective on this issue that also must be addressed. Micro, small and medium enterprises are part of the skein of any economy, regardless of the degree of development. Their contribution to employment is significant, the flexibility and maneuverability that it gives the economies (even developed economies) allowing systematic adjustments is unquestionable, and in some economies, this sector even has innovation capabilities that should not be ignored.

Until not very long ago, the “cuentapropista” sector in Cuba was a marginal sector, but this has drastically changed starting on 2011, and this trend should increase in the coming years.3

Table 1. Employment Dynamics

         2008    2009      2010      2011

Total number of employed  (thousands)     4.948,2   5.072,4  4.984,5  5.010,2

State sector                         4.112,3   4.249,5  4.178,1  3.873,0

            Cooperatives                            233,8      231,6     217,0     652,1

            Private                                      602,1      591,3     589,4    485,1

            Independent workers            141,6      143,8     147,4    391,5

Source: ONEI, Anuario estadístico de Cuba 2011.

A reading of the data reveals some new features of the national economy regarding employment:

a. The total number of the employed fluctuates around five million people and it should grow significantly in the coming years.

b. The participation of the state sector continues to be decisive in total employment, but it has declined in the past two years.

c. In the non-state sector, the number of the employed decreased as a whole4, but the “cuentrapropista” sector was able to generate 244,000 jobs.

A fact that is relevant to the survival of the cuentapropista sector in the medium and long term is that it has become a significant element of employment for the country, since no other sector with so little capital is able to generate that amount of employment, so it is “socially desirable”. It is also the fastest growing sector in female employment in recent years. All these “objective reasons” give certain guarantee in the medium and long term for the existence of “cuentapropismo”. Today it is a functional sector due to the reforms undertaken in 2007 and consolidated in 2011.

A Fine New Restaurant: Paladar “Dona Eutimia”, Callejon del Chorro, Plaza de la Catedral, opened February 2010; Photo by Arch Ritter

 III. Institutionalis m and “cuentapropismo

 Another perspective of this analysis is associated with the institutional protection that has been created to protect the independent sector.

The “modern legal network” directly associated with the expansion of self-employment was initially contained in two special issues of the Official Gazette of the Republic of Cuba published on October 25, 2011 (numbers 11 and 12, dated 1 and 8 October, respectively). They included five legislative decrees, an executive decree, an agreement of the Executive Committee of the Council of Ministers, and fourteen ministerial decisions.4 Probably due to two factors: the contraction of the foreign companies and the loans and services cooperatives.

With regards to Legislative Decree 141 of 1993, the 2011 modernization of the statute introduced obvious advantages, as it:

• Allowed commercial exchanges between “cuentapropistas” and Government entities.

• Authorized hiring a workforce, automatically converting “cuentrapropistas” into micro entrepreneurs.

• Conferred the status of taxpayers and Social Security recipients.

• Authorized access to bank financing.

• Allowed the rental of government or third party premises and assets.

• Authorized the exercise of several trades by the same person.

• Removed the restriction of having to belong to a territory to exercise a trade in it.

• Dispensed with the requirement of being retired or have some employment link to access this form of employment.

• Removed the restriction on the rental of a whole house or apartment, to allow the leasing of rooms by the hour and the use property assigned or repaired by the state in the past decade.

• Allowed the leasing of homes and vehicles to people who have residence abroad or to those living in Cuba, but leaving the country for more than three months, for which they can appoint a representative.

• Increased the capacity to fifty seats in the “paladares”, removed the restriction to employ only family members, and the ban on the sale of food products made with potatoes, seafood and beef.

 As a result, a new regulatory environment has been created that exceeds the direct legal network. As part of the reform, as well as other measures authorizing the sale of houses and cars, for example, allows legal improvement to the facilities of the business, and the sale of cars which can improve the “assets” of new businesses.

In addition, the land lease policy and its recent update could facilitate the increase of supplies for those engaged in food services.

A sign that the sector considerations have changed, and that the current government wishes to convey security and transparency, is the submission to the National Assembly in the summer of 2012, of a new tax law that incorporates some additional benefits for independent workers, which include:

• The tax burden of the self employed is reduced between 3% and 7% for the segments with higher and lower income, respectively.

• A tax rate decrease for the use of labor force in the sector of self-employed workers, from 25% to 5% in the term of 5 years. It also maintains this tax exemption for the self-employed, individual farmers and other individuals authorized to hire up to 5 workers.

 To these considerations we should add the “ideological and political institutionalization” of the sector, whose best expression is reflected in the words of President Raul Castro:

“The increase in the private sector of the economy, far from being an alleged privatization of social property, as some theorists claim, is destined to become a facilitating factor for the construction of socialism in Cuba, as it will allow the State to focus on raising the efficiency of the basic means of production owned by the people and release the management of nonstrategic activities for the country … we must facilitate the management and abstain from generating stigma or prejudice towards them and demonize them” ….. and later added “This time there will be no return”.

 Soon, a new regulation for the operation of cooperatives in the agricultural sector will be released, which will enrich the environment in which the self-employed sector operates, will introduce new competitive challenges and make the economic fabric of the country more complex, generating new production chains.

Certainly, there is still a long way to go. Eventually it will be necessary to formally take the step from “cuentapropismo” to micro, small and medium enterprises. The time has come to consider legislation regulating a negative list (much smaller than the current listing of allowed work) of jobs that cannot be exercised privately. The time has come to incorporate offices and university professionals in jobs directly related to their careers to prevent their loss by emigration or non-use, and/or the waste of human potential unquestionably created in recent years, who have proven to be highly competitive in “other markets “. At some point, it will be necessary to incorporate into the Constitution of the Republic these new realities to begin to delineate a new economic model, but also to begin to draw a new model of development for the country, in which productivity gains and efficiency cannot be expected to only come from the state sector.

1 (*) Professor of the Centro de Estudios de la Economía Cubana, Universidad de la Habana.

(**) Cuentapropista used interchangably with self-employed in translation.

In 1993 it was established who could be self employed: state enterprise workers, retirees, the unemployed who receive subsidies from the State.10 and housewives11, and what activities, especially manual could be included, limiting access to those who could compete with the state.

2 Services that can be offered are limited and are prohibited in some geographic areas, there is no access to bank loans, workers cannot be hired as such (only allowed family work), and a high tax system is applied to independent activities … This regulation determines that the production costs must be assumed by the “cuentapropistas”.

3 In fact, the space gained by some of these “modalities” has ignored certain issues such as the “tourism extra hotels network” always considered inside the state sector but one of the weaker of the government enterprises. Today there are in Havana more than 370 private restaurants and possible more than half of them have appeared since 2011.

Mercado Atesanal, on the Malecon, photo by Arch Ritter

Bibliography.

Castro R. Periódico Granma, 20-12-10

Gaceta Oficial de la República de Cuba, No. 12, Edic. Extraordinaria, 8-10-12.

Vidal P. y Pérez O. Entre el ajuste fiscal y los cambios estructurales: se extiende el cuentapropismo en Cuba, Espacio Laical No. 4, 2010.

Fuentes, I. Cuentapropismo o Cuentapriapismo: Retos y Consideraciones Sobre Género, Auto-Empleo y Privatización, Cuba in Transition, ASCE, 2000

Ritter A. El régimen impositivo para la microempresa en Cuba, Revista de la CEPAL No. 70, 2000, Naciones Unidas CEPAL, Santiago Chile.

Peter P. “Cuban Entrepreneurs: From Necessary Evil to Strategic Necessity” http://www.american.com/archive/2011/january/cuban-entrepreneurs-from-necessary-evil-to-strategic-necessity

Gonzáles A. “La economía sumergida en CubaRevista Investigación Económica, No.2, April-June 1995, INIE.

Suárez L. M. “Cuba: nuevo marco regulatorio del trabajo por cuenta propia” en www.evershedslupicinio.com

Cuenta Propista and Artisan, Photo by Arch Ritter, November 2008

Posted in Blog | Tagged , , , , , , | Leave a comment

The Havana Genius Bar, Cuba’s Underground Economy: Going Strong and High-Tech!

By Elien Blue Becque; Bloomberg Businessweek; September 13, 2012

Original Essay Here: The Havana Genius Bar

When my iPhone slipped from the back of the tank and into the toilet, I snatched it out immediately. Though at first all seemed fine, it soon switched off and remained unresponsive.

“It’s toast,” was the verdict from Grant, an Apple (AAPL) store Genius. “We don’t deem it really, like, worth it to replace the inner components of the shell of a broken phone. I’ll throw that guy away and get you a brand new one.” Grant said I’d have to buy a new phone for $649 (or a refurbished one for $150). I was about to leave on a trip to Cuba, where my phone wasn’t going to work anyway. So I thanked him and left.

On my second day in Havana I pass a small electronics store in the once-upscale Vedado neighborhood and stop in. Fishing the useless slab from my bag, I ask, “Is there anyone who might know how to fix this?” The woman at the counter heads to the back and returns with a thin slip of paper bearing an address in the Miramar neighborhood.

A kid wearing white-framed Ray-Bans nods when I knock on the green plywood door at the destination. His name is Andy, and he’s confident he can fix my problem. Removing the tiny screws that hold the glass cover in place, he begins a rapid disassembly. I have to admit Andy seems less impressed with my fancy phone than I might have expected. “How often do you fix an iPhone?” I ask. “Daily,” he replies.

“In the last two or three years I’ve noticed [iPhones] popping up,” says Philip Peters, a Cuba expert at the Lexington Institute. Raúl Castro’s reforms have jolted the mobile market. “In 2008, when he lifted the prohibition on Cubans’ having cell phones in their own name, that led to an explosion in the number of subscribers.” Like many products in Cuba, iPhones are often brought in by tourists or citizens allowed to travel abroad.

Andy extracts the motherboard with a dental pick, puts it in a green tank, adds alcohol from a Fanta bottle, and presses power. The contraption shakes vigorously. Abelito, his partner, says they learned most of what they know via an illegal Web connection. After 20 minutes of careful prodding and scrubbing, Andy has miraculously resuscitated my phone, but the battery holds little charge. I try to pay. He refuses. “We usually only accept payment when we’ve fixed the problem.” “But you did!” I argue. He won’t be swayed.

A day later, at Hotel Saratoga in Old Havana, I notice the porter swiping at his iPhone 3. I tell him about my battery, and he points to a thin, carefully dressed young man hanging around the bar. Ten minutes later, Roberto and I are making our way down a muddy street behind the impressive, decaying Capitol Building modeled exactly after the rather better-kept one in Washington.

We stop in front of a dark entryway. Roberto asks me to wait and bounds up a set of concrete stairs. Minutes later he returns with a new iPhone battery in its black plastic wrapper. As payment, he accepts an 8-gigabyte flash drive I’ve been carrying. Flash drives are valuable here, where Internet use is restricted and monitored. Roberto, an architecture student, explains that while “tuition here is free, you have to buy lesson books, paper, pens, your food, your transportation.” All that costs money.

Just as their fathers learned to fix obsolete Detroit cars, Andy and Roberto have learned to make a living with Palo Alto technology to which they have no official access. The healthy cell-phone repair market here is the latest example of Cuban ingenuity that locals call sobreviviendo. It’s small-scale capitalism working around a 50-year embargo and an anemic, centrally planned economy.

Two months later my phone works perfectly. The next time an Apple Genius tells you there’s no hope, consider it an excuse to visit Havana.

 

Posted in Blog | Tagged , , , , | Leave a comment

Mark Frank: “Cuba cracks down on “Guayabera” crime”

One morning this month the nearly half a million inhabitants of Sancti Spiritus, a leafy province in central Cuba, woke up to find their local government had fallen.

Rather than some kind of US-inspired coup, however, the removal and subsequent arrest of five senior provincial officials was part of the increasing drive by Raúl Castro, president, against white-collar corruption – or white “Guayabera” crime as it is called after the distinctive Cuban dress shirt.

The crackdown, launched two years ago, has already cost hundreds of senior Cuban Communist party officials, state managers and employees their jobs and sometimes their freedom, as Mr Castro has struggled to shake-up the country’s entrenched bureaucracy and move the country towards a less centralised and more market-driven economy.

Although such campaigns are not new, the intensity of the current drive is unprecedented, as are the number of high level targets and breadth of their illicit activities, Communist party and government insiders said this week.

As well as Sancti Spiritus’s wayward officials, Havana’s mayor resigned last month after most of the capital’s top food administrators were swept away in another probe.

Last year, in the all-important nickel industry, which exports some $2bn annually, managers from mines and processing plants up to deputy ministers of basic industry were arrested after “diverting resources” and padding export weights, according to industry sources. Yadira García Vera, the minister, was eventually fired.

The drive began in earnest in 2009 when Mr Castro, 84, opened the Comptroller General’s Office, saying it would “contribute to the purging of administrative and criminal responsibility, both the direct perpetrators of crimes and the secondary ones . . . [who] do not immediately confront and report them.”

The move is designed to try and allow state-owned companies to operate more profitably, as Mr Castro wants them to, while also preventing the kind of corruption that marked Russia’s and China’s own moves to the market.

“The creation of the Comptroller General in 2009 was a significant step in the first phase of Cuba’s reform,” said Arturo López-Levy, a former analyst at Cuba’s interior ministry and now a Cuba expert at the University of Denver in the United States.

“East Asia demonstrated the wisdom of creating an anti-corruption agency early in the economic transition from a command economy.”

Cuba is fertile ground for corruption. After 20 years of economic crisis, and with state wages worth around $20 a month – a level that the government admits does not cover necessities – almost all Cubans engage in illegal activities to survive.

At the same time, the government is loosening regulations on small private business even as it cuts subsidies and lays off government workers, thereby requiring more sacrifice from state employees and pensioners.

“Raúl Castro has clearly gone to extraordinary lengths to make it clear that corruption – particularly at the higher levels – will not be tolerated, signalling he means business and higher-ups must sacrifice too,” said John Kirk, a Latin America expert at Dalhousie University in Halifax, Canada.

Cuba does not suffer from drug-related corruption like many of its neighbours, said western diplomats and foreign security personnel who work closely with Havana on interdiction.

Rather, according to foreign investors, the biggest problems they face when forming domestic joint ventures are the long delays starting and then operating a Cuban business – in part due to draconian regulations designed to prevent white-collar crime.

That is not the case in the external sector, where foreign trade and off-shore activities make corruption easier.

“The huge disparities between peso salaries, worth just a few dollars a month, and the influx of strong currencies, even in very small amounts, create extremely strong incentives to become corrupted,” said one western manager, who requested anonymity.

Cuban cigars have become the most emblematic case. Distributors in Canada and Mexico had long complained that millions of valuable “puros” – high quality cigars – were somehow making their way to other Caribbean islands and then being smuggled into their franchised territories.

But it was not until last year that the Cohiba-puffing Manuel García, the long-time vice-president of Habanos S.A., a joint venture with London-listed Imperial Tobacco and the exclusive distributor of the island’s famous cigars, was arrested along with a number of other executives and staff.

“Turns out we were complaining to the very people who had set up the sophisticated operation, complete with shell companies and paths to avoid import duties,” one foreign distributor said.

Posted in Blog | Tagged , , , , | Leave a comment

A Major Slow-Down for the Public Sector Layoff / Private Sector Job Creation Strategy

Raul Castro and the Council of Ministers, Granma, March 1, 2011

By Arch Ritter I had been looking in vain for any concrete information on public sector redundancies and the granting of self-employment licenses since December 2010.  After some searching in the Cuban press, the foreign press and various blogs, I came up empty handed. I was starting to think that the program had been aborted. Then yesterday, Raul announced in a publicized meeting of the Council of Ministers a major slow-down of the program, noting, in the words of the journalists, that “the up-dating of our model is not the work of a day or even a year but because of its complexity, it will require not less than a five year period to unfold its implementation” (Granma, 1 de Marzo de 2011) As far as I can determine, there have in fact been virtually no lay-offs yet in the public sector, although the original March 31 target for 500,000 fired workers is close at hand. Or at least, none have been clearly reported. The latest numbers for license-granting for the end of December 2010 indicated that some 75,000 new licenses had been issued with another 8,340 still in process – a slow start towards the March 1 target date. Granma, 7 de enero de 2011 The slow-down and delay in implementation is understandable.  Although the original proposal was in the right direction, it was seriously flawed and excessively hurried. The most obvious weakness of the strategy was that it called for lay-offs first, followed by or concurrently with job creation in the micro-enterprise sector which was only slightly liberalized in October 2010. As various critics quickly observed, this was placing the “cart before the horse”. The original time frame for the lay-off process – from July 20, 2010 to March 31, 2011 – became even more condensed as months of inactivity followed months. If implemented, this approach would have amounted to a draconian type of shock therapy. The process of firing workers is not easy under any circumstances. Though the Government stressed repeatedly that those made redundant would be supported by the state, the prospects of being laid off and having to establish one’s own micro-enterprise in a policy environment that is still difficult if not hostile must be unnerving for many people. It was to be implemented during the Cuban recession – (though Cuba is now appears to be in a process of recovery, due to higher nickel prices, increased tourism including US tourism, higher remittances.) Moreover, workers have no independent Unions to defend their rights during such a process of redundancies. (It was the Central de Trabajadores de Cuba that announced the lay-off strategy.) There was a potential for irregularities and perversions in the firing process as well, with redundancy being determined by factors such as Party faithfulness, personality issues,  or friendship with the relevant officials, rather than labor effectiveness, which is usually difficult to determine in any case. Moreover, the strategy, which was to be a defining component of economic reform and structural change, was adopted before the public discussions around the Proyecto de Lineamientos de la Política Económica y Social del Partido y la Revolución,” There had been no public input or discussion in the media or public forums before this strategywas sprung on the Cuban people. Furthermore, it was clear from the start that the liberalization of self-employment was insufficient for the necessary level of job creation. (See Perez and Vidal, Ritter and Mesa-Lago for example.) There are some measures that are supportive of micro-enterprise expansion. These include a small increase in the permitted range of activities, minor relaxation of regulations and a small modification of the tax regime. More significant and positive are the liberalization of licensing and the “de-stigmatization” of the self-employed by the media and politicians. However, a variety of policies continues to constrain the activities of micro-enterprises and will prevent it from expanding as envisioned by the Government: –        Exceedingly onerous taxation continues. –        The tax on hiring workers will discourage job creation. –        A narrow definition of legal activities will limit enterprise and job creation. –        Exclusion of virtually all high-tech and professional activities blocks development of knowledge-intensive enterprises and wastes the training of the highly educated. –        Bizarre restrictions remain (such as a 20 chair limit on restaurant chairs). –        Restrictions and prohibitions on hiring workers remain. –        Taxes and regulations result in the stunting of enterprises which prolong inefficiencies and promote the underground economy. –        Unreasonable restrictions and heavy taxes breed contempt and non-compliance for the law. Under these circumstances, the necessary expansion of Small Enterprise will be slow and in fact probably would not occur. In this case, the Government will have two basic choices: either it can abort the structural change process or it can further liberalize the micro-enterprise sector in order to permit it to generate jobs for redundant state workers. In order to establish an “enabling environment” for micro-enterprise, here are some of the types of policy modification that would be necessary:

  1. Modify the tax regime: Eliminate the tax on hiring workers and permit all costs to be deductible from gross revenues for calculating taxable income;
  2. Broaden of permitted activities, including professional and high-tech activities;
  3. Relax vexatious regulations;
  4. Liberalize hiring restrictions;
  5. Establish microcredit institutions (international assistance is available for this)
  6. Improve access to wholesale input purchase – not done yet;
  7. Legalize “intermediaries” (permitting specialization between producers and venders)
  8. Permit Advertising
  9. Establish a “Ministry for Small Enterprise”!!!

 

Posted in Blog, Featured | Tagged , , , , , , , , | 2 Comments

“The Economist” on Cuba’s Housing Market

Swap shop: Where a beach-front house can be (almost) yours for a snip

Feb 3rd 2011 | HAVANA

CUBA’S government likes to crow that over 85% of Cubans own their homes. The claim is technically correct. However, there is a catch: holding title to a property does not give you the right to sell it. The only legal way to move in Cuba is by swapping residences—a slow, bureaucratic and often corrupt process known as the permuta (“exchange”), which requires finding two roughly similar properties and getting state approval. To avoid this hassle, some Cubans prefer to marry the owner of a property, transfer the deed, and divorce.

Because there is no incentive to build new homes, Cuba suffers from a dire housing shortage. Many buildings have been repeatedly subdivided. In some families three generations share one bedroom.

After replacing his brother as president in 2008, Raúl Castro has legalised and taxed bits of Cuba’s informal economy, like pirated DVDs and used furniture. Now he has turned to housing. In 2010 the government relaxed rules on forming building companies and buying building materials. It is preparing to let foreigners buy property in tourist zones. And in April the Communist Party Congress is expected to allow Cubans to “buy, sell, or swap” their homes.

Havana’s Housing Market, circa 2002: Arranging “Permutas” on Paseo del Prado, Photo by Arch Ritter

The effect of these measures may be limited. Most permutas already involve money under the table—ranging from a few thousand dollars to $40,000 for a smart three-bedroom flat. The market will be heavily regulated: officials say they will ban the (as yet undefined) “accumulation” of property. And buyers may be discouraged if they have to prove that their money did not come from the vast black market.

Even so, allowing selling is risky. It will raise tax revenues, but could belie Cuba’s myth of material equality. If too many luxury homes pop up, the poor may further doubt that America’s trade embargo is the cause of their misery. Already a cluster of sea-front houses west of Havana, acquired via permuta by pop stars and foreigners, is getting its first lick of paint in decades.

The market will probably benefit from Barack Obama’s loosening of the embargo. He has relaxed most limits on visits and remittances, which should increase demand for Cuban homes and the amount buyers can pay. Some Cuban-Americans are even considering returning for retirement. “Now is the time to move”, says Ada Fuentes, who recently came back to Havana after 49 years in New Jersey. “If you have money, life’s good here”.

Posted in Blog | Tagged , , , , | 2 Comments

Micro-enterprise Tax Reform, 2010: The Right Direction but Still Onerous and Stultifying

By Arch Ritter

As part of the policy reforms designed to absorb almost 1.2 million redundant state sector workers into the private sector, the Government of Cuba has modified the micro-enterprise tax regimen. Some of the modifications were positive in the sense that they will reduce the heavy tax burden on self-employment. However, the changes are modest, and the tax system will continue to limit job-creation and the expansion of micro-enterprise.

Bicitaxis, Central Havana

I. The New Tax Regime

The new taxation system, presented in the Gaceta Oficial, número 11, and Gaceta Oficial, número 12 on October 1 and 8, 2010, has five components:

1.      Sales Tax on Goods

2.      Tax on Hiring of Workers

3.      Income Tax

4.      Surtax on Services

5.      Social Security or Social insurance Payments

Taxes generally will now be payable in Moneda Nacional or “old” pesos. For purposes of tax payment, taxes owing in convertible pesos (CUCs) are to be exchanged into Moneda Nacional at the going quasi-official rate (around 22 to 26 “old” pesos per convertible peso, over the 2001-2010 period). There is a special regimen for bed-and-breakfast operations that is not considered here.

1. Sales Tax

This is a 10% tax levied on the value of sales of goods and payable by all micro-enterprises that do not qualify for the Simplified Tax Regime (See 3. below.)  While this tax in principle is reasonable and is used in most countries, the administrative cost of monitoring the value of sales and collecting the tax for the many of the smaller self-employed activities will be high.

2. Tax on the “Utilization of Labor”

This tax on the hiring of employees is set at “25% of 150%” (that is, 37.5%) of the average national wage which was 429 pesos per month in 2009 (ONE, AEC Table 7.4). The tax would thus be about 161pesos per month per employee or 1,932 pesos per year.

A “Minimum” requirement for the hiring of employees for tax determination purposes is set at two employees for paladares and one for other food vendors and a few other activities. There appears to be no exception or adjustment of the tax for part-time employees.

(Note that some 74 self-employment activities are prohibited from hiring employees and another 7 can hire one employee only.)

3. The Income Tax

There are two tax income regimes, a simplified regime for lesser self-employment activities and a more complex regime for larger activities.

The Simplified Tax Regime applies to some 91 activities. In place of the income tax, sales tax, tax on public services, they instead pay a consolidated tax, constituted by the monthly licensing fee which ranges from 40 to 150 pesos per month, payable in the first ten days of each month. (It is unclear whether overpayments would be refunded – they were not under the previous system.)

Other enterprises fall under the general tax regime, and pay all of the individual taxes discussed here. These activities pay the up-front monthly tax/license ranging from 40 to 700 pesos per month.

For the determination of the tax payment, the “tax base” is defined as total revenue less a fixed amount for deductible expenses. The maximum amounts allowed for deductible expenses range from 10% for 10 activities, 20% for room rental operations, 25% for 40 activities, 30% for 10 activities and 40% for 6 food and transport activities. (Bed and breakfast operations have their own specific regimen.)

The income tax rates rise progressively from 0% for the first 5,000 pesos, through 25% for additional income between 5,000 and 10,000, 30% for income increments from 10,000 to 20,000, 30% for 20,000 to 30,000, 40% for 30,000 to 50,000 and 50% for additional income exceeding 50,000.00 pesos. This rate is high but not unreasonable in international comparison.

4. Sales Tax on Services

A 10% additional sales tax is levied on services provided by micro-enterprise. Those enterprises qualifying for the Simplified Tax Regime are exempt from this tax.

5. Social Security Payments

These payments are destined ultimately for old age support, maternity leave, disability and death in the family. They are determined according to a scale that the self-employed worker selects, and may range from 25% of 350 to 2000 pesos per month depending on the choice of the self-employed person. This is a social insurance scheme though the payments are similar to taxes.

II. Evaluation of New Tax Arrangement

This new tax regime represents a minor improvement over the previous regime. The main improvement is that it permits the deduction as costs of production of more than a maximum of 10% of total revenues as was the case previously. This is a reasonable adjustment to the tax base as most of the self-employed activities generate costs that are higher than the maximum allowable 10% of total revenues.  This is especially beneficial for activities such as gastronomic, transport and handy-craft or artisan activities for which input costs are far beyond 10% of total revenues.

The progressive structuring of the income tax regime is reasonable though stiff.

However there are a number of flaws in the taxation regimen which will continue to stunt the development of small enterprise and will prevent the absorption of the redundant workers being displaced from the public sector.

1. The Blocking of Job-Creation

First, the tax on employment is problematic as it adds to the employer’s cost of hiring a worker. The obvious impact of this tax will be to limit hiring and job creation. Or employment will be “under the table”, unrecorded, and out of sight of officialdom.

2. Onerous Overall Tax Levels

The overall tax level is punitive. The sum of the income tax, employee hiring tax, and public service surtax is high- and as noted below can help create effective tax rates exceeding 100%, as is explained on Section III. This will continue to promote non-compliance. It will discourage underground enterprises from becoming legal. The establishment of new enterprises will be discouraged.

3. Erroneous and Unrealistic Base for the Income Tax

The most serious shortcoming of the income tax regime involves the tax base which is not “net revenues” after the deduction of input costs, but an arbitrary proportion of total revenues.

The tax regime limits the maximum for input costs deductible from total revenues to 10 to 40% depending on the type of enterprise involved. When the actual micro-enterprise input costs exceed the maximum allowable, the tax rate on true net income can become very high. In the example below, the effective tax rate (defined as the taxes payable as a percentage of true net income) can exceed 100%. Obviously this would kill the enterprise and promote cheating and non-compliance. It will discourage underground economic activities from becoming legal and block the establishment of new enterprises.

4. Continued Discrimination versus Cuban Enterprise in Favor of Foreign Enterprise

The minor reforms of the micro-enterprise tax regime do relatively little to reduce the fiscal discrimination favoring foreign enterprise. (See Table 1.) The main difference is the determination of the effective tax base which is total revenues minus costs of production for foreign firms but for micro-enterprise is gross revenue minus an arbitrary and limited allowable level of input costs. The result of this is that the effective tax rates for foreign enterprises are reasonable but can be unreasonable for Cuban microenterprises. For Cuban micro-enterprises, the effective tax rate could reach and exceed 100%.

Moreover, investment costs are deductible from future income streams for foreign firms this being the normal international convention. But on the other hand, for Cuban micro-enterprise, investment costs are deductible only within the 10 to 40% allowable cost deduction levels.

III. Example: Three Taxation Cases for a Paladar or Restaurant

To illustrate the character of the tax regime, a case of a “Paladar” is examined below. It is assumed that the total revenues or gross earnings of the Paladar are 100,000 pesos per year (Row 1) or a modest 280 CUP or about $US 10.50 per day.

It is imagined then that there are three costs of production cases: Case A, B and C where costs of production are 40%, 60 and 80% of total revenues respectively. A situation where input costs for a Paladar are 80% of total revenues is reasonable, given the required purchases of food, labor, capital expenses, rent, public utilities etc. On the other hand, the 40% maximum is unreasonably low.

The differing true input cost situations (Rows 2 and 3) generate different true net income (Row 6). The tax base however is determined by the legal maximum allowable of 40,000 (Row 4 and 5) and is 60,000 pesos in all three cases (Row 7). The income tax payable is determined by the progressively cascading scale noted above and is 19,750 in all three cases (Row 8, based on calculations not shown here). The tax on hiring the legal minimum two employees is 25% of 150% (that is, 37.5%) of the average national wage which was 429 pesos per month or 161 pesos for 12 months for two employees = 3,864 pesos per year (Row 9). A guess for the surtax on use of public services is 1,200 pesos per year (Row 10). The total taxes then are the sum of Rows 8 t0 10 and are 26,614 per year (Row 11).

The effective tax rate is then calculated as Tax Payment as a percentage of Actual Net Income (Row 11 divided by Row 6). For the third case where true costs of production are 80% of total revenues, the effective tax rate turns out to be well over 100% (124.1%). This is due to fixing the maximum allowable for costs in determining taxable income at an unrealistic 40% while the true costs of production were 80% of total revenues.

The chief result of this example is that effective tax rates can be much higher than the nominal tax rates for all the activities where true input costs exceed the defined maximum. In some cases, taxes owed could easily exceed authentic net income – assuming full tax compliance.  This situation likely occurs for all activities not covered by the simplified tax regime.

Such high effective rates of taxation of course could destroy the relevant microenterprise, and block the emergence of new enterprises. While under the previous policy environment for microenterprise, this was perhaps the objective of policy. However, the objective of the new policy environment is to foster and enable micro-enterprise and to create jobs.

IV. Conclusion

Can the Micro-enterprise sector generate about 500,000 new jobs by April 2011 and 1.2 million in the next year? On the positive side, there have been some measures of a non-tax nature (e.g. the stigmatization has been relaxed, licensing has been liberalized; there has been a minor increase in legal activities; prohibitions and regulations have been eased somewhat; and improved access to inputs will likely be possible.) But on the negative side, a narrow definition of legal activities will limit enterprise and job creation; the prohibition of professional activities remains; restrictions and prohibitions on hiring workers remain; and restrictions and prohibitions remain.

The timid revisions of the tax regimen will not facilitate job creation in the microenterprise sector.

  • The high level of taxes generally will limit enterprise creation and legalization.
  • The underground economy will continue to be encouraged.
  • The tax on the hiring of employees will discourage the absorption of labor into microenterprise activity.
  • Microenterprises will remain stunted by the high effective tax rates that are incurred when costs of production exceed the minimum deductible for tax determination purposes.
  • The tax discrimination favoring foreign firms in joint ventures continues.

In order for the micro-enterprise sector is to expand so as to absorb the 1.2 million redundant public sector workers in the process of being fired, further reform of the tax system is necessary.

Posted in Blog, Featured | Tagged , , , , , , , , | 1 Comment

“Shifting Realities in ‘Special Period. Cuba”, LATIN AMERICAN RESEARCH REVIEW, volume 45 number 3, 2010

By Arch Ritter

Just Published: “Shifting Realities in ‘Special Period’ Cuba”

Archibald R. M. Ritter, Carleton University, Ottawa, Canada

Che’s Afterlife: The Legacy of an Image. By Michael Casey. New York: Vintage Books, 2009. Pp. 388. $15.95 paper. ISBN: 9780307279309.

The Cuba Wars: Fidel Castro, the United States, and the Next Revolution. By Daniel P. Erikson. New York: Bloomsbury Press, 2008. Pp. xiii + 352. $28.00 cloth. ISBN: 9781596914346.

Political Disaffection in Cuba’s Revolution and Exodus. By Sylvia Pedraza. Cambridge: Cambridge University Press, 2007. Pp. xix + 359. paper. ISBN: 9780521687294.

Looking Forward: Comparative Perspectives on Cuba’s Transition. Edited by Marifeli Pérez-Stable. Notre Dame, IN: University of Notre Dame Press, 2007. Pp. xx + 332. $27.00 paper. ISBN: 9780268038915.

Cuba in the Shadow of Change: Daily Life in the Twilight of the Revolution. By Amelia Rosenberg Weinreb. Gainesville: University Press of Florida, 2009. Pp. 272. $69.95 cloth. ISBN: 9780813033693.

Cuban Currency: The Dollar and Special Period Fiction. By Esther Whitfield. Minneapolis: University of Minnesota Press, 2008. Pp. 217. $22.50 paper. ISBN: 9780816650378.

Revolutionary Cuba’s Golden Age ended in 1988-1990 when the former Soviet Union adopted world prices in its trade with Cuba, ceased new lending, and discontinued its subsidization of the Cuban economy. The result was the economic meltdown of 1989-1994. In1992, President Fidel Castro labeled the new époque the “Special Period in Time of Peace,” a title that has lasted almost two decades as of 2010. Many outside observers have imagined that Cuba would in time follow the countries of Eastern Europe and the former Soviet Union in making a transition toward a more market-oriented economic system and perhaps a Western style of pluralistic democracy. This has not happened. The modest economic changes of the early1990s have not led to sustained reform. Political reform has been almost undetectable. At times, rapid change has seemed inevitable and imminent. But at others, it has appeared that gerontocratic paralysis might endure well into the 2010s. Change will undoubtedly occur, but its trajectory, timing, and character are difficult if not impossible to predict. When a process of transition does arrive, it will likely be unexpected, confused, and erratic, and will probably not fit the patterns of Eastern Europe, China, or Vietnam.

The books included in this review focus mainly on changing realities during the Special Period and the nature of prospective change. They constitute a valuable contribution to our understanding of a range of dimensions of Cuba’s existence in this era which in fact is not “special” but is instead the “real world”.

The collection edited by Marifeli Pérez-Stable assumes that a transition will occur and asks what useful insights may be gleaned from the experiences of other Latin, Eastern European, Asian, and Western European countries. The analyses included in the collection constitute the best exploration of the key aspects of Cuba’s possible alternative futures yet available. Then Daniel P. Erikson examines the U.S.-Cuban relationship together with domestic U.S. policies toward Cuba during the Special Period, concluding with a chapter on “The Next Revolution.” His popular historical analysis also is probably the best available as well as most readable review of this tragically dysfunctional relationship.

The culture of the silent majority or “shadow public” is the focus of Amelia Weinreb. This sociological-anthropological analysis of Cuba’s silent majority fills a major vacuum in works on Cuba over the last 20 years, focusing as it does on the character, aspirations and behavior of a group that has been almost ignored even though it probably constitutes a majority of the population of Cuba. Sylvia Pedraza examines Cuba’s evolving domestic political situation and the consequences for emigration over the last half century, including the two decades of the Special Period. Her work is probably the seminal analysis of the motivations underlying and patterns of Cuba’s continuing emigration hemorrhage.

Michael Casey examines how the Cuban government has capitalized on Che Guevara’s “brand”—epitomized by the iconic photograph by Alberto Korda—and how Che’s image has been commercialized for both political and financial motivations, using property and trademark law, and the marketing mechanisms of the international capitalist system. While perhaps outside the common purview of mainstream social science research on Cuba, Casey’s examination of the Korda-Che image provides a novel and convincing examination of how the Cuban political regime has sought to commercialize the central martyr of the Revolution. Finally, Esther Whitfield explores cultural and literary changes in Cuba’s world of fiction during the Special Period. Her work is also ground-breaking in examining the impacts of the economic realities of the two-currency pathology on the incentive structure and orientation of Cuban writers of fiction.

Marifeli Pérez-Stable has assembled an all-star cast of authors to produce yet another fine contribution to our understanding of Cuba and its current situation.[1] Looking Forward aims to investigate the alternatives facing Cuba after a possible regime change or “poof moment”—as Jorge Domínguez puts it (7 and 61) —when such change might occur, as if by magic. The authors were asked to examine their particular areas of expertise for insights from other democratizing processes, the particular relevance of the conditions of the Special Period, and the “plausible and/or desirable alternatives . . . for a Cuba in transition” (7). Given the concision and richness of the twelve essays in this book, it is difficult if not impossible to outline and critique them in the detail that each of them merits in a brief review. All are substantively first-rate.

In opening, Pérez-Stable assumes that “a medium-term democratic transition is likely in Cuba though not certain” (19). She explores first the transitions of Eastern and Central Europe and Latin America for insights into the Cuban case, and second, the possible roles in a post-Fidel Castro Cuba of the Communist Party, the National Assembly, and the Association of Combatants of the Cuban Revolution, Cuba’s veterans’ organization. Her central conclusion is that a hybrid regime is most probable, in which elements of marketization and some liberalization combine with continued authoritarianism.

In his examination of military-civil relations, Jorge Domínguez is reasonably optimistic that further downsizing of the Cuban military will occur with the normalization of U.S.-Cuban relations. He also argues that the military will be compatible with democratization under the last three of the four scenarios that he explores: 1. a dynastic succession with continued Communist Party monopoly and a market economy opening; 2. with removal of the external threat, the military could focus on internal security only; 3. the previous scenario, but with a stronger military to maintain public order in the face of serious domestic security threats; and 4. the second scenario again but with a major continuing role for professional armed forces for international peace-keeping. (61-70).

Gustavo Arnavat analyzes the legal and constitutional dimensions of moving toward representative democracy and a market economy, and argues that major constitutional amendments or a new constitution approved by referendum will be necessary.

Damián Fernández presents a thought-provoking and sobering analysis of the role of civil society, emphasizing the difficulty of political reengagement and the development of attitudes supporting participatory citizenship. Mala Htun puts forward a well-balanced discussion of Cuba’s achievements and lingering problems in the same area of transition politics, and of the impacts of the Special Period on women and gender equality. She concludes that “[a]chieving gender justice . . . requires greater economic growth and political reforms” (137). Alejandro de la Fuente also outlines the achievements of Cuba since 1959 and some of the setbacks for Afro-Cubans since 1990; these include a smaller share of remittances and relatively less employment in tourism and high-end self-employment. His main conclusion is that special antidiscrimination policies will be necessary in the transition to a market economy. Jorge Pérez-Lopez contributes a fine analysis of the economic policy reforms needed for transition. In his first-rate essay, Carmelo Mesa-Lago carefully reviews the impacts of the Special Period on social welfare—education, health, social services, poverty, and income equality—and outlines the range of policy approaches needed if Cuba is to maintain social justice while providing incentives to economic improvement.

Corruption has been a curse for Cuba since Independence. It has evolved in unique ways there since 1990, and has tended to escalate seriously in Eastern European transitions, as Dan Erikson shows in his contribution to Looking Forward. The politically complex and difficult role of Cuban émigrés in any future transition is addressed by Lisandro Pérez, though perhaps not with due emphasis on how Cuban-Americans are likely to contribute to institutional development, trade linkages, investment projects, return migration, and tourism. Rafael Rojas provides an insightful exploration of the psychological and political transformations that must occur in this same area, in which polarized and implacable enemies— each claiming ownership of historical interpretation—must become loyal adversaries, competing yet cooperating within democratic rules. Finally, William LeoGrande provides a superb survey of U.S.-Cuban relations during the Special Period and of U.S. relations with former adversaries, so as to address the future dealings of the two neighbors.

In its entirety, this fine volume sets a high standard that will be difficult to surpass. What one would also like to see, however, is another chapter on how Cuba might get to and through a transition to achieve genuine democracy and a mixed-market economy. One might also question the editor’s decision against the citation of sources so as to reach a broader, less academic audience. This book should indeed reach a wide public, but the absence of the citations hardly seems necessary for that purpose.

In a market well supplied with books and reports on U.S.-Cuba relations, Erikson’s The Cuba Wars is perceptive, objective, and engaging. His work is based on general political analysis from his vantage point at the Inter-American Dialogue in Washington; on interviews with many key players on Cuban issues in Miami, the U.S. Congress, the policy community, and academics; and on his own knowledge of Cuba, attained in many visits to the island in the past decade. For those who have lived through the U.S.-Cuba relationship over the last decade or the last 50 years, Erikson’s discussion will be enjoyable as well as insightful. His narrative style is captivating and brings again to life various events at the center of U.S.-Cuban interaction: events such as the Elián González affair, the tenure of James Cason as chief of the U.S. Interests Section, Cuba’s shooting down of an aircraft operated by Brothers to the Rescue, the conviction of Cuban spy Ana Belén Montes, the “Five Cuban Heroes,” and the eviction of Cubans from a hotel in Mexico City by the U.S. Treasury Department’s Office of Foreign Asset Control. Erikson’s discussions of the Chávez/Venezuela-Castro/Cuba relationship, the Cuban-American Community in Miami, and the pressures promoting and obstructing a greater role for market mechanisms in Cuba are all captivating and substantive. His vignettes of congressmen and women with important roles in policymaking with respect to Cuba are fascinating. If I have any quibbles with the book, it is with the title which seems over-amplified, as there has not been a war between the two countries. The “Next Revolution” referred to in the title is not impossible, but I would think that a difficult but orderly evolution toward Western-style participatory democracy, and a more centrist form of economic organization, are more probable.[2]

In Cuba in the Shadows, Amelia Rosenberg Weinreb (Anthropology, University of Texas at Austin) explores and analyzes the lives, behavior, and views of “ordinary Cubans.”[3] These Cubans are familiar to those who have come to know Cuba during the Special Period. They probably constitute a large majority of the population. These “unsatisfied citizen-consumers,” as Weinreb calls them (2 and 168.), strive to survive with some access to basic “modern” goods, above and beyond what the ration book provides in an amount insufficient for life maintenance since 1990. These modern goods perhaps include some luxuries, but they also include basics such as toilet paper and women’s hygiene products that are available only in the “dollar stores” or tiendas de recaudación de divisas (stores for the collection of foreign exchange). This “silent majority” has remained under-analyzed and largely ignored by scholars, perhaps—as Weinreb suggests—because they do not seem to merit special attention relative to indigenous peoples, the poor, or labor unions, or perhaps because they do not fit the orientations of New Social Movement and Structuralist Marxist approaches.

Weinreb’s ethnographic participant observation succeeds in producing an analysis from about as deep within Cuban realities as it is possible for an outsider to get. Her success can be attributed in part to her research assistants and neighborhood ambassadors, namely her three young children, Maya, Max, and Boaz, who helped to establish rapport, friendship, and shared parenting bonds with Cubans who empathized and wanted to help a young mother. This “family fieldwork” provides a unique window into Cuban society and the lives of Cubans.

Weinreb’s focus is a “shadow public,” somewhat analogous to the shadow economy, as the following explains:

[U]nsatisfied citizen-consumers . . . share interests, characteristics, a social imagery and practice, but their political silence, underground economic activity, and secret identity as prospective migrants casts a shadow over them. They are therefore a shadow public, an un-coalesced but powerful group that engages in resistance to state domination but without a public sphere, and only in ways that will allow them to remain invisible while maintaining or improving their families’ economic welfare. (168)

The roots of the shadow economy of course predate the Revolution, indeed going back to the colonial period and its unofficial economy of smuggling and contraband, as reflected in the expression obedezco pero no cumplo (I obey but do not comply). However, the expansion and pervasiveness of today’s shadow economy were generated by the character of central planning itself, and by the circumstances of the Special Period, as analyzed in chapter 1. Chapters 2 and 3 examine how citizens strive to maintain private space and personal control within the context of the state’s domination of personal life and economic activity. Chapters 4-6 explore a range of survival strategies. Chapter 4 focuses on the concepts and practices encapsulated by the terms resolver, luchar, conseguir, and inventar, each with unique connotations in the context of the Special Period. The significance of material things—and the lack thereof—are investigated in chapter 5. Chapter 6 treats the importance of access to foreign exchange or “convertible pesos.” Weinreb here presents a Cuban class system that puts the “red bourgeoisie” at the top, followed by artists with privileged access to travel and foreign exchange earnings, “dollar dogs” or cuenta propistas (own-account workers) with access to tourist expenditures or remittances from relatives or friends abroad, “unsatisfied citizen consumers,” and finally, at the bottom, the “peso poor” who lack access to foreign exchange and additional earnings. The final chapters examine the broad-based phenomenon of feeling trapped and the dream of escape via emigration. Chapter 8 explores “off-stage” expressions of dissatisfaction, criticism, and resistance, which remain purposely hidden, unorganized, and outside public space. This state of affairs may be changing, however, with the Damas en Blanco and bloggers courageously breaking into the public arena, spearheaded by Yoani Sánchez. Finally, chapter 9 draws together the strands of Weinreb’s analysis and explores the relevance of the concepts of shadow public and unsatisfied citizen-consumer in the broader context of Latin America.

Weinreb succeeds admirably in describing and analyzing Cuba’s silent majority, those “ordinary outlaws” who are decent, hard-working, entrepreneurial, and ethical, yet must defend themselves and their survival through a myriad of economic illegalities within the framework of a dysfunctional economic system. These people live within the doble moral, effectively cowed into acquiescence by a political system whose main escape valve is criticism, innocuous at first, but then increasingly bitter, followed by emigration. The shadow public perhaps constitutes a potential “shadow opposition,” but seems to be easily contained and controlled by the governments of the Castro brothers. One might conclude from Weinreb’s work that this population—currently disengaged and thinking incessantly about emigration—is ripe for public reengagement and that in time there may occur a surprisingly rapid mobilization for change.

Weinreb’s analysis raises some additional questions. Under what circumstances might a shadow opposition become organized, finding a strong voice to become a real opposition? Will the new citizen-journalists of Cuba’s blogging community—plus critics such as Vladimiro Roca, Oscar Espinosa Chepe, Marta Beatriz Roque, Elizardo Sánchez, the Damas en Blanco, and some Catholic organizations—be able to break the control of the Communist Party and the current leadership? Will normalization of relations with the United States and the ending of the “external threat”—a siege mentality long used as a pretext for denying basic political liberties—further erode control of the Party and create new political alignments within Cuba?

Like the flag raised by Máximo Gómez in Cuba’s struggle for independence but sewn by Victoria Pedraza, her grandaunt, Sylvia Pedraza (Sociology, University of Michigan) intends her book to be a contribution to Cuban history. Political Disaffection in Cuba’s Revolution and Exodus,  Pedraza’s magnum opus so far,  is indeed a splendid contribution. It examines the political, social, and economic history of Revolutionary Cuba, exploring its impact on citizens and on emigration decisions and patterns from 1959 to midway through the first decade of the present century. The scope of the work of course goes beyond the Special Period, whose emigrants are the most recent product of a series of four waves from Revolutionary Cuba, following those of 1959-1962, 1962-1979, and 1979-1989.[4] These emigrations serve as organizing periods for Pedraza, who offers a careful reading of the history of the Revolution, using participation and observation from within the Cuban-American community and among Cubans on the island, 120 in-depth structured interviews with a representative selection of émigrés from 1959 to 2004, personal documents of émigrés, and census and polling information. Of special interest in this engaging and moving mix (which few academics manage to achieve) are Pedraza’s personal odyssey and insights as a child of the Revolution, quasi-Peter Pan émigré, and returnee with the Antonio Maceo Brigade in 1979. The account of her reunification with an extended family that she had not seen since leaving Cuba is particularly poignant.

In Che’s Afterlife, Michael Casey follows Korda’s famous photograph of a Christ-like Ernesto “Che” Guevara into the consciousness of people around the world. This image is a well-defended and trademarked icon (copyright VA-1-276-975) owned by Korda’s daughter, Diana Díaz, and used in collaboration with the government of Cuba. For some, it is a quasi-spiritual symbol of hope for a better future; for others, a symbol of undefined but earnest youthful rebellion; and for still others, an abhorrent symbol of authoritarianism. Casey, a Dow Jones Newswire bureau chief in Buenos Aires, has written an intriguing history of the image’s trajectory over the last half century. He brings together research into the lives of both Korda and Guevara, a command of the history of Revolutionary Cuba, knowledge of countries where the Guevara mythology is important, an understanding of copyright law, and original investigative interviewing and reporting.

Casey begins with the instant when the photo was taken on 5 March 1960. He sketches Che’s role in the new government—notably as chief of La Cabaña prison and overseer of the swift executions of prisoners—his secretive and disastrous Congo operation, and his guerrilla campaign in Bolivia, putting the launch of Che as icon and of the “Heroic Revolutionary” brand at the 18 October 1967 memorial ceremony at the Plaza de la Revolución. Casey also presents an account of Korda’s activities in Havana, the first publications of his photograph, and the cultural ferment of the early years of the Revolution, followed by the disillusionment of many in the mid-1960s. He traces the peregrinations of Korda’s Che through Argentina, Bolivia, Venezuela, and Miami, as well as in the student ferment of 1968 from Paris to Berkeley. His later chapters focus on the use of Che’s image as a brand by the government of Cuba; here, it no longer signifies a heroic guerrilla promoting revolution, but has instead become an advertisement, selling Cuba in the international tourist marketplace. The essence of the image ia now “the idea of revolutionary nostalgia” (306). After some thirty-seven years during which the photograph was freely available for use by anyone, copyright ownership now applies and control is exercised through legal means when necessary.

Casey takes us on a fascinating journey through the life and afterlife of Che and through a half century of international social and political history, using Che’s image as a prism. His book should find a wide readership, of all political stripes, who have an interest in Cuba or in major political and social movements. Those with interests in marketing, branding, and copyright law will also find this volume illuminating.

I must confess that when I agreed to include Cuban Currency: the Dollar and Special Period Fiction in this review, I thought it was an analysis of Cuba’s monetary system, not having read the title carefully. To my initial trepidation, Esther Whitfield focuses instead on literature, but in the context of Cuba’s dual-currency pathology. Her survey of recent fiction has turned out to be a delight, even for an economist with little direct knowledge of Cuban literature.

Whitfield’s central argument is that the Special Period generated a boom in cultural exports, including literature, due to the opening of Cuba’s economy and society, the subsequent expansion of international tourism and the popularity of all things Cuban, the decriminalization of the use of the dollar, its adoption as a legal currency, and its quick ascent to supremacy over the “old peso.” Special Period literature then became market-driven—like many other activities in Cuba—with authors’ incomes dependent on foreign sales and hard-currency contracts, rather than on Cuba’s literary bureaucracy and membership in the writers’ union. The dominance of the foreign market was further strengthened by the shrinkage of the domestic peso market for books because of declining incomes. This new foreign-market orientation was formalized by legislation in 1993 that permitted authors to negotiate their own contracts with foreign publishing houses and to repatriate their royalties under a relatively generous tax regime. Like other Cuban citizens, authors responded quickly to these new incentives. Special Period fiction is set in a “real Cuba” of interest to foreigners, namely in the Cuba of a behavior-warping dual-currency system, urban decay, dysfunctional Soviet-style economy, and political gerontocracy, together with a vibrant Afro-Latin culture and time-immemorial tropical eroticism. Ironically, the international boom in Cuban fiction during the sunset of the Revolution was a sequel to the literary boom of the 1960s, which was set in the confidence and vigor of the youthful Revolution.

Whitfield begins with an analysis of the circumstances of the Special Period that pushed authors into an external orientation. She then focuses on the works of Zoé Valdés, especially her award-winning I Gave You All I Had (1966), published in exile in Paris, which allows Whitfield to trace the central role played by a U.S. one dollar bill and its symbolic relevance for the culture of the Special Period. Short stories are the subject of the next chapter, with particular attention to the work of Ronáldo Menéndez. His story, entitled “Money,” is also set in the world of the doble moneda and doble moral, but criticizes the reliance on foreign markets and worries about the jineterización (translated imperfectly as “prostituting”) of the writer-publisher relationship and possible debasement of “true” Cuban literature. Whitfield goes on to examine the work of Pedro Juan Gutiérrez, notably the five books of his Ciclo Centro Habana. Gutiérrez writes for a foreign readership, but also critiques it, placing the reader in the position of voyeur into the “lives of sexual disorder, moral depravity and economic despair” of Havana (98). In her final chapter Whitfield meditates on artists’ depictions of Cuba’s urban decay and on critical analyses of such depictions.

Whitfield has produced a fine analysis of how economic circumstances generated new problems and new possibilities for Cuban authors, who have risen to the challenge and produced a literature of broad international appeal. Whitfield’s writing is engaging, her knowledge seems profound, and her subject is enchanting. However, I am not a competent critic of Cuban literature or literary criticism, and cannot tender a confident evaluation of its value for scholars in these fields. Her book, linking socio-politico-economic circumstances of the Special Period to Cuban literature, will nevertheless interest a broad range of social scientists, as well as the more literary-minded.

Is the international market for Cuban fiction as transitory as one might expect or hope that the Special Period itself may be? Perhaps. It may be that when Cuba escapes the Special Period and becomes a “normal country” with a normal monetary system, the special interest in its literary portrayal may diminish. However, the difficulties of economic and political reform are likely to continue for some time, and are likely to take various twists and turns that will hold our interest for some time to come. I hope that Cuba’s fiction writers are there to illuminate the process for a world readership.


[1] Full disclosure: I served as an evaluator for Marifeli Perez-Stable’s edited collection Looking Forward for the University of Notre Dame Press.
[2] One minor detail: Fidel Castro’s hometown was not Bayamo but Birán, not far from Cueto and Mayarí, both immortalized in the song “Chan Chan” by the Buena Vista Social Club.
[3] I also served as a reader for the Universities Press of Florida for the original manuscript of this volume. I was as impressed with it then as I am now.
[4] The emigrations of 1979-1989 were sparked in part by the return visits of Cuban Americans, who turned out not to be gusanos (worms)—the dehumanizing  label given to them by the Cuban government—but instead mariposas (butterflies), as they were relabeled with typical Cuban humor.

 

Posted in Blog, Featured | Tagged , , , , , , , , , | Leave a comment

Review: Cuban Currency: The Dollar and Special Period Fiction, by Esther Whitfield.

Cuban Currency: The Dollar and Special Period Fiction. By Esther Whitfield. Minneapolis: University of Minnesota Press, 2008. Pp. 217. $22.50 paper. ISBN: 9780816650378


Esther Whitfield

I must confess that when I first noticed the volume Cuban Currency: the Dollar and Special Period Fiction, I thought it was an analysis of Cuba’s monetary system, not having read the title carefully. To my trepidation, Esther Whitfield focuses instead on literature, but in the context of Cuba’s dual-currency pathology. Her survey of recent fiction has turned out to be a delight, even for an economist with little direct knowledge of Cuban literature.

Whitfield’s central argument is that the “Special Period” in Cuba generated a boom in cultural exports, including literature, due to a number of factors including the opening of Cuba’s economy and society, the subsequent expansion of international tourism and the popularity of all things Cuban, as well as the decriminalization of the use of the dollar in 1992, its adoption as a legal currency, and its quick ascent to supremacy over the “old peso.” Special Period literature then became market-driven—like many other activities in Cuba—with authors’ incomes dependent on foreign sales and hard-currency contracts, rather than on Cuba’s literary bureaucracy, membership in the writers’ union and the domestic market.

The dominance of the foreign market was further strengthened by the shrinkage of the domestic peso market for books because of declining incomes. This new foreign-market orientation was formalized by legislation in 1993 that permitted authors to negotiate their own contracts with foreign publishing houses and to repatriate their royalties under a relatively generous tax regime. Like other Cuban citizens, authors responded quickly to these new incentives.

In very simple terms, a key message of the book is that money talks and literary types listen. Or in “Special Period” Cuba, literary types chase dollars – like most other Cubans in this era, dollars having had greater purchasing power than “old pesos” in Moneda Nacional.

Special Period fiction is set in a “real Cuba” of interest to foreigners, namely in the Cuba of a behavior-warping dual-currency system, urban decay, dysfunctional Soviet-style economy, and political gerontocracy, together with a vibrant Afro-Latin culture and time-immemorial tropical eroticism. Ironically, the international boom in Cuban fiction during the sunset of the Revolution was a sequel to the literary boom of the 1960s, which was set in the confidence and vigor of the youthful Revolution.

Whitfield begins with an analysis of the circumstances of the Special Period that pushed authors into this external orientation. She then focuses on the works of Zoé Valdés, especially her award-winning I Gave You All I Had (1966), published in exile in Paris, which allows Whitfield to trace the central role played by a U.S. one dollar bill and its symbolic relevance for the culture of the Special Period. Short stories are the subject of the next chapter, with particular attention to the work of Ronáldo Menéndez. His story, entitled “Money,” is also set in the world of the doble moneda and doble moral, but criticizes the reliance on foreign markets and worries about the jineterización (or prostitution) of the writer-publisher relationship and possible debasement of “true” Cuban literature. Whitfield goes on to examine the work of Pedro Juan Gutiérrez, notably the five books of his Ciclo Centro Habana. Gutiérrez writes for a foreign readership, but also critiques it, placing the reader in the position of voyeur into the “lives of sexual disorder, moral depravity and economic despair” of Havana (98). In her final chapter Whitfield meditates on artists’ depictions of Cuba’s urban decay and on critical analyses of such depictions.

Whitfield has produced a fine analysis of how economic circumstances generated new problems and new possibilities for Cuban authors, who have risen to the challenge and produced a literature of broad international appeal. Whitfield’s writing is engaging, her knowledge seems profound, and her subject is enchanting. However, I am not a competent critic of Cuban literature or literary criticism, and cannot tender a confident evaluation of its value for scholars in these fields. Her book, linking socio-politico-economic circumstances of the Special Period to Cuban literature, will nevertheless interest a broad range of social scientists, as well as the more literary-minded.

Is the international market for Cuban fiction as transitory as one might expect or hope that the Special Period itself may be? Perhaps. It may be that when Cuba escapes the Special Period – now 20 years running – and becomes a “normal country” with a normal monetary system, the special interest in its literary portrayal may diminish. However, the difficulties of economic and political reform are likely to continue for some time, and are likely to take various twists and turns that will hold our interest for some time to come.

I hope that Cuba’s fiction writers are there to illuminate the process for a world readership.

Posted in Blog | Tagged , , , , | Leave a comment

State Sector Lay-offs then Private Sector Job Creation: Has Raul Got the Cart before the Horse?

On Monday September 13 2010, the Cuban Labour Federation announced a new government policy on lay-offs in the state sector and expansion of self-employment and cooperative sector employment.( Pronunciamiento de la Central de Trabajadores de Cuba.) As is now well known, the policy calls for the lay-off of some 500.000 workers, about 10% of Cuba’s entire labor force and their re-incorporation into self-employment activities mainly, but also some co-operative activities. This of course marks a major strategic re-orientation of Cuba’s economic structure. The economy already was a “mixed economy” though with a small self-employment sector outside of agriculture, but it will now shift further towards a “marketization.” Raul basically is asking the small and harassed self-employment to come to the rescue of the Cuban economy by generating productive employment because the state sector ostemsibly has failed to do so. Many questions can be and have been raised by outside observers as to how this new approach will be implemented. A couple of questions are noted here. I. Has Raul Got it “Bass Ackwards”? 1.      Prior to any state sector lay-offs, would it not be wise to redesign the framework within which small enterprise operates so that it will be in a position to expand and absorb the laid-off state sector workers? Firing state sector workers and hoping that they somehow will be reabsorbed somewhere sounds distinctly un-socialist. 2.      If workers’ efforts and productivity are low, is this due mainly to sloth and laziness? Or is it instead due to a dysfunctional incentive structure in which workers are paid very little in Moneda Nacional, but somehow have to acquire  “Convertible Pesos” to survive with purchase in the Hard Currency (formerly dollar) stores? As the old saying goes:  “They pretend to pay us and we pretend to work.” Maintenance Workers at the Australia Sugar Mill, November 1994; Certainly working hard, but probably laid off in 2002 when the Mill was converted to a museum;  visited with Nick Rowe who “blogs”  at “Worthwhile Canadian Initiative” and Larry Willmore, who “blogs” at “Thought du Jour” (Photo by A. Ritter) 3.      Is low productivity also due to mismanagement that wastes human effort? Is inefficiency also the result of low capacity utilization in enterprises  for example, in state stores that have little to sell, in offices with little to do, or in industrial enterprises idled through poor maintenance, insufficient imported inputs, breakdowns etc.? (Note the diagram below that illustrates the reduction in non-sugar industrial output since 1989. Despite allegations of record economic growth in the late 2000s, industrial output remains around half of its 1989 level.) II.   Who will be laid off and how will it be done? 1.      Will those who are laid off be good candidates for creating their own self-employment small businesses? 2.      Will those laid-off be offered “severance packages” or “buy-outs” that would provide them with an amount of capital to begin their own small businesses? 3.      Will older workers be offered “early retirement packages” that would assist them in starting a small business or co-operative? 4.      Will workers be free to self-select – with a “severance package” – so that they can start a small business? 5.      Will those who are laid off be the truly redundant and unproductive workers, in which case they may not have the aptitude to start their own small business? 6.      If laid-off workers can self-select, will the state sector enterprises or bureaucracies then lose their more capable and industrious workers? 7.      How generous will the unemployment benefits be and how long will they last while workers look for new jobs or attempt their own job-creation? In any case, the process of laying people off will be most difficult. The anxieties generated among the population must be intense and the Workers Assemblies now discussing these issues must be acrimonious. III.   Creating an “Enabling Environment” for Micro, Small and Cooperative Enterprise Since 1995, public policy has been aimed at containing small enterprise – after liberalizing it in 1993 – by licensing limitations, tight and vexatious regulations, onerous taxation, harassment by inspectors and negative political and media stigmatization. This has not been an easy environment for the functioning of self-employed to operate. Major changes will be necessary if the small enterprise sector is to expand in order to be able to absorb the lion’s share of the displaced state workers. How can this be done? A previous Blog outlined some possible measures: Raul Castro and Policy towards Self-Employment: Promising Apertura or False Start? Here are some of the key policies that would be necessary to generate a flowering of the micro, small, and cooperative enterprise sector. Additional policies regarding advertising and vending 1. Liberalize Licensing: Let anyone and everyone open a small enterprise ( Result: competition will push prices downwards and quality upwards); 2. Permit All Types of Self-Employment, including Professional and High-Tech while maintaining state medicine and health systems intact; 3. Raise the limit on employees to 5, 10 or 20; 4. Provide legal sources for the purchase of Inputs; 5. Permit access to imported inputs (outside TRDs and at the exchange rater available for the state sector); 6. Eliminate silly and vexations restrictions; 7. Make microenterprise taxation simpler and fairer; 8. Establish micro-credit institutions; 9. Establish a “Ministry for the Promotion of Small Enterprise.” Photographer, at the Capitolio circa 1996, (Photo by A, Ritter)

Posted in Blog, Featured | Tagged , , , , , , , | 4 Comments