New Co-op Laws In Cuba

Co-op Laws In Cuba Are Seen As Progress (Cave, NYT)

Wednesday, December 12, 2012

New York Times

By Damien Cave

MEXICO CITY – The Cuban government authorized a wide range of co-ops on Tuesday, allowing workers to collectively open new businesses or take over existing state-run businesses in construction, transportation and other industries.

The new laws published Tuesday are the latest step in a slow, fitful process of opening Cuba’s economy to free-market ideas. The latest announcement calls for the creation of more than 200 co-ops as part of a pilot program. If it grows, analysts said, the experiment could do more for economic growth and productivity than earlier efforts to allow for self-employment, or to reform agriculture.

Co-ops that are run independent from the government could shift a large portion of the island’s economy to free-market competition from government-managed socialism, analysts contend, a change from earlier co-op efforts within state-run agriculture.

“The potential is large,” said Richard E. Feinberg, a professor of international political economy at the University of California, San Diego. “The Cubans are looking for something in between the old state-owned enterprise and a pure free market. Cooperatives are an answer, so looking forward, they could play a significant role.”

For some Cubans, the new laws will just legalize what is already going on in the black market. But the government also seemed interested in encouraging consolidation among small entrepreneurs. The new laws call for lower tax rates for co-ops than for self-employed workers. That means barbers or fishermen or carpenters who now work as individuals will have an incentive to join co-ops, companies in which each worker has a vote.

The new laws also say that co-ops can be formed with as few as three people, and that in addition to converting state businesses into co-ops – with first preference given to workers already there – co-ops will be able to bid for leases of idle government properties.

The co-ops “will not be administratively subordinated to any state entity,” the government said in a summary of the laws in Granma, the state-run newspaper. But the government will play a large role in determining who gets the chance to open businesses. Workers seeking to start co-ops must submit applications that go to local government offices that pass them up to the Council of Ministers, which includes President Raúl Castro, for approval.

It is not yet clear whether higher-skilled professionals, like architects or doctors, will be able to form co-ops. Philip Peters, a Cuba expert at the Lexington Institute, a nonpartisan policy group, said that initially the co-ops would probably fill a gap in basic services, like transportation for farm products. He predicted co-ops would most likely reduce the likelihood of theft.

“People pilfer from the state; they don’t from a business in which they have a stake,” he said. But to fully reach the co-ops’ potential, he and other experts said, questions about the government’s interaction with them will need to be answered.

“They have not been liberated overnight from operating in the Cuban context,” said Professor Feinberg, who was an adviser to the Clinton administration. “How do they get credit? How do they get inputs? How are workers going to be properly trained? How will management be properly trained? These are all outstanding issues.”