Tag Archives: Self-Employment

Slim pickings. CLUELESS ON CUBA’S ECONOMY

HAVANA. The communist regime can no longer rely on the generosity of its allies. It has no idea what to do

The Economist.  Print edition | The Americas. Sep 30th 2017

GABRIEL and Leo have little in common. Gabriel makes 576 Cuban pesos ($23) a month as a maintenance man in a hospital. Leo runs a private company with revenues of $20,000 a month and 11 full-time employees. But both have cause for complaint. For Gabriel it is the meagre subsistence that his salary affords. In a dimly lit minimá (mini-mall) in Havana he shows what a ration book entitles one person to buy per month: it includes a small bag of coffee, a half-bottle of cooking oil and five pounds of rice. The provisions cost next to nothing (rice is one cent per pound) but are not enough. Cubans have to buy extra in the “free market”, where rice costs 20 times as much.

Leo (not his real name) has different gripes. Cuba does not manufacture the inputs he needs or permit enterprises like his to import them. He travels abroad two or three times a month to get them anyway. It takes six to eight hours to pack his suitcases in such a way that customs officials don’t spot the clandestine goods. “You feel like you’re moving cocaine,” he says.

Making things easier for entrepreneurs like Leo would ultimately help people like Gabriel by encouraging the creation of better jobs, but Cuba’s socialist government does not see it that way. In August it announced that it will stop issuing new licences in two dozen of the 201 trades in which private enterprise is permitted. The frozen professions include running restaurants, renting out rooms to tourists, repairing electronic devices and teaching music.

This does not end Cuba’s experiment with capitalism. Most of the 600,000 cuentapropistas (self-employed workers), including restaurateurs, hoteliers and so on, will be able to carry on as before. But the government mistrusts them. Their prosperity provokes envy among poorer Cubans. Their independent-mindedness could one day become dissent. Raúl Castro, the country’s president, recently railed against “illegalities and other irregularities”, including tax evasion, committed by cuentapropistas. He did not admit that kooky government restrictions make them inevitable. The government “fights wealth, not poverty”, laments one entrepreneur.

A Santeria Message

Trump’s mouth, Irma’s eye

The clampdown on capitalism comes at a fraught time for Cuba. Mr Castro is due to step down as president in February. That will end nearly 60 years of autocratic rule by him and his elder brother, Fidel, who led Cuba’s revolution in 1959. The next president will probably have no memory of that event. Relations with the United States, which under Barack Obama eased its economic embargo and restored diplomatic relations, have taken a nasty turn. President Donald Trump plans to make it more difficult for Americans to visit the island. Reports of mysterious “sonic attacks” on American diplomats in Havana have further raised tensions.

Hurricane Irma, which struck in early September, killed at least ten people, laid waste to some of Cuba’s most popular beach resorts and briefly knocked out the country’s entire power system. With a budget deficit expected to reach 12% of GDP this year, the government has little money to spend on reconstruction.

These are blows to an economy that was already in terrible shape. Cuba’s favourite economic stratagem—extracting subsidies from left-wing allies—has had its day. Venezuela, which replaced the Soviet Union as its patron, is in even worse shape than Cuba. Their barter trade—Venezuelan oil in exchange for the services of Cuban doctors and other professionals—is shrinking. Trade between the two countries has dropped from $8.5bn in 2012 to $2.2bn last year. Cuba has had to buy more fuel at full price on the international market. Despite a boom in tourism, its revenues from services, including medical ones, have been declining since 2013.

Bound by a socialist straitjacket, Cuba produces little else that other countries or its own people want to buy. Farming, for example, is constrained by the absence of markets for land, machinery and other inputs, by government-set prices, which are often below the market price, and by bad transport. Cuba imports 80% of its food.

Paying for it is becoming harder. In July the economy minister, Ricardo Cabrisas, told the national assembly that the financial squeeze would reduce imports by $1.5bn in 2017. What appears in shops often depends on which of Cuba’s suppliers are willing to wait for payment. GDP shrank by 0.9% in real terms in 2016. Irma and the drop in imports condemn the economy to another bad year in 2017.

The government does not know what to do. One answer is to encourage foreign investment, but the government insists on pulling investors into a goo of bureaucracy. Multiple ministries must sign off on every transaction; officials decide such matters as how many litres of diesel will be needed for delivery trucks; investors cannot freely send profits home. Between March 2014 and November 2016 Cuba attracted $1.3bn of foreign investment, less than a quarter of its target.

Faced with a stalled economy and the threat of shortages, the government is trying harder to woo investors. It has agreed to let food companies, for example, repatriate some of their profits. But anything more daring seems a distant prospect. Cuentapropistaslike Leo are waiting impatiently for a planned law on small- and medium-sized enterprises. That would allow them to incorporate and do other sorts of things that normal companies do. It will not be passed anytime soon, says Omar Everleny, a Cuban economist.

An even bigger step would be a reform of Cuba’s dual-currency system, which makes state-owned firms uncompetitive, keeps salaries in the state sector at miserable levels and distorts prices throughout the economy. Cuban pesos circulate alongside “convertible pesos” (CUC), which are worth about a dollar. Although for individuals (including tourists) the exchange rate between Cuban pesos and CUC is 24 to one, for state-owned enterprises and other public bodies it is one to one. For those entities, which account for the bulk of the economy, the Cuban peso is thus grossly overvalued. This delivers a massive subsidy to importers and punishes exporters.

A devaluation of the Cuban peso for state firms is necessary for the economy to function properly. But it would bankrupt many, throw people out of work and spark inflation. Countries attempting such a devaluation usually look for outside help. But, because of American opposition, Cuba cannot join the IMF or World Bank, among the main sources of aid. Fixing the currency system is a “precondition for further liberalisation”, says Emily Morris, an economist at University College London.

It is unlikely to happen while Cuba is in the throes of choosing a new leader. The process has sharpened struggles between reformers and conservatives within the government. Mr Trump’s belligerence has probably helped the latter. Most Cuba-watchers had identified Miguel Díaz-Canel, the first vice-president and Mr Castro’s probable successor, as a liberal by Cuban standards. But that was before a videotape of him addressing Communist Party members became public in August. In it, Mr Díaz-Canel accused the United States of plotting the “political and economic conquest” of Cuba and lashed out at media critical of the regime. Perhaps he was just pandering to conservatives to improve his chances to succeed Mr Castro. If those are his true opinions, that is bad news for Leo and Gabriel.

State Food Distribution Center:  the rationing system. (2015)

Mobile Self-employed Food Vendor.  (2015)

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Book Review Essay: THE EMERGING NON-STATE SECTOR IN CUBA’S ECONOMY

Carmelo Mesa-Lago, University of Pittsburgh,

Latin American Research Review, July 2017  https://doi.org/10.25222/larr.2

This essay reviews the following works:

Open for Business: Building the New Cuban Economy. By Richard E. Feinberg. Washington DC: Brookings Institution Press, 2016. Pp. vii + 264. $22.00 cloth. ISBN: 9780815727675.

Miradas a la economía cubana: Análisis del sector no estatal. Edited by Omar Everleny Pérez Villanueva and Ricardo Torres. La Habana: Editorial Caminos, 2015. Pp. 163. $5, paper. ISBN: 9789593031080.

Entrepreneurial Cuba: The Changing Policy Landscape. By Archibald R. M. Ritter and Ted A. Henken. Boulder, CO: First Forum Press, 2015. Pp. xiv + 374. $79.95 cloth. ISBN: 9781626371637.

Retos para la equidad social en el proceso de actualización del modelo económico cubano. Edited by María del Carmen Zavala et al. La Habana: Editorial Ciencias Sociales, 2015. Pp. vi + 362. $20 paper. ISBN: 9789590616105.

Soon after current president of the State Council Raúl Castro took over power in Cuba from his brother Fidel in 2006, he started structural reforms to cope with the serious socioeconomic problems accumulated in the previous forty-five years. Some authors, including a few in this review, argue that Cuba is in transition to a mixed economy. Despite the importance of these changes, however, the official view is that central planning will predominate over the market, and state property over private property.1 A main reform goal was to fire 1.8 million unneeded workers in the state sector, which demanded an expansion of the “non-state sector” (NSS) to provide jobs to those dismissed. The four books I review are commendable additions to the growing literature on the NSS (inside and outside Cuba), as they fill some of its existing gaps, to be identified below.2 A few authors rely on surveys to gather data, but surveys are not easy to take in Cuba; hence the majority used interviews of different size and representativeness, as well as in-depth conversations.

Within the NSS, the most dynamic four groups are self-employed workers (507,342), usufruct farmers (312,296), and members of new nonagricultural and service co-ops, NASCs (only 7,700 so far). Altogether these make up 17 percent of the labor force, out of a total 29 percent in the entire NSS.3 Except for the most recent NASCs, the other three forms were legalized during the severe crisis of the 1990s but did not take off until much later. Selling and buying of private dwellings, banned in 1960 and reauthorized in 2011, involve at least 200,000 transactions but still only 5 percent of the total housing stock. The books reviewed in this essay mainly concentrate on self-employment and to a much lesser extent on NASCs.

The main gaps treated by the books are the NSS’s history; size and personal profiles; relations with the state; progress achieved and obstacles faced; the role of variables—age, gender (most treated), race, educa­tion, and location—on growing inequalities; particular issues such as access to raw materials, capital and credit, competition, and taxes; and NSS perspectives. This review discusses the data, method, and evidence that each researcher uses and the major issues and findings, arguing that the size of the NSS remains questionable.

In Entrepreneurial Cuba, Archibald Ritter and Ted Henken combine their economic and sociological exper­tise to produce an encyclopedic, balanced, and laudable volume on the development of the NSS in Cuba. Targeted on self-employment and, to a lesser extent, on NASCs, the book also tackles broader topics like the “underground” economy. It starts with an examination of small enterprises in general, internationally, and its lessons for Cuba. Based on historical and comparative approaches, Ritter and Henken discuss the evolution of self-employment throughout Cuban contemporary history. In the socialist period, they com­pare Cuban policies with those of the USSR and Eastern Europe; furthermore they contrast Fidel’s hostility to the NSS (except for reluctant support in times of economic crisis) with Raúl’s more pragmatic and posi­tive style, which does not exempt the sector from tight controls, restrictions, and taxes. Largely based on my cycles approach,4 the history of self-employment under socialism is divided in three periods (each one covered in a chapter): 1959–1990, trajectories and strategic shifts; 1990–2006, the “Special Period”; and 2006–2014, Raúl’s reforms.

Ritter and Henken conclude that the NSS has grown and achieved substantial progress: for instance, increase in authorized activities and licenses, broadened legal markets, deduction of part of the expenses for tax purposes, micro credits and banking facilities, and rental of state facilities. Conversely they identify limi­tations, like narrow definition of legal activities, exclusion of most professional and high-tech occupations, multiple taxes and taxation at a high level, lack of wholesale markets, bureaucratic resistance, obstacles to hiring employees, and discrimination in favor of foreign firms. They provide suggestions to overcome these problems. Lack of space impedes a more profound treatment of this book, the most comprehensive and profound on self-employment so far. The structure of the book, combining historical stages and current analysis of self-employment and NASC, however, is somewhat complex and leads to a certain overlapping.

Ritter and Henken rely on three series of interviews conducted in Cuba with sixty self-employed workers in 1999–2001, half of them re-interviewed in follow-up visits in 2002 and 2009 and, finally, some revisited in April 2011 to evaluate the impact of Raúl’s reforms. The authors select the three most dynamic, lucrative, and sizeable private activities: small restaurants (paladares), taxis, and lodging. They asked their informants about three issues: (1) ambitions and expectations for the future (whether they expected to become true small- and medium-sized enterprises—SME—in the long run); (2) survival strategies in negotiating with the state (how they responded to the government regulations, licenses, and taxes); and (3) distinctions between licensed and clandestine self-employed workers.

Accompanying abundant evidence, deep analysis, statistical tables, synoptic charts, figures, and useful appendices (including a list of the 201 authorized activities for the self-employed and a timetable of the evo­lution of NSS in 1959–2014), the authors intersperse vignettes that allow the reader to better understand the daily life of the self-employed. Occasional jewels in the book brighten our knowledge, such as uncover­ing in fascinating detail the bureaucratic shutdown of El Cabildo, which was the most prosperous private, medium-sized business in Cuba.

Miradas a la economía cubana, a collection edited by well-known Cuban economists Omar Everleny Pérez Villanueva and Ricardo Torres, includes twelve essays that offer a first-rate sample of scholarship on the NSS at the Center for the Study of the Cuban Economy, the best economic think tank in Cuba. The anthology, an excellent complement to the Ritter and Henken book, includes self-employment and NASCs. In the prologue, Juan Valdés Pérez notes that “the new economic model in Cuba is moving [transita] toward a mixed economy, based on a public sector, a mix-capital sector, and a private sector, mostly SME” (14). Most contributors to the volume propose reasonable policies to help the consolidation and further expansion of the NSS.

In the opening chapter, Torres discusses the role of the private sector in a centrally planned economy such as Cuba, which generates an intrinsic conflict. Despite NSS advances, the government still sees it as a supplement to the state sector and imposes clear limits. Hence the NSS role is and will continue to be very minor, if currents trends hold. An important point, among many discussed by Torres, is that its productivity is low, despite the very highly educated labor force (ranked at the top of Latin America), and shows a declin­ing trend due to the low skills of the activities approved. He ends by suggesting, “In a scenario [Cuba] where public enterprises are predominant and mostly inefficient, wealth is not socialized and man is not liberated from alienation, just the opposite” (25). Torres believes that the solution to all existing problems is neither privatization of all public assets nor to insist on old formulas overcome by time, and urges a serious national social debate on these issues.

Pérez Villanueva analyzes and defines self-employment and SME, tracing their evolution and identifying needs such as autonomy, a wholesale market with competitive prices, facilitation of payments through the national banks, and use of highly skilled personnel; he also notes adverse effects like social inequalities (see Zavala et al., below). At the end of his chapter, he asserts that “the Cuban SME would be more viable than the actualization of our economic model and contribute more positive results, providing that the government understands its role and potential” (35).

Camila Piñeiro provides the most comprehensive and deep analysis of NASCs so far. These cooperatives grew 74 percent, from 198 to 345, in 2013–2014, but their tempo slowed to 6 percent in 2015.5 Based on diagnosis and audits done on sixty NASCs in 2014, Piñeiro identifies their achievements (increase in income and motivation, improvement in the locale and working conditions) and problems (complex and delayed creation, insufficient training, and lack of a wholesale market). The most successful NASCs are those cre­ated by the voluntary initiative of a group of persons that share the same goals and values (23 percent of all NASCs), and the least successful are those coming from former state enterprises, without negotiating with their workers so that they accept what is decided from above (77 percent).

Mariuska Sarduy, Saira Pons, and Maday Traba analyze tax evasion and underdeclaration of income among self-employed owners. They report that evasion was 12 percent of total fiscal revenue and 60 percent of registered self-employed contributors in 2013–2014. They carried out 300 interviews with self-employed workers in Havana in 2014 and found that 55 percent omitted income in their declaration for the follow­ing reasons: 95 percent due to very high taxes; 77 percent blamed the complex procedure to pay taxes; 80 percent knew that evasion or underdeclaration are toughly penalized crimes, but half believed that they were necessary to survive, and 20 percent thought that it was improbable that fiscal authorities would catch them.

Expanding her substantial work on geographic inequalities, Luisa Íñiguez uses the 2012 population census to explore the distribution of NSS enterprises in Cuban provinces and municipalities and shows their differences and contribution to social inequalities. She develops various maps of the island, displaying the location of total NSS enterprises, as well as key components such as the self-employed, usufruct farmers, and small private farmers. In addition, she calculates percentages of components of the NSS relative to the employed labor force. The NSS developed much further after 2012, but her work remains valuable and sets a solid foundation for future study.

The role of women in microenterprises is examined by Ileana Díaz and Dayma Echevarría, relying on data from the 2012 population census and Ministry of Labor and Social Security in 2013, and a survey of thirty-five self-employed owners in Havana circa 2014 (63 percent women and 37 percent men). Among other gender inequalities, they find that women are more hurt than men by the lack of a state policy to foster microenterprises, and by poor access to credit as well as to legal and accounting advice. Interviewees answered key questions with a fair consensus: 50 percent noted unfair competition from state and mixed enterprises; most preferred to work as self-employed instead of for the state; public or private financing was judged insufficient; elementary-secondary school didn’t help in their activity but university did; and they noted poor access to wholesale markets, telecommunications, and vanguard technology. Virtually all inter­viewees, but a sizably lower percentage of women than men, said that their success was more than expected. Both genders agreed on the major obstacles: limited demand, excessive state bureaucracy and regulations, too much competition, absence of a wholesale market, and difficulties to get inputs.

Retos para la equidad social, edited by Maria del Carmen Zavala et al., contains twenty contributions, all but one authored by women, focused on socioeconomic inequality under Raúl’s structural reforms. Three chapters of the book deal with expanding inequalities among the self-employed by age, gender, race, educa­tion, and location, and also with their motivation, satisfaction, competition, capital access, obstacles faced, and views of the future.

The best chapter in the collection, by Daybel Pañellas, Jorge Torralbas, and Claudia Caballero, relies on a survey taken between October 2013 and March 2014 among 419 persons self-employed in fifty-seven activities and located in three districts of Old Havana. They find that age, gender, education, and location are important factors in the quality of occupation, access to capital, and earnings of the self-employed. In the sample, 76 percent worked by themselves, without employees; 13 percent were employers and 11 percent employees; 64 percent were men and 36 percent women; 48 percent were white and 52 percent nonwhite; 54 percent were middle-aged adults, 30 percent young people, and 15 percent elderly; 54 percent had precollege or university education, 31 percent had a low level of education, and 15 percent had a technical education (a highly trained labor force and NSS, also noted by Torres). Not only are women underrepresented, but their activities reproduced their roles in domestic life, such as work in cafeterias, food preparation, manicure, makeup, and as seamstresses. While women rented rooms mostly in national pesos (CUP), men rented rooms in the more advantageous convertible pesos (CUC = 24 CUP). Combining education, race, and gender, the best-educated white males had better occupations than the lowest trained nonwhite females (e.g., computer programing vis-à-vis seamstress). The self-employed were mainly attracted by these features of self-employment (not exclusive categories): better income (80 percent), easier labor journey (20 percent), and being their own bosses (15 percent). Their level of sat­isfaction ranged from so-so (53 percent), to good/very good (38 percent), to bad/very bad (9 percent)—the higher the educational level the more occupational satisfaction.6 Success in competition was attributed to the quality of product or service (56 percent), business location (24 percent), and low prices (14 percent). Access to capital was mostly by employers that receive remittances, are white, and have higher or mid­dle education, ample social networks, and good locations; conversely, investment is minimal among low-educated nonwhites. Obstacles encountered by the self-employed were lack of access to raw materials (49 percent), heavy taxes (44 percent), lack of financing (35 percent), state control and inspections (33 percent), and legal procedures (23 percent). These proportions varied in the three districts and were influenced by gender, race, and type of activity; for example, controls and inspections were mostly mentioned by workers with low education, nonwhites, and women. On their perceptions for the future, 81 percent believed that the self-employed would prosper—especially if the mentality of the state and the self-employed changes— and 10 percent didn’t think so.

Geydis Fundora expands on the growing inequalities enumerated above, based on a study of fifty-two self-employed residents of Havana Province in 2010–2013, reaching similar conclusions. Out of the 201 activities approved, 65 percent have a male profile; paladar owners mostly hire women because of their sex appeal to clients and because the work is similar to that done at home; other activities are in practice barred to the “weak sex.” Men tend to be employers and women employees, thus resulting in lower decision making and income for women. The elderly are disadvantaged because most activities require physical strength; most young people are hired as employees and in less specialized activities. There is no political will to gather statistics on race, but whites predominate over blacks and mulattoes, opposite to what Pañellas, Torralbas, and Caballero found; nonwhites have less access to capital and hence to success and higher earnings. Those that have a high initial capital—coming from savings, remittances, or hidden foreign investment—enjoy an advantage over the rest not only to establish the business but also to buy inputs, pay taxes, and bribe inspec­tors. Location in more attractive and populous zones are keys to success.

Magela Romero targets self-employed women engaged on infant care, a most-needed occupation to increase female participation in the employed labor force, which was 37 percent of the total in 2015;7 the low proportion is an outcome of resilient traditional gender roles at home and work. Based on eighteen cases in the town of Cojímar (in Havana) in 2013, the study found that all those self-employed in infant care were women, and half of them had previously been informal domestic employees. All said that their main attraction was a higher income, but all also complained of exhausting work and high responsibility with a monthly salary of 200 CUP per infant, with a maximum of five infants, equal to US$40, still three times the mean average salary in the state sector.

Open for Business by Richard E. Feinberg deals mainly with the economic events following the process of normalization between the United States and Cuba that started at the end of 2014, preceded by a summary of the previous state of the Cuban economy and Raúl’s reforms. Feinberg believes that the emerging NSS “offers the best hope for a more dynamic and efficient Cuban economy, especially if it is permitted to partner with foreign investment and with more efficient state-owned enterprises” (132). One chapter on emerging entrepreneurs is based on a monograph he published in 2013, which at that time provided substantial data and analysis on self-employment, preceding the other three books reviewed herein.8 One graph and one table are updated to mid-2015, but most of the text remains unchanged. The author and an assistant had in-depth conversations with twenty-five microentrepreneurs between March 2012 and April 2013, emphasiz­ing financial issues (averages of time open, number of employees, starting capital, and use of domestic and foreign capital). Interesting profiles of self-employed activities are given on paladares, cafeterias and cater­ing, bed and breakfasts, accounting, a shop selling handicrafts to tourists, building construction and house remodeling, electronic repairs, and renting of 1950s cars; from such profiles he extracts useful lessons.9 A stimulating innovation is the selection of twelve young Cuban “millennials” (aged 20–35), one of them the owner of a cafeteria, for appealing interviews based on ten questions.

Feinberg envisages four stages of capital accumulation of microbusinesses: primitive household accumu­lation, early-mover super-profits, growth and diversification, and strategic alliances with state enterprises and with foreign investors (not yet authorized). Like the other authors whose books I review here, he stresses the progress and achievements of self-employment, perhaps more so than other authors. But he also pin­points the many constraints the self-employed face: poor banking and meager credit, serious scarcity of inputs of all sorts (as a visible exception he gives the wholesale market “El Trigal,” temporarily closed in May 2016), shortage of commercial rental space, a very challenging business climate, and government restric­tions including persecution by government inspectors and heavy fines, as well as constraints on capital accumulation and business growth. He provides his own recommendations to alleviate these problems.

One fundamental question left unanswered is the size of the NSS. Unfortunately, there are no official data on the NSS, complete and disaggregated by components. Neither Ritter and Henken nor most Cuban authors provide such a figure (Torres estimates it as 27 percent of the labor force; p. 21). The only elaborated calculation in the four books is Feinberg’s, who states that “altogether, as many as 2 million enterprising Cubans—40 percent of total employment—and possibly even more can be counted within the private sector” and predicts that “in the next three to five years, total private employment could reach 45 to 50 percent of the active labor force” (Feinberg, 132, 139; emphasis added); this exceeds by 10 percentage points Torres’s middle-term estimate of 35 to 40 percent (24).

Feinberg overestimates the NSS’s size. First, an important semantic and substantive issue is that not all NSS participants are private, only most self-employed workers and their employees as well as small private farmers are. Usufruct farmers, NASCs, and other cooperatives’ members do not own their land or buildings; these belong to the state, which leases them to the workers. Second, several figures in Feinberg’s estimates are either questionable or not supported by specific sources; the main query is what he labels “other private activities (estimated),” such as full-time unregistered self-employment and partial self-employment done by state-sector employees, which add up to between 185,000 and 1,185,000, based on guesstimates (while it is true that some government employees work part-time as self-employed workers, it is impossible to know for how many hours, which makes it difficult to estimate average full days of work). Third is the inclusion of 353,000 members of credit and service cooperatives (CCS), because that number exceeds by 65 percent the total number of all co-op members in 2015, including agricultural production (UBPCs, Basic Units of Agricultural Production, and CPAs, Agricultural Production Co-ops), CCSs (Credit and Services Co-ops) and NASCs.10 Furthermore, many private and usufruct farmers are also members of CCSs, thus they are counted twice. Fourth, the category of “land lease farmers” (172,000) is confusing; on the one hand Feinberg does not specifically include usufruct farmers (312,296), and on the other hand the official data on land leasers (arrendatarios) is only 2,843.11 Fifth, employees of self-employed workers are counted since 2011 in the total number of the self-employed, mixed with owners, and we have shown that there is a double counting in the overall figure. In any case, the official statistics on the total NSS share in the employed labor force expanded from 17 percent in 2008, when Raúl officially became president, to 29 percent in 2015.12 In conclusion, there is no doubt that the NSS is important and growing, but certainly not as much as Feinberg estimates.

In summary, the most studied NSS group is the self-employed; NASCs are briefly discussed by Ritter and Henkel and in Piñeiro’s chapter in Zavala et al. Largely excluded from the discussion are usufruct farmers, and totally omitted is the selling/buying of private homes. The historical approach is followed most inten­sively by Ritter and Henken, although several Cuban authors provide summaries of the evolution in their respective topics. The preferred methodology is interviews or conversations combined with research. There is a consensus that the NSS (mostly self-employment) has been successful despite considerable obstacles. We lack a reliable estimate of the NSS’s size.

Missing in the four volumes is an evaluation of the NSS’s macroeconomic effects.13 Ritter and Henken refer to some results of self-employment, such as job creation, noting the nonfulfillment of the official target of dismissing more than one million unneeded state employees. None of the books discuss the impact of usufruct farming on agricultural output, where NASC members are still minute and their impact is even more difficult to assess. It is true that the scarcity of available data hinder the task, but still some estimation could have been done on the NSS’s effect on produce sales, fiscal revenue, and GDP.14

Feinberg and Ritter and Henken are the only authors who explore the future of the NSS. Feinberg provides three broad overall scenarios, which are thought-provoking but touch little on the NSS: (1) “inertia” with little change, without citing potential precedents and projecting self-employment to 750,000, 48 percent higher than the March 2016 official figure of 507,342; (2) “botched transition and decay,” the most pessimistic, similar to former states of the USSR, but with self-employment expanding to 1 million, twice its 2016 size, as some restraints are removed; and (3) “soft landing” in 2030, the most optimistic, under market socialism as in Vietnam, where self-employment really takes off and reaches 2 million employees and 40 percent of the labor force—this is somewhat confusing because he refers to the private sector and had previously predicted, for the entire NSS, 45 to 50 percent in 2019–2021 (203–222).

Ritter and Henken offer three possible alternative routes for the NSS, without predicting its size: (1) reversal to Fidel’s hostile approach, which they judge very improbable because it is totally unfeasible and discredited (“unlikely to be reversed” for Feinberg, 131); (2) stabilization of Raúl’s current (2014) and cautious reform package to self-employment and NASCs, which would remain in place for the rest of his presidency, but with a significant expansion of both and the potential of creating a “mixed cooperative market economy”; and (3) acceleration of the reform and rebalancing among public, private, and cooperative sectors, with medium and large private enterprises advancing at the expense of co-ops and smaller private enterprises; the viabil­ity of this scenario, they say, could be helped by a “serious relaxation of US policy toward Cuba” that could “encourage the Cuban government pro-market openings” (311).

Cuba is always unpredictable, and none of the three scenarios by the above authors completely fit the situ­ation in August 31, 2016, when this review essay was finished. Ritter and Henken’s book was concluded in October 2014, thus this reviewer has the unfair advantage of almost two years that have brought significant changes, such as the evolution of US-Cuba rapprochement in 2014–2016 and the Seventh Congress of the Communist Party held in April 2016.15 In light of those events, their first and third alternatives are implau­sible, at least in the medium and long run; the second might be conceivable if the emphasis is placed on “stability” instead of significant expansion. By August 2016, however, rapprochement, rather than helping the reforms, appeared to have the opposite effect due to dread in the leadership caused by Obama’s visit and it effects, reflected in the results of the Seventh Party Congress. The number of self-employed workers peaked at 504,613 in May 2015, declined to 496,400 in December, and climbed again to 507,342 in March 2016, an increase of 0.7 percent in ten months, substantially lower that the expansion rate in 2014 and 2015 (14 and 3 percent, respectively). Furthermore, at the Congress, Raúl warned that although NSS forms are not antisocialist, “powerful external forces” try to “empower” them as agents of change, and could risk further “concentration of wealth and property” (the latter was not among the agreements of the Sixth Congress in 2011), making it necessary to impose “well-defined limits” on them.16 The Seventh Congress also recom­mended to halt the creation of new NASCs because of their deficiencies, and to concentrate on the existing ones instead.17 Finally, the only existing wholesale market was temporarily closed in May 2016. Feinberg’s book ended in early 2016, much later than Ritter and Henken’s, but his scenarios and predictions don’t cor­relate well with the facts explained above: “inertia” looks optimistic and even more so “decay”—both appear to be short- or middle-term effects—whereas the 2030 “soft landing” would require the drastic changes detailed by him, which are difficult to visualize now.

1 These basic principles of the reforms were set in the Sixth Communist Party Congress of 2011 and ratified in the Seventh Congress of 2016.

2 The pioneer book in the field is Jorge F. Pérez-López, Cuba’s Second Economy: From Behind the Scenes to Center Stage (New Brunswick: Transaction Publishers, 1995).

3 Oficina Nacional de Estadística e Información (ONEI), Anuario Estadístico de Cuba 2015 (La Habana, 2016).

4 Carmelo Mesa-Lago, Market, Socialist, and Mixed Economies: Comparative Policy and Performance; Chile, Cuba, and Costa Rica (Baltimore: John Hopkins University Press, 2000).

5 ONEI, Anuario Estadístico de Cuba 2015.

6 A series of interviews conducted by five authors in 2014–2015, in a much wider part of Havana City, agreed with the predominance of men over women, the highest participation of middle-aged adults, and the important role of education, but found a prevalence of whites and a higher level of satisfaction. Carmelo Mesa-Lago et al., Voces de cambio en el sector no estatal cubano: Cuentapropis­tas, usufructuarios, socios de cooperativas y compraventa de viviendas (Madrid: Editorial Iberoamericana Vervuert, 2016).

7 ONEI, Anuario Estadístico de Cuba 2015.

8 Richard E. Feinberg, Soft Landing in Cuba? Emerging Entrepreneurs and Middle Classes (Washington, DC: Brookings Institution, 2013).

9 These cases are more varied than those discussed by Ritter and Henken, but the latter provided the most comprehensive and profound analysis of paladares.

10 ONEI, Anuario Estadístico de Cuba 2015.

11 ONEI, Anuario Estadístico de Cuba 2014 (La Habana, 2015).

12 Mesa-Lago et al., Voces de cambio en el sector no estatal cubano; ONEI, Anuario Estadístico de Cuba 2015.

13 Valdés notes in the prologue to Pérez Villanueva and Torres’s book the absence of a macroeconomic essay to place all NSS forms in the proper context.

14 The percentage of GDP generated only by self-employment has been estimated as 5 percent by Saira Pons, Tax Law Dilemmas for Self-Employed Workers (La Habana, CEEE), but by 12 percent by Torres (in Pérez Villanueva and Torres, p. 24), a significant gap. For an assessment of some NSS effects see Mesa-Lago et al., Voces de cambio en el sector no estatal cubano.

15 After this essay was finished, the guidelines (lineamientos) for 2016–2021 were published; a rapid browse indicates no significant changes from the guidelines of 2011.

16 Raúl Castro Ruz, “Informe central al Séptimo Congreso del Partido Comunista de Cuba,” Granma, April 17, 2016 (emphasis added), 1–3. Mauricio Murillo mentioned, as examples of the limits to be imposed, the establishment of limits on the number of hectares that somebody may have (“Intervención en el VII Período Ordinario de la Asamblea Nacional,” Granma, July 9, 2016).

17 Carmelo Mesa-Lago, “El lento avance de la reforma en Cuba,” Política Exterior 30, no. 171 (2016): 94–104.155

 

 

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CUBAN ENTREPRENEURS START FIRST PRIVATE BUSINESS GROUP

A handful of entrepreneurs have quietly formed communist Cuba’s first private small business association, testing the government’s willingness to allow Cubans to organize outside the strict bounds of state control.

By ANDREA RODRIGUEZ, Associated Press. June 1, 2017

HAVANA (AP) — A handful of entrepreneurs have quietly formed communist Cuba’s first private small business association, testing the government’s willingness to allow Cubans to organize outside the strict bounds of state control.

More than a half million Cubans officially work in the private sector, with tens, perhaps hundreds, of thousands more working off the books. Cuba’s legal system and centrally planned state economy have changed little since the Cold War, however, and private business people are officially recognized only as “self-employed,” a status with few legal protections and no access to wholesale goods or the ability to import and export.

The government is expected to take an incremental step toward changing that Thursday when Cuba’s National Assembly approves a series of documents updating the country’s economic reform plan and laying out long-term goals through 2030. Those goals include the first official recognition of private enterprise and small- and medium-size businesses, although it could be years before any actual changes are felt on the ground in the country.

The Havana-based Association of Businessmen is trying to move ahead faster, organizing dozens of entrepreneurs into a group that will provide help, advice, training and representation to members of the private sector. The group applied in February for government recognition. While the official deadline for a response has passed, the group has yet to receive either an OK or negative attention from authorities, leaving it in the peculiar status known in Cuba as “alegal” or a-legal, operating unmolested but vulnerable to a crackdown at any time.

“People have approached with a lot of interest but they don’t want to join until we’re officially approved,” said Edilio Hernandez, one of the association’s founders. Trained as a lawyer, Hernandez also works as a self-employed taxi driver.

“Many people really understand that entrepreneurs need a guiding light, someone who helps them,” he said.

Another founder, Rodolfo Marino, has a construction license and has worked privately and under contract to state agencies. He said organizers of the association have gone door-to-door trying to recruit members by convincing them they need independent representation.

The group says roughly 90 entrepreneurs have signed up. Without legal recognition, the group is not yet charging membership fees, the organizers say. Until then, they meet occasionally in Marino’s Havana home to plan their path forward, which includes legal appeals for government recognition.

“We hope to push the country’s economic development forward,” he said.

The number of officially self-employed Cubans has grown by a factor of five, to 535,000 in a country of 11 million, since President Raul Castro launched limited market-based reforms in 2010. The government currently allows 200 types of private work, from language teacher to furniture maker. In reality, many officially self-employed people have become owners of small business, some with dozens of employees and hundreds of thousands of dollars in annual revenue — big number for a country where the monthly state salary is about $25.

Without access to government-controlled imports, exports or wholesale supplies, business owners are emptying the shelves of state stores, either by snapping up items as soon as they arrive or buying them stolen on the black market. That leaves them vulnerable to crackdowns and frequent extortion from state inspectors.

The government has taken a few tentative moves toward easing the situation in recent months — opening stores where owners of some of the country’s 21,000 bed-and-breakfasts and 2,000 private restaurants can buy large quantities of goods, although still at retail prices.

The state has also promised special access to gas and car parts to taxi drivers who comply with widely flouted government caps on fares.

Along with those small steps, the future of the Association of Businessmen is a gauge of Cuba’s openness to private enterprise and its ability to move forward, the group’s founders say.

“We really hope they approve us,” said Hernandez, the lawyer and taxi driver. “If they don’t, we’ll be in the hands of a state that considers us illegal and we won’t be able to reach our goal of representing entrepreneurs. If they do, it will be a sign that things are changing.”

Some Small Enterprises and Entrepreneurs

Photos by Arch Ritter, February 2014

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ALTERNATE FUTURES FOR CUBA’S EMERGING NON-STATE ECONOMIC SECTOR

Presented at Florida International University, Cuban Research Institute Conference: “Beyond Perpetual Antagonism: Re-imagining U.S. – Cuba Relations.”

February 24, 2017

Complete Presentation:  FIU CRI 2017 Presentation


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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

zzzzzzzzzzzzzzzzzzzzzzzzzz Capture

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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SELF-EMPLOYMENT IN CUBA: BETWEEN INFORMALITY AND ENTREPRENEURSHIP – THE CASE OF SHOE MANUFACTURING

Yailenis Mulet Concepción

Third World Quarterly

Volume 37, 2016 – Issue 9

Original Article: SELF-EMPLOYMENT IN CUBA: THE CASE OF SHOE MANUFACTURING

Abstract

This article discusses the phenomenon of self-employment in Cuba from three perspectives: its conceptualisation, its links with informality and the challenges to its growth. First, it reviews the characteristics of self-employment in Cuba, in comparison with available theory and with various studies of informality carried out in other countries. Second, it documents the dimensions of informality and Cuba’s black market economy through the study of a specific sector of the independent labour force: shoe producers. Third, it considers the main challenges for the growth of self-employment in Cuba, as illustrated by the case of Cuban shoemakers, and draws some lessons that should improve the situation of this sector, taking into account different international studies.

zz Cuba-Nov-2008-0482Cuenta Propista artisan and vendor, party supplieszz Mercado-Artesanal-on-the-MaleconMercado Artesanal, on the Malecon, photos by Arch Ritter

Introduction

The growth of self-employment is a significant feature within the reforms currently reshaping the Cuban economy. After the crisis of the 1990s the centrally planned economy failed to satisfy many needs for goods and services, so these were met through economic activities driven by the imperative of survival (some of them not allowed, and others not well accepted, within the socialist development model).

Today activities that were discouraged or even forbidden by the government have been incorporated into the economic strategy of the current government.1 Self-employment has ceased to be viewed as ‘a necessary evil’, as it was in the early 1990s. Today it is viewed by authorities as a valid solution within Cuban Socialism, and is also expected to contribute to the economic development of the nation.

Before 2010, as Ritter and Henken point out, serious studies of this sector were largely discouraged and considered taboo. From 2010 onwards self-employment became the object of scholarly analysis within Cuba and abroad by authors such as Villanueva and Vidal, González, Arredondo, Centeno and Portes, Dámaso, Díaz and Piñeiro, González-Corzo, Morales, Triana, Feinberg, and in the most recent work of Ritter and Henken.2 On the one hand, the deepest and most revealing publications are by foreign researchers, with limited diffusion in Cuba. In addition, ethnography and field studies are methods used by few Cuban researchers. On the other hand, research into self-employment, in the specific case of Cuba, largely centres on two aspects: (1) the characteristics and limitations of the private sector in Cuba; and (2) the impact of the emerging private sector on Cuban civil partnership, the political regime and Cuban socialism.

Despite these problems, the study of self-employment in Cuba is valuable for what it reveals about the functioning of markets in their distorted versions of informal performance, especially when seen in an international context, mainly that of informality in Latin America. Also, this study may help generate public policies to improve the situation of this sector in Cuba, drawing both from the conceptual analysis and the case study.

Currently half a million Cubans – 10% of the total workforce – are registered as self-employed.3 However, access to statistics on this sector is still limited. Besides, most of those engaged in this activity try to conceal the real dimension of their operations; it is centred on the circulation and recirculation of goods and services, with a strong tendency towards non-legal growth and very strong links with the so-called submerged economy. For this reason this article examines the emergence and development of a specific sector of self-employment, namely the shoe manufacturing chain, which combines the ‘formality’ of registered worker with the ‘illegality’ inherent to the buying of tools on the black market.

The production of footwear by public companies has been disadvantaged since the crisis of the 1990s, contributing on average only two million pairs of shoes annually. In 2015 the production of footwear by public companies increased by 53%; however, 50.76% of this increase corresponds to the production of footwear for work and orthopaedic shoes. As demonstrated below, the lack of selection of footwear is largely satisfied by means of the independent labour force, which produces close to eight million pairs of shoes a year. Although there are no official numbers on the consumption of footwear in Cuba, the fact that the independent labour force produces more than public companies arouses interest.

*********************************

Conclusions

In general, advances in the process of formalisation of self-employment in Cuba are dependent, in part, on new behaviours from self-employed workers and on their ability to make their businesses transparent. At the same time the main obstacles to the formalisation of private enterprises in Cuba are the concepts and culture still ruling in the establishment and political system.

Self-employed Cubans cannot yet be formalised as private enterprises, mainly because of the negative consequences arising from informality and the unregulated market, as well as of the multiple impediments to ownership within the current legislation. Many of those hoping to formalise their enterprises did not turn to self-employment out of preference, but out of a survival imperative. This necessity has led to creativity, sacrifice and effort to start a business, but without conditions of stability. Reform requires public policies that guarantee more secure prospects in the future.

It is not possible to fully assess the real capacities of productive growth in this sector, given the regulatory and political restrictions and conditions of informality in which it operates.

This case study shows that a great part of the activity is associated with some degree of illegality. Thus there are still many institutional and organisational changes to be managed by the state before producers can make their business transparent in matters of means of production; coordination channels; association; cooperation; or legal status of producers and vendors.60 As Douglas North states, an efficient institutional organisation is an essential condition for the development of a country.61 The correct functioning of institutions forms the basis for accomplishing a culture of legality.

International studies have shown multiple solutions to informality and, although not all of these are feasible in Cuba, they do provide important lessons to help redefine the regulatory framework and to stimulate new public policies. As Tokman points out, ‘it is not about isolating productive activities and occupations, but, on the contrary, acknowledging existing interrelations and their nature in more open and profoundly unequal economies’.

The study of self-employment in Cuba can contribute to the more general discussion about the informal sector and small and medium enterprises in Latin America. For instance, the way in which Cuba has generalised registry, taxation and access to social security may be of wider relevance. The same is true of supervision by sub-national authorities, as this contrasts with the absence of any serious regulation of informality in some other countries.

Similarly, the Cuban case provides a benchmark for the analysis of educational qualifications and innovation of the informal sector, since many of the units considered here make use of high qualifications and have generated innovations in design, services and business models. Some represent important social innovations.

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THE US AND CUBA: INCREMENTALISM, REVERSAL RISK AND THE DICTATORS DILEMMA

By Cardiff Garcia                        ,

Financial Times, London, March 21, 2016

Original Article: The US and Cuba_ incrementalism reversal risk and the Dictators Dilemma _ FT Alphaville

Introduction:

To analogize the ongoing diplomatic maneuvering between the US and Cuba to a scenario of mutual hostage-taking doesn’t sound charitable, but it might be the best framework for understanding a relationship long defined by its baffling surrealism.

And it’s a useful lens through which to see not only President Obama’s visit to the island, the first by a sitting US president in almost nine decades, but also the specific actions taken by each side in the time since the intent to normalize relations was first announced on 17 December 2014.

Last week John Kavulich, president of the US-Cuba Trade and Economic Council, described this idea to a roomful of lawyers at the US-Cuba Corporate Counsel Summit in New York. On the US side, Obama clearly wants to make the rapprochement an enduring foreign-policy legacy of his administration, and the Cuban government knows this. It can afford to test Obama on how far it needs to go in the direction of economic and political liberalization before satisfying American requirements to continue deepening the relationship.

But Cuba’s efforts to modernize its economy also depend heavily on the country’s relationship with other countries and with foreign (non-US) companies, and specifically on the potential source of foreign investment they can provide. Except these firms and countries are hesitant to provide much investment while the US embargo is in place and Cuba is locked out of most multilateral institutions.

In other words, Cuba needs the momentum towards diplomatic restoration and the end of the US embargo to continue beyond the end of Obama’s time in office. To ensure this happens, the Cuban government will have to take meaningful and credibly permanent steps towards providing greater economic and political freedoms.

The liberalizations on both sides have been made incrementally to this point. The gradual pace was partly for logistical reasons, but I’m sure it was also the result of suspicions inside of both countries about the intentions of the other side.

 Continue Reading:  The US and Cuba_ incrementalism reversal risk and the Dictators Dilemma _ FT Alphaville

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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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CUBA’S 14YMEDIO JOURNALISTS SPEND TWO HOURS WITH THE NEW YORK TIMES’ ERNESTO LONDOÑO

14 y Medio, December 6, 2014

By Yoani Sanchez,   14ymedio, 1 December 2014

Ernesto Londoño, who authored six editorials on Cuba published recently by The New York Times engaged in a friendly conversation on Saturday with a part of the 14ymedio team, in the hotel where he is staying in Havana. Our intention was to interview him, but he told us the norms of his media prohibit his giving interviews without previous consultation. He also declined our proposal to take photos. Instead, he was eager to listen to our opinions in an atmosphere of mutual respect. There were two hours of conversation dedicated to refining, enriching and debating the controversial ideas that the newspaper has addresses in his editorials. The following is a brief synthesis of what was said there, arranged by topics and ascribed to the author of each opinion.

 Journalism

 Yoani Sánchez: Cubans are going to need a great deal of information to avoid falling into the hands of another authoritarianism. In 14ymedio we are including a plurality of voices, for example on the the issue of the embargo. We leave it to the reader to form his own opinion from a variety of information.

 Reinaldo Escobar: The official Cuban press, which is all the press, there are no public media, they are private property of the Communist Party. Now, has there been a change? Yes, there has been a change. Since a few years ago the newspaper Granma has had a weekly section with letters by readers where you find criticism of bureaucrats, things that don’t work or prices at the markets. But look, the emphasis is on the self-employed markets.

So far I have not read a profound criticism of the prices at the convertible peso markets that the Government has, which are abusive. Nor can you talk about the legitimacy of our rulers or the impracticality of the system. Here are two big taboos, and in the third place, the topic of political repression. If they report on a repudiation rally, they show it as something spontaneous on the part of the people, without telling how the political police were behind it, organizing it all.

 Miriam Celaya: There are changes indeed. The problem is that there are real and nominal changes, and these changes are generally nominal. Now everyone in Cuba can legally stay in a hotel, which before was forbidden. They never explained why it was forbidden before. But Cubans cannot really afford the luxury of a hotel stay, with wages being what they are; nor can they buy a car, a house, or travel. The problem with the reforms is that they are unrealistic for the vast majority of Cubans. They are a government investment in order to buy time.

 There are two of those reforms that are particularly harmful and discriminatory for Cubans. One is the foreign investment law, which is explicitly for foreign investors and it does not allow Cubans to invest; and the other is a new Labor Code which does not acknowledge autonomy, the right to strike, and which spells out explicitly that Cuban workers cannot freely enter into contracts with potential companies investing in Cuba, which constitutes a restraint and a brake.

 Víctor Ariel González: Yes, things are changing, but we ask ourselves if really those changes offer a brighter horizon and why people keep leaving, even more are going than before.

Continue reading: 14ymedioy 2016

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THIS IS CUBA’S NETFLIX, HULU, AND SPOTIFY – ALL WITHOUT THE INTERNET

How media smugglers get Taylor Swift, Game of Thrones, and the New York Times to Cubans every week. VOX; Original article here: CUBA’S NETFLIX, HULU, AND SPOTIFY By Johnny Harris on September 21, 2015

In Cuba there is barely any internet. Anything but the state-run TV channels is prohibited. Publications are limited to the state-approved newspapers and magazines. This is the law. But in typical Cuban fashion, the law doesn’t stop a vast underground system of entertainment and news media distributors and consumers.

“El Paquete Semanal” (The Weekly Package) is a weekly trove of digital content —everything from American movies to PDFs of Spanish newspapers — that is gathered, organized, and transferred by a human web of runners and dealers to the entire country. It is a prodigious and profitable operation.

I went behind the scenes in Havana to film how El Paquete works. Check out the video above to see how Cubans bypass censorship to access the media we take for granted.

There are two Paquete king-pins in Havana: Dany and Ali. These two compete to develop the best collection of weekly digital content and in the fastest turnaround time possible for their subscribers. It’s a competitive market playing out in the shadows of a tightly controlled communist economy.

Paquete subscribers pay between $1 and $3 per week to receive the collection of media. It’s either delivered to their home or transferred at a pickup station, usually in the back of a cellphone repair shop, a natural cover for this type of operation.

Dany relies on data traffickers to deliver the files, but said he didn’t know how those sources obtained the content in the first place. I gathered that most of it is being digitized via illegal satellites that are hidden in water tanks on rooftops. It’s unclear how they get ahold of the content sourced from the internet (digital news publications, YouTube videos, and pirated movies, for example). Only 5 percent of Cubans can access the uncensored World Wide Web, and when they do, the connection is horrendously slow. It’s not the type of connection that would support downloading hundreds of gigs of content every week. Instead, some speculate that content is physically brought onto the island by incomers from Miami.

I sat down with Dany in his pink-walled apartment in Havana. While I expected a mob-like character to be at the root of this extensive black market of pirated media, I found a 26-year-old guy who looked more like a stoned surf bum than the conductor of a giant black market operation.  Dany’s office shows off a lot more brawn than he does. It’s a simple room with two gigantic computers, their innards visible, tricked-out lights arbitrarily flickering. Hard drives are littered around the room, stacked and labeled. Two large screens are full of Windows file directories, and in the corner of one of the screens is a live feed from Telemundo, a popular Spanish-language station, with the words “Grabando” (recording) in the corner.

“Everybody has their responsibility,” Dany told me. “Everyone gathers a certain type of content, and they bring it to me. I organize it, edit it, and get it ready for distribution. And then we send it through our messengers.”

This is hard work. “A lot of the time is spent finding and embedding subtitles” he laments. Much of the content is pirated from American TV and movies. He and his team have scour the internet for any existing subtitle files.

The government hasn’t tried to stamp out El Paquete, and Dany works to keep it that way. “We don’t put anything in that is anti-revolutionary, subversive, obscene, or pornographic. We want it to stay about entertainment and education,” he says, and I catch a glimpse of the shrewd business behind the baby face and board shorts.  It might as well be Netflix

A look into an edition of El Paquete reveals a vast array of content ranging from movies that are in US theaters right now to iPhone applications. Havana-based artist Junior showed me around. He’s a pensive and gentle 34-year-old who is remarkably talented, judging by the stunning art pieces that hang from the wall. Junior paints and tattoos full time but he used to be a Paquete dealer. He’s now just a consumer. He takes me through the 934GB of data he has recently transferred from his provider.

I’m immediately struck by how polished the Paquete system is. As Junior files through the meticulously organized files, I realize it mirrors the consumption of a typical internet user. He opens the movie folder, and we browse through dozens of movies, many still in US theaters. All of them come in HD and with subtitles and poster art as the thumbnail of the file. The videos are high-quality with accurate subtitles. I have to remind myself that we are not browsing Netflix, but instead looking at an offline computer that is displaying content that has physically traveled to get here. The methods couldn’t be more different, but the result is strangely similar.

He moves on to TV shows. “So do you think they have—” I start, but am interrupted. “They have everything,” Junior says emphatically. Sure enough, the show I was thinking of, Suits, was there, with the latest episodes ready to watch.

zzzzzzzDany

We continue to browse and look into some of the more routine but most interesting parts of El Paquete: There are folders dedicated to antivirus software that can be updated weekly to the latest versions. “But there’s no internet, so there can’t be viruses,” I say. “Most of this stuff has touched the internet in some way. This software protects against anything that has snuck its way on into the content,” Junior says.

Junior clicks over to the “Apps” folder and shows me a smorgasbord of iOS and Android apps. Many are gaming apps with updates that can be loaded in every week. But there is another called “A la mesa,” a Yelp-type app that helps connect clients to restaurants in Cuba using maps, reviews, and in-app menus. Then there’s the PDF folder, which holds newspapers, magazines, and screenshot material from dozens of online publications, everything from tech news to sports. It’s the internet in a box.

In addition to the subscription fees, revenue for El Paquete comes from a classifieds section called “Revolico.” Within El Paquete, you click a file that opens Revolico in your browser. But it’s an offline version that runs from a file structure on your local computer. There, you can click around as if you were browsing Craigslist, looking at thousands of listings of everything from house rentals to big-screen TVs to car tires.

Sellers pay to list their items, and you can get a premium listing if you pay more. Revolico is the cash cow of El Paquete. It also happens to be one of the first semblances of an advertising market for Cubans who have lived in a world of central planning and price control.

The depth and breadth of El Paquete is astounding, so much so that I, an American who lives and works on the uncensored internet, feel a twinge of envy that I don’t have El Paquete delivered to my house every week for $2.

When I asked Dany if he is afraid that the internet will wipe out his operation, without missing a beat, he replied, “Nah. We offer a product that is like one giant webpage where you can see all the content you want for a very low price. The internet might take over some clients, but we offer something different and very effective.”

“Speed is key to beating the competition,” Dany said. When asked how quickly he can get a movie or TV show after it airs in the US he says, “The next day.” Last year, Dany started sending a hard drive on a plane to the far corners of the island.

After spending a week in Cuba, it was refreshing to talk to someone with the appetite to grow an enterprise. Most people I spoke to in Cuba work for the state and have zero incentive to deliver anything above the bare minimum. They get paid the same either way. Even the private restaurants lack the fervor of a competitive business, since the economic environment they work in is still completely controlled even if they themselves are private.

But in Dany’s office, I felt the thrill of cunning innovation and strategy at work. I got the sense that something big is happening. And indeed, I wasn’t just standing in some dingy apartment, but rather in what may be largest media distribution company in the history of Cuba.

 zzzzzzzz

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